Q4 2019 Earnings Call - Pre Recorded
19 earnings conference call.
Joining me on the call today, or Tony Thomas Our Chief Executive Officer, and Bob Gunderman, Our Chief Financial Officer and Treasurer.
To accompany today's call we have posted a presentation slides earnings release and supplemental schedule on our Investor Relations website.
Today's discussion includes statements about expected future events and financial results that are forward looking and subject to risks and uncertainties, but discussion of factors that may affect future results is contained in windstreams filings with the SEC, which are available on our website. Let me now turn it over to Tony Thomas Thanks, Chris Good morning, everyone and.
Thank you for joining us today.
Before I begin discussing windstreams operational performance I wanted to briefly provide an update on our restructuring process Windstream remains focused on securing result that maximizes value for all companies stakeholders as part of this process Windstream continues to work to modify our arrangement with unity.
As discussed on last quarter's call to increase the likelihood of an optimal result, windstream is pursuing both litigation against and negotiations with unity.
We are hopeful this process will lead to a mutually satisfactory agreement between Windstream unity and our other key stakeholders.
Absent an acceptable negotiated resolution windstream is prepared to pursue its litigation claims to conclusion.
The trials currently scheduled to begin in the first week of March.
As has been the case in past quarters and pursuant to a competency reality agreement associated with the ongoing mediation. We are unable to provide any additional information regarding the discussions with unity.
Turning to our fourth quarter, we once again delivered broadband customer growth in our kinetic business unit and continued to experienced strong growth of our enterprise strategic products I'm proud of the continue focus of our team and appreciate the support of all of our stakeholders as we continue to work through the reorganization process.
Our team has remain laser focused on serving our customers and achieving our priorities during the year.
Which we layout on slide four.
Comprised of consistent customer excellence, becoming a software development powerhouse driving strategic revenue growth and continuing to have a sharp focus on aggressive cost management.
On slide five our 2019 highlights illustrate success in all four of our priorities first our customer excellence as well as our software development expertise can be seen in the numerous awards won over the past year, most notably the Gartner Magic quadrant recognition for our office suite Ucas product as well.
Well as recently being named the met SD Lan service provider of the year.
In addition, our kinetic segment continues to be one of the very few telco service providers to gain market share.
As we have now achieved our second consecutive year of broadband subscriber growth, adding 28300 subscribers in 2019, while increasing broadband speeds to over 1.3 million homes in 2019, representing a three to our total kinetic ILEC footprint.
We continue to be the largest SD Lan service provider in the country today, having experienced 38% growth in our strategic enterprise revenues during year.
Our history of aggressive cost management also continued during 2019 as our consolidated adjusted to open our margin for the year of 34.1% was up 80 basis points year over year, driven by consolidated cash expense declines of almost 9%.
I'm proud of our tremendous windstream team for achieving all of our 2019 operational priorities.
Turning specifically to our fourth quarter highlights on slide six we delivered 423 million in adjusted open our representing a flat sequential result.
We continued to see strong momentum on our strategic sales, which include SD Lan and ucas product offerings, delivering 30% year over year strategic revenue growth.
Our consolidated adjusted open our margin of 34.1% in quarter was up 40 basis points year over year, driven by a 9% reduction in consolidated cash expenses for the seventh consecutive quarter, we recorded consumer broadband growth, adding approximately 9300 subscribers during the quarter, reaching 28003.
100, net subscribers for the full year, almost doubling our 2018 results.
This market share growth has been driven by our continued improvement in broadband speed capability across our kinetic ILEC footprint as seen on slide seven.
As of the ended the year, 70% of our ILEC households, now have access to speed of 25, Meg or greater up 900 basis points from the year end 2018 levels. In addition, we almost tripled our availability of 100 may or greater speed with 42% of our kinetic households, now capable of receiving those speeds up from 15% at the.
We ended 2018.
During the year, we upgraded speeds to 1.3 million homes across to our kinetic footprint.
Turning to slide eight.
The fruit of these investments can continue to be seen and our strong broadband subscriber growth having grown our customer base for the second consecutive year and second consecutive fourth quarter on slide 953% of our kinetic customer base now enjoy speeds at 25, Meg or greater up from 41% a year ago.
While impressive year over year growth.
We still have tremendous opportunity in front of us to increase the number of customers that enjoy these faster broadband speed tiers, which I will discuss a bit later.
Turning to our enterprise segment on slide 10, our emphasis on our strategic revenue product set continues to help offset some the underlying pressures from our core in legacy products.
Windstream ended the year with 3200, SD Lan customers under contract, which represent over 27000 endpoint locations.
