A focused discussion regarding Business Infrastructure - Shaw

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1 A focused discussion regarding Business Infrastructure Services and Business Network Services December 2, 2015

2 Forward Looking Information Statements included in this presentation that are not historic constitute forward-looking statements. Forward-looking statements are based on assumptions and involve risks and other factors which may cause actual results to be materially different from views expressed or implied by such statements. Accordingly, forward-looking statements are not guaranteed and undue reliance should not be placed on them. Material risks and other factors that could cause actual results to differ materially from the views expressed in forward-looking statements and material assumptions underlying forward-looking statements are identified in the Company's Managements Discussion and Analysis for fiscal 2015 which has been filed with the Canadian securities regulatory authorities and the U.S. Securities and Exchange Commission. 1 1

3 In April 2014, we announced a new organizational structure as part of our Focus to Deliver multi-year program to enhance efficiency, productivity and improve customer service capabilities Key outcomes driving this program include an improvement in customer satisfaction, an effective customer-centric organization and a cost structure that enables future growth and high employee engagement of top talent 2

4 Shaw closed the ViaWest transaction of US$1.2B effective September 1, 2014 and rebranded as Business Infrastructure Services (BIS) 3

5 Shaw Business Infrastructure Services Investor Presentation December 2, 2015 4

6 Management Team Nancy Phillips Mike Krza Peter Strauss Jason Carolan Dave Leonard Jeff Gaillard Jason Nance Senior Vice President Founder Chief Financial Chief Operating Chief Technology Chief Data Centre Chief Marketing Sales President & CEO Officer Officer Officer Officer Officer Relevant Industry Experience 30 Years 16 Years 10 Years 15 Years 33 Years 15 Years 20 Years Prior Company Experience Co-founder of ViaWest; various successful (i)Structure entrepreneurial enterprises 5

7 Company History Detailed Company Growth History Start-Up Years Beyond Denver Achieving Scale Strategic Transition Platform Expansion 1999 - 2005 2006 - 2007 2008 - 2010 2011 - 2013 2014 - 2015 1999: Company 2006: Opened fifth 2008: Acquired 2011: Opened Hillsboro 2014: Opened phase I of Founded in Denver, facility in Salt Lake Dataside LLC, II data centre in Oregon the Minneapolis data CO as ISP roll-up City, Utah expanding footprint to centre 15 data centres across 2011: Opened Synergy 2002: Reached break- 2006: Entered Portland five states (fourth, fifth Park data centre in 2014: Opened phase I of even EBITDA and (third market) with and sixth markets) Richardson, Texas the Compark data centre launched managed acquisition of Fortix in Denver 2009: Opened fifth 2013: Expanded into services platform 2007: Opened second data centre in the Minneapolis (seventh 2014: Acquired by Shaw 2004: Expanded into downtown Denver InfoMart (sixth data market) Utah market (second facility and fourth data centre in Dallas 2015: Launching third market) centre in Colorado metropolitan area) 2013: Opened Lone data centre in greater (Cornell) 2010: Oak Hill Capital Mountain data centre in Portland market 2005: Launched Partners and GI Las Vegas additional managed 2007: Increased 2015: Expanded into Partners acquired 2013: Expanded into Calgary, Canada (ninth services, including footprint in Utah with ViaWest metrics performance addition of Phoenix (eighth market) market) reporting, business Cottonwood facility 2010: Completed two through partnership acquisitions with Cox 2015: Acquired Applied continuity, and (Consonus and Trust to enhance our managed hosting SingleEdge) adding security and compliance solutions four new data centres offering in Utah 2015: Acquired INetU a premier Cloud and Managed Service provider on the US East coast 6

8 Market Trends Shift in customer demand to hybrid services positions ViaWest well for growth Managed and cloud services remain drivers of margin expansion for colocation providers Integrated offering of managed and cloud complements colocation driving cross-sell opportunities Improves customer stickiness and drives value of customer relationship Cloud offerings expand geographic customer footprint beyond existing markets Market continues to redefine itself Large IaaS providers (e.g. Amazon and Google) lead the market in lower-end / commodity hosting Customers infrastructure purchasing decisions less defined by traditional retail versus wholesale and more based on the actual applications theyre managing, with very specific requirements Providers looking to differentiate by offering full suite of services to meet wide range of customer needs Geographic reach and interconnection / network density playing an increasingly vital role Significant recent M&A activity across the industry, driven primarily by strategic buyers Recent acquisitions include TierPoint / Windstream Hosted Solutions, Digital Realty / Telx, Equinix / Telecity, CyrusOne / Cervalis, QTS / Carpathia, Zayo / Latisys 7

