August 6, Q15 Earnings Presentation

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1 August 6, Q15 Earnings Presentation

2 Participants Tony Thomas Chief Executive Officer Bob Gunderman Chief Financial Officer Christie Grumbos Treasurer 2

3 Safe Harbor Statement Safe Harbor Statement Windstream claims the protection of the safe-harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of Forward-looking statements are subject to uncertainties that could cause actual future events and results to differ materially from those expressed in the forward-looking statements. Forward-looking statements include, but are not limited to, our plan to grow adjusted OIBDA, Windstream s 2015 guidance for service revenue, adjusted OBIDAR margin ranges, capital expenditures and cash tax payments, expected excess free cash flow, the expected amount, timing and benefit of our share repurchase program, expectations regarding revenue trends and margins for our business units, expectations regarding Kinetic, Windstream s IPTV video entertainment offering, improvements in highspeed Internet capabilities, the completion and benefits of network investments pursuant to Connect America Fund Phase 1, expectation regarding funding available and benefits under the Connect America Fund Phase 2, and the amount that Windstream may reduce its debt by selling its equity stake in Communications Sales & Leasing, Inc. These statements, along with other forward-looking statements regarding Windstream s overall business outlook, are based on estimates, projections, beliefs, and assumptions that Windstream believes are reasonable but are not guarantees of future events and results. Actual future events and results of Windstream may differ materially from those expressed in these forwardlooking statements as a result of a number of important factors. For risk factors that could cause actual results and events to differ materially from those expressed, refer to Windstream s filings with the Securities and Exchange Commission. Regulation G Disclaimer This presentation includes certain non-gaap financial measures. Reconciliations of these non-gaap financial measures to the most directly comparable GAAP financial measures are available on our website at 3

Sequential Revenue Growth & Flat Adjusted OIBDAR Operational focus driving progress Total Revenue Adjusted OIBDAR (1) ($ in millions) ($ in millions) $1,455 $1,409 $1,419 $538 $490 $489 Total revenue

4 Sequential Revenue Growth & Flat Adjusted OIBDAR Operational focus driving progress Total Revenue Adjusted OIBDAR (1) ($ in millions) ($ in millions) $1,455 $1,409 $1,419 $538 $490 $489 Total revenue grew sequentially and the y/y change rate improved by 50 bps y/y Adjusted OIBDAR was flat sequentially Generated adjusted OIBDAR margins of 34.5% 2Q14 1Q15 2Q15 y/y change 2Q14 1Q15 2Q15 Adj OIBDAR (3.0%) (2.5%) 34.8% 34.5% Margins YTD revenue and adjusted OIBDAR results tracking well within the annual guidance range 2Q Sequential change $10M 1) Adjusted OIBDA prior to lease payment to CS&L. 4

Windstream s Strategy to Maximize Shareholder Value 3 Optimize Balance Sheet Continue to reduce debt Lower interest cost 1 2 Allocate Capital and Return Value Invest in high-return initiatives to

5 Windstream s Strategy to Maximize Shareholder Value 3 Optimize Balance Sheet Continue to reduce debt Lower interest cost 1 2 Allocate Capital and Return Value Invest in high-return initiatives to generate incremental FCF Return capital to shareholders Execute Focused Operational Strategy Stabilize and grow adjusted OIBDA Provide an exceptional customer experience with best-in-class network 5

6 WIN is Significantly Undervalued (a) Relative to Peers (Dollars in Millions, Except Per Share) Enterprise Value / FY15E EBITDA and Select Operating Metrics 7.4x 7.4x Returning value to shareholders via a stock repurchase program of up to $75 million 6.0x 5.7x 5.4x 5.3x 4.4x Company LMOS CNSL CBB FRP FTR CTL WIN FY15E Revenue Growth 0.7% 0.4% 0.2% (4.3%) (3.5%) (0.7%) (1.5%) FY15E EBITDA Margin (a) 45.7% 41.0% 26.8% 28.3% 40.9% 38.3% 34.3% / 22.7% Net Debt / FY15E EBITDA (b) 4.0x 4.2x 2.9x 3.6x 3.9x 2.9x 3.6x Source: Publicly available documents and consensus estimates. WIN FY15E revenue growth and Adjusted EBITDA margin based on midpoint of guidance. Note: Companies are pro forma for transactions as applicable; As of August 5, (a) Windstream FY15E EBITDA Margin is representative of EBITDA Margin before and after lease expense, respectively. Lease expense of $650M represents a 12-month figure for 2015E. (b) Based on Company s most recent reported leverage ratio. 6