We remain the largest SD Lan service provider in the country. We now have over 550000 ucas seats installed in our enterprise customer base as our office suite sales pipeline continues to expand.
Our strategic product portfolio experienced 38% revenue growth year over year 2019, and now represent over 13% of our total enterprise service revenues.
Before I discuss our 2020 operational priorities and strategies, let me turn it over to Bob to discuss our fourth quarter and full year 2019 financial results as well as provide an overview for our 2020 financial outlook. Thank you Tony and good morning, everyone.
Turning to slide 11, we show our fourth quarter financial results during the quarter Western generated total revenues of 1.2 billion and adjusted EBITDAR of $423 million flat sequentially.
Consolidated margin of 34.1% during the quarter represents an increase of 40 basis points year over year, driven by our strong expense management initiatives.
Notably our total cash costs improved by almost 81 million or 9% year over year.
The kinetic segment delivered solid results for the quarter service revenue was 503 million down slightly sequentially as consumer ARPU is fell by 62 cents due in large part to the amortization of promotional credits in the quarter.
Despite these pressures kinetic consumer internet revenue increased slightly year over year.
Contribution margin was $290 million, approximately 56% up almost 4 million and 130 basis points sequentially.
Similar broadband units increased by approximately 9300 during the quarter, representing our seven straight quarter of broadband subscriber growth and our internet consumer revenue grew year over year.
And the enterprise segments service revenue was 623 million and contribution margin was 121 million.
Down 5 million sequentially.
Representing an $8 million sequential improvement from the third quarter decline.
The segment delivered an approximate 19% margin, which is flat year over year.
In the wholesale segment service revenue was 83 million and contribution margin was $67 million, which was up sequentially with margins of approximately 74%.
On slide 12, I wanted to provide an update on our continued interconnection expense reduction results.
Our total annualized interconnection expenses fell by almost 20% our year over year basis during the fourth quarter.
We reduced interconnection expenses on an annualized basis by 237 million in 20, 918 or 19.5%.
Notably, we still have almost $1 billion of annualize interconnection expense almost 500 million of which is legacy tdm related.
These expenses comprise almost half of our toll interconnection expenses and are falling by over 20% annually.
We also have an additional 336 million an annualize expenses associated with network real estate Colocation and fiber expenses.
That we are focused on reducing overtime, which represents another material cost reduction opportunity.
We continue to believe that we will see greater than 10% annual reductions over the next several years.
Turning to slide 13 O I wanted to highlight our projected 2020 financial results.
We expect similar adjusted over to our trends in 2020, as we saw in 2019, but an approximate 6% decline to 1.63 billion.
We are forecasting another 9% reduction in our cash expenses during the year, which will help drive a 70 basis point improvement in our consolidated adjusted over to our margin to approximately 34.8%.
The adjusted overall decline is being driven by continued top line pressures, particularly in enterprise, which are being partially offset by continued reductions within our interconnection expenses as well as overall cash expenses across the company.
We anticipate growing our broadband subscriber base by approximately 40000 subscribers and more than 40% improvement from 2019 subscriber growth driven by our ongoing efforts to improve broadband speeds to a larger footprint across our kinetic pilot territory.
We expect our kinetic contribution margin trends to improve significantly year over year, driven by improved revenue trends with an approximate 230 basis point and improvement in margins year over year.
We anticipate continued acceleration in our enterprise strategic revenues as we expect an approximate 20% growth rate in 2020 from these revenues.
Now I'll turn the call back over to Tony to discuss our operational priorities and strategies for 2020 and beyond Thank you Bob.
I want to briefly discuss our 2020 operational priorities.
As seen on slide 14, the management team has laid out five primary priorities for Windstream first we will focus on growth.
At the present time and although the timeline is subject to change we plan on exiting restructuring in 2020 with a new capital structure. In addition, we plan on continuing to make strides in future proofing, our network, specifically by continuing to increase speed capability to more and more of our kinetic footprint our capital budget increased by 12.
Percent 2019, with the kinetic segment seeing the bulk of that year over year increase in 2020, we expect to make continued strategic investments in Connecticut.
In addition, we will continue to maintain our leadership positions and telecom products and software. Our 2020 focus will be on continuing to expand our broadband speed capabilities continuing to enhance our SD Lan new cast products, expanding our metro fiber and long haul network services, and embracing and enhancing our customer facing digital experience.
Through our customer portals and interfaces.
All of these objectives are part of our third priority to consistently deliver excellent customer experiences. This will be achieved through enhanced network visibility in design for our customers as well as continued expansion of software tools and automation efforts to better and more efficiently serve our customers.
