Certain Factors That May Affect Future Results


Information contained or incorporated by reference in this Quarterly Report on
Form 10-Q (this "Report") and in other filings by Zayo Group Holdings, Inc. (the
"Company," "we" or "us") with the Securities and Exchange Commission (the "SEC")
that is not historical by nature constitutes "forward-looking statements,"
within the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995, and can be identified by the use of forward-looking terminology
such as "believes," "expects," "plans," "intends," "estimates," "projects,"
"could," "may," "will," "should," or "anticipates," or the negatives thereof,
other variations thereon or comparable terminology, or by discussions of
strategy. No assurance can be given that future results expressed or implied by
the forward-looking statements will be achieved, and actual results may differ
materially from those contemplated by the forward-looking statements. Such
statements are based on our current expectations and beliefs and are subject to
a number of risks and uncertainties that could cause actual results to differ
materially from those expressed or implied by the forward-looking statements.
These risks and uncertainties include, but are not limited to, those relating to
our financial and operating prospects, current economic trends, future
opportunities, ability to retain existing customers and attract new ones, our
acquisition strategy and ability to integrate acquired companies and assets,
outlook of customers, reception of new products and technologies, strength of
competition and pricing, completion of the Merger (defined below) and
uncertainty among customers and employees regarding the Merger, and potential
organizational strategies that we may opt to pursue in the future, such as our
potential REIT conversion including our ability to successfully combine our
divisions and the feasibility and timing of any REIT conversion. Other factors
and risks that may affect our business and future financial results are detailed
in our SEC filings, including, but not limited to, those described under "Risk
Factors" in our Annual Report on Form 10-K filed with the SEC on September 4,
2019, (our "Annual Report") and in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations." We caution you not to place
undue reliance on these forward-looking statements, which speak only as of their
respective dates. We undertake no obligation to publicly update or revise
forward-looking statements to reflect events or circumstances after the date of
this Report or to reflect the occurrence of unanticipated events, except as may
be required by law.

The following discussion and analysis should be read together with our unaudited
condensed consolidated financial statements and the related notes appearing
elsewhere in this Report and in our audited annual consolidated financial
statements as of and for the year ended June 30, 2019, included in our Annual
Report.

Amounts presented in this Item 2 are rounded. As such, rounding differences could occur in period-over-period changes and percentages reported throughout this Item 2.


In May 2018, we announced we completed the first phase of our investigation on
the advisability and feasibility of a conversion to a real estate investment
trust for U.S. federal income tax purposes (a "REIT"). Please see "Evaluation
and Preparation for Potential REIT Conversion" in the below "Overview."

On May 8, 2019, we, Front Range TopCo, Inc. ("Parent"), a Delaware corporation,
and Front Range BidCo, Inc., a Delaware corporation and a wholly owned
subsidiary of Parent ("Merger Sub"), entered into an Agreement and Plan of
Merger (the "Merger Agreement") to be acquired by a consortium of private equity
funds including affiliates of EQT Infrastructure IV, Digital Colony Partners,
LP, DC Front Range Holdings I, LP and FMR LLC (the "Consortium"). Upon the close
of the Merger, we will operate as a privately-held company. Parent and Merger
Sub were formed by the Consortium. Capitalized terms used herein not otherwise
defined have the meanings set forth in the Merger Agreement. Please see
"Significant Merger Development" in the below "Overview".

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Overview

We are a large and growing provider of access to bandwidth infrastructure in the
United States ("U.S."), Europe and Canada. Our products and offerings enable our
customers' mission-critical, high-bandwidth applications, such as cloud-based
computing, video, mobile, social media, machine-to-machine connectivity, and
other bandwidth-intensive applications. Our key products and offerings include
leased dark fiber, fiber to cellular towers and small cell sites, dedicated
wavelength connections, ethernet, IP connectivity, cloud-based computing and
storage products and other high-bandwidth offerings. We provide access to our
bandwidth infrastructure and other offerings over a unique set of dense metro,
regional, and long-haul fiber network sections and through our
interconnect-oriented data center facilities. Our fiber network sections and
data center facilities are critical components of the overall physical network
architecture of the internet and private networks. Our customer base includes
some of the largest and most sophisticated users of bandwidth infrastructure,
such as wireless service carriers; telecommunications service carriers;
financial services companies; social networking, media, and web content
companies; education, research, and healthcare institutions; and governmental
agencies. We typically provide customers with access to our bandwidth
infrastructure solutions for a fixed monthly recurring fee under contracts that
vary between one and twenty years in length. We operate our business with a
unique focus on capital allocation and financial performance with the ultimate
goal of maximizing equity value for our stockholders. Our core values center on
partnership, alignment, and transparency with our three primary constituent
groups - employees, customers, and stockholders.

On October 22, 2014, we completed an initial public offering ("IPO") of shares
of our common stock, par value $0.001 per share ("Common Stock"), which were
listed on the New York Stock Exchange ("NYSE") under the ticker symbol "ZAYO".
Prior to the IPO, we were a direct, wholly owned subsidiary of Communications
Infrastructure Investments, LLC ("CII"). Our primary operating subsidiary is
Zayo Group, LLC, a Delaware limited liability company ("ZGL"), and we are
headquartered in Boulder, Colorado.

Our fiscal year ends June 30 each year, and we refer to the fiscal year ended June 30, 2020 as "Fiscal 2020" and the fiscal year ended June 30, 2019 as "Fiscal 2019."

Reportable Segments and our Strategic Product Groups ("SPG")



We use the management approach to determine the segment financial information
that should be disaggregated and presented. The management approach is based on
the manner by which management has organized the segments within the Company for
making operating decisions, allocating resources, and assessing performance.
With the continued increase in our scope and scale, during the fourth quarter of
Fiscal 2019, our chief operating decision maker ("CODM"), who is our Chief
Executive Officer, implemented certain organizational changes to the management
and operation of the business that directly impact how the CODM makes resource
allocation decisions and manages the Company. The changes in structure had the
impact of combining our legacy Fiber Solutions, Transport, and Enterprise
Networks segments into a single new segment, Zayo Networks, and re-aligning our
Cloud and Cybersecurity SPG from our legacy Enterprise Networks segment to our
zColo segment. These changes to our existing reportable segments have been
recast for all prior period financial and operating metrics presented in this
Annual Report for comparability. Our four reportable segments are described
below.

Zayo Networks. Our Zayo Networks segment provides access to bandwidth
infrastructure. This includes our Fiber, Layer 2/3 and Transport solutions.
Within the Fiber business, Zayo provides access to mobile infrastructure
(fiber-to-the-tower and small cell). Our mobile infrastructure solutions permit
direct fiber connections to cell towers, small cells, hub sites and mobile
switching centers. Fiber Solutions customers include carriers and other
communication service providers, internet service providers, wireless service
providers, major media and content companies, large enterprises and other
companies that have the expertise to run their own fiber optic networks or
require interconnected technical space. The contract terms for Fiber Solutions
customers tend to range from three to twenty or more years. Our Layer 2/3 line
of business provides connectivity and telecommunications solutions to medium and
large enterprises. Our offerings within Layer 2/3 include Ethernet, internet
offerings, Wide Area Networking products and CloudLink. Solutions range from
point-to-point data connections to multi-site managed networks to international

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outsourced IT infrastructure environments. The contract terms for Layer 2/3
solutions tend to range from one to five years. Our Transport line of business
provide access to lit communications bandwidth infrastructure using
customer-accessed optronics to light the fiber, and our customers pay for access
based on the amount and type of bandwidth they require.  We target customers who
require a significant amount of bandwidth across their networks. Transport
customers include carriers, content providers, financial services companies,
healthcare, government entities, education institutions and other medium and
large enterprises. The contract terms in this segment tend to range from two to
five years.

Zayo Colocation ("zColo"). The zColo segment provides data center and cloud
infrastructure solutions to a broad range of enterprise, carrier, cloud and
content customers. Our offerings within this segment include the provision of
colocation space, power and interconnection offerings in North America and
Western Europe. Solutions range in size from single cabinet solutions to 1MW+
data center infrastructure environments. Our data centers also support
networking components for the purpose of aggregating and accommodating
customers' data, voice, internet and video traffic. The contract terms in this
segment tend to range from two to five years. Our Cloud and Cybersecurity SPG is
included in the zColo segment. The Cloud and Cybersecurity SPG combines private
cloud, public cloud and managed offerings in order to provide its customers
secure infrastructure as a service (IaaS), which enables on-demand scaling and
virtual computing in hybrid environments.

