Frontier Communications Management Discusses Q4 2011 Results - Earnings Call Transcript

Frontier Communications (FTR)

Q4 2011 Earnings Call

February 16, 2012 4:30 pm ET

Executives

Gregory Lundberg -

Donald R. Shassian - Chief Financial Officer and Executive Vice President

Daniel J. McCarthy - Chief Operating Officer and Executive Vice President

Analysts

Batya Levi - UBS Investment Bank, Research Division

Simon Flannery - Morgan Stanley, Research Division

Philip Cusick - JP Morgan Chase & Co, Research Division

Michael Rollins - Citigroup Inc, Research Division

Scott Goldman - Goldman Sachs Group Inc., Research Division

Kevin Smithen - Macquarie Research

Michael Hodel - Morningstar Inc., Research Division

Frank G. Louthan - Raymond James & Associates, Inc., Research Division

David G. Coleman - RBC Capital Markets, LLC, Research Division

Christopher M. Larsen - Piper Jaffray Companies, Research Division

Presentation

Operator

Compare to:
Previous Statements by FTR
» Frontier Communications' CEO Discusses Q3 2011 Results - Earnings Call Transcript
» Frontier Communications' CEO Discusses Q2 2011 Results - Earnings Call Transcript
» Frontier Communications' CEO Discusses Q1 2011 Results - Earnings Call Transcript

Good day, everyone, and welcome to the Frontier Communications Fourth Quarter 2011 Earnings Results Conference Call. This call is being recorded. At this time, I'd like to turn the conference over to Greg Lundberg. Please go ahead.

Gregory Lundberg

Good afternoon, everyone. Purpose of this call, to discuss the 2011 fourth quarter and full year 2011 results for Frontier Communications. The press release, earnings presentation and supplemental financials are all available in the Investor Relations section of our website, frontier.com.

On today's call are Maggie Wilderotter, Chairman and chief Executive Officer; and Don Shassian, Chief Financial Officer.

During this call, we'll be making certain forward-looking statements. Please review the Safe Harbor language found in our press release and SEC filings. On this call, we'll also be discussing GAAP and non-GAAP financial measures as defined under SEC rules. Reconciliation between GAAP and non-GAAP is provided in our earnings release. Please refer to this material during our discussion.

I'll now turn the call over to Maggie.

Donald R. Shassian

Thank you, Maggie. And thanks to all of you for joining our call today. I'm changing my usual ordering of topics to begin with the focus on liquidity and our balance sheet. Slide 8 illustrates the positive impact that our improving revenues and margins are having on free cash flow.

In 2011, our residual free cash flow after dividends was $359 million. An additional $348 million will be available on an annual basis at the new dividend level, equating to $1.4 billion of cash over the next 4 years, which will help to address $2.2 billion of upcoming debt maturities.

We believe that this is the appropriate time to proactively change our dividend policy to increase our operational and financial flexibility. This excess cash flow from our new dividend policy will significantly improve our leverage ratio.

As shown on Slide 9, our leverage decreased significantly with the acquisition, but has increased slightly each subsequent quarter. We have been monitoring this increase. We currently have $326 million of cash on hand and an undrawn $750 million revolving credit facility that matures in January 2014. We prefer to leave the revolving credit facility undrawn and now expect to meet our principal payments of $94 million in 2012 and $639 million in 2013 with cash on hand and internally generated funds. We also remain opportunistic with regard to the credit market to proactively manage future debt well in advance the maturity as part of our goal of making progress towards our ongoing commitment of 2.5x net leverage.

Let me now turn to a discussion of many of the positive trends delivered in Q4. Slide 10 is an update of our commercial and residential business. Commercial is the majority of our customer revenue. We had a positive 1.7% sequential revenue growth in Q4. This was driven by increased productivity from our new sales force selling services like Ethernet, which is now available in 75% of our markets. It was also driven by sales of customer premise equipment, which helped us engage new customers and increase the corresponding sale of high-value-added network and management services.

On the Residential side, we posted the lowest churn and net customer losses since closing the acquisition with good results in both legacy and acquired. IT net additions were lower as expected, due to systems conversions and the absence of any major promotional activity the quarter. You can see these trends in the key metrics chart on Slide 11.

As expected, broadband and satellite net additions were lower in Q3, due to systems conversions. Although we did see positive growth in FiOS data subscribers for the first time during 2011, we also saw a decline in FiOS video losses. Our overall access line loss rate continued to improve to 8.3% as the acquired properties were at 9.6%, their lowest levels since closing and legacy remained at 5.9% this quarter. These good results are driven in part by lower churn, which improved significantly in the acquired properties in Q4 to 1.6%, a significant improvement and only slightly above legacy Frontier residential churn. As a reminder, residential churn in the acquired properties was over 2% at closing.

On Slide 12, I'd like to make reference to our West Virginia operations, which continues to improve. West Virginia is the indicator of the potential for the rest of Frontier's acquired markets since it has been operating on legacy system since closing.

In Q4 2011, broadband availability in West Virginia was up to 81%. You may recall that West Virginia broadband availability was 68% at closing. The penetration of available homes in West Virginia was 21% at year-end versus 18% at the end of Q3.

As our team sold [ph] into these available homes, total 2011 broadband additions in West Virginia were solidly positive compared to a loss in 2010. Video net additions doubled year-over-year, and customer disconnects were down 27% year-over-year.

Read the rest of this transcript for free on seekingalpha.com