Adelphia Business Solutions Inc
Adelphia Business Solutions — Investor Day (September 2001)
63 slides from Adelphia Business Solutions's investor day presentation, Sep 5, 2001
Slide 1: Morgan Stanley Sponsored Investor Day
Morgan Stanley Sponsored Investor Day September 5, 2001
Slide 2: Forward Looking Financial Information Disclosure Disclaimer
Forward Looking Financial Information Disclosure Disclaimer The statements in this presentation that are not historical facts are forward-looking statements that are subject to material risks and uncertainties. Investors are cautioned that any such forward-looking statements are not guarantees of fu
Slide 3: Company Overview: Modification of Business Plan
Company Overview Status Report Modification of Business Plan • Concentration in 50-60 markets with current active (or near to active) networks • Leverage profitability of Classes of ‘96- ’98 markets – Dense Fiber Optic Rings – Fixed wireless – DSL Connectivity in Bell LSOs • Utilize regional network
Slide 4: Financial Impact of Business Plan Modification
Financial Impact of Business Plan Modification Previous Plan New Plan Markets 75-80 50-60 Revenue Growth 5yr CAGR 41% 33% EBITDA Positive Q4 ‘01 Q4 ‘01 Cap X – Q3 2001-2003 $960 Million $630 Million Free Cash Flow Q4 ‘04 Q2 ‘04 Adjusted Funding Gap as of June 30, 2001 ($1,105 Million) ($80 Million)
Slide 5: 230 million POPs of Fixed Wireless Spectrum
IP Data Center 230 million POPs of Fixed Wireless Spectrum
Slide 6: Major Customers
#delphia BUSINESS SOLUTIONS Wee Major Customers a RE * a TC. MCI WORLDCOM UUNET ride the light A WorldCom Company > ATeT Ni =: ; Qwe St.
Slide 7: Maryland Institute College of Art
MARYLAND INSTITUTE COLLEGE OF ART
Slide 8: Commonwealth of PA
Commonwealth of PA Illustrates advantages of a facilities rich approach and strong product portfolio Access Service Requirements Product Offerings Technologies Dial tone - Centrex 100,000 lines POTS/PRI Fiber Rich Long distance Network 2,500 data ACD Application locations Broadband Fixed WAN Wireles
Slide 9: 2001 Business Drivers
2001 Business Drivers • Convert Existing TSR Customers to our Networks • Add New Customers Directly on to our Networks • Significantly reduce overhead expenses associated with nationwide expansion effort • Complete Local Network Construction and light an additional 35 markets in 2001 • Complete Long
Slide 10: Market Maturity: A Track Record of Success
MARKET MATURITY A TRACK RECORD OF SUCCESS 21 Original Markets 38 Expansion Markets Gross Free Cash Gross Free Cash Margin EBITDA Flow Margin EBITDA Flow Positive Positive Positive Positive Positive Positive Three Years from Now 21 21 21 38 38 15 Two Years from Now 21 21 21 38 30 5 One Year from Now
Slide 11: Proof of Concept - A Facilities Based Strategy
Proof of Concept - A Facilities Based Strategy • All Original Markets are EBITDA positive • Strong Facilities Presence in Lit Markets – Regional network rings active in East U.S. – Core networks for Class of 1999 being completed during 2001 • History of strong Gross Margins in Mature Markets – Class
Slide 12: Gross Margin Opportunities Depend Upon Delivery Method