9 Significant Investment Opportunity Continued investment in core growth initiatives to address the high demand for IT outsourcing Data centre and Cloud revenue Core Growth Initiatives growth forecast (2012 2018) Expansion within our existing footprint ($US B) $80 Oregon $70 10.6 Texas $60 9.4 16% 8.3 22.9 $50 M&A expansion into new products, 7.2 18.4 14.1 services and geographies $40 6.3 10.4 5.5 7.3 Applied Trust $30 4.8 5.1 27.0 3.3 25.0 23.0 INetU $20 16.4 18.5 20.7 14.1 $10 11.8 12.9 14.0 15.2 9.8 10.9 Greenfield market expansion - 8.7 2012 2013 2014 2015F 2016F 2017F 2018F Calgary Colocation Managed Hosting Public Cloud Private Cloud 8 Note: Represents North American revenue growth; "Cloud" refers to Cloud IaaS Source: Gartner Forecast: IT Services Worldwide (4Q14 Update)

10 ViaWest in the Infrastructure as a Service (IaaS) Landscape ViaWest offers a comprehensive suite of worldclass data centers and an IaaS portfolio of Colocation, Dedicated Private Cloud, and Virtual Private Cloud all wrapped under a broad range of managed services and a customer centered support experience Hybrid capabilities allows for fully differentiated, customizable offering that serves customers up and down the stack, improving customer retention and margins Wholesale Colocation Managed Hosting Cloud - IaaS Select Players 9

11 Business Infrastructure Services (BIS) Leveraging Reputation, Expertise and Brand - Competes in the US data centre and - Competes in the CDN data centre cloud market and cloud market - Branded to leverage strong ViaWest - Leverages Shaw brand and expertise and track record network with ViaWest expertise Managed by ViaWest management team with responsibilities over all North American business infrastructure service offerings Co-Branded in Canada to leverage the strong brand image and reputation of Shaw Communications BIS investment provides Shaw with a growth platform in the attractive data centre sector and expands on existing technology offering for mid-market enterprises in the US and Canada 10

12 Geographic Reach and Comprehensive Capabilities Calgary, Alberta 30 Data centres in 10 regions London Amsterdam Seattle, WA 9 cloud sites throughout North America Portland, OR and Europe Minneapolis, MN Salt Lake City, UT Allentown, PA Industry leading PUE for multitenant Denver, CO data centres Las Vegas, NV Richmond, VA Phoenix, AZ 120 MW power capacity Dallas, TX Austin, TX 100% SLA and satisfaction guarantee Hybrid IT Comprehensive Suite of Solutions Solutions Colocation and Network Services Cloud Solutions IT Consulting Security and Compliance Private Enterprise Cloud Public Cloud End-Users Traditional IT 11

13 What Makes ViaWest Different IT Builders Hybrid Solutions Operational Superiority Serve as Architects Future-Proof IT Decisions Lead the Industry Walking Customers Through with Optionality for Colocation, Enabling Customers to Meet the Entire IT Spectrum Cloud, & Managed Services Regulatory Responsibilities Flexible Local Individualized Solutions Infrastructure Agnostic Aligned with Our Trusted Operator with Customers IT Strategy Local Presence and Expertise 12

14 Building Scale and Expertise Applied Trust is a comprehensive IT professional services firm specializing in security, compliance, infrastructure and devops consulting North American customer base in healthcare, finance, education, and government Provides critical security infrastructure management and design services INetU is a managed cloud and dedicated hosting provider to enterprise customers headquartered in Allentown, PA Internationally diversified customer base across compliance sensitive industries including retail, healthcare, SaaS & software and financial services Provides a full-suite of managed services including solutions for private cloud, multitenant cloud, managed dedicated servers, and hybrid cloud environments including AWS in the US (VA, WA) and Europe (Amsterdam, London) Industry leading customer satisfaction rating (NPS 74) 13

15 Platform Agnostic Hybrid Service Offering Expertise around a spectrum of IT infrastructure solutions allows ViaWest to provide individually tailored services to support a diverse set of customer needs INetU investment bring scale and expanded product offerings to our Cloud and Managed Platform Applied Trust expands our reach into our customers IT roadmap Colocation investments in Oregon, Calgary and Texas build on our infrastructure foundation Complianc Applied Security e Trust Consultin Private Public Cloud g Cloud Cloud DRaaS Space Network Remote and and Hands Power Bandwidt h 14

16 ViaWest Representative Customers ViaWest has a wide variety of satisfied customers across industry segments as well as enabling leading SaaS and IaaS providers Services Retail / Manufacturing Entertainment / Hospitality Financial Government / Non-Profit Communications / Technology Education Healthcare 15

