EFTA02705694.pdf

TAP ADVISORS AA Global Bit Discussion Materials May 2014 EFTA_R1_02096504 EFTA02705694 Summary of Valuation Methodologies )escri Spectrum Value - Sem. ,et C ase • Industry standard valuation methodology (AKA "Greenfield Approach") • $300 million - $700 million • Primary methodology used in the absence of "good" comps • Google's review and endorsement of the financial projections narrows the IRR Analysis discussion items — We've sensitized the analysis for higher discount rates - We've assumed that 20% of Global Bit's ("GB") equity will be set aside for employees • Geostationary satellite spectrum rights have become increasingly scarce in • $702 million recent years • 32 GEO slot equivalents at — Whereas historically satellite spectrum rights were granted for nominal $21.7mm/slot fees, more recently satellite operators have paid up to $90mm per slot GEO Slot • GB's spectrum provides coverage that is more comprehensive than Equivalent geostationary spectrum and provides significantly more bandwidth Valuation • GB's spectrum can be converted into geostationary spectrum slot-equivalents based on coverage and bandwidth • We have valued GB's spectrum by applying average purchase prices paid for geostationary satellite spectrum slots to GB's spectrum slot-equivalents • In theory, an orbital spectrum right is a government granted license to provide • $400 million - $600 million a particular service in a certain market • NPV of 5% franchise fee of • Franchise licenses in the US cable industry provide an analogous economic revenue discounted at 10% model with 0% perpetuity growth Franchise Fee - Cable operators in the US must obtain franchise licenses and pay franchise Valuation fees from each municipality where they wish to offer cable service; these fees are —5% of revenue • We applied the same percentage to the revenues generated by GB's business model as a proxy for the value of the spectrum TAP ADVISORS AS EFTA_R1_02096505 EFTA02705695 Summary of Valuation Methodologies (cont'd) ucscriPiiun Spectrum Value - Sem. eckl Case • We have reviewed the license/franchise/spectrum book value as a percentage • $300 million - $425 million of total enterprise value for various industries (wireless, cable, satellite) • 12.5-17.5% spectrum value of License Value of • We have applied this ratio to the total "mature" enterprise value of GB's total enterprise value Mature Businesses business model, valuing GB using a 10% WACC calculated on a "mature" basis (Wireless, Cable, Satellite) - Must value company's business model under the assumption that is a mature business with significant going-concern, brand, goodwill, customer-relationship and other intangible value GB's business model is fundamentally a broadband play which is much more • $45.3 billion analogous to the terrestrial wireless business model rather than the traditional FSS business model Developing — Therefore, can use terrestrial spectrum valuations to provide a proxy for Markets Wireless the value of GB's spectrum License Proxy • Industry standard practice is to value spectrum on a MI-IzPOP basis in order to account for amount of spectrum and size/density of coverage area • Valuation metric can be adjusted to take into account varying economic and technical qualities of the spectrum 2 TAP ADVISORS AS EFTA_R1_02096506 EFTA02705696  IRR Analysis • An IRR or DCF analysis (mathematically equivalent) is an industry standard methodology for determining the value of a cash flow generating asset • For a start-up venture such as GB, there are significant assets that need to be acquired and/or developed in order for the