Attached files
| file | filename |
|---|---|
| 8-K - 8-K - FAIRPOINT COMMUNICATIONS INC | frp-8kannouncementx12516.htm |
| EX-99.1 - EXHIBIT 99.1 - FAIRPOINT COMMUNICATIONS INC | prex991.htm |
NOVEMBER 2016
Acquisition of FairPoint
Communications
December 5, 2016
NASDAQ: CNSL
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Click to edit Master title style Call Participants
4
Bob Udell
President and CEO, Consolidated Communications
Steve Childers
Chief Financial Officer, Consolidated Communications
Paul Sunu
Chief Executive Officer, FairPoint
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Sustain and
Grow
Cash Flow
–
Increase
Shareholder Value
5
Diversify and Improve
Revenue Trends
Maintain Effective
Capital Deployment
Improve Operating
Efficiency
Pursue Selective
Acquisitions
Acquisition Consistent with Our Strategy
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Click to edit Master title style FairPoint Acquisition Rationale
6
• Regional fiber rich network spanning over 21k route miles
• Over $1.0 billion in capital invested in infrastructure and technology since 2009
• Extensive fiber-to-the-tower footprint and 90%+ broadband coverage
High Quality,
Enterprise–Class
Fiber Network
• Expands network reach and scale – 35k fiber route miles, 8k fiber-connected
buildings and 3k fiber-to-the-tower connections
• Opportunity to leverage Consolidated’s enhanced product suite and consultative
sales approach across FairPoint’s markets
• Doubles the revenue base and adjusted EBITDA (including synergies)
Material Increase
in Scale
• History of successfully integrating acquisitions with track record of exceeding
synergy targets
– TXU (2004), North Pittsburgh (2007), SureWest (2012) and Enventis (2014)
• Plan to leverage successful consultative sales approach across customer groups
Proven Integration
Track Record
• Expected to achieve $55MM in annual run-rate synergies
• Transaction is meaningfully accretive to free cash flow per share
• Maintain attractive return of capital program – $1.55 per share dividend
• Pro forma net leverage of 3.8x at close (including run-rate synergies) (1)
• Greater strategic and financial flexibility going forward
Highly Compelling
Financial Benefits
Note
1. Includes expected run-rate synergies of $55MM
Source Company Filings
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7
Notes
1. Based on average exchange ratio of 0.6222 derived from close of previous 30 trading days as of December 2, 2016
2. Balance sheet data as of September 30, 2016
3. Calculated using midpoint of 2016E EBITDA guidance of $245 – $255MM; Includes expected run-rate synergies of $55MM
4. FairPoint’s has 27.9MM fully diluted shares outstanding based on 0.7300 exchange ratio and Consolidated’s closing share price of $28.38 as of December 2, 2016 and
Consolidated’s 51.0MM fully diluted shares outstanding
• Consolidated to acquire FairPoint in a 100% stock transaction
– Fixed exchange ratio of 0.7300, implying a 17% (1) premium to the 30-day average
exchange ratio
Transaction
Consideration and
Structure
• 71.3% (4) Consolidated shareholders
• 28.7% (4) FairPoint shareholders
Pro Forma
Ownership
• Financing commitment in place to refinance existing FairPoint debt Financing
• FairPoint to get one board seat
• Bob Udell to remain President and CEO of Consolidated Communications
Governance
• Closing expected by mid 2017 Closing
• Hart-Scott-Rodino, FCC and certain state regulatory approvals
• Consolidated and FairPoint shareholders will have the opportunity to vote on the deal
Approvals
• Transaction value of $1.5Bn, including net debt of $887MM (2)
• Implied EBITDA multiple of 5.9x (pre-synergies) / 4.8x (full synergies) (3)
Transaction
Value / Multiples
Source Company Filings, FactSet
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1100
2400
Consolidated Pro Forma
Attractive Asset Portfolio of Regional Fiber Networks
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Source Company Filings
Consolidated FairPoint Operating States Fiber Network Lines
FL
NM
MD
TX
OK
KS
NE
SD
ND MT
W
Y
CO
UT
ID
AZ
NV
WA
CA
OR
KY
NY
PA
MI
N
H
MA
CT
VA
WV
OH
IN
IL
NC
TN
SC
AL
AR
LA
MO
IA
MN
WI
GA
MS
VT
NJ
DE
ME
RI
FairPoint
Core Market
Roseville
Sacramento
Fargo
Twin Cities
Duluth
Mankato
Des Moines
Kansas City
Dallas
Lufkin
Conroe
Katy Houston
St.Louis
Mattoon
Indianapolis Pittsburgh
Gibsonia
Note
1. Consolidated and FairPoint metrics rounded to nearest hundred
14100
35100
Consolidated Pro Forma
Fiber Network Miles (1)
+2.5x
5500
8500
Consolidated Pro Forma
On-Net Buildings (1)
+1.5x
Fiber Wireless Tower Sites (1)
+2.2x
As of September 30, 2016, TTM
-Net Buildings (1)
Fiber Network Miles (1)
Fiber Connected Tower (1)
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Click to edit Master title style High Quality, Enterprise–Class Fiber Network
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• 21,000 fiber miles in total / 17,000 in North New
