EFTA02705504.pdf

TAP ADVISORS AA Global Bit Discussion Materials May 2014 EFTA_R1_02095948 EFTA02705504 Summary of Valuation Methodologies Ucscriptiun Spectrum Value • Industry standard valuation methodology (AKA "Greenfield Approach") • $300 million would yield 67% • Primary methodology used in the absence of "good" comps IRR • Google's review and endorsement of the financial projections narrows the • $700 million would yield 61% IRR Analysis discussion items IRR — 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 • $4.6 billion recent years • 141 GEO slot equivalents at — Whereas historically satellite spectrum rights were granted for nominal 532mm/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 • $11.1 billion 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_02095949 EFTA02705505 Summary of Valuation Methodologies (cont'd) Descriptio❑ Valle • 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 MHzPOP 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 • We have reviewed the license/franchise/spectrum book value as a percentage • $6.9-$13.9 billion of total enterprise value for various industries (wireless, cable, satellite) • 10-20% spectrum value of total License Value of • We have applied this ratio to the total "mature" enterprise value of GB's enterprise value calculated on Mature Businesses business model, valuing GB using a 10% WACC a "mature" basis (Wireless, Cable, Must value company's business model under the assumption that is a Satellite) mature business with significant going-concern, brand, goodwill, customer-relationship and other intangible value 2 TAP ADVISORS AA EFTA_R1_02095950 EFTA02705506  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 2.314 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 370 068) 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 sA EFTA_R1_02095951 EFTA02705507 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_02095952 EFTA02705508  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 AS 5 EFTA_R1_02095853 EFTA02705509 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_02095954 EFTA02705510 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 7 EFTA_R1_02095955 EFTA02705511 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 CEO Slot Equivalent Calculation First Second (Bandwidth in Gips) Constellation Constellation Total Bandwidth / Spot Beam 0.59 [1.971 Spot Beams / Satellite 19 119] Satellites / Constellation 1,560 1,560 Total Bandwidth 17,347 58,406 75,754 % of Capacity over Land 25% 25% 25% Total Bandwidth Over Land 4,337 14,602 18,938 ViaSat-1 Bandwidth 134 134 134 ViaSat-1 Slot Equivalents 32 109 C141) 'slot \ aloes Year Company Price (5 mm) Bands Longitude 2014 Hispasat 5293 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, ICa, X 68.5W 2011 Star One 233 Ku, Ka 84 W 2011 Star One 23.3 Ku, ICa, X 70 W 2009 Wildblue 21.7 Ka 111.1 W 2007 Telesat Canada 45.0 various various 2005 Panamsat 59.0 various various Average Price/Slot $333 Number of Slots (...141.e>1 Global Bit Spectrum Value $4,563 8 TAP ADVISORS sA EFTA_R1_02095956 EFTA02705512  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 "0 n Fee I'aid Revenue Video Revenue Corricast $1,259 $19,936 6.3% Time Warner Cable 490 10,183 4.7% Charter 190 3,840 4.9% Spectrum Cash I hos. Based on CableCo I ranchise ire Structure (S vtitlimul 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 T'Y Revenue $0 $0 $0 $186 $1,119 $3,730 $8,358 $13,666 $24,310 $34,187 $44,461 Frandtise Fee % 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% .5.0% 5.0% Spectrum Cash Flows SO SO $0 $9 $56 $186 $418 $683 $1,216 $1,709 $2,223 $22,231 PV of Spectrum Cash Flows $0 $o so $7 S38 $116 $236 $351 $567 $725 $857 58,172 NPV $11,069 Discount Rate 10.0% Perpetuity Growth 0.0% NPV Sensitivity Franchise Fee % Franchise Fee % 3.0% 4.0% 5.0% 6.0% 7.0% 3.0% 4.0% 5.0% 6.0% 7.0% 6.0% $14,431 $19,241 $24,051 $28,861 $33,672 0.0% $6,641 $8,855 $11,069 $13,282 $15,496 8.0% 9,459 12,612 15,764 18,917 22,070 0 15.0% 5,645 7,527 9,408 11290 13,172 I 10.0% 6,641 8,855 11,069 13,282 15.496 gg 30.0% 4,649 6,198 7,748 9298 10,847 12.0% 4,877 6,502 8,128 9,754 11,379 45.0% 3,653 4,870 6,088 7,305 8,523 O 14.0% 3,698 4,930 6,163 7,395 8428 60.0% 2456 3,542 4,427 5,313 6,198 . late: calculated using 10% discount mt< TAp 9 ADVISORS AA EFTA_R1_02095957 EFTA02705513 Developing Markets Wireless License Proxy • GB's business model is fundamentally a broadband play which is much more analogous to the terrestrial wireless business model rather than the traditional FSS business model — Traditional FSS uses wide coverage beams (often encompassing entire continents) thereby broadcasting identical information to a wide geographic footprint (perfect for some applications, such as DTH video) — GB's business model uses many small spot beams each carrying unique data which is well suited for broadband service - Therefore, can use terrestrial spectrum valuations to provide a proxy for the value of satellite spectrum • Industry standard practice is to value spectrum on a MHzPOP basis in order to account for amount of spectrum and size/density of coverage area • Valuation metric needs to be adjusted for varying economic and technical qualities of the spectrum — Terrestrial spectrum, under optional conditions, can theoretically reach spectral efficiencies of 30 bits/Hz, although real world values are closer to 1-7 bits/Hz - GB's first generation constellation will have a spectral efficiency of 1.2 bits/Hz - (Satellite networks can achieve 2x the frequency reuse of terrestrial networks by implementing dual-polarization frequency reuse, which is difficult to implement in terrestrial networks] - this has not been reflected in the valuation analysis - The build-out costs for terrestrial networks, on a per covered POP basis, are orders of magnitude higher than for satellite networks - this has not been reflected in the valuation analysis Average Price/MHzPOPM $0.12 Illustrative Comparison of Build-Out Off\ Median 0.08 Build-Out Population Implied CapEx Coverage On m Cost/POI' Global Bit Spectrum Spectrum (MHz) Myanmar (Ooredoo) $15,000 56 $269.08 2,050 US. (AT&T Wireless) 65,952(3) 319 206.81 Population (mm) 7,046 MHzPOP (mm) US. (Industry Estimate)ta) 3,750 319 11.76 14,444,300 Global (Global Bit) 3,210 7,046 0.46 Wireless Spectral Efficiency 30.00 Global Bit Spectral Efficiency 120 Efficiency Factor 0.04 Adjusted MHzPOP (mm) 577,772 Median Price/ MHzPOP 0.08 GB Spectrum Value ($mm) $45,319 (1) Excludes top 4 and bottom 4 auction results; see Appendix for full dataset (2) Source: http://online.wstcom/news/articles/SB10001424052702303743604579352310122552966 (3) AT&T disclosures indicate that 24% of its PP&E (of 4275bn) is related to the wireless business TAP ADVISORS sA (4) Industry insider/expert estimate for de novo spectrum build out I0 EFTA_R1_02095958 EFTA02705514  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'