Windstream Q3 2010 Earnings Call Transcript

Windstream (WIN)

Q3 2010 Earnings Call

November 04, 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

Christopher King - Stifel, Nicolaus & Co., Inc.

Batya Levi - UBS Investment Bank

Scott Goldman - Bear Stearns

David Barden

Presentation

Operator

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Previous Statements by WIN
» Windstream Q2 2010 Earnings Call Transcript
» Windstream Q1 2010 Earnings Call Transcript
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Good day, ladies and gentlemen. Welcome to the Q3 2010 Windstream Communications Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Rob Clancy, Senior Vice President and Treasurer. Please begin.

Robert Clancy

Thank you, Latoya, and good morning, everyone. Appreciate you joining us today. Today's conference call was preceded by our third 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 describe 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 noncash pension expense, stock compensation expense and restructuring charges.

Additionally, expected free cash flow is defined as adjusted OIBDA, excluding merger and integration expense less cash interest, cash taxes, capital expenditures and pension contributions. And it’s presented on an actual basis to reflect the NuVox and Iowa results from the data which we acquired those businesses.

Again, we refer you to the IR 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.

We have provided our pro forma results from current businesses, which include D&E, Lexcom, NuVox and Iowa, and exclude our former supply businesses for all periods shown. In addition, we reclassified some minor expense items between cost of service and SG&A and have adjusted to prior periods accordingly. We will make references to these pro forma results from current businesses, 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 a few comments about our third quarter results and provide an update on our strategic initiative. Brent will then discuss our operating results, and Tony will review our financial performance.

First, I'm very pleased with our third quarter results. We are executing well on all front. Our integration efforts are proceeding as planned, and we are right on track to meet the financial goals that we set forth earlier this year. Importantly, our strategy to improve our revenue mix with an emphasis on broadband and business continues to yield improving revenue trends in both our business and consumer channels.

In fact, during the third quarter, business revenues grew 1% year-over-year, and consumer revenues declined 3% year-over-year. Both are significant improvements in our year-over-year trend. In total, revenues declined 1.5% year-over-year, our lowest decline rate in several years.

These revenue improvement, combined with deal synergies and other cost savings initiatives led to adjusted OIBDA growth despite higher weather-related costs that we incurred in the quarter. The continuing improvements in our financial trends illustrate our successful strategy to transform this business and sustain cash flows.

Turning to the strategic front. This morning, we announced the acquisition of Hosted Solutions for $310 million in cash. Hosted Solutions is a leading regional data center provider, focused on co-location, managed services and cloud computing, with a history of significant revenue and OIBDA growth. This acquisition will significantly increase the scale and scope of Windstream's existing data center business by adding five best-in-class data centers in attractive, high-growth markets and further builds on our strategy to expand our business service offerings.

Importantly, we also obtained a very experienced management team and a platform for future growth. With these five data centers, Windstream will now operate 12 data centers, including one related to our Q-Comm transaction. The Hosted Solutions transaction is accretive to free cash flow per share in year one after realization of synergies.

In addition, Windstream will be able to fully amortized the purchase price goodwill over 15 years, resulting in tax benefits within expected net present value of $52 million. We expect this transaction to close before the end of the year, and we plan to finance it with cash and revolver borrowing.

During the third quarter, we also announced plans to acquire Q-Comm, the parent of Kentucky Data Link or KDL, a regional fiber transport provider in 22 states, and Norlight, a competitive local exchange carrier, primarily serving the Midwest.

KDL's fiber network is highly complementary to our markets and more than doubles Windstream's existing fiber footprint by adding over 30,000 contiguous fiber route miles, which will enhance Windstream's network capabilities and expand our growth opportunities, particularly as it relates to transport services for wireless carriers.

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