- Total first quarter revenue of $2.10
billion
- Net loss of $87 million
- Adjusted EBITDA1 of $873 million
- Net broadband losses of 38,000
- Transformation program continues with a
cumulative $35 million in annualized benefit achieved as of the end
of the first quarter
- Continued balance sheet progress with
issuance of $1.65 billion in secured maturities that extend those
obligations by six years
Frontier Communications Corporation (NASDAQ:FTR) today reported
financial results for the first quarter ended March 31, 2019.
“We continue to focus on our long-term goals of improving
revenue and unit trends, realizing our transformation program
targets, driving free cash flow, and reducing leverage,” said Dan
McCarthy, President and CEO. “We began to realize some benefits
from the extensive efforts underway to improve our broadband unit
performance, most notably an improvement in consumer copper
broadband subscriber trends where losses more than halved
sequentially,” McCarthy added. “Nonetheless we have substantial
work ahead. Our transformation program remains on track to achieve
the $50 to $100 million in EBITDA benefit we anticipate over the
course of 2019.”
Consolidated Results
Consolidated revenue for the first quarter of 2019 was $2.10
billion, as compared with $2.12 billion in the fourth quarter.
Within first quarter consolidated revenue, Consumer revenue was
$1.08 billion, Commercial revenue was $932 million, and subsidy
revenue was $92 million.
Net loss for the first quarter of 2019 was $87 million,
representing a net loss per common share of $0.84. Net loss
included $15 million of severance expenses, $20 million for loss on
early extinguishment of debt, and $18 million in income tax
expense.
First quarter Adjusted EBITDA was $873 million, representing an
Adjusted EBITDA margin2 of 41.6%. This compares with Adjusted
EBITDA of $895 million in the fourth quarter of 2018. The primary
factors causing the sequential decline in Adjusted EBITDA were
expense seasonality and the sequential revenue decline, partly
offset by incremental benefits from the company’s transformation
program.
Net cash provided from operating activities for the first
quarter of 2019 was $282 million and operating free cash flow3 was
($23) million, reflecting the higher level of interest payments in
the first quarter. For the four-quarter period ended March 31,
2019, net cash provided from operating activities was $1,843
million and operating free cash flow was $643 million.
Consumer Business Highlights
- Revenue of $1.08 billion.
- Customer churn of 1.99%, up slightly
from the fourth quarter of 2018.
- Average Revenue Per Customer (ARPC) of
$89.14, a sequential increase.
Commercial Business Highlights
- Revenue of $932 million.
- Total commercial customers of 400,000
compared with 411,000 during the fourth quarter of 2018.
- Commercial wholesale revenue was stable
sequentially, and Commercial SME revenue declined sequentially,
driven by voice services.
Capital Structure and Capital Allocation
- As of March 31, 2019, Frontier’s
leverage ratio4 was 4.76:1.
- Frontier remains committed to reducing
debt and improving its financial leverage profile.
- Closed the sale of wireless towers for
$76 million in January. The transaction was immaterial to revenue,
earnings, and Adjusted EBITDA.
- Issued $1,650 million of first lien
secured notes, due 2027. The proceeds were used to retire the
$1,402 million JPM Term Loan A due 2021 and the $239 million CoBank
Loan due 2021, effectively extending the maturities by six
years.
- Extended the $850 million revolver by
two years, to 2024.
- Retired the outstanding $348 million,
principal amount, of senior unsecured notes maturing March 15,
2019, as scheduled.
Guidance
Guidance for 2019 remains unchanged.
- Adjusted EBITDA – $3.45 billion to
$3.55 billion, which includes an anticipated $50 million to $100
million benefit from the transformation program
- Capital expenditures – Approximately
$1.15 billion
- Cash taxes – Less than $25 million
- Cash pension/OPEB – Approximately $175
million
- Cash interest expense – Approximately
$1.475 billion
- Operating free cash flow – $575 million
to $675 million
We are targeting an annualized benefit of $500 million from the
transformation program as measured at the exit of year-end 2020,
which may be offset by declines in the business.