Strengths & Opportunities Operating Strategy Focused Operational Strategy Consumer & ILEC Small Business

and profitability Right-size and manage for cash Generates significant cash Stable, high-margin business

incremental returns Growing revenue Robust suite of advanced data & cloud services Significant opportunity to

7 Strengths & Opportunities Operating Strategy Focused Operational Strategy Consumer & ILEC Small Business Carrier Enterprise CLEC Small Business Invest for growth Invest in growth areas to stabilize Increase revenue and profitability Right-size and manage for cash Generates significant cash Stable, high-margin business Attractive rural markets Generates significant cash High-margin Substantial network assets to leverage and earn incremental returns Growing revenue Robust suite of advanced data & cloud services Significant opportunity to expand margins Ability to improve profitability and increase cost efficiency of service model Stabilize and Grow Adjusted OIBDA 7

Consumer and ILEC SMB Initiatives & Growth Drivers Deploying Premium

Internet speeds (50 meg and above) Will enable ~1M locations,

Offering Drives significantly higher bundled ARPU and introduces new

WIN elected CAF-2 funding to expand and support broadband services to

8 Consumer and ILEC SMB Initiatives & Growth Drivers Deploying Premium Internet Speeds Improve broadband revenue by deploying premium Internet speeds (50 meg and above) Will enable ~1M locations, including 380k existing customers by end of 2015 Kinetic IPTV Offering Drives significantly higher bundled ARPU and introduces new product to increase market share Connect America Fund-2 Initiatives WIN elected CAF-2 funding to expand and support broadband services to over 400k locations; Total support over 7 years is $1.2B or $500m over current support level 8

Carrier Initiatives & Growth Drivers Windstream is a

transport services across the US Expanding our 100G

and 50 new access points in 2015 100G Network Expansion

wireless carriers bandwidth needs increase Developed a

9 Carrier Initiatives & Growth Drivers Windstream is a leading provider of metro, regional and long-haul transport services across the US Expanding our 100G express long-haul network Completing 20,000 route miles and 50 new access points in G Network Expansion Deployed fiber to 5,000 towers Positioned for growth as wireless carriers bandwidth needs increase Developed a world class carrier portal Represented 30% of carrier sales distribution in 2Q15 9

HIGHER MARGIN SALES Expand enterprise margins Optimize the cost of revenue with system & process enhancements and fiber investments to

10 Enterprise Initiatives & Growth Drivers Expand the Enterprise contribution margin by increasing market share, selling higher margin services and managing costs Increase market share Continue to grow revenue with robust suite of advanced data and cloud products DRIVE HIGHER MARGIN SALES Expand enterprise margins Optimize the cost of revenue with system & process enhancements and fiber investments to displace 3 rd party access costs Increase product participation Maximize the breadth of our enterprise services offerings and drive higher margin sales 10

11 Investing in Initiatives to Generate Incremental FCF Initiative capital projects are expected to generate attractive returns Capital Expenditures WIN s 2015 capital plan includes ~$450M in initiative capital projects Leveraging existing fiber infrastructure to enable high incremental returns Premium Internet speeds Carrier network expansion IPTV On-Net Expansion in enterprise markets Partnering with governmental agencies to expand and improve our broadband capabilities through program such as CAF-1, CAF-2 and stimulus 2015 Initiative Capex Success-based $165M CAF-1 broadband investments (1) $95M Broadband (VDSL2+) $50M Project WINterstate (carrier long-haul network expansion) $35M Data center $35M IT projects to drive efficiencies $30M On-Net Expansion $20M IPTV & Fiber to the home $20M $450M (1) Capex projects associated with CAF-1 projects expected to be completed in

12 Optimizing the Balance Sheet Reduced debt by $3.2 billion in 2Q; a result of the spin-off of CS&L Will reduce debt further via the retained equity stake in CS&L Currently valued at ~$624M; WIN will monetize within months of the spin-off Extended the $1.25B revolver maturity by 5 years and improved facility pricing in 2Q Have ample secured debt capacity (3) to refinance higher cost debt and lower interest expense Windstream Net Debt $8,790 $5,637 $5,013 Potential Debt reduction of $3.8B After CS&L Monetization WIN will improve leverage to the mid-3x range 3/31/2015 6/30/2015 Post CS&L Monetization (1) WIN retained ~29.4M shares of CS&L; currently valued at ~ $624M based on the closing price on August 5, 2015 (2) Based on twelve months ended pro forma adjusted OIBDA (inclusive of the $650M annualized lease payment ) (3) WIN currently has ~$2 billion in secured debt capacity, including revolver capacity, with secured debt to adjusted OIBDA at 1x and the ability to increase up to 2.25x per the credit agreement 12

