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Qwest Communications International Inc. (Q)
Q3 2010 Earnings Call Transcript
November 3, 2010 9:00 am ET
Kurt Fawkes – SVP, IR
Ed Mueller – Chairman and CEO
Teresa Taylor – EVP and COO
Joe Euteneuer – EVP and CFO
Michael Rollins – Citi
Frank Louthan – Raymond James
David Barden – Bank of America
Peter Rhamey – BMO Capital Markets
Scott Coleman – Goldman Sachs
Tim Horan – Oppenheimer
Chris Larsen – Piper Jaffray
Simon Flannery – Morgan Stanley
James Ratcliffe – Barclays Capital
Dave Coleman – RBC Capital Markets
Previous Statements by Q
» Qwest Communications International Inc. Q2 2010 Earnings Call Transcript
» Qwest Communications International Inc. Q1 2010 Earnings Call Transcript
» Qwest Communications International Inc. Q4 2009 Earnings Call Transcript
» Qwest Communications International Inc. Q3 2009 Earnings Call Transcript
Okay, thank you. Good morning everybody and welcome to our call. We’re going to begin the call today with comments on the quarter from Ed Mueller, our Chairman and CEO, and then Ed will be followed by Teresa Taylor, our COO, who will review segment results, and then Joe Euteneuer, our CFO, will conclude the prepared remarks with a discussion of our consolidated financial results and outlook. We’ll then open it up for your questions.
I want to point you to slide #3 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 our filings.
I also want to note that we do not adopt analyst estimates, nor do we necessarily commit to updating any forward-looking statements that we will be making this morning.
To supplement the reporting of our financial information, on our call today, we will be discussing 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.
Now, we’ll move on to slide four and touch on EPS and some special items that impacted EPS in the quarter. Our reported loss per share for the quarter was $0.05 and that compares to earnings per share of $0.08 in the third quarter of 2009. The current quarter includes a $0.13 charge related to the option on the convertible notes, a $0.02 charge for severance and realignment expense and $0.01 charge for one-time adjustment related to USF fees.
Excluding special items, earnings per share were $0.11 in the third quarter and that’s a 22% improvement compared to $0.09 in the year ago quarter as well as the second quarter of this year. Reported and adjusted earnings include dilution from non-cash pension and OPEB expense. In the current quarter, the dilution was $0.01, and in the year-ago period, we had an impact of $0.02.
As a reminder, under the terms of the merger agreement with CenturyLink, we have committed to redeem our convertible debt and the value of the associated conversion rights for cash.
Therefore, we previously reclassified the option component of the note from equity to a liability, which is included in accrued expenses and other. The value of this liability at the end of the quarter was $349 million after initially being valued at $165 million on the date of the merger announcement.
As a result of strong stock price appreciation during the third quarter, we reported a pre and post-tax charge in the current period of $229 million to recognize the higher value of the option component of the convert.
We continue to see strong price appreciation in the fourth quarter, and as a result, we may have another charge when we report fourth quarter earnings. We’ll be paying-off the convertible principal and to value of the option in the fourth quarter.
With that, I’m now going to turn it over to Ed.
Thanks, Kurt. Good morning, everyone, and thank you for joining us today. I want to begin by saying I’m very pleased with our execution and the results we delivered in the quarter despite continued market challenges.
We reported improved sequential and year-over-year revenue trends, expanded margins, and we generated strong cash flow. In addition, we reported a number of significant achievements for the company this quarter, including record high margins and record low debt levels.
I’m also very proud of the recognition we received during the quarter for customer service awards in both the enterprise and wholesale units. Our performance is strong evidence of the focus we have on our strategies to drive the top line while maintaining disciplined expense management to improving operating efficiencies.
We continue to see strong growth in our strategic revenues while we aggressively pursue fiber-based broadband services. We experienced a rebound to growth and subscriber additions, driven by demand for high-speed services, the launch of a new marketing campaign and seasonal benefits.
We also continue to strengthen our financial flexibility by improving the balance sheet. Our progress was recognized by a rating agency upgrade in August to investment grade. During the quarter, we announced plans to call our convertible debt which totals $1.1 billion in principal and are well on the path to achieve our stated debt reduction goals.
In addition, I’m very happy with the progress we are making towards the completion of our merger with CenturyLink. The senior leadership team for the combined company has been named. The second tier team was also recently announced. Activities are well underway in the planning process for the integration of the two companies.