Gross Margin Opportunities Depend Upon Delivery Method • Gross Margin Opportunity is very Dependent Upon Transport 90% Method 80% • Established Markets Incremental 70% Margin per Capital Dollar 60% Deployed is Very High 50% • Lower Dependence Upon ILEC Gross Increases Service Capabilities 40% Margin
Slide 13: Capital Cost of Facilities Based Market Entry
Capital Cost of Facilities Based Market Entry ($ in millions) Targeted 5 Year ROA Core Infrastructure Capital Years 1/2 ($ in millions) With Without Local Fiber Network – assumes 100 $ 5.0 Cable Cable miles @ $50K average (40% savings Partner Partner if built with cable partner) Central Office with
Slide 14: Capital Spending Plan
Capital Spending Plan • Heavily focused on profitable business $800 $700 Dollars in Millions $600 $500 $400 $300 $200 $100 $- 1999 2000 2001 2002 2003 2004 Core Network Capital Success based Capital
Slide 15: Strong Return on Incremental Capital Investment
Strong Return on Incremental Capital Investment Success based capital has high contribution margin • Core markets contribution of Annualized Revenues to Capital Investment of $1.10:$1.00 • On-switch EBITDA margins of 55% - 75% – Annual run-rate EBITDA improvement of over $140-$160 million • Implied
Slide 16: Illustrative Financial Model of a CLEC Market
Illustrative Financial Model of a CLEC Market $45,000 5 YR Revenue CAGR 365% $40,000 $35,000 $30,000 $25,000 Contribution $20,000 Margin of Revenue $15,000 Revenue to EBITDA EBITDA of $10,000 50% - 60% Peak EBITDA EBITDA $5,000 EBITDA Loss Breakeven Margin 35% 18 Months $- (36 Months) $(5,000) s s s
Slide 17: A Historic Track Record of Success
A Historic Track Record of Success EBITDA % of Revenues 100.0% 50.0% 0.0% -50.0% -100.0% * -150.0% Length of Time Markets in Operation Since: 1 Yr 2 Yrs 4 Yrs 5+ Yrs * Markets at -100% EBITDA represent markets with minimal 2000 1999 1998/97 1996 and before revenue and operating expense Annualized EB
Slide 18: A Historic Track Record of Success: Harrisburg
A Historic Track Record of Success EBITDA % of Revenues 100.0% Harrisburg 50.0% 0.0% LQA Revenue $24.2M LQA EBITDA $18.9M -50.0% EBITDA % 64.6% Gross PP&E $72.4M -100.0% Unlevered ROA 32.5% Customers 992 -150.0% Employees 34 Length of Time Markets in Operation Since: 1 Yr 2 Yrs 4 Yrs 5+ Yrs 2000 199
Slide 19: A Historic Track Record of Success: Wichita
A Historic Track Record of Success EBITDA % of Revenues 100.0% Wichita 50.0% 0.0% LQA Revenue $19.7M LQA EBITDA $11.3M -50.0% EBITDA % 57.4% Gross PP&E $38.6M -100.0% Unlevered ROA 46.0% Customers 1,066 -150.0% Employees 47 Length of Time Markets in Operation Since: 1 Yr 2 Yrs 4 Yrs 5+ Yrs 2000 1999
Slide 20: A Historic Track Record of Success: Philadelphia
A Historic Track Record of Success EBITDA % of Revenues 100.0% Philadelphia 50.0% 0.0% LQA Revenue $ 65.8M LQA EBITDA $ 37.3M -50.0% EBITDA % 56.7% Gross PP&E $128.2M -100.0% Unlevered ROA 28.7% Customers 2,000 -150.0% Employees 71 Length of Time Markets in Operation Since: 1 Yr 2 Yrs 4 Yrs 5+ Yrs 2
Slide 21: A Historic Track Record of Success: Vermont
A Historic Track Record of Success EBITDA % of Revenues 100.0% Vermont 50.0% 0.0% LQA Revenue $ 38.9M LQA EBITDA $ 20.0M -50.0% EBITDA % 51.3% Gross PP&E $ 54.4M -100.0% Unlevered ROA 45.6% Customers 772 -150.0% Employees 35 Length of Time Markets in Operation Since: 1 Yr 2 Yrs 4 Yrs 5+ Yrs 2000 199
