Updated November 7, 2016 with financial data through September 30, 2016
About FairPoint Communications
Filed by FairPoint Communications, Inc.
Pursuant to Rule 425 under
the Securities Act of 1933, as amended,
and deemed filed pursuant to Rule 14a-12 under
the Securities Exchange Act of 1934, as amended
Subject Company: FairPoint Communications, Inc.
Exchange Act File No.: 001-32408
The following presentation was made available to Consolidated Communications Holdings, Inc. employees on December 5,
2016:
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Safe Harbor
The Securities and Exchange Commission (“SEC”) encourages companies to disclose forward-looking information so that investors can better
understand a company’s future prospects and make informed investment decisions. Certain statements in this filing are forward-looking statements
and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. These forward-looking statements reflect, among
other things, current expectations, plans, strategies, and anticipated financial results of the Consolidated Communications Holdings, Inc.
(“Consolidated”) and FairPoint Communications, Inc. (“FairPoint”), both separately and as a combined entity. There are a number of risks,
uncertainties, and conditions that may cause the actual results of Consolidated and FairPoint, both separately and as a combined entity, to differ
materially from those expressed or implied by these forward-looking statements. These risks and uncertainties include the timing and ability to
complete the proposed acquisition of FairPoint by Consolidated, the expected benefits of the integration of the two companies and successful
integration of FairPoint’s operations with those of Consolidated and realization of the synergies from the integration, as well as a number of factors
related to the respective businesses of Consolidated and FairPoint, including economic and financial market conditions generally and economic
conditions in Consolidated’s and FairPoint’s service areas; various risks to stockholders of not receiving dividends and risks to Consolidated’s ability to
pursue growth opportunities if Consolidated continues to pay dividends according to the current dividend policy; various risks to the price and volatility
of Consolidated’s common stock; changes in the valuation of pension plan assets; the substantial amount of debt and Consolidated’s ability to repay or
refinance it or incur additional debt in the future; Consolidated’s need for a significant amount of cash to service and repay the debt and to pay
dividends on the common stock; restrictions contained in the debt agreements that limit the discretion of management in operating the business; legal
or regulatory proceedings or other matters that impact the timing or ability to complete the acquisition as contemplated, regulatory changes, including
changes to subsidies, rapid development and introduction of new technologies and intense competition in the telecommunications industry; risks
associated with Consolidated’s possible pursuit of acquisitions; system failures; losses of large customers or government contracts; risks associated
with the rights-of-way for the network; disruptions in the relationship with third party vendors; losses of key management personnel and the inability
to attract and retain highly qualified management and personnel in the future; changes in the extensive governmental legislation and regulations
governing telecommunications providers and the provision of telecommunications services; telecommunications carriers disputing and/or avoiding their
obligations to pay network access charges for use of Consolidated’s and FairPoint’s network; high costs of regulatory compliance; the competitive
impact of legislation and regulatory changes in the telecommunications industry; liability and compliance costs regarding environmental regulations;
the possibility of disruption from the integration of the two companies making it more difficult to maintain business and operational relationships; the
possibility that the acquisition is not consummated, including, but not limited to, due to the failure to satisfy the closing conditions; the possibility that
the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events; and diversion of management’s
attention from ongoing business operations and opportunities. A detailed discussion of risks and uncertainties that could cause actual results and
events to differ materially from such forward-looking statements are discussed in more detail in Consolidated’s and FairPoint’s respective filings with
the SEC, including the Annual Report on Form 10-K of Consolidated for the year ended December 31, 2015, which was filed with the SEC on February
29, 2016, under the heading “Item 1A—Risk Factors,” and the Annual Report on Form 10-K of FairPoint for the year ended December 31, 2015, which
was filed with the SEC on March 2, 2016, under the heading “Item 1A—Risk Factors,” and in subsequent reports on Forms 10-Q and 8-K and other
filings made with the SEC by each of Consolidated and FairPoint. Many of these circumstances are beyond the ability of Consolidated and FairPoint to
control or predict. Moreover, forward-looking statements necessarily involve assumptions on the part of Consolidated and FairPoint. These forward-
looking statements generally are identified by the words “believe”, “expect”, “anticipate”, “estimate”, “project”, “intend”, “plan”, “should”, “may”, “will”,
“would”, “will be”, “will continue” or similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other
factors that may cause actual results, performance or achievements of Consolidated and FairPoint, and their respective subsidiaries, both separately
and as a combined entity to be different from those expressed or implied in the forward-looking statements. All forward-looking statements
attributable to us or persons acting on the respective behalf of Consolidated or FairPoint are expressly qualified in their entirety by the cautionary
statements that appear throughout this filing. Furthermore, forward-looking statements speak only as of the date they are made. Except as required
under the federal securities laws or the rules and regulations of the SEC, each of Consolidated and FairPoint disclaim any intention or obligation to
update or revise publicly any forward-looking statements. You should not place undue reliance on forward-looking statements.
