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Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE
PARTICIPANTS
. David Whitehouse, Citizens Communications Co., SVP - Finance, Treasurer . Maggie Wilderotter, Citizens Communications Co., Chairman, CEO . Don Shassian, Citizens Communications Co., CFO . Frank Louthan, Raymond James, Analyst . Tom Seitz, Lehman Brothers, Analyst . Mike McCormack, Bear Stearns, Analyst . Chris King, Stifel Nicolaus, Analyst . Michael Rollins, Citigroup, Analyst . Jason Armstrong, Goldman Sachs, Analyst . David Barden, Banc of America, Analyst . Chris Larsen, Credit Suisse, Analyst . Simon Flannery, Morgan Stanley, Analyst
OVERVIEW
CZN reported 1Q08 revenues of $569m.
FINANCIAL DATA
A. Key Data From Call 1. 1Q08 revenues = $569m. 2. 1Q08 CapEx = $48m. 3. Share repurchase as of 03/31/08 = 2.3m at a cost of approx.
$24.8m.
PRESENTATION SUMMARY
S1. 1Q08 Business Review (M.W.) 1. Overview: 1. Revenues, $569m.
2. Operating cash flow or EBITDA, $305m. 3. Due to continued effective expense management and customer revenue focus, achieved an adjusted EBITDA margin of 54.2%. 4. CapEx, $48m. 5. All of these factors resulted in: 1. Free cash flow of $173m.
2. Dividend payout ratio of 48%. 6. Repurchased 2.3m shares as part of $200m share repurchase program. 7. Solid 1Q08 revenue performance is a direct result of focus on: 1. Keeping customers. 2. Upgrading customers to new products and services.
3. Putting new customers on service. 2. Highlights: 1. Continued to utilize creative incentives to drive high-speed Internet ads and penetration of product bundles. 2. 1Q08 approach aimed at developing segmented offers in key markets. 3. Offered a variety of incentives ranging from free aspirational
gift to introductory pricing plans for: 1. Various high-speed Internet. 2. Dish TV. 3. Digital Phone bundles. 4. Overarching goal is to accelerate customer revenue growth and
market share, while maintaining current subscription pricing
levels. 5. High-speed data customers increased to 543,000.
1. Represents 3.9% increase from 4Q07 and 17% increase over 1Q07. 2. Revenue per high-speed customer continues to be over $40, with residential broadband penetration increasing to 33.8%.
6. Focused on dial-up conversion program in all markets, especially Pennsylvania. 1. Converted approx. 8,700 dial-up customers to broadband during 1Q08. 7. Announced the edition of 100,000th video customer during 1Q08. 1. Dish sales remain strong. 2. Total video customers are now 101,400 with 7,800 net new video customers added in 1Q08. 3. Represents an 8.3% increase for 1Q08 and a 33.4% increase YoverY. 8. Digital phone products continue to gain strength during 1Q08. 1. Now has over 372,000 residential customers or 26% penetration of primary residential lines for this bundle. 2. All digital phone customers commit to a one or two-year price protection plan. 3. 2008 Focus: 1. 2008 priority focus is improving level of customer service to enhance the customer experience with Frontier. 2. There are three specific initiatives that are underway which supports this focus. 3. Rollout of Peace of Mind product suite. 1. Peace of Mind is Frontier's name for a respectful timely hassle free guaranteed great customer experience. 2. Frontier's commitment to providing exemplary customer service is demonstrated by: 1. Expansion of CZN's customer service hours. 2. Shorter scheduling windows for all in-home appointments. 3. Implementation of call reminders and follow-up calls for Frontier service call appointments. 3. By providing enhanced value-added services and products, customer is more satisfied and CZN generates more revenues and profits. 4. In March 2008, Frontier introduced a new suite of products aimed at managing the computer environment, and protecting residential and business customers against catastrophic computer meltdown. 5. Frontier Peace of Mind service bundles include hard drive backup for as low as $4.99 per month per PC offering automated backup, unlimited off-site information storage of photos, emails and financial information on Frontier's
server. 6. Second bundle is hard dive backup for technical support for as low as $9.99 a month per PC offering hard drive backup
service plus unlimited access to PC Tech/Phone support. 7. Third bundle is hard drive backup plus technical support plus inside wire maintenance for as low as $12.99 per month. 8. Peace of Mind service offerings extend to basic everyday home and home office technology support with additional services offered for wireless network setups, repair, printer setup, troubleshooting, MP3 player setup, PC security checks, and PC tune-ups. 9. Peace of Mind bundle services will be offered within Frontier territories and in extended market areas throughout the country. 1. These services are available to all consumers regardless of whether they are Frontier customers. 2. Initial in territory sales results of Peace of Mind
bundles are strong. 3. Sales have ramped to an avg. of 200 to 250 sales per week. 4. Wireless data roll-out. 1. CZN is up and running in 14 municipalities with 20 anchor tenants, which are colleges, universities, and hotels who pays it a monthly recurring revenue fee for use of the network. 2. Ended 1Q08 with 59 hot spots. 3. Has three products in every market. 1. Anchor tenant monthly usage. 2. Casual use passes. 3. Current customer subscription packages. 5. Billing system consolidations. 1. In 1Q08, eliminated two more billing systems by converting all of Frontier DPI markets and Global Valley acquisition over to CZN's DPI platform. 2. This conversion included integration for customer service, billing, repair, plant and collections. 3. The only remaining billing system that needs to convert to CZN's DPI system is Rochester platform. 1. This conversion is scheduled for 2H08. 4. By consolidating all of markets on the same billing platform, CZN gets huge cost reduction benefits through standardization and simplicity. 5. CZN's DPI system has a terrific new bill format that includes simple billing line items, multi-color advertising windows, and enhanced personal messaging. 6. Customer service experience has enhanced since all customer service reps nationwide access the same platform, simplifying
offers, training and troubleshooting. 7. During 1Q08, CZN partnered with Sandvine to offer a new service for high-speed Internet customers, which will provide them with a better way to search across the Internet. 1. Customers who enter incorrect search requests are presented with several options to find the correct website. 2. This brings an intuitive and friendly customer experience to the forefront of Frontier portal. 3. This service enhances CZN's ability to generate Internet services revenue by leveraging existing landing page arrangement in place between Sandvine and Yahoo.
4. This results in CZN's ability to better monetize customer
searches as it directs them to website and domain options.
S2. 1Q08 Financial Review (D.S.) 1. Highlights: 1. Revenues were $569m, up 2.3% over 1Q07, and down slightly 1.4% vs. 4Q07.
2. Operating cash flow or EBITDA margin was 53.7%, and 54.2%
excluding non-recurring severance charges. 3. Free cash flow, $173m. 4. Generated $91m of cash in excess of dividends, with a dividend payout ratio of 48%. 5. Non-pay disconnects were down vs. 4Q07, which in turn was down vs. 3Q07. 6. AR aging...
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