Allstream. The Allstream segment provides Cloud VoIP and Data Solutions. This
includes a full range of local voice offerings allowing business customers to
complete telephone calls in their local exchange, as well as make long distance,
toll-free and related calls. Unified Communications is the integration of
real-time communication services such as telephony (including Cloud-based IP
telephony), instant messaging and video conferencing with non-real-time
communication services, such as integrated voicemail and e-mail.  Allstream also
provides customers with comprehensive telecommunications services including
ethernet, and IP/MPLS VPN Solutions.

Other. The Other segment is primarily comprised of Zayo Professional Services
("ZPS"). ZPS provides network and technical resources to customers who wish to
leverage our expertise in designing, acquiring and maintaining a network. The
contract terms typically run for one year for a fixed recurring monthly fee in
the case of network and on an hourly basis for technical resources (usage
revenue). ZPS also generates revenue via telecommunication equipment sales.

Evaluation and Preparation for Potential REIT Conversion



On May 3, 2018, we announced the completion of the first phase of our
investigation on the advisability and feasibility of a conversion to a REIT. As
part of the current phase of our evaluation and preparation for a potential
conversion to a REIT, we began a direct dialogue with the U.S. Internal Revenue
Service ("IRS") in an effort to obtain clarity and support for our position, and
we are seeking a private letter ruling ("PLR") from the IRS that addresses among
other things, whether revenues from dark and lit fiber satisfy applicable REIT
income tests. We submitted the PLR request to the IRS in July 2018, but the IRS
may not provide a response until later in 2020 or beyond or may not respond at
all. Our ultimate decision to convert to a REIT may depend upon a favorable PLR
from the IRS.

Also, we have begun to execute various organizational changes that are required
to operate as a REIT, including the adoption of amendments to our organizational
documents that, among other things, impose certain stock ownership limitations
and transfer restrictions, the realignment of our business segments to clearly
delineate the leasing of network assets from ancillary services and, in
particular, the separation and potential divestiture or deconsolidation of our
Allstream business segment. These organizational changes are not expected to
result in any changes to our reportable segments.

If, following the current phase of our evaluation and preparation, we decide to
convert to a REIT and are successful in qualifying for taxation as a REIT, then
we will generally be permitted to deduct from federal income taxes

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the dividends that we pay to our stockholders. The income represented by such
dividends would not be subject to federal income taxation at the entity level
but would be taxed, if at all, at the stockholder level. Nevertheless, the
income of our domestic taxable REIT subsidiaries (each a "TRS"), which will hold
our U.S. operations that may not be REIT-compliant, will be subject, as
applicable, to federal and state corporate income tax. Likewise, our foreign
subsidiaries will continue to be subject to foreign income taxes in
jurisdictions in which they hold assets or conduct operations, regardless of
whether held or conducted through TRSs or through entities that are disregarded
from us for U.S. federal income tax purposes. Also, we will be subject to a
separate corporate income tax on any gains recognized during a specified period
(generally five years) following the REIT conversion that are attributable to
"built-in" gains with respect to the assets that we own on the date we convert
to a REIT.

Our ability to qualify for taxation as a REIT will depend upon our compliance
with various requirements following our REIT conversion, including requirements
related to the nature of our assets, the sources of our income and the
distributions to our stockholders. If we fail to qualify for taxation as a REIT,
we will be subject to federal and state income tax at regular corporate income
tax rates in the same manner as we are currently taxed. Even if we qualify for
taxation as a REIT, we may be subject to certain federal, state, local and
foreign taxes on our income and property. In particular, while state income tax
regimes often parallel the federal income tax regime for REITs described above,
many states do not completely follow federal rules and some may not follow them
at all.

At this stage of our evaluation and preparation for a potential conversion to a
REIT, we cannot accurately estimate the costs required to support any potential
conversion, but we anticipate that our costs would include various
administrative costs in addition to certain related tax liabilities.

Significant Merger Development



On May 8, 2019, we, Parent and Merger Sub entered into a Merger Agreement to be
acquired by the Consortium. Upon the close of the Merger, we will operate as a
privately-held company. Parent and Merger Sub were formed by the Consortium.

The Merger Agreement provides that, among other things and upon the terms and
subject to the conditions of the Merger Agreement, (i) Merger Sub will be merged
with and into us (the "Merger"), with us as the surviving and continuing
corporation in the Merger and a wholly owned subsidiary of Parent, and (ii) at
the effective time of the Merger, each of our outstanding shares of Common Stock
(other than Common Stock owned by Parent, Merger Sub or any wholly owned
subsidiary of Parent or Merger Sub or held in our treasury, all of which shall
be canceled without any consideration being exchanged therefor, or shares of our
Common Stock held by holders who have made a valid demand for appraisal in
accordance with Section 262 of the Delaware General Corporation Law) will be
converted into the right to receive an amount equal to $35.00 per share in cash.

The closing of the Merger is subject to customary closing conditions, including
(i) the adoption of the Merger Agreement by the holders of not less than a
majority of the outstanding shares of our Common Stock, (ii) the receipt of
specified required regulatory approvals, (iii) the absence of any law or order
enjoining or prohibiting the Merger or making it illegal, (iv) the accuracy of
the representations and warranties contained in the Merger Agreement (subject to
"material adverse effect" and materiality qualifications) and (v) compliance
with covenants in the Merger Agreement in all material respects. The closing of
the Merger is not subject to a financing condition.

Our board of directors and the board of directors of Parent have each
unanimously approved the Merger and the Merger Agreement. On July 26, 2019, the
Company held a special meeting of stockholders where our stockholders approved
the adoption of the Merger Agreement. On July 31, 2019, the Company announced
the early termination of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, satisfying one of the conditions
to the closing of the pending transaction. The closing of the deal continues to
be subject to customary conditions, including regulatory approvals relating to
review and clearance by the Committee on Foreign Investment in the United States
(which have been obtained) and the receipt of certain foreign antitrust
approvals (which have been obtained), certain other foreign direct investment
review approvals (which have been obtained), and the approval of multiple U.S.
states (all of which have been obtained except for approval from the California
public utility commission), and the receipt of FCC approval. We expect to
receive all remaining approvals in the first calendar quarter of 2020, but


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cannot guarantee that such approvals will be timely provided. The Merger is expected to close by late first calendar quarter or early second calendar quarter of 2020. Until the closing, we will continue to operate as an independent company.



The foregoing description of the Merger Agreement is qualified in its entirety
by reference to the full text of the Merger Agreement, which has been filed as
Exhibit 2.1 hereto.

Factors Affecting Our Results of Operations

Business Acquisitions


We were founded in 2007 with the investment thesis of building a bandwidth
infrastructure platform to take advantage of the favorable internet, data, and
wireless growth trends driving the ongoing demand for access to bandwidth
infrastructure, and to be an active participant in the consolidation of the
industry. These trends have continued in the years since our founding, despite
volatile economic conditions, and we believe we are well positioned to continue
to capitalize on those trends. We have built a significant portion of our
network and product offerings through 45 acquisitions through December 31,

2019.

Disposition

Scott-Rice Telephone Co.

On July 31, 2018, we completed the sale of Scott-Rice Telephone Co. ("SRT"), a
Minnesota incumbent local exchange carrier, for $42.2 million to Nuvera
Communications, Inc. (formerly New Ulm Telecom, Inc.). As of December 31, 2019,
$3.2 million of purchase consideration was held in escrow. We recognized a
pre-tax gain of $5.5 million on the sale, which is included in other income, net
in the condensed consolidated statements of operations. We acquired SRT as part
of our March 1, 2017 purchase of Electric Lightwave Parent, Inc. and it was
included as part of the Allstream segment. SRT had a pre-tax net loss of $1.6
million for the year ended June 30, 2018 and pre-tax net income of $2.9 million
from when it was acquired on March 1, 2017 through June 30, 2017.

