Investor Presentation May 2015 NASDAQ: NTLS Presentation of - - PowerPoint PPT Presentation

Investor Presentation

May 2015

NASDAQ: NTLS

Presentation of Financial and Other Important Information

USE OF NON-GAAP FINANCIAL MEASURES

Included in this presentation are certain non-GAAP financial measures that are not determined in accordance with US generally accepted accounting principles (“GAAP”). These financial performance measures are not indicative of cash provided or used by operating activities and exclude the effects of certain operating, capital and financing costs and may differ from comparable information provided by other companies, and they should not be considered in isolation, as an alternative to, or more meaningful than measures of financial performance determined in accordance with US generally accepted accounting principles. These financial performance measures are commonly used in the industry and are presented because NTELOS believes they provide relevant and useful information to investors. NTELOS utilizes these financial performance measures to assess its ability to meet future capital expenditure and working capital requirements, to incur indebtedness if necessary, and to fund continued growth. NTELOS also uses these financial performance measures to evaluate the performance of its business, for budget planning purposes and as factors in its employee compensation programs. Adjusted EBITDA is defined as net income attributable to NTELOS Holdings Corp. before interest, income taxes, depreciation and amortization, accretion of asset retirement obligations, transaction related costs, restructuring and asset impairment charges, gain/loss on sale or disposal of assets and derivatives, net income attributable to noncontrolling interests, other expenses/income, equity-based compensation charges, separation charges, secondary offering costs and adjustments for impact of recognizing a portion of the billed SNA contract revenues on a straight line basis.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Any statements contained in this presentation that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements and should be evaluated as such. The words "anticipates," "believes," "expects," "intends," "plans," "estimates," "targets," "projects," "should," "may," "will" and similar words and expressions are intended to identify forward-looking statements. Such forward-looking statements reflect, among other things, our current expectations, plans and strategies, and anticipated financial results, all of which are subject to known and unknown risks, uncertainties and factors that may cause our actual results to differ materially from those expressed or implied by these forward-looking statements. Many of these risks are beyond our ability to control or predict. Because of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. Furthermore, forward-looking statements speak only as of the date they are made. We do not undertake any obligation to update or review any forward-looking information, whether as a result of new information, future events or otherwise. Important factors with respect to any such forward-looking statements, including certain risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, include, but are not limited to: our ability to attract and retain retail subscribers to our services; our dependence on our strategic relationship with Sprint Corporation ("Sprint"); our ability to realize the expected proceeds, cost savings and other benefits from the wind down of our Eastern Markets; a potential increase in roaming rates and wireless handset subsidy costs; rapid development and intense competition in the telecommunications industry; our ability to finance, design, construct and realize the benefits of any planned network technology upgrade; our ability to acquire or gain access to additional spectrum in the future; the potential to experience a high rate of customer turnover; the potential for competitors to build networks in our markets; cash and capital requirements; operating and financial restrictions imposed by our credit agreement; adverse economic conditions; federal and state regulatory fees, requirements and developments; loss of ability to use our current cell sites; our continued reliance on indirect channels of retail distribution; our reliance on certain suppliers and vendors; and other unforeseen difficulties that may occur. These risks and uncertainties are not intended to represent a complete list of all risks and uncertainties inherent in

• ur business, and should be read in conjunction with the more detailed cautionary statements and risk factors included in our SEC filings,

including our most recent Annual Report filed on Form 10-K and Quarterly Reports filed on Form 10-Q. 2

• “Pure-play” publicly traded regional wireless carrier historically

providing coverage to customers predominantly in Virginia and West Virginia

• Implementing a strategic refocus that calls for Company to

wind down operations in Eastern Markets (eastern Virginia) and focus on Western part of its footprint (West Virginia and western Virginia)

• Profitable branded retail growth opportunity and valuable

wholesale business

• Exclusive wholesale network provider for Sprint in West

Virginia and portions of western Virginia through December 2022

Company Overview

3

About nTelos Headquarters Waynesboro, VA Ticker NTLS Exchange NASDAQ Price $6.15 Market Cap $133.9 million Shares 22.2 million 52 Week Range $3.85 – $14.75

