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Goldman Sachs TMT Leveraged Finance Conference Tony Thomas, CFO. March 29, 2011. “Safe Harbor” Statement. Safe Harbor Statement

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safe harbor statement
“Safe Harbor” Statement

Safe Harbor Statement

Windstream claims the protection of the safe-harbor contained in the Private Securities Litigation Reform Act of 1995 for forward-looking statements set forth in this press release. Forward-looking statements, including Windstream’s updated financial outlook for 2010 and expected pension contribution in 2011, are subject to uncertainties that could cause actual future events and results to differ materially from those expressed in the forward-looking statements. These forward-looking statements 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. Factors that could cause actual results to differ materially from those contemplated in Windstream's forward-looking statements include, among others: further adverse changes in economic conditions in the markets served by Windstream; the extent, timing and overall effects of competition in the communications business; continued voice line loss; the impact of new, emerging or competing technologies; the adoption of intercarrier compensation and/or universal service reform proposals by the Federal Communications Commission or Congress that results in a significant loss of revenue to Windstream; the risks associated with the integration of acquired businesses or the ability to realize anticipated synergies, cost savings and growth opportunities; for Windstream's competitive local exchange carrier operations, adverse effects on the availability, quality of service and price of facilities and services provided by other incumbent local exchange carriers on which Windstream's competitive local exchange carrier services depend; the availability and cost of financing in the corporate debt markets; the potential for adverse changes in the ratings given to Windstream’s debt securities by nationally accredited ratings organizations; the effects of federal and state legislation, and rules and regulations governing the communications industry; material changes in the communications industry that could adversely affect vendor relationships with equipment and network suppliers and customer relationships with wholesale customers; unfavorable results of litigation; unfavorable rulings by state public service commissions in proceedings regarding universal service funds, intercarrier compensation or other matters that could reduce revenues or increase expenses; the effects of work stoppages; the impact of equipment failure, natural disasters or terrorist acts; earnings on pension plan investments significantly below Windstream's expected long term rate of return for plan assets; changes in federal, state and local tax laws and rates; and those additional factors under the caption “Risk Factors” in Windstream’s Form 10-K for the year ended Dec. 31, 2009, and in subsequent filings with the Securities and Exchange Commission. In addition to these factors, actual future performance, outcomes and results may differ materially because of more general factors including, among others, general industry and market conditions and growth rates, economic conditions, and governmental and public policy changes. Windstream undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause Windstream’s actual results to differ materially from those contemplated in the forward-looking statements should be considered in connection with information regarding risks and uncertainties that may affect Windstream’s future results included in filings by Windstream with the Securities and Exchange Commission at www.sec.gov.

Regulation G Disclaimer

This presentation includes certain non-GAAP financial measures, which have been adjusted to include or exclude items that are related to strategic activities or other events, specific to the time and opportunity available. For the periods presented, Windstream‘s strategic activities included the acquisitions of D&E Communications Inc. ("D&E") on November 10, 2009, Lexcom, Inc. ("Lexcom") on December 1, 2009, NuVox, Inc. ("NuVox") on February 8, 2010, and Iowa Telecommunication Services, Inc. ("Iowa Telecom") on June 2, 2010. In addition, Windstream sold its out-of-territory product distribution operations on August 21, 2009. Windstream believes the presentation of supplemental measures of operating performance provides a more meaningful comparison of our operating performance for the periods presented. A reconciliation of the non-GAAP financial measures used in this presentation to the most directly comparable GAAP measure has been included in the appendix of this presentation. The non-GAAP financial measures used by Windstream may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for measures of performance or liquidity prepared in accordance with GAAP.

windstream overview
Windstream Overview

The Industry

  • The ILEC industry is undergoing significant consolidation driven by companies seeking to stabilize cash flow as residential voice and regulatory revenues continue to decline

The Company

  • Windstream – a consolidator and telecom leader with attractive markets in 29 states, revenues of $4.2B and adjusted OIBDA of $2.1B

