www.arbinet.com © Copyright 2006 Arbinet-thexchange, Inc. All Rights Reserved. |
www.arbinet.com 1 This presentation contains forward-looking statements regarding Arbinet’s strategic, operating and marketing plans, anticipated future revenues, growth, capital expenditures, management’s future expansion plans, and expected product and service developments or enhancements. Such forward- looking statements may be identified by the use of the following words (among others): “believes,” “expects,” “may,” “will,” “plan,” “should” or “anticipates,” or comparable words and their negatives. These forward-looking statements are not guarantees but are subject to risks and uncertainties that could cause actual results to differ materially from the expectations contained in these statements, including risks associated with Arbinet’s business, such as, for example, Arbinet’s revenue growth; members (in particular, significant trading members) not trading on our exchange or utilizing our new and additional services (including data on thexchange services, mobile on thexchange services, DirectAxcess SM trading service, PrivateExchange SM service, VoIP PeeringSolutions SM , and AssuredRouting SM service); continued volatility in the volume and mix of trading activity (including the average call duration and the mix of geographic markets traded); our uncertain and long member enrollment cycle; the failure to manage our credit risk; failure to manage our growth; pricing pressure; competitive factors; system failures, human error and security breaches, which could cause Arbinet to lose members and expose it to liability; future government regulation; and Arbinet’s ability to obtain and enforce patent protection for our methods and technologies. Additional information concerning these factors is available in Arbinet’s Annual Report on Form 10-K and other filings we make with the Securities and Exchange Commission. Arbinet assumes no obligation to update any forward-looking statements contained in this presentation in the event of changing circumstances or otherwise, and such statements are current only as of the date they are made. Safe Harbor Statement |
www.arbinet.com 2 Important Additional Information Arbinet filed a definitive proxy statement with the Securities and Exchange Commission on May 3, 2006 in connection with our 2006 annual meeting of stockholders (the “Proxy Statement”), which was mailed to Arbinet stockholders on or about May 3, 2006. The Proxy Statement contains important information about Arbinet, the annual meeting and related matters. Investors and stockholders will be able to obtain free copies of the Proxy Statement and other documents filed with the Securities and Exchange Commission by Arbinet through the web site maintained by the Securities and Exchange Commission at www.sec.gov. The Proxy Statement and these other documents may also be obtained free of charge by contacting Innisfree M&A Incorporated, the firm assisting Arbinet in the solicitation of proxies, toll-free at (888) 750-5834. Arbinet and its directors and officers may be deemed to be participants in the solicitation of proxies in respect of the transactions contemplated by the Proxy Statement. Information regarding Arbinet’s directors and officers is contained in Arbinet’s Annual Report on Form 10-K for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on March 14, 2006, and in the Proxy Statement. INVESTORS AND STOCKHOLDERS ARE URGED TO READ THE PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY CONTAIN, OR WILL CONTAIN, IMPORTANT INFORMATION. |
www.arbinet.com 3 Today’s Discussion We are implementing growth initiatives that build on Arbinet’s strong asset base and will enable us to enhance stockholder value Arbinet is the leader in the exchange of digital communications The current board is the right board to continue executing on Arbinet’s strategic plan |
www.arbinet.com 4 Growth Strategy |
www.arbinet.com 5 Arbinet’s Vision Voice Exchange Managed Services VoIP Peering Other Digital Goods First market Market leader Industry’s low cost platform Funds new opportunities Non-spot Provides access to low cost platform Solves member cost issues VoIP adoption at origination Addresses complexities w/ VoIP-VoIP Provides routing and settlement Fragmented buyers / sellers Examples: Media Advertising Content ROUTE SETTLE BUY/SELL |
www.arbinet.com 6 Arbinet Has Built a Strong Set of Assets Market Leadership 428 voice members as of March 31, 2006 Top 10 international carriers 12 billion minutes were bought and sold in 2005 Global footprint Platform Powerful, low-cost transaction management platform Foundation of world's leading electronic market for trading, routing, and settling voice capacity Manages entire transaction (trade, route, settle) 33 patents Financial Scalable financial model High operating leverage; $10M in free cash flow in 2005 Strong balance sheet |
www.arbinet.com 7 Sustained Track Record Since Product Launch in 2000 2001 2002 2003 2004 2005 $20.9 $11.6 $6.4 $2.0 ($31.6) Net Cash Provided by Operating Activities ($Ms) $48.8 $44.7 $34.0 $23.4 $10.2 Fee Revenue ($M) 399 360 285 210 170 Members 11.9 10.5 7.9 5.0 1.8 Minutes (billions) |
