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| 8-K - 8-K UBS 45TH ANNUAL GLOBAL MEDIA & COMMUNICATIONS CONFERENCE PRESENTATION - CINCINNATI BELL INC | a8-kubs45thannualglobalmed.htm |
UBS
45th Annual Global Media and Communications Conference
December 2017
Safe Harbor
This presentation may contain “forward-looking” statements, as defined in federal securities laws including the Private Securities Litigation Reform Act of 1995, which are based on our current
expectations, estimates, forecasts and projections. Statements that are not historical facts, including statements about the beliefs, expectations and future plans and strategies of the Company, are
forward-looking statements. Actual results may differ materially from those expressed in any forward-looking statements. The following important factors, among other things, could cause or
contribute to actual results being materially and adversely different from those described or implied by such forward-looking statements including, but not limited to: those discussed in this release;
we operate in highly competitive industries, and customers may not continue to purchase products or services, which would result in reduced revenue and loss of market share; we may be unable to
grow our revenues and cash flows despite the initiatives we have implemented; failure to anticipate the need for and introduce new products and services or to compete with new technologies may
compromise our success in the telecommunications industry; our access lines, which generate a significant portion of our cash flows and profits, are decreasing in number and if we continue to
experience access line losses similar to the past several years, our revenues, earnings and cash flows from operations may be adversely impacted; our failure to meet performance standards under
our agreements could result in customers terminating their relationships with us or customers being entitled to receive financial compensation, which would lead to reduced revenues and/or
increased costs; we generate a substantial portion of our revenue by serving a limited geographic area; a large customer accounts for a significant portion of our revenues and accounts receivable
and the loss or significant reduction in business from this customer would cause operating revenues to decline and could negatively impact profitability and cash flows; maintaining our
telecommunications networks requires significant capital expenditures, and our inability or failure to maintain our telecommunications networks could have a material impact on our market share
and ability to generate revenue; increases in broadband usage may cause network capacity limitations, resulting in service disruptions or reduced capacity for customers; we may be liable for
material that content providers distribute on our networks; cyber attacks or other breaches of network or other information technology security could have an adverse effect on our business; natural
disasters, terrorists acts or acts of war could cause damage to our infrastructure and result in significant disruptions to our operations; the regulation of our businesses by federal and state
authorities may, among other things, place us at a competitive disadvantage, restrict our ability to price our products and services and threaten our operating licenses; we depend on a number of
third party providers, and the loss of, or problems with, one or more of these providers may impede our growth or cause us to lose customers; a failure of back-office information technology systems
could adversely affect our results of operations and financial condition; if we fail to extend or renegotiate our collective bargaining agreements with our labor union when they expire or if our
unionized employees were to engage in a strike or other work stoppage, our business and operating results could be materially harmed; the loss of any of the senior management team or attrition
among key sales associates could adversely affect our business, financial condition, results of operations and cash flows; our debt could limit our ability to fund operations, raise additional capital,
and fulfill our obligations, which, in turn, would have a material adverse effect on our businesses and prospects generally; our indebtedness imposes significant restrictions on us; we depend on our
loans and credit facilities to provide for our short-term financing requirements in excess of amounts generated by operations, and the availability of those funds may be reduced or limited; the
servicing of our indebtedness is dependent on our ability to generate cash, which could be impacted by many factors beyond our control; we depend on the receipt of dividends or other
intercompany transfers from our subsidiaries and investments; the trading price of our common shares may be volatile, and the value of an investment in our common shares may decline; the
uncertain economic environment, including uncertainty in the U.S. and world securities markets, could impact our business and financial condition; our future cash flows could be adversely affected
if it is unable to fully realize our deferred tax assets; adverse changes in the value of assets or obligations associated with our employee benefit plans could negatively impact shareowners’ deficit and
liquidity; third parties may claim that we are infringing upon their intellectual property, and we could suffer significant litigation or licensing expenses or be prevented from selling products; third
parties may infringe upon our intellectual property, and we may expend significant resources enforcing our rights or suffer competitive injury; we could be subject to a significant amount of litigation,
which could require us to pay significant damages or settlements; we could incur significant costs resulting from complying with, or potential violations of, environmental, health and human safety
laws; the timing and likelihood of completion of our proposed merger of Hawaiian Telcom, including the timing, receipt and terms and conditions of any required governmental and regulatory
approvals for the proposed transaction that could reduce anticipated benefits or cause the parties to abandon the transaction; the possibility that Hawaiian Telcom’s stockholders may not approve
the proposed merger; the possibility that competing offers or acquisition proposals for Hawaiian Telcom will be made; the occurrence of any event, change or other circumstance that could give rise
to the termination of the proposed transaction; the possibility that the expected synergies and value creation from the proposed transaction involving Hawaiian Telcom will not be realized or will not
be realized within the expected time period; the risk that the businesses of the Company and Hawaiian Telcom and other acquired companies will not be integrated successfully; disruption from the
proposed transaction involving Hawaiian Telcom making it more difficult to maintain business and operational relationships; the risk that unexpected costs will be incurred; and the possibility that
the proposed transaction involving Hawaiian Telcom does not close, including due to the failure to satisfy the closing conditions and the other risks and uncertainties detailed in our filings, including
our Form 10-K, with the SEC as well as Hawaiian Telcom’s filings, including its Form 10-K, with the SEC.