Non-GAAP Financial Measures
Frontier uses certain non-GAAP financial measures in evaluating
its performance, including EBITDA, EBITDA margin, Adjusted EBITDA,
Adjusted EBITDA margin, operating free cash flow, adjusted
operating expenses, and leverage ratio, each of which is described
below. Management uses these non-GAAP financial measures internally
to (i) assist in analyzing Frontier's underlying financial
performance from period to period, (ii) analyze and evaluate
strategic and operational decisions, (iii) establish criteria for
compensation decisions, and (iv) assist in the understanding of
Frontier's ability to generate cash flow and, as a result, to plan
for future capital and operational decisions. Management believes
that the presentation of these non-GAAP financial measures provides
useful information to investors regarding Frontier’s financial
condition and results of operations because these measures, when
used in conjunction with related GAAP financial measures (i)
provide a more comprehensive view of Frontier’s core operations and
ability to generate cash flow, (ii) provide investors with the
financial analytical framework upon which management bases
financial, operational, compensation, and planning decisions and
(iii) present measurements that investors and rating agencies have
indicated to management are useful to them in assessing Frontier
and its results of operations.
A reconciliation of these measures to the most comparable
financial measures calculated and presented in accordance with GAAP
is included in the accompanying tables. These non-GAAP financial
measures are not measures of financial performance or liquidity
under GAAP, nor are they alternatives to GAAP measures and they may
not be comparable to similarly titled measures of other
companies.
EBITDA is defined as net income (loss) less income tax expense
(benefit), interest expense, investment and other income (loss),
pension settlement costs, gains/losses on extinguishment of debt,
and depreciation and amortization. EBITDA margin is calculated by
dividing EBITDA by total revenue.
Adjusted EBITDA is defined as EBITDA, as described above,
adjusted to exclude, certain pension/OPEB expenses, restructuring
costs and other charges, stock-based compensation expense, goodwill
impairment charges, and certain other non-recurring items. Adjusted
EBITDA margin is calculated by dividing adjusted EBITDA by total
revenue.
Management uses EBITDA, EBITDA margin, adjusted EBITDA and
adjusted EBITDA margin to assist it in comparing performance from
period to period and as measures of operational performance.
Management believes that these non-GAAP measures provide useful
information for investors in evaluating Frontier’s operational
performance from period to period because they exclude depreciation
and amortization expenses related to investments made in prior
periods and are determined without regard to capital structure or
investment activities. By excluding capital expenditures, debt
repayments and dividends, among other factors, these non-GAAP
financial measures have certain shortcomings. Management
compensates for these shortcomings by utilizing these non-GAAP
financial measures in conjunction with the comparable GAAP
financial measures.
Adjusted net income (loss) attributable to Frontier common
shareholders is defined as net income (loss) attributable to
Frontier common shareholders and excludes, restructuring costs and
other charges, pension settlement costs, goodwill impairment
charges, certain income tax items and the income tax effect of
these items, and certain other non-recurring items. Adjusting for
these items allows investors to better understand and analyze
Frontier’s financial performance over the periods presented.
Management defines operating free cash flow, a non-GAAP
measure, as net cash provided from operating activities less
capital expenditures. Management uses operating free cash flow to
assist it in comparing liquidity from period to period and to
obtain a more comprehensive view of Frontier’s core operations and
ability to generate cash flow. Management believes that this
non-GAAP measure is useful to investors in evaluating cash
available to service debt and pay dividends. This non-GAAP
financial measure has certain shortcomings; it does not represent
the residual cash flow available for discretionary expenditures, as
items such as debt repayments and preferred stock dividends are not
deducted in determining such measure. Management compensates for
these shortcomings by utilizing this non-GAAP financial measure in
conjunction with the comparable GAAP financial measure.
Adjusted operating expenses is defined as operating expenses
adjusted to exclude depreciation and amortization, restructuring
and other charges, goodwill impairment charges, certain
pension/OPEB expenses, stock-based compensation expense, and
certain other non-recurring items. Investors have indicated that
this non-GAAP measure is useful in evaluating Frontier’s
performance.
Leverage ratio is calculated as net debt (total debt less cash
and cash equivalents) divided by Adjusted EBITDA for the most
recent four quarters. Investors have indicated that this non-GAAP
measure is useful in evaluating Frontier’s debt levels.
