2014-9-18 - credit suisse - v2.0 · 1,168,800 basic video 881,500 digital video 1,103,300...
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Credit Suisse2014 Global Credit Products Conference
September 18, 2014
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Ralph KellySenior Vice President and Treasurer
Mike PflantzSenior Vice President of Corporate Finance
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Company Profile
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Corporate Profile as of June 30, 2014
Residential:
• 1,403,500 residential customer relationships
• Total 3,688,200 RGUs / 2,806,700 PSUs:
1,168,800 basic video
881,500 digital video
1,103,300 residential Internet
534,600 residential telephone
Commercial:
• 86,800 commercial customer relationships
• 40,500 bundled commercial customers
• LTM pro forma revenue of $2.26 billion
• LTM pro forma Adjusted EBITDA of $878.3 million
• June 30, 2014
• Strong liquidity position with undrawn $500 million Revolver
7th largest U.S. cable television operator
Customer Summary Financial
As Reported Pro Forma
Senior Leverage 2.62x 2.62x
Total Leverage 5.11x 5.80x
Cash Balance $221 million $101 million
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Clustered Markets with Favorable Competitive Dynamics
Note > All figures are as of June 30, 2014
A Z
O K
T X
M O
L A
A R
W V
N C
Top 10 States
serve 96% of
customer
relationships
C A
O H
Limited Broadband Overbuild (%HP)Telco Footprint Overlap (%HP)
AT&T 62% Verizon 3%
Centurylink 16% All Others 5%
Frontier 14%
Verizon FiOS 0.0%
AT&T U-Verse 4.2%
All Others 3.9%
Broadband Overbuild 8.1%
Franchise Area
� Top 20 Primary Systems
serve 91% of customer
relationships
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Pro Forma Capital Structure as of June 30, 2014
Various Operating SubsidiariesBank Guarantors
Cequel Communications
Holdings, LLC
Cequel Communications
Holdings II, LLCBank Guarantor
$1,500 million 6.375% Senior Notes due 2020
$ 750 million 5.125% Senior Notes due 2021
$ 500 million 5.125% Senior Notes due 2021 - New
Cequel Capital
CorporationCo-Issuer of Senior Notes
Cequel Communications,
LLCBank Borrower
Cequel Communications
Holdings I, LLCIssuer of Senior Notes
Rating
B3 / B-
Rating
B1 / B+ (Corporate)
$ 500 million ($0 million drawn) Revolver due 20171
$2,386 million Term Loan B due 2019Rating
Ba2 / BB
1 Revolver availability is reduced by approximately $17.5 million of outstanding letters of credit.
Lead Investors
BC Partners
CPPIB
Executive Management
Cequel Corporation $1,985 million Equity contributions
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Transaction Summary
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� On September 9, Suddenlink issued a $500 million mirror note to its existing 5.125% Senior Notes due 2021
– New Senior Notes issued with same terms as existing 5.125% Senior Notes due 2021
� Net proceeds from offering and $120 million of available cash was used to fund a $600 million dividend distribution to current equity holders and pay fees and expenses
– Remaining RP capacity at the high yield issuer, pro forma for the transaction, is $657 million
Sources and Uses
($ in millions)
Sources Uses
Senior Notes Proceeds 486$ Equity Distribution 600$
Cash from Balance Sheet 120 Fees and Expenses 6
Total Sources 606$ Total Uses 606$
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Current and Pro Forma Capitalization
� S&P and Moody’s affirmed ratings of Senior Notes
� S&P upgraded the Revolver and Term Loan B facility to BB
� June Term Loan balance reflects $61 million excess cash flow payment made in April
LIBOR Notional Potential Pro Forma
($ in millions) Rating Maturity Rate Floor June 30, 2014 Transaction June 30, 2014
Cash and Cash Equivalents $221 ($120) $101
Revolver Ba2 / BB Feb 2017 L + 250 – –
Term Loan B Ba2 / BB Feb 2019 L + 275 0.75% $2,386 $2,386
Capital Leases - - - $3 3
Total OpCo Secured Debt $2,389 $2,389
Other Obligations - - - $15 $15
Senior Notes 2021 5.125% B3 / B- Dec 2021 5.125% $750 750
Senior Notes 2021 5.125% B3 / B- Dec 2021 5.125% – $500 500
Senior Notes 2020 6.375% B3 / B- Sept 2020 6.375% $1,500 1,500
Total Debt $4,654 $5,154
Net Total Debt $4,433 $5,053
Adjusted Pro Forma LTM EBITDA $878 $878
Secured Leverage (as calculated under credit agreement) 2.62x 2.62x
Total Leverage (as calculated under indenture) 5.11x 5.80x
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Cequel Maturity Profile
� The nearest funded maturity is the Term Loan due in February 2019
� $500 million undrawn Revolver matures in February 2017
Term Loan 6.375% Senior Notes
As of June 30, 2014, Actual
As of June 30, 2014, Pro Forma for Senior Notes Issuance
5.125% Senior Notes
$2,386
$500$750
$1,985
0
1000
2000
3000
2014 2015 2016 2017 2018 2019 2020 2021 2022
$2,386
$500
$1,250$1,985
0
1000
2000
3000
2014 2015 2016 2017 2018 2019 2020 2021 2022
Undrawn Revolver
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Proven Ability to Reduce Leverage with EBITDA Growth
Note > Prior to Q2’13, Total Leverage calculated under the indenture governing the former 8.625% Senior Notes due 2017. As of Q2’13 and thereafter, Total Leverage calculated under the indenture governing the 6.375% Senior Notes due 2020 and 5.125% Senior Notes due 2021.
