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8-K - KeyOn Communications Holdings Inc. | i00085_keyon-8k.htm |
KEYON COMMUNICATIONS HOLDINGS, INC.
Discussion of Round One of the Broadband Stimulus Program
Corporate Update
Public Conference Call Materials
March 8, 2010
This document is confidential solely for the use of the intended party. No part of it may be circulated, quoted, or reproduced for
distribution outside without prior written approval from the author.
This presentation includes forward-looking statements within the meaning of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended. Forward-looking statements
give our current expectations or forecasts of future events. Words such as expect, may, anticipate, intend, would, will, plan, believe, estimate,
should, could, might, potential, predict, or the negative and plural of those terms, and similar expressions, identify forward-looking statements. Forward-looking statements in this
presentation include express or implied statements concerning our future revenues, prior and potential acquisitions, expenditures, capital or other funding requirements, the adequacy of our current cash and working capital balances to fund our present
and planned operations and financing needs, expansion of and demand for our product and services offerings, the growth of our business and operations as well as future economic and other conditions both generally and in our specific geographic and
product and service markets. These statements are based on our estimates, projections, beliefs and assumptions, and relate only to events, as of the date the forward-looking statements are made, are not guarantees of future performance and
are subject to risks and uncertainties. The occurrence of the events described, and the achievement of the expected results, depend on many events, some or all of which are not predictable or within our control. We caution that these risk factors are
not necessarily all of the factors that could cause our actual future results, performance and achievements to differ materially from those expressed in forward-looking statements made by or on behalf of us in this presentation. Other
unknown or unpredictable factors could also harm our results. Except as required by law, we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, even if experience or future
changes make it clear that any projected results or events expressed or implied therein will not be realized. We qualify all of our forward-looking statements by these cautionary statements.
THIS PRESENTATION IS CONFIDENTIAL INFORMATION OF KEYON COMMUNICATIONS HOLDINGS, INC.
THE INFORMATION CONTAINED IN THIS PRESENTATION IS CONFIDENTIAL AND PROPRIETARY TO THE COMPANY. IT IS BEING PRESENTED TO PROSPECTIVE INVESTORS SOLELY FOR SUCH INVESTORS CONFIDENTIAL USE, WITH THE
EXPRESS UNDERSTANDING THAT, WITHOUT THE PRIOR PERMISSION IN WRITING FROM THE COMPANY, RECIPIENTS WILL NOT DISCLOSE OR DISCUSS THIS PRESENTATION OR THE INFORMATION CONTAINED HEREIN WITH ANY OTHER PERSON OTHER THAN PERSONS AUTHORIZED BY THE COMPANY
AND FOR ANY PURPOSE OTHER THAN EVALUATING A POTENTIAL INVESTMENT IN THE COMPANY.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
1
Discussion of KeyOns Broadband Stimulus Applications under ARRA
The American Recovery and Reinvestment Act has $7.2B earmarked
for rural broadband development
Funding is provided through both federal grants and loans
National Telecommunications and Information Administrations (NTIA)
Broadband Technology Opportunities Program (BTOP) - $4.7B
Rural Utilities Services (RUS) Broadband Initiatives Program (BIP) - $2.5B
On August 18, 2009, KeyOn applied for $150 million of government
stimulus funds in 11 separate
applications: AR, IA, IL, KS MN, MO, NE,
NV, OK, SD, WI
Prior to the federal filing deadline, KeyOn received a $3 million grant award
from the State of Illinois Dept. of Commerce and Economic Opportunity
to contribute to the Companys Illinois Federal Application
On January 4, 2010, KeyOn was notified that all 11 applications had
moved to the Phase 2 Due Diligence process and that KeyOns
response was due by February 3, 2010
KeyOn provided 528 documents, including commitments for up to $90
million of outside
capital of which up to $50 million was preferred
equity
On March 2, 2010, KeyOn received a letter of rejection via email for all
eleven Round One applications from the RUS
KeyOn Believes it Remains Well Positioned to Receive ARRA Broadband Stimulus
Funds and is Determined to Improve its Applications for Round Two
State
Loan Funds
Grant Funds
KS
$7,107,371
$7,091,705
AR
$5,037,300
$5,016,388
NV
$4,602,990
$4,592,729
MN
$5,879,454
$5,854,530
MO
$11,680,001
$5,847,231
OK
$7,689,333
$3,879,204
IA
$13,650,211
$6,853,363
IL*
$17,373,815
$0
NE
$8,423,452
$8,404,466
SD
$3,002,493
$2,989,026
WI
$10,776,724
$5,395,026
Total
$95,223,144
$55,923,669
*Illinois outside capital includes $3mm grant from the
Illinois Department of Commerce and Economic
Opportunity (DCEO) in support of KeyOns
federal
broadband stimulus application.
