Credit Suisse 2014 Global Credit Products Conference September 18, 2014
Ralph Kelly Senior Vice President and Treasurer Mike Pflantz Senior Vice President of Corporate Finance
Company Profile
Corporate Profile as of June 30, 2014 Customer Summary Financial Residential: LTM pro forma revenue of $2.26 billion 1,403,500 residential customer relationships Total 3,688,200 RGUs / 2,806,700 PSUs: 1,168,800 basic video 881,500 digital video 1,103,300 residential Internet 534,600 residential telephone Commercial: 86,800 commercial customer relationships 40,500 bundled commercial customers LTM pro forma Adjusted EBITDA of $878.3 million June 30, 2014 As Reported Senior Leverage 2.62x 2.62x Total Leverage 5.11x 5.80x Pro Forma Cash Balance $221 million $101 million Strong liquidity position with undrawn $500 million Revolver 7th largest U.S. cable television operator 4
Clustered Markets with Favorable Competitive Dynamics Telco Footprint Overlap (%HP) AT&T 62% Verizon 3% Centurylink 16% All Others 5% Frontier 14% Limited Broadband Overbuild (%HP) Verizon FiOS 0.0% AT&T U-Verse 4.2% All Others 3.9% Broadband Overbuild 8.1% O H M O W V C A O K A R N C A Z T X L A Franchise Area Top 20 Primary Systems serve 91% of customer relationships Note > All figures are as of June 30, 2014 Top 10 States serve 96% of customer relationships 5
Pro Forma Capital Structure as of June 30, 2014 Lead Investors BC Partners CPPIB Executive Management Cequel Corporation $1,985 million Equity contributions Rating B1 / B+ (Corporate) CequelCommunications Holdings, LLC Rating B3 / B- CequelCommunications Holdings I, LLC Issuer of Senior Notes $1,500 million 6.375% Senior Notes due 2020 $ 750 million 5.125% Senior Notes due 2021 $ 500 million 5.125% Senior Notes due 2021 -New CequelCommunications Holdings II, LLC Bank Guarantor CequelCapital Corporation Co-Issuer of Senior Notes Rating Ba2 / BB CequelCommunications, LLC Bank Borrower $ 500 million ($0 million drawn) Revolver due 2017 1 $2,386 million Term Loan B due 2019 Various Operating Subsidiaries Bank Guarantors 1 Revolver availability is reduced by approximately $17.5 million of outstanding letters of credit. 6
Transaction Summary
Sources and Uses On September 9, Suddenlink issued a $500 million mirror note to its existing 5.125% Senior Notes due 2021 New Senior Notes issued with same terms as existing 5.125% Senior Notes due 2021 Net proceeds from offering and $120 million of available cash was used to fund a $600 million dividend distribution to current equity holders and pay fees and expenses Remaining RP capacity at the high yield issuer, pro forma for the transaction, is $657 million ($ in millions) Sources Uses Senior Notes Proceeds $ 486 Equity Distribution $ 600 Cash from Balance Sheet 120 Fees and Expenses 6 Total Sources $ 606 Total Uses $ 606 8
Current and Pro Forma Capitalization LIBOR Notional Potential Pro Forma ($ in millions) Rating Maturity Rate Floor June 30, 2014 Transaction June 30, 2014 Cash and Cash Equivalents $221 ($120) $101 Revolver Ba2 / BB Feb 2017 L + 250 Term Loan B Ba2 / BB Feb 2019 L + 275 0.75% $2,386 $2,386 Capital Leases - - - $3 3 Total OpCo Secured Debt $2,389 $2,389 Other Obligations - - - $15 $15 Senior Notes 2021 5.125% B3 / B- Dec 2021 5.125% $750 750 Senior Notes 2021 5.125% B3 / B- Dec 2021 5.125% $500 500 Senior Notes 2020 6.375% B3 / B- Sept 2020 6.375% $1,500 1,500 Total Debt $4,654 $5,154 Net Total Debt $4,433 $5,053 Adjusted Pro Forma LTM EBITDA $878 $878 Secured Leverage (as calculated under credit agreement) 2.62x 2.62x Total Leverage (as calculated under indenture) 5.11x 5.80x S&P and Moody s affirmed ratings of Senior Notes S&P upgraded the Revolver and Term Loan B facility to BB June Term Loan balance reflects $61 million excess cash flow payment made in April 9