These forward-looking statements are based on information, plans and estimates as of the date hereof and there may be other factors that may cause our actual results to differ materially from
these forward-looking statements. We assume no obligation to update the information contained in this release except as required by applicable law.
2
Non-GAAP Financial Measures
This presentation contains information about adjusted earnings before interest, taxes, depreciation and
amortization (Adjusted EBITDA), Adjusted EBITDA margin, net debt, net income applicable to common
shareholders excluding special items and free cash flow. These are non-GAAP financial measures used by
Cincinnati Bell management when evaluating results of operations and cash flow. Management believes these
measures also provide users of the financial statements with additional and useful comparisons of current results
of operations and cash flows with past and future periods. Non-GAAP financial measures should not be
construed as being more important than comparable GAAP measures. Detailed reconciliations of these non-
GAAP financial measures to comparable GAAP financial measures have been included in the tables distributed
with this release and are available in the Investor Relations section of www.cincinnatibell.com within the Investor
Relations section.
3
Cincinnati Bell Today
Source: Company Filings
4
CBTS
Strategic
E&C
Legacy
E&C
• Regional fiber-based network connecting Cincinnati,
Chicago, Dallas, Indianapolis, Columbus, Louisville and
Atlanta
• Fiber network covers ~70% of Greater Cincinnati
addresses
• Legacy telecommunications network connecting nearly
every building in Greater Cincinnati area
• Fiber expertise with proven investment track record
Entertainment & Communications CBTS
Key
Assets
Key
Strategic
Issues
• Ability to deliver flexible, innovative, end-to-end IT
solutions to enterprise customers
• Proprietary IP around cloud & managed services
orchestration
• Nearly 2,800 vendor certifications with numerous industry
leading technology partners
• Over 1,500 employees
• Finding attractive opportunities to deploy capital to extend
network
• Continuing to increase revenues from strategic services
(currently ~ 65%)
• Geographic isolation
• Duplicative product strategies with CBTS
• How to expand beyond Cincinnati – organic vs. inorganic
• Sufficient size and scale?
• Maintaining relevant and comprehensive product portfolio
• Gaining traction with enterprise customers nationwide
Revenue Mix (2016A)
27%
38%
35%
144 year history of innovation, reinvention, and transformational growth and execution
Page 5
Third Quarter 2017 Highlights
5
Strategic Revenue
$168M
+3% y/y
Fioptics
Revenue of
$79M
+21% y/y
564,700
addresses
+11% y/y
Key Financial Metrics
Strategic Revenue
with breakdown
for 2 segments
Adj EBITDA with
breakdown for 2
segments
Adjusted EBITDA
($ in millions)
Total Revenue
($ in millions)
-$3 -$5
$12 $8
$69 $73
3Q16 3Q17
Entertainment & Communications IT & Hardware Corporate
$78 $76
-$4 -$3
$123 $96
$193
$196
3Q16 3Q17
Entertainment & Communications IT & Hardware Eliminations
$312
$289
Page 6
Entertainment & Communications
6
Strategic Revenue
with breakdown
for 2 segments
Segment Results
Strategic Revenue
Highlights
• Strong and consistent performance in our fiber network business
• Fioptics revenue of $79M, up 21% y/y
• Fioptics internet subscribers of 221,200, up 19% y/y
• Fioptics video subscribers of 143,500, up 8% y/y
• Positive net subscriber adds for internet and video in 3Q17
• Total internet subscribers of 307,900 in 3Q17, up 3% y/y
• Pending merger with Hawaiian Telcom to add operational scale
and expand the Company’s fiber-centric footprint and commercial
opportunity to Hawaii
($ in millions) 3Q17 Y/Y
Consumer $76 18%
Business 43 10%
Carrier 10 -5%
Total $129 13%
($ in millions) 3Q17 Y/Y
Revenue $196 2%
Adj. EBITDA $73 5%
Adj. EBITDA margin 37% 4%
Segment Revenue Elements
Page 7
7
Fioptics Revenue
($ in millions)
Total Fioptics Subscribers
(in thousands)
Fioptics Penetration (y/y)
Video
Internet
Voice
25%
39%
19%
Fioptics Monthly ARPU
Video
Internet
Voice
$88
$50
$28
+6% y/y
+5% y/y
+2% y/y
CBB continues to win with
fiber in an increasingly
competitive environment
• Fioptics is available to 564,700 addresses - approximately 70% of Greater Cincinnati
• On track to pass 35,000 new addresses in 2017
