- Total revenue of $2.25 billion
- Consumer customer churn improved to
2.08% from 2.24% in Q2 2017, driven by CTF FiOS®
- Achieved pre-acquisition level of CTF
FiOS broadband gross adds
- Net loss of $38 million
- Adjusted EBITDA1 of $914 million
Frontier Communications Corporation (NASDAQ:FTR) today reported
financial results for the third quarter ended September 30,
2017.
“Our third quarter results highlight the ongoing stabilization
across our business as we focus on executing our strategy,” said
Dan McCarthy, President and CEO. “During the quarter, we were
pleased with the continued improvement in subscriber trends and
churn in our California, Texas and Florida (CTF) markets, ongoing
stabilization in our commercial business, and continued operating
efficiencies. We remain committed to enhancing the customer
experience, further reducing churn, generating cash flow, and
improving the balance sheet to further stabilize the business and
grow longer-term.”
Consolidated Results
Consolidated revenues for the third quarter were $2.25 billion.
Within consolidated revenue, consumer revenue was $1.1 billion,
commercial revenue was $958 million and regulatory revenue was $191
million.
Net loss for the third quarter of 2017 was $38 million. Net loss
attributable to common shares was $92 million for a diluted net
loss per common share of $1.19. Adjusted EBITDA2 totaled $914
million for an adjusted EBITDA margin3 of 40.6%. During the third
quarter of 2017, we revised our methodology for calculating
adjusted EBITDA. See footnote 1, above, for a detailed description
of the revision and the reasons for making the revision.
The Company achieved more than $19 million of synergies in Q3
and remains on track to achieve its target of $350 million in
annual savings by mid-2018.
Net cash provided from operating activities was $356 million for
the third quarter of 2017. Adjusted free cash flow4 was $182
million for the third quarter.
Consumer Business Highlights
- Revenue was $1.1 billion, a sequential
decline of $22 million versus the $40 million sequential decline in
the second quarter. The improved trend was entirely driven by a
stronger performance in CTF.
- Customer churn improved to 2.08% (1.92%
for Frontier Legacy and 2.33% for CTF operations) compared to 2.24%
for the second quarter of 2017 (1.95% for Frontier Legacy and 2.69%
for CTF operations), with CTF FiOS being the primary driver of the
overall improvement.
- Combined Average Revenue Per Customer
(ARPC) of $80.91 ($63.99 for Frontier Legacy and $107.33 for CTF
operations). Excluding the positive one-time impact of the
Mayweather vs. McGregor fight in the quarter, each of these
measures of ARPC was stable sequentially.
Commercial Business Highlights
- Revenue of $958 million, was roughly
stable with the second quarter, adjusted for the divestiture of the
Frontier Secure Strategic Partnerships business.
- Total commercial customers of 463,000
compared to 473,000 during the second quarter of 2017.
Capital Structure
- We purchased $45 million principal
amount of our senior unsecured notes on the open market during the
third quarter of 2017.
- As of September 30, 2017, our Leverage
Ratio (as calculated in accordance with our credit agreements) was
4.39:1, which complies with our obligations under our credit
agreements. The Leverage Ratio was 4.20:1 as of June 30, 2017.
- The Company remains committed to
deleveraging the business.
Guidance
For the full year 2017, Frontier’s guidance is the
following:
- Adjusted free cash flow5 - $730 million
to $750 million
- Capital expenditures - $1.15 billion to
$1.2 billion
- Integration - operating expense $20
million; capital expenditures $50 million
- Storm impact - operating expense $28
million; capital expenditures $12 million
- Net cash tax refund - $50 million
For the fourth quarter 2017, Frontier’s guidance is the
following:
- Adjusted EBITDA6 - $910 million to $930
million
- Cash pension/OPEB - $34 million
Non-GAAP Measures
Frontier uses certain non-GAAP financial measures in evaluating
its performance, including EBITDA, EBITDA margin, adjusted EBITDA,
adjusted EBITDA margin, free cash flow, adjusted free cash flow,
adjusted operating expenses, and dividend payout 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.
We believe that the presentation of these non-GAAP financial
measures provides useful information to investors regarding our
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 our 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, losses on
extinguishment of debt and depreciation and amortization. EBITDA
margin is calculated by dividing EBITDA by total revenues.
Adjusted EBITDA is defined as EBITDA, as described above,
adjusted to exclude acquisition and integration costs, GAAP
pension/OPEB expense (including pension settlement costs),
restructuring costs and other charges, stock-based compensation
expense, goodwill impairment charges, and certain other items
(storm-related costs in the third quarter of 2017). Adjusted EBITDA
margin is calculated by dividing adjusted EBITDA by total
revenues.
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. We
believe that these non-GAAP measures provide useful information for
investors in evaluating our 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 acquisition and
integration costs, restructuring costs and other charges, pension
settlement costs, goodwill impairment charges, certain income tax
items and the income tax effect of these items, and one-time
storm-related costs in Q3 2017 (and which, owing to the timing of
the storms, also will be excluded in Q4 of 2017). Adjustments have
also been made to exclude the financing costs and related income
tax effects associated with the April 1, 2016 Verizon Transaction,
including interest expense on debt raised to finance the
transaction and preferred dividends paid, in each case prior to our
ownership of the CTF Operations. Adjusting for these items allows
investors to better understand and analyze our financial
performance over the periods presented.
Free cash flow, as used by management in the operation of its
business, is defined as net cash provided from operating activities
less capital expenditures for business operations and preferred
dividends. In determining free cash flow, further adjustments are
made to exclude acquisition and integration expense, income taxes,
restructuring costs, one-time storm-related costs and capital
expenditures, and interest expense on commitment fees, which
provides a better comparison of our core operations from period to
period. Changes in working capital accounts are excluded from this
calculation due to seasonality and specific timing of cash receipts
and disbursements between various reporting periods.
