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Qwest Communications International Inc. (Q)

Q4 2009 Earnings Call

February 16, 2010 9:00 am ET


Kurt Fawkes – SVP, IR

Ed Mueller – Chairman and CEO

Teresa Taylor – COO

Joe Euteneuer – EVP and CFO


Michael Rollins – Citigroup

Analyst for Mike McCormack – J.P. Morgan

John Hodulik – UBS

Chris Larsen – Piper Jaffray

David Barden – Merrill Lynch

Simon Flannery – Morgan Stanley

Brett Feldman – Deutsche Bank

Vijay Jayant – Barclays Capital

Peter Rhamey – BMO Capital Markets

David Coleman – RBC Capital Markets

Todd Rethemeier – Hudson Square

Analyst for Frank Louthan – Raymond James



Welcome everyone to the Qwest conference call. All lines have been placed on mute to prevent background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator instructions) Mr. Fawkes, you may begin your conference.

Kurt Fawkes

Thank you. Good morning everybody. Welcome to our call. We appreciate your interest in Qwest. I am joined by Ed Mueller, our Chairman and CEO; Teresa Taylor, our COO; and Joe Euteneuer, our CFO.

We will begin today's call with a few comments on the quarter from Ed Mueller. Teresa will provide a review of business unit results. Joe will conclude our prepared remarks with the discussion of our consolidated financial results and the 2010 outlook. We will then open it up to your questions.

As we begin our call, let me point you to slide three and remind everyone that today's discussion contains forward-looking statements. These statements are subject to significant risk and uncertainties. These risks and uncertainties are discussed in detail in our periodic filings with the SEC and I strongly encourage you to thoroughly review them. Additionally, we do not adopt analyst estimates nor do we necessarily commit to updating forward-looking statements that we are going to be making this morning.

Also, let me mention 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. A full reconciliation of these measures is available on our Web site.

Moving on to slide four, earnings per share for the quarter was $0.06 compared to $0.10 in the fourth quarter of 2008. Current quarter earnings includes a $0.02 charge for severance costs. The year-ago period includes a $0.01 charge for severance. Full year reported earnings per share for 2009 was $0.38 and that compares to $0.37 for 2008. One-time charges for severance and litigation in 2009 netted to zero. The prior year includes net charges of $0.03 per share from a combination of severance, realignment litigation and property tax settlements.

In addition to these adjustments, 2009 reported earnings have been impacted by dilution from incremental noncash pension and OPEB expense. In the current quarter this dilution was $0.02 per share and the full year impact was $0.07.

With that I am going to turn it over to Ed.

Ed Mueller

Thanks Kurt and good morning everyone and thank you for joining us today. I want to begin by saying we were very pleased with our financial performance for both the quarter and for the full year. Under challenging economic conditions and competitive pressures we delivered strong cash flows, improved margins and we made great progress on several key initiatives to drive long-term shareholder value.

Throughout the course of 2009 we delivered solid growth in our strategic revenues and we are pleased with the increasing margins for these services. Our business markets group had very good relative performance in the fourth quarter and throughout 2009. As far as our overall revenues we would have liked to have reported better growth. However, I would point out that in addition to the tough economy our reported revenues were also impacted by our initiatives to improve profitability. These include our move to a new wireless business model which accounted for 30% of our revenue decline and the elimination of poor margin, wholesale long distance revenue. While these initiatives will continue to impact our reported comparisons for the next couple of quarters we should have easier comps in the second half of the year.

Our efforts to improve margins was another area where we had strong success in 2009. For the full year our adjusted EBITDA margin was at its best level since the merger with U.S. West in 2000. Adjusted free cash flow generated for the year was also at its highest level since the merger. Our performance continues to demonstrate our initiatives are working and we are carrying this momentum into 2010.

In the fourth quarter we improved our revenue mix and continued to transition away from a legacy revenue base. This transition is supported by our state of the art nationwide network. This is a tremendous asset that delivers best in class services to businesses and government agencies throughout the country and supports all of our fiber deployment strategies. Much of our margin improvement in 2009 was from these services and we remain focused on leveraging growth from this asset.

Over the course of the year we continued to make progress in enhancing our market position by delivering on simplified, integrated solutions, improving partnerships and expanding broadband capabilities. Midyear we announced a five year extension to our strategic partnership with DIRECTV. In addition we jointly launched a new suite of integrated services to maximize the combination of DIRECTV and Qwest High Speed Internet.

We have also made progress on our wireless partnership and in the fourth quarter we concluded a very successful transition to the Verizon wireless reseller model. Finally, we continue to deploy fiber to the node reaching more than 3.5 million homes at year-end and serving 420,000 subscribers. Our broadband initiatives remain a top priority as we look to 2010. We have had some early success in marketing our fiber to the cell side product and we expect to build on this momentum in 2010.

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