The Opportunity

  • Windstream is executing a strategy focused on improving the top line
    • expanding services in growing areas (business and broadband)
    • stabilizing consumer revenues
thesis building a next generation communications company
THESISBuilding a Next Generation Communications Company

#1

…with key initiatives to improve the business

…Executing a successful strategy…

…Delivering best-in-class results…

Windstream Today…

the transformation of windstream
The Transformation of Windstream

2006

2007-2010

2011+

Traditional Rural ILEC

Transformation

Path to Growth

  • Focus on execution and integration
  • Investing for growth
  • Spin off
  • Traditional RLEC business model
  • Focused on growth in business & broadband
  • Improved financial trends
windstream today
Windstream Today . . . . .

60%

Improving revenue mix – percent from broadband and business (1)

in growth segments

#1

Key operating and financial metrics vs. peers

AttractiveMarkets

Well positioned competitively

$818M

Solid free cash flow generation

  • Pro forma for the 4Q10
  • Free cash flow for 2010. Presented on a GAAP basis and defined as Adjusted OIBDA less cash interest, cash taxes, cash pension contributions and capital expenditures
a next generation telecom company
A Next Generation Telecom Company

Business Services

Consumer Services

  • Dedicated Internet services
  • Integrated VoIP & data solutions
  • Cloud computing & cloud storage
  • Managed services and data center co-location
  • Voice & long-distance solutions
  • Fiber transport /wireless backhaul
  • High-speed Internet
    • 90% of footprint addressable
    • Speeds up to 10-12 Mb, depending on market
  • Broadband features (TechHelp, security, data back-up)
  • Digital TV via DISH offering
  • Voice and long-distance
delivering industry leading returns to shareholders
Delivering Industry-Leading Returns to Shareholders

WIN has generated a 65% total return since inceptionJuly 17, 2006 – March 25, 2011

Source: Bloomberg

9

thesis building a next generation communications company1
THESISBuilding a Next Generation Communications Company

#1

…with key initiatives to improve the business

…Executing a successful strategy…

…Delivering best-in-class results…

The new Windstream…

executing successful strategy
Executing Successful Strategy

Strategy

Goal

3. Pursue selective acquisition strategy

Protect and sustain free cash flow

2. Ensure disciplined expense management

1. Improve revenue trends

slide12

STRATEGY #1: IMPROVE REVENUE TRENDS60% of Revenues from Growth Services

Business & Broadband Revenues Grew 3.2% in 4Q10

Key Growth Drivers

  • Business revenues grew 2% in 4Q
    • Advanced data and integrated solutions up 8%
      • Integrated VoIP and data services
      • Ethernet Internet access
      • Managed services
    • Special access (fiber transport / wireless backhaul) up 3%
  • Consumer broadband revenue grew 10% in 4Q
    • Broadband customers growing 6%
    • Selling faster broadband speeds
    • Growth in broadband features

YOY Revenue Trends

Note: Pro forma results from 4Q10

slide13

STRATEGY #1: IMPROVE REVENUE TRENDSStabilizing Consumer Revenues

Improving Consumer Revenue Trends

Key Consumer Initiatives Resulting in. . .

13

ImproveRetention

ImproveCompetitiveness

Action

Increase distribution channels

Offer video service

Improve service levels

Expand bundling penetration

Create product sets

  • Price for Life
  • Greenstreak
slide14
STRATEGY #1: IMPROVE REVENUE TRENDS Stronger Revenue Mix and Improving Consumer Channel = Improving Revenue Trends

Stronger Revenue Mix1

Improving Revenue Trends

2007

2010

Broadband and Business

58%

38%

25%

34%

Residential

Switched Access/USF

17%

28%

Pro forma for all acquisitions

Excludes NuVox, Iowa, Hosted Solutions and Q-Comm

1. 2007 data presented on an actual basis; 2010 pro forma

slide15

Adjusted OIBDA margin(ex pension)

50.8%

STRATEGY #2: DISCIPLINED EXPENSE MANAGEMENTDisciplined Expense Management Resulting in Strong, Stable OIBDA Margin