Many 19 saw dramatic improvements in our net promoter scores customer satisfaction surveys and industry Awards. We will continue this momentum into 2020.
Our final two priorities for 2020 had been multi year priorities for several years now and are part of our corporate DNA.
Our fourth priority is driving adoption of our strategic product set leading with our industry, leading SD Lan and Ucas product lineup. We continue to expect to see solid growth in our strategic revenues and we will continue to worked tirelessly to convert existing customers from legacy to strategic products.
This conversion is not only beneficial for windstream in terms of its long term financial profile, but more importantly, it is beneficial to our customers by providing best of breed products with powerful business applications that not only help customers grow their own businesses, but also provide many operational efficiencies at generally low.
Our price points.
Taking a more efficient operations, our last 2020 priority as an every year mainstay in our day to day decision, making we will continue to manage our costs aggressively.
Two major areas of cost reductions that we anticipate seeing in 2020 will be our interconnection cost profile as well as our network real estate footprint. In addition, we expect to see cost come down across the company once again this year.
Turning to slide 15, I wanted to highlight one of our near term opportunities to continue to drive growth in our kinetic business.
As evidenced in the earlier slides, we've been aggressively investing in our idyllic network to push faster broadband speeds to more and more customers. This represents a large opportunity we havent front of us as a company to up sell our faster speed capabilities to a larger portion of our kinetic customer base.
For example, only 28% of our customer base as eligible for speeds of 50, Meg or higher currently enjoy those speeds.
Penetration is currently only 27% for our 100 mix beat here.
This represents both a short term and a long term opportunity for windstream to engage customers with a better premium product offering which tends to dramatically both reduced customer churn and increased customer satisfaction levels.
We have made and we'll continue to make this investment and the opportunity is now there for a very large percentage of our kinetic elect customers.
I also wanted to briefly touch on our enterprise business segment since our February 2019 restructuring announcement, our enterprise unit has experienced greater topline pressures than we've expected specifically in our core and legacy customer base.
While we are merely in a more challenging competitive situation during our restructuring process.
We are taking aggressive actions to improve the current topline trends by increasing strategic product options and conversions and improving profitability levels across our legacy core and strategic enterprise customer basis.
We continue to augment our service delivery model by shortening installation times continued proved network visibility metrics and enhancing our customer facing portals and interfaces to improve the overall customer experience.
Slide 16 illustrates this commitment by highlighting our recent launch of the weakening insight engine, which further sets the windstream enterprise SSD when experience apart from other providers.
Building on we use differentiated SD when experience the new we connect insight engine continuously gathers and evaluate data across all customer locations, creating a historic record and aggregate the data across a broad ecosystem to deliver enhanced visibility in reporting capabilities at a level unmatched in the industry. This high.
Early granular dataset delivers more meaningful information about network and application performance. Then there is additional devised level snapshot data other providers offer and provides customers with macro through micro level analysis and trends in their applications network access and devices.
Truly is yet another example of our powerful differentiated strategic product set and our commitment to deliver excellent customer experiences through product and software leadership.
We are taking aggressive actions in order to improve our competitive position within the enterprise space and expect trends to recover quickly once we emerge from our current restructuring.
Lastly, I will provide an update on our caf two broadband deployments as well as our latest views on the recently approved rural digital opportunity fund.
As you are aware windstream committed to deliver broadband over 400000 homes and businesses when it except to cap to support in 2015.
As of yearend, we have met all of our requirements by deploying broadband to greater than 80% of Caf two locations and each of the 17 States, where we accepted funding from the FCC.
We will complete deployment to 100% of our Caf two locations by the programs December 30, Onest 2020 deadline.
The FCC approved an initial order for the establishment of the rural digital opportunity fund in late January.
In the order the commission agreed to continue to support Caf two funding through the end of 2021, we expect the art off auctions to began in late 2020 and while some details are yet to be worked out regarding the auction process. We're very pleased with the latency and speed requirement that the art off has mandated as well as the requirement to provide a.
Customer dial tone on day, one and art off areas.
We look forward to aggressively competing in the upcoming art off auctions.
In summary, Windstreams operations continued to perform well are flat sequential fourth quarter adjusted over our level demonstrates our continued focus on expense reduction efforts and we continue to stand alone among the major us Telecom service providers with two years of consumer broadband subscriber growth.
As well as positive net ads for seven consecutive quarters coming on the back of ongoing strategic investments in our network. The transformation is also being seen our enterprise business.
Just focusing on strategic products, such as SD Lan and Ucas to provide a better more robust customer experience.
Our chapter 11 reorganization process continues and we will emerge from our current restructuring a healthier and a stronger company. Thank you for joining US. This morning have a great day.