business to function - If the costs for acquiring/developing these assets are captured by the cash flows then, those assets are not a part of what is being valued by the analysis. Specific examples include: • Satellites - captured through capital expenditures • Manufacturing facilities - captured through capital expenditures • Intellectual property - captured through NRE spend • Management talent - captured through the options pool and stock grants • Capital - captured through required rate of return / WACC - The valuation (or purchase price in the case of an IRR framework) resulting from the analysis needs to be allocated amongst all the assets whose costs are not captured in the cash flows • The only assets that aren't accounted for in the cash flows are the spectrum rights and landing rights • Landing rights in the Ku-band have historically been very easy to acquire and require nominal administrative fees I. lot, I Nil t rating Prote, t un. Purchase Dam 6/30/14 4 maleon+ Tora ha to 7014 2015 2016 2017 2018 2019 2020 2021 2022 2012 2024 2823 TV Terminal Value C ulat. on Total Soto (mm) 00 OD 00 1.0 49 146 173 426 60 7 ol 0 1033 1033 2025 DITTDA 533,701 Revenue 10 111 10 $186 51319 $3,738 $8,358 113,666 524.310 $36.187 $44,461 $19,851 (ass Normalued D&A (370) % Growth /44, Wa We Nu 500.0% 233.3% 124.1% 63.5% 779% 406% 301% 1.2.3% EMT $33,331 Ls, Total Coon (68) (1 07) 0 58) 0-▪5) (66 (1.367) (3.120) (4.804 ) 01 144) D1241 ) 0 4467) 0 6150) Less: Taxes 0333) EBITDA 18.862 $16.16' 122.946 529,993 $33,701 Plus: 3kermlixed D&A 370 0 68) 0 107) ($1510 0139) 1450 12.163 55,738 Lem: Nam alixed CapEx (370) % Margin 0/11 Ws 402% 58,0% 61.7% 64.8% 665% 674% 67.5% 67.6% Nel Terminal ra 524,998 D&& (47) (135) (159) (232) (261) (172) 4412) (3831 (418) (410) (353) (3401 PerpetuityGrowth Rate 0.0% Err 0115) 0242) ($317) 0371) 5189 $1,590 $4,025 $6479 $15,749 522.534 529.642 $33,341 PetpeRniv 0r.count Rate IR 0% 1/41, Taws ii 0 0 0 0 (073) (1.206) (2.120) 0,037) (3.834) (7.410) 0,340) Terminal Value $138478 Plus. D&A 47 135 159 232 261 272 412 383 418 410 353 340 lmplird ORDA Muni* 4.1x LewCepa (318) (621) (165) 017) (206) (79) (996) (114) 059) (114) (114) (114) Ism. A Net Wooing Cartel 3 2 3 03) 00) 97 93 83 153 95 86 44381, Envloym Ownership 20.0% Unleveled KT 0384) 0726) 0324) ($669) $194 11.708 $3318 $6,711 $11,523 $17,293 $22,556 $24,809 Nei Terminal Valve 1111.102 leo (5001 (3841 4726) 4324) (669) 191 1,708 3,118 6,711 11,523 17.293 22536 24,809 111,1021 Spectrum Purchase Prke $500 IRR 63.634/ TAP ADVISORS AS EFTA_R1_02096507 EFTA02705697 IRR Sensitivity Analysis ERR ccmnn,n Meremeelal SAC lnaemental Chown % De M Delp 50 $75 $150 5225 5300 0% 8% 15% 23% 30% 0 6 12 18 24 5300 66.9% 645% 61.6% 590% 55.9% 5300 66.9% 654% 636% 620% 602% 5300 66.9% 653 60.4% 57.6% 524% 400 500 652% 634% 62.9% 615% 40.2% 589% 57.7% 565% 54.8% 537% 400 500 652% 634% 63.7% 622% 62.1% 604% 604% 59D% 58.6% 572% I 400 503 652% 634% 63.5% 61.9% 582% 573% 56.1% 542% 510% 49.8% I 600 700 62.2% 610% 602% 590% 57.7% 56.6% 55.4% 544% 52.7% 512% I 600 700 62.2% 610% 601% 594% 593% 58.1% 57.7% 565% 56.0% 542% I 600 622% 610% 605% 593% 560% 534% 484% 700 54.9% 523% 47.6% Satellite CapEx Inman NRECapF.x Increase Em Ownendi 00% 20D% 400% 60.0% 800% 00% 250% 50.0% 75.0% NOD% 10% 15% 20% 25% 30% 5300 66.9% 65.7% 616% 635% 62.5% 5300 669% 653% 632% 624% 61.1% 5300 400 674% 672% 66.9% 665% 66.2% I 400 500 65.2% 634% 64,1% 624% 630% 61.7% 620% 60.7% 61.1% 592% 400 500 65.2% 634% 63.7% 623% 623% 611% 61.1% 59.9% 399% 582% 500 652% 64.3% 655% 610% 652% 634% 642% 633% 644% 62.9% I 600 700 62.2% 614% 61.3% 60.1% 60.4% 59.3% 59.5% 585% 