www.arbinet.com 8 Current Business Review 2005 Accomplishments 12B minutes traded 10% fee revenue growth $6.5M in Adjusted Net Income, one of most profitable years ever $10M freecash generated VoIP grew 60% Challenges Industry Challenges Industry prices and margins continued to decline Carriers moved traffic across channels in search of margin Arbinet Volatility in mix of markets Revenue growth slowed Industry challenges driving opportunity for new products and services that can help carriers reduce costs |
www.arbinet.com 9 Convergence Creates Opportunities for Arbinet Fixed Line Flat to declining revenues Fragmentation continues VoIP Cable Internet Portal Mobile Lines blurring between mobile/fixed and voice/data, creating need for future services that enable mobile, fixed-line, data and content providers to efficiently connect and transact Strong retail revenue growth Voice Data Content ARPU declines Voice ARPU decline Mobile data to offset decline Advertising driving mobile models |
www.arbinet.com 10 Our Plan to Accelerate Growth is Underway 2005 2006 2007+ New Products / Services New Verticals Work with members to define Address members’ high cost structures Extend functionality Revenue Ramp Launch New Products PrivateExchange AssuredRouting Sign customers Revenues begin VoIP Peering Begin building VoIP PeeringSolutions Solves complexity of VoIP-VoIP routing Continue to grow with market Revenue Ramp Launch VoIP PeeringSolutions Sign customers Begin to grow with market Define criteria for new verticals Begin to assess new verticals Launch new verticals for other digital goods Build business plans for new verticals |
www.arbinet.com 11 New Products and Services Address Industry Challenges Spot Market 4-5% market share Dynamic market; No guaranteed delivery Industry's low-cost platform Solution for wholesale traffic Other Needs Why Arbinet Low cost solutions to help reduce costs Managed services Assured call delivery, especially for new segments PrivateExchange SM : Direct commercial relationships via low- cost platform (including settlement options) AssuredRouting SM : Higher assurance on call completion; Supports growth from existing and new segments Solutions for retail traffic |
www.arbinet.com 12 VoIP Peering Solves Complexity Created by VoIP-VoIP Today VoIP-VoIP calls routed via PSTN Costly Quality Degradation VoIP Providers compete with owners of PSTN Requirements Why Arbinet Number Resolution (ENUM) Call Routing Trusted 3 rd Party Scalability Settlement Options Neutral & Trusted Scalable Platform End-to-End Solution PSTN Call Routing for non-VoIP Calls Multiple Settlement Options |
www.arbinet.com 13 New Verticals Significantly Expand Growth Opportunities Our platform enables buying, selling and settlement not only of voice minutes, but other digital goods Characteristics of potential future markets: - Digital goods - Fragmented marketplaces - Leverage our platform and intellectual property - High market growth potential Potential Opportunities: digital media, advertising, and certain mobile content markets Possible area for acquisition |
www.arbinet.com 14 Investing in Growth $2M - 4M in 2006 Determine verticals 2007 launch > Business Development > New Verticals Launch platform Grow along with emerging market > Business Development Product Development Sales > VoIP Peering Customer wins Followed by fee revenue growth > Product Development Sales > New Products & Services Expectations 2006 Investment Area |
www.arbinet.com 15 The Arbinet Platform |
www.arbinet.com 16 Without Arbinet • Multiple competing sellers • One-to-one commercial agreements • Expensive and inefficient With Arbinet • One efficient connection to 428 members • Helps effectively manage increasing complexity Arbinet’s Efficient and Cost Effective Solution Trade Trade Route Route Settle Settle US Carrier Indian Carrier |
www.arbinet.com 17 Compelling Economics for Members Interconnection Interconnection Time / Capital Time / Capital Operating Costs Operating Costs Settlement Settlement Arbinet Arbinet Legacy Process Legacy Process One-to-one Negotiated/Customized Cost increase with industry complexity One-to-428 Standardized Efficient way to manage increasing complexity 6-8 months Modest 2 weeks Typically zero High SG&A Manually intensive Low SG&A Automated 60-90 day cycle 3-6% Disputes/Bad Debt 30 day cycle No Disputes/Bad Debt |
www.arbinet.com 18 Easy to Use Trading Platform |
www.arbinet.com 19 Global Membership, Includes World’s 10 Largest Carriers |
www.arbinet.com 20 Scale and Liquidity Global reach 428 Members (Q1 ’06) ~3 billion minutes per quarter Competitive Advantage Strong relationships No direct competition Competitors became resellers Intellectual Property 33 patents Positioned to Surmount Market Barriers Arbinet Arbinet Barrier Barrier |
www.arbinet.com 21 Scalable Financial Model Largely fixed cost operating structure Volume based pricing to drive aggregate fee revenue growth High incremental margins Low capital intensity Fee Revenue Breakdown Access Fees Credit Risk Premium Other Service Fees |
