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4th Quarter 2013 Earnings Conference Call
February 27, 2014
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Safe Harbor Statement
Safe Harbor Statement
Windstream claims the protection of the safe-harbor for forward-looking statementscontained in the Private Securities Litigation Reform Act of 1995. Forward-lookingstatements are subject to uncertainties that could cause actual future events and results to
differ materially from those expressed in the forward-looking statements. Forward-lookingstatements include, but are not limited to, Windstreams 2014 guidance for revenue,adjusted OBIDA, adjusted capital expenditures, adjusted free cash flow, dividend payoutratio, and cash tax payments for 2014 and 2015. These statements, along with otherforward-looking statements, including statements regarding Windstreams business outlook,
current capital allocation strategy, capital expenditure levels in future periods, its currentdividend practice, and the companys ability to generate, and amount of, cash flows infuture periods, are based on estimates, projections, beliefs, and assumptions thatWindstream believes are reasonable but are not guarantees of future events and results. Forrisk factors that could cause actual results and events to differ materially from thoseexpressed, refer to Windstreams filings with the Securities and Exchange Commission.
Regulation G Disclaimer
This presentation includes certain non-GAAP financial measures. Reconciliations of these-
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available on our website at www.windstream.com/investors.
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Adjusted EPS Excludes Non-Operational Items
4Q13 2013
Reported EPS $.20 $.40
Non-operational items(1):
M&I, Restructuring expense andOther(2)
$.02 $.13
Non-cash ension income $.13 $.13
Adjusted EPS $.09 $.40
Excluding non-operational items, Adj. EPS was $.09 in 4Q and $.40 for 2013
(1) Presented on an after-tax basis(2) Includes early debt extinguishment fee ($65M for 2013) and an adjustment related to expense associated with the formation of
Windstream Holdings, Inc. ($4M in 4Q13 and $9M in 2013) 3
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Windstream Participants
Jeff Gardner
Tony ThomasChief Financial Officer
Brent WhittingtonChief Operating Officer
SVP & Treasurer
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2013 Highlights
Growing strategic revenue Strategic revenue now 73% of
total revenue and grew 2%
Maintaining margins Stable adjusted OIBDA
margins of 39%
Investing capital for
Invested ~ 2/3 of capex ongrowth initiatives
Improved maturity profile,lowered cash interest by $45Mand reduced debt by $210M
Generated $891M in 2013 FCF
Returnin ca ital to
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to shareholdersshareholders
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2014 Strategic Priorities
Improve business sales1
Become ONE Windstream across allenterprise systems
Invest in strategic capital initiatives3
6Goal: Drive revenue growth with stable, sustainable free cash flow
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Windstream Year-over-Year Revenue Change
As strategic growth revenues become a greater percentage of our business andICC reform impact becomes smaller, we expect improved financial trends
As strategic growth revenues become a greater percentage of our business andICC reform impact becomes smaller, we expect improved financial trends
Expect significant improvement in switchedaccess / USF revenues beginning in 2014
$6,140
$5,988($63) ($54)
FY 2012 Revenue Strategic GrowthRevenue (1)
Switched Access /USF Revenue
Consumer Voice &Other
All Other (2) FY 2013 Revenue
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arges mpac rom re orm s e n us; go ng orwar eintercarrier rate step-downs are much smaller
(1) Strategic growth areas include total business and consumer broadband revenue(2) All Other includes wholesale voice, data and miscellaneous, Other revenues and product sales excluding business and consumer broadband sales.