582% 57.7% I 600 700 622% 610% 610% 592% 599% 582% 58.8% 578% 572% 56.9% 600 62.9% 617% 62.6% 613% 622% 61.9% 61.5% 700 610% 60.6% 603% Mn) Rechmlien % C.009 Increase% Coils remise % 0% 15% 30% 45% 60% 0% 15% 30% 45% 60% 0% 15% 30% 45% 60% 5300 66.9% 630% 582% 532% 46.1% $300 669% 645% 611% 59.9% 572% 0% 634% 615% 592% 572% 542% 400 65.2% 61.4% 573% 519% 449% 652% 62.9% 604% 58.5% 559% 15% 59.9% 572% 55.9% 53.5% 510% 500 634% 59.9% 55.9% 504% 43.9% 500 616% 615% 592% 572% 547% 30% 55.9% 531% 515% 49.1% 464% 600 622% 584% 54.7% 493% 429% 600 622% 602% 580% 56.0% 53.6% 45% 50.6% 485% 462% 442% 41.6% 700 610% 57,4% 33.6% 483% 420% 700 610% 590% 56.9% 549% 526% 60% 43.9% 420% 394% 372% 342% Implied 2023 EDEMA Marla latiAle4 2025 EDITDA Musla Now: &Kinney 5500mm Swine I Parcher Prtir 674% 67.4% 67.0% 66.5% 65.5% 674% 621% 582% 535% 482% CBITnk lzrgn M-nr,inty COSti hicrease % 0% IS% 30% 45% 60% 0% 674% 62.9% 552% 535% 48.8% 15% 674% 624% 57.9% 53.1% 484% 30% 670% 62.2% 574% 526% 478% 45% 645% 61.6% 56/f 518% 46.9% 60% 655% 605% 55.5% 504% 454% TAP ADVISORS AS EFTA_R1_02096508 EFTA02705698  IRR Sensitivity Analysis (cont'd) Even with draconian haircuts to the business plan, Google would still significantly exceed its cost of capital IRR Waterfall Is/ Purchase Price Range of 5300-700mm 80.0% - 0 The business case contemplates a partnership approach where local distributors carry the burden or subscriber acquisition in exchange for a revenue share — We assumed an incremental $150/sub SAC cost in 70.0% • 66.9% addition to the revenue share 0 Churn costs (in the form of SAC and hardware subsidies) will be borne by distributors in exchange for a revenue 61.6% 60.0% - share; take rate projections were developed on a "net 61.0% adds" basis 56.6% — We assumed 30% incremental chum resulting in increased SAC costs and lower revenue 50.0% - 47.1% 0 Current plan ARPUs are based on detailed market analysis; they offer better service for lower prices than competitors 10.0% - 43.3% 38.•1% — We reduced ARPU by 20%; this is incremental to the 34.0% 33.1% revenue reduction as a result of chum 35.5% 30.3% 0 Current operating costs are based on a detailed, bottoms- up cost model with significant cushion built in (15% of 30.0% - 31.5% 30.7% revenue in excess of scheduled costs) 28.4% — We increased fixed and variable costs by 20%, thereby reducing EBITDA margins 20.0% - 16.5% 0 Satellite, launch and NRE capital expenditures have been based on detailed discussions with and proposals from 15.1% vendors 10.0% - — We increased manufacturing and launch capex by 20% and NRE capex by 100%, significantly increasing required capital 0.0% 0 Satellite and commercial launch based on a detailed schedule developed by management and Google Base Case SAC +$150 Churn +30% ARPU -20% Costs +20% Satellite NRE Delay +2 Capex Capex yrs — We delayed commercial launch by 2 years to provide -Ir.. •1(K1' additional buffer for delays TAP ADVISORS sA 5 RI 02096539 EFTA02705699 GEO Slot Equivalent Valuation ■ Historically, orbital spectrum rights were assigned for nominal fees • As high-quality orbital spectrum rights have become scarce, valuations have gone up dramatically — Recently, satellite operators have paid upwards of $90mm for satellite orbital slot licenses Recent Brazil Orbital Slot Auction Results Year Company Price (S mm) Bands Longitude 2014 Hispasat $29.3 Ku 61 W 2014 SES 14.9 C, Ku, Ka 48 W 2014 SES 12.1 Ku 64 W 2014 Eutelsat 12.8 C, Ku 69.45 W 2011 Hughes Network Systems 91.6 Ku, Ka 45 W 2011 Hughes Network Systems 22.2 Ku, Ka, X 68.5 W 2011 Star One 23.3 Ku, Ka 84 W 2011 Star One 23.3 Ku, Ka, X 70W Average