csfb media & telecom conference december 9, 2003
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CSFB Media & Telecom Conference December 9, 2003. Safe Harbor. - PowerPoint PPT PresentationTRANSCRIPT
CSFB Media & Telecom Conference
December 9, 2003
2
Safe Harbor
Any statements in this presentation that are not historical facts are forward-looking statements. The words “plan”, “believe”, “expect”, “anticipate”, “estimate” and other expressions that indicate future events and trends identify forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. Factors that could have a material and adverse impact on actual results are identified in the reports and documents Insight files from time to time with the U.S. Securities and Exchange Commission. Insight undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made during this presentation to reflect events or circumstances after today or to reflect the occurrence of unanticipated events.
Introduction/Strategic OverviewIntroduction/Strategic Overview
Michael WillnerMichael WillnerPresident & CEOPresident & CEO
4
Insight Strategy
Strategy has not changed
Focus to date primarily on the first three elements
Success to date allows concentrated focus on customer service in 2004
Attractive, market-
dominantsystems
Leading edge technology
and infrastructure
Bundled Service Offering
Excellent Customer
Service
Long-term Shareholder
Value
5
Insight Strategy
High V
alue
Product
Excellent Customer Service
Customer
Loyalty
Bundled Product Strategy
Bundled product strategy has always been about selling more products and increasing average revenue
Strategy does not depend on basic sub growth
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Revenue from Other Products Driving Overall Growth
Total Average Monthly Revenue Per Customer
31.47 32.14 33.27 33.62 33.67 34.21 34.97
18.13 19.49 19.97 21.3 21.67 22.89 23.84
0
10
20
30
40
50
60
Q1 2002 Q2 2002 Q3 2002 Q4 2002 Q1 2003 Q2 2003 Q3 2003
Basic All Other
$49.60 $51.63 $53.24 $54.92 $55.34$57.10 $58.81
CAGR
12%
7
2003 – A Year in Transition
2003 is a Year In Transition…
Transitioning from ‘building’ to ‘selling’
Experiencing a dramatic increase in the number of products we offer
Growing into a relationship with our new partner, Comcast
Management changes
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Top Quality Assets
…But Some Things Remain the Same: Not all Cable Systems are Created Equal and Our Assets are Unique
Simple, standardized platform across the network
Single vendor for boxes (Motorola), VOD platform (Seachange, TVN), Data (Cisco), Billing (Convergis),and Telephony (Arris)
Allows us to roll out new products quickly and more simply
Example – HDTV was rolled out in just 6 months. We started the rollout in December 2002 and by June 2003 84% of our customers were HDTV-enabled.
OC48 Fiber Network – interconnecting almost all of our systems
Significant cost benefits to be reaped in routing phone and data traffic
Ability to service new products quickly
Highly upgraded for interactivity
Satellite can’t match this and we’ve just started to flex our muscles with this product
Headend consolidation allows for faster, more efficient rollout of new products and services
9
Q3 Performance Overview
Q3 Achievements
Strong Net Additions in Digital and High Speed Internet
23,500 digital additions
29,000 high-speed additions
10.8% Revenue Growth
Q3 Challenges
2,200 Basic Subscriber Loss
Telephone Partnership Transition
6.5% Operating Cash Flow Growth
10
2004 Strategy
Drive value through updated product strategies
Improve marketing strategy and messages
Provide top quality customer service
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Strong Long Term Growth Prospects
Assets are positioned for strong long-term growth
Capital investment is behind us
Demonstrating free cash flow this year, on track for substantial free cash flow and debt pay down next year
It’s all about operational execution now
Q3 Operational Overview
Q3 Operational OverviewQ3 Operational Overview
Dinni JainDinni JainCOO & Interim CFOCOO & Interim CFO
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Strong RGU Growth
1,609,9001,762,200
1,934,900
0
400,000
800,000
1,200,000
1,600,000
2,000,000
2,400,000
Q3 2001 Q3 2002 Q3 2003
Growth 9% 10%
Revenue Generating Units
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Digital Net Additions
24,700
12,500
22,40020,500 20,000
4,900
23,500
0
5,000
10,000
15,000
20,000
25,000
30,000
Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03
Net Digital Adds Per Quarter
* Excludes managed properties
Penetration 26% 27% 28 % 29% 31%
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Digital Net Additions
Best Quarter in 6 Quarters for Digital Additions
Strong digital net adds with the return of the students
Better than expected sell-in of digital to students
Despite basic sub issues, we are still successful at selling digital to students
Churn rate was down
Digital disconnects Q3 YTD declined 20% vs. first 9 months of 2002
