Investor Presentation - Jefferies Telec… · 8 + >$14 billion of addressable telecom spend in Integra’s current market footprint • ~70% of addressable spend in 4 verticals –

Investor Presentation

2

Special note regarding forward-looking statements

This presentation includes projections and forward looking statements within the meaning of Section 27A of

the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. These projections

and forward looking statements involve known and unknown risks, uncertainties and other factors which

may cause actual results, performance and achievements, or industry results, to be materially different from

any future results, outcomes, performance or achievements expressed or implied by such forward looking

statements. Undue reliance should not be placed on any projections or forward looking

statements. Projections and forward looking statements should not be regarded as a representation by

Integra Telecom that the projections or forward looking statements will be achieved.

Integra’s annual financial results package posted on the Integra Intralinks site contain risk factors that

management believes could cause actual results, outcomes or events to differ materially from those

contemplated by such projections or forward looking statements. You should consult Integra Telecom

should you have any questions about any items described in the risk factors or any of the projections or

forward looking statements described in this presentation.

All projections and forward looking statements included in this presentation are based on information

available on the date of this presentation and a number of estimates and assumptions that, while

considered reasonable by Integra Telecom, are inherently subject to significant business, economic and

competitive uncertainties and contingencies, many of which are beyond the control of Integra Telecom.

Integra Telecom undertakes no obligation to publicly update or revise any projections or forward looking

statement, whether as a result of new information, future events or otherwise

Safe Harbor

Technology you trust. People you know.

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Company Overview

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+ Facilities-based provider of communications and networking services to business and carrier

customers in 35 markets in 11 states across the western US

+ Unique and dense metro fiber networks provide meaningful strategic value

• Deepest network asset of any non-incumbent carrier in key markets

• Over 3,000 metro fiber miles and 5,000 long haul miles

• Utilizing Integra's network advantage by targeting the underserved mid to large enterprise segment

which requires multi-location, "on-net" solutions

+ Approximately 2,300 locations directly connected with Integra fiber

• ~16,000 additional locations adjacent to Integra fiber (“near-net”) with ~$3Bn of addressable

telecom spend

• Fiber-served Ethernet over Copper network with access to ~400,000 additional businesses

+ Network investment of $2Bn reflecting significant barrier to replicating footprint

+ Attractive and evolving customer base

• New sales and renewals typically have contract length of 2-5 years

• Over 60% of revenue base from customers billing >$1,000 per month

• Favorable churn and pricing trends throughout the base

Integra Overview


5

Strong in-market brand recognition and a focus on

providing a superior customer experience

Strong in-market brand recognition and a focus on

providing a superior customer experience

Targeting single-location small business customers Expanding to target larger multi-location business,

healthcare and government / education

Primarily Voice and Internet Enterprise-grade telecom service suite and cloud

services

Majority of revenue from customers spending less

than $500 MRR

63% of revenue from customers spending more than

$1,000 MRR

Dense fiber network used to lower transport costs Dense fiber network used to provide on-net,

differentiated services to larger enterprises

Focused on Local Service Office (LSO) footprint

expansion

Focused on fiber-to-enterprise and Ethernet footprint

expansion

Integra Today Traditional Integra

Strategic Direction


Expanding to serve larger business customers and the emerging cloud service opportunity

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Bay Area

Billings

Boise

Denver

Las Vegas

Minneapolis

3,000 Miles of Metro Network Fiber

- Regional concentration makes Integra the leading fiber-based competitive carrier in Western US

- Includes:

5,000 Miles of Long Haul Fiber

- Interconnecting metro markets with Integra fiber drives product differentiation, higher margins and increased addressable market

Phoenix

Portland

Sacramento

Salt Lake

Seattle

Spokane

Tacoma

Fiber Network

Nationwide MPLS Network

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The Integra Network


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17270

47 197

1,777

Dense Metro Fiber and Ethernet Footprint

3,000 Miles of Metro Network Fiber

Beyond Fiber – EoC Symmetrical High-Speed Access to ~400,000

additional businesses

The Integra Network | Metro Fiber & EoC

On-Net Buildings

2,263

Commercial Buildings

ILEC LSO Colocations

Wireless Towers / MSC

Data Centers

Other

1 Building count includes allocated pending

builds to each category

(1)

+ 2,263 buildings served

directly with Integra fiber;

grew by over 20% in 2012

+ Delivering service to on-net

locations reduces the

reliance on LECs, increases

margin and decreases churn

+ Approximately 16,000

additional buildings located

within 2,500 feet of existing

Integra fiber; represent

~$3Bn of addressable

telecom spend

+ Average incremental capital

to add a new location $35k

with an IRR of 60%

+ Ability to serve more than

400,000 additional

businesses with EoC – up to

60Mbps and fully

symmetrical (an important

differentiator against cable

competition)