Consumer Revenue Grew Sequentially Consumer Service Revenues ($ in millions) Internet Bundles Voice Only Video & Misc $317 $321 $316 $312 $314 $51 $50 $47 $44 $43 $13 $13 $12 $12 $12 Key Drivers

13 Consumer Revenue Grew Sequentially Consumer Service Revenues ($ in millions) Internet Bundles Voice Only Video & Misc $317 $321 $316 $312 $314 $51 $50 $47 $44 $43 $13 $13 $12 $12 $12 Key Drivers Consumer revenues grew sequentially by $2M Total bundled revenue of $259M, up 2.1% y/y, due to growth in bundled ARPU Bundled revenue grew $3M sequentially Y/Y Change $253 $258 $257 $256 $259 2Q14 3Q14 4Q14 1Q15 2Q15 (2.8%) (0.3%) (0.3%) (0.3%) (0.9%) ~190 bps improvement in the y/y change vs. 2Q14 Future Growth Drivers: Upgrading network with VDSL2+ bonding to enhance Internet speeds for consumer and SMB customers CAF-1 and CAF-2 investments will shorten loop lengths to expand broadband availability and improve speeds Kinetic, our IPTV service, to launch in select markets 13

14 Stable ILEC SMB Results SMB ILEC Revenues ($ in millions) $112 $111 $110 $109 $108 SMB CLEC Revenues ($ in millions) $168 $163 $155 $150 $146 2Q14 3Q14 4Q14 1Q15 2Q15 SMB ILEC (facilities based) Revenue stable sequentially, down 3.4% y/y ILEC SMB refined strategy for growth Simplify products; create distinct SMB brand Network upgrades to improve broadband capabilities Goal to increase market share & improve revenue trends 2Q14 3Q14 4Q14 1Q15 2Q15 SMB CLEC (non-facilities based) Sequential decline in revenue improved Operating strategy to enhance profitable revenue opportunities Focused on retention; selling incremental services to existing customers Improve efficiency with targeted cost reductions Note: SMB revenues include business customers that generate below $1,500 in monthly recurring revenue 14

15 Broadband Investments Benefitting Consumer & ILEC SMB Increase ARPU and market share Deploying VDSL2+ technology to enable greater speed availability providing the opportunity to generate higher ARPU and increase market share WIN has ample room for ARPU growth through speed upgrades ~80%, or ~900k, of Consumer households subscribe to speeds under 10 meg CAF-1 and CAF-2 Projects to Provide Further Benefits CAF-1 and CAF-2 projects will further shorten loop lengths and incrementally improve the speed profiles 60% Internet Speed Addressability Before and After VDSL2+ 68% 88% 24% 18% 54% 30% 17% 10% 7% 0% 0% 10 Mbps 25 Mbps 50 Mbps 75 Mbps + 1/1/2015 YE 2015 YE 2018 Notes: Expected speed profiles presented for YE 2015 and 2018 will improve upon the completion of CAF 1 and 2. Internet speed addressability reflects the speeds available for Consumer and SMB locations 15

16 CAF-2 Program is a WIN For Windstream Under the CAF-2 program, Windstream will receive $175M in annual funding +75M in incremental support $100 $175 CAF-2 Windstream will receive $175M in annual run rate funding to expand and support broadband services to over 400,000 locations We accepted funding in all states other than New Mexico Expect 2015 receipts of ~ $195M (1) ; payments retroactive to beginning of 2015 resulting in cash trueup payment Current Federal USF Support CAF-2 Support (run rate) Funding enables Windstream to significantly enhance our broadband capabilities in our more rural markets CAF-2 receipts are sufficient to meet the program s capital obligations and WIN will earn excess FCF from the network investments (1) Annual CAF-2 receipts will adjust to the $175 million run rate by

17 Growing Core Carrier & Wholesale Revenue Key Drivers A Closer Look at Carrier Service Revenues ($ in millions) 2Q14 - $183M 2Q15 - $172M Core Carrier & Wholesale (>90%) and grew slightly Wireless TDM (<10%): TDM migrations to Ethernet are subsiding as most disconnects have occurred $155 $28 $156 $16 Future Growth Drivers: Expansion of our WINterstate long-haul express network Continued demand for incremental bandwidth Wireless TDM Core Carrier & Wholesale Carrier Transport: Long-haul and metro transport, WAVE sales Wireless Backhaul (Ethernet): Growing due to increasing bandwidth demand 17