2
Recap of Round One of Broadband Stimulus Through March 4, 2010(1)
1,233 round One last-mile infrastructure applications (400 BIP only + 833
BIP/BTOP with
$1.2B available)
$800M was allocated in Round One to last-mile non-remote projects
42 last-mile non-remote awards totaling $650.3M
$149.7M allocated but not awarded
$1.7B is allocated by BIP to Round Two last-mile projects, plus an additional
$95M in reserve
Last Mile Awards
Non-Remote & Remote
(through 03/041)
$s Awarded
% of $s Awarded
No. of Applicants
Wireless Total
$ 57,885,004
7.2%
11
Non-Wireless
$750,347,199
92.8%
42
Total
$808,232,203
100%
53
(1) Last date awards for BIP were announced.
3
Overview of Round Two Broadband Stimulus under ARRA
Round Two, the last and final round
On January 15, 2010, the RUS released the NOFA for Round Two
$1.7B allocated toward last mile projects
All applications are due March 29, 2010 with awards announced no later than September 30, 2010
The following describes the changes in Round Two from Round One
Last-mile projects are for the RUS program only
NTIA focus is on middle mile projects
RUS simplified the rules around the mix of grants and loans and has adopted a maximum 75/25
grant/loan ratio for all projects along with the flexibility to seek a waiver if additional grant resources are
needed
The maximum Round One grant was 50% of the project. With the new rules, applicants can receive up to 75% of
the project cost as a grant
The RUS has no matching requirement in order to qualify, unlike the program under the NTIA
Eligible areas are those where 50% or less of all premises lack High Speed Access (defined as 5Mbps
up/down combined); Underserved definition has been eliminated
Phase Two due diligence has been eliminated; all substantiating documents must now be
provided along with the application by March 29, 2010
4
KeyOn Intends to Apply in Round Two under BIP
KeyOn intends to apply in Round Two
Only a small percentage of KeyOns Round One areas were awarded
Currently in process of qualifying rural areas in the Midwestern and Western states against the
Round Two criteria
Partners remain engaged and committed to success
Leading manufacturers of WiMAX and Microwave equipment are assisting KeyOns engineers to
design the last mile and backhaul networks
Nationally recognized wireless system integrators are working with KeyOn to develop the
implementation plan
Chances are also improved, due to:
Last-mile was under-funded in Round One by approximately $400M and Round Two allocates an
additional $1.7B
Working with existing preferred equity investors for Round Two
Streamlined and separate processes will create efficiencies between RUS and the applicants
Wireless was under-represented in Round One
Financial implications are potentially better than in Round One
KeyOns vision for growth through broadband stimulus remains intact and achievable
Having already applied, KeyOn believes that its chances for a stimulus award are improved
5
Financial
In early February 2010, KeyOn raised $15 million in a Convertible Secured Note financing and secured an additional $35 million contingent equity commitment. Also, secured a $40 million contingent debt commitment
Repaid $4.05 million Senior Secured Loan from Sun West Bank as part of the note
Since May 2009, raised approximately $3.4 million in common equity, including exercises of warrants
Eliminated over $1.5 million of secured debt through conversion into equity in August/September of 2009
Operational
Completed 2 acquisitions of wireless broadband companies under Companys Rural UniFi
program:
SkyWi acquired on 12/04/09
Affinity Wireless acquired on 02/03/10
Executed an Asset Purchase Agreement for an acquisition in Illinois
Achieved positive EBITDA in Q4-08, Q1-09, Q2-09 and slightly negative in Q3-09(1)
Announced roll-out of Google Apps to current and future subscriber base
Almost complete with deployment of new billing, operations support/customer resource
management (OSS/CRM) system
KeyOn Corporate Update
In addition to applying for $150 million of government stimulus funds under ARRA,
KeyOn reached a number of other important company milestones in 2009 and into Q1-10.
(1) Adjusted EBITDA for Q3 was ($10,156) after adjusting for non-cash items and some one-time expenses. In particular, third
quarter results from operations include over $370,000
of expenses incurred in connection with KeyOns stimulus applications.
6
Continuing Progress Made with RURAL UNIFi
Strategic acquisitions remain a key growth driver
Increase subscribers and revenues
Increase EBITDA through expense reductions
Opportunities are robust as growth capital remains elusive and lack of scale
limits opportunities for many local providers
Disciplined approach to selecting targets
Complimentary to stimulus efforts
Additional networks result in synergies for green-field builds
Operational (GMs, field-technicians)
Sales and marketing (new distribution channels)
Wireless broadband industry is extremely
fragmented
KeyOn is ideally positioned to integrate wireless
broadband companies.