Digital product gaining traction with new services on the digital platform
VOD/SVOD
HDTV
DVR
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HSI Net Additions
6,4009,000
21,200 20,200
23,500
11,200
29,000
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03
Net HSI Adds Per Quarter
* Excludes managed properties
Penetration 6% 7% 8% 8% 9%
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HSI Net Additions
Best Quarter Ever for HSI Additions
Tremendous success reconnecting students
Churn down 14% Q3 year-to-date vs. 2002
Buzz in markets around high speed internet – benefiting from DSL attention
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Basic Net Additions
13,800
-10,200
-2,100
600
8,300
-13,000
-2,200
-15,000
-10,000
-5,000
0
5,000
10,000
15,000
20,000
Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03
Net Basic Adds Per Quarter
* Excludes managed properties
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Basic Net Additions
Year to date basic churn is flat over last year
Weak Net Adds in Basic due to:
Competitive pressure
Local DBS marketing in Louisville
Timing of marketing campaigns
Lack of focus on basic customer proposition
Working on marketing and basic customer proposition will shore up basic sub loss – but not an immediate fix
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Telephone Net Additions
5,100
6,700
5,300
7,7007,100
4,500
7,100
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03
Net Telephone Adds Per Quarter
* Excludes managed properties
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Telephone Net Additions
Telephone back to Q1 level, but not where we’d like it to be
Relationship with partner in transition
Looking at other options for the business, but committed to telephony
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Implications for Full Year 2003
Reducing OCF guidance for the full year to 7.5 – 8.0%
Reiterate guidance on capital expenditures at $200 mil, down from original guidance of $220 mil
Reiterate neutral free cash flow for full year 2003 and positive for full year 2004
Vision for 20042004 Strategy2004 Strategy
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2004 Strategy
Transition from building to selling will focus on two main areas:
Product strategy to drive value proposition for existing and new customers vis-à-vis the competition
Operational tactics to protect and enhance our brand equity
Marketing
Customer Service
Vision for 20042004 Strategy2004 StrategyProduct StrategiesProduct Strategies
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Product Strategy - Basic
Customer Communications
12 bills
One rate increase message
Four direct mail pieces asking them to buy more
In Customer’s Minds we are the “Buy More, Spend More”
Company
Top Quality Customer Service
Get the install right - ‘delight’ them with service before asking them to buy more
Proactive Communication of Value Message
No hassle factor – we’re there already
No ‘extras’ to pay for – extra rooms free, local channels free, service free
Conduit to much more, if they want it
Current SituationCurrent Situation New StrategyNew Strategy
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Digital Penetration Opportunity
25%29%
35%
40%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Illinois Indiana Kentucky Ohio
Q3 Digital Penetration
Note: All data as of 9/30/03 and excludes managed properties
Q3 ‘02 Penetration 20% 24% 32% 35%
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Product Strategy - Digital
Churn for this product is too high, spend money on driving down churn versus driving up connects
Lower churn through increased use of VOD
6 pronged VOD strategy
Not about more channels
Interactivity as key differentiator
Finally have product in VOD to showcase technology
Digital as a platform for new products
HDTV
DVR
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VOD Product Strategy
Focus will be on unique user rates not buy rates
Churn rates are 60% lower for VOD users vs. non-VOD users
Tactics to drive user rates
Enhancements and special offers to drive movie usage
Premium SVOD
Genre, brand-based subscription (sports, kids, news)
Free VOD
Local Content
Advertising
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HDTV/DVR Opportunity
HDTV HDTV is a product that satellite can’t match
Local channels in HD are important for sports fans – satellite doesn’t have it Available in 12 out of 14 markets – 84% of customers are HD enabled, 93% of
digital customers are HD enabled Attractive subscribers
DVR Integrated HDTV/DVR box – Motorola DCT 6208 80 GB hard drive – 60 hrs of std def pgmg, 10 hrs of HD pgmg
Pricing $12.95 (only $5 more than base digital price) for both DVR and HDTV HD Tier $7.95 per month - ESPN, Discovery, HD Net, and HD Net Movies
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Product Strategy – High Speed Internet
Tap pent-up demand in markets at current price levels
Penetration lags the industry
Demographics similar to other areas that are higher penetrations
Win battle for customer service