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Substantial Indebtedness

As of December 31, 2019 and June 30, 2019, long-term debt was as follows:




                                                                   Date of                                                      Outstanding as of
                                              Issuance or most                        Interest
                                              recent amendment        Maturity        Payments       Interest Rate     December 31, 2019      June 30, 2019
                                                                                                                                   (in millions)
Term Loan Facility due 2021                       Jan 2017            Jan

2021         Monthly       LIBOR +2.00%     $             486.2    $         488.7
B-2 Term Loan Facility                            Feb 2018            Jan 2024         Monthly       LIBOR +2.25%                 1,269.3            1,269.3
6.00% Senior Unsecured Notes                   Jan & Mar 2015         Apr 2023         Apr/Oct           6.00%                    1,430.0           

1,430.0


6.375% Senior Unsecured Notes                May 2015 & Apr 2016      May 2025         May/Nov          6.375%                      900.0            

900.0


5.75% Senior Unsecured Notes                 Jan, Apr & Jul 2017      Jan 2027         Jan/Jul           5.75%                    1,650.0            1,650.0
Revolving Loan Facility                       Jan/Apr 2019 (1)      Jul 2020 (2)       Monthly       LIBOR +1.75%                    50.0              145.0
Total obligations                                                                                                                 5,785.5            5,883.0
Unamortized premium, net                                                                                                             12.0               11.9

Unamortized debt issuance costs                                            

                                                       (44.9)             (50.2)
Carrying value of debt                                                                                                            5,752.6            5,844.7
Less current portion (2)                                                                                                           (55.0)              (5.0)

Total long-term debt, less current portion                                                                            $           5,697.6    $       

5,839.7

The most recent borrowings under the Revolving Loan Facility occurred in

(1) January 2019 and the most recent amendment on the Revolving Loan Facility was

April 2019.

The earliest possible maturity under the Extension Amendment No. 1 entered

(2) into on April 3, 2019 is July 2020 and as a result, the Revolving Loan

Facility is classified as current. See Note 6 - Long-term Debt to the

condensed consolidated financial statements for further details.




The weighted average interest rates (including margins) on the Term Loan
Facility were approximately 4.0% and 4.6% at December 31, 2019 and June 30,
2019, respectively. Interest rates on the Company's senior secured revolving
credit facility ("the Revolver") at December 31, 2019 and June 30, 2019 were
approximately 3.5% and 4.2%, respectively. As of December 31, 2019, $50.0
million was outstanding under the Revolver. Standby letters of credit were
outstanding in the amount of $8.8 million as of December 31, 2019, leaving
$391.2 million available under the Revolver, subject to certain conditions. In
connection with the Merger, on January 17, 2020, BidCo commenced cash tender
offers for any and all of ZGL's outstanding Notes. On January 31, 2020, BidCo
announced that it had received tenders and related consents from the requisite
number of holders of each such series of the Notes in order to authorize the
amendments proposed as part of its offering. See Note 17-Subsequent Events.

Substantial Capital Expenditures

During the six months ended December 31, 2019 and 2018, we invested $471.7 million and $384.7 million, respectively, in capital expenditures primarily to expand our fiber network to support new customer contracts. We expect to continue to make significant capital expenditures in future periods.

Critical Accounting Policies and Estimates

For a description of our critical accounting policies and estimates, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report for the year ended June 30, 2019.

Background for Review of Our Results of Operations

Revenue



Our revenue is comprised predominately of monthly recurring revenue ("MRR"). MRR
is related to an ongoing offering that is generally fixed in price and paid by
the customer on a monthly basis. We also report monthly amortized revenue
("MAR"), which represents the amortization of previously collected upfront
charges to customers. Upfront

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charges are typically related to indefeasible rights of use ("IRUs") structured
as pre-payments rather than monthly recurring payments (though we structure IRUs
as both prepaid and recurring, largely dependent on the customers' preference)
and installation fees. The last category of revenue we report is other revenue.
Usage revenue represents charges to customers for variable contracts. Other
revenue primarily includes credits and adjustments, termination revenue,
construction contribution payments, and component sales.

Our consolidated reported revenue in any given period is a function of our beginning revenue under contract and the impact of organic growth and acquisition activity. Our organic activity is driven by net new sales ("bookings"), gross installed revenue ("installs") and churn processed ("churn") as further described below.

Net New Sales.  Net new sales ("bookings") represent the dollar amount of
orders, to be recorded as MRR and MAR upon installation, in a period that have
been signed by the customer and accepted by our product offering delivery
organization. The dollar value of bookings is equal to the monthly recurring
price the customer will pay for the offerings and/or the monthly amortized
amount of the revenue we will recognize for those offerings. To the extent a
booking is cancelled by the customer prior to the offerings being originated, it
is subtracted from the total bookings number in the period that it is cancelled.
Bookings do not immediately impact revenue until the solutions are installed
(gross installed revenue).

Gross Installed Revenue.  Installs are the amount of MRR and MAR for offerings
that have been installed, tested, accepted by the customer, and have been
recognized in revenue during a given period.  Installs include new offerings,
price increases, and upgrades.

Churn Processed.  Churn is any negative change to MRR and MAR. Churn includes
disconnects, negative price changes, and disconnects associated with upgrades or
replacement offerings. For each period presented, disconnects associated with
attrition and upgrades or replacement offerings are the drivers of churn,
accounting for more than 75% of negative changes in MRR and MAR, while price
changes account for less than 25%. Monthly churn is also presented as a
percentage of MRR and MAR ("churn percentage").

As we conduct operations outside of the U.S. and have historically acquired
companies with functional currencies other than the U.S. dollar ("USD"), the
estimated revenue growth rates may not adequately reflect operational
performance as a result of changes in foreign currency exchange rates. The
estimated revenue growth rates are not necessarily indicative of either future
results of operations or results that might have been achieved had the
acquisitions been consummated on the first day of the earliest period
presented.

We have foreign subsidiaries that enter into contracts with customers and
vendors in currencies other than the USD-principally the British pound sterling
("GBP") and Canadian dollar ("CAD") and to a lesser extent the Euro. Changes in
foreign currency exchange rates impact our revenue and expenses each period. The
comparisons excluding the impact of foreign currency exchange rates assume
exchange rates remained constant at the comparative period rate.

Operating Costs and Expenses

Our operating costs and expenses consist of network expense ("Netex"), compensation and benefits expenses, network operations expense ("Netops"), stock-based compensation expense, other expenses, and depreciation and amortization.



Netex consists of third-party network costs resulting from our leasing of
certain network facilities, primarily leases of circuits and dark fiber, from
third parties to augment our owned infrastructure, for which we are generally
billed a fixed monthly fee. Netex also includes colocation facility costs for
rent and license fees paid to the landlords of the buildings in which our
colocation business operates, along with the utility costs to power those
facilities. While increases in demand for our offerings will drive additional
operating costs in our business, consistent with our strategy of leveraging our
owned infrastructure assets, we expect to primarily utilize our existing network
infrastructure or build new network infrastructure to meet the demand. In
limited circumstances, we will augment our network with additional
infrastructure or offerings from third-party providers. Third-party network
costs include the upfront cost of the initial

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installation of such infrastructure. Such costs are included in operating costs in our condensed consolidated statements of operations over the respective contract period.



Compensation and benefits expenses include salaries, wages, incentive
compensation and benefits. Employee-related costs that are directly associated
with network construction and location installations (and development of
business support systems) are capitalized and amortized to operating costs and
expenses. Compensation and benefits expenses related to the departments
attributed to generating revenue are included in our operating costs line item
while compensation and benefits expenses related to the sales, product, and
corporate departments are included in our selling, general and administrative
expenses line item of our condensed consolidated statements of operations.

Netops expense includes all of the non-personnel expenses of operating and
maintaining our network infrastructure, including contracted maintenance fees,
right-of-way costs, rent for cellular towers and other places where fiber is
located, pole attachment fees, and relocation expenses. Such costs are included
in operating costs in our condensed consolidated statements of operations.

Stock-based compensation expense is included, based on the responsibilities of
the awarded recipient, in either our operating costs or selling, general and
administrative expenses in our condensed consolidated statements of operations.

