2
Safe HarborCertain of the statements and predictions contained in this presentation constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. In particular, any statements, projections or estimates that include or reference the words “believes,” “anticipates,” “plans,” “intends,” “expects,” “will,” or any similar expression fall within the safe harbor for forward-looking statements contained in the Reform Act. Actual results or outcomes may differ materially from those indicated or suggested by any such forward-looking statement for a variety of reasons, including but not limited to, Cincinnati Bell’s ability to maintain its market position in communications services, including wireless, wireline and internet services; general economic trends affecting the purchase or supply of communication services; world and national events that may affect the ability to provide services; changes in the regulatory environment; any rulings, orders or decrees that may be issued by any court or arbitrator; restrictions imposed under various credit facilities and debt instruments; work stoppages caused by labor disputes; adjustments resulting from year-end audit procedures; and Cincinnati Bell’s ability to develop and launch new products and services. More information on potential risks and uncertainties is available in recent filings with the Securities and Exchange Commission, including Cincinnati Bell’s Form 10-K report, Form 10-Q reports and Forms 8-K. The forward-looking statements included in this presentation represent estimates as of the date on the first slide. It is anticipated that subsequent events and developments will cause estimates to change.
3
Agenda
Jack Cassidy - CEOJack Cassidy - CEO
Brian Ross - CFOBrian Ross - CFO
Dave Burns – Data CentersDave Burns – Data Centers
Question and AnswerQuestion and Answer
Closing RemarksClosing Remarks
5
Who Are We?$1.3B diversified telcoMain segments include wireline, wireless, technology solutions•
≈821k access lines•
≈579k wireless subscribers •
≈182k square-feet raised floor
Local ILEC & CLEC within licensed wireless area
6
We Are…
Not an RLEC Not an RBOC
Not a Wireless Only Company
Not a Data Center “Pureplay…build to spec” company
“We’re not Fish, we’re not Fowl…we’re Frog Legs.”Jack Cassidy
7
Our Difference is our Right to Win
Consumers Value…One-stop shoppingCompetitive pricesOur products because
“they work” and are integrated
WE are a full service provider not just a provider of productsWE are the Local/Hometown Company involved in our communityWE know our customers better and they have a “connection” to usWE are small enough that we can innovate quickly
Businesses Value…Quality and are willing
to pay for itOur relationships and
commitment to themThe end to end
services we recommend and provide that address their needs and improve their business
8
Why Do We Succeed? “We Serve”
•Our individual and collective giving•Our individual and collective time and talents•Our joint efforts inadvancement of the common good
Our Customers Our Communities
Our Colleagues
•Innovation and Speed•Technical and Service Excellence•Commitment to Quality in Everything We Do
•Honesty and Integrity•Support and Collaboration•Openness to Learning and Diversity
9
Diversified Industry Innovator
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
10
“The Most Honest Man in Telecom”
Forbes Magazine – March 2008
“anticipate the inevitable, don't fight it.”
“…so enjoys being candid that it seems to matter little to him whether the truth he is telling is pleasant or petrifying.”
“It means letting customers switch to new technologies…that are likely to cost (the company) money.”
“communication lines must be open. That means not locking customers into two-year cellular contracts”
11
Continued Revenue DiversificationWireline Voice -
Consumer
Wireline Voice - Business
Wireline Data
Other Wireline
Tech Sol
Wireless
(before inter-company eliminations)
(includes Long Distance)
15%
19%22%
21%
9%
14%
* May not foot due to rounding
Consumer41%
Business59%
12
1Q08 Accomplishments
OverviewOverview TechnologySolutions
TechnologySolutions WirelessWireless WirelineWireline
•
Grew revenue 11%
•
Increased Adjusted EBITDA by 2.5%
•
Improved EPS excluding special items by 22%
•
7th consecutive qtr Adjusted EBITDA growth from core ops
•
Purchased 4M shares in 1Q08
•
Grew service revenue by 16%
•
Improved Adjusted EBITDA 30%
•
Expanded Adjusted EBITDA margins by 3 pts to 28%
•
Increased postpaid subscriber base by 8%
•
Increased DSL subs by 10%
•
Grew wireline data revenue by 8%
•
Increased long distance and VoIP revenue by 30%
•
44% DSL consumer primary line penetration
•
Increased revenue by 54%
•
Grew Adjusted EBITDA by 76%
•
Increased data center capacity by 38K sq ft
•
Began billing 21K sq ft in the quarter
13
What’s New and Exciting?It’s all about the 3 C’s
Convergence,Convergence,Convergence
Picx2PC UMA re-launchSpinvoxThe Unlimited Super Bundle
14
Strategy and Focus Areas
GrowGrow DefendDefend De-lever/Balance Sheet
De-lever/Balance Sheet
•
Minimize in territory consumer access line loss
•
Continue ongoing cost reduction initiatives
•
Leverage new integrated products
•
Continue de- levering the balance sheet – no debt refinancing until 2011
•
Execute $150M stock repurchase over 2 years
•
Focus on Enterprise/SMB
•
Grow Wireless revenue, margins, and subscriber metrics
•
Execute on regional acquisitions
•
Increase data center capacity and utilization
15
Financial Philosophy
Strong Cash Flow usedto repurchase shares
and retire debt
Strong Cash Flow usedto repurchase shares
and retire debt
Shareholder rewardthrough larger claim of
total CBB value
Shareholder rewardthrough larger claim of
total CBB value
Sustained Revenue and modest EBITDA
growth leads tomaintenance ofEnterprise Value
Sustained Revenue and modest EBITDA
growth leads tomaintenance ofEnterprise Value
18
Wireline SegmentWhat Is It?