Cequel Maturity Profile As of June 30, 2014, Actual 3000 $2,386 2000 $1,985 1000 $500 $750 0 2014 2015 2016 2017 2018 2019 2020 2021 2022 As of June 30, 2014, Pro Forma for Senior Notes Issuance 3000 $2,386 2000 $1,985 $1,250 1000 $500 0 2014 2015 2016 2017 2018 2019 2020 2021 2022 Undrawn Revolver Term Loan 6.375% Senior Notes 5.125% Senior Notes The nearest funded maturity is the Term Loan due in February 2019 $500 million undrawn Revolver matures in February 2017 10
Proven Ability to Reduce Leverage with EBITDA Growth 6.9x 7.0x 6.8x 6.7x 6.5x 6.3x 6.0x 5.8x 5.6x 5.5x 5.4x 5.3x 5.3x 5.2x 5.1x 6.0x 5.5x 5.3x 5.2x 5.6x 5.5x 5.4x 6.2x 5.8x 5.7x 5.6x 5.4x 5.3x PF 5.8x 5.1x 4.3x 4.2x 3.3x 3.2x 3.1x 3.1x 2.8x 2.7x 2.7x 3.0x 3.0x 2.9x 2.7x 3.1x 2.9x 2.8x 2.8x 2.7x 2.6x Total Bank Leverage Total Leverage (including Senior Notes) Pro Forma Leverage Note > Prior to Q2 13, Total Leverage calculated under the indenture governing the former 8.625% Senior Notes due 2017. As of Q2 13 and thereafter, Total Leverage calculated under the indenture governing the 6.375% Senior Notes due 2020 and 5.125% Senior Notes due 2021. 11
Q2 2014 Financial Update
Q2 2014 Revenue and Adjusted EBITDA Quarterly Revenue And ARPU Quarterly Adjusted EBITDA (Dollars in millions) $580 $547 $163.92 $150.86 5.9% Revenue CAGR (Dollars in millions) $226 $213 38.9% 39.0% 6.2% Adjusted EBITDA CAGR Q2'13 Revenue Q2'14 ARPU Q2'13 EBITDA Q2'14 EBITDA Margin Annual Revenue Annual Adjusted EBITDA (Dollars in millions) (Dollars in millions) $2,074 $2,197 $2,262 $732 $796 $852 $878 $1,949 6.1% Revenue CAGR 37.6% 38.4% 38.8% 38.8% 7.5% Adjusted EBITDA CAGR 2011 2012 2013 LTM Q2'14 2011 2012 2013 LTM Q2'14 13
RGU and PSU Growth (Units in thousands) RGUs 3,589 PSUs 2,734 RGUs and PSUs 847 488 RGUs 3,706 PSUs 2,818 881 535 1,026 1,103 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% Improving Subscriber Trends TTM Growth % 8.8% 7.6% 7.2% 5.4% 5.0% 6.6% 5.7% 5.8% 4.8% 4.6% 4.2% 2.4% 1.9% 1.3% 1.4% 1.0% 10.0% 9.6% 7.6% 3.1% 3.6% 1,197 1,169 0.0% -2.0% Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14-3.0% -2.8% -3.1% -3.4% -2.8% -2.7% -2.4% Q2'13 Q2'14-4.0% Basic Video Residential Phone Residential HSI Digital -6.0% Basic Video Residential Telephony Residential HSD PSU 14
Residential Relationships and Bundling Accelerating Customer Relationship Growth Trends Added 29k customer relationships in TTM, or 2.2% growth On pace for fifth consecutive year of customer relationship growth 4.0% 2.0% 0.6% 0.3% 0.2% 0.6% 2.2% 0.0% 2010 2011 2012 2013 LTM Q2'14 (Units in thousands) Bundled Customer Trends 25.7% 353 27.9% 391 Non-Video and Video Relationships (Units in thousands) 1,374 1,403 266 320 65.1% 66.0% 542 535 1,108 1,084 479 477 Q2'13 Q2'14 Q2'13 Q2'14 Non-Video as % of Total Customers 19.4% 22.8% 15
Abundance of Commercial Opportunities Commercial Telephone and HSI Customers (Units in thousands) 55 61 36 28 Commercial Market Opportunities (Dollars in millions) $258 $1,316 $229 $467 Q2'13 Q2'14 29% Commercial Phone CAGR 11% Commercial HSI CAGR $269 Q2 14 Commercial Revenue and Growth Highlights 11% Commercial revenue growth YoY 18% combined Commercial HSI, commercial telephone and on-net carrier revenue growth YoY 45% increase in Fiber-to-the-Tower tenants in billing YoY % of Market $93 Business Video Business Data Business Telephone Carrier Services Media Total 44% 43% 9% 17% 33% 24% Does not include market opportunity of over $400 million for cloud based and managed services 16
Capital Expenditures and Free Cash Flow Capital Expenditures as % of Revenue 16.2% 15.8% 21.0% 19.4% 17.0% 17.0% 16.7% 2008 2009 2010 2011 2012 2013 LTM Q2'14 Free Cash Flow (Dollars in millions) $266 $216 $134 $89 $50 $52 $16 % of Revenue 2008 2009 2010 2011 2012 2013 LTM Q2'14 3.5% 5.7% 0.9% 2.7% 6.5% 9.9% 11.8% 17
Strategic Topics and Takeaways