Other expenses include expenses such as property tax, franchise fees, colocation
facility maintenance, travel, office expense and other administrative costs.
Other expenses are included in both operating costs and selling, general and
administrative expenses depending on their relationship to generating revenue or
association with sales and administration.

Transaction costs include expenses associated with professional services (i.e.
legal, accounting, regulatory, etc.) rendered in connection with acquisitions or
disposals, travel expenses and severance expenses incurred that are associated
with acquisitions or disposals, and other direct expenses incurred that are
associated with signed and/or closed acquisitions or disposals and unsuccessful
acquisitions or disposals. Transaction costs are included in selling, general
and administrative expenses in the condensed consolidated statements of
operations.

Three Months Ended December 31, 2019 Compared to the Three Months Ended December
31, 2018

Revenue




                                            For the Three Months Ended December 31,
                                       2019         2018         $ Variance     % Variance
                                                          (in millions)
Segment and consolidated revenue:
Zayo Networks                        $   502.5     $ 469.9      $       32.6             7 %
zColo                                     64.1        67.7             (3.6)           (5) %
Allstream                                 82.3        96.7            (14.4)          (15) %
Other                                      4.8         4.8                 -             *
Consolidated                         $   653.7     $ 639.1      $       14.6             2 %


_______________________

* not meaningful

Our total revenue increased by $14.6 million to $653.7 million for the three
months ended December 31, 2019 from $639.1 million for the three months ended
December 31, 2018.

The revenue increase was primarily driven by organic growth and the
restructuring of a customer's contract in our Zayo Networks segment offset by
changes in exchange rates and churn associated with our Allstream segment. The
average exchange rate of the GBP against the USD strengthened by 1.1%, the
average exchange rate of the Euro against the USD strengthened by 3.0%, and the
average exchange rate of the CAD against the USD weakened by 0.1% during the
three months ended December 31, 2019 as compared to the three months ended
December 31, 2018. Normalizing

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our estimated revenue to exclude the impact of foreign currency exchange rate
fluctuations, we estimate revenue was negatively impacted by fluctuations in
foreign currency rates between the three months ended December 31, 2019 and
December 31, 2018 by $0.9 million, or approximately 0.1%.

Zayo Networks. Revenue from our Zayo Networks segment increased by $32.6
million, or 7%, to $502.5 million for the three months ended December 31, 2019
from $469.9 million for the three months ended December 31, 2018. The increase
was due to organic growth and the restructuring of a customer's contract.

zColo.  Revenue from our zColo segment decreased by $3.6 million, or 5%, to
$64.1 million for the three months ended December 31, 2019 from $67.7 million
for the three months ended December 31, 2018. The decrease was due to increased
churn.

Allstream.  Revenue from our Allstream segment decreased by $14.4 million, or
15%, to $82.3 million for the three months ended December 31, 2019 from $96.7
million for the three months ended December 31, 2018. The decrease was due to
churn.

Other.  Revenue from our Other segment was $4.8 million for the three months
ended December 31, 2019 and December 31, 2018. The Other segment represented
less than 1% of our total revenue during the three months ended December 31,
2019.

The following table reflects the stratification of our revenues during these periods. The substantial majority of our revenue continued to come from recurring payments from customers under contractual arrangements.






                                         For the Three Months Ended December 31,
                                              2019                         2018
                                                        (in millions)
Monthly recurring revenue           $     573.0           88 %      $     576.0     90 %

Amortization of deferred revenue           41.4            6 %            

37.3      6 %
Usage revenue                              13.4            2 %             15.0      2 %
Other revenue                              25.9            4 %             10.8      2 %
Total Revenue                       $     653.7          100 %      $     639.1    100 %






Operating Costs and Expenses




                                                 For the Three Months Ended December 31,
                                            2019           2018        $ Variance     % Variance
                                                                (in millions)
Segment and consolidated operating
costs and expenses:
Zayo Networks                             $   347.2     $    325.0    $       22.2             7 %
zColo                                          72.7           67.1             5.6             8 %
Allstream                                      88.9           98.0           (9.1)           (9) %
Other                                           4.4            4.3             0.1             *
Consolidated                              $   513.2     $    494.4    $       18.8             4 %


_______________________

* not meaningful

Our operating costs increased by $18.8 million, or 4%, to $513.2 million for the
three months ended December 31, 2019 from $494.4 million for the three months
ended December 31, 2018. The increase in consolidated operating costs was
primarily due to increases of $11.0 million in depreciation and amortization,
$9.4 million in Netops, $3.6 million in other expenses, and $0.8 million in
stock-based compensation, partially offset by decreases of $3.8 million in
Netex, $1.9 million in compensation and benefits expenses and $0.3 million

in
transaction costs.

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Zayo Networks.  Zayo Networks operating costs increased by $22.2 million, or 7%,
to $347.2 million for the three months ended December 31, 2019 from $325.0
million for the three months ended December 31, 2018. The increase in operating
costs and expenses was primarily a result of increases of $14.4 million in
depreciation and amortization as a result of additional assets, $9.5 million
increase in Netex and Netops costs, net and $2.1 million in other expenses,
partially offset by decreases of $2.3 million in stock-based compensation, $1.2
million in compensation and benefits expenses and $0.3 million in transaction
costs.

zColo.  zColo operating costs increased by $5.6 million, or 8%, to $72.7 million
for the three months ended December 31, 2019 from $67.1 million for the three
months ended December 31, 2018. The increase in operating costs and expenses was
primarily a result of increases of $3.7 million in depreciation and amortization
expense, $2.4 million in stock-based compensation, $2.1 million in other
expenses and $0.2 million in transaction costs, partially offset by decreases of
$2.4 million in Netex and Netops costs, net and $0.4 million in compensation and
benefits expenses.

Allstream.  Allstream operating costs decreased by $9.1 million, or 9%, to $88.9
million for the three months ended December 31, 2019 from $98.0 million for the
three months ended December 31, 2018. The decrease in operating costs and
expenses was primarily a result of decreases of $6.9 million in depreciation and
amortization expense, $2.5 million in Netex and Netops costs, net, other
expenses of $0.5 million and $0.2 million in transaction costs, partially offset
by increases of $0.5 million in compensation and benefits expenses and $0.5
million in stock-based compensation.

Other. Other operating costs and expenses were $4.4 million for the three months
ended December 31, 2019, as compared to $4.3 million for the three months ended
December 31, 2018.

The table below sets forth the components of our operating costs and expenses during the three months ended December 31, 2019 and 2018.




                                             For the Three Months Ended December 31,
                                        2019          2018        $ Variance     % Variance
                                                           (in millions)
Netex                                 $   117.3     $   121.1    $      (3.8)           (3) %
Compensation and benefits expenses         79.4          81.3           (1.9)           (2) %
Network operations expense                 80.3          70.9             9.4            13 %
Other expenses                             48.8          45.2             3.6             8 %
Transaction costs                           2.5           2.8           (0.3)          (11) %
Stock-based compensation                   27.0          26.2             0.8             3 %
Depreciation and amortization             157.9         146.9            11.0             7 %

Total operating costs and expenses $ 513.2 $ 494.4 $ 18.8

             4 %


Netex. Our Netex decreased by $3.8 million, or 3%, to $117.3 million for the
three months ended December 31, 2019 from $121.1 million for the three months
ended December 31, 2018. The decrease in Netex was primarily due to our
rationalization of available footprint for sale in our zColo segment.

Compensation and Benefits Expenses. Compensation and benefits expenses decreased
by $1.9 million, or 2%, to $79.4 million for the three months ended December 31,
2019 from $81.3 million for the three months ended December 31, 2018. The
decrease was primarily due to a decrease in incentive compensation.

Network Operations Expenses. Network operations expenses increased by $9.4
million, or 13%, to $80.3 million for the three months ended December 31, 2019
from $70.9 million for the three months ended December 31, 2018. The increase
principally reflected the growth of our network assets and the related expenses
of operating that expanded network. Our total network route miles increased
approximately 2% to 133,000 miles at December 31, 2019 from 131,000 miles at
December 31, 2018.

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Other Expenses.  Other expenses increased by $3.6 million, or 8%, to $48.8
million for the three months ended December 31, 2019 from $45.2 million for the
three months ended December 31, 2018. The increase was primarily due to foreign
currency movements.