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+ >$14 billion of addressable telecom spend in Integra’s current market footprint

• ~70% of addressable spend in 4 verticals – Government, Education, Healthcare and Professional Services –

with strong demand drivers for advanced communications services

• ~25% of addressable market is on- or near-net for Integra, with substantially all remainder serviceable

through EoC network

+ With just 12% penetration into existing buildings connected to the network, Integra has a

significant on-net growth opportunity with very attractive returns

2011 2012 2013 2014 2015 2016

Mobile Data Managed IP Fixed Internet

Large Addressable Market Opportunity

Source Cisco VNI Mobile, 2012

Global IP Traffic Growth Geared for Enterprise Growth

Exabytes per Month

Product

Growth Forecast

(CAGR) Comments

Ethernet Transport 35% • Ethernet to extend in premise LAN

technology to WAN

• Integrated Voice & Data solutions to

reduce cost & complexity

• Shift from TDM to IP Voice

• Bandwidth scalability and reliability to

support cloud, video and UC

Integrated Voice 35%

Business Continuity/

Disaster Recovery

8% • Growing complexity of internal IT and

communication infrastructure

• Adoption of subscription based services as

means to reduce up-front costs

• Heightened security and storage needs

driven by accumulating mission-critical

data

• Adoption of unified communication to

increase employee productivity

Security 14%

Unified

Communications;

10%

Hosted/Managed

Voice

34%

To

Cu

sto

mer

Pre

mis

e

Wit

hin

Cu

sto

mer

Pre

mis

e


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Expanding Enterprise Service Portfolio


Product development roadmap has enabled up-market expansion and Ethernet as Integra’s core access technology

Core Growth

Products

Traditional

Products

Ethernet Services (E-LINE, E-LAN)

MPLS VPNs

Internet Access - High Speed Ethernet

Internet Access - TDM

Collaboration & Messaging

Next Generation Cloud Firewall Service

Colocation

Data Storage

Hosted Voice Services

SIP Trunking

Managed PBX and Voice Equipment

TDM Voice / PRI

Wavelength Services

Dark Fiber

Ethernet Private Line (EPL)

Classic TDM Private Lines

Data

Serv

ices

Data

Serv

ices

Data

Serv

ices

Data

Serv

ices

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Integra’s Go-to-Market Approach


+ Enterprise: Primarily focused on mid-

size businesses while opportunistically

serving larger enterprises concentrated

in our market area

• Healthcare and professional services

verticals

+ Wholesale: Traditional carriers, wireless

providers, resellers, data centers,

content providers

+ Government & Education: Federal,

State and County Government, Federal

System Integrators, Research & Higher

Education

+ Small Business: Customers with fewer

than 50 employees and less than $1K in

MRR, with single to few locations

+ Indirect: Agent partners

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Integra has seen a continued expansion of sales towards more strategic, higher growth

products that are in greater demand from enterprise and wholesale customers

Strategic Products: High Speed DIA, E-Line, MPLS, EPL, Wavelengths, Dark Fiber, SIP, Managed Voice, Cloud Firewall, Hosted Exchange (CMS).

Core : Low Speed DIA, TDM Private Line, DSL, Integrated T1.

Traditional: Novus, Legacy Voice.

57%

74% 77% 79% 80%

20%

14% 11% 8% 9%23%

12% 12% 13% 11%

1H 2011 1Q 2012 2Q 2012 3Q 2012 4Q 2012

Strategic Core Traditional

Average New Sold Revenue by Product Group

24%34%

30%

26%

46%40%

Jan-12 Dec-12

Strategic Core Traditional

2012 Billable Revenue by Product Group

Successfully Expanding Up-Market


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Evolving Customer Base

+ Enterprise and wholesale customers represent the majority of revenue base, and relative contribution

continues to grow

+ 70% of new sales to multi-location customers

+ ~80% of new sales in strategic product suite

+ Integra continues to enjoy success in the <$1,000 market segment as well

• Favorable churn levels due to network strength and outstanding customer service reputation

• Successful, opportunistic new sales efforts given its extensive EoC network and portfolio of cloud services


< $200 MRR > $1,000 MRR

% of MRR Base by Customer Size

9.5% 9.2% 8.6% 8.3% 7.8% 7.5%

Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12

57.8% 58.1%

60.3% 61.0%

61.7%

62.7%

Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12

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Customer 1: Regional Healthcare Provider

Situation

A regional healthcare provider in Arizona was in need of a solution when new demand from medical records

and imaging technology overwhelmed their four site network. The healthcare provider also handled their own

equipment and firewalls at each site. As an existing Integra customer, the provider was spending $1,000 a

month for Internet and Voice services at two sites.

