Frontier Communications Corporation (FTR)
Q2 2010 Earnings Call Transcript
August 4, 2010 9:00 am ET
Greg Lundberg – Director, IR
Maggie Wilderotter – Chairman and CEO
Don Shassian – EVP and CFO
Frank Louthan – Raymond James
Batya Levi – UBS
Michael Rollins – Citi Investment Research
Jason Armstrong – Goldman Sachs
Chris King – Stifel Nicolaus
Simon Flannery – Morgan Stanley
David Barden – Bank of America/Merrill Lynch
David Coleman – RBC Capital Markets
Previous Statements by FTR
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Good day, everyone and welcome to the Frontier Communications second quarter 2010 results conference call. As a reminder, this call is being recorded. At this time, I would like to turn the call over to Mr. Gregory Lundberg. Please go ahead, sir.
Thank you, Doris. Good morning, everyone. The purpose of this call is to discuss the 2010 second quarter results for Frontier Communications which were released this morning and are available on our Web site. If anyone needs a copy of the materials, please contact Lisa Lombardo at 203-614-5064. We anticipate the Form 10-Q will be filed later this week.
On today’s call are Maggie Wilderotter, Chairman and Chief Executive Officer; Don Shassian, Chief Financial Officer and David Whitehouse, Treasurer.
During this call, we will be making certain forward-looking statements, in particular on matters related to 2010 results and estimates. Please review the Safe Harbor language found in our press release and SEC filings.
On this call, we will also be discussing GAAP and non-GAAP financial measures as defined under SEC rules. In our earnings release and on our Web site, frontier.com, we have provided a reconciliation of non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. Please refer to this material during our discussion.
I will now turn the call over to Maggie.
Thank you, Greg, and good morning, everyone. I appreciate you joining our call today to discuss second quarter 2010 results for Frontier Communications Corporation. I’ll begin with a review of our second quarter followed by an update of our Verizon acquisition, which closed July 1. Please note that this is the last quarter that we will be discussing the financial results of the legacy Frontier business. In early November we will begin reporting third quarter financials as the New Frontier, which includes both legacy and new operations.
Our second quarter 2010 results are a solid transition to our focus on the large opportunity in the new property. Frontier’s revenues were $516 million and adjusted operating cash flow or EBITDA was $279 million, which represents an industry leading 54% margin. Frontier generated free cash flow of $134 million in the second quarter and paid 58% of this to our shareholders as dividends.
Frontier’s results this quarter show the stability and profitability of our business, even during a period without major promotions and with many of our employees actively preparing for the closing and integration of the Verizon acquisition.
I am proud of our employees’ focus on the goal of keeping Frontier number 1 with our customers. This was reflected in a revenue decline of just 3% year-over-year, which is the third straight quarter of an improved revenue loss rate, and is the lowest level since the second quarter of 2008.
Our success in driving and managing each product line to maximize profitability, and we are constantly selling additional products to our customers.
In residential, Frontier posted sequential revenue growth and a 4.7% year-over-year increase in average monthly revenue per customer to $60. Our sales force drove these results in a competitive market by driving incremental revenue share with each customer, with a constant focus on bundled services. We did not lower pricing to drive growth, and our customer base remains high quality with low 1.4% churn and 60% of our residential customers on price protection plans.
High-Speed Internet net additions were 3,400 units, lower than historical levels. This reflected reduced promotional activity driven by information technology and billing system limitations in preparation for the Verizon transaction.
Nevertheless, high-speed churn remained at a low 1.5%, average revenue per user remained stable at approximately $40, and residential High-Speed Internet subscribers on price protection plans grew to more than 80%.
This focus on profitability and quality growth as opposed to market share achieved through low pricing and high churn continues to have positive impact on Frontier’s bottom line. More importantly, it places a higher value component on broadband by our customers. We expect to positively impact our high-speed business through increasing the availability of higher speed tiers with a focus on three meg to six meg.
I want to add that we offer 20 megs service in many markets today, and industry equipment providers are now testing 300 megabits per second DSL services. Our customers and networks have a fast future.
In commercial, which is 49% of our customer revenue, the Q2 results show the positive impact of our efforts in this segment. Our revenues were up 2% sequentially, the first increase in more than a year, and revenues were down only 1% year-over-year, the lowest decline in over a year.
Monthly average revenue per business customer grew 6.1% year-over-year to $518. The increased size and focus of our sales team is driving these results across the carrier, enterprise and small business segment.
Some notable wins during the quarter include, Internet access and a wide area network for 13 institutions in the Association of Independent Colleges and Universities in Pennsylvania, advanced IP switching deployment for the distance learning company, Penn Foster, in 63 sites, VoIP system installations for school districts in Georgia, Minnesota and Arizona, hi-speed capacity fiber data transmission networks for several enterprise accounts in the Greater Rochester, New York market.