Transaction Costs. Transaction costs decreased by $0.3 million to $2.5 million
for the three months ended December 31, 2019 from $2.8 million for the three
months ended December 31, 2018. The decrease in transaction costs was primarily
driven by costs related to our former plan to spin-off portions of our business
in the three months ended December 31, 2018. These costs were partially offset
by increased Merger-related transaction costs in the three months ended December
31, 2019.

Stock-Based Compensation. Stock-based compensation expense increased by $0.8
million, or 3%, to $27.0 million for the three months ended December 31, 2019
from $26.2 million for the three months ended December 31, 2018. The increase
was driven by an increase in the expense associated with Part B awards due to a
higher weighted average grant date value per share.

Depreciation and Amortization. Depreciation and amortization expense increased
by $11.0 million, or 7%, to $157.9 million for the three months ended December
31, 2019 from $146.9 million for the three months ended December 31, 2018 as a
result of depreciation adjustments and an increase in depreciable assets.

Total Other Expense, Net

The table below sets forth the components of our total other expense, net for the three months ended December 31, 2019 and 2018, respectively.




                                                             For the Three 

Months Ended December 31,


                                                         2019          2018       $ Variance     % Variance
                                                                           (in millions)
Interest expense                                      $   (82.0)     $  (84.0)    $       2.0             2 %
Foreign currency gain/(loss) on intercompany loans          27.4         (8.3)           35.7               *
Other income, net                                            0.6           0.3            0.3               *
Total other expenses, net                             $   (54.0)     $  (92.0)    $      38.0            41 %


* not meaningful

Interest expense.  Interest expense decreased by $2.0 million, or 2%, to $82.0
million for the three months ended December 31, 2019 from $84.0 million for the
three months ended December 31, 2018. The decrease was primarily a result of
fluctuations in LIBOR interest rates and the timing of our borrowings under the
Revolver.

Foreign currency gain/(loss) on intercompany loans.  We recorded a foreign
currency gain on intercompany loans of $27.4 million for the three months ended
December 31, 2019, compared to an $8.3 million loss for the three months ended
December 31, 2018. We have intercompany loans primarily between our U.S. and UK
entities, which were established to fund our international acquisitions. As the
loans are recorded as an intercompany receivable by our U.S. entities,
strengthening of the USD over a foreign currency results in a foreign currency
loss on intercompany loans and the weakening of the USD over a foreign currency
results in a gain on intercompany loans. This non-cash gain was driven by the
weakening of the USD over the GBP period-over-period and the related impact on
intercompany loans entered into with foreign subsidiaries whose functional

currency is in GBP.

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Provision for Income Taxes

Our provision for income taxes increased over the same quarter in the prior year
by $2.6 million to $25.1 million for the current quarter ended December 31, 2019
from $22.5 million for the three months ended December 31, 2018. Our provision
for income taxes included both the current provision and a provision for
deferred income tax expense resulting from timing differences between tax and
financial reporting accounting bases.  The following table reconciles an
expected tax provision based on a statutory federal tax rate applied to our
earnings before income tax to our actual provision for income taxes:


                                                           For the Three Months Ended December 31,
                                                                2019                      2018
                                                                          (in millions)

Expected provision at the statutory rate                 $             18.2        $             11.1
Increase/(decrease) due to:
Stock-based compensation                                              (0.6)                       2.5
State income tax expense, net of federal benefit                        2.8                       2.5
Changes in uncertain tax benefits                                         -                       6.4
Foreign tax rate differential                                           0.4                       1.3
Adjustments to taxes recorded in a prior year                           2.8                         -
U.S. Tax Reform                                                           -                     (0.4)
Change in valuation allowance                                         (1.3)

                    (0.5)
Other, net                                                              2.8                     (0.4)
Provision for income taxes                               $             25.1        $             22.5



During the three months ended December 31, 2019, a $1.0 million valuation allowance was released on the deferred tax assets of our German subsidiary.



On December 22, 2017, the U.S. federal government enacted a tax bill, H.R.1, An
Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent
Resolution on the Budget for Fiscal Year 2018, previously known as Tax Cuts and
Jobs Act of 2017 ("U.S. Tax Reform"). U.S. Tax Reform reduced the U.S. corporate
tax rate from 35% to 21%, created a territorial tax system with a one-time
mandatory repatriation tax on previously deferred foreign earnings, and changed
business-related deductions and credits. Provisional impacts of U.S. Tax Reform
were recorded in the six months ended June 30, 2018 and further adjusted during
the three months ended September 30, 2018. In accordance with SAB 118, Income
Tax Accounting Implications of the Tax Cuts and Jobs Act, the Company recorded
the final impacts of U.S. Reform prior to the end of the provisional measurement
period on December 31, 2018.

Six Months Ended December 31, 2019 Compared to the Six Months Ended December 31,
2018


                                             For the Six Months Ended December 31,
                                       2019         2018          $ Variance     % Variance
                                                          (in millions)
Segment and consolidated revenue:
Zayo Networks                        $   985.7    $   931.5      $       54.2             6 %
zColo                                    127.8        137.0             (9.2)           (7) %
Allstream                                168.9        201.7            (32.8)          (16) %
Other                                      9.9         10.0             (0.1)           (1) %
Consolidated                         $ 1,292.3    $ 1,280.2      $       12.1             1 %


Our total revenue increased by $12.1 million to $1,292.3 million, or 1% for the
six months ended December 31, 2019, from $1,280.2 million for the six months
ended December 31, 2018.

The revenue increase was primarily driven by organic growth and the restructuring of a customer's contract in our Zayo Networks segment offset by changes in exchange rates and churn associated with our Allstream and zColo



                                       45

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segments. The average exchange rate of the GBP against the USD strengthened by
2.6%, the average exchange rate of the Euro against the USD strengthened by
3.7%, and the average exchange rate of the CAD against the USD strengthened by
0.4% during the six months ended December 31, 2019 as compared to the six months
ended December 31, 2018. Normalizing our estimated revenue to exclude the impact
of foreign currency exchange rate fluctuations, we estimate revenue was
negatively impacted by foreign currency exchange fluctuations between the six
months ended December 31, 2019 and December 31, 2018 by $3.7 million or
approximately 0.3%.

Zayo Networks. Revenue from our Zayo Networks segment increased by $54.2
million, or 6%, to $985.7 million for the six months ended December 31, 2019
from $931.5 million for the six months ended December 31, 2018. The increase was
due to organic growth and the restructuring of a customer's contract.

zColo. Revenue from our zColo segment decreased by $9.2 million, or 7%, to
$127.8 million for the six months ended December 31, 2019 from $137.0 million
for the six months ended December 31, 2018. The decrease was due to increased
churn.

Allstream. Revenue from our Allstream segment decreased by $32.8 million, or
16%, to $168.9 million for the six months ended December 31, 2019 from $201.7
million for the six months ended December 31, 2018. The decrease was due to
churn.

Other.  Revenue from our Other segment decreased by $0.1 million, or 1%, to $9.9
million for the six months ended December 31, 2019 from $10.0 million for the
six months ended December 31, 2018. The Other segment represented less than 1%
of our total revenue during the six months ended December 31, 2019.

The following table reflects the stratification of our revenues during these periods. The substantial majority of our revenue continued to come from recurring payments from customers under contractual arrangements.




                                         For the Six Months Ended December 31,
                                              2019                       2018
                                                      (in millions)
Monthly recurring revenue           $    1,145.2          89 %     $ 1,154.7     90 %
Amortization of deferred revenue            81.7           6 %          74.3      6 %
Usage revenue                               29.1           2 %          31.6      2 %
Other revenue                               36.3           3 %          19.6      2 %
Total Revenue                       $    1,292.3         100 %     $ 1,280.2    100 %




Operating Costs and Expenses




                                                   For the Six Months Ended December 31,
                                              2019         2018        $ Variance     % Variance
                                                               (in millions)
Segment and consolidated operating costs
and expenses:
Zayo Networks                               $   688.2    $   662.4    $       25.8             4 %
zColo                                           147.2        140.0             7.2             5 %
Allstream                                       178.9        201.2          (22.3)          (11) %
Other                                             8.6          9.1           (0.5)           (5) %
Consolidated                                $ 1,022.9    $ 1,012.7    $       10.2             1 %


Our operating costs increased by $10.2 million, or 1%, to $1,022.9 million for
the six months ended December 31, 2019 from $1,012.7 million for the six months
ended December 31, 2018. The increase in consolidated operating costs was
primarily due to increases of $11.9 million in Netops costs, $5.7 million in
other expenses, $1.3 million in stock-based compensation, and $1.0 million in
transaction costs, partially offset by decreases of $5.8 million in Netex, $3.2
million in compensation and benefits expenses and $0.7 million in depreciation
and amortization.