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Important Merger Information and Additional
Information
This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. In connection
with the proposed transaction, Consolidated and FairPoint will file relevant materials with the SEC. Consolidated will file a Registration Statement on Form S-4
that includes a joint proxy statement of Consolidated and FairPoint and which also constitutes a prospectus of Consolidated. Consolidated and FairPoint will
mail the final joint proxy statement/prospectus to their respective stockholders. Investors are urged to read the joint proxy statement/prospectus regarding
the proposed transaction when it becomes available, because it will contain important information. The joint proxy statement/prospectus and other
relevant documents that have been or will be filed by Consolidated and FairPoint with the SEC are or will be available free of charge at the SEC’s website,
www.sec.gov, or by directing a request when such a filing is made to Consolidated Communications Holdings, Inc., 121 South 17th Street, Mattoon, IL 61938,
Attention: Investor Relations or to FairPoint Communications, Inc., 521 East Morehead Street, Suite 500, Charlotte, North Carolina 28202, Attention: Secretary.
Consolidated, FairPoint and certain of their respective directors, executive officers and other members of management and employees may be considered
participants in the solicitation of proxies in connection with the proposed transaction. Information about the directors and executive officers of
Consolidated is set forth in its definitive proxy statement, which was filed with the SEC on March 28, 2016. Information about the directors and
executive officers of FairPoint is set forth in its definitive proxy statement, which was filed with the SEC on March 25, 2016. These documents can be
obtained free of charge from the sources listed above. Investors may obtain additional information regarding the interests of such participants by reading the
joint proxy statement/prospectus Consolidated and FairPoint will file with the SEC when it becomes available.
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Non-GAAP Financial Measures
The Company uses certain non-GAAP financial measures in evaluating its performance. Throughout this presentation, reference is made
to Adjusted EBITDA, Adjusted EBITDA minus Estimated Avoided Costs, Unlevered Free Cash Flow, Unlevered Free Cash Flow minus
Estimated Avoided Costs and adjustments to GAAP and non-GAAP measures to exclude the effect of special items. Management believes
the non-GAAP measures are useful for investors because they enable them to view performance in a manner similar to the method used
by the Company’s management. Unlevered Free Cash Flow and Unlevered Free Cash Flow minus Estimated Avoided Costs may also be
useful to investors in assessing the Company’s ability to generate cash and meet its debt service requirements. The maintenance
covenants contained in the Company’s credit facility are based on Adjusted EBITDA. In addition, management believes that the
adjustments to GAAP and non-GAAP measures to exclude the effect of special items may be useful to investors in understanding period-
to-period operating performance and in identifying historical and prospective trends.
On October 17, 2014, two of our labor unions in northern New England initiated a work stoppage. As a result, significant union employee
and vehicle and other related expenses related to northern New England were not incurred between October 17, 2014 and February 24,
2015 (the "work stoppage period"). Therefore, to assist in the evaluation of the Company's operating performance without the impact of
the work stoppage, we estimated the union employee and vehicle and other related expenses using historical data for the work stoppage
period that we believe would have been incurred absent the work stoppage ("Estimated Avoided Costs"). Estimated Avoided Costs is a
pro forma estimate only.
The non-GAAP financial measures, as used herein, are not necessarily comparable to similarly titled measures of other companies.
Furthermore, these non-GAAP measures have limitations as analytical tools and should not be considered in isolation from, or as an
alternative to, net income or loss, operating income, cash flow or other combined income or cash flow data prepared in accordance with
GAAP. Because of these limitations, Adjusted EBITDA, Adjusted EBITDA minus Estimated Avoided Costs, Unlevered Free Cash Flow,
Unlevered Free Cash Flow minus Estimated Avoided Costs should not be considered as measures of discretionary cash available to invest
in business growth or reduce indebtedness. The Company compensates for these limitations by relying primarily on its GAAP results and
using the non-GAAP measures only supplementally.
