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Jeff Gardner Sr. V.P. and Chief Financial Officer Lehman Brothers 4th Annual Global Communications Wireless Conference New York, NY May 20, 2003.
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Jeff Gardner Sr. V.P. and Chief Financial Officer Lehman Brothers 4th Annual Global Communications Wireless Conference New York, NY May 20, 2003
This presentation includes certain estimates and other forward-looking statements, including statements with respect to anticipated operating and financial performance, growth opportunities and growth rates, acquisition and divestiture opportunities, and other statements of expectation. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “assumes,” “seeks,” “estimates,” and “should,” and variations of these words and similar expressions, are intended to identify these forward-looking statements. Forward-looking statements are subject to uncertainties that could cause actual future performance, outcomes and results to differ materially. These statements by the Company and its management are based on estimates, projections, beliefs and assumptions of management and are not guarantees of future performance. The company disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information, or otherwise. “Safe Harbor” Statement
Today’s presentation will include certain non-GAAP financial measures. I refer you to the Investor Relations section of ALLTEL’s Web site where the company has posted additional information regarding these non-GAAP financial measures, including a reconciliation of each such measure to the most directly comparable GAAP measure. The company’s Web site is located at www.alltel.com. Regulation G Disclaimer
First Quarter 2003 Highlights • EPS from current businesses and discontinued operations of $.85, an increase of 10% year-over-year • Equity Free Cash Flow1 of $290 million, an increase of 12% year-over-year • Wireless revenue of $1.1 billion, an increase of 17% year-over-year • Wireline revenue of $609 million, an increase of 22% year-over-year • Postpay Churn of 2.16% • ARPU of $45.59, a slight increase year-over-year • Wireline access line declines much smaller than 4Q ‘02 • Added: • 159,000 wireless customers for a total of 7.76 million • 18,000 DSL customers for a total of 88,000 1 From Current Businesses - defined as Net Income + Depreciation & Amortization - Capital Expenditures (including software development)
2002 Financial Highlights • Grew wireline revenue 11% to $2.2 billion • Grew wireless revenue 9% to $4.2 billion • Increased consolidated revenue 6% to $8 billion • Grew Equity Free Cash Flow1,2 21% to $996 million • Grew EPS1 14%3 to $3.24 • Earned a 17% Return on Equity1 • Increased the dividend for the 42nd consecutive year to $ 1.40 per share annually 1 From Current Businesses (Prior to the restatement for discontinued operations which reflects the 2Q ‘03 sale of the financial services division of the Information services business) 2 Equity Free Cash Flow defined as Net Income + Depreciation & Amortization - Capital Expenditures (excluding software development) 3 Reflects January 2002 implementation of SFAS 142
2002 Operational Highlights • Invested over $1.1B to improve and expand our service capabilities, i.e., 1X wireless technology and high-speed wireline technology • Grew our DSL, high-speed Internet access service customer base by 162% • Launched downloadable wireless e-mail, games, ring-tones and a variety of other applications via QUALCOMM’s BREW wireless data platform. • Launched Simple Freedom in about 1,500 Wal -Mart locations across the U.S. • At year-end we served over: • 7.6 million wireless customers (14% y/y growth) • 3.1 million wireline customers (21% y/y growth) • 1.5 million long distance customers (22% y/y growth)
Investment Highlights Strategic Model Solid Financial Performance Strong Platform for Continued Growth Conservative Capital Structure Industry Leading Results
Strategic Model • Operational Focus • Financial Discipline • Opportunistic Growth Operational Focus • Point of Sale Experience • Customer Service Experience • Network Quality Experience Financial Discipline • Invest in Businesses Not Products • Best Customer/Best Price • Stay Relevant Opportunistic Growth • Focus on Free Cash Flow • Operational “Fit” • Think Long-Term (5+ years)
