enabling the digital world in the home
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180 CONNECT INC. INVESTOR PRESENTATION. Enabling the Digital World in the Home. Forward-Looking Statement. - PowerPoint PPT PresentationTRANSCRIPT
Enabling the Digital World in the Home
180 CONNECT INC.INVESTOR PRESENTATION
Forward-Looking Statement
This investor presentation contains forward-looking statements which reflect Management's expectations regarding the Corporation's future growth, results of operations, performance and business prospects and opportunities. Statements about the Corporation's future plans and intentions, results, levels of activity, performance, goals or achievements or other future events constitute forward‑looking statements. These statements reflect Management's current beliefs and are based on information currently available to Management. Forward‑looking statements involve significant risk, uncertainties and assumptions. Many factors could cause actual results, performance or achievements to differ materially from the results discussed or implied in the forward‑looking statements. These factors should be considered carefully and prospective investors should not place undue reliance on the forward‑looking statements. Although the forward‑looking statements contained in this investor presentation are based upon what Management believes to be reasonable assumptions, the Corporation cannot assure that actual results will be consistent with these forward‑looking statements.
Table of Contents
I. Executive Summary
II. Business Overview
A. Satellite
B. Cable
C. Network Services
D. Digital Interiors – Home
III. Growth Opportunities
IV. Financial Overview
V. Conclusion
Executive Summary
180 Connect Overview
North America’s largest provider of installation, integration and fulfillment services to the home entertainment, communications, security and home integration service industries
Dominant player in rapidly growing industry
More than 3,300 highly-trained technicians and a fleet of over 3,000 Company-owned vehicles
Operates 85 branches across the United States and Canada
Performs approximately 2.5 million in-home visits per year
Only national contractor dedicated to the residential market
Scalable, market driven, technology centric operating service model
2006E Revenue and EBITDA of $316 and $14.0 million, respectively, representing revenue growth of 13% over 2005
180 Connect is in a position to leverage these dynamics to become a leader in the broader home services industry
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The Critical Connection
Infrastructure
QUALITY
TECHNOLOGY
TRAINING
HUMAN
CAPITAL
Family of Companies
IronwoodDigital Interiors - Home
Digital Interiors – SecurityWirecommPiedmont
Network Services
Trend toward outsourcing
2
Business Transformation
Focus on Core Earnings and Cash Flow v. Revenue Growth
Intense analysis of technician efficiency, fleet utilization, use of sub- contractors and operating metrics
Local management compensation based on branch profitability
Significant focus on customer satisfaction experience, resulting in customer bonus eligibility
Balance Sheet Strengthening
Natural de-leverage of capital leases
As a result of prepaid insurance plan with current provider
Rebuilding True Partnership with Customers
DIRECTV desires greater throughput and customer satisfaction
Economic model rewards quality performance
Cable customers looking to expand 180 Connect within existing branch network
Develop New Programs associated with Core Assets – 2.5 million home visits per year
3
Diversified Service Offering
Demand for residential fulfillment has attracted 180 Connect to a variety of new customers
In home technical initiatives requiring fulfillment and integration positions 180 Connect well
Currently negotiating with potential new partners with Vonage, Slingbox and UControl
Digital Interiors – Consumer Electronics
Home integration services business that functions as a subcontractor to home builders and developers to install video, audio, security, telecommunications and data cabling in new homes
Developed through the acquisition of Digital Interiors in March 2005
Currently in California and Texas with expansion plans into the southwestern U.S.
Digital Interiors – Home
Provides fiber-to-the-home(“FTTH”) network design services and national construction and installation project management for developers, municipalities, commercial ventures and utilities
Division developed in 2005 with the addition of four fiber optic network engineers and 13 project managers, currently over 50 employees
High margin business with current backlog of contracts for approx. $5 million in 2007
Network Services
Performs satellite installations, upgrades and service calls for DIRECTV residential and commercial customers
54 branches, primarily in the western U.S., with approximately 2,800 technicians and 2,300 Company-owned vehicles (“COVs”)
Second largest of 13 members in the DIRECTV HSP Network
Formulating up-sell initiatives to enhance margins
Satellite
Performs residential cable installations, reconnections, disconnections, service upgrades and downgrades as well as general service calls
Operates in 28 branches, primarily in the eastern U.S., employing approximately 675 technicians
Growth in popularity of digital cable, VoIP, and data services are increasing the size of this business
Cable
4
Leading Provider of Outsourced Home Installation Services
Ability to manage large contracts which are geographically dispersed
One of the largest members of the DIRECTV Home Service Provider (“HSP”) Network of installers
Largest installation contractor of cable services for Cablevision and Rogers
Superior quality and customer satisfaction ratings
Recently awarded contracts with ONteriors and Boise Airport
Satellite dominates serviceoffering in western U.S.