As of May 6, 2015

Strategic Trajectory

4 4

Leverage our strategic relationship with Sprint to enhance nTelos’s operations Strengthen our retail performance Improve our processes and become more efficient Increase the strategic relevance of our assets Strategic Objectives Monetizing non-core and underutilized assets – tower portfolio and Eastern spectrum Focusing our investment and

• perations solely on our

Western Markets Significantly reducing capital requirements by exiting Eastern Markets Reducing costs through corporate restructuring and improving operational efficiencies Initiatives

Strategic Refocus Activities

5 5

Western Markets

 4G LTE roll out continues  Strong Equipment Installment Plan (EIP) take rates  Expanded device offerings

Eastern Markets

 Spectrum sale completed  Markets wind down on track  Subscriber migrations on schedule

Corporate

 Completed owned towers sale  Increased operational efficiencies  Realigned sales and marketing effort  Announced corporate action plan to reduce expenses

Eastern Markets Update

6 6

 Closed sale of 1900 MHz PCS wireless spectrum licenses covering the Company’s Eastern Markets for ~$56 million in cash on April 15, 2015  Orderly reduction in subscribers from approximately 175,500 to 124,700 at 1Q15  On track to generate positive EBITDA in FY 15 and wind down commercial operations  Reduced expected exit cost to approximately $50 million (original cost estimate was $55 million)

December 2014: Began discontinuing activations, closing down stores and reducing headcount April 2015: Closed on spectrum sale June 2015: First 10 MHz released to purchaser November 2015: Second and final 10 MHz released to purchaser; cease commercial operations December 2015 Forward: Decommissioning of assets

Eastern Markets

Operational Efficiencies

7 7

 Corporate Action Plan

• Cost rationalization reflecting the Eastern Markets wind down expected to reduce annual

expense base by ~$20 million

• 2015 realized savings are expected to be between $9-$12 million
• Rightsizing the organization to flatten decision making hierarchy and improve

responsiveness to customers and competitive changes  Simplification of legacy processes and back office systems expected to contribute to

• perational efficiencies and cost savings

Western Markets

Strengthening Retail Sales Proposition

9 9

 Profitable retail growth with a community-centric strategy

• Going back to our roots in the

Western Markets – local involvement, family-focus  Elevating the “Best Value in Wireless” brand by offering affordable wireless service leveraging our flexible nControl pricing structure

• Enables NTELOS to better

differentiate its value proposition against national competitors  Deploying a multi-band 4G network is expected to meaningfully improve the customer experience, thereby reducing churn and growing market share

Western Markets Operational Footprint POPs 4.4 million Covered POPs 3.1 million Market Share 9.4% Retail Subscribers 290,100 % of Postpay Subs 78% Total Cell Sites 1,006 LTE Cell Sites 202 Spectrum Depth 27 MHz + Sprint

Retail Highlights

10

 Increased 1Q revenues 7% year-over- year in Western Markets  Subscriber base grew 5% over prior year benefitting from strong gross adds and a 30 bps reduction in churn  Expanded 4G LTE coverage to 44% of Covered POPs  Grew EIP to approximately 20% of postpay customer base  Launched iPad with expanded handset/tablet line up on the way  Generated 10% increase in year-over- year gross adds driven by improved productivity

Western Markets

Key Subscriber Metrics

Western Markets Metrics 1Q15 1Q14 Change % Change

11

Ending Subscribers 290,100 277,100 13,000 5% Postpay Gross Adds 15,700 14,600 1,100 8% Total Gross Adds 27,500 25,000 2,500 10% Postpay Net Adds 4,600 1,700 2,900 171% Total Net Adds 8,000 3,500 4,500 129% Postpay Churn 1.7% 2.0% (30) bps (15)% Blended Churn 2.3% 2.6% (30) bps (12)%