The information in this press release should be read in
conjunction with the financial statements and footnotes contained
in Frontier’s documents filed with the U.S. Securities and Exchange
Commission.
Conference Call and Webcast
Frontier will host a conference call today at 4:30 P.M. Eastern
time. In connection with the conference call and as a convenience
to investors, Frontier furnished today, under cover of a Current
Report on Form 8-K, additional materials regarding first quarter
2019 results. The conference call will be webcast and may be
accessed in the Webcasts & Presentations section of
Frontier's Investor Relations website
at www.frontier.com/ir.
A telephonic replay of the conference call will be available
from 7:30 P.M. Eastern Time on Tuesday, April 30, 2019, through
7:30 P.M. Eastern Time on Sunday, May 5, 2019 at 719-457-0820 or
888-203-1112. Use the passcode 7833067 to access the replay. A
webcast replay of the call will be available at
www.frontier.com/ir.
About Frontier Communications
Frontier Communications Corporation (NASDAQ: FTR) is a leader in
providing communications services to urban, suburban, and rural
communities in 29 states. Frontier offers a variety of services to
residential customers over its fiber-optic and copper networks,
including video, high-speed internet, advanced voice, and Frontier
Secure® digital protection solutions. Frontier Business offers
communications solutions to small, medium, and enterprise
businesses. More information about Frontier is available at
www.frontier.com.
Forward-Looking Statements
This earnings release contains "forward-looking statements,"
related to future events. Forward-looking statements address
Frontier’s expected future business, financial performance, and
financial condition, and contain words such as "expect,"
"anticipate," "intend," "plan," "believe," "seek," "see," "may,"
"will," "would," or "target." Forward-looking statements by their
nature address matters that are, to different degrees, uncertain.
For Frontier, particular uncertainties that could cause actual
results to be materially different than those expressed in such
forward-looking statements include: declines in revenue from
Frontier’s voice services, switched and non-switched access and
video and data services that it cannot stabilize or offset with
increases in revenue from other products and services; Frontier’s
ability to successfully implement strategic initiatives, including
opportunities to enhance revenue and realize operational
improvements; competition from cable, wireless and wireline
carriers, satellite, and OTT companies, and the risk that Frontier
will not respond on a timely or profitable basis; Frontier’s
ability to successfully adjust to changes in the communications
industry, including the effects of technological changes and
competition on its capital expenditures, products and service
offerings; risks related to disruptions in Frontier’s networks,
infrastructure and information technology that may result in
customer loss and/or incurrence of additional expenses; the impact
of potential information technology or data security breaches or
other cyber attacks or other disruptions; Frontier’s ability to
retain or attract new customers and to maintain relationships with
customers, employees or suppliers; Frontier’s ability to hire or
retain key personnel; Frontier’s ability to realize anticipated
benefits from recent acquisitions; Frontier’s ability to dispose of
certain assets or asset groups on terms that are attractive to it,
or at all; Frontier’s ability to effectively manage its operations,
operating expenses, capital expenditures, debt service requirements
and cash paid for income taxes and liquidity; Frontier’s ability to
defend against litigation and potentially unfavorable results from
current pending and future litigation; adverse changes in the
credit markets, which could impact the availability and cost of
financing; Frontier’s ability to repay or refinance its debt
through, among other things, accessing the capital markets, notes
repurchases and/or redemptions, tender offers and exchange offers;
adverse changes in the ratings given to Frontier’s debt securities
by nationally accredited ratings organizations; covenants in
Frontier’s indentures and credit agreements that may limit
Frontier’s operational and financial flexibility as well as its
ability to access the capital markets in the future; the effects of
state regulatory requirements that could limit Frontier’s ability
to transfer cash among its subsidiaries or dividend funds up to the
parent company; the effects of governmental legislation and
regulation on Frontier’s business; the impact of regulatory,
investigative and legal proceedings and legal compliance risks;
government infrastructure projects that impact capital
expenditures; continued reductions in switched access revenue as a
result of regulation, competition or technology substitutions; the
effects of changes in the availability of federal and state
universal service funding or other subsidies to Frontier and its
competitors; Frontier’s ability to meet its remaining CAF II
funding obligations and the risk of penalties or obligations to
return certain CAF II funds; Frontier’s ability to effectively
manage service quality and meet mandated service quality metrics;
the effects of changes in accounting policies or practices,
including potential future impairment charges with respect to
intangible assets; the effects of changes in income tax rates, tax
laws, regulations or rulings, or federal or state tax assessments,
including the risk that such changes may benefit Frontier’s
competitors more than it, as wells potential future decreases in
the value of Frontier’s deferred tax assets; the effects of
increased medical expenses and pension and postemployment expenses;
Frontier’s ability to successfully renegotiate union contracts;
changes in pension plan assumptions, interest rates, discount
rates, regulatory rules and/or the value of Frontier’s pension plan
assets, which could require Frontier to make increased
contributions to its pension plans; the effects of changes in both
general and local economic conditions in the markets that Frontier
serves; the effects of severe weather events or other natural or
man-made disasters, which may increase operating and capital
expenses or adversely impact customer revenue; and the risks and
other factors contained in Frontier’s filings with the U.S.