Expense Initiatives

  • Deal Synergies
  • Network grooming
  • Procurement
  • Improved processes
  • Technological efficiencies
  • Organizational discipline

2010

2009

Notes: Adjusted OIBDA excludes the impact of restructuring charges, pension expense and restricted stock expense

strategy 3 selective acquisitions pursuing a selective acquisition strategy
STRATEGY #3: SELECTIVE ACQUISITIONSPursuing a Selective Acquisition Strategy

Advance strategy to improve revenue trends

Free cash flow accretive

Opportunity to generate meaningful synergies

Criteria

Located in attractive markets

Favorable competitive environment

Well-positioned network

Maintain leverage in same range

16

strategy 3 selective acquisitions completed eight targeted acquisitions in four years
STRATEGY #3: SELECTIVE ACQUISITIONSCompleted Eight Targeted Acquisitions in Four Years

2006-2007

2010

  • Valor
  • CT Communications
  • NuVox
  • Iowa Telecommunications
  • Q-Comm
  • Hosted Solutions
  • D&E Communications
  • Lexcom

2008-2009

strategy 3 selective acquisitions powerful impact of acquisitions on windstream
STRATEGY #3: SELECTIVE ACQUISITIONSPowerful Impact of Acquisitions on Windstream

Expanded free cash flow

Advanced strategy to expand services to broadband and business customers

Added over $2B in revenues

Created $200M in opex and capex synergies

Slight increase in leverage but positions WIN to improve financial trends

goal protect and sustain free cash flow a powerful cash flow business
Goal: PROTECT AND SUSTAIN FREE CASH FLOWA Powerful Cash Flow Business

Payout Ratio

2010

Adjusted OIBDA(1) 2010

Free cash flow(2)2010

$2.06B

Flat YOY

$818M

57%

(1) Pro forma for all acquisitions. Adjusted OIBDA excludes pension expense, restructuring, and restricted stock expense

(2) Free cash flow presented on a GAAP basis and defined as Adjusted OIBDA less cash interest, cash taxes, cash pension contributions and capital expenditures

thesis building a next generation communications company2
THESISBuilding a Next Generation Communications Company

#1

…with key initiatives to improve the business

…Executing a successful strategy…

…Delivering best-in-class results…

The new Windstream…

the strategy is delivering best in class operating results
The Strategy is Delivering Best-In-Class Operating Results…

HSI Penetration ofTotal Access Lines

Internet Customer ChangeYear-Over-Year

Leadingresults

Video Penetration ofTotal Access Lines

Year-over-Year Changein Access Lines

  • Notes:
  • Results as of 12/31/10
  • Windstream results are pro forma for NuVox, Inc., Iowa Telecom, Q-Comm, and Hosted Solutions
  • Verizon and Frontier results are pro forma for the sale of Verizon lines
and driving strong financial results
…And Driving Strong Financial Results

Year-over-YearChange in Revenue

Year-over-YearChange in OIBDA

  • Notes:
  • Results as of 12/31/10
  • Windstream results are pro forma for D&E Communications, Lexcom, Inc. , NuVox, Inc., and Iowa Telecom
  • AT&T and Verizon results are for the wireline segment only
  • Verizon and Frontier results are pro forma for the sale of Verizon lines
  • OIBDA excludes one-time charges for WIN, Q, and CTL
2011 guidance
2011 Guidance

Change

2010

2011 Guidance

$ in millions

Total Revenues

$4,139

$4,015 – $4,140

-3% to 0%

OIBDA

$1,975

$1,985 – $2,045

1% to 4%

Adjusted OIBDA

$2,064

$2,045 – $2,105

-1% to 2%

$490

$520 - $580

Capex

57%

52% to 59%

Dividend payout

  • Notes:
  • For 2010, revenue, OIBDA, adjusted OIBDA and Capex are presented on a pro forma basis
  • The 2010 dividend payout ratio is presented on an actual basis, reflecting the acquisitions from the time that they were acquired
  • Adjusted OIBDA excludes pension, restricted stock, restructuring expense
  • As provided on February 18, 2011