Slide 22: A Historic Track Record of Success: Buffalo
A Historic Track Record of Success EBITDA % of Revenues 100.0% 50.0% Buffalo 0.0% LQA Revenue $ 30.3M LQA EBITDA $ 8.1M -50.0% EBITDA % 26.7% Gross PP&E $ 71.5M -100.0% Unlevered ROA 36.5% Customers 2,298 -150.0% Employees 59 Length of Time Markets in Operation Since: 1 Yr 2 Yrs 4 Yrs 5+ Yrs 2000 19
Slide 23: A Historic Track Record of Success: Jacksonville
A Historic Track Record of Success EBITDA % of Revenues 100.0% 50.0% 0.0% Jacksonville LQA Revenue $ 17.6M LQA EBITDA $ 2.2M -50.0% EBITDA % 12.8% Gross PP&E $ 98.5M -100.0% Unlevered ROA 16.0% Customers 875 -150.0% Employees 45 Length of Time Markets in Operation Since: 1 Yr 2 Yrs 4 Yrs 5+ Yrs 2000
Slide 24: Class of 1996
Class of 1996 Overall Quarterly Annualized Performance* $450,000 Revenue CAGR 40% $400,000 $350,000 $300,000 $250,000 $200,000 EBITDA (45% of Revenue) $150,000 $100,000 Actual results (41% of revenue) $50,000 $- Revenue E 9Q 0Q E 0Q 1Q Q Q Q Q EBITDA Q 1Q 99 00 00 01 P9 P0 N0 N0 01 EC EC AR AR P0 JU
Slide 25: Class of 1997/1998
Class of 1997/1998 Overall Quarterly Annualized Performance* $90,000 Revenue CAGR 61% $80,000 $70,000 $60,000 $50,000 EBITDA (40% of Revenue) $40,000 $30,000 Actual results (37% of revenue) $20,000 $10,000 $- $(10,000) Q Q Q Q E E Q 9Q Q 0Q Revenue Q 1Q 00 01 00 01 99 00 C9 C0 01 N N AR AR P EP C0 E
Slide 26: Class of 1999
Class of 1999 Overall Quarterly Annualized Performance* $150,000 $100,000 Revenue CAGR 115% $50,000 $- $(50,000) $(100,000) $(150,000) Revenue E E Q Q Q Q Q Q Q Q Q Q 99 00 99 00 00 01 00 01 01 01 EBITDA C C N N P P AR AR C P JU JU E E E E M M E E S S D D S D * Before Allocation of Corporate Overhea
Slide 27: Class of 2000
Class of 2000 Overall Quarterly Annualized Performance* $40,000 Revenue CAGR 325% $30,000 $20,000 $10,000 $- $(10,000) $(20,000) $(30,000) Revenue 9Q Q 0Q Q E Q Q Q Q E Q 1Q 0 1 99 00 00 01 P9 N0 P0 N0 01 EBITDA AR AR EC EC P0 JU JU SE SE EC M M SE D D D * Before Allocation of Corporate Overhead Sep
Slide 28: Financial Results: Original Markets
Financial Results 21 Original Markets Revenue EBITDA 40.6% Margin 2 year CAGR 80% $200,000 $176,856 $180,000 $500,000 $160,000 $150,088 $435,504 $137,368 $450,000 $387,044$411,904 $368,916 $140,000 $400,000 $117,016 $321,636 $120,000 $350,000 $285,956 (a) $300,000 $100,000 $84,860 $84,296 $78,540 $2
Slide 29: Gulf Region/Wichita: A Case Study in Success
Gulf Region/Wichita A Case Study in Success
Slide 30: Overview of Assets-Facilities Key Drivers to Long Term Success
Overview of Assets-Facilities Key Drivers to Long Term Success 90% 80% One Year Ago Current By Q1 2002 70% Lit Markets 40 59 62 60% Local Operational Fiber Miles - Route 8,147 10,142 11,000 - Strand 359,862 586,183 650,000 50% Gross 5ESS Switches Operational 23 30 30 40% Margin Collocated Central Of
Slide 31: Type I - Leveraging Facilities for High Economic Returns
Type I - Leveraging Facilities for High Economic Returns Typical Single Tenant Type I Building Profile Tenants 1 Square Feet 10,000 Addressable Market - Access Lines 40 - 50 - Annual Telecom Dollars $ 25,000 Building Entry/CPE Cost Profile Fiber Construction $ 5,000 CPE (including SONET) 12,000 Rise
Slide 32: Type I - Leveraging Facilities for High Economic Returns