Price/Slot $28.7 High 91.6 LOU' 12.1 TAP ADVISORS AS EFTA_R1_02096510 EFTA02705700 GEO Slot Equivalent Valuation (cont'd) Additionally, when orbital spectrum rights have been acquired in M&A transactions, the acquirer is required to mark to market the value of those rights, providing a market-based valuation for orbital rights Intel sal -Pa na insat I oral/PSI I elesat Canada • Panamsat merged with Intelsat Bermuda (subsidiary of Intelsat) • Telesat Canada acquired by Loral Space & Communications and in 2005, making the world's largest commercial satellite the Public Pension Investment Board of Canada in 2007; company subsequently, was merged with Loral Skynet — Leading global FSS provider of video, corporate, Internet, - Satellite services operator and provider of global voice and government communications services communications services to broadcast, telecom, corporate and government customers — Had a fleet of 23 active satellites (including 2 backup satellites) - Had 13 GEO satellites in operation • Allocated $1.1 billion of the $3.3 billion purchase price to orbital • Allocated $494 million of the $3.3 billion purchase price to slot value orbital slot value — 34% of total value attributable to orbital slots - 15% of total value attributable to orbital slots - $59 million per slot over 19 orbital slots — $45 million per slot over 11 orbital slots Viasat-WildBlue • WildBlue acquired by Viasat in 2009 - Premier Ka-band satellite broadband service provider - Didn't own any orbital slots, but had 2 satellites that were providing service under colocation agreement • Allocated $8.2 million of the $574 million purchase price to satellite co-location rights 10 year agreement set to expire in 2019 Extrapolating $8.2 million per 10 years as a DCF (at 3% inflation) to estimate perpetual rights yields an NPV of the slot of $21.7 million, at a discount rate of 8% TAP ADVISORS sA EFTA_R1_02096511 EFTA02705701 GEO Slot Equivalent Valuation (cont'd) We valued GB's spectrum by converting it into "geo slot equivalents" and applied the range of prices paid for orbital spectrum rights GEO Slot Equivalent Calculation InPrice (5 min) First Second 2014 Hispasat 5293 Ku 61 W (Bandwidth in aps) Constellation Constellation Total 2014 SES 14.9 C Ku, Ka 48 W Bandwidth / Spot Beam 039 [1.971 2014 SES 12.1 Ku 64 W Spot Beams / Satellite 19 [191 2014 Eutelsat 12.8 C Ku 69.45 W Satellites / Constellation 1,560 1,560 2011 Hughes Network Systems 91.6 Ku, Ka 45 W Total Bandwidth 17,347 56,406 75,754 2011 Hughes Network Systems 22.2 Ku, Ka, X 68.5 W 2011 Star One 233 Ku, Ka 84W % of Capacity over Land 25% 25% 25% 2011 Star One "et Ku, !Ca, X 70 W Total Bandwidth Over Land 4,337 14,602 18,938 2009 Wildblue f„, Ka 111.1 W ViaSat-1 Bandwidth 134 134 134 2007 Telesat Canada 45.0 various various ViaSat-1 Slot Equivalents C32) 109 (141) 2005 Panamsat 59.0 various various I Average Price/Slot (02:11, I Base Case Sensitized Case Average Price/Slot $323 WildBlue Price/Slot $21.7 Total Slot-Equivalents 141 1st Constellation Slot-Equivalents 32 Global Bit Spectrum Value ($mm) $4,563 'Global Bit Spectrum Value ($mm) $702 TAP ADVISORS sA EFTA_R1_02096512 EFTA02705702 Franchise Fee Valuation • In theory, an orbital spectrum right is a government granted license to provide a particular service in a certain market • Franchise licenses in the US cable industry provide an analogous economic model - Cable operators in the US must obtain franchise licenses and pay franchise fees from each municipality where they wish to offer cable service; these fees are —5% of revenue • Apply the same percentage to the revenues generated by