Integra Telecom Investor Presentation May 2012
2
Safe Harbor
Confidential and Proprietary Company
Information
Special note regarding forward-looking statements
This presentation includes projections and forward looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. These projections
and forward looking statements involve known and unknown risks, uncertainties and other factors which
may cause actual results, performance and achievements, or industry results, to be materially different from
any future results, outcomes, performance or achievements expressed or implied by such forward looking
statements. Undue reliance should not be placed on any projections or forward looking statements.
Projections and forward looking statements should not be regarded as a representation by Integra Telecom
that the projections or forward looking statements will be achieved.
Integra’s annual financial results package posted on the Integra website as well as its Intralinks site contain
risk factors that management believes could cause actual results, outcomes or events to differ materially
from those contemplated by such projections or forward looking statements. You should consult Integra
Telecom should you have any questions about any items described in the risk factors or any of the
projections or forward looking statements described in this investor presentation.
All projections and forward looking statements included in this presentation are based on information
available on the date of this presentation and a number of estimates and assumptions that, while
considered reasonable by Integra Telecom, are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond the control of Integra Telecom.
Integra Telecom undertakes no obligation to publicly update or revise any projections or forward looking
statement, whether as a result of new information, future events or otherwise.
• Substantial long-haul and metropolitan fiber network
• Well positioned for growth due to excellent
product and service portfolio
• Diverse customer base across enterprise and
wholesale segments
57% of revenues from customers greater than
$1,000 in MRR
• Improving revenue mix and margins
FY 2011 revenues and Adjusted EBITDA of
$600mm and $173mm, respectively
• Positive cash flow expected in 2012
• Over $2 billion invested in the network, an asset
that would be difficult to replicate
4
Integra is a facilities-based provider of
advanced communication services operating
in 35 markets in the western US
Integra Overview
5
• 35 metropolitan markets
served
• Over 3,000 metropolitan
fiber route miles
• Over 1,800 on-net
buildings
• Regional concentration
makes Integra the leading
fiber based competitive
carrier in the Western US
Metropolitan network facilities drive higher margins and lower churn
Metro Area Networks
On-Net Buildings (1,847)
6
Integra is focused on delivering its services to on-net locations
• 1,847 buildings served directly with Integra
fiber at year-end; grew by approximately
16% in 2011
• Average revenue penetration of on-net
buildings is 12%
• Delivering service to on-net locations
reduces the reliance on LECs, increases
margin and decreases churn
• Approximately 16,000 additional buildings
located within 2,500 feet of existing
Integra fiber; represent addressable
monthly revenue of approximately $245
million
• Average incremental capital to add a new
location to an existing network is $35k with
an IRR of 60%
On-Net / Near Net
1458
167
6037
125
Commercial Buildings ILEC / LSO
Carrier Hotel / POP Data Center
Other
7
5,000 Miles of Long Haul Fiber
Interconnecting metro markets with Integra
fiber drives product differentiation, higher
margins and increased addressable market
IP Backbone
Longhaul Fiber and IP Backbone
8
• Collaboration & Messaging
• Next Generation Hosted Security
• Data Storage
• Colocation
Cloud & Managed Services
• Managed PBX
• PRI / SIP Solutions
• Hosted PBX (Cloud Voice)
• TDM Voice
Voice Services
• IPVPN
• Ethernet WAN Services
• Ethernet – Internet Access
• TDM – Internet Access
Data Services
• Carrier Ethernet Services
• Private Line
• Wavelengths
• Dark Fiber
Transport Services
• Full range of services to meet the
evolving needs of target customers
• Revenue expected to grow mid to
upper single digit % from 2013 to
2015
Growth products estimated to
increase at a 19% CAGR
Traditional products estimated
to decrease at a CAGR of 11%
Traditional Products
Strategic Growth Products
Core Service Portfolio
9
Integra has increased its investment in the enterprise segment,
resulting in more attractive customer mix.
Revenue by Customer Segment
45%
55%
As of December 31, 2010
43%
57%
As of December 31, 2011
45%
55%
As of December 31, 2010
MRR < $1,000 MRR > $1,000 Wholesale
11
• Focused on achieving positive free cash flow in 2012
• Expect quarterly sequential revenue and EBITDA growth in 2012
• Network density leads to strong margins
• Facilities-based network provides significant operating leverage
• Stabilization of churn leading to improving operating metrics
• Return of capital expenditures to historical levels, significantly
improving year over year free cash flow
• Modest leverage
• Significant value in underlying assets
Financial Overview
Note: All 2011 financial results throughout the presentation are unaudited.