Solution

Integra replaced the network at all sites with our IP/MPLS VPN Solutions product, took over equipment

management and implemented Integra’s Managed Cloud Firewall Service. The network leveraged Integra

fiber at the hub and copper technologies at the remote locations which increased capacity 4-fold on the

network. New Integra billing - $6,000 a month.

Customer 2: Cloud Service Provider

Situation

A cloud service provider in California had the desire to offer services to their clients and needed guaranteed

performance on a large bandwidth connection to a key data center site – an “engineered on-ramp to the

cloud”.

Solution

Integra provided a guaranteed 10 Gbps dedicated Wavelength Service between the sites over Integra’s fiber

network. Other services are now under discussion including Ethernet Services – E:Line connecting their

regional offices. New Integra billing - $5,300 a month.

Recent New Product Wins


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Customer 3: Professional Services Company

Situation

A professional services company was experiencing significant growth in bandwidth and support requests. The

IT staff worked solely out of its headquarters in Oregon and supported 11 sites across the Northwest. The

necessary upgrades to support the growing company also needed to control on-site support requirements,

protect the network from Internet attacks, increase capabilities and enable a foundation for future

technologies. As an existing Integra customer, the company was billing $6,800 a month for Internet & voice

services.

Solution

Integra linked all sites on a private network (IP/MPLS VPN Solutions), took over equipment management at

each site and implemented our managed Cloud Firewall Service. The new network leveraged Integra’s

copper technologies at the headquarters and increased bandwidth capabilities by 5-fold. The company also

upgraded to Integra’s SIP Solutions platform to support future voice services. New Integra billing - $11,000 a

month.

Customer 4: National Telecom Carrier

Situation

A large national telecom service provider with limited network reach in western US required a scalable

Ethernet metro access solution to connect end-offices for its multi-location enterprise customers in our region

(retail, national banks, etc).

Solution

Integra established an Ethernet Network to Network Interface (NNI) that allows the national telecom company

to leverage Integra’s robust metro fiber and EoC footprint to extend it’s reach. Revenue from this customer is

growing 65% annually as a result of this highly scalable and cost effective metro access solution. New

Integra billing - $16,000 a month

Recent New Product Wins (cont’d)


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Financial Update

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+ Q4 represented Integra’s 4th consecutive quarter of sequential

recurring revenue and EBITDA growth, with substantial

increases in cash flow over the last twelve months

• LQA EBITDA increased $21 million from Q4 2011

+ Continuation of new sales success in targeted customer and

product areas

• Many improvements made in 2012 will more visibly impact

revenue growth in 2013

+ Continued improvement in free cash flow while funding sizable

growth investment

• 379 on-net locations added in 2012 (over 20% growth)

• Ethernet over Copper build-out completed during 2012

• New product rollouts including hosted voice and dark fiber

Q4 2012 Update

Recent Operating Results

1 Adjusted EBITDA as defined in Integra’s financial statements before non-recurring severance expense.


$MM

Q4 2012 FY 2012

Recurring Revenue $131.6 $521.7

Total Revenue 149.0 594.4

Adjusted EBITDA 1 47.2 178.1

CapEx 22.4 99.0

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1.23% 1.24%

1.17%1.19%

1.11% 1.12%

1.00%

1.10%

1.20%

1.30%

1.40%

3Q11 4Q11 1Q12 2Q12 3Q12 4Q12

$42 $42 $43 $45

$48

35

40

45

50

4Q11 1Q12 2Q12 3Q12 4Q12Adjusted EBITDA

Q/Q (%):

Margin:

(5.2)% 0.6% 2.1% 5.4% 5.6%

28.5% 28.6% 29.0% 30.5% 32.2%

Sequential Revenue Growth ($MM) Sequential Adjusted EBITDA(1)

With Improving Margins ($MM)

Improving Quarterly Churn

____________________

(1) Adjusted EBITDA excludes non-recurring severance expenses.

(2) UFCF defined as EBITDA – capex.

Recent Operating Results

$129 $129

$130 $131 $132

0

50

100

150

200

4Q11 1Q12 2Q12 3Q12 4Q12

Other RevenueRecurring Revenue

Q/Q (%):

Recurring:

(2.0)% 0.6% 0.4% 0.3% 0.0%

(1.3)% 0.5% 0.7% 0.4% 0.7%

$147 $148 $149 $149 $149

Improving Revenue and EBITDA / Employee ($000)

$297 $304 $307 $316 $335

$85 $87 $88 $95 $106

0

100

200

300

400

4Q11 1Q12 2Q12 3Q12 4Q12

Revenue / Employee EBITDA / Employee

(1)


+ Q4 demonstrated another step-function of progress from an Adjusted EBITDA and UFCF standpoint for the Company

UFCF (2) ($0.7) $16.5 $16.8 $21.0 $24.8

% Revenue 0% 11% 11% 14% 17%

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1

($ in mm)