Previously acquired and integrated six acquisitions
Management experience, internal systems and
billing platform ensure smooth integration
7
Affinity Wireless
Status
Purchase Completed on
February 3, 2010
Location
Based in South Central
Iowa contiguous to
existing networks
Business
Description
Wireless broadband
customers include
residential, business and
critical community
facilities
Transaction
Benefits to
KeyOn
Asset purchase with
assumption of certain
liabilities (tower leases;
internet termination)
Combining networks
results in significant
monthly savings on
internet termination
Pro forma EBITDA ~ 50%
of revenue
Assets of Affinity Wireless Closed on February 3, 2010
Affinity
Current KeyOn
8
Pending Transactions Illinois Assets
RidgeView Tel
Current KeyOn
RidgeView Tel Illinois
Status
Executed Asset Purchase
Agreement December
21, 2009
Closing expected in Q1
Location
Networks in SE Illinois
near existing networks
Business
Description
Wireless broadband
customers include
residential, business and
critical community
facilities
ARPU = $30
Transaction Benefits to
KeyOn
Asset purchase with
assumption of certain
liabilities (tower leases;
internet termination)
Operational synergies
due to proximity to
current networks
Trial of cutting edge
NMS
9
Acquisition Pipeline Overview
Targeted Geographic
Area
Midwestern States
Active Targets
Currently in Discussion
30
Total Subscriber Base
of Active Targets
40,000
Individual Target Size
300 5,000 subscribers
Pre-Acquisition
Financials
EBITDA Positive to Neutral
Types of Targets
Boot-strapped Entrepreneurs
Rural Cooperative Subsidiaries
Divisions of Telcos and other Operating
Businesses
Entities Financed by Earlier RUS
Programs or Regional Financing Sources
Growing Pipeline of Acquisitions
10
As of Jun 30,
2009
As of Sep 30,
2009
Pro Forma
As of Sep 30,
2009
ASSETS
CURRENT ASSETS
$ 470
$ 769
$ 11,657
PROPERTY PLANT AND EQUIPMENT - Net:
2,338
1,928
1,928
OTHER ASSETS
2,267
2,129
2,129
TOTAL ASSETS
$ 5,075
$ 4,826
$ 15,714
LIABILITIES AND STOCKHOLDERS (DEFICIT)
CURRENT LIABILITIES
Current Liabilities
$ 3,321
$ 2,565
$ 2,501
Current Portion of Notes Payable
1,713
158
158
Current Portion of Term Loan Payable
-
68
0
Current Portion of capital lease obligations
559
592
592
Total Current Liabilities
5,593
3,382
3,251
LONG TERM LIABILITIES
Deferred Rent Liability
111
96
96
Notes Payable / Long Term Debt
20
14
15,014
Capital Lease Obligations
793
633
633
Term Loan
4,050
3,982
0
Total Long term Liabilities
4,975
4,724
15,743
STOCKHOLDERS (DEFICIT)
(5,493)
(3,280)
(3,280)
TOTAL LIABILITIES AND STOCKHOLDERS
(DEFICIT)
$ 5,075
$ 4,826
$ 15,714
Historical Financials Balance Sheet
11
REVENUES:
2008
Q1 2009(1)
Q2 2009(1)
Q3 2009
9 Mos. Ended
Sept 2009
Service and installation revenue
$ 7,647
$ 1,832
$ 1729
$ 1,620
$ 5,181
Support and other revenue
147
34
55
53
142
Total Revenues
7,794
1,866
1,784
1,673
5,323
OPERATING COSTS AND EXP:
Payroll, bonuses and taxes
3,600
685
657
715
2,057
Other general and administrative
1,259
308
258
327
894
Network operating costs
2,752
708
755
666
2,128
Marketing and advertising
321
15
6
21
42
Installation expense
419
47
33
53
133
Professional fees
393
37
47
(99)
(15)
Total operating costs and exp.
8,777
1,801
1,755
1,683
5,240
ADJUSTED EBITDA (Non-GAAP)(2)
(983)
65
29
(10)
83
OTHER INCOME (EXPENSE):
Interest income (expense)
(898)
(260)
(351)
(1,463)
(2,074)
Depreciation, amortization & good will
impairment
(2,832)
(639)
(617)
(582)
(1,839)
Stock based compensation
(3,338)
(187)
(57)
(476)
(721)
Misc. income (expense) ARRA app.
-
-
(38)
(372)
(410)
Total other income (expense)
(7,068)
$ (1,087)
(1,063)
(2,894)
(5,044)
NET LOSS
$ (8,050)
$ (1,023)
$ (1,034)
$ (2,904)
$ (4,961)
Historical Financials Income Statement
YE December 31 ($000)
(1) As restated (2)Adjusted EBITDA excludes expenses associated with KeyOns ARRA application
12