Windstream Q2 2010 Earnings Call Transcript

Windstream Q2 2010 Earnings Call Transcript
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Windstream (WIN)

Q2 2010 Earnings Call

August 05, 2010 8:30 am ET

Executives

Brent Whittington - Chief Operating Officer

Robert Clancy - Senior Vice President of Investor Relations and Treasurer

Jeff Gardner - Chief Executive Officer, President and Director

Anthony Thomas - Chief Financial Officer

Analysts

Donna Jaegers - D.A. Davidson & Co.

Daniel Gaviria - Morgan Stanley

Batya Levi - UBS Investment Bank

Jason Fraser - Raymond James

Michael Rollins - Citigroup Inc

Scott Goldman - Bear Stearns

David Barden

David Coleman - RBC Capital Markets Corporation

Presentation

Operator

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Previous Statements by WIN
» Windstream Q1 2010 Earnings Call Transcript
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Good day, ladies and gentlemen, and welcome to the Second Quarter 2010 Windstream Communications Earnings Conference Call. [Operator Instructions] And now I would like to turn the conference over to our host, Mr. Rob Clancy. Sir, you may begin.

Robert Clancy

Thank you, Sharon, and good afternoon, everyone. Thanks for joining us this morning. Today's conference call was preceded by our second quarter 2010 earnings release, which has been distributed on the newswires and is available from the Investor Relations section of our website. Today's conference call should be considered together with our earnings release and related financial information.

Today's discussion will include certain forward-looking statements, particularly as they pertain to guidance and other outlooks on our business. Please review the Safe Harbor language found in our press release and in our SEC filings, which describes factors that could cause our actual results to differ materially from those projected by us in our forward-looking statements. Today's discussion will also include certain non-GAAP financial measures. These terms will include OIBDA, which is operating income before depreciation and amortization, and adjusted OIBDA, which excludes non-cash pension expense, stock compensation expense and restructuring charges. Additionally, adjusted free cash flow is defined as adjusted OIBDA, excluding merger and integration expense, cash interest, cash taxes and CapEx. And it’s presented on an actual basis to reflect the NuVox and Iowa results from the date on which we acquired those businesses. Again, we refer you to the Investor Relations section of our website where we have posted our earnings release and supplemental materials, which contain information and reconciliations for any non-GAAP financial measures.

On June 1, Windstream completed the acquisition of Iowa Telecom. Our pro forma results include the results of Iowa Telecom for all periods shown, and also include D&E Communications, Lexcom and NuVox, and exclude our former non-affiliate Product Distribution business. We will make references to these pro forma results, including the year-over-year comparisons, during our call.

Participating on our call this morning are Jeff Gardner, Windstream President and Chief Executive Officer; Brent Whittington, Windstream Executive Vice President and Chief Operating Officer; and Tony Thomas, Windstream Chief Financial Officer. At the end of the call, we will take a few questions.

With that, here is Jeff Gardner.

Jeff Gardner

Thank you, Rob, and good morning everyone. This morning, I will make up a few comments about our performance and provide an update on our strategic initiatives. Brent will discuss our operating results and Tony will review the financial performance.

First, I am very pleased with the second quarter results. Our business is performing very well despite the economic conditions, and we are on track to meet the operating and financial goals we set forth earlier this year. Our innovative marketing strategies, including our Price For Life bundles, have been well-received by consumers and small business customers alike, and are yielding continued improvement in our Access line trends, which are already the best in the industry.

The integrations are all on track and should be essentially complete over the next few months, yielding synergies, incremental synergies, in the back half of this year.

During the second quarter, we completed the Iowa Telecom acquisition, gaining approximately 247,000 Access lines and 96,000 high-speed Internet customers in Iowa and Minnesota. This transaction adds very attractive and well-run rural markets to our footprint and provides an opportunity to grow our free cash flow. In fact, we are updating our full year 2010 guidance as a result of the Iowa deal. And importantly, we are increasing our adjusted free cash flow guidance to $770 million to $810 million, which results in a lower expected dividend payout ratio of 57% to 60% for this year, as compared to our initial view of 59% to 65%. Tony will provide the details of our updated guidance shortly.

Turning to the regulatory front. We continue to share the core goal of making broadband available to everyone. Today, Windstream has deployed broadband Internet access to almost 90% of our current Voice customer base. Earlier this year, we applied to the Rural Utilities Service for $264 million in Round Two Stimulus funding, which includes three applications from Iowa. If received, this would extend our broadband availability to roughly 93%, as well as enhance broadband speeds in underserved areas. Importantly, we were recently notified by the RUS that eight of our 33 applications have been approved, amounting to roughly $67 million in grants. These eight applications also require us to invest an incremental $22 million, or 25% of the expected total cost.

Our remaining 25 applications are still under evaluation by the agency, and we expect to hear whether we will receive additional funding by September 30. We look forward to finalizing these arrangements so that we can proceed with our plans to expand broadband within our rural communities.

Additionally, we support universal service reform that would direct funds more equitably and rationally across all of rural America, and we believe that the National Broadband Plan can address these issues with effective reform of universal service and intercarrier compensation over a manageable transition period.

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