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Zayo Networks.  Zayo Networks operating costs increased by $25.8 million, or 4%,
to $688.2 million for the six months ended December 31, 2019 from $662.4 million
for the six months ended December 31, 2018. The increase in operating costs and
expenses was primarily a result of increases of $15.4 million in Netex and
Netops costs, net, $9.4 million in depreciation and amortization, $4.9 million
in other expenses, $1.2 million in transaction costs and $0.1 million in
compensation and benefits expenses, partially offset by a decrease of $5.2
million in stock-based compensation.

zColo.  zColo operating costs increased by $7.2 million, or 5%, to $147.2
million for the six months ended December 31, 2019 from $140.0 million for the
six months ended December 31, 2018. The increase in operating costs and expenses
was primarily a result of increases of $5.0 million in stock-based compensation,
$3.8 million in depreciation and amortization expense, $2.9 million in other
expenses, and $0.2 million in transaction costs, partially offset by decreases
of $4.3 million in Netex and Netops costs, net, and $0.4 million in compensation
and benefits.

Allstream.  Allstream operating costs decreased by $22.3 million, or 11%, to
$178.9 million for the six months ended December 31, 2019 from $201.2 million
for the six months ended December 31, 2018. The decrease in operating costs and
expenses was primarily a result of decreases of $13.7 million in depreciation
and amortization, $7.5 million in Netex and Netops costs, net, $1.6 million in
other expenses, $0.4 million in compensation and benefits expenses and $0.4
million in transaction costs, partially offset by an increase of $1.3 million in
stock-based compensation.

Other.  Operating costs from our Other segment decreased by $0.5 million, or 5%,
to $8.6 million for the six months ended December 31, 2019 from $9.1 million for
the six months ended December 31, 2018. The decrease was primarily related to a
decrease in compensation and benefits expense.

The table below sets forth the components of our operating costs and expenses during the six months ended December 31, 2019 and 2018.




                                             For the Six Months Ended December 31,
                                        2019         2018        $ Variance     % Variance
                                                         (in millions)
Netex                                 $   238.0    $   243.8    $      (5.8)           (2) %
Compensation and benefits expenses        158.8        162.0           (3.2)           (2) %
Network operations expense                157.8        145.9            11.9             8 %
Other expenses                             95.6         89.9             5.7             6 %
Transaction costs                           4.5          3.5             1.0            29 %
Stock-based compensation                   54.2         52.9             1.3             2 %
Depreciation and amortization             314.0        314.7           (0.7)             *

Total operating costs and expenses $ 1,022.9 $ 1,012.7 $ 10.2

             1 %


* not meaningful

Netex. Our Netex decreased by $5.8 million, or 2%, to $238.0 million for the six months ended December 31, 2019 from $243.8 million for the six months ended December 31, 2018. The decrease in Netex was primarily due to our rationalization of available footprint for sale in our zColo segment.



Compensation and Benefits Expenses. Compensation and benefits expenses decreased
by $3.2 million, or 2%, to $158.8 million for the six months ended December 31,
2019 from $162.0 million for the six months ended December 31, 2018. The
decrease was primarily due to a decrease in incentive compensation.

Network Operations Expenses.  Network operations expenses increased by $11.9
million, or 8%, to $157.8 million for the six months ended December 31, 2019
from $145.9 million for the six months ended December 31, 2018. The increase
principally reflected the growth of our network assets and the related expenses
of operating that expanded network. Our total network route miles increased
approximately 2% to 133,000 miles at December 31, 2019 from 131,000 miles at
December 31, 2018.

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Other Expenses. Other expenses increased by $5.7 million, or 6%, to $95.6
million for the six months ended December 31, 2019, from $89.9 million for the
six months ended December 31, 2018. The increase was primarily due to increases
in our property tax expenses.

Transaction Costs. Transaction costs increased by $1.0 million, or 29%, to $4.5
million for the six months ended December 31, 2019 from $3.5 million for the six
months ended December 31, 2018. The increase was the result of Merger-related
transaction costs.

Stock-Based Compensation. Stock-based compensation expense increased by $1.3
million, or 2%, to $54.2 million for the six months ended December 31, 2019 from
$52.9 million for the six months ended December 31, 2018. The increase in
stock-based compensation expense was primarily driven by an increase in the
number of Part A awards granted as compared to the six months ended December 31,
2018.

Depreciation and Amortization. Depreciation and amortization expense decreased
by $0.7 million to $314.0 million for the six months ended December 31, 2019
from $314.7 million for the six months ended December 31, 2018 as a result

of
adjustments in depreciation.

Total Other Expense, Net

The table below sets forth the components of our total other expense, net for the six months ended December 31, 2019 and 2018, respectively.




                                                             For the Six 

Months Ended December 31,


                                                        2019         2018        $ Variance     % Variance
                                                                          (in millions)
Interest expense                                      $ (166.7)    $ (166.2)    $      (0.5)               *
Foreign currency gain/(loss) on intercompany loans         14.5       (12.9)            27.4               *
Other income, net                                           1.2          6.9           (5.7)               *
Total other expenses, net                             $ (151.0)    $ (172.2)    $       21.2            12 %


* not meaningful

Interest expense.  Interest expense increased by $0.5 million to $166.7 million
for the six months ended December 31, 2019 from $166.2 million for the six
months ended December 31, 2018. The increase was primarily a result of timing of
borrowings and payments under the Revolver and fluctuations in LIBOR rates.

Foreign currency gain/(loss) on intercompany loans.  We recorded a foreign
currency gain on intercompany loans of $14.5 million for the six months ended
December 31, 2019, compared to a loss of $12.9 million for the six months ended
December 31, 2018. We have intercompany loans between our U.S. and UK entities,
which were established to fund our international acquisitions. As the loans are
recorded as an intercompany receivable by our U.S. entities, strengthening of
the USD over a foreign currency results in a foreign currency loss on
intercompany loans and the weakening of the USD over a foreign currency results
in a gain on intercompany loans. This non-cash gain was driven by the weakening
of the USD over the GBP period-over-period and the related impact on
intercompany loans entered into by foreign subsidiaries with functional currency
in GBP.

Other income, net. Other income, net decreased by $5.7 million to $1.2 million
for the six months ended December 31, 2019 from $6.9 million for the six months
ended December 31, 2018. The decrease was primarily a result of the pre-tax gain
of $5.5 million on the sale of Scott-Rice Telephone Co. for the six months

ended
December 31, 2018.

Provision for Income Taxes

Our provision for income taxes decreased over the same period in the prior year
by $3.9 million to $39.1 million for the six months ended December 31, 2019 from
$43.0 million for the six months ended December 31, 2018. Our provision for
income taxes included both the current provision and a provision for deferred
income tax expense

                                       48

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resulting from timing differences between tax and financial reporting accounting bases. The following table reconciles an expected tax provision based on a statutory federal tax rate applied to our earnings before income tax to our actual provision for income taxes:




                                                             For the Six Months Ended December 31,
                                                                 2019                      2018
                                                                           (in millions)
Expected provision at the statutory rate                  $             24.9        $             20.0
Increase/(decrease) due to:
Stock-based compensation                                                 0.1                       3.6
State income tax expense, net of federal benefit                         4.7                       4.0
Change in statutory tax rates outside U.S.                                 -                     (0.1)
Changes in uncertain tax benefits                                        1.0                       6.4
Foreign tax rate differential                                            1.6                       1.5
State NOL expirations                                                    1.6                         -
Adjustments to taxes recorded in a prior year                            2.8                         -
U.S. Tax Reform                                                            -                       7.2
Change in valuation allowance                                          (1.3)                     (0.8)
Other, net                                                               3.7                       1.2
Provision for income taxes                                $             39.1        $             43.0


During the six months ended December 31, 2019, a $1.0 million valuation allowance was released on the deferred tax assets of our German subsidiary.