Type I - Leveraging Facilities for High Economic Returns Typical Type I Multi-Tenant Building Profile Tenants 20 Square Feet 100,000 Addressable Market - Access Lines 240 - Annual Telecom Dollars $168,000 Building Entry/CPE Cost Profile Fiber Construction 10,000 CPE (including SONET) 16,000 Riser Ca
Slide 33: airy) Ashford
airy) Ashford On Fiber Eldridge Rd i 12000 Westheimer Rd Briar) 12000 Westheimer Ra Houston, TX 77077 9894 Bissonnet St Houston, TX 77036 ge. lunters Creek Wintenahrg, Sayou ai \ wand 2640-50 Westheimer Rd 2640 VYestheimer Rd | Bunker Hill e o _ 5 _ village ; 3 * | ak -, t _ | 6420-30 Richmond Ave ‘
Slide 34: City Overview
City Overview June Month-End On-Net Type II TSR Total Budget % 72% 16% 12% Actual % 75% 18% 6% Budget Qty 13,834 3,064 2,344 19,242 Actual Qty 15,151 3,699 1,261 20,111 Delta 1,317 635 (1,083) 869 Existing Pending Fiber Type II Type II LEC LEC Route Lit DS1 DS0 TSR Collo's Collo's Miles Buildings Bu
Slide 35: Budget Summary YTD thru June 01
Budget Summary YTD thru June 01 Total Budget Delta REVENUE 10,223,741 9,061,740 1,162,001 Tech Exp 1,554,968 1,556,638 (1,670) GROSS 8,668,773 7,505,102 1,163,671 MARGIN 85% 83% Total Expenses 4,417,940 3,572,324 845,616 EBITDA 5,805,801 5,489,416 316,385 57% 61%
Slide 36: Well Known Customers
#«delphia BUSINESS SOLUTIONS Well Known Customers i | aad 7 WICHITA prea BOMBARDIER .224e. AEROSPACE > (@ Protection One Western Resources
Slide 37: Technical Exp YTD thru June 01
Technical Exp YTD thru June 01 Top 12 1st Q 2nd Q YTD BUDGET Delta Wages 279,557 322,020 601,577 513,716 87,861 117% TSR 248,982 39,591 288,573 465,745 (177,172) 62% Type II 159,671 175,653 335,324 290,293 45,031 116% Long Distance 132,408 141,873 274,281 245,000 29,281 112% Oper Trnspt Fee 83,221 1
Slide 38: Marketing Exp YTD thru June 01
Marketing Exp YTD thru June 01 1st Q 2nd Q YTD BUDGET Delta Outside Service 7,580 - 7,580 7,580 Advertisement 54,496 29,121 83,617 76,926 6,691 109% Other (9,924) (4,930) (14,854) - (14,854) Total 52,152 24,191 76,343 76,926 (583) 99% % to Sales 0.95% 0.51% 0.75% 0.85%
Slide 39: Sales Expense YTD thru June 01
Sales Expense YTD thru June 01 1st Q 2nd Q YTD BUDGET Delta Wages 212,755 216,713 429,468 349,832 79,636 123% Bonus & Comm 209,533 150,173 359,706 197,579 162,127 182% Education - 4,940 (4,940) 0% T&E 3,443 (2,869) 574 15,814 (15,240) 4% Telephone 1,014 762 1,776 5,175 (3,399) 34% Outside Services 5
Slide 40: G&A YTD thru June 01
G&A YTD thru June 01 Top 12 1st Q 2nd Q YTD BUDGET Delta Bad Debt 459,360 382,373 841,733 181,236 660,497 464% Wages 149,393 145,916 295,309 323,901 (28,592) 91% Taxes & Fees 130,295 144,993 275,288 168,000 107,288 164% Billing 106,108 154,407 260,515 205,236 55,279 127% Office Rent 59,021 73,365 13
Slide 41: Type 1 Strategy
Type 1 Strategy Current Type 1 Buildings - 227 Total Identified Type 1 Buildings - 100’s To be added this year - 12 – 24 All multi-tenant buildings with clear potential are already On-Net Remaining potential are single tenant, office parks and strip centers Sales drive single tenant entry Office par
Slide 42: Margin Improvement Efforts
Margin Improvement Efforts A/R Collections Efforts Resale Conversion / Rate Increases Cost of Service Analysis Type II / UNE Optimization Increase focus on new / existing Type I locations