www.arbinet.com 22 Strong Balance Sheet ($ in Millions) 31-Mar-06 Current Assets: Cash, Cash Equivalents & Marketable Securities 65.0 $ Total Current Assets 89.0 Total Assets 117.8 Liabilities: Total Current Liabilities 26.6 Total Liabilities 30.4 Total Stockholders' Equity (Deficit) 87.4 Total Liabilities and Stockholder's Equity (Deficit) 117.8 |
www.arbinet.com 23 Arbinet’s Current Board is the Arbinet’s Current Board is the Right Board Right Board |
www.arbinet.com 24 Strong Corporate Governance Practices Arbinet Board is independent: - 5 of 7 directors are independent by NASD standards - Separate Chairman and CEO positions - Independent directors meet in executive sessions without management - Audit, Compensation, Nominating & Corporate Governance committees comprised entirely of independent directors Committees are authorized to engage independent advisors and counsel Board publishes and follows clear, defined corporate governance guidelines Board has complete access to all Arbinet officers and employees Board has track record of listening to stockholders |
www.arbinet.com 25 Arbinet’s Director Nominees: Experienced, Independent, Committed to Value Michael J. Donahue - Group EVP and COO of BearingPoint (’00 – ’05) - Management Partner and member of Board of Directors, KPMG - Helped grow KPMG consulting business from $40M into BearingPoint, a public company with $3.4B in revenue Leo J. Pound - 15+ years leading corporate turnarounds - Principal of Pound Consulting (’00 – Present) - CFO, Marble Crafters (’99 – ’00) - CFO, Jos. H. Stomel & Sons (’95 – ’99) - Successfully restructured $500M wholesaler; Revitalized $25M food processing company |
www.arbinet.com 26 Experienced and Respected Management Team 10+ Booz Allen Hamilton, American Mgmt Systems VP Corporate Development and Treasurer Mike Lemberg 20+ Totality, Exodus, Motorola SVP Sales Scott Blackwell 20+ ePhone, Aleron, Teleglobe, British Telecom Chief Technology Officer Steven Heap 20+ AT&T Broadband, OnTera Broadband, Teleport Chief Information Officer and SVP Operations Peter Sach 20+ Premiere Technologies, Xpedite Systems, MacAndrews & Forbes, KMPG LLP Chief Accounting Officer Peter Pastorelle 20+ Cohen, Pontani, Lieberman & Pavane, AT&T Bell Labs General Counsel & Secretary Chi Eng 15+ MCI, Phoneworks, Worldphone SVP Strategy and Platform Development Bob Barbiere 30+ AT&T Broadband, Teleport, Cox Cable, General Electric President and CEO Curt Hockemeier Name Title Prior Experience Years Arbinet Board has Confidence in Arbinet’s Growth Strategy and in Management’s Ability to Execute on It |
www.arbinet.com 27 Board Made Good Faith Effort to Address Mashinsky’s Concerns Arbinet Announces Q1 2006 Financial Results and Reviews Strategic Initiatives to Improve Growth May 3 Arbinet Again Tries to Reach a Cooperative Solution With Mashinsky/Marmon at Second Meeting April 11 Arbinet Files Preliminary Proxy Materials/Sets Record Date for Annual Meeting April 4 Arbinet Independent Director and CEO Meet With Mashinsky/Marmon at Arbinet’s Request March 28 Arbinet Issues Press Release Reiterating Board’s Focus on Stockholder Value March 22 Mashinsky/Marmon File Preliminary Proxy Materials Seeking Board Seats March 21 Arbinet Announces Full Year and Q4 2005 Financial Results February 16 |
www.arbinet.com 28 The Choice is Clear Clear operational and financial achievements; Sustained track record of long-term growth Plan underway to drive growth Experienced and respected by employees, customers and peers Compensation linked to performance Independent Board with relevant expertise, committed to enhancing value Arbinet’s Board and Management Team Questionable track record at Arbinet and since then No new ideas Mashinsky resigned after failure to deliver results that matched his rhetoric Seeking to award themselves up to 16M options, or approximately 40% of Arbinet, if elected Stated intention to replace entire Board and key members of management could undermine value creation Arbinet Has the Right Team in Place to Grow the Company and Create Value For All Arbinet Stockholders Mashinsky and Marmon |
www.arbinet.com 29 Arbinet is Well-Positioned for Success Leader in the Exchange of Digital Communications - Scalable, proven and efficient platform capable of instantly and accurately routing million of transactions - Solid customer relationships, including the world’s top 10 telecommunications carriers - Global footprint - Strong balance sheet We Are Executing on Our Strategy to Drive Growth and Enhance Value - New products and services - VoIP PeeringSolutions - New Verticals Current Board is the Right Board - Proven results v. Mashinsky’s failures to deliver on his promises - Board and director nominees are experienced, independent, and committed to value - Board has confidence in Arbinet’s growth strategy and in management’s ability to execute on it |
www.arbinet.com © Copyright 2006 Arbinet-thexchange, Inc. All Rights Reserved. |