On December 22, 2017, the U.S. federal government enacted a tax bill, H.R.1, An
Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent
Resolution on the Budget for Fiscal Year 2018, previously known as Tax Cuts and
Jobs Act of 2017 ("U.S. Tax Reform"). U.S. Tax Reform reduced the U.S. corporate
tax rate from 35% to 21%, created a territorial tax system with a one-time
mandatory repatriation tax on previously deferred foreign earnings, and changed
business-related deductions and credits. Provisional impacts of U.S. Tax Reform
were recorded in the six months ended June 30, 2018 and further adjusted during
the three months ended September 30, 2018. In accordance with SAB 118, Income
Tax Accounting Implications of the Tax Cuts and Jobs Act, the Company recorded
the final impacts of U.S. Reform prior to the end of the provisional measurement
period on December 31, 2018.

Adjusted EBITDA

We define Adjusted EBITDA as earnings/(loss) from operations before interest,
income taxes, depreciation and amortization ("EBITDA") adjusted to exclude
acquisition or disposal-related transaction costs, losses on extinguishment of
debt, stock-based compensation, unrealized foreign currency gains/(losses) on
intercompany loans, gains/(losses) on business dispositions and non-cash
income/(loss) on equity and cost method investments. We use Adjusted EBITDA to
evaluate operating performance, and this financial measure is among the primary
measures used by management for planning and forecasting for future periods. We
believe that the presentation of Adjusted EBITDA is relevant and useful for
investors because it allows investors to view results in a manner similar to the
method used by management and facilitates comparison of our results with the
results of other companies that have different financing and capital structures.

We also monitor Adjusted EBITDA because our subsidiaries have debt covenants
that restrict their borrowing capacity that are based on a leverage ratio, which
utilizes a modified EBITDA, as defined in our Credit Agreement and the
indentures governing our outstanding Notes. The modified EBITDA is consistent
with our definition of Adjusted EBITDA; however, it includes the pro forma
Adjusted EBITDA of and expected cost synergies from the companies acquired by us
during the quarter for which the debt compliance certification is due.

Adjusted EBITDA results, along with other quantitative and qualitative information, are also utilized by management and our compensation committee for purposes of determining bonus payouts to employees.



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Adjusted EBITDA has limitations as an analytical tool and should not be
considered in isolation from, or as a substitute for, analysis of our results as
reported under accounting principles generally accepted in the United States
("GAAP"). For example, Adjusted EBITDA:

? does not reflect capital expenditures, or future requirements for capital and

major maintenance expenditures or contractual commitments;

? does not reflect changes in, or cash requirements for, our working capital

needs;

? does not reflect the significant interest expense, or the cash requirements

necessary to service the interest payments, on our debt; and

? does not reflect cash required to pay income taxes.

Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies because all companies do not calculate Adjusted EBITDA in the same manner.

Reconciliations from segment and consolidated Adjusted EBITDA to net income/(loss) are as follows:




                                                                    For the 

Three Months Ended December 31, 2019


                                                                                                              Corp/
                                                Zayo Networks      zColo       Allstream      Other       Eliminations        Total
                                                                                     (in millions)

Segment and consolidated Adjusted EBITDA       $         291.9    $   29.7
  $       5.7    $    1.2    $             -    $   328.5
Interest expense                                        (71.7)      (10.3)              -           -                  -       (82.0)
Provision for income taxes                                   -           -            3.2           -             (28.3)       (25.1)

Depreciation and amortization expense                  (114.7)      (31.1) 

       (11.7)       (0.4)                  -      (157.9)
Transaction costs                                        (1.8)       (0.7)              -           -                  -        (2.5)
Stock-based compensation                                (19.8)       (6.4)          (0.5)       (0.3)                  -       (27.0)

Foreign currency gain on intercompany loans                  -           - 

            -           -               27.4         27.4
Net income/(loss)                              $          83.9    $ (18.8)    $     (3.3)    $    0.5    $         (0.9)    $    61.4





                                                                    For the

Three Months Ended December 31, 2018


                                                                                                              Corp/
                                                Zayo Networks      zColo       Allstream      Other       Eliminations        Total
                                                                                   (in millions)

Segment and consolidated Adjusted EBITDA       $         269.7    $   32.7
  $      17.6    $    1.2    $             -    $   321.2
Interest expense                                        (69.3)      (10.6)          (4.1)           -                  -       (84.0)
Provision for income taxes                                   -           -          (0.6)           -             (21.9)       (22.5)

Depreciation and amortization expense                  (100.3)      (27.4) 

       (18.6)       (0.5)              (0.1)      (146.9)
Transaction costs                                        (2.1)       (0.5)          (0.2)           -                  -        (2.8)
Stock-based compensation                                (22.1)       (4.0)              -       (0.1)                  -       (26.2)

Foreign currency loss on intercompany loans                  -           -              -           -              (8.3)        (8.3)
Non-cash (loss)/gain on investments                      (0.4)           - 

            -           -                0.1        (0.3)
Net income/(loss)                              $          75.5    $  (9.8)    $     (5.9)    $    0.6    $        (30.2)    $    30.2






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                                                                     For

the Six Months Ended December 31, 2019


                                                                                                              Corp/
                                                Zayo Networks      zColo       Allstream      Other       Eliminations        Total
                                                                                   (in millions)

Segment and consolidated Adjusted EBITDA       $         569.4    $   56.3
  $      15.0    $    2.6    $             -    $   643.3
Interest expense                                       (142.6)      (21.2)          (2.8)           -              (0.1)      (166.7)
Provision for income taxes                                   -           -            4.9           -             (44.0)       (39.1)

Depreciation and amortization expense                  (228.2)      (61.6) 

       (23.3)       (0.9)                  -      (314.0)
Transaction costs                                        (3.6)       (0.9)              -           -                  -        (4.5)
Stock-based compensation                                (39.4)      (13.0)          (1.3)       (0.5)                  -       (54.2)

Foreign currency gain on intercompany loans                  -           - 

            -           -               14.5         14.5
Net income/(loss)                              $         155.6    $ (40.4)    $     (7.5)    $    1.2    $        (29.6)    $    79.3





                                                                     For

the Six Months Ended December 31, 2018


                                                                                                              Corp/
                                                Zayo Networks      zColo       Allstream      Other       Eliminations        Total
                                                                                   (in millions)

Segment and consolidated Adjusted EBITDA       $         535.9    $   64.0
  $      38.4    $    2.3    $             -    $   640.6
Interest expense                                       (135.7)      (22.4)          (8.1)           -                  -      (166.2)
Provision for income taxes                                   -           -          (7.7)           -             (35.3)       (43.0)

Depreciation and amortization expense                  (218.8)      (57.8) 

       (37.0)       (1.0)              (0.1)      (314.7)
Transaction costs                                        (2.4)       (0.7)          (0.4)           -                  -        (3.5)
Stock-based compensation                                (44.6)       (8.0)              -       (0.3)                  -       (52.9)

Foreign currency loss on intercompany loans                  -           -              -           -             (12.9)       (12.9)
Gain on business disposition                                 -           -            5.5           -                  -          5.5
Non-cash loss on investments                             (0.6)           - 

            -           -                  -        (0.6)
Net income/(loss)                              $         133.8    $ (24.9)    $     (9.3)    $    1.0    $        (48.3)    $    52.3

Liquidity and Capital Resources



Our primary sources of liquidity have been cash provided by operations, equity
offerings and incurrence of debt. Historically, our principal uses of cash have
been for acquisitions, capital expenditures, working capital, debt service
requirements and repurchases of our common stock. We anticipate our principal
uses of cash in the future will be for acquisitions, capital expenditures,
working capital, and debt service.

