Windstream Earnings Call Nuggets: Small Enterprise Business and Incremental Synergies

Windstream Corp (NASDAQ:WIN) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Small Enterprise Business

Frank Louthan – Raymond James & Associates: So, looking at a couple of the declines in the metric, can you give us a little bit of color on sort of the trends there in the small enterprise business. What’s – can you give us a little bit color on what’s exactly the makeup of those smaller business customers, are they mostly resale? And where do you think the satellite customers are going as you are losing that – some of those customers and are they sort of – is that pressuring some of the broadband ads as well, I mean, you’ve got very high penetration, and it makes some sense, but just curious where you see that and where do you see the erosion in those categories stopping?

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Brent K. Whittington – COO: Frank, this is Brent. I’ll take that and start maybe with the business side on the small biz. A couple things going on there. If you look at enterprise, we’re seeing really nice growth there and that’s greater than the 750 a month where we’re growing at almost 7%. And as I kind of mentioned, what we’ve got going on there is our account managers are focused on moving customers up in terms of revenue. So, we do have a chunk of that growth that’s coming from small biz that’s migrating into that enterprise category, and then to your point, a lot of where we’re seeing the losses on the small biz is in those CLEC markets where it’s tougher for us from a distribution standpoint just simply because of the fact that our enterprise (builds) and sales force is largely focused these days on deals that exceed 750 a month to make that up in distribution. In that channel, specifically in CLEC markets, our focus is primarily on more direct mail, telemarketing, selling to our base and retention where we’re seeing great trends in terms of churn improving year over year, but it’s really a distribution issue, Frank, and more in line with our field sales force in those CLEC markets focused on larger deals than that. In our ILEC markets, to be specific, we still have a dedicated small business sales team. So we count on much more than just our call centers as well. And maybe the last point I’d make on that, definitely that’s a competitive space in both ILEC and CLEC, but just simply because the margins that we can make in the ILEC are much easier for us to afford that expanded distribution than it is in the resell CLEC markets where we do have lower margins there. On the consumer side, maybe as it pertains to video, I think it really is a function of the tremendous success we’ve had over the years selling DISH. We have phenomenal penetration, greater than 20% and there’s nothing I’d say going on there. In fact during the quarter we had a promotion that was focused on DISH included in our package with our bundle, but simply we just sold that extensively over the years. And as we got a larger base, we had to continue to outrun churn with new adds and we just didn’t do that in the quarter.

Frank Louthan – Raymond James & Associates: And with the broadband is that – what’s the typical profile of customer that’s leaving? Is it very low speed? Is it single play? Are they correlated with the defections on the satellite side?

Jeffery R. Gardner – President and CEO: Definitely some tie into that simply because again so many of our products are bundled with the triple play, over 20%. 70% penetrated with double. So when you have customers leave and that probably plays into some of our access line trends as well, you do have a higher correlation to a voice than to a broadband and then at a smaller scale the dish as well, Frank. So no question about that. And again, that’s where some of our past success makes the business a little more challenging, just simply because of where we are from a credit penetration standpoint you know and not to be lost on the broadband side. And we kind of talked about this now really over the past year that it’s not just about units, it’s about revenue. And our team recognizes that from a sales standpoint and that’s why you are seeing us continue to grow broadband revenues despite where we have been, which is effectively flat in the last year on units with growth at 5%. So we are pleased with what the team is doing on that point.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Incremental Synergies

Philip Cusick – JPMorgan: Can you expand a little bit on the incremental synergies to come over the next year and give us a little bit of a view or more view on the PAETEC billing system and integration?

Anthony W. Thomas – CFO and Treasurer: This is Tony. We made tremendous progress last year, really, in the realization of our synergies. We have approximately $15 million of synergies to obtain this year. And then we will really exit the year, at nearly our $100 million run rate, just a little bit short of that and we will achieve the remainder of those synergies in 2014 when we accomplish a few of our key IT milestones. I feel very good about the progress we’ve made to date and feel very comfortable that we’ll meet or exceed our $100 million goal of PAETEC synergies…

Brent K. Whittington – COO: And Phil maybe – this is Brent, on the PAETEC billing conversion, what we’re really trying to do, if you think about how our business has changed over the last three years, our focus on the business customer is tremendous as we talk about them all the time, and so we’re really trying to bring all of our back office functions into what we kind of talk about as our consolidated systems platform, which is one kind of go-to-market system that’s going to be used in all facets of our business, from a billing perspective to a trouble ticketing perspective, all the way through to sales force implementation, and we are in the midst of deploying that now in stages, but it’s a continued focus throughout this business, really as I kind of shared, I mean improving our chance to provide a great customer experience and improving what we think customers will feel about their service with Windstream and then, on top of that, really a platform for us in the future to drive more efficiencies throughout our operations.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Philip Cusick – JPMorgan: Is that conversion still scheduled for sort of second half of this year or is that being pushed out a little bit?

Brent K. Whittington – COO: Well, like I mentioned, it takes part in phases, so there will be some activities that will occur in the second half of this year, but it actually won’t be fully completed until 2014, Phil.