210,300 212,400 215,500 220,100 224,700 66,800 61,600 61,600 62,000 65,400

50,000 100,000 150,000 200,000 250,000 300,000 350,000 1Q14 2Q14 3Q14 4Q14 1Q15

Total Subscribers

Postpay Prepay

Postpay/ Total Subs 78%

Postpaid Subscriber Billings, Inclusive of EIP

12

($ millions)

• Total billings for postpaid subscribers continue to increase over the past year
• Postpay subscriber billings increased by $1.2 million year-over-year
• Monthly postpay subscriber billings decreased by $1.12 per user year-over-year

$0 $5 $10 $15 $20 $25 $30 $35 $40 $45 1Q14 4Q14 1Q15

Postpay Subscriber Billings

Postpay Service EIP Billings

$0 $10 $20 $30 $40 $50 $60 $70 1Q14 4Q14 1Q15

Postpay Subscriber Billings per User

Postpay Service EIP Billings

$38 $39 $39 $60.20 $59.71 $59.08

Sprint Wholesale Relationship – A Strong Foundation

13

Terms Amended SNA (Announced May 22, 2014)

SNA Contract Expiration December 31, 2022 Estimated 2015 Billed Revenue $140 million to $144 million Coverage Area

• 2.2 mm covered POPs in West Virginia and western Virginia
• 854 cell sites
• 36,800 square miles

Network 2G/3G/4G LTE/future feature upgrades Spectrum 800/1.9/2.5 (nTelos & Sprint) Investment Agreed to build 4G LTE network Anticipated 4G LTE Buildout Timeline Expect to be completed no later than May 2017 Nationwide Roaming Provides 2G/3G/4G LTE nationwide roaming for nTelos retail customers Exclusivity Exclusive wholesale provider in SNA territory Equipment Vendor Relationships Leverage Sprint’s device and equipment relationships

13

Financial Overview

Key Financial Metrics

15

Western Markets ($ millions) 1Q15 1Q14 Change % Change

Revenues $95.3 $89.2 $6.1 7% Adjusted EBITDA $27.3 $33.3 $(6.0) (18)%

$89 $86 $88 $97 $95 $33 $33 $33 $30 $27 $0 $20 $40 $60 $80 $100 $120 1Q14 2Q14 3Q14 4Q14 1Q15

Revenues Adjusted EBITDA

• Western Markets EBITDA change driven by:
• Absorption of Virginia East overhead of approximately $3.5 million, net
• Contractual reduction in SNA billed revenue of $2.7 million

($ millions)

Wholesale/Other Revenue Impacted By Amended Sprint Agreement

16 16

• 1Q15 billed Sprint revenue was $36.6 million, tied to a contractual decrease in rates

$39 $38 $38 $38 $37

$0 $5 $10 $15 $20 $25 $30 $35 $40 $45 1Q14 2Q14 3Q14 4Q14 1Q15

Sprint Billed Revenue1

($ millions)

1SNA Billed Revenue excludes GAAP adjustments to S/L the fixed component of the contract and for the non-cash value of leased spectrum. See earnings

release for reconciliation.

Capital Investment

17 17

Catalysts:

• 2013-2014 Start of LTE deployment
• 2015-2017 Completion of LTE deployment

Current Status:

• Rolling out tri-band network in Western Markets:
• 1.9 GHz, 800 MHz and 2.5 GHz being deployed
• 44% of covered POPs have 4G LTE coverage

(as of March 31, 2015)

$53 $68 $83

$0 $20 $40 $60 $80 $100 $120 FY 2012 FY 2013 FY 2014 FY 2015 (G)

Western Markets CapEx

($ millions)

$95-$105

Capitalization Overview (as of March 31, 2015)

($ millions)

Cash1 $105.6 Total Debt $524.2 Net Debt $418.6 LTM Adjusted EBITDA2 $123.7 Secured Term Loan3 $522.3 Net Debt Leverage 3.4x

Note: Excludes ~$56 million in cash proceeds from spectrum sale in April

18

1Includes $2.2 million in restricted cash. 2Please see Western Markets Adjusted EBITDA reconciliation in the Appendix. 3Matures November 9, 2019.