the Company's business model as a proxy for the value of the spectrum • The comparison is imperfect: — GB's rights are fundamentally superior to franchise rights as franchise rights are generally non-exclusive whereas GB will have exclusive rights to provide high-bandwidth, low-latency Ku-band broadband access from a LEO orbit - Comparison does not account for CapEx/OpEx differences in the broadband vs. MSO business model Cable Co Franchise Fee Analysis Franchise Video Fr. Fee as no (5 W.' Fee I'aid Revenue Video Revenue Corneast $1,259 519,936 6.3% Time Warner Cable 490 10,183 4.7% Charter 190 3,840 4.9% Base Case Sensitized Case Global Bit Annual Revenues Global Bit Annual Revenues 550,1‘10 S14,461 s20,000 / 10,000 - 14 534,187 $14,630 515,000 - s10,000 - 524310 5111,000 • 50290 s10,00111 - 511,666 65.199 58358 ',IMO • 52,402 s10,000 • e So So 50 5186 $1,11953r" • $0 $O $11 $1) SO 5127 >738 5(1 2014 21)15 2011, 2017 111$ 21110 2020 21)21 2022 2021 2024 2014 20)5 7016 2017 2018 3149 2024) 2021 2022 2023 2024 Franchise Fee % Franchise Fee % 3.0% 4.0% 5.0% 6.0% 7.0% 3.0% 4.0% 5.0% 6.0% 7.0% Di.count Rate 10.0% 56,641 58,855 511,069 513282 515,496 10.0% 52,013 52,684 53,355 54,025 $4,696 15.0% 3,250 4,334 5,417 6501 7,584 15.0% 943 1258 1,572 1,886 2,201 20.0% 1,830 2,440 3,050 3460 4,270 20.0% 508 677 847 1,016 1,185 25.0% 1,121 1,494 1268 2,241 2,615 25.0% 297 397 496 595 694 30.0% 727 970 1,212 1,455 1.697 0 30.0% 185 246 308 369 431 9 TAP ADVISORS AS EFTA_R1_02096513 EFTA02705703  License Value of Mature Businesses • Companies across the wireless, cable and satellite industries assign a carrying value to license/franchise/spectrum rights on their books — Unlike young companies, mature businesses have spent significant capital building up hard assets, intangibles (other than license/spectrum/franchise rights) as well as going-concern value. These assets are already paid for and thus the enterprise value needs to be allocated among these assets • The percentage of license/franchise/spectrum value of enterprise value of these companies can be applied to GB's enterprise value to value spectrum assets. Analysis only applies if GB is valued on a "mature" basis. Two possible approaches: — Estimate the value of hard assets, intangibles, and going concern-value the business would develop once it reached steady state - very difficult, if not impossible, to do — Value the company on a DCF basis using a steady-state WACC (we used 10%) Value Acne-. Intlgri.., License Value Across Industrie. Lictme Enterpriw License Enterprke 11.V e:; Country Value Value of I, V slue Value Mobile Carriers Cable Companies AT&T USA $59,584 $166,987 35.7% Comcast USA $56,364 5182,364 30.9% Verizon USA 72,713 260,301 27.9% Time Warner Cable USA 26,934 64.056 42.0% Sprint USA 41,978 62,898 662% Charter USA 6.009 28,101 21.4% Tatobilc USA 17,383 39,464 44.0% Cablevision USA 732 13,416 55% China Mobile China n2 142,677 02% Shaw Communications Canada 7,476 14,802 50.5% Vodafone United Kingdom 43,991 102,552 42.9% DBS Bharti Airtel India 3,013 32.732 9.2% Dish USA $3297 530234 10.9% America Movil Mexico 9,433 118,679 7.9% 27,238 DirecTV USA 785 55,918 1.4% Telefonica Spain 145,411 18.7% Axiata Malaysia 580 20,809 2.8% O.2 Vimpelcom Netherlands 6,797 39,210 17.3% SES Luxembourg $1,011 518,391 55% F.tisalat UAE 2,191 25.045 8.7% Intelsat Luxembourg 238.8 17,301 13.8% Te'mar Norway 5,962 45,015 132% Other TeliaSontra Sweden 1,252 45521 2.8% Deutsche Telekom Germany 48,476 141,020 344% Sirius XXI USA $2,084 $25,750 8.1% Reliance Communications India 4,282 10557 40.6% Iridium USA 14 1,323 1.1% Idea Cellular India 1.7