• Video churn of 2.9% in 3Q17, flat vs. 3Q16
• Single-family churn was 2.1%; apartment churn was 5.0%
$32 $38
$26
$32
$7
$9
3Q16 3Q17
Video Internet Voice
$65
$79
133 144
186
221
91 105
3Q16 3Q17
Video Internet Voice
Entertainment & Communications
Our Fioptics Success Continues
Page 8
IT Services & Hardware
8
Strategic Revenue
with breakdown
for 2 segments
Segment Results
Strategic Revenue
($ in millions) 3Q17 Y/Y
Professional Services $17 -24%
Management and Monitoring 6 -32%
Unified Communications 7 -1%
Cloud Services 11 -11%
Total $41 -19%
Highlights
• IT Services and Hardware revenue flat sequentially
• Decline in Telecom & IT hardware due to cost cutting initiatives by
a large customer
• Positive contribution from the SunTel Services acquisition,
expanding CBTS' presence into the Michigan market
• Completion of the acquisition of OnX Enterprise Solutions to
expand the Company’s product offering and provide greater
geographic and customer diversification
• Recent win of national NaaS project to start in H2 2018
($ in millions) 3Q17 Y/Y
Revenue $96 -22%
Adj. EBITDA $8 -29%
Adj. EBITDA margin 9% -9%
Segment Revenue Elements
Management and
Monitoring
-32% y/y
Unified Communications
+8% y/y
Cloud Services
-11% y/y
Telecom &
IT Hardware
-33% y/y
Professional
Services
-6% y/y
Page 9
Capital Structure and Free Cash Flow Performance
9
Net Debt
Change in Working Capital/Other
1. Calculated as net debt divided by LTM adjusted EBITDA
2. Includes decommissioning of wireless towers
($ in millions)
3.7x
Net Leverage(1)
3.6x
Net Leverage(1)
$1,125 $1,089
3Q16 3Q17
-$27
$26
3Q16 3Q17
Capital Structure
• Committed financing for the cash consideration portions
of both the Hawaiian Telcom and OnX transactions, and
refinancing for portions of existing Cincinnati debt and all
of Hawaiian Telcom’s existing debt
• New credit agreement comprised of a 7-year
$600 million senior secured term loan facility and
5-year $200 million senior secured revolving
credit facility
• Raised $350 million in senior unsecured notes
YTD Free Cash Flow
3Q17 Y/Y
YTD Change
Adjusted EBITDA (Non-GAAP) $224 ($7)
Interest Payments (53) 5
Pension and OPEB Payments (9) (1)
Stock-based Compensation 5 -
Restructuring & Severance related payments (27) (26)
Transaction and Integration Costs (9) (9)
Working Capital and Other 26 53
Cash Provided by Operating Activities (GAAP) $157 $15
Capital expenditures (148) 41
Restructuring & severance related payments 27 26
Preferred stock dividends (8) -
Dividends received from Investment in CyrusOne - (6)
Cash used by discontinued operations(2) - (7)
Transaction Costs 9 9
Free Cash Flow (Non-GAAP) $37 $78
Page 10
Capital Expenditures
10
Capital Expenditures
Total $43 $148 $180 - $210
• Anticipates CapEx towards high-end
of guidance range for 2017
• Invested $92 million in Fioptics in
the first nine months of 2017
• Passed an additional 31,300
customer locations
• On track to pass 35,000 new
addresses during 2017 and
extend coverage to more
than 70% of Greater
Cincinnati
• Other strategic represents success-
based capital for fiber builds for
business and new IT services
projects
3Q17 YTD 3Q17 FY 2017
Construction $12 $44 $40 - $50
Installation 11 40 40 - 50
Value Added 2 8 10
Total Fioptics $25 $92 $90 - $110
Other Strategic 8 30 50 - 60
Total Success-based Investments $33 $122 $140 - $170
Legacy Maintenance 10 26 40
($ in millions)
Page 11
2017 Outlook
11
Revenue Adjusted EBITDA
Previous Guidance $1.2 billion $295 million*
OnX Contribution $0.15 - $0.2 billion $10 million
Revised Guidance $1.35 - $1.4 billion $305 million*
• Updated previous 2017 financial guidance to
include the acquisition of OnX, which closed on
October 2, 2017
* Plus or minus 2 percent
Selected 2017 Free Cash Flow Items
Capital Expenditures $180 - $210 million
Interest payments ~$70 million
Pension and OPEB payments ~$15 million
12
The “New Cincinnati Bell”
~50% ~50% Network IT Services
Introducing the “New Cincinnati Bell”
13
Key Brands
Strategic Focus
• Share best practice for fiber-centric communications
offering with greater combined scale
• Export knowledge and success with fiber network
from Cincinnati to Hawai’i
• Expand product portfolio with storage, server and
data center centric products
• Creates a UCaaS business with scale
• Build immediate relevant financial scale
Network IT Services
(Pro Forma Revenue Mix)
Who Are We?
