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Qwest Communications International Inc. (Q)
Q2 2009 Earnings Call
July 29, 2009 9:00 am ET
Kurt Fawkes - SVP of IR
Ed Mueller - Chairman and CEO
Tom Richards - COO
Joe Euteneuer - CFO
Simon Flannery - Morgan Stanley
Tim Horan - Oppenheimer
David Barden - Banc of America
John Hodulik - UBS
Jason Armstrong - Goldman Sachs
Michael Rollins - Citi Investment
Mike McCormack - JPMorgan
Peter Rhamey - BMO Capital Markets
Frank Louthan - Raymond James
Previous Statements by Q
» Qwest Communications International Inc. Q3 2009 Earnings Call Transcript
» Qwest Communications International Inc. Q1 2009 Earnings Call Transcript
» Qwest Communications International, Inc. Q4 2008 Earnings Call Transcript
Thank you, Kevin. Good morning, everyone. Welcome to the call this morning. The format this morning will be as follows: Ed Mueller, our CEO and Chairman, is going to summarize our key takeaways and our strategic accomplishments in the quarter. He will be followed by Tom Richards, our COO. Tom will provide segment details on our second quarter results. Then Joe Euteneuer, our CFO is going to cover the details of the balance sheet and overall financial results, and give you an update on our guidance.
Following our comments, we will take some questions that you might have. As we begin our call, let me point to slide three and remind everyone that today's discussion contains forward-looking statements based on the environment as we currently see it, and contains significant risk and uncertainties. We discuss our risk and uncertainties in detail in our filings with the SEC, and I strongly encourage you to review them.
Additionally, we do not adopt analyst estimates nor do we necessarily commit to updating forward-looking statements that we are making this morning. So, let me mention also that in order to supplement the reporting of our consolidated financial information, we will discuss certain non-GAAP financial measures, including adjusted EBITDA, adjusted free cash flow, and net debt. Full reconciliation of these measures is available on our website.
Moving on to slide four, earnings per share for the quarter was $0.12. That a 20% increase from the prior year. EPS performance in the quarter includes a couple of things of note. First, severance costs of $23 million; that's $0.01 per share dilution. We also had a big tax benefit this quarter, and we reported an effective tax rate of 2.3% in the quarter. Finally, I would note the incremental non-cash pension and OPEB expense affected the comparisons year-over-year. We also had a bit of a lower share count this year versus last year, which played into the EPS comparison.
Before I turn it over to Ed, I would like to point out that we are introducing new segment revenue classifications that will be effective with our third quarter reporting. To assist you with this transition, we have provided historical pro forma reporting on these new classifications in the second quarter.
The move to strategic and legacy revenues will allow investors to more closely follow the progress we are making in delivering products designed to meet evolving customer needs, regardless of the technology platform or service delivery. We, of course, are always looking for your feedback, and we welcome your input on how we can continue to enhance transparency and your understanding of our business.
With that, I will turn it over to Ed.
Thanks, Kurt. Good morning, everyone. I appreciate you joining us this morning. I will start out with a few highlights from the quarter, and a brief discussion of the progress we are making on our strategic initiatives. I will then turn it over to Tom and Joe, who will walk you through more details on our results.
In light of market conditions, I believe our results were solid across all segments. We reported adjusted EBITDA of $1.1 billion, which was in line with the year ago period, after factoring in the incremental impact of the non-cash pension and OPEB charges. I think it is noteworthy that we achieved this result even in the face of a 6% decline in revenue, excluding wireless.
We have maintained profitability in the face of challenging top line conditions through diligent cost management, and we will continue to improve productivity and attack the cost drivers of the business. While competitive pressures were a factor in our results, once again, a substantial portion of the revenue decline in the quarter was driven by decisions we have made to improve overall profitability.
Additionally, we continue to see tough macroeconomic conditions impacting our customer base. Regionally, unemployment and personal and business bankruptcies continue to climb at rates in line with national trends, although these varied across our markets. In addition, the housing market is showing very limited signs of recovery, although still well below previous levels.
Adjusted free cash flow for the quarter was $657 million, nearly a $200 million improvement from prior year levels. The biggest contributor to these results were lower capital spending where we remain disciplined, especially in an environment where chasing after the next dollar of revenue can be tempting.
However, that doesn't mean that we are sitting on the sidelines waiting for the tides to change. We continue to invest in strategic initiatives that we believe will open up revenue growth opportunities for us as the economy improves. We have taken a number of key steps to strengthen our competitive position for the long run, and we highlight these actions on slide seven.