Strong Platform for Continued GrowthWireless Markets as of 3/31/03 – A Closer Look ALLTEL Wireless Verizon & Other Roaming Agreements • Almost 7.7 million customers • 60 million POPs
% of Gross Adds on Total/National Freedom Rate Plans Strong Platform for Continued GrowthTotal/National Freedom Rate Plans ALLTEL Wireless Verizon & Other Roaming Agreements Total/National Freedom Plans • Leverage Verizon roaming agreement • Net present values are significantly higher than other rate plans • ARPU is 20-30% higher • Approximately 25% of customer base is on a national plan
Tier 2 & 3 • Fewer Competitors • Higher Revenue Growth • Lower Churn • Better EBITDA Margins Strong Platform for Continued GrowthWireless Markets as of 3/31/03 – A Closer Look Customers ALLTEL Wireless Verizon & Other Roaming Agreements • Almost 7.7 million customers • 60 million POPs
Strong Platform for Continued GrowthLocal Network Coverage Matters PCS Competitor vs. ALLTEL Local Package
Strong Platform for Continued GrowthWireline Markets as of 3/31/03 – A Closer Look ALLTEL Wireline ALLTEL Wireless Verizon & Other Roaming Agreements • 2nd largest independent ILEC • Almost 3.2 million customer lines
Less competitive pressure • Little exposure to UNE-P • Success with vertical and enhanced services • Over 1.6 million LD customers (almost 50% penetration) • 38%-42% vertical services penetration • 88,000 DSL customers - 5.1% penetration of addressable lines • Approximately 85% of DSL customers have ALLTEL Internet Service Strong Platform for Continued GrowthWireline Markets as of 3/31/03 – A Closer Look ALLTEL Wireline ALLTEL Wireless Verizon & Other Roaming Agreements • 2nd largest independent ILEC • Almost 3.2 million customer lines
Strong Platform for Continued GrowthWireline Markets as of 3/31/03 – A Closer Look DSL Customers Long-Distance Customers In thousands
Industry Leading ResultsWireless EBITDA Margins • EBITDA Drivers: • Direct Sales Channel is approximately 70% of total sales • CDMA technology • Cash cost per customer competitive with companies with greater scale Service revenue margin. Source: Company reports.
Industry Leading ResultsWireline EBITDA Margins • EBITDA Drivers: • Focused on second and third tier cities and rural markets • Convergence drives better margins Source: Company reports.
Conservative Capital Structure • ALLTEL has one of the strongest credit profiles in the telecom industry • Well capitalized balance sheet • A1 / Prime-1 / F1 (S&P / Moody’s / Fitch) Commercial Paper ratings • A / A2 / A (S&P / Moody’s / Fitch) long-term credit ratings • Net Debt / EBITDA1 1.7X TELECOM COMPANY CREDIT RATINGS STATISTICS 9.0 RCCC 8.0 7.0 6.0 5.0 NXTL 4.0 CZN Q 3.0 CTL FON/PCS 2.0 USM VZ AWE AT BLS TDS T 1.0 SBC 0.0 BBB- BBB BBB+ A- A A+ AA- B B+ BB- BB BB+ CCC+ B- S&P Credit Rating Source: Wall Street equity research and company filings. Note : Assumes 80% equity credit for AT, CZN, CTL and Sprint Equity Units. Q pf directories sale and debt exchange, Sprint pf directories sale, SBC pf Cegetel sale, VZ pf Northcoast. 1Net Debt/Operating Income 3.6X.
Solid Financial PerformanceDelivering Consistent Growth Revenue ($bn) EBITDA1 ($bn) Dividends per Share Earnings per Share1 1From Current Businesses (prior to the restatement of discontinued operations which reflects the 2Q ‘03 sale of the financial services division of the information services business).
Solid Financial PerformanceStrong and Growing Free Cash Flow Millions % of Revenues $ 4-Year CAGR = 31% * * Defined as Net Income + Depreciation & Amortization - CAPEX and Capitalized Software Development Costs.
ALLTEL has performed better than the S&P 500 and its Peers over the last 5 years • Assumes that $100 was invested on the last trading day of 1997 and that all dividends were reinvested. 1 Peer group = an index of a group of peer issuers consisting of: American Management Systems Incorporated, AT&T Corp., BellSouth Corporation, CenturyTel Inc., Broadwing Communications Inc., Electronic Data Systems Corp., SBC Communications Inc., Sprint FON Group, Verizon Communications Inc., and Qwest Communications International Inc., respectively.