4.3x 4.2x
3.3x 3.2x 3.1x 3.1x 2.8x 2.7x 2.7x3.0x 3.0x 2.9x 2.7x
3.1x 2.9x 2.8x 2.8x 2.7x 2.6x
6.9x 7.0x6.8x
6.7x6.5x
6.3x6.0x
5.8x5.6x 5.5x
5.4x5.3x 5.3x
5.2x 5.1x
6.0x
5.5x5.3x
5.2x
5.6x 5.5x 5.4x
6.2x
5.8x 5.7x5.6x
5.4x5.3x
PF 5.8x
Total Bank Leverage Total Leverage (including Senior Notes) Pro Forma Leverage
5.1x
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Q2 2014 Financial Update
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Q2 2014 Revenue and Adjusted EBITDA
(Dollars in millions)
Quarterly Revenue And ARPU Quarterly Adjusted EBITDA(Dollars in millions)
5.9% Revenue
CAGR
5.9% Revenue
CAGR 6.2% Adjusted
EBITDA CAGR
6.2% Adjusted
EBITDA CAGR
$213
$226
38.9% 39.0%
Q2'13 Q2'14
EBITDA EBITDA Margin
$547
$580
$150.86
$163.92
Q2'13 Q2'14
Revenue ARPU
(Dollars in millions)
Annual Revenue Annual Adjusted EBITDA(Dollars in millions)
$1,949
$2,074
$2,197 $2,262
2011 2012 2013 LTM Q2'14
6.1% Revenue
CAGR
6.1% Revenue
CAGR
7.5% Adjusted
EBITDA CAGR
7.5% Adjusted
EBITDA CAGR
$732
$796 $852 $878
37.6% 38.4% 38.8% 38.8%
2011 2012 2013 LTM Q2'14
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RGU and PSU Growth RGUs and PSUs
(Units in thousands)
Improving Subscriber Trends
TTM Growth %
1,197 1,169
1,026 1,103
488 535
847 881
PSUs 2,734
PSUs 2,818
RGUs3,589
RGUs3,706
Q2'13 Q2'14
Basic Video Residential HSI
Residential Phone Digital
-3.0% -2.8% -3.1% -3.4%-2.8% -2.7%
-2.4%
5.7%
4.8%4.2%
4.6%
5.8%
6.6%
7.6%
7.6%
5.4%5.0%
7.2%
8.8%
10.0%9.6%
1.9%1.3%
1.0%1.4%
2.4%3.1%
3.6%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14
Basic Video Residential HSD
Residential Telephony PSU
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1,108 1,084
266 320
1,374 1,403
Q2'13 Q2'14
Residential Relationships and Bundling
(Units in thousands)
479 477
542 535
353 391
Q2'13 Q2'14
Non-Video and Video RelationshipsBundled Customer Trends(Units in thousands)
25.7% 27.9%
65.1% 66.0%
Non-Video as % of Total Customers
Accelerating Customer Relationship Growth Trends
� Added 29k customer relationships in TTM, or 2.2% growth
� On pace for fifth consecutive year of customer relationship growth
0.6% 0.3% 0.2%0.6%
2.2%
0.0%
2.0%
4.0%
2010 2011 2012 2013 LTM Q2'14
19.4% 22.8%
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Abundance of Commercial Opportunities
� 11% Commercial revenue growth YoY
� 18% combined Commercial HSI, commercial telephone and on-net carrier revenue growth YoY
� 45% increase in Fiber-to-the-Tower tenants in billing YoY
$93
$269
$467
$229
$258 $1,316
BusinessVideo
BusinessData
BusinessTelephone
CarrierServices
Media Total
(Dollars in millions)
Commercial Market OpportunitiesCommercial Telephone and HSI Customers
Q2’14 Commercial Revenue and Growth Highlights
55 61
28
36
Q2'13 Q2'14
(Units in thousands)
29% Commercial Phone CAGR
11% Commercial HSI CAGR
29% Commercial Phone CAGR
11% Commercial HSI CAGR
44% 43% 9% 17% 33% 24%% of
Market
� Does not include market opportunity of over $400 million for cloud based and managed services
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$50
$89
$16
$52
$134
$216
$266
2008 2009 2010 2011 2012 2013 LTM Q2'14
Capital Expenditures and Free Cash FlowCapital Expenditures as % of Revenue
Free Cash Flow (Dollars in millions)
16.2% 15.8%
21.0%19.4%
17.0% 17.0% 16.7%
2008 2009 2010 2011 2012 2013 LTM Q2'14
% of
Revenue3.5% 5.7% 0.9% 2.7% 6.5% 9.9% 11.8%
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Strategic Topics and Takeaways
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� Suddenlink’s video product is comparable or superior to other competitive video offerings within our footprint
– Adding new content and expanding ways customers can consume that content
� However, rising programming content expenses continue to outpace video revenue rate increases, resulting in a shrinking video margin
� Programming renewals continue to grow more contentious, with public disputes between operators and content providers becoming more commonplace