Securities and Exchange Commission, including its reports on Forms
10-K and 10-Q. These risks and uncertainties may cause actual
future results to be materially different than those expressed in
such forward-looking statements. Frontier has no obligation to
update or revise these forward-looking statements and does not
undertake to do so.
_________________
1
See “Non-GAAP Measures” for a description of this measure
and its calculation. See Schedule A on page 11 for a reconciliation
to net income/(loss). 2 Adjusted EBITDA margin is a non-GAAP
measure of performance, calculated as Adjusted EBITDA, divided by
total revenue. See “Non-GAAP Measures” on page 4 for a description
of this measure and its calculation. See Schedule A on page 11 for
a reconciliation of EBITDA to net loss. 3 Operating free cash flow
is a non-GAAP measure of liquidity derived from net cash provided
from operating activities. See “Non-GAAP Measures” on page 4 for a
description of this measure and its calculation and Schedule A on
page 11 for a reconciliation to net cash provided from operating
activities. 4 Leverage ratio is calculated as net debt (total debt
less cash and cash equivalents) divided by Adjusted EBITDA for the
most recent four quarters. See Schedule C on page 13 for its
calculation.
Frontier Communications Corporation
Unaudited Consolidated Financial Data
For the quarter ended ($ in millions and shares in thousands,
except per share amounts) March 31, 2019 December 31, 2018 March
31, 2018
Statement of Operations Data Revenue $ 2,101
$ 2,124 $ 2,199 Operating expenses: Network
access expenses 338 347 372 Network related expenses 456 461 483
Selling, general and administrative expenses 456 441 469
Depreciation and amortization 484 492 505 Goodwill impairment - 241
- Restructuring costs and other charges 28 15
4 Total operating expenses 1,762
1,997 1,833 Operating
income 339 127 366 Investment and other income (loss), net
(9 ) (3 ) 8 Pension settlement costs - 7 - Gain (Loss) on early
extinguishment of debt (20 ) 1 33 Interest expense 379
388 374 Income (Loss)
before income taxes (69 ) (270 ) 33 Income tax expense (benefit)
18 (51 ) 13
Net income
(loss) (87 ) (219 ) 20 Less: Dividends on preferred
stock - - 53
Net loss
attributable to Frontier common shareholders $ (87 ) $
(219 ) $ (33 ) Weighted average shares outstanding - basic
and diluted 103,885 103,680 77,416
Basic and diluted net
loss per common share $ (0.84 ) $ (2.12 ) $ (0.44 )
Other Financial Data: Capital expenditures $ 305 $ 245 $ 297
Dividends declared - Preferred stock $ - $ - $ 53
Frontier Communications Corporation Unaudited
Consolidated Financial Data For the
quarter ended March 31, 2019 December 31, 2018 March 31, 2018
($ in
millions)
Selected Statement of Operations Data Revenue: Data
and Internet services $ 967 $ 959 $ 985 Voice services 650 668 702
Video services 268 275 280 Other 124 128 135
Customer revenue 2,009 2,030 2,102 Subsidy revenue 92
94 97 Total revenue $ 2,101 $ 2,124 $ 2,199
Other
Financial Data Revenue: Consumer $ 1,077 $ 1,088 $ 1,128
Commercial 932 942 974 Customer revenue 2,009
2,030 2,102 Subsidy revenue 92 94 97 Total
revenue $ 2,101 $ 2,124 $ 2,199
Frontier Communications
Corporation Unaudited Consolidated Financial and Operating
Data For the quarter ended March
31, 2019 December 31, 2018 March 31, 2018
Customers (in
thousands) 4,395 4,471 4,765
Consumer customer