A reconciliation of Net Income (Loss) to Adjusted EBITDA, Adjusted EBITDA minus Estimated Avoided Costs, Unlevered Free Cash Flow,
and Unlevered Free Cash Flow minus Estimated Avoided Costs can be found in the appendix of this presentation.
The information in this document should be read in conjunction with the financial statements and footnotes contained in our documents
filed with the U.S. Securities and Exchange Commission.
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Unlevered Free Cash Flow(1)
Company Snapshot
Overview
̶ Operates in 17 states
̶ 21,000+ fiber route mile network including over 17,000
fiber route miles in northern New England
̶ Proven track record of Unlevered Free Cash Flow generation
(1) Unlevered Free Cash Flow (UFCF) means Adjusted EBITDA minus the sum of pension contributions, OPEB payments and capital expenditures. Unlevered Free Cash Flow is a non-GAAP financial measure.
A reconciliation of Net Income (Loss) to Adjusted EBITDA and Unlevered Free Cash Flow can be found in the appendix of this presentation. In addition, to assist in the evaluation of the Company’s
operating performance without the impact of the work stoppage, we estimated the union employee and vehicle and other related expenses using historical data for the work stoppage period that we
believe would have been incurred absent the work stoppage (“Estimated Avoided Costs”). Estimated Avoided Costs have been subtracted from our 2014 and 2015 UFCF results.
(2) Approximately 20% of Telecom Group is located in ME, NH and VT
Service Territory
Northern New England (NNE):
̶ Incumbent wireline provider with extensive “enterprise class”
network and scale in three contiguous states of Maine, New
Hampshire and Vermont
̶ Over 1,900 Fiber-to-the-tower (FTTT) Ethernet backhaul
connections
̶ Direct fiber connections to nearly 3,000 buildings
̶ 32 markets with access to Ethernet connections capable of
symmetrical, dedicated data transport speeds of up to 1Gig
̶ Relatively low market share of both residential and business
customers
̶ ~90% broadband availability
Telecom Group(2):
̶ Consistent, substantial cash flow generation
̶ Local presence and workforce; less competition
̶ ~90% broadband availability
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Albany
Boston
Northern New England Network
350 Central Offices
Over 17,000 Fiber Route Miles
Network
• 400G DWDM ROADM
• 10G/1G EPS aggregation rings to all 350 offices
• IP/MPLS core with terabit routing capacity and NGN design
Network extensions
• 1 Summer St, Boston MA (on-net)
• 80 State St, Albany NY (on-net)
• 60 Hudson St, NYC NY (leased 10G waves)
Network Operations Center
• 24/7/365 network operations and data services center
Data Center Capabilities
• On-net enterprise data services facility in New Hampshire
• Bundled product with CES
Over $900 million invested in infrastructure and technology
since 2008
VT
93%
ME
88%
NH
95%
Broadband Coverage
New York
Enterprise Class fiber network designed to meet growing demand of business customers
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C
O
M
P
E
T
I
T
I
V
E
A
D
V
A
N
T
A
G
E
S
Superior
Network
Outstanding
Operating Platform
Technology
Development Capability
Taking Action to Leverage Our Competitive
Advantages
A
C
T
I
O
N
S
Enhance and
Leverage the
Network
Enable
Effective and
Secure
Technology
Generate New
and Sustain
Existing
Revenue
Provide
Excellent
Customer
Service
FOUNDATION BUILT ON SUCCESSFUL EXECUTION OF FOUR PILLAR STRATEGY
A
C
T
I
O
N
S
Enhance and
Leverage the
Network
Develop
Effective and
Secure
Technology
Generate New
and Sustain
Existing
Revenue
Provide
Excellent
Customer
Service
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Develop Effective and Secure TechnologyEnhance and Leverage the Network
• Reach unserved and underserved areas through CAF II and
other funding sources
Accepted $37.4 million in annual funding plus additional
transitional funding to build and operate infrastructure
to provide 10 Mbps down/1 Mbps up broadband service
to approximately 106,000 unserved and underserved
locations in 14 states
Build out will aid broadband subscriber growth
Lower operating costs by hardening the network and
reducing repeat troubles
• Contribute to the economic success of our communities
through continued infrastructure investment