We have financial covenants under the indentures governing the 6.00% senior
unsecured notes due 2023 (the "2023 Unsecured Notes"), the 6.375% senior
unsecured notes due 2025 (the "2025 Unsecured Notes") and the 5.75% senior
unsecured notes due 2027 (the "2027 Unsecured Notes" and collectively with the
2023 and 2025 Unsecured Notes, the "Notes") and the Credit Agreement that, under
certain circumstances, restrict our ability to incur additional indebtedness.
The indentures governing the Notes limit any increase in ZGL's secured
indebtedness (other than certain forms of secured indebtedness expressly
permitted under such indentures) to a pro forma secured debt ratio of 4.50 times
ZGL's previous quarter's annualized modified EBITDA (as defined in the
indentures), and limit ZGL's incurrence of additional indebtedness to a total
indebtedness ratio of 6.00 times the previous quarter's annualized modified
EBITDA. The Credit Agreement also contains a covenant, applicable only to the
Revolver, that ZGL maintain a senior secured leverage ratio below 5.25:1.00 at
any time when the aggregate principal amount of loans outstanding under the
Revolver is greater than 35% of the commitments under the Revolver. The Credit
Agreement also requires ZGL and its subsidiaries to comply with customary
affirmative and negative covenants, including covenants restricting the ability
of ZGL and its subsidiaries, subject to specified exceptions, to incur
additional indebtedness, make additional guaranties, incur additional liens on
assets, or dispose of assets, pay dividends, or make other distributions,
voluntarily prepay certain other indebtedness, enter into transactions with
affiliated persons, make investments and amend the terms of certain other
indebtedness. The Credit Agreement contains customary events of default,
including among others, non-payment of principal, interest, or other amounts
when due, inaccuracy of representations and warranties, breach of covenants,
cross default to certain other indebtedness, insolvency or inability to pay
debts, bankruptcy, or a change of control.

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As of December 31, 2019, we had $181.3 million in cash and cash equivalents
which consisted of amounts held in bank accounts and highly-liquid U.S. treasury
money market funds. As of December 31, 2019, we also had a working capital
deficit of $359.9 million, which includes $170.8 million that we will be
recognizing as revenue over the next twelve months. The actual cash outflows
associated with fulfilling this deferred revenue obligation during the next
twelve months will be significantly less than the December 31, 2019 current
deferred revenue balance. The working capital deficit also included $124.7
million of operating lease liabilities. Additionally, as of December 31, 2019,
we had $391.2 million available under our Revolver, subject to certain
conditions. Accordingly, we believe we have sufficient resources to fund our
obligations and foreseeable liquidity requirements in the near term and for the
foreseeable future.

Our capital expenditures increased by $87.0 million, or 23%, to $471.7 million
during the six months ended December 31, 2019, as compared to $384.7 million for
the six months ended December 31, 2018. The increase is primarily due to our
continued investment in our network, which we plan to continue for the
foreseeable future. As of December 31, 2019, we were contractually committed for
$612.7 million of capital expenditures for construction materials and purchases
of property and equipment. A majority of these capital expenditure commitments
are expected to be satisfied in the next twelve months. These capital
expenditures, however, are expected to primarily be success-based; that is, in
most situations, we will not invest the capital until we have an executed
customer contract that supports the investment.

As part of our corporate strategy, we continue to be regularly involved in
discussions regarding potential acquisitions of companies and assets, some of
which may be quite large. We expect to fund such acquisitions with cash from
operations, debt issuances (including $391.2 million of availability under our
Revolver), equity offerings, and available cash on hand. We regularly assess our
projected capital requirements to fund future growth in our business, repay our
debt obligations, and support our other general corporate and operational needs,
and we regularly evaluate our opportunities to raise additional capital. As
market conditions permit, we may refinance existing debt, issue new debt or
equity securities through the capital markets, or obtain additional bank
financing to fund our projected capital requirements or provide additional
liquidity. In connection with the Merger, on January 17, 2020, BidCo commenced
cash tender offers for any and all of ZGL's outstanding Notes. On January 31,
2020, BidCo announced that it had received tenders and related consents from the
requisite number of holders of each such series of the Notes in order to
authorize the amendments proposed as part of its offering. See Note
17-Subsequent Events.

Cash Flows



We believe our cash flows from operating activities, in addition to cash and
cash equivalents currently on-hand, will be sufficient to fund our operating
activities and capital expenditures for the foreseeable future, and in any event
for at least the next 12 to 18 months. Given the generally volatile global
economic climate, no assurance can be given that this will be the case.

We regularly consider acquisitions and additional strategic opportunities, including large acquisitions, which may require additional debt or equity financing.

The following table sets forth components of our cash flow for the six months ended December 31, 2019 and 2018.




                                                Six Months Ended December 31,
                                                  2019                 2018
                                                        (in millions)

Net cash provided by operating activities    $         568.2      $         472.4
Net cash used in investing activities        $       (471.7)      $       (345.7)
Net cash used in financing activities        $       (101.6)      $       (203.6)

Net Cash Flows provided by Operating Activities


Net cash flows provided by operating activities increased by $95.8 million, or
20%, to $568.2 million during the six months ended December 31, 2019 from $472.4
million during the six months ended December 31, 2018. Net cash

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flows provided by operating activities during the six months ended December 31,
2019 include our net income of $79.3 million, plus the add backs of non-cash
items deducted in the determination of net income, principally depreciation and
amortization of $314.0 million, stock-based compensation expense of $54.2
million and deferred income taxes of $28.7 million, partially offset by a
foreign currency gain on intercompany loans of $14.5 million. Also contributing
to the cash provided by operating activities were additions to deferred revenue
of $141.0 million, which were partially offset by amortization of deferred
revenue of $81.7 million. Cash flow during the period was increased by the net
change in working capital components of $36.8 million.

Net cash flows provided by operating activities during the six months ended
December 31, 2018 include our net income of $52.3 million plus the add backs of
non-cash items deducted in the determination of net income, principally
depreciation and amortization of $314.7 million, stock-based compensation
expense of $52.9 million, deferred income taxes of $32.4 million and foreign
currency loss on intercompany loans of $12.9 million. Additions to deferred
revenue of $81.1 million during the period were partially offset by amortization
of deferred revenue of $74.3 million. Cash flow during the period was decreased
by the net change in other working capital components of $3.8 million.

The increase in net cash flows from operating activities during the six months
ended December 31, 2019 as compared to the six months ended December 31, 2018 is
primarily due to an increase in deferred revenue additions and working capital
components.

Cash Flows used in Investing Activities



We used cash in investing activities of $471.7 million and $345.7 million during
the six months ended December 31, 2019 and 2018, respectively. During the six
months ended December 31, 2019, we used $471.7 million of cash for additions to
property and equipment.

During the six months ended December 31, 2018, we used $384.7 million of cash
for additions to property and equipment, which was partially offset by proceeds
from our sale of SRT of $39.0 million.

Cash Flows used in Financing Activities



Our net cash used in financing activities was $101.6 million and $203.6 million
during the six months ended December 31, 2019 and 2018, respectively. During the
six months ended December 31, 2019, cash used in financing activities was
primarily comprised of $95.0 million in payments on the Revolver, $4.1 million
in finance lease payments and $2.5 million in principal payments on our
long-term debt.

During the six months ended December 31, 2018, our net cash used in financing
activities was $203.6 million and was primarily comprised of $402.5 million in
purchases of our common stock, $40.0 million in payments on the Revolver, $4.0
million in finance lease payments, $2.6 million in payments on the Santa Clara
acquisition financing agreement, $2.5 million in principal payments on our
long-term debt and $2.0 million for other financing outflows. These outflows
were partially offset by $250.0 million in borrowings under the Revolver.

Contractual Obligations


There were no material changes outside the ordinary course of our business with
respect to our contractual obligations during the six months ended December 31,
2019, from those disclosed in our Annual Report on Form 10-K for the year ended
June 30, 2019.

Off-Balance Sheet Arrangements


We do not have any special purpose or limited purpose entities that provide
off-balance sheet financing, liquidity, or market or credit risk support and we
do not engage in hedging, or other similar activities that expose us to any
significant liabilities that are not (i) reflected on the face of the condensed
consolidated financial statements, (ii) disclosed in Note 12 - Commitments and
Contingencies to the condensed consolidated financial statements, or in the
Future Contractual Obligations table included in Management's Discussion and
Analysis of Financial Condition and

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Results of Operations of our Annual Report or (iii) discussed under "Item 3: Quantitative and Qualitative Disclosures About Market Risk" below.

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