Value Statement
• Cincinnati Bell’s expanding fiber asset allows us to be
the leader in supporting the ever-increasing demand
for data, video and internet devices with speed, agility
and security allowing our customers to stay
connected to their most important assets
• CBTS will provide technology consulting services,
solutions and resources required to build and
integrate cloud, on premises and intelligent network
solutions that allow our clients to significantly
improve operational efficiency, mitigate risk and
reduce cost
• A fiber network • A cloud integrator
SEA-US
Trans-Pacific Cable
Creation of two standalone $1Bn+ businesses under the CBB umbrella
“New Cincinnati Bell”
Pro Forma Revenue Mix
• Opportunity to scale our fiber success in another
attractive market (Hawaii)
Financing
Business
Description
• Expansion of geographic footprint and addressable
market beyond Cincinnati to accelerate momentum
in CBTS
Closing • Expected to close in H2 2018 • Closed on October 2, 2017
Page 14
• $650M including existing net debt
• 60% cash and 40% stock
• $201M in cash1
Combinations with HCOM and OnX
14
Network IT Services
Two distinct but complementary businesses with clear pathway for growth
Growth
Opportunity
Transaction
Size
• Hawaii’s fiber-centric technology leader providing
voice, video, broadband, data center and cloud
solutions
• OnX provides industry-leading technology services
and solutions to enterprise customers in the U.S.,
Canada and the U.K.
• Raised $350M in Senior Unsecured Notes to finance
the cash portion of the merger consideration,
refinance HCOM’s existing indebtedness and pay
transaction costs and expenses
• Entered into a new credit agreement, comprised of a
five-year $200M senior secured revolving credit
facility and a seven-year $600M senior secured term
loan facility, in connection with the completion of
the OnX transaction
Increased scale and strategic flexibility for both businesses
Strategic
Combination
Expected
Cost Synergies*
• ~$11M annually • ~$10M annually
*To be realized within two years post-close, and excluding potential revenue synergies from cross-selling opportunities
1. The acquisition of OnX, originally announced on July 10, 2017, indicated that the purchase price of $201 million was subject to customary post-closing adjustments. Based on preliminary working capital adjustments, the cash consideration
exchanged for the acquisition on October 2, 2017 was $242.3 million. The final purchase price is subject to finalization of post-closing adjustments. The initial accounting for the business combination was not complete at the time the financial
statements were issued due to the timing of the acquisition and the filing of this Quarterly Report on Form 10-Q. As a result, disclosures required under ASC 805-10-50, Business Combinations, are not possible at this time.
Strategic Rationale
15
Strong Market Position as #1 Incumbent Local Provider
Leveraging Core Competencies by Investing where Cincinnati Bell is Winning
Significantly Increases Scale and Strategic Flexibility for Both Businesses
Improved Diversification across Entire Business
Achievable Synergies with Clear Path to Integration
Enhances Free Cash Flow Profile
1
3
2
4
5
6
10%
20%
30%
40%
50%
60%
Year 1 Year 2 Year 3 Year 4
Fiber to the Home
Penetration
FHSI Penetration Rates
Video Penetration
Page 16
Summary
Entertainment &
Communications
IT Services & Hardware
1
Focus on investing
where we are
winning
• Fioptics revenue
growth of 21% y/y in
3Q17
• OnX brings enhanced scale, a
broader geographic footprint
and an expanded portfolio of
complementary IT offerings
3 How we win • Continued investment in fiber
• Additional IT services
customers provides cloud
growth potential through
scale and distribution
4
Significant market
opportunity
• Growth driven by IoT
and 5G infrastructure
spend
• $250 billion expected to be
spent globally on cloud
services in 2017
16
2 Why we win
• The more fiber, the
greater the market
penetration
• IT services business,
combined with our network
provides a platform for
cloud migration services