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Business Strategy Delivering Solid Revenue and ARPU
Business Channel HighlightsBusiness Channel Highlights
Business Service Revenues
$917 $914 $913 $916 $920
($ in millions)
Business service ARPU of $642, up 8% y/y
Key Drivers
$398 $400 $405 $407 $412
,
Differentiated, personalized service
27 data centers
$354 $347 $342 $341 $341
Cloud, managed hosting, colocation
Carrier revenue up 1% due to fiber-to-the-tower installations
4Q12 1Q13 2Q13 3Q13 4Q13
Voice/Misc. Carrier Data & Integrated Services
8(1) Average business service revenue excluding carrier revenue per customer per month
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Consumer Strategy Balances Profitability & Unit Growth
Consumer Channel HighlightsConsumer Channel Highlights
$334 328
Strong demand for faster speeds andvertical services
Consumer Service Revenues($ in millions)
Key Drivers
$191 $184 $180 $177 $173
318 65% of 4Q13 sales purchased faster
speeds
~34% of 4Q13 sales purchased a
$27 $27 $27 $27 $26
$116 $117 $120 $119 $119
vert ca serv ce secur ty, v rusprotection, back-up, tech-help)
Consumer BB ARPU increased 6% y/y
4Q12 1Q13 2Q13 3Q13 4Q13Video / Misc Broadband Voice & LD
u ure roa an grow r vers: Increasing addressable market by
~75k homes
9(1) Average consumer high speed Internet revenue per Internet customer per month
- nves men s expanavailability and improve BB speeds
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Consistent Margins Even With Shifting Revenue Mix
40%
Consistent Adjusted OIBDA Margins
38.6%Windstreams culture of
disciplined expense
management has led to20%25%30%
35%
consistent OIBDA
margins of 38 40%
0%
5%
10%
15%
2010 20132011 2012
917 $924 $915
Adjusted OIBDATotal Cash Expenses
ost structureimprovements ledto sequential
improvement in
$617 $575 $576
4Q12 3Q13 4Q13
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us e
4Q12 3Q13 4Q13
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Capital Efficient Investing for Long-Term Success
Fiber network now spans 118,000 route miles
Results of 2013 Capital Investments of $812M
Built 3 new data centers; Windstream now has 27 data centers
Enhanced broadband network speeds and capabilities
Deployed fiber to over 2,000 towers during 2013; have completed 4,500 towers to datean ave current y un er construct on
Capex declining as
$161$187 $197 $190 $168 $170
$150$134
$62$80 $80 $66
$50$38
$36 Non-Recurring(FttT / Stimulus)
non-recurringprojects decrease
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13
Recurring Capex(in millions)
(1) Adjusted capex excludes the impact of integration capital expenditures which were $5M in 4Q13 and $29M in FY 2013 11
Long-term expectation for recurring capex to be within a range of
11-13% of revenue, inclusive of growth initiatives
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Strong FCF Supports Capital Needs and Dividends
$576
Q413 Free Cash Flow of $213MQ413 Free Cash Flow of $213M
$213 $64
$170
$192 $1
$149
Q413Adj.
OIBDAAdj. Capex(1)
CashInterest
Cash TaxesFree Cash
FlowCash
Dividends
Free CashFlow AfterDividends
FY 2013 Free Cash Flow of $891M; Payout Ratio of 67%FY 2013 Free Cash Flow of $891M; Payout Ratio of 67%
$2,318
$891 $298
812
$609 $6
$594
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FY 2013Adj.
OIBDA
Adj. Capex(1) CashInterest
Cash Taxes Free CashFlow
CashDividends
Free CashFlow After
Dividends
(1) Adjusted capex excludes the impact of integration capital expenditures which were $5M in 4Q13 and $29M in FY 2013
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Continuing to Improve the Balance Sheet
DebtMaturityProfile(asof12/31/13)Debt maturity profile is well-positioned with $660M in revolver availability
$700
$2,032
$1,378
$1.25B revolver with
$660M in availability
$590 $387 $278 $590
$1,332$1,100
$850 $950
$502
$1,300
$100
$660Avail
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Thereafter
TermLoan UndrawnRevolver SrNotes
Reduced outstanding debt by 210M; ended the quarter with a revolver balance of 590M
Extended near-term maturities and improved liquidity position
Generated cash interest savin s of 45M oin forward
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2014 Guidance
2014 Guidance
Expect revenue within the range of(2.5%) to 1% versus 2013 revenue
Capital Expenditures $800M - $850M
Adjusted Free Cash FlowPayout ratio
$775M - $885M68% - 78%
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$ in millions Expect 2014 cash taxes of less than $30 million Adjusted Free Cash Flow defined as Adjusted OIBDA minus adjusted capex, cash interest and cash taxes
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Appendix
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