Continue to score high with reviewers and customers
PC Magazine survey score of A-
Broadbandreports.com score (as of 12/5/03) of 4.03 out of 5
Bring churn down with even more enhancements to service
Leverage product strength
3.0 Mbps downstream (and always have been), 128Kbps upstream
Will invest to make product richer
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Insight Broadband vs. DSL
Insight SBC Bell South Verizon
Speed
- Upstream
- Downstream
-128kbps-3.0Mbps
-384kbps-1.5Mbps
-256kbps
-1.5 Mbps(also have lite svc)
-128kbps
-1.5Mbps
Availability across the system
Full Limited Limited Limited
Price $34.95 – bundled
$44.95 – unbundled
$26.95 for 12 months
$39.95 afterwards
$39.95
(lite svc $29.95)
$29.95 First month free/ next 2 months $29.95 – Keep $29.95 price by bundling
$34.95 otherwise
Phone line needed? No Yes Yes Yes
Contract Required? No Yes Yes Yes
PC Magazine Score A - D+ A C
Broadbandreports.com
Score (as of 12/5/03)
4.03 out of 5 3.56 3.65 3.23
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Product Strategy – Telephone
Telephony product important in overall bundle
Access to customers who don’t want to talk about television
Natural fit with data product
Excited about prospects for VOIP
2004 Strategy2004 StrategyMarketing and Customer ServiceMarketing and Customer Service
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Marketing Focus in 2004
Improving distribution channels Retail deals – Best Buy and other local retailers Direct sales
Acquisition marketing Year round promotional planning Effective coordination of marketing messages and
campaigns
Retention Customer communications strategy After sales re-promotion of product benefits Overall customer care
Spending more, but not drastically changing cost structure
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Customer Service Focus in 2004
Installations Focus on reducing error rates related to install activity
Fault Rates Focus on reducing fault rates, particularly for new products
Billing Inquiries Focus on reducing billing-related calls through customer
education
Minimize Call Volume and Truck Rolls
Financial OverviewFinancial Overview
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Tack-on Bond Deal
Specifics
$130 million Tack-on to 10.5% Senior Notes due 2010
Priced at 108.75 for total gross proceeds of $141 million
Proceeds will be used to pay down revolver
Rationale for Deal
Additional liquidity at an attractive price ($419m unused revolver)
Minimal increase in weighted average cost of debt
From 6.77% to 6.88%
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Simplified Corporate Structure
Previous Structure New Structure
$1.975bn Sr. Credit Facility
$630mm 10 ½% Sr. Notes due 2010 $385mm 9 ¾% Sr. Notes due 2009
$100mm Inter - company loan from ICCI
50% GP 50% LP
100%
Insight Communications Co., Inc. (“ICCI”)
Insight Midwest Holdings, LLC (“Borrower”)
Insight Midwest, LP
Insight Communications Co., LP Comcast
$24mm Sr. Credit Facility $140mm Series A Pref. due 2006 $56mm Series B Pref. due 2008
$1.75bn Sr. Credit Facilities
$500mm 10 ½% Sr. Notes due 2010 $385mm 9 ¾% Sr. Notes due 2009
$100mm Intercompany loan from ICCI
$140mm 10% Sr. Notes due 2006
50% GP 50% LP
100%
100% common
(70% voting) 100%
preferred (30% voting)
Insight Comm. of Central Ohio, LLC (“Insight Ohio”)
Insight Communications Co., Inc. (“ICCI”)
Insight Midwest, LP
Coaxial Communications of Central Ohio, Inc.
(“Coaxial”)
Insight Communications Co., LP Comcast (1)
100%
Coaxial LLC
$56mm 12 7/ 8% Sr. Discount Notes due 2008 (accreted value)
67.5% Insight Midwest Holdings, LLC (“Borrower”)
(1) Insight Midwest, L.P. is 50% owned by an indirect subsidiary of Comcast Cable Holdings, LLC (formerly known as AT&T Broadband, LLC,) which is a subsidiary of Comcast Corporation
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Strong Credit Profile
Total Debt (in millions) – as of 9/30/03Bank $1,650High Yield $1,143Total $2,793
LeverageMW Holdings 4.21x Covenant 5.25xInsight Inc 7.00x (net of cash)
Interest Coverage MW Holdings 4.49x Covenant 2.25x
TLA - $425mTLB - $1,125mRevolver - $100m (45m add’l in Oct.)
9.75% Sr Notes - $377m10.5% Sr. Notes - $495mInc Zeroes - $271m
4.34x including incremental
$45m
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Strong Credit Profile
Average Cost of Debt – 6.88% (pro forma for Add-On)
Down from almost 8% last quarter due to Coaxial refinancing and swaps rolling off
Fixed Rate Debt - 46% of Total Debt (as of 9/30/03)
Ample Liquidity (pro forma for Add-On)
$54m cash
$419m unused revolver, $305m available under the covenant
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Free Cash Flow
Free Cash Flow positive in Q3 and Year to Date:
Q3 2003 YTD 2003
Operating Cash Flow $98.5 $283.0
Capex (47.0) (131.1)
Change in Working Capital (7.1) (3.1)
Cash Interest (29.1) (119.7)
Cash Taxes (0.0) (0.4)
Free Cash Flow $15.3 $28.6
On track to be Free Cash Flow neutral for full year 2003 and strongly Free Cash Flow positive for full year 2004
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