Equillium, Inc.

First-quarter revenue declined 7.6% year over year to $1.35 billion. Operating income was $410 million, down 6% from $436 million a year earlier, and operating margin improved to 30.5%. Diluted EPS from continuing operations was $1.39, while total diluted EPS was $1.21 after the EMBARQ Logistics sale; the sale also included a $24 million loss and a $2 million loss related to pre-close results. Cash flow before dividends was a record $339 million, up from $287 million in the year-ago period, and CapEx was $105 million. For guidance, management said Q2 should look very much like Q1, with revenue decline potentially moderating a bit, cash flow before dividends expected to remain above prior year, and CapEx expected to rise sequentially in Q2 but stay well below last year.

Tom Gerke framed the quarter as a successful start to 2009 despite a weak economy, emphasizing that EMBARQ preserved strong cash flow and made clear progress on the CenturyTel merger. He highlighted improving consumer line-loss trends, better HSI net adds, and ongoing work on integration readiness, saying the teams were well positioned for approval and execution after close. His tone was constructive and confident, while still acknowledging economic pressure on the top line.

Gene Betts focused on profitability and cash generation, saying earnings per share from continuing operations and cash flow before dividends were at their highest levels ever. He noted operating income of $410 million, operating margin of 30.5%, and EPS from continuing operations of $1.39, with expense declines driven by lower cost of products, depreciation, and personnel expense from prior workforce reductions. He also pointed to record cash flow before dividends of $339 million, CapEx of $105 million, and expected Q2 cash flow to remain above prior year, though CapEx should increase seasonally and remain below 2008 levels.

Analysts pressed for confidence around the expected Q2 improvement, asking whether monthly revenue trends support the outlook and whether broadband growth depended on promotions. Management said the revenue outlook mainly reflects better access-line trends and some other revenue categories improving, while HSI growth was driven more by base management and churn improvement than by unusual promotional activity. Questions also focused on margins and CapEx; management attributed margin improvement largely to headcount reductions and broader business-process gains, and said CapEx was running light because of fewer required new service addresses and disciplined targeting.