$105.6 $5.4 $5.4 $5.4

$0 $20 $40 $60 $80 $100 $120 1Q15 FY 2015 FY 2016 FY 2017

Cash Term Loan B Maturities

($ millions)

Scheduled Maturities

FY 2015 Guidance (as of May 1, 2015)

19 19

 For the year ended December 31, 2015 (unchanged from February 26, 2015):

• Adjusted EBITDA of $100 - $108 million
• Includes approximately $140 - $144 million of Sprint wholesale billed revenue
• Includes $9 - $12 million of cost savings realized from corporate overhead

previously allocated to Eastern Markets in FY 2015

• Excludes any benefit from the wind-down of the Eastern Markets, restructuring

costs and impairment charges

• CapEx expected to be approximately $95 - $105 million

Q&A

Appendix

FY 2014 - FY 2015 Guidance

22 22

2014 Adjusted EBITDA $132 million Eastern Markets Pre-Corp. O/H EBITDA Elimination ($24) million Eastern Markets-Related

• Corp. O/H Elimination

$9-$12 million1 Western Markets Post-Corp. O/H EBITDA $108 million 2015 SNA Billed Revenue ($10-$14) million 2015 Adjusted EBITDA Outlook $100-$108 million 2016 O/H Elimination $8-$11 million1

$60 $70 $80 $90 $100 $110 $120 $130 $140

1Of the approximately $20 million of corporate overhead allocation otherwise absorbed by the remaining company in 2015, the

Company expects to eliminate $9-$12 million during 2015.

 2015 guidance driven by:

• Wind down in East
• Contracted SNA rate reset

Select Financial Metrics

2 3 23

(In thousands)

1Q15 4Q14 3Q14 2Q14 1Q14

Western Markets

Revenue 95,311 $ 96,652 $ 88,191 $ 86,125 $ 89,166 $ Operating Expenses 75,453 86,175 73,041 70,554 71,217 Operating Income

2

19,858 10,477 15,150 15,571 17,949 Adjusted EBITDA 27,340 30,197 32,878 33,307 33,348 Capital Expenditures 22,701 35,664 21,141 24,992 824

Consolidated

Revenue 120,206 $ 128,319 $ 119,638 $ 117,795 $ 122,082 $ Operating Expenses

1

86,989 211,659 109,315 107,891 110,219 Operating Income

2

33,217 (83,340) 10,323 9,904 11,863 Adjusted EBITDA 37,380 31,371 32,778 34,363 33,923 Capital Expenditures 22,941 39,289 23,867 29,883 13,961

Eastern Markets

Revenue 24,895 $ 31,667 $ 31,447 $ 31,670 $ 32,916 $ Operating Expenses

1

11,536 125,484 36,274 37,338 39,001 Operating Income 13,359 (93,817) (4,827) (5,667) (6,086) Adjusted EBITDA 10,040 1,174 (100) 1,056 575 Capital Expenditures 240 3,625 2,726 4,891 13,137 Note: Western Markets is defined as Consolidated Financial Measures less Eastern Market Financial Measures.

1 4Q14 operating expenses include $87.9 million of impairments and other charges and $3.7 million of restructuring charges. 2 Includes gain on sale of tow ers of $15.9 million for Consolidated and $11.0 million for Western Markets for 1Q15.

Adjusted EBITDA Reconciliation – Consolidated

2 4 24

(In thousands) 1Q15 4Q14 3Q14 2Q14 1Q14 Net income (loss) attributable to NTELOS Holdings Corp. 14,796 $ (56,208) $ 804 $ 484 $ 1,286 $ Net income attributable to noncontrolling interests 491 307 352 373 436 Net income (loss) 15,287 (55,901) 1,156 857 1,722 Interest expense 7,917 8,052 8,371 8,315 7,959 Income tax expense (benefit) 10,009 (35,411) 767 640 1,110 Other expense (income), net 4 (80) 29 92 1,072 Operating income (loss) 33,217 (83,340) 10,323 9,904 11,863 Depreciation and amortization 13,874 18,990 18,473 19,929 19,067 Impairment and other charges