Access lines –
ILEC, CLEC, business, consumer, wholesale, payphoneLong Distance –
voice, audio conferencing,
VoIPData –
DSL, high capacity circuits, storage and backupSecurity –
fire, break-in, carbon monoxide monitoring for home or office
Competitive LandscapeMarket Share Leader
100% cable overlay –
Time Warner, Insight
Wireless Substitution
Other national
VoIP
providers
Our Right to WinInteroperability
Bundle price/value
Exceptional Service
Reliability
Local/Hometown Company
Measures of SuccessSteady profit margins
Data revenue growth
Slow consumer access line loss
Grow business access lines
19
Wireline Financials
$100
$12
$5
$6$3
$96
1Q07EBITDA
Voice Rev Data Rev LD & VoIPRev
Expense 1Q08EBITDA
($’s in millions)
* May not foot due to rounding
DSL Net AddsChurn %
6 46
49
1Q07 2Q07 3Q07 4Q07 1Q08
1.7%
1.9%2.1%
2.0%1.8%
(in thousands)
Access Line Net Adds -ILEC
(19) (17) (16)(15)(14)
1Q07 2Q07 3Q07 4Q07 1Q08
20
Cost Initiatives to Maintain Wireline Margin Trends
Recent restructure charges taken to align future cost structure with anticipated revenue
Restructure requires additional funding of $25-$30M over next 7 years
$20M already funded in December 2007 through pension contribution
Lower Cost Labor•CWA labor agreement •Continued outsourcing
Productivity Improvements
(in millions) 4Q07 1Q08 Future TotalRetirement Offer $9 $23 $6 $38
Curtailment 6 15 - 21 Severence and Other 23 (14) - 9
Total Pre-Tax Restructure Expense $38 $24 $6 $68
21
Wireless SegmentWhat Is It?
Postpaid subscribersPrepaid subscribersGSM network (upgrading to 3G)Launched in 1998
Competitive Landscape
Verizon
WirelessAT&TSprintT-MobileLEAP
Our Right to Win
Best Network –
3 years in a rowInteroperability –
UMA,
SpinVox, integrated voicemail and emailUnique and Competitive Rate plansLocal/Hometown Company (Think Local, Act Global)
Measures of Success
Continued subscriber growthIncrease Data ARPU and penetrationPush EBITDA margins to 30%
22
Wireless FinancialsTotal Service Revenue
Year-over-Year Growth Rates
$62.2 $67.4 $68.2 $69.7 $72.0
1Q07 2Q07 3Q07 4Q07 1Q08
13% 14%
12%
($’s in millions)Total Adjusted EBITDA
Year-over-Year Growth Rates
$16.7 $19.6 $18.6 $19.3 $21.7
1Q07 2Q07 3Q07 4Q07 1Q08
15% 28%48%
48% 35%16% 30%
Postpaid ARPU
$5.64 $6.14 $6.53 $6.96 $7.56
$40.88 $39.18 $39.91$41.64$39.11
1Q07 2Q07 3Q07 4Q07 1Q08Voice Data
Prepaid ARPU
$22.42 $22.44 $26.17$26.10$22.96
1Q07 2Q07 3Q07 4Q07 1Q08
23
Wireless EBITDA Margin GrowthEBITDA and Margins
$28.5
$16.7
$21.7
$6.8
$1.3
$3.7
1Q07 SubscriberBase
AcquisitionExpense
1Q08 RoamingCosts
1Q08 (exclIncollect)
24.4%
27.6%
36.3%
CBW EBITDA % margin approaches national carriers when adjusted for roaming expense
24
3G Update – Why do it?Secured 20 Mhz of AWS Spectrum for
overbuild with possible expansion opportunities
3G will drive a cost and capital efficient network and future converged opportunities
Network goes live August ‘08•Seeding market with 3G capable phones since March (15% of gross adds)
Mobile bandwidth creates the platform for future integrated services = AWS = AWS + 700 Mhz
25
Technology Solutions SegmentWhat Is It?
