February 25, Q15 Earnings Presentation

February 25, 2016 4Q15 Earnings Presentation Participants Tony Thomas Chief Executive Officer Bob Gunderman Chief Financial Officer Christie Gru...
Author: Rachel Maxwell
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February 25, 2016

4Q15 Earnings Presentation

Participants

Tony Thomas Chief Executive Officer

Bob Gunderman Chief Financial Officer

Christie Grumbos Treasurer

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Safe Harbor Statement Safe Harbor Statement Windstream claims the protection of the safe-harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to uncertainties that could cause actual future events and results to differ materially from those expressed in the forward-looking statements. Forward-looking statements include, but are not limited to, 2016 guidance for service revenue, adjusted OIBDAR, and adjusted capital expenditures, along with statements regarding cash interest, cash taxes and free cash flow in 2016; expectations regarding the “network first” strategy to improve financial performance and increase market share; expectations regarding revenue trends and growth in some business segments; growth in adjusted OIBDAR, cost management, and improving margins in the business segments; the anticipated benefits of Project Excel designed to accelerate VDSL2 broadband deployments and improve network capabilities, including increasing availability of higher internet speeds; the completion and benefits of network investments pursuant to Connect America Fund Phase 1 and Phase 2; expectations regarding deployments of Windstream’s IPTV service, 1 Gig service, and expanding the carrier network; the amount that Windstream may reduce debt by selling its equity stake in Communications Sales & Leasing, Inc., and its ability to opportunistically improve its debt profile and reduce interest costs. These statements, along with other forward-looking statements regarding Windstream’s overall business outlook, are based on estimates, projections, beliefs, and assumptions that Windstream believes are reasonable but are not guarantees of future events and results. Actual future events and results of Windstream may differ materially from those expressed in these forward-looking statements as a result of a number of important factors. For risk factors that could cause actual results and events to differ materially from those expressed, refer to Windstream’s filings with the Securities and Exchange Commission. Regulation G Disclaimer

This presentation includes certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are available on our website at www.windstream.com/investors.

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2015 Achievements

 Implemented business unit structure with focused strategy  Improved financial performance  Advanced network capabilities  Completed strategic transactions  Reduced debt  Returned capital to shareholders through the dividend and share repurchase plan

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Focused Operating Strategy By Business Unit

Consumer & Small Business

Carrier

Enterprise

Invest for growth

Invest to stabilize revenue

Grow revenue 3-5% and expand margins

Small Business CLEC (off-net) Maximize cash flows

Improve Financial Results and Grow Adjusted OIBDAR Over Time 5

Consumer & SMB ILEC – Positioned for Growth Favorable Rural Areas Provide Strong Cash Flow Business Customers:

~1.6M residential and small businesses (within ILEC territory) Addressability:~ 4M locations

2015 Financial Profile:

Consumer and SMB ILEC markets with favorable rural characteristics

• Attractive, rural markets • Limited intersection with national cable companies • Premium internet speeds

Key Drivers:

• Upgrading and expanding broadband network • Increasing premium speed availability • Expanding “Kinetic” (IPTV) (1) Source: FCC reports

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13 WIN Average

Total revenue: $1.6B Contribution margin: $935M Contribution margin (%): 58%

Competitive Advantages:

Access Lines Per Square Mile

Non-Rural Industry Average (1)

Suddenlink Cox 2% 2%

Attractive Competitive Environment

Comcast 12% Other Cable 38%

Brighthouse 0%

Time Warner 24%

No Cable BB Provider 17%

• ~55% of footprint does not compete with national cable broadband provider • 17% of footprint does not have cable broadband provider

Charter 6%

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Consumer & SMB ILEC – Expanding Network Capabilities Making significant network enhancements to provide a great customer experience, drive higher ARPU and increase market share Premium Internet Speeds

• Deployed premium speeds (50-100 Mbps) to approximately 1M locations

Project Excel

• Expands premium speeds; improves broadband speeds across all speed tiers • Enhances backhaul capabilities to support current and future needs

1 Gig and Kinetic TV Deployments • 1 gig internet services plus Kinetic TV in select markets (Lincoln, Lexington, Sugar Land and 1 add’l market in 2016)

CAF 1 and 2

• Supporting and expanding broadband capabilities to 470k locations • ~ 60% existing customers; ~40% prospects

Internet Speed Availability 100%

For Consumer & SMB ILEC locations 88%

80%

60%

54%

40%

30%

20%

10%

0% 10 Mbps

25 Mbps YE 2015

50 Mbps

75+ Mbps

YE 2016

Notes: • Expected speed profiles presented will improve upon the completion of CAF 1 and 2. • Internet speed availability reflects the speeds available for Consumer and SMB ILEC locations

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Carrier – Expanding Network to Drive Sales WIN operates the 6th largest fiber network in the US with 125k route miles Customers:

Telcos, content providers, cable and other network operators

2015 Financial Profile:

Total revenue: $688M Contribution margin: $502M Contribution margin (%): 73%

Competitive Advantages: National footprint – 125k route miles of fiber Attractive, tier 2 and 3 routes

Key Drivers:

• 100 gig capable long-haul and regional express network • Expanded interconnection locations (carrier hotels, landing stations and data centers) • High-growth verticals 8

Enterprise – Growing Revenue and Expanding Margins Winning in the enterprise market with “smart solutions. personalized service ” Customers:

~26k enterprise customers nationwide

Expanding Enterprise contribution margins to 20% within 3 years

2015 Financial Profile:

Total revenue: $2.1B Contribution margin: $241M Contribution margin (%): 12%

Profitable growth

Competitive Advantages:

• Nationwide presence • Mid-size enterprise customer focus • Broad portfolio of advanced, customized solutions • Agile sales and service model

Goal: Drive efficiency

20%

More on-net sales

margins

Key Drivers:

• Continued revenue growth • Margin expansion • Expanded data center footprint through TierPoint partnership

Improve cost of revenue 9

SMB CLEC – Maximize Cash Flow Focused on maximizing ARPU and reducing costs Customers:

Small business customers residing outside of our ILEC territory (