18 Growing Enterprise Revenues up 3.5% $500 $400 $300 $200 $100 $0 Enterprise Service Revenues ($ in millions) $469 $477 $481 $482 $485 $29 $30 $29 $29 $30 $142 $142 $139 $138 $136 $297 $305 $313 $315 $319 2Q14 3Q14 4Q14 1Q15 2Q15 Data & Integrated Voice & LD Misc Key Drivers Data & Integrated Services revenue up 7.3% y/y; grew $4M sequentially Successfully moving up market Enterprise customers grew 1.2% y/y ARPU increased by 2% y/y Future Growth Drivers Expand enterprise margins Increase high-margin sales Increase efficiency with system and process improvements On-net fiber expansion Provides more on-net sales opportunities Displaces interconnection cost Note: Enterprise revenues include business customers that generate $1,500 and above in monthly recurring revenue 18

2014 Revised 2015 Guidance (3%) to Flat vs. 2014 Adj. OIBDAR Margins 34% - 34.

19 2015 Guidance 2015 service revenue guidance improved; Other guidance affirmed Service Revenue Prior 2015 Guidance (4%) to Flat vs Revised 2015 Guidance (3%) to Flat vs Adj. OIBDAR Margins 34% % Unchanged Capex (excluding CAF-2) $825M to $875M Unchanged Cash Taxes $20 Unchanged Note: Guidance excludes the impact of CAF-2 19

20 Appendix: Supplemental Schedules 20

21 Supplemental Financial Information FINANCIAL RESULTS: Total 2nd Qtr. 1st Qtr. Total 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. Service revenues: Enterprise $ $ $ $ 1,886.6 $ $ $ $ Small business , Consumer , Carrier Regulatory and other Total service revenues 2, , , , , , , ,408.1 Product sales Total revenues and sales 2, , , , , , , ,453.3 Costs and expenses: Cost of services 1, , Cost of products sold Selling, general and administrative Costs and expenses excluding pension and share-based compensation 1, , Pro Forma Adjusted OIBDAR (B) , Pro Forma master lease rent payment Pro Forma Adjusted OIBDA (C) , Pension (benefit) expense (6.5) (4.7) (1.8) (0.3) Restructuring charges Share-based compensation Pro Forma OIBDA (D) $ $ $ $ 1,263.4 $ $ $ $ Margins (E): Pro Forma Adjusted OIBDAR margin 34.6% 34.5% 34.8% 36.6% 36.8% 35.9% 37.0% 36.8% Pro Forma Adjusted OIBDA margin 23.2% 23.0% 23.3% 25.4% 25.4% 24.7% 25.8% 25.6% (A) Pro forma results adjust operating results under GAAP to exclude the impacts of the disposed consumer CLEC business and directory publishing operations and all merger and integration costs related to strategic transactions. (B) Pro Forma Adjusted OIBDAR is pro forma adjusted OIBDA before the annual cash rent payment due under the master lease agreement with CS&L assuming the lease payments began on January 1, (C) Pro Forma Adjusted OIBDA is pro forma OIBDA before restructuring charges, pension (benefit) expense and share-based compensation. (D) Pro Forma OIBDA is operating income before depreciation and amortization. (E) Margins are calculated by dividing the respective profitability measures by total revenues and sales. 21

22 Supplemental Financial Information (cont.) REVENUE SUPPLEMENT Total 2nd Qtr. 1st Qtr. Total 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. Service revenues: Voice and long distance $ $ $ $ $ $ $ $ Data and integrated services , Miscellaneous Enterprise , ILEC CLEC Small business , High-speed Internet bundles , Voice only Video and miscellaneous Consumer , Core carrier Wholesale Total core carrier and wholesale Wireless TDM Carrier Switched access USF support Pass through taxes and surcharges Miscellaneous Regulatory and other Total service revenues 2, , , , , , , ,408.1 Product sales: Business Consumer Other Total product sales Total revenues and sales $ 2,827.9 $ 1,418.8 $ 1,409.1 $ 5,786.2 $ 1,433.1 $ 1,444.9 $ 1,454.9 $ 1,453.3 (A) Pro forma results adjust operating results under GAAP to exclude the impacts of the disposed consumer CLEC business and directory publishing operations and all merger and integration costs related to strategic transactions. 22