England (“NNE”)
• 1,900+ Fiber-to-the-tower (“FTTT”) Ethernet backhaul
connections (1,300 tower sites)
• 32 markets with access to Ethernet connections
capable of symmetrical, dedicated data transport
speeds of up to 1 Gig
• ~90% broadband availability
• Over $1Bn invested into infrastructure and
technology since 2009
• Telecom Group (non–NNE) overview
– 16 states geographically disbursed
– Consistent, substantial cash flow generation
– Local presence and workforce with less competition
– Contributes approximately 20% of total FairPoint
revenue
Source Company Filings
Broadband Coverage
NNE Fiber Networks
Bangor
Laconia
VT
93%
NH
95%
ME
88%
Boston
New York
Albany
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Click to edit Master title style Significant Increase in Scale
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Note
1. Includes Access and Data and Internet Services Revenue
755
1586
Consolidated Pro Forma
Pro Forma Revenue
+2.1x
Source Company Filings
Pro Forma Revenue
As of September 30, 2016, TTM
Business and Broadband83%
Res. Voice
&
Other10%
Subsidies7%
Pro Forma Revenue Mix
55
313
621
Consolidated Pro Forma
EBITDA Synergies
+2.0x
Pro Forma EBITDA (2)
As of September 30, 2016
Pro Forma EBITDA
+ =
Business and
Broadband62
% (1)
Res.
Voice &
Other32
%
Subsidies6%
Business and
Broadband72
% (1)
Res. Voice &
Other22%
Subsidies7%
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State Coverage 11 17 24
Fiber Network Miles 14,100 21,000 35,100
On-Net Buildings 5,500 3,000 8,500
Fiber Connected Towers 1,100 1,300 2,400
Voice Connections 462,200 377,400 839,600
Data and Internet Connections 470,500 325,000 795,500
Pro Forma Operating Statistics
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Notes
1. Excluding four overlapping states
2. Includes "Residential Voice Lines“
3. Includes "Broadband Subscribers" and "Ethernet Circuits“
4. Does not adjust for redundancy
Source Company Filings, Consolidated and FairPoint metrics rounded to nearest hundred
(2)
(3)
(4)
(4)
(1)
Pro Forma
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Click to edit Master title style $55M Annual in Well-Defined Synergies
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Operating Costs
• Corporate
• Network and Operational Efficiencies
• IT Support
• Public Company Costs
• Professional Services
• Back office systems
~$45mm
annually
~$10mm
annually
Description Amount
Consolidated has a proven track record of successful integration
and meeting or exceeding synergy targets
Vendor and
Outsourced Costs
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(2007) (2014)
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(2012)
Proven Integration Track Record
Opex Synergies
Target $14MM $25MM $7MM – $10MM
Met or Exceeded Synergies Target
Opex Synergy Achievement
Capex Synergies Target
Capex Synergy Achievement
Not Disclosed $5MM – $10MM $3MM – $6MM
N/A
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Click to edit Master title style Highly Compelling Financial Benefits
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Notes
1. Consolidated debt is pro forma for October refinancing, assuming $900MM term loan B raise, which along with $2MM in cash from balance sheet is used to pay down
$884MM in existing term loan B, $10MM in fees and expenses, and $8MM in revolver
2. Includes expected run-rate synergies of $55MM
4.425382523
3.783636704
Consolidated Pro Forma
Pro Forma Deleveraging (2)
LTM
(0.6x)
(2)
• Combined company’s capital structure benefits from:
– Expected achievement of $55MM in run-rate synergies
– Meaningful free cash flow accretion
– Strengthened and improved dividend payout ratio
– Significant improvement to total leverage with
additional strategic and financial flexibility
• Pro forma net leverage of 3.8x at close (including run-rate
synergies), down from net leverage of 4.4x as of
September 30, 2016 (1)
• Utilization of estimated ~$300MM in NOLs reduces cash
taxes and improves free cash flow
Transaction is Deleveraging (1)
Net Leverage
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Q&A
15
• Click to edit Master title style
Click to edit Master title style Use of Non-GAAP Measures
This presentation includes disclosures regarding “EBITDA”, “adjusted EBITDA”, “cash available to pay dividends” and the related “dividend
payout ratio”, “total net debt to last twelve month adjusted EBITDA coverage ratio”, “adjusted diluted net income per share” and “adjusted net
income attributable to common stockholders”, all of which are non-GAAP financial measures and described in this section as not being in
compliance with Regulation S-X. Accordingly, they should not be construed as alternatives to net cash from operating or investing activities,
cash and cash equivalents, cash flows from operations, net income or net income per share as defined by GAAP and are not, on their own,