� Growth in other services (HSI, phone, commercial) have effectively offset impact of video margin erosion
Evolving Product Landscape
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Operation Reliant Overview
� In early 2013, Suddenlink began a process to transition from a third-party platform to our own telephone platform (“Operation Reliant”)
– The total cost to build and test our own platform and migrate off the third-party platform is approximately $50 million ($20 million capital expenditures, $30 million non-recurring operating expenses)
� Operation Reliant provides significant cost savings to Suddenlink’s telephone direct costs and provides Suddenlink with more internal flexibility
– Upon completion, it is expected to provide a material reduction in telephone direct costs starting in 2015 and normalizing in 2016
� Customer migration from the third-party platform began in August and is on pace to be completed by early 2015
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Operation GigaSpeed Overview� In August 2014, Suddenlink announced the launch of Operation GigaSpeed, a 3 ½ year
investment project to advance the competitive position of our broadband service to nearly all of our footprint
– Internet service speeds that are already many multiples higher than competitor offerings in most markets will further increase, distancing our broadband service from the competition and providing a catalyst for growth
� Operation Gigaspeed will positively impact well over 90% of our customers by ensuring the continuation of best broadband service available in our markets and the ability and capacity to offer additional products and services
� We expect to invest up to an additional $230 million of incremental capital expenditures above our normal levels through 2017, with approximately $35 million occurring in the second half of 2014
– Our 2014 capital expenditure guidance of $410 million – $420 million is reflective of this investment
– GigaSpeed capital expenditures will include headend equipment, DOCSIS 2.0 customer premises equipment and HD-DTA’s to complete our all-digital video conversion
� Upon the completion of Operation GigaSpeed we expect our flagship Internet speed to increase from 15 to 200 Megabits and our top speed to increase from over 100 Megabits to one Gigabit in nearly 90% of our service areas
� Expect 2015 capital expenditures as a percent of revenue to be less than 20%, and declining to mid-teens thereafter
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Suddenlink Serves the Entire Community
� 300 Mbps service launched in Leander and Pflugerville, Texas (near Austin’s Google Fiber, but not directly competing with Google)
– All homes in the community have access to 300Mbps service, not just a few select neighborhoods
AT&T 300 Mbps
Offering Map
Suddenlink’s 300 Mbps
Offering Map
Non-residential or undeveloped
areas
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Questions and Answers
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Basis of Presentation
All financial and operating results included in this presentation (except for capital expenditures as presented on page 17 and free cash flow as presented on page 17) are pro forma to include the following transactions, as if these transactions had been consummated as of January 1, 2011:
- The acquisition of NPG Cable, Inc. on April 1, 2011
- The divestiture of a TV station on June 1, 2012
- The contribution of Excell Communications on November 15, 2012
- The divestiture of small cable systems on December 31, 2012
- The acquisition of three Northland Communications systems on January 2, 2014
Unless noted otherwise, all debt balances shown are notional amount versus GAAP balance.
Further details of our financial results, both GAAP and pro forma, are available on our website at www.suddenlink.com.