metrics Customers (in thousands) 3,995 4,060 4,324 Net customer
additions (losses) (65 ) (92 ) (74 ) Average monthly consumer
revenue per customer $ 89.14 $ 88.37 $ 86.21 Customer monthly churn
1.99 % 1.94 % 1.94 %
Commercial customer metrics
Customers (in thousands) 400 411 441
Broadband subscriber
metrics (in thousands) Broadband subscribers 3,697 3,735 3,895
Net subscriber additions (losses) (38 ) (67 ) (43 )
Video
(excl. DISH) subscriber metrics (in thousands) Video
subscribers 784 838 934 Net subscriber additions (losses) (54 ) (35
) (28 )
Video - DISH subscriber metrics (in
thousands) DISH subscribers 198 205 227 Net subscriber
additions (losses) (7 ) (6 ) (8 )
Employees 20,439
21,173 22,081
Frontier Communications Corporation
Condensed Consolidated Balance Sheet Data
(Unaudited)
($ in
millions)
March 31, 2019 December 31, 2018
ASSETS
Current assets: Cash and cash equivalents $ 119 $ 354 Accounts
receivable, net 715 723 Other current assets 276 253
Total current assets 1,110 1,330 Property, plant and
equipment, net 14,034 14,187 Other assets - principally goodwill
8,218 8,142 Total assets $ 23,362 $ 23,659
LIABILITIES AND
EQUITY
Current liabilities: Long-term debt due within one year $ 393 $ 814
Accounts payable and other current liabilities 1,617
1,747 Total current liabilities 2,010 2,561 Deferred income
taxes and other liabilities 3,291 3,140 Long-term debt 16,526
16,358 Equity 1,535 1,600 Total liabilities and
equity $ 23,362 $ 23,659
Frontier Communications
Corporation Unaudited Consolidated Cash Flow Data
For the quarter ended
($ in
millions)
March 31, 2019 March 31, 2018
Cash flows provided from
(used by) operating activities: Net income (loss) $ (87 ) $ 20
Adjustments to reconcile net income (loss) to net cash provided
from (used by) operating activities: Depreciation and amortization
484 505 (Gain) Loss on extinguishment of debt 20 (33 ) Stock-based
compensation expense 3 4 Amortization of deferred financing costs 9
9 Other adjustments - (9 ) Deferred income taxes 16 12 Change in
accounts receivable 7 9 Change in accounts payable and other
liabilities (157 ) (261 ) Change in prepaid expenses, income taxes,
and other assets (13 ) (5 )
Net cash provided from
operating activities 282 251
Cash flows provided from
(used by) investing activities: Capital expenditures (305 )
(297 ) Proceeds on sale of assets 74 10 Other -
(2 )
Net cash used by investing activities (231 )
(289 )
Cash flows provided from (used by) financing
activities: Long-term debt payments (1,995 ) (1,627 ) Proceeds
from long-term debt borrowings 1,650 1,600 Proceeds from revolving
debt 375 - Repayment of revolving debt (275 ) - Financing costs
paid (30 ) (26 ) Dividends paid on preferred stock - (53 ) Premium
paid to retire debt - (16 ) Finance lease obligation payments (8 )
(10 ) Other (3 ) (5 )
Net cash used by financing
activities (286 ) (137 ) Decrease in cash, cash
equivalents, and restricted cash (235 ) (175 ) Cash, cash
equivalents, and restricted cash at January 1, 404
376
Cash, cash equivalents, and restricted
cash at March 31, $ 169 $ 201
Supplemental cash flow information: Cash paid (received)
during the period for: Interest $ 525 $ 593 Income tax payments
(refunds), net $ - $ -
SCHEDULE A
Frontier Communications Corporation Reconciliation of
Non-GAAP Financial Measures For the quarter ended
($ in
millions)
March 31, 2019 December 31, 2018 March 31, 2018
EBITDA