17 Revenue Diversification and Visibility (1) MRR by Market Oct 2015 Customer Count by MRR Oct 2015 MRR by Customer Rank Oct 2015 $100K+ $20k - $100K 1% 7% AZ UT 6% Other Top 3 16% 12% 12% $5k - $20K 16% Top 4-10 12% $0 - $1k TX CO 47% 20% 39% Top 100-500 31% Top 11-25 11% OR $1k - $5k Top 26-50 9% NV MN 29% 2% Top 51-100 10% 8% 12% Stable Recurring Revenue < 1 year 7% Contract Avg. Contract Class MRR % Share Counts MRR > 3 years 306 32% US$18,387 > 3 years 32% 1 3 years 1,664 61% US$6,409 1 year - 3 years < 1 year 916 7% US$1,332 61% 16 (1) ViaWest customers in US$

18 2015 Financial Review 2014 2015 ViaWest vs. 2014 Foreign Canadian $'s in millions ViaWest ViaWest Exchange Operations BIS vs 2014 US$ US$ C$ C$ C$ Revenue $184 $203 $43 - $246 10% Adj EBITDA $76 $83 $18 ($6) $95 10% CapEx $88 $91 $21 $40 $152 4% FCF (1) ($12) ($8) ($3) ($46) ($57) na Strong finish to year with Q4/F15 MRR bookings of US$1.1 million, largest in history of the Company, generating strong momentum into fiscal year 2016 Q4/F15 ViaWest revenue and EBITDA grew 11% and 15%, respectively from prior year For fiscal year 2015, ViaWest revenue and EBITDA both increased by 10% over fiscal year 2014 ViaWest EBITDA growth of 12% after adjustments for one-time legal expenses and longer-term incentives ViaWest capital expenditures totaled US$91 million in 2015, which was largely attributed to expansion capital for the new Brookwood (OR) facility, existing facility augmentations and customer installations ViaWest maintenance capital as a percent of revenue was 1.6% and 2.1% for 2014 and 2015, respectively 17 (1) FCF is unlevered (i.e. no interest, no taxes)

19 Investing in Future Cash Flow Platform for Investment ViaWest Operating FCF EBITDA less Maintenance Capital vs. 2014 $120 50% US$'s in millions Expanding EBITDA margins and low 45% maintenance capital drive strong operating $100 40% FCF $80 35% $60 30% Management expects continued investment 25% $40 to meet market demand 20% +/- US$10M in simple free cash $20 15% flow for ViaWest - 10% 2014A 2015A 2016F Strong operating FCF sustainable with Operating FCF Expansion Customer % of Revenue minimal customer and expansion capital Approximately 60% of bookings from existing customers Calgary1 is designed to replicate what we have created in the US Start of Canadian initiative results in initial investment of C$40M in F2015 Historically new market initiatives produce an EBITDA break even in 5 to 7 quarters Operations commenced in Q2/F16 18

20 Built For Long-term Sustained Growth Demand growth outpacing supply growth Strong Growth in internet usage and mobile applications continues to drive demand for capacity Industry Continued shift to outsourced data centre operations Fundamentals Mission critical nature of service provided creates barriers to entry Well Positioned Operates 30 facilities across ten regional markets in Attractive, Regional markets have lower threat of new entrants and fewer competing facilities Regional Markets Scale and leadership position creates competitive advantage Attractive Robust revenue backlog with committed contract minimums Recurring Revenue 95%+ of revenue is contractually recurring, with average contract length of three years Model Low revenue churn of ~0.8% per month Strong Approximately 2,000 customers with limited customer or industry vertical concentration Relationships with Approximately 2/3 of bookings are from existing customers, driving revenue growth (net of churn) prior to any new Diversified customer wins Customer Base Strong Consistent organic revenue and EBITDA growth with improving margins Historical Financial CY2012-2014 PF revenue and EBITDA CAGR of 14.1% and 16.8%, respectively Performance Combined company EBITDA margin of over 40% High Quality Facilities fully equipped to ensure full and uninterrupted access to and transmission of data Infrastructure and 24x7x365 support provided by ViaWests engineers Operations Industry leading reputation for infrastructure and network uptime Experienced Seasoned senior management team with deep industry and market experience Management Demonstrated track record of successful execution and results Team Average of ~20 years industry experience 19

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22 Market: Review outlook on the business telecom market Customer: Share customer insights and segmentation Starting point: Recast Shaw Business starting point Strategy: Align on overarching strategy pillars to support it Program: Outline the detailed initiatives to support this strategy Update: Share results to-date 21