• 87,853
• Restructuring and other charges

2,008 3,663

• Gain on sale of assets

(15,947)

• Accretion of asset retirement obligations

504 362 280 331 315 Equity-based compensation 859 778 (403) 1,283 1,311 SNA straight-line adjustment 1 3,065 3,065 3,065 2,043

• Other

(200)

4

• 1,040

3

873

2

1,367

3

Adjusted EBITDA 37,380 $ 31,371 $ 32,778 $ 34,363 $ 33,923 $

4 Includes adjustment for recognizing a portion of the deferred gain for towers sold to Grain Management, LLC. 3 2014 includes $1.0 million charge in 3Q and $1.4 million charge in 1Q related to certain employee separation expenses. 1 Adjustment for impact of recognizing a portion of the billed SNA contract on a straight-line basis 2 2Q14 includes $0.9 million legal costs related to new Sprint agreement.

Adjusted EBITDA Reconciliation – Western Markets

2 5 25

(In thousands) 1Q15 4Q14 3Q14 2Q14 1Q14 Net income (Loss) attributable to NTELOS Holdings Corp. 14,796 $ (56,208) $ 804 $ 483 $ 1,286 $ Net income attributable to noncontrolling interests 491 307 352 373 436 Net income (loss) 15,287 $ (55,901) $ 1,156 $ 856 $ 1,722 $ Operating loss attributable to Eastern Markets (13,359) 93,817 4,827 5,668 6,086 Interest expense 7,917 8,052 8,371 8,315 7,959 Income tax expense (benefit) 10,009 (35,411) 767 640 1,110 Other expense (income), net 4 (80) 29 92 1,072 Operating income 19,858 $ 10,477 $ 15,150 $ 15,571 $ 17,949 $ Depreciation and amortization 12,861 14,701 13,658 13,718 12,922 Restructuring 1 1,605 982

• Gain on sale of assets

(11,009)

• Accretion of asset retirement obligations

300 241 179 235 223 Equity-based compensation 860 731 (212) 866 887 SNA straight-line adjustment 2 3,065 3,065 3,065 2,043

• Other 3

(200)

• 1,038

874 1,367 Adjusted EBITDA 27,340 $ 30,197 $ 32,878 $ 33,307 $ 33,348 $ Note: Western Markets is defined as Holdings less Eastern Markets.

1 Restructuring costs attributable to Corporate and Western Markets. 2 Adjustment for impact of recognizing a portion of the billed SNA contract revenues on a straight-line basis. 3 Other includes legal and advisory fees related to Amended and Restated Sprint agreement, certain employee

separation charges and adjustment for recognizing a portion of the deferred gain for towers sold to Grain Management, LLC in 2015.

Statement of Operating Income – Western Markets

2 6 26

Western Markets¹

Condensed Consolidated Statements of Operating Income

(In thousands, except per share amounts)

March 31, 2015 December 31, 2014 September 30, 2014 June 30, 2014 March 31, 2014

Operating Revenues 95,311 $ 96,652 $ 88,191 $ 86,125 $ 89,166 $ Operating Expenses Cost of sales and services 43,819 45,486 38,585 34,602 34,551 Customer operations 19,552 18,296 15,169 14,996 16,021 Corporate operations 8,625 6,710 5,629 7,238 7,723 Restructuring 1,605 982

• Depreciation and amortization

12,861 14,701 13,658 13,718 12,922 Gain on sale of assets (11,009)

• 75,453

86,175 73,041 70,554 71,217 Operating Income 19,858 $ 10,477 $ 15,150 $ 15,571 $ 17,949 $

¹ Western Markets is defined as Holdings less Eastern Markets. Three Months Ended

(Unaudited)

Key Metrics – Consolidated

2 7 27

Quarter Ended:

3/31/2014 6/30/2014 9/30/2014 12/31/2014 3/31/2015

Subscribers Beginning Subscribers 464,600 468,000 458,100 457,200 448,900

Postpay 306,700 306,800 308,200 310,200 310,100 Prepay 157,900 161,200 149,900 147,000 138,800

