Windstream Corporation Q3 2009 Earnings Call Transcript

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Windstream Corporation (WIN)

Q3 2009 Earnings Call

November 9, 2009 8:30 am ET

Executives

Jeff Gardner - President & Chief Executive Officer

Brent Whittington - Executive Vice President & Chief Operating Officer

Tony Thomas - Chief Financial Officer

Rob Clancy - Senior Vice President & Treasurer

Analysts

Simon Flannery – Morgan Stanley

Michael Rollins - Citigroup

Michael Nelson – Soleil Securities

David Barden – Bank of America Merrill Lynch

Mike McCormack – JP Morgan

[Batia Levy] – UBS

Donna Jaegers - D. A. Davidson

[David Shuret] – Barclays Capital

Jason Fraser – Raymond James

Dave Coleman - RBC Capital Markets

Presentation

Operator

Welcome to the Windstream Corporation Third Quarter Earnings Release conference call. (Operator Instructions) I would now like to turn today's call over to Rob Clancy, Senior Vice President and Treasurer.

Rob Clancy

Today's conference call was preceded by our third quarter 2009 earnings release which has been distributed on the news wires 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 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. 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.

In August, Windstream completed the sale of our external supply business. As a reminder, this business was expected to generate approximately $75 million in annual revenues and have virtually no effect on OIBDA in 2009. To assist investors, we have revised our pro forma results from current businesses to exclude the results from the external supply business.

In addition, our pro forma results from current businesses include CT communications, while excluding our former publishing and wireless businesses for all periods. We will make references to these pro forma results from current businesses, including the year-over-year comparison during our call.

Participating in 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

First, let me begin by highlighting a couple of changes we made to our senior leadership team in the quarter. Brent Whittington, formerly Chief Financial Officer, was names Chief Operating Officer and now oversees all of the operating and customer facing functions of the business. Tony Thomas, formerly Controller, was named Chief Financial Officer. These changes enhance our effort to transform this business by sharpening our focus and coordination on sales and service and provide a more efficient reporting structure.

This morning I will make a few comments about our results for the quarter and provide an update on our strategic initiatives. Brent will then discuss our operating results and Tony will review our financial performance.

Overall, I am very pleased with Windstream's performance during the third quarter. We remain focused on improving our operating trends and continue to demonstrate that we can sustain our cash flows despite the top line pressures we are experiencing. Operationally, our marketing efforts and promotions resonated very well resulting in solid broadband customer growth and the lowest absolute access line since we formed the company in 2006.

Turning to the strategic front, we continue to pursue activities that improve our financial profile going forward. Last week we announced the acquisition of NuVox, a leading regional CLEC provider operating in 16 states across the Southeast and Midwest. NuVox is a well run company that has been growing revenues and improving margins, and they are a great geographical fit for Windstream with operations in attractive Tier 2 and Tier 3 cities adjacent to many of our ILEC properties.

This transaction significantly advances our strategy to grow broadband and business revenues, which is important given the growth prospects in these areas. In fact, on a pro forma basis our broadband and business revenues will now account for more than half of our total revenues which should position us well going forward.

Importantly, this transaction is free cash flow accretive in year one as we expect to realize roughly $30 million in annual operating and capital expense savings. We expect this transaction to close in the first half of 2010 and at this time plan to finance the cash portion of the deal with cash on hand and revolver borrowings. Finally, this transaction allows us to maintain flexibility and a solid balance sheet as the deal will be leverage neutral to slightly deleveraging.

Also during the third quarter we announced the acquisition of Lexcom Communications, which is a nice strategic fit being adjacent to our Windstream properties in North Carolina. We expect Lexcom to close by the end of the year. And again, this deal is free cash flow accretive in year one as we expect to realize roughly $5 million in annual operating and capital expenditure savings.

Last week the Pennsylvania PUC approved our transaction with D&E Communications and we expect this deal to close tomorrow. We recently took advantage of very good credit markets and raised $400 million in a note offering to fund the cash needs for both the D&E and Lexcom deals. We also amended and extended our credit facility, which resulted in a significant portion of our bank debt maturities getting extended for two years, which provides us greater flexibility in the future.

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