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Qwest Communications International Inc. (Q)

Q3 2009 Earnings Call Transcript

October 28, 2009 9:00 am ET

Executives

Kurt Fawkes – SVP, IR

Ed Mueller – Chairman and CEO

Teresa Taylor – COO

Joe Euteneuer – EVP and CFO

Analysts

Mike McCormack – J.P. Morgan

John Hodulik – UBS

Michael Rollins – Citigroup

Simon Flannery – Morgan Stanley

David Barden – Merrill Lynch

Jason Armstrong – Goldman Sachs

Tim Horan – Oppenheimer

Frank Louthan – Raymond James

Peter Rhamey – BMO Capital Markets

Todd Rethemeier – Hudson Square

Chris Larsen – Piper Jaffray

Presentation

Operator

Good morning. My name is Kevin, and I'll be your conference operator today. At this time, I would like to 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 call.

Kurt Fawkes

Okay. Thank you, Kevin. Good morning. Welcome, everyone, to Qwest third quarter 2009 earnings conference call. Today I'm 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, followed by a review of segment results from Teresa. Joe will conclude our prepared remarks with the discussion of our consolidated results and 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 making here. 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 $0.08, which was equal to our reported EPS in the third quarter of 2008. Third quarter earnings include a $0.01 charge for litigation and severance costs. The year-ago period included a $0.01 charge for severance.

Our reported year-to-date earnings per share for 2009 is $0.32. This includes a net benefit of $0.02 per share from a combination of severance, litigation, and income tax settlements. So reported earnings less the adjustments is $0.30.

Through the third quarter of 2008, reported earnings with adjustments was also $0.30. Beyond these adjustments, throughout 2009, our reported earnings have been impacted by dilution from incremental non-cash pension and OPEB expense. In the current quarter, this dilution was $0.02 per share, and the year-to-date impact is $0.06.

Now with that, I'm going to turn it over to Ed.

Ed Mueller

Thanks, Kurt. Good morning, everyone. And thank you for joining us today. I'd like to begin by saying we're very pleased with our financial performance in the quarter. Under challenging economic conditions and competitive pressures, we delivered solid adjusted EBITDA and adjusted free cash flow. I think it's particularly noteworthy that we held adjusted EBITDA flat with the year-ago period despite 5% dilution from incremental pension and OPEB expenses.

In the quarter, solid growth from the strategic revenue and strong cost management sustained profitability as we continued to transition away from a legacy revenue base. As has been our practice, cost reductions were again broad-based across the organization, which helped offset seasonal expenses. Our bottom line performance succeeded our expectations for the quarter, and we feel good about the outlook for the balance of the year. Additionally, we continue to strengthen the balance sheet, and we once again accessed the credit markets at favorable rates.

Turning to the longer term view, we continue to pass milestones on our strategic initiatives, which are focused on creating profitable growth opportunities. Through our partnerships with DIRECTV and Verizon Wireless, we once again reported subscriber growth in both video and wireless. At the end of this week, we'll be shutting down the wireless MVNO and completing the transition to the reseller model.

Broadband investment was center stage in the quarter with our announcement on our fiber to the cell site product launch. We also formalized plans to upgrade backbone capacities to 100 gigabit speeds. And we continue to deploy fiber to the node across our residential footprint.

Earlier this month, we reached the three million homes pass mark with our fiber to the node plans. These efforts are designed to meet our customers' needs today, while ensuring we have the infrastructure to deliver products and services that will provide value in the future. Finally, we remained committed to our balanced approached to investments and returns.

Lastly, Qwest Board of Directors declared the fourth quarter dividend of $0.08 per share. For all of 2009, our shareholder returns in the form of cash dividends will exceed $500 million.

To sum up, we had a solid quarter at nearly level of the company. The Qwest team's ability to deliver these results in tough markets has really been quite remarkable through 2009. For sure, much of our success in 2009 has been due to outstanding cost management. However, you should rest assured we are mindful that changing our trajectory on revenue is essential to creating shareholder value over the long run, and we are diligently pursuing these opportunities. I look forward to updating you on efforts on future calls.

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