Gross Additions 45,400 39,000 41,400 40,400 28,800

Postpay 20,200 20,400 20,800 22,500 15,800 Prepay 25,200 18,600 20,600 17,900 13,000

Disconnections¹ 42,000 38,600 42,300 48,700 63,000

Postpay 19,900 17,100 18,900 22,700 31,500 Prepay 22,100 21,500 23,400 26,000 31,500

Net Additions (Losses)¹ 3,400 400 (900) (8,300) (34,200)

Postpay 300 3,300 1,900 (200) (15,700) Prepay 3,100 (2,900) (2,800) (8,100) (18,500)

Ending Subscribers ¹ 468,000 458,100 457,200 448,900 414,700

Postpay 306,800 308,200 310,200 310,100 294,300 Prepay 161,200 149,900 147,000 138,800 120,400

Churn, net ¹ 3.0% 2.8% 3.1% 3.6% 4.9%

Postpay 2.2% 1.8% 2.0% 2.4% 3.5% Prepay 4.6% 4.5% 5.3% 6.0% 8.1%

¹

During the second quarter, the Company terminated approximately 2,100 postpay subscribers that repeatedly exceeded their terms and conditions relating to permitted usage. Additionally, the Company changed its business rules related to reporting of long-term, non-revenue prepay subscribers. This change resulted in approximately 8,200 prepay subscribers being excluded from our ending subscriber base. The impact of these Company-initiated terminations and change in business rules is reflected in our ending subscriber totals as of June 30, 2014, and is not reflected in our disconnections, net additions and churn calculations for the periods ended June 30, 2014.

Key Metrics – Western Markets

2 8 28

Quarter Ended:

3/31/2014 6/30/2014 9/30/2014 12/31/2014 3/31/2015

Subscribers Beginning Subscribers 273,600 277,100 274,000 277,100 282,100

Postpay 208,800 210,300 212,400 215,500 220,100 Prepay 64,800 66,800 61,600 61,600 62,000

Gross Additions 25,000 22,500 24,600 28,300 27,500

Postpay 14,600 14,700 15,500 18,600 15,700 Prepay 10,400 7,800 9,100 9,700 11,800

Disconnections2 21,500 19,500 21,500 23,300 19,500

Postpay 12,900 11,200 12,500 13,900 11,100 Prepay 8,600 8,300 9,000 9,400 8,400

Net Additions (Losses)2 3,500 3,000 3,100 5,000 8,000

Postpay 1,700 3,500 3,000 4,700 4,600 Prepay 1,800 (500) 100 300 3,400

Ending Subscribers 2 277,100 274,000 277,100 282,100 290,100

Postpay 210,300 212,400 215,500 220,100 224,700 Prepay 66,800 61,600 61,600 62,000 65,400

Churn, net ¹ 2.6% 2.3% 2.6% 2.8% 2.3%

Postpay 2.0% 1.8% 1.9% 2.2% 1.7% Prepay 4.4% 4.2% 4.9% 5.0% 4.4%

¹

Proforma Western Markets subscribers is defined as Consolidated Subscribers less direct Eastern Market Subscribers 2 During the second quarter, the Company terminated approximately 1,400 postpay subscribers that repeatedly exceeded their terms and conditions relating to permitted usage. Additionally, the Company changed its business rules related to reporting of long-term, non-revenue prepay subscribers. This change resulted in approximately 4,700 prepay subscribers being excluded from our ending subscriber base. The impact of these Company-initiated terminations and change in business rules is reflected in our ending subscriber totals as of June 30, 2014, and is not reflected in our disconnections, net additions and churn calculations for the periods ended June 30, 2014.

Towers Sale

2 9 29

 Announced sale of 103 towers to Grain Management, LLC on January 20, 2015  Closed and funded 91 of 103 sites sold to Grain with proceeds of approximately $39.3 million  12 remaining sites pending with potential proceeds of approximately $3.7 million  NTELOS owns 20 additional towers not included in the Grain transaction