necessarily indicative of cash available to fund cash needs as determined in accordance with GAAP. In addition, not all companies use identical
calculations, and the non-GAAP financial measures may not be comparable to other similarly titled measures of other companies. A
reconciliation of the differences between these non-GAAP financial measures and the most directly comparable financial measures presented in
accordance with GAAP is included in the tables that follow. Adjusted EBITDA is comprised of EBITDA, adjusted for certain items as permitted
or required by the lenders under our credit agreement in place at the end of each quarter in the periods presented. The tables that follow
include an explanation of how adjusted EBITDA is calculated for each of the periods presented with the reconciliation to net income. EBITDA is
defined as net earnings before interest expense, income taxes, depreciation and amortization on a historical basis. Cash available to pay
dividends represents adjusted EBITDA plus cash interest income less (1) cash interest expense, (2) capital expenditures and (3) cash income
taxes; this calculation differs in certain respects from the similar calculation used in our credit agreement. We present adjusted EBITDA, cash
available to pay dividends and the related dividend payout ratio for several reasons. Management believes adjusted EBITDA, cash available to
pay dividends and the dividend payout ratio are useful as a means to evaluate our ability to fund our estimated uses of cash (including interest
on our debt) and pay dividends. In addition, we have presented adjusted EBITDA, cash available to pay dividends and the dividend payout ratio
to investors in the past because they are frequently used by investors, securities analysts and other interested parties in the evaluation of
companies in our industry, and management believes presenting them here provides a measure of consistency in our financial reporting.
Adjusted EBITDA and cash available to pay dividends, referred to as Available Cash in our credit agreement, are also componen ts of the
restrictive covenants and financial ratios contained in our credit agreement that requires us to maintain compliance with these covenants and
limit certain activities, such as our ability to incur debt and to pay dividends. The definitions in these covenants and ratios are based on adjusted
EBITDA and cash available to pay dividends after giving effect to specified charges. In addition, adjusted EBITDA, cash available to pay
dividends and the dividend payout ratio provide our board of directors with meaningful information to determine, with other data, assumptions
and considerations, our dividend policy and our ability to pay dividends under the restrictive covenants in our credit agreement and to measure
our ability to service and repay debt. We present the related “total net debt to last twelve month adjusted EBITDA coverage ratio” principally to
put other non-GAAP measures in context and facilitate comparisons by investors, security analysts and others; this ratio differs in certain
respects from the similar ratio used in our credit agreement. These measures differ in certain respects from the ratios used in our senior notes
indenture. These non-GAAP financial measures have certain shortcomings. In particular, adjusted EBITDA does not represent the residual
cash flows available for discretionary expenditures, since items such as debt repayment and interest payments are not deducted from such
measure. Similarly, while we may generate cash available to pay dividends, we are not required to use any such cash to pay dividends, and the
payment of any dividends is subject to declaration by our board of directors, compliance with applicable law and the terms of our credit
agreement. Because adjusted EBITDA is a component of the dividend payout ratio and the ratio of total net debt to last twelve month adjusted
EBITDA, these measures are also subject to the material limitations discussed above. In addition, the ratio of total net deb t to last twelve month
adjusted EBITDA is subject to the risk that we may not be able to use the cash on the balance sheet to reduce our debt on a dollar-for-dollar
basis. Management believes these ratios are useful as a means to evaluate our ability to incur additional indebtedness in the future. We present
the non-GAAP measures adjusted diluted net income per share and adjusted diluted net income attributable to common stockholders because
our net income and net income per share are regularly affected by items that occur at irregular intervals or are non-cash items. We believe that
disclosing these measures assists investors, securities analysts and other interested parties in evaluating both our company over time and the
relative performance of the companies in our industry.
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