Economic vitality enhances business customer prospects
Areas of Focus:
• Strategically extend and
strengthen the network
making it more resilient
and redundant
Provides opportunities
to add new customers
and upgrade service
to existing customers
• Continue to strengthen and
broaden core technology
competencies
Dedicated team of
Customer Project
Managers and IT,
Network and Project
Managers
Highly experienced
customer facing team
with a proven track
record of success
• Anticipate customer needs and continue the development
and deployment cycle
Developed and deployed Hosted PBX, Managed Wireless
LAN and Cloud Contact Center solutions and other
managed services
Best in class FTTT provider and collaborating with small
cell providers on solution development
• Evolve customer-facing technology to improve the customer
experience
Enhance customer self-serve portals and online
interaction
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Provide Excellent Customer ServiceGenerate New and Sustain Existing Revenue
• Apply an optimal balance of transactional and relationship
selling techniques to maximize revenue
Fully understand customer needs and advanced
products to deliver value-added solutions
Maintain consistent outreach activity to identify and
close new customers
• Utilize expertise to develop customized solutions
From basic to complex, provide thought leadership in
developing and delivering solutions
• Nimbly react to industry forces
Understand the competitive challenges and
opportunities in our markets
• Identify and capitalize on edge-out opportunities
Areas of Focus:
• Provide communications and
product solutions to address the
needs of our customers
Utilize our network assets
and technological expertise
to be the first choice for
communications solutions
in the markets we serve
• Continue to enhance processes to
efficiently deliver reliable and
responsive customer service
As the face of the FairPoint
brand, the operations team will
continue to realign and
transform, establishing higher
standards for performance,
productivity and the customer
experience
Drive discipline in processes
and procedures to ensure a
reliable customer experience
Utilize operational metrics to be more efficient and
effective
Systematic testing tools to reduce truck rolls
• Continue to expand and evolve technical competencies
aligned to new products and emerging technologies
Attract and retain talented team members that allow us
to provide leading edge solutions to our customers
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Recent Financial Trends
(1) Adjusted EBITDA is a non-GAAP financial measure. A reconciliation of Net Income (Loss) to Adjusted EBITDA can be found in this appendix as well as in our third quarter 2016 earnings
release furnished November 2, 2016 in a current report on Form 8-K.
(2) Unlevered Free Cash Flow means Adjusted EBITDA minus the sum of pension contributions, OPEB payments and capital expenditures. Unlevered Free Cash Flow is a non-GAAP financial
measure. A reconciliation of Net Income (Loss) to Unlevered Free Cash Flow can be found in this appendix as well as in our third quarter 2016 earnings release furnished November 2,
2016 in a current report on Form 8-K.
(3) 2014 calculations of Adjusted EBITDA and Unlevered Free Cash Flow deduct $33 million of Estimated Avoided Costs experienced in 4Q14 related to the strike.
(4) 2015 calculations of Adjusted EBITDA and Unlevered Free Cash Flow deduct $27 million of Estimated Avoided Costs experienced in 1Q15 related to the strike.
($ in M) 3Q15 4Q15 1Q16 2Q16 3Q16 2014 2015 2016 Guidance
Revenue $221.6 $209.8 $206.8 $206.6 $207.1 901.4$ 859.5$
Net Income $53.1 $42.3 $18.6 $29.3 $40.2 ($136.3) $90.4
Adjusted EBITDA(1) $66.7 $63.9 $62.0 $63.1 $63.9 257.6$ 255.9$
margin 30.1% 30.4% 30.0% 30.5% 30.8% 28.6% 29.8%
Capital expenditures $28.2 $33.2 $25.9 $26.8 $30.2 119.5$ 116.2$ Approx. $115
% of revenue 12.7% 15.8% 12.5% 13.0% 14.6% 13.3% 13.5%
Cash Pension & OPEB $5.4 $7.3 $1.4 $4.7 $9.2 $34.1 $19.8 Approx. $22
Unlevered Free Cash Flow(2) $33.1 $23.3 $34.7 $31.5 $24.4 104.0$ 120.0$
Cash on hand $17.0 $26.6 $23.1 $41.1 $33.1 37.6$ 26.6$
Debt, gross $924.0 $922.4 $920.8 $919.2 $917.6 928.8$ 922.4$
$245 to $255
$110 to $120
Financial Highlights
(4)(3)
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Operating Footprint