23

attractive growth opportunities in 2011
Attractive Growth Opportunities in 2011

A Closer Look at 2011 Capex Guidance

Change

2010 Pro Forma

2011 Guidance

$M

  • Pro forma capex was $490M in 2010
  • The midpoint of our 2011 capex guidance is $550M
  • WIN will spend ~$40M related to the broadband stimulus grants in 2011:
    • Awarded a total of $180M in grants to invest in our broadband network
    • WIN will contribute a total of $60M, resulting in $240M in investments in our broadband network over the next few years
  • The remaining incremental capex will be invested in success-based growth opportunities related to fiber to the cell projects and data center services & expansion which should contribute to improved financial performance
  • Absent the stimulus capex, the midpoint of 2011 guidance is only 4% higher than the baseline 2010 capex

24

thesis building a next generation communications company3
THESISBuilding a Next Generation Communications Company

#1

…with key initiatives to improve the business

…Executing a successful strategy…

…Delivering best-in-class results…

The new Windstream…

key initiatives for 2011
Key Initiatives for 2011

1

2

3

Completeintegration of acquisitions

Deleveragethe balance sheet

Invest forgrowth

Our focus is execution

priority 1 integration of acquisitions on track
PRIORITY #1Integration of Acquisitions On Track

Company

Close Date

Synergies

Integration Status

November 2009

$25M

Completed

December 2009

$5M

Completed

February 2010

$25M

Completed

June 2010

$30M

Completed

December 2010

$2M

Completed by 1H11

December 2010

$21M

Completed by 1H11

  • Synergies achieved 2010: $55M
  • Incremental synergies 2011: $45M
priority 2 invest for growth
PRIORITY #2Invest for Growth

Success Based Fiber Initiatives

  • Increasing bandwidth demand is driving network transport from wireless providers and businesses
  • Investments are success-based with attractive returns

Data Center Services

  • Cloud computing, managed services and data center colocation are natural complements to our business portfolio

Grow Broadband

  • Enhance speeds with VDSL & ADSL2+ bonded
    • Enable 20 Mb speeds to certain markets
  • Expand availability from 90% to 93% (stimulus projects)
priority 3 deleveraging the balance sheet
PRIORITY #3Deleveraging the Balance Sheet

Reasons this is achievable

3.55X

3.2X

To 3.4X

  • Expect excess FCF of ~$350M to $460M in 2011
  • WIN plans to pay down ~$135M related to 2011 debt maturities
  • Revolver borrowings will provide further flexibility to reduce debt
  • Will improve net leverage by making pension contribution using WIN stock

Target

(In line with historic range)

Currentleverage

Note: Leverage is defined as Total Debt to Adjusted OIBDA. Proforma for all acquisitions

29

improving maturity profile and liquidity position

1Q11 Activities

Sr. Notes

Bank Debt

Improving Maturity Profile and Liquidity Position
  • Increased revolver availability from $750M to $1.25 billion
  • Completed tender for all of the $400M Valor 2015 notes using proceeds from the $200M 2020 notes and ~$200M in revolver borrowings
  • Tendered for a portion of the 2016 notes using proceeds from the new 2021 and 2023 notes (currently estimate the paydown to be ~$1.030 billion)

$200M add-on notes due 2020 (Valor refi)

New notes due 2021 (2016 refi)

New notes due 2023 (2016 refi)

Increased revolver availability to $1.25B

$1604

$350

$139

$44

Note: Maturity profile excludes discount on long-term debt

why invest in windstream
Why Invest in Windstream?

Positioning

A different path

  • Successful repositioning in faster growth segments driving improving revenue trends

Solid track record

  • Industry leading performance, successful integration of acquisitions

Performance

Strong, sustainable FCF

  • Making success-based capital investments in growth opportunities while improving the balance sheet and returning cash to shareholders

Cash Flow

slide32

Q&A

32