($200)
($100)
$0
$100
$200
$300
2009 2010 2011 2012
($0
00
's)
Leveraged Free Cash Flow
EBITDA Capex Cash Interest Levered FCF
12
With stabilization of
Revenue and EBITDA,
and a return of capital
expenditures to historic
levels, 2012 is expected
to return to positive free
cash flow
1 LFCF = EBITDA – Capex – Cash Interest + Customer Aid to Construction 2 Capex = Total Capital Spend - Customer Aid to Construction
Trend of Cash Flow
1
2
Trend of Revenue and Adjusted EBITDA
13
2012 Revenue Guidance
• Modest year over year growth
• Q4 2011 and Q1 2012 represent
revenue low point with sequential
quarterly revenue growth expected
in 2012
2012 EBITDA Guidance
• Modest year over year revenue
growth coupled with a focus on
managing operating expenses
produces improved year over year
EBITDA
• Q4 2011 and Q1 2012 represent
Adjusted EBITDA low point with
sequential quarterly growth
expected in 2012
$0$100$200$300$400$500$600$700
2009 2010 2011 2012
($0
00
's)
Annual Revenue
$0
$50
$100
$150
$200
$250
2009 2010 2011 2012
($0
00
's)
Annual EBITDA
Source: Company filings
Note: Reflects actual results as of December 31, 2011, except
for Paetec and Broadview which are as of September 30, 2011,
and XO Communications which is as of June 30, 2011. 14
• Integra’s dense fiber assets
drive high EBITDA margins
• Expected EBITDA margins in
excess of 35% and unlevered
free cash flow margins in
excess of 20% over time
• Operating leverage has
historically produced 50%
incremental EBITDA margins
and 30% incremental
unlevered free cash flow
• Management estimates this
will improve to 60% and 35%
respectively based on current
product and customer focus
Network Density Driving Financial Metrics
34.2%31.5%
28.8%
24.2%
19.1% 17.8%14.3%
10.8%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Strong EBITDA Margin
$1,968
$1,541 $1,370 $1,310
$600 $485
$386 $306
$0
$500
$1,000
$1,500
$2,000
$2,500
LTM Revenue ($mm)
Average quarterly churn (%)
15 Excludes approximately $175k of churn in Q4 2011 related to one-time, carrier customer network transitions.
• Stable churn and renewals
create expectations for
sequential revenue growth in
FY 2012 as sales and
installation rates return to
historical levels
Recent Operating Metrics
1
FY Monthly Averages
Recent Monthly Averages
2009 2010 2011 Dec '11 – March 12
Installs $654 $713 $545 $647
Churn (661) (604) (548) (511)
Renewals (135) (140) (105) (91)
Net MRR Change ($142) ($31) ($108) $45
0.62% 0.55% 0.56% 0.50% 0.55% 0.53% 0.53% 0.49% 0.53%
0.79% 0.93% 0.86%
0.85% 0.76% 0.74% 0.74% 0.78% 0.70%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012
Economic Competitive
16
• 2011 capital expenditures
included significant
investment in new
capabilities and additional
network capacity
• Return to normal investment
levels in 2012 with focus on
selling in to existing capacity
Trend of Capital Spend
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
$0
$20
$40
$60
$80
$100
$120
$140
$160
2009 2010 2011 2012
Cap
ex as a % o
f Reven
ue
($0
00
's)
Capital Expenditures
Capex Capex as a % of Revenue
• 2011 included
approximately $30
million of incremental
capital spend on switch
consolidation, deferred
maintenance, product
development and
network expansion
• Approximately 74% of
2012 capex is success
based with 37% directly
related to new orders
17
($ in millions)
1 Includes $7.3 million and $3.8 million of product developments costs in 2011 and 2012, respectively.
1
Capex Summary- 2011 Actual vs. 2012 Budget
$36
$11
$3
$38
$16
$34
$25
$5
$49
$23
$0
$10
$20
$30
$40
$50
$60
CapitalizedLabor
Corporate /Maintenance
ILEC Pure SuccessBased Capital
RevenueEnablement
2012 Budgeted Capex 2011 Actual Capex
Total Capex 2012F 2011A
Gross $104.7 $136.7
Net $99.5 $135.4
1
Facility Maturity Interest Amount
LTM
EBITDA
Multiple2
Cash $9.0
Revolving Credit ($60mm) 12/31/2014 L + 425 -- --
Term Loan 4/15/2015 L + 7251
243.8 1.4 x
Notes 4/15/2016 10.75% 475.0 2.7 x
Capital Leases 4.3 0.0 x
Total Debt $723.0 4.2 x
Net Debt $714.0 4.1 x
$0
$100
$200
$300
$400
$500
2011 2012 2013 2014 2015 2016
Debt Maturities
• Integra has adequate
liquidity to meet the needs
of its business
• Integra expects to be in
compliance with both its
interest coverage (2.0x)
and total leverage (4.75x)
covenants with
approximately 10%
cushion during 2012
• No step downs in
covenant levels until
March 31, 2014
1 Libor floor of 2.0%. 2 Integra Adjusted EBITDA of $173 million represents the last four quarters ended December 31, 2011 and
adjusted to remove one time items. 3 Revolver matures, but no balance is projected.
18
($ in millions, as of 12/31/2011)
3
Capital Structure
• Integra generates significant cash flow
2012 expected to generate approximately $75M of unlevered cash flow
Approximately $75M of capital expenditures are invested for growth purposes with half
being driven by specific new customer contracts
Approximately 33% or $75M of SG&A expense invested for growth purposes either
through customer acquisition or new product development
• Over $2 billion has been invested in the network creating an asset that
would be difficult to replicate
• Integra owns a stable ILEC
Revenue of $14M has been flat despite national trend
Generates $9M in EBITDA and $6M in unlevered free cash flow
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Significant Value in Underlying Assets
• Expected to return to cash positive levered
free cash flow in 2012
• Substantial network assets are key
differentiator driving high margins
• Improving revenue mix and diverse customer
base positions the company well for growth
• Over $2 billion invested in the network
20
Integra Summary