Cable dominates serviceoffering in eastern U.S.
180 ConnectService Locations
Pro Line upsell, Digital Interiors and Network Servicesbusinesses can leverage the existing infrastructure
5
Large and Growing End-Markets
DIRECTV subscriber base projected to grow at a 7.7% CAGR from 15 million in 2005 to 22 million in 2010. DIRECTV reacting to the cable triple play with “partnered offerings” and heavily subsidized high definition equipment
Convergence of technology driving demand for additional installation services in the home, including “Triple Play” (voice, data and video) in the cable industry. Increased demand for fully integrated security offering into existing “Triple Play” platform
Strong upgrade trend from basic to digital cable
Introduction of a variety of other new technologies (e.g.,HDTV, DVRs, increased local channel access, foreign language programming) in both cable and satellite markets
Growth of “digital homes” wired for sound, security, and data combined with historically strong housing starts (in 2006 over 60% of the two million new homes built will have an advanced structured wiring feature built into the base specifications)
Market primed for consultative up-sell arising from the complexity of in-home technology which supports 180 Connects up-sell initiative.
180 Connect is well-positioned to enable the digital world in the home
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Significant Operating Leverage & Margin Expansion Opportunity
Recent investments in infrastructure, personnel and vehicles position the Company to realize the benefits of significant growth opportunities
Centralized back-office and off-shore call center operations
Fleet of over 3,000 Company-owned vehicles
Additional margin expansion opportunities available through product and market synergies, further benefits of scale, the elimination of redundant corporate overhead and improved insurance rates
7
Strong, Experienced Management Team
Over 150 years of combined experience primarily in the satellite, cable and telecommunications industries
Proven record of successful entrance into adjacent markets with rapid revenue growth
Peter GiacalonePresident & CEO
25 Years of Experience
Nick WainwrightPresident – Cable
20 Years of Experience
Steven WestbergCFO
30 Years of Experience
Brian DalmassPresident –
Digital Interiors and Network Services
20 Years of Experience
Ed NollingerSenior VP – Business
Operations34 Years of Experience
Zachary McGuirePresident – Satellite
15 Years of Experience
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M. Brian McCarthyExecutive Director
35 Years of Experience
Recently Completed Initiatives
Deployed over 2,200 new Company-owned vehicles in 2005
Launched Network Services, a fiber network engineering line of business that has earned significant new contracts
Acquired Digital Interiors
Consolidated all back-office functions to one shared service center
Relocated a portion of call center operations off-shore
Upgraded technical skills of over 3,300 technicians
Recruited top IT professionals enhancing controls and financial reporting
Initiated remote technician dispatch
Initiated regionalized dispatch operations
Completed the re-financing of the Company’s long term debt
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Business Overview
Satellite
Satellite
Completed POV/COV conversion, acquired 2,000 DIRECTV compliant vans and hired 950 technicians
Completed outsourcing of approximately 60 CSR’s to Philippines, resulting in $100,000 monthly savings
Initiated remote technician dispatch resulting in reduced fuel and overtime expense
Initiated regionalized dispatch operations resulting in reduced headcount
DIRECTV rate card increases in California
Accomplishments
DIRECTV 2006 4% rate cut offset with 12% increase in volume. Additional 150,000 installations forecast by Ironwood in 2006
DIRECTV currently re-evaluating rate card and work rule structure for the entire network
HSP network grows to approx.80% (up from 60%) of DIRECTV
Revenue growth in 2005 of approx. 33% expected to increase 9% in 2006
Over 2 million truck rolls per year
DIRECTV implements bi-weekly fulfillment pay
Assumptions
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Cable
Cable
Became largest installation contractor for Cablevision, ramping up to a total of 225 technicians in 2006
Launched new operations for Time Warner in Greensboro and WOW in Detroit all of which contributed to earnings in 2006
Rebuilt New Orleans and Beaumont operations after Hurricane Katrina/Rita. Currently “prime” contractor for Cox/Time Warner
Wirecomm Systems (servicing Rogers Communications, Canada) turnaround achieving 25% revenue growth and significantly improved earnings
