Windstream CEO discusses company’s transition to cloud and SD-Wan technology, says stock undervalued

by Wesley Brown ([email protected]) 451 views 

Windstream Holdings Inc. President and CEO Tony Thomas said Tuesday that recent acquisitions with former rival Earthlink and Broadview Networks will bolster the Little Rock telco’s future earnings and revenue growth as the industry transitions to cloud computing and software-defined network technology (SD-Wan).

“As we look at the evolution of the communications business, the ability to provide specific applications on what Broadview enabled with their Office Suit products …, we think being able to couple that technology with SD-Wan is going to be where this industry heads,” Thomas said.

Thomas made his forward-looking comments at the three-day J.P. Morgan’s 45th Annual Global Technology, Media and Telecom Conference in Boston, where top executives from many of the nation’s established technology corporations and emerging growth firms are hosting fireside chats and one-on-one meetings with key investors and money managers.

Thomas’ commentary was prompted mostly by a series of technical and financial questions concerning Windstream’s operations by Wall Street analyst Philip Cusick, who is managing director and senior telecom analyst at J.P. Morgan Chase. Much of the conversation centered around Windstream’s recently announced acquisitions of Earthlink Holdings Corp. of Atlanta and Broadview Networks in upstate New York.

On Feb. 27, Windstream completed its acquisition of former rival EarthLink Holdings Corp. of Atlanta after both companies’ shareholders approved the $1.1 billion deal over the weekend. Windstream officials said the company expects to achieve more than $150 million in annual operating and capital expense synergies within 36 months of closing, an increase of $25 million over its initial estimates.

Then nearly a month ago, Windstream announced a deal to acquire Broadview Networks Holdings Inc., in an all-cash deal worth $227.5 million. Broadview is based in Rye Brook, N.Y., where it provides cloud-based solutions to small and medium-sized businesses under the “OfficeSuite” brand.

“When you think about the movement, the biggest change in the industry, regardless if you’re in communications or technology apt for this conference here is the movement to the cloud. I mean it literally is the single biggest change,” Thomas said. “I like to say I have been in communications too long, and this is one of the most pivotal moments in communications in terms of how technology is morphing. The Office Suite is an ‘over the top’ product, meaning that enabled and provisioned to customers in a matter of minutes, instead of the historical provision cycle of 60-120 days.”

Besides the Office Suite product, Thomas said the benefits of the Broadview acquisition also include synergies of more than $30 million and a talented bench of executives.

“Many of their senior leaders have announced they’ll be joining the Windstream team on the other end of the merger and we are excited about bringing them aboard,” he said. “So we’ve got great strategic application, and we get all the financial benefits that you would want in a team that’s actually executed on this strategy on a smaller scale that we’re confident, we can do it on a larger one.”

Concerning revenue projections in the short-term, Thomas said all of the company’s operations will be exposed to the dynamic changes that are taking place in the industry. As a so-called incumbent local exchange carrier (ILEC), the company has spent $1.7 billion on last-mile upgrades to legacy networks.

“As we look at business, we recognize that we have to be investing in having the assets to make this transition. And with the combination of Broadview and (Earthlink) in terms of them jumpstarting our … capabilities, we are going to be really well-positioned for that transition,” he said.

Following the close of the Broadview merger in the third quarter, Thomas said Windstream is looking to ramp up its investment in SD-Wan technology, which has emerged as an important solution for businesses that are increasingly dependent on the cloud and looking to digitally transform onsite. He said Earthlink was six to nine months ahead of Windstream in adopting this technology.

“So, we literally took the fantastic front-end portal, and we cloned it, and drop in into the Windstream IT infrastructure,” he said. “We have a major release going on in the month of July where we bring the full set of capabilities of the combined SD-Wan platforms together. So July is a big month for us to bring SD-Wan across the entire Windstream footprint – Earthlink had those capabilities already.”

Thomas also mentioned the company is currently connecting data centers across the U.S. that will have an “Amazon-like” experience in their ability to turn up new broadband services.

“I think it will be one of the biggest changes to take place is this ability to have an ‘Amazon-like’ experience with bandwidth,” he said. “We’ve connected major data centers across five cities, and we’ll go to another 50 markets this year and this will be very powerful for those folks who need this bandwidth and they need it not in 60 days … but they literally want it in seconds and we’ll be able to do that.”

To illustrate his point, Thomas mentioned the company’s announcement on Tuesday (May 23) for a major expansion of its advanced metro fiber network in Knoxville, Tenn. He said Windstream is currently expanding its metro fiber networks in a number of major cities across the U.S., which will allow businesses, local data centers and commercial buildings with Windstream’s high-speed, nationwide fiber network.

At the end of Thomas’ 30-minute onstage interview with the J.P. Morgan telecom analyst, Thomas talked about the company’s revenue goals over the next five years as the company goes through its technology transition. He also talked about Windstream’s disappointing stock price and the value of the company.

Over the past year, Windstream’s stock price is off more than 40% and has traded in the range of $4.28 and $10.46 per share on the Nasdaq stock exchange. As a result, Windstream’s market capitalization has dropped well below $1 billion to $871.5 million. Thomas promised returns will improve soon.

“[It] drives me nuts, honestly, I don’t have a kinder way to say that. We do think the stock is undervalued and we look at our focus areas and hey, we know we have to continue to show trajectory on [earnings],” Thomas said. “Undoubtedly … we understand the top line is important to a lot of investors, that will take a little longer at Windstream. But when you think about our ability to generate (earnings) through interconnection cost takeout as well as the synergies that are coming from EarthLink and Broadview, we think we’re just in a dramatically different place.”

Thomas will continue to make rounds on Wall Street next week, where he will speak at the Cowen and Company Technology, Media & Telecom Conference in New York City on May 31.

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