Slide 43: A Historic Track Record of Success: Gulf Region
A Historic Track Record of Success EBITDA % of Revenues Gulf Region 100.0% Wichita 50.0% Oklahoma City Lexington Little Rock Nashville 0.0% Louisville Kansas City Jackson Houston St. Louis -50.0% TriCity TN -100.0% Columbus -150.0% Length of Time Markets in Operation Since: 1 Yr 2 Yrs 4 Yrs 5+ Yrs 2
Slide 44: Class of 1999/2000 Markets
Class of 1999/2000 Markets Following in the footprints of their mature brethren David Sutherland - RVP South Region
Slide 45: Class of 1999 Markets Basic Facts
Class of 1999 Markets Basic Facts • History – Initial Expansion into primarily larger Tier I/II markets – Focus of Eastern half of US, particularly Southeastern US – Initially heavy focus on market share penetration before facilities were in place – Represents addressable market of approximately 18
Slide 46: Class of 1999 Markets Basic Facts Con't
Class of 1999 Markets Basic Facts Con’t • Future Outlook – Turn gross margin positive by end of 2001;EBITDA positive by Q3 2002 – Incremental contribution margin from TSR conversion and new on-switch business of 65%-80% – Core market capital spending largely complete, then success based capital at r
Slide 47: The Corner Has Been Turned
The Corner Has Been Turned Passing the EBITDA Loss Inflection Point Quarterly Performance $5,000 $- $(5,000) $(10,000) GM $(15,000) EBITDA $(20,000) $(25,000) $(30,000) $(35,000) 99 99 00 00 9 99 0 00 1 01 -9 -0 -0 p- c- p- c- n- n- n- r r r Ma Ma Ma De De Se Se Ju Ju Ju
Slide 48: The Corner Has Been Turned: Forward Looking Guidance
$- $20,000 $40,000 $60,000 $80,000 $(40,000) $(20,000) Ma r-9 9 Ju n -9 9 Quarterly Performance S e p -9 9 D e c-9 9 Ma r-0 0 Historic Ju n -0 0 S e p -0 0 D e c-0 0 Ma r-0 1 Ju n -0 1 S e p -0 1 D e c-0 1 Ma r-0 2 Ju n -0 2 S e p -0 2 D e c-0 2 The Corner Has Been Turned Ma r-0 3 Ju n -0 3 S e p -0
Slide 49: A Historic Track Record of Success: South Region
A Historic Track Record of Success EBITDA % of Revenues South Region 100.0% 50.0% Baton Rouge Jacksonville 0.0% -50.0% South Florida Charlotte Raleigh New Orleans South Carolina -100.0% Tampa Orlando Mobile -150.0% Atlanta Length of Time Markets in Operation Since: 1 Yr 2 Yrs 4 Yrs 5+ Yrs 2000 1999
Slide 50: The Track to Success
The Track to Success The Month Each Market Turns Positive EBITDA AUG 01 SEP 01 OCT 01 NOV 01 DEC 01 JAN 02 FEB 02 MAR 02 APR 02 MAY 02 JUN 02 Jacksonville X Baton Rouge X Southern Region X South Florida X Charlotte X Orlando X New Orleans X South Carolina X Raleigh X Mobile X Tampa X Atlanta X
Slide 51: Class of 1999 Markets - The Drive to Profitability
Class of 1999 Markets - The Drive to Profitability • Type I Building Entry Strategy – Replicate Historic Performance of Original Markets - Lots of experience – Focus on mid-sized buildings - under-served portion of the market – Utilized fixed wireless (2002+) where feasible – Lower CPE costs resulti
Slide 52: The Drive to Profitability Con't
The Drive to Profitability Con’t • Type II – Improved economics with UNEs and EELs – Large addressable market for bundled services on IAD • Cost of Service Initiatives – Detailed audit of ILEC facilities invoices - error rate 10%-25% – Dispute resolution very favorable to date. $15.2M recovered (or
