PAETEC Holding Corp. Q2 2010 Earnings Call Transcript

PAETEC Holding Corp. Q2 2010 Earnings Call Transcript
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PAETEC Holding Corp. (PAET)

Q2 2010 Earnings Call Transcript

August 05, 2010 09:30 am

Executives

Chris Muller - IR

Arunas Chesonis - Chairman & CEO

Keith Wilson - CFO, EVP & Treasurer

Analysts

Frank Louthan - Raymond James

Colby Synesael - Cowen & Co

Donna Jaegers - D.A. Davidson

Donna Jaegers - D.A. Davidson & Co

David Dixon - FBR Capital Markets

Edward Katz - Morgan Stanley

Matt Swope - Gleacher

Presentation

Operator

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Previous Statements by PAET
» PAETEC Holding Corp. Q1 2010 Earnings Call Transcript
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» PAETEC Holding Corp. Q3 2009 Earnings Conference Call

Good day ladies and gentlemen and welcome to the second quarter 2010 PAETEC Holding’s Conference call. My name is Katie and I’ll be your coordinator for today. At this time, all participants will be in a listen-only mode. We will be conducting a question-and-answer session towards the end of the conference. (Operator Instructions)

I would now like to hand the call over to Chris Muller. Please proceed.

Chris Muller

Thanks, Katie. Good morning everyone and welcome to PAETEC’S second quarter 2010 earnings call. With me on today’s call are Chairman and CEO Arunas Chesonis and Chief Financial Officer Keith Wilson. Following our prepared remarks we will then conduct the Q&A session.

Before we get started I need to remind everyone that in our remarks today we'll be making some forward-looking statements about our expected operating results and financial position, our business strategy and other matters relating to our business. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual operating results, financial position or performance to be materially different from those we express or imply in our forward-looking statements.

We have highlighted some of the more important risks and uncertainties in our earnings release. For a more detailed discussion, please refer to PAETEC'S 10-K for 2009 fiscal year and our other filings with the SEC. We disclaim any obligation to update any of our forward-looking statements.

Please note that in today's call, we will be referring to certain non-GAAP financial measures. These measures are reconciled to the most comparable GAAP measures in our press release and supplemental information, which have been posted on the Investor Relations portion of our website at paetec.com.

Finally, now that we've got the Safe Harbor formalities out of the way, please note that we have posted on the Investor Relations portion of our website, a supplemental presentation that will be discussed on this call regarding PAETEC'S operating metrics.

With that, I'd like to now turn the call over to PAETEC's Chairman and CEO, Arunas Chesonis.

Arunas Chesonis

Thank you Chris, good morning everyone. PAETEC closed with a solid second quarter with higher revenues than the previous quarter driven by increases in both our enterprise and core carrier services customer segments. Our financial situation remains very strong with our 30th consecutive quarter of positive free cash flow, strong cash position and overall liquidity, healthy balance sheet and debt maturities pushed out well into the future.

In addition, we purchased over 1.1 million shares during the second quarter as part of our ongoing stock repurchase program. We are also reaffirming our full year 2010 guidance on this call.

But I think the real story for the quarter is the progress we are making on our sales force expansion, new sales bookings, integration activities and acquisition program. We are on schedule with our planned salesforce expansion and we increased our total direct sales headcount from 401 to 445 professionals during the quarter.

Much of our focus has been on our MAE or major account executive positions which are focusing on customers that spent from $25,000 to $250,000 per month. Approximately 60% of our MAEs are over 90% of their quotas year to date.

Our percentage of new sales generated by account spending more than $2500 per month continues to increase and was over 56% for the second quarter. We achieved our best sales quarter ever in the history of the company which resulted in the 5% increase over first quarter 2010 for the direct and agent channels. Our carrier services group posted a 28% increase in new sales sequentially as well.

The east region also had its best quarter ever and the west and south regions also posted sequential improvements of 30% and 9% over the first quarter for their new sales. The central region sales were essentially flat over the second quarter of 2009 and we are still confident about the ongoing opportunity there.

As we discussed at our Investor Day in New York city this past May we have expanded our national accounts program from 45 to approximately 100 customers and we will be doubling the sales force to 15 by the end of the year.

We will continue to reports its sales results separately from the regions each year, during our annual investor sessions. Sales for our national account group increased over 6% from the first quarter. Two of the factors helping to generate these sales results have been the customer enthusiasm and adoption of our IP Simple and Dynamic IP product bundles, both achieved national recognition in this quarter with industry awards and drive results for all sizes of customers and for all sales people in the direct and agent channels.

We were extremely busy during second quarter with respect to integration activities as well. In our IT group we finished the last major piece of our US LEC like merger integration with the Kenan billing conversion which took place during Memorial Day weekend. We will now focus more attention on the legacy McLeodUSA billing system conversion which will take place during 2011.

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