Technology, Media & Telecom

Transcription

1 Cincinnati Bell Morgan Stanley Technology, Media & Telecom Conference February 28 1

2 Safe Harbor Certain of the statements and predictions i contained in this presentation constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. In particular, statements, projections or estimates that include or reference the words believes, anticipates, plans, intends, expects, will, or any similar expression fall within the safe harbor for forward-looking statements contained in the Reform Act. Actual results or outcomes may differ materially from those indicated or suggested by any such forward-looking statement for a variety of reasons, including, but not limited to: changing market conditions and growth rates within the telecommunications industry or generally within the overall economy; changes in competition in markets in which the company operates; pressures on the pricing of company products and services; advances in telecommunications technology; the ability to generate sufficient cash flow to fund the company s business plan, repay the company s debt and interest obligations, and maintain its networks; the ability to refinance indebtedness when required on commercially reasonable terms; changes in the telecommunications regulatory environment; changes in the demand for the company s services and products; the demand for particular products and services within the overall mix of products sold, as the company s products and services have varying profit margins; the company s ability to introduce new service and product offerings on a timely and cost effective basis; work stoppage caused by labor disputes; restrictions imposed under various credit facilities and debt instruments; the company s ability to attract and retain highly qualified employees; the company s ability to access capital markets and the successful execution of restructuring initiatives; changes in the funded status of the company s retiree pension and healthcare plans; disruption in operations caused by a health pandemic, such as the H1N1 influenza virus; changes in the company s relationships with current large customers, a small number of whom account for a significant portion of company revenue; disruption in the company s back-office information technology systems, including its billing system; the company s ability to integrate successfully the business of Cyrus Networks, LLC with the company s existing operations and to achieve the anticipated benefits of the acquisition of Cyrus Networks, LLC; and failure of or disruption in the operation of the company s data centers. More information on potential risks and uncertainties is available in recent filings with the Securities and Exchange Commission, including Cincinnati Bell s Form 10-K report, Form 10-Q reports and Form 8-K reports. The forward-looking statements included in this presentation represent company estimates as of February 28, Cincinnati Bell anticipates that subsequent events and developments will cause its estimates to change. 2

3 Non-GAAP Financial Measures This presentation contains information about adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), Adjusted EBITDA margin and free cash flow. These are non-gaap financial measures used by Cincinnati Bell management when evaluating results of operations and cash flow. Management believes these measures also provide users of the financial statements with additional and useful comparisons of current results of operations and cash flows with past and future periods. Non-GAAP financial measures should not be construed as being more important than comparable GAAP measures. Detailed reconciliations of Adjusted EBITDA and free cash flow (including the Company s definition of these terms) to comparable GAAP financial measures can be found on the Company s website 3

4 Company Overview 135 year old diversified communications company with wireline, wireless and data center assets ~674k total access lines ~509k wireless subs ~639k square feet data center space Local ILEC and CLEC within licensed wireless area IT Services and Hardware Wireless 2010 Revenue Mix (1) Data Center Colocation 18% 20% 9% 53% Wireline $1,377MM 2010 Adjusted EBITDA Mix (2) Data Center Colocation IT Services and Hardware 14% 3% Wireless 17% 66% Wireline $502MM Notes: (1) Before intercompany eliminations. (2) Before corporate expenses. 4

5 Consistent Execution of Diversification Strategy 2010 Customer Channel Mix 2010 Product Mix, by Revenues (1) Data Center Colocation 37% Consumer IT Services and Hardware 18% 9% 22% Voice 63% Business 21% 20% Data Wireless 10% Other Wireline Notes: (1) Before intercompany eliminations. 5

6 Proven Track Record Revenue Adjusted EBITDA ($MM) ($MM) 1,450 1,300 $1,349 $1,403 $1,336 $1, $473 $480 $470 $502 1, Total Debt Total Debt / Adjusted EBITDA ($MM) (x) 3,000 2,500 2,000 1,500 1, $2,524 $2,010 $1,961 $1,979 Dec-07 Dec-08 Dec-09 Dec x 4.2x 4.1x 4.2x Dec-07 Dec-08 Dec-09 Dec-10 6

7 No Significant Debt Maturities until 2017 ($MM) % of our maturities are 2017 and beyond Thereafter Bonds Note: Excludes capital lease obligations and unamortized call premiums on terminated interest rate swaps. 7

8 Overview of Wireline Business Approximately 674k total access lines ~600k ILEC territory ~74k CLEC territory Focused on maintaining margin stability in declining business Fioptics (FTTH) product suite represents growth area, 28K entertainment subs Wireline Performance ($MM) (%) 1,000 48% 48% 47% 50 $796 $763 $ $378 $365 $ Revenue Adj. EBITDA Adj. EBITDA Margin Access Lines & Hi-speed Internet Subscribers 2010 Revenue Mix (000s) 1, Voice Business 19% 38% Data Note: 14% Voice 23% Consumer 6% Long Distance and dvoip Access Lines Hi-Speed Subs Other 2008 and 2009 amounts reclassified to present certain data center operations in Data Center Colocation segment that were previously reported in the Wireline segment 8

9 Fioptics Penetration Penetratio on In thou usands 13% Entertainment Penetration for Consumers 24% 28% 30% 1 3 Months Entertainment Subscribers Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Fiber Subs Cable Subs Fioptics subscribers 79K units passed, 10% of ILEC households h 28K Fioptics entertainment subs 27K Fioptics high-speed internet subs Fioptics consumer monthly ARPU of $115 in Q