Slide 53: Profile of Improved Financial Performance: Lines On-Switch versus TSR
Profile of Improved Financial Performance Lines On-Switch versus TSR Lines On-Switch vs. TSR 90000 80000 70000 Number of lines 60000 50000 40000 30000 20000 10000 0 1/31/2001 2/28/2001 3/31/2001 4/30/2001 5/31/2001 6/30/2001 7/31/2001 8/31/2001 (5 cities) (7 cities) (7 cities) (10 cities) (11 cities
Slide 54: TSR Conversion & Type II Tremendous Margin Opportunity
TSR Conversion & Type II Tremendous Margin Opportunity Typical Type II Customer Profile Access Lines Served - Local 8-14 - LD 50% to 60% take rate Data/Internet Access 128kb - 512kb circuit Monthly Recurring Revenue - Average $ 650 Capital Cost - Incremental CPE/Cabling $3,600 Payback/Margin Analysi
Slide 55: Pricing Opportunities - The Changing Competitive Landscape
Pricing Opportunities - The Changing Competitive Landscape • Target Pricing - 15% - 20% below ILEC fully loaded rates – Charge for features (call waiting, call forwarding, three way calling, etc.) – Pass through ILEC charges and usage on TSR customers – Raise TSR rates to equal ILEC rates - 0% disco
Slide 56: Profile of Improved Financial Performance: A Rollforward of Results
Profile of Improved Financial Performance A Rollforward of Results Type II Type II Type I TSR Change(a) SA T-1 Change (b) UNE/EEL Change (c) On-Net Revenue $410 $240 $650 - $650 $650 Direct Cost of Service 450 (100) 350 (160) 190 (115) 75 Incremental Gross Margin $ (40) 300 460 575 Incremental Gross
Slide 57: Gross Margin On Its Way To Join Mature Markets
Gross Margin On Its Way To Join Mature Markets Gross Margin by City 90% 80% 70% Atlanta Baton Rouge 60% Charlotte 50% Jacksonville 40% Mobile New Orleans 30% Orlando 20% Raleigh South Carolina 10% South Florida 0% Tampa AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN -10% 01 01 01 01 01 02 02 02 02 02 0
Slide 58: A Look at ABIZ from Adelphia's Perspective
A Look at ABIZ from Adelphia’s Perspective Tim Rigas, CFO
Slide 59: Adelphia's Perspective
Adelphia’s Perspective A Look at ABS from Adelphia’s Perspective • Enabling Network • Digital TV Transport • High Speed Data – IP Backbone • Residential Telephony • Attractive Investment • Leverage Enabling Network to provide better ROI
Slide 60: Digital TV Transport
Digital TV Transport Buffalo • The PONY ring allows digital set top boxes in Coudersport to be fed from digital headend equipment in Buffalo, Erie enabling wide scale Coudersport digital deployment while minimizing capital spent on headend equipment Cleveland Akron Pittsburgh
Slide 61: High Speed Data - IP Backbone
High Speed Data – IP Backbone • The IP Backbone will enable Adelphia to gain Tier 1 ISP status, saving the company $7.00 to $9.00 per cable modem customer in transport and transit expense.
Slide 62: Residential Telephony
Residential Telephony ABS Switch • The ABS backbone can provide transport and ABS Central switching to connect Office Adelphia cable subscribers to the LEC Central public switched Office networks Adelphia Fiber Ring Long Distance Carrier Switch HFC network Adelphia Headend Cable Home Passed
Slide 63: Morgan Stanley Sponsored Investor Day
Morgan Stanley Sponsored Investor Day September 5, 2001
Adelphia Business Solutions — Investor Day (September 2001) on 6ix