Capital Spending Overview


+ Integra continues to achieve its financial and

network expansion objectives and shift its

business mix towards a more fiber-based, high

growth product set while returning capital

spending to normalized, sustainable levels

2011 2012

Maintenance $22.0 $10.9

Growth

Pure Success-Based 41.2 39.0

Revenue Enablement 38.6 12.5

Capitalized Labor 34.9 36.6

Total Growth $114.7 $88.1

Total $136.7 $99.0 $22

$11

$115

$88

$0

$20

$40

$60

$80

$100

$120

$140

$160

2011 2012

Growth

Maintenance

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Success-Based Capital Deployment Drives High ROI

Unlevered Implied IRR - Overall

85% 82% 87% 87%

47% 45% 49% 49%

Q1'12 Q2'12 Q3'12 Q4'12

w/ TV w/o TV

Gross Profit Margin (%)

1 TV = Terminal Value; 2.5x EBITDA at end of contracted term for 2-year contracts. 3.5x EBITDA for 3+ year contracts.

76% 76% 78% 77%

Q1'12 Q2'12 Q3'12 Q4'12

Alt Carrier

On-Net

Near-Net

62%

107%

44%

26%

69%

5%

57%

113%

51%

20%

75%

11%

56%

122%

62%

20%

85%

22%

55%

126%

66%

19%

89%

27%

SBC ($MM)

MRR ($MM)

$10.9

$1.9

$9.8

$1.7

$10.2

$1.7

$8.3

$1.5

1

Attractive economics on sales associated with success-based capital deployment


+ Success-based capital is directly linked to a signed customer contract

+ With 100% gross margin flow-through for many on- and near-net projects and limited incremental capital

requirements, Integra generates highly attractive returns on customer build projects

+ Strength of Company’s EoC network, with fiber-fed LSOs, provides high ROIs on “alternate carrier”

projects as well

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+ On February 22, 2013, Integra closed a refinancing of its existing credit facilities and senior secured notes

with a new $845 million senior secured credit facility comprised of:

• $60 million 1st Lien Revolving Credit Facility (undrawn at close); due 2018

• $585 million 1st Lien Term Loan, L+475 with 1.25% floor; due 2019

• $200 million 2nd Lien Term Loan, L+850 with 1.25% floor; due 2020

+ On March 14, Integra closed an incremental $20 million 2nd lien Term Loan

+ Combined transactions resulted in approximately $17 million of cash interest savings, extended maturities,

included a single net 1st lien leverage maintenance covenant (4.25x) and provides substantial incremental

flexibility for the execution of Integra’s strategic plan


Refinancing Update

Sources of Funds ($mm)

Uses of Funds

1st Lien Term Loan $585 Repay Existing Term Loan $244

2nd Lien Term Loan 200 Repay Existing Bonds 475

2nd Lien Add-On 20 Accrued Interest 22

Bond Redemption Premium 31

Original Issue Discount (Premium) 7

Transaction Expenses 13

Cash on Balance Sheet 12

Total $805 Total $805

21

Actual PF Current

Sources Maturity Amt. % Cap. Adj. Amt. % Cap.

Cash and Cash Equivalents $19 $12 $31

Revolving Credit Facility ($60mm) 2014 – – – – –

New Revolving Credit Facility ($60mm) 2018 – – – – –

Term Loan B 2015 244 – (244) – –

New 1st Lien Term Loan B 2019 – – 585 585 –

10.75% Senior Secured Notes 2016 475 – (475) – –

Capital Lease Obligations 4 – – 4 –

Total 1st Lien Debt $723 100.0% $589 72.8%

New 2nd Lien Term Loan $200

Add’l 2nd Lien Term Loan, 3/14 $20

Total 2nd Lien Term Loan 2020 – – $220 $220 27.2%

Total $723 100.0% $809 100.0%

Net Debt $704 $778

4Q12 LQA (12/31/12) Credit Statistics

1st Lien Leverage 3.8x 3.2x

Total Leverage 3.8x 4.3x

Net Leverage 3.7x 4.1x

Interest Coverage Ratio 2.6x 3.3x

LQA EBITDA1 $189 $189

Current Capitalization

1 Reflects 4Q12 LQA Adjusted EBITDA of $47.2 million. Full-year EBITDA for the year ended 12/31/12 is $178.1 million.

Pro Forma Capitalization


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Unique Metro Fiber Networks

Company Highlights

Large, Addressable Market Opportunity

Favorable Revenue Mix Shift to Enterprise Customers

Operating Leverage Upside & High ROI, Success-Based Capital Expenditures

Experienced Management Team

1

3

5

2

4


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Thank You

Documents

Investor Presentation - Jefferies Telec… · 8 + >$14 billion of addressable telecom spend in Integra’s current market footprint • ~70% of addressable spend in 4 verticals –