Net income (loss) $ (87) $ (219) $ 20 Add back (subtract): Income
tax expense (benefit) 18 (51) 13 Interest expense 379 388 374
Investment and other (income) loss, net 9 3 (8) Pension settlement
costs - 7 - (Gain) Loss on extinguishment of debt 20
(1) (33) Operating income (loss) 339 127 366
Depreciation and amortization 484 492 505
EBITDA $
823 $
619 $
871 Add
back: Pension/OPEB expense 20 19 22 Restructuring costs and other
charges 28 15 4 Stock-based compensation expense 3 4 4
Storm-related insurance proceeds (1) (3) - Work stoppage costs - -
7 Goodwill impairment - 241 -
Adjusted
EBITDA $ 873 $ 895 $
908 EBITDA margin 39.1% 29.1% 39.6% Adjusted EBITDA
margin 41.6% 42.1% 41.3%
Free Cash
Flow
Net cash provided from operating activities $ 282 $ 603 $ 251
Capital expenditures (305) (245) (297)
Operating free cash flow $ (23) $
358 $ (46)
SCHEDULE B
Frontier Communications Corporation Reconciliation of
Non-GAAP Financial Measures For the quarter ended March
31, 2019 December 31, 2018 March 31, 2018
($ in millions,
except per share amounts)
Net Income(Loss)
Basic Earnings(Loss) Per Share
Net Income(Loss)
Basic Earnings(Loss) Per Share
Net Income(Loss)
Basic Earnings(Loss) Per Share
Net loss attributable to Frontier common shareholders $ (87
) $ (0.84 ) $ (219 ) $ (2.12 ) $ (33 ) $ (0.44 )
Restructuring costs and other charges 28 15 4 Pension settlement
costs - 7 - (Gain) Loss on extinguishment of debt 20 (1 ) (33 )
Goodwill impairment - 241 - Storm-related insurance proceeds (1 )
(3 ) - Work stoppage costs - - 7 Certain other tax items (1) 30 (14
) 4 Income tax effect on above items: Restructuring costs and other
charges (5 ) (4 ) (1 ) Pension settlement costs - (2 ) - (Gain)
Loss on extinguishment of debt (4 ) - 9 Goodwill impairment - (27 )
- Storm-related insurance proceeds - 1 - Work stoppage costs
- - (2 )
$ 68 $ 0.65 $ 213 $ 2.05 $ (12 ) $ (0.15 )
Adjusted net loss attributable to Frontier common shareholders(2) $
(19 ) $ (0.18 ) $ (6 ) $ (0.06 ) $ (45 ) $ (0.58 ) (1)
Includes impact arising from federal research and development
credits, changes in certain deferred tax balances, state tax law
changes, state filing method change, and the net impact of
uncertain tax positions. (2) Adjusted net loss attributable
to Frontier common shareholders may not sum due to rounding.
SCHEDULE C
Frontier Communications Corporation Reconciliation of
Non-GAAP Financial Measures For the quarter ended
($ in
millions)
March 31, 2019 December 31, 2018 March 31, 2018
Adjusted Operating
Expenses
Total operating expenses $ 1,762
$ 1,997 $ 1,833 Subtract:
Depreciation and amortization 484 492 505 Goodwill impairment - 241
- Pension/OPEB expense 20 19 22 Restructuring costs and other
charges 28 15 4 Stock-based compensation expense 3 4 4
Storm-related insurance proceeds (1 ) (3 ) - Work stoppage costs
- - 7
Adjusted operating
expenses $ 1,228 $ 1,229
$ 1,291 For the quarter ended
March 31, 2019
Leverage
Ratio
Numerator Long-term debt $ 16,526 Long-term debt due within one
year 393 Cash and cash equivalents (119 ) $
16,800
Denominator Adjusted EBITDA - last 4
quarters $
3,530 Leverage Ratio 4.76x
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190430006155/en/
Investors:Luke SzymczakVice
President(203) 614-5044luke.szymczak@ftr.comMedia:Brigid SmithAssistant Vice President(203)
614-5042brigid.smith@ftr.com
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