Windstream Earnings Call NUGGETS: Business Service Revenue, Expecting Sequential Improvements

On Thursday, Windstream Corp (NASDAQ:WIN) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Business Service Revenue

Michael Rollins – Citigroup: I was just curious if you could talk a little bit more about the business service revenue. There was growth year-over-year, but some sequential downtick there. I was just wondering if you can give us a little more color of what you’re seeing with the business environment, are you seeing any change in the funnel or the sales cycle, that would be great?

A Closer Look: Windstream Earnings Cheat Sheet>>

Brent K. Whittington – COO: Overall, we’re not seeing any trends that would cause us concern. From a sales perspective, our team had a great quarter, as they did in the first, and what we’re seeing in terms of momentum is good, no negative customer or revenue churn trends that I would say caused any concern. Now that 2% increase in business revenues year-over-year, it’s lower sequentially than what we saw in Q1. When you start really looking through the details of that, most all the revenue trends look consistent with what you’d expect but voice and LD is really where we saw a sequential decline of about $10 million in the second quarter. We kind of talked about it in the call because in Q1, what we really saw at that point was accelerated usage revenues that frankly just didn’t continue in Q2. We saw Q2 trends revert back to what we’ve seen really in the Q3 and Q4 timeframe of last year, not totally surprising, but that’s really the biggest driver there when you’re talking about a difference between a 2% and a 3% growth if those little $3 million and $5 million swings that make a difference, and that’s the big driver there Michael.

Michael Rollins – Citigroup: Is this the new pace that we should expect for a few quarters, there is 2% level or is there room based on what you’re seeing in the funnel and your pipeline for that 2% to accelerate year-over-year as we move through the next few quarters?

Anthony W. Thomas – CFO and Treasurer: Yes, Michael, we’d expect the 2% to accelerate. So, I think 2% is a lighter than we’ve seen. If you look at the way our revenue growth was trending in those previous four quarters, 2% is more and what we saw in probably Q2 and Q3 of last year. What we are seeing in the sales funnel once we get that stuff installed, we feel confident those revenue trends can improve.

Expecting Sequential Improvements

Scott Goldman – Goldman Sachs: I guess, in part a follow-up on that first question, but looking a bit bigger picture into the guidance that you’ve said. So, last quarter, you said you expected an acceleration in business and consumer revenue trends in the back half of the year. I think, if you look at what you’ve said today is expect sequential improvement in revenue and EBITDA particularly in 4Q. So, I just want to make sure I understand, are you expecting 3Q and 4Q revenue and EBITDA to be sort of above 2Q and so we’ll see sequential improvement each quarter from here on in or how to interpret that? Then, if you go back to the statement you made last quarter and piggybacking onto the last question, we had growth of I think 3.2% in business services in 1Q and I think our expectation was that that would improve in the back half of the year. Should we expect the improvement to come off of the 2% base or is that 3.2% business services revenue the base to grow off of?

Anthony W. Thomas – CFO and Treasurer: Scott, this is Tony. I think when you think about looking at the back half of the year, we are expecting sequential improvements in both revenue and adjusted OIBDA particular business service revenues as Brent just alluded to, so that’s what we’re focused on. As I alluded to in my prepared remarks, that based off what we’re seeing in the sales funnel, our incremental fiber installations that’s what really going to drive the improvements in your top line. As you know, our adjusted OIBDA, we still have ongoing PAETEC synergies to realize coupled with the management reorganization plus just simply the day-to-day cost management activities that we have going around the Company. That’s what gives us conviction that we’re going to see that sequential improvement, we need to see in the back half of the year. As I alluded to in my prepared remarks, we do expect that to ramp in the back half. We expect adjusted OIBDA to grow in 3Q and improve upon that into 4Q.

Scott Goldman – Goldman Sachs: Then just to follow-up on that. On the Consumer side, would you expect that to – the rates have declined there to improve in the back half of the year?

Anthony W. Thomas – CFO and Treasurer: We do expect to see some marginal improvement in the consumer revenue trends as well, Scott.

Scott Goldman – Goldman Sachs: Then just secondly broadband, can you talk a little bit – you mentioned some comments about the losses in the quarter, maybe talk about what you’re seeing from churn versus gross adds perspective and what sort of traction you’re seeing now from the Merge campaign and how that – how you think that could play out in terms of volumes in the back of the year?

Brent K. Whittington – COO: Scott this is Brent. I mean churn overall for us has been a good story this year and in the second quarter there are a couple of things that are going on and are worth explaining. First, seasonally you tend to see slower sales in Q2 versus Q1 and that’s sort of (unrestricted) for us and that slowdown was actually less on the gross add side than we saw a year ago, but the overall volume was down which as much as anything is a function of our penetration. We are seeing lower sales to our existing customers so for us merged with all about increasing our prospects and really changing the dynamics of the discussion away from speed to the value of the entertainment package and that’s what Merge really was about. We saw early momentum, it slowed, the timing of that launch coincided with what I would define as more aggressive pricing action by our competition and that definitely had an impact and that coupled with seasonality and just the size of our base is really what caused us to be slightly negative there. But we have kind of talked for a while. For us given our penetration it’s not just about customer count, it’s also about revenue growth and we have had and continue to have such a huge focus around those value-added services tied in that broadband product. That’s really what we’re (anchoring) kind of the future growth of that franchise to not just customer growth. I did talk about the customer growth opportunities that we will see which is largely tied to on the stimulus projects we have underway whereby whenever we are ultimately completed we will have passed 75,000 incremental new prospects we can kind of add to our list, Scott.