Re-organized the cable division into logical operating units
Accomplishments
Modest in-branch growth supporting MSO triple-play needs
Revenue growth of approximately 35%
Significant opportunities exist for additional technician growth outside of existing branch network
Growth in popularity of digital cable, VoIP, and broadband services are increasing the size of the business
Assumptions
11
Network Services
Network Services
Entry into growing FTTH market with little up front development costs
Launched operations in Q4 2005 via transition of four engineers and 13 project management support personnel from Tetra Tech. Now operates with over 50 personnel
Transferred existing contracts totaling approximately $2 million
Accomplishments Budgeted existing backlog only –
upside revenue potential
High margin business – 20% to 25% achievable with scale
New Contracts with for the City of Ontario, California and Santa Clara, California and Boise Airport
Significant acceptance and interest from developer community for Network Services offering:
Planning and network engineering
Network construction and management
Customer drops to the home
Content and communication services (video, voice, data, security)
Network monitoring and operations, providing recurring revenue
Assumptions
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Digital Interiors – Home
Digital Interiors – Home
Completed acquisition in March 2005
Consolidated and integrated operations into Denver operations hub
Rationalized sales organization
Developed relationship with ONteriors in Phoenix and Houston
Accomplishments
Compliments Network Services division – one point of contact for municipalities, developers and builders
Respond to requests to expand presence with national and regional home builders
Estimated that in 2006, 60% of the 2 million homes built will have advanced structured wiring built into the home’s base package
Areas of expansion include monitored security, communications, distributed audio and home theater
Assumptions
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Growth Opportunities
Growth Opportunities
Cable and satellite operators are increasingly outsourcing residential services to professional installers
Strong DIRECTV subscriber growth and cable subscriber churn will continue to drive increased installation volume
180 Connect has earned significant DIRECTV customer satisfaction bonus’ in 2006 and is consistently ranked number 2 or 3 in the HSP network
Increased demand for new products and technology upgrades will result in additional upgrade truck rolls
Leverage infrastructure into complementary services
DIRECTV CableNetwork Services
Digital Interiors
Pro Line Upsell
New Services New Services
180 Connect has positioned itself for significant growth driven by a combination of opportunities across each of its business components
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Financial Overview
Historical and Projected Revenue
$318.6
$280.7
$211.8
$86.0
$0
$100
$200
$300
$400
$500
2003 2004 2005 2006E
($ in millions)
2004-2006E CAGR: 22.65%
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Historical and Projected EBITDA
($ in millions)
$4.1$5.6
$1.0
$12.7
$4.1
$11.4$13.8 $14.0
$0.0
$10.0
$20.0
$30.0
$40.0
2003 2004 2005 2006E
EBIT
DA
Reported EBITDA Adjusted EBITDA
2004-2006E CAGR: 50.6%
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2005: A Year of Transition
Rapid growth – significant growth related costs Deployed 2,200 new service vehicles and 950 new field technicians
Upgraded technical skills of over 3,300 technicians
Recruited top IT professionals to focus on work order and supply chain systems
Consolidated back office functions in Denver
Settled Mountain Center acquisition liabilities and several longstanding DOL claims
Company repositioning – five operating lines of business poised for contribution Launched Network Services and integrated Digital Interiors
Relocated major portion of call center operations off-shore
Launched Pro Line upsell
Positioned for strong future growth Maturity of growth related costs behind us
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EBITDA Margin Improvement Initiatives
ReducedSubcontractorRate Card &
Strategically DeployBased on Seasonal
Trends
Fleet Conversion
G&ACost Reduction
Safety Training- Improved Insurance
Trends
ImprovedConsumable
Sourcing
Off-Shore CallCenter
Direct Sales
Margin Improvement
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Technician Up-Sell Program
Proline
Balance Sheet Strengthening
Refinancing Completed
Debt refinance of up to a maximum of $57 million of debt available comprising a revolving credit facility and a term facility with interest rates ranging from prime plus 3% to prime plus 5%.