Offers flexible outsourced IT and Telecom infrastructure solutions
Telecom and IT Equipment –
Cisco/Sun/Avaya/NetApp/EMC sales, installation & maintenanceData Center and Managed Services –
end to end managed infrastructure outsourced servicesProfessional Services –
provides related customer staffing needs
Competitive LandscapeHP LogicalisIBM
CDW/BerbeeVerizon
MVDLevel3
TechsystemsPeak10
AjilonBlackbox
Robert Half
A company’s “make vs. buy” decision
Our Right to Win
Flexible SolutionsMix of Assets and CapabilitiesSpeed and CreativenessSimultaneous Replication (Metro Strategy)RelationshipsTrusted Customer Partner
Measures of Success
Data Center Utilization Rate Continued EBITDA GrowthReturn on Investments
26
Technology Solutions Financials
Gross Profit
$10.6$14.6 $16.7 $16.8
$11.8
1Q07 2Q07 3Q07 4Q07 1Q08
Adjusted EBITDA
$3.8
$7.6$9.7
$6.7$5.5
1Q07 2Q07 3Q07 4Q07 1Q08
($’s in millions)
Telecom and IT Equipment Revenue
$32.4
$52.9 $55.8 $49.7$39.7
1Q07 2Q07 3Q07 4Q07 1Q08
Data Center and Managed Services Revenue
$14.4$18.5 $19.4 $21.7
$15.4
1Q07 2Q07 3Q07 4Q07 1Q08
28
Our Definition of a Data CenterUs
Fortune 500/100 customers•“brick and mortar”
Long term contractsTarget >20% returnsHigh utilization ratesUltimate business bundle Outsourcing one step at a timeClients can grow with CBTS
without staying in the same building
Them
Mostly internet based customersShorter term contractsNetwork neutralLower utilization ratesPure-playSmaller customers
29
What Makes CBB’s Data Centers So Special?
WE can leverage CBT network – extension of telephone networkWE offer true real time failover for clients running business transactions 24x7WE are flexible. All or nothing approach incurs an additional amount of risk.WE work hard to understand our customers’ business and effectively address
their needsWE have a rock solid Metro DC strategy that addresses costs and business
needEnd to End Telecom Solution
SpaceSpace ConnectivityConnectivity HardwareHardware LaborLabor
30
Data Center Build Out Update
Newly Commissioned Data Center Capacity (thousands of sq ft)
4438
7 2 6
50
9
5
2007 1Q08 2Q08 3Q08 4Q08 1Q09CBTS GramTel
(in thousands)
by qtr end
~200K sq ft capacity by 2Q08•
More than 2X of 91K at 4Q06
Modest 3Q08 & 4Q08 additions•
6K at W7th facility to accommodate customer timing
•
50K sq ft to be commissioned in 2009 –
New Lebanon facility
No change 2008 capex guidance•
Slower New Lebanon facility spending accommodates W7th capacity
Sales Funnel Strong•
85% utilization at 1Q08•
Customers identified / in contract negotiations for 2008 inventory
•
Customer demand building for 2009 Lebanon capacity
34
•
Detailed reconciliations of free cash flow, net debt and adjusted EBITDA 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.
–
Free cash flow provides a useful measure of operational performance, liquidity
and financial health. The company defines free cash flow as SFAS 95 cash provided by (used
in) operating, financing and investing activities, adjusted for the issuance and repayment of debt and for the proceeds from the sale or the use of funds from the purchase of business operations. Free cash flow should not be considered as an alternative to net income (loss), operating income (loss), cash flow from operating
activities, or the change in cash on the balance sheet and may not be comparable with free cash flow as defined by other companies. Although the company feels that there is no comparable GAAP measure for free cash flow, the attached financial information reconciles free cash flow to the net increase (decrease) in cash and cash equivalents.
–
Net debt provides a useful measure of liquidity and financial health. The
company defines net debt as the sum of the face amount of short-term and long-term debt and unamortized
premium and/or discount, offset by cash and cash equivalents
–
Adjusted EBITDA provides a useful measure of operational performance. The company defines Adjusted EBITDA as GAAP Operating Income plus depreciation, amortization,
restructuring charges, asset impairments and other special items. Adjusted EBITDA should not be considered as an alternative to comparable GAAP measures of profitability and may not be comparable with Adjusted EBITDA as defined by other companies.
–
Gross Profit is defined as revenues less cost of services and products.
Non- GAAP Financial Measures