23 Shaw Business Network Services (BNS) represents a significant growth opportunity and we are making the transition and appropriate investments to capitalize on the market segments we are focused on Small Office Home Office (SOHO) and Small Medium Business (SMB) Drive penetration in SOHO/SMB markets with disciplined go-to-market execution and investments in team and network Capture share of wallet with SMB/Small Enterprise markets by filling core product gaps Expand into select segments of high growth data centre and managed services markets Core Canadian business telecom market is projected1 to grow ~2% p.a. over next 5 years Data and internet usage expanding, but facing new competitors and commoditization pressures Voice revenue will continue to decline as it becomes an OTT application F2014 F2015 growth $ in millions Core 1 Satellite 2 Total Core Satellite Total Core Satellite Total Revenue $ 405 $ 79 $ 484 $ 442 $ 78 $ 520 9% -1% 7% EBITDA $ 203 $ 37 $ 240 $ 223 $ 34 $ 256 10% -8% 7% Margin 50.1% 47.0% 49.6% 50.3% 43.5% 49.3% 1. Core Business includes SMB, Enterprise and Wholesale 2.Satellite includes Shaw Broadcasting and Shaw Tracking Solid Y/Y growth in both Revenue and EBITDA for our Core Business at 9% and 10% respectively High margins remain consistent 22

24 Industry Landscape Customer Insights Shaw Business Overview of Strategy Update 23

25 Core business growing slowly; software, data centre, managed services projecting high growth Annual Canadian business telecom/IT spend ($B) Core wireline products projected to grow slowly More advanced services such as managed network and data centre projected to grow much faster 1. Includes Office Suites, CRM, Web conferencing, collaboration and social suites Source: IDC, Gartner, BCG analysis 24

26 Changing core product focus towards data IT outsourcing on the rise Data demands expanding... Managed service adoption Traffic growing 20%+ p.a. high, even among SMBs ~20% more SMBs expect to use ~50% of SMBs using managed fiber/ethernet in 5 years IT and managed network/ security Voice becoming an app subs and ILEC/MSOs seen as reliable pricing will continue to erode managed service provider 2/3rds of SMBs use or plan to use 40% of SMBs would consider OTT voice telecom provider as a vendor 29%1 of SMBs using SIP of managed services OTT provides more features at Quality service vital to win, lower costs especially in managed services 95% of CIOs said they would switch providers for better service 1. Among those SMBs with trunking solutions 25

27 Source: BCG IT Decision Maker Survey 2014 (n = 500), Shaw documents, BCG interviews, BCG analysis 26

28 Question: What new products would you buy from a telco? 27 Source: BCG CIO Interviews

29 Industry Landscape Customer Insights Shaw Business Overview of Strategy Update 28

30 Small businesses, on average, require fixed internet for ~70% of FTEs and fixed phone for ~50% Many businesses, including 70% of those with a mobile workforce, express interest in Go WiFi The online channel is the most important channel for reaching these businesses: 30% prefer online Similar to consumer, self serve will be a vital part of long-term strategy Managed service uptake is already high, even among smaller businesses ~75% of SMBs already use managed services and nearly half of SOHOs Data centre uptake is lower among SOHOs (35%) and SMBs (57%) vs. Enterprises (>75%) The key drivers of customer purchase are fairly balanced it isn't just about cost 26% cite cost as the most important driver, but quality (23%) and security (20%) are quite important 29

31 Source: BCG IT Decision Maker Survey (US and Canada, Dec 2014) 30

32 Source: BCG IT Decision Maker Survey (US and Canada, Dec 2014) 31

33 ~1/3rd of businesses have switched providers in the past five years Source: BCG IT Decision Maker Survey (US and Canada, Dec 2014) 32

34 Industry Landscape Customer Insights Shaw Business Overview of Strategy Update 33

35 Leveraging our core network asset to bring unique products and services to our target markets 34

36 Covering core and near-core telecom services, data centre and cloud 2013 Canadian business telecom/IT spend ($B) 1. Wireline Voice, Data, Internet. Data centre and Cloud and Managed Network adjusted to reflect typical division of telecom spend by province. (32% of Canadian telecom spending occurs in BC, AB, MB, SK). 2. Wholesale adjusted to remove wireless wholesale, and adjusted to reflect Western Canada. Source: IDC, Gartner, BCG analysis 35

37 Significant opportunity exists within our current footprint Western Canada wireline revenue 1,600 1,400 1,200 Revenue (Ms) 1,000 800 600 400 200 0 SOHO/SMB Corporate Enterprise 36

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40 Industry Landscape Customer Insights Shaw Business Overview of Strategy Update 39

41 Develop best in class business experience that is positioned for long term growth 40

42 Enhanced Voice Hosted/ mngd DC services Managed Network / Security Managed WiFi 1. Based on market size, growth rates, competitiveness and industry trends. Source: Customer/Expert interviews; Cisco market analyses; BCG Analysis 41

43 Trusted Sales Advisor Customer Support Opportunity Enhanced Voice Convenience Cloud based Storage & Services Managed WiFi Connected & Secure Advanced Security Access to Shaw Go WiFi Pricing Switch & Save Promotion 42

44 Industry landscape Customer insights Shaw Business Overview of strategy Update 43

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