23 Supplemental Financial Information (cont.) Total 2nd Qtr. 1st Qtr. Total 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. KEY OPERATING METRICS: Enterprise customers (A) YOY change in enterprise customers 1.2% 1.2% 2.0% 2.9% 2.9% 2.5% 2.5% 2.5% Enterprise revenue $ $ $ $ 1,886.6 $ $ $ $ Average revenue per enterprise customer per month $ 6,488 $ 6,508 $ 6,468 $ 6,397 $ 6,494 $ 6,474 $ 6,390 $ 6,322 Small business customers (B) YOY change in small business customers -9.3% -9.3% -8.9% -8.3% -8.3% -8.2% -8.2% -8.2% Small business revenue $ $ $ $ 1,108.1 $ $ $ $ Average revenue per small business customer per month $ 272 $ 269 $ 268 $ 273 $ 268 $ 271 $ 270 $ 272 Consumer: Households served 1, , , , , , , ,605.7 YOY change in households served -5.2% -5.2% -5.6% -5.7% -5.7% -5.9% -5.8% -5.5% Consumer revenue $ $ $ $ 1,267.0 $ $ $ $ Average revenue per household served per month $ 69 $ 69 $ 68 $ 67 $ 68 $ 68 $ 66 $ 65 High-speed Internet 1, , , , , , , ,170.4 Digital television customers YOY change in high-speed Internet -2.9% -2.9% -3.2% -3.4% -3.4% -3.5% -3.4% -2.9% YOY change in digital television customers -5.5% -5.5% -5.0% -4.2% -4.2% -4.8% -5.0% -5.3% Note: As of June 30, 2015, consumer voice lines were 1,573,800. (A) Enterprise customers represent customers that generate $1,500 or more in revenue per month. (B) Small business customers represent customers that generate less than $1,500 in revenue per month. 23

24 Supplemental Financial Information (cont.) ADJUSTED FREE CASH FLOW: Total 2nd Qtr. 1st Qtr. Total 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. Operating income under GAAP $ $ 79.3 $ $ $ 20.5 $ $ $ Depreciation and amortization , OIBDA , Merger and integration costs Pension (benefit) expense (6.5) (4.7) (1.8) (0.3) Restructuring charges Share-based compensation Adjusted OIBDAR (A) , Master lease rent payment (121.0) (121.0) Adjusted OIBDA (B) , Adjustments: Capital expenditures (444.3) (255.0) (189.3) (786.5) (233.8) (193.9) (205.8) (153.0) Cash paid for interest (281.0) (206.3) (74.7) (568.1) (209.8) (74.7) (208.9) (74.7) Cash refunded (paid) for taxes (2.9) (2.1) 1.0 Adjusted free cash flow $ $ (91.4) $ $ $ $ $ $ Dividends paid $ $ $ $ $ $ $ $ Weighted average common shares Common stock outstanding As of DEBT LEVERAGE RATIO: 6/30/2015 Long-term debt, including current maturities $ 5,643.8 Capital lease obligations 42.9 Total long-term debt and capital lease obligations 5,686.7 Cash and cash equivalents, including restricted cash 49.9 Net debt 5,636.8 Investment in CS&L (C) Adjusted net debt $ 5,013.0 Twelve Months Ended 6/30/2015 Adjusted OIBDAR - Windstream Holdings, Inc. $ 2,041.4 Adjustments (D) 7.4 Annual master lease rent payment (650.0) Adjusted OIBDA - Windstream Services, LLC $ 1,398.8 Pro forma net leverage ratio - Windstream Services, LLC 3.58 Note: Adjusted OIBDAR and adjusted OIBDA include the results of the disposed consumer CLEC business and directory publishing operations. (A) Adjusted OIBDAR is adjusted OIBDA before the annual cash rent payment due under the master lease agreement with CS&L assuming the lease payments began on January 1, (B) Adjusted OIBDA is OIBDA before restructuring charges, pension (benefit) expense and share-based compensation. (C) Represents fair value of CS&L common stock held by Windstream. Fair value is based upon CS&L closing stock price as of August 5, Windstream intends to dispose of all of its shares of CS&L opportunistically, subject to market conditions, to retire additional long-term debt. (D) Adjustments include certain expenses directly incurred by Windstream Holdings, Inc. and other adjustments required by the credit facility and indentures of Windstream Services, LLC. 24

25 Well-Positioned Debt Maturity Profile WIN has ample secured debt capacity available to refinance higher coupon debt and lower interest expense Debt Maturity Profile $700 $1,100 $581 $950 $1,300 $480 $500 $ Thereafter Term Loan Revolver Sr Notes Note: Windstream currently has approximately $2 billion in secured debt capacity, including revolver capacity, with secured debt to OIBDA currently at 1x and the ability to increase this up to 2.25x per the credit agreement 25

August 9, Q18 Earnings Presentation

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