Evolving Product Landscape Suddenlink s video product is comparable or superior to other competitive video offerings within our footprint Adding new content and expanding ways customers can consume that content However, rising programming content expenses continue to outpace video revenue rate increases, resulting in a shrinking video margin Programming renewals continue to grow more contentious, with public disputes between operators and content providers becoming more commonplace Growth in other services (HSI, phone, commercial) have effectively offset impact of video margin erosion 19
Operation Reliant Overview In early 2013, Suddenlink began a process to transition from a third-party platform to our own telephone platform ( Operation Reliant ) The total cost to build and test our own platform and migrate off the third-party platform is approximately $50 million ($20 million capital expenditures, $30 million non-recurring operating expenses) Operation Reliant provides significant cost savings to Suddenlink s telephone direct costs and provides Suddenlink with more internal flexibility Upon completion, it is expected to provide a material reduction in telephone direct costs starting in 2015 and normalizing in 2016 Customer migration from the third-party platform began in August and is on pace to be completed by early 2015 20
Operation GigaSpeed Overview In August 2014, Suddenlink announced the launch of Operation GigaSpeed, a 3 ½ year investment project to advance the competitive position of our broadband service to nearly all of our footprint Internet service speeds that are already many multiples higher than competitor offerings in most markets will further increase, distancing our broadband service from the competition and providing a catalyst for growth Operation Gigaspeed will positively impact well over 90% of our customers by ensuring the continuation of best broadband service available in our markets and the ability and capacity to offer additional products and services We expect to invest up to an additional $230 million of incremental capital expenditures above our normal levels through 2017, with approximately $35 million occurring in the second half of 2014 Our 2014 capital expenditure guidance of $410 million $420 million is reflective of this investment GigaSpeed capital expenditures will include headend equipment, DOCSIS 2.0 customer premises equipment and HD-DTA s to complete our all-digital video conversion Upon the completion of Operation GigaSpeed we expect our flagship Internet speed to increase from 15 to 200 Megabits and our top speed to increase from over 100 Megabits to one Gigabit in nearly 90% of our service areas Expect 2015 capital expenditures as a percent of revenue to be less than 20%, and declining to mid-teens thereafter 21
Suddenlink Serves the Entire Community AT&T 300 Mbps Offering Map Suddenlink s 300 Mbps Offering Map Non-residential or undeveloped areas 300 Mbps service launched in Leander and Pflugerville, Texas (near Austin s Google Fiber, but not directly competing with Google) All homes in the community have access to 300Mbps service, not just a few select neighborhoods 22
Questions and Answers
Basis of Presentation All financial and operating results included in this presentation (except for capital expenditures as presented on page 17 and free cash flow as presented on page 17) are pro forma to include the following transactions, as if these transactions had been consummated as of January 1, 2011: - The acquisition of NPG Cable, Inc. on April 1, 2011 - The divestiture of a TV station on June 1, 2012 - The contribution of Excell Communications on November 15, 2012 - The divestiture of small cable systems on December 31, 2012 - The acquisition of three Northland Communications systems on January 2, 2014 Unless noted otherwise, all debt balances shown are notional amount versus GAAP balance. Further details of our financial results, both GAAP and pro forma, are available on our website at www.suddenlink.com. 24