10 Overview Wireless Business Approximately 509K subs, ~70% of which are postpaid subs Y/Y data ARPU increase of 17% to $11.69 di driven by data and smartphone penetration ti Adjusted EBITDA Margin 31% highest since 2003 Wireless Adjusted EBITDA up 17% y/y Due to lower handset subsidies, roaming costs, bad debt expense and contract t services Wireless Performance ($MM) (%) $316 $307 $289 31% 26% % 25 $83 $77 $ Revenue Adj. EBITDA Adj. EBITDA Margin Postpaid Churn Postpaid ARPU (%) ($) $48.82 $49.17 $50.75 $50.31 $ % % % % % Q09 1Q10 2Q10 3Q10 4Q10 0 4Q09 1Q10 2Q10 3Q10 4Q10 Voice Data 10

11 Overview of Data Center Colocation Business Utilized square feet of ~563K Utilization rate of 88% 2010 Adjusted EBITDA up 119% y/y 14% of CBB 2010 EBITDA compared to 7% in 2009 Cyrus One has performed exactly to plan Q4 annualized EBITDA implies a 10x purchase price multiple vs. the original 12.8x at acquisition Data Center Colocation Performance (1) ($MM) (%) 150 $125 56% % % $72 $70 75 $ $32 $ Revenue Adj. EBITDA Adj. EBITDA Margin Data Center Capacity(1) Pursuing turn-key data center solution in London to meet customer demand Space will be ready for customers in Q2 (in thousands) % % 25 87% (1) 2008 and 2009 amounts have been revised to present the split of the Technology Solutions segment into the Data Center Colocation segment and the IT Services and Hardware. Certain amounts for 2009 and 2008 were formerly in Wireline Utilized Available 11

12 Sizable Footprint with Significant Upside Opportunities Majority of data center capacity located in the Top 25 Metropolitan Statistical Areas Approximately 13,000 firms with more than 500 employees Data Facilities Center Entity Market (#) Capacity CBTS Cincinnati, OH 6 425,000 CyrusOne Houston, TX 3 118,000 CyrusOne Dallas, TX 3 57,000 CyrusOne Austin, TX 1 12,000 CBTS Chicago, IL 1 14,000 CBTS Other markets 3 13, ,000 12

13 Building a Strong Platform to Launch Global Growth London Cincinnati Bay Area New York Texas Singapore Fortune 1000 customers in Cincinnati and Texas markets provide platform for future customer driven global expansion Existing Markets Future Markets 13

14 2010 Highlights 2010 Revenue, Adjusted EBITDA and Free Cash Flow all exceeded financial targets $502M of Adjusted EBITDA is highest Adjusted EBITDA since 2003 Free cash flow of $149M equates to 27% FCF yield Excess used to repurchase 4M shares for $10M in Q4 For the half year since acquisition, CyrusOne generated 62% Adjusted EBITDA margins $45M of Revenue $28M of Adjusted EBITDA With 2010 refinancing, 90% of our debt matures in 2017 and beyond 14

15 ($ s in millions) 2010 Revenue $54 $3 $1,377 $54M increase in Data Center Colocation including $45M from CyrusOne acquisition $1,336 ($21) ($18) $23 $23M increase in IT Services and Hardware $14M / 9% increase in Telecom and IT equipment $9M increase from Managed & Professional Services ($18M) decrease in Wireless ($14M) decrease in postpaid service revenue due to fewer subscribers 2009 Wireline Wireless IT Services & Hardware DC Colocation Eliminations 2010 ($21M) decrease in Wireline Access line loss was 7% driving revenue decline 8% LD and VoIP growth Added 13K fiber entertainment subs and 9K high-speed internet subs in

16 2010 Adjusted EBITDA ($ s in millions) $470 ($19) $14 ($3) $38 $1 $502 $38M increase in Data Center Colocation $28M from CyrusOne acquisition $10M from Cincinnati-based operations $14M increase in Wireless $10M for renegotiated roaming contracts $3M lower bad debts $7M for lower contract services due to outsourcing and cost reduction initiatives $9M for reduction in subsidies and handset costs Partially offset by $15M lower service revenue ($19M) decrease in Wireline Access line loss was 7% driving Adjusted EBITDA decline Adjusted EBITDA margin of 47% down slightly 2009 Wireline Wireless IT Services DC & Hardware Colocation Corporate 2010 ($3M) decrease in IT Services and Hardware Primarily ypayroll costs * Note: May not foot due to rounding 16

17 2010 Free Cash Flow ($ s in millions) $31 ($53) $45 ($106) $164 $83 ($15) $ FCF of $149M, decrease of $15M from 2009 $45M lower capital spending $31M increase in Adjusted EBITDA ($53M) from higher interest & swap term payments in 09 ($23M) sale of wireless towers in 2009 net of pension prepayment ($15M) working capital YTD 09 Capex EBITDA Int Pmts/ 09 Swaps Wireless towers Pension Postretirement and other WC/Other YTD 10 Cash flow yield 27% 17

18 2011 Earnings Guidance 2011 Guidance Revenue Adjusted EBITDA* $ 1.4 billion Approx. $530 million Free Cash Flow Approx. $5 million * Plus or minus 2 percent and reflects 2011 definition of Adjusted EBITDA 18

19 Adjusted EBITDA Definition ( in millions) Cincinnati Bell, Inc. Reconciliation of Adjusted EBITDA Adjusted EBITDA, as reported $502 $510 Pension and OPEB expenses: Interest cost Expected return on assets (28) (25) Amortization of loss Adjusted EBITDA, new definition $519 $530 19

20 Non-GAAP Reconciliations (please refer to Investor Relations section of website) 20