Excludes $32.7 million of capital lease obligations
Recently completed $10 million refinancing of fleet resulting in $2.1 million of incremental cash flow
19
Balance Sheet Summary
($ in millions)
(1) Long-term debt includes current portion.(2) Capital lease obligations includes current portion.
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($ in millions) UNAUDITEDAs of: 12/31/04 12/31/05 09/30/06
ASSETSCash and Cash Equivalents 28.5 3.4 0.5Accounts Receivable, Net 43.9 50.0 45.5Inventory 17.8 20.3 17.8Restricted Cash 6.1 14.8 14.5
Prepaid Expenses and Other Current Assets 0.7 1.4 1.7 Total Current Assets 97.0 89.9 80.0Property and Equipment, Net 3.0 41.7 39.4Goodwill 15.4 15.5 15.5Customer Contracts, Net 35.8 29.0 26.2Other Long-Term Assets 8.3 1.7 8.0 Total Assets 159.5 177.6 169.0
LIABILITIES & SHAREHOLDS' EQUITYAccounts Payable 4.0 8.9 7.2Accrued Liabilities 67.2 67.8 62.1 Total Current Liabilities 71.2 76.7 69.3Long-Term Debt (1)
50.7 40.0 39.9Capital Lease Obligation(2)
0.4 34.9 29.6Convertible Debt - - 7.7Other Long-Term Liabilities 5.1 1.6 1.5Shareholders' Equity 32.0 24.5 21.1 Total Liabilities and Shareholders' Equity 159.5 177.6 169.0
AUDIT
Capital Expenditures and Working Capital
Capital expenditures, excluding fleet purchases, projected to be between $2.6 million and $2.5 million annually over next three years
Capital expenditures relate primarily to supporting the Company’s IT initiatives
The Company also transitioned to a Company-owned vehicle model, resulting in purchasing 2,200 new vehicles to replace privately-owned vehicles
Capital Expenditures Summary
$1.3$1.9
$5.7
$2.6
$0
$1
$2
$3
$4
$5
$6
2003 2004 2005 2006E
($ in millions)
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Conclusion
Investment Highlights
Leading Provider of Outsourced Home Installation Services One of the largest members of the DIRECTV Home Service Provider (“HSP”) Network of installers Largest installation contractor of cable services for Cablevision and Rogers Superior quality and customer satisfaction ratings
Large and Growing End-Markets DIRECTV subscriber base projected to grow at a 7.7% CAGR from 15 million in 2005 to 22 million in
2010 Convergence of technology driving demand for “Triple Play” (voice, data and video) service installations
for the cable industry Strong upgrade trend from basic to digital cable Growth of “digital homes” wired for sound, security, and data combined with historically strong housing
starts (in 2006 over 60% of the two million new homes built will have an advanced structured wiring feature built into the basic specifications)
National Footprint/ Leverageable Network Over 3,300 highly-skilled, highly-trained technicians completing approximately 2.5 million in-home visits
per year Highly leverageable branch network capable of supporting a multitude of home services (e.g., security,
data networking, home theater, communications) 85 branch locations across the U.S. and in Ontario, Canada
Significant Operating Leverage & Margin Expansion Opportunity Recent investments in infrastructure, personnel, and equipment position the Company to realize benefits
of significant growth opportunities Centralized back-office and off-shore call center operations Fleet of over 3,000 company-owned trucks Additional margin expansion opportunities available through product and market synergies, further
benefits of scale, the elimination of redundant corporate overhead and improved workers’ compensation insurance rates
Strong, Experienced Management Team Senior management has over 150 years of combined experience primarily in the satellite,
cable and telecommunications industries Proven record of successful entrance into adjacent markets with rapid revenue growth
22
Fact Sheet – As at September 30, 2006
Symbol: NCT.U (TSX)
Shares: 24.4 million basic
Debt:
Long Term: $39.9 million (includes current portion)
Convertible Debt: $7.7 million
Capital Leases: $29.6 million
Cash: $0.5 million
Restricted Cash: $14.5 million
Technicians: 3,300
Branches: 85
Website: www.180connect.net
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