Adjusted free cash flow is defined as free cash flow, as
described above, adjusted by excluding interest expense, prior to
our April 1, 2016 ownership of the CTF Operations, on debt we
incurred to finance the Verizon Transaction, and preferred stock
dividends paid prior to April 1, 2016.
Management uses free cash flow and adjusted free cash flow to
assist it in comparing liquidity from period to period and to
obtain a more comprehensive view of our core operations and ability
to generate cash flow. We believe that these non-GAAP measures are
useful to investors in evaluating cash available to service debt
and pay dividends. In addition, we believe that adjusted free cash
flow provides a useful comparison from period to period because it
excludes the impact of financing (debt and preferred stock) raised
in connection with the Verizon Transaction during periods prior to
our ownership of the CTF Operations. These non-GAAP financial
measures have certain shortcomings; they do not represent the
residual cash flow available for discretionary expenditures, since
items such as debt repayments, changes in working capital, and
common stock dividends are not deducted in determining such
measures. Management compensates for these shortcomings by
utilizing these non-GAAP financial measures in conjunction with the
comparable GAAP financial measures.
Dividend payout ratio is calculated by dividing the dividends
paid on common stock (as adjusted) by adjusted free cash flow.
Dividends paid on common stock has been adjusted to exclude
dividends paid on common stock issued in June 2015, from the date
of issuance until April 1, 2016, when the proceeds of the issuance
were used in the Verizon Transaction that generated adjusted free
cash flow from that date. Management uses the dividend payout ratio
as a metric to indicate the proportion of our adjusted free cash
flow that we used to pay dividends to our common shareholders. We
have made adjustments to exclude the impact of financing raised in
connection with the Verizon Transaction during periods prior to our
ownership of the CTF Operations, which we believe provides a useful
comparison from period to period.
Adjusted operating expenses is defined as operating expenses
adjusted to exclude depreciation and amortization, acquisition and
integration costs, goodwill impairment charges, GAAP pension/OPEB
expense (including pension settlement costs), stock-based
compensation expense, one-time storm-related costs, and
restructuring costs and other charges. Investors have indicated
that this non-GAAP measure is useful in evaluating Frontier’s
performance.
The information in this press release should be read in
conjunction with the financial statements and footnotes contained
in our documents filed with the U.S. Securities and Exchange
Commission.
Conference Call and Webcast
We 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 third quarter
2017 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 8:00 P.M. Eastern Time on October 31, 2017,
through 8:00 P.M. Eastern Time on November 5,
2017 at 888-203-1112 for callers dialing from
the U.S. or Canada, and at 719-457-0820 for those
dialing from outside the U.S. or Canada. Use the
passcode 3909760 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 Edge™
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, not past, events. Forward-looking statements
address our expected future business and financial performance and
financial condition, and contain words such as "expect,"
"anticipate," "intend," "plan," "believe," "seek," "see," "will,"
"would," or "target." Forward-looking statements by their nature
address matters that are, to different degrees, uncertain. For us,
particular uncertainties that could cause our actual results to be
materially different than those expressed in our forward-looking
statements include: competition from cable, wireless and wireline
carriers, satellite, and OTT companies, and the risk that we will
not respond on a timely or profitable basis; our ability to
successfully adjust to changes in the communications industry,
including the effects of technological changes and competition on
our capital expenditures, products and service offerings; risks
related to the operation of properties acquired from Verizon,
including our ability to retain or obtain customers in those
markets, our ability to realize anticipated cost savings, and our
ability to meet commitments made in connection with the
acquisition; reductions in revenue from our voice customers that we
cannot offset with increases in revenue from broadband and video
subscribers and sales of other products and services; our ability
to maintain relationships with customers, employees or suppliers;
our ability to attract/retain key talent; the impact of regulation
and regulatory, investigative and legal proceedings and legal
compliance risks; continued reductions in switched access revenues
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 us and our
competitors; our ability to effectively manage service quality in
our territories and meet mandated service quality metrics; our
ability to successfully introduce new product offerings; the
effects of changes in accounting policies or practices, including
potential future impairment charges with respect to our intangible
assets; our ability to effectively manage our operations, operating
expenses, capital expenditures, debt service requirements and cash
paid for income taxes and liquidity, which may affect payment of
dividends on our common and preferred shares; the effects of
changes in both general and local economic conditions on the
markets that we serve; the effects of increased medical expenses
and pension and postemployment expenses; the effects of changes in
income tax rates, tax laws, regulations or rulings, or federal or
state tax assessments; our ability to successfully renegotiate
union contracts; changes in pension plan assumptions, interest
rates, regulatory rules and/or the value of our pension plan
assets, which could require us to make increased contributions to
the pension plan in 2017 and beyond; adverse changes in the credit
markets; adverse changes in the ratings given to our debt
securities by nationally accredited ratings organizations; the
availability and cost of financing in the credit markets; covenants
in our indentures and credit agreements that may limit our
operational and financial flexibility; the effects of state
regulatory cash management practices that could limit our ability
to transfer cash among our subsidiaries or dividend funds up to the
parent company; the effects of severe weather events or other
natural or man-made disasters, which may increase our operating
expenses or adversely impact customer revenue; the impact of
potential information technology or data security breaches or other
disruptions; and the risks and other factors contained in our
filings with the U.S. Securities and Exchange Commission, including
our reports on Forms 10-K and 10-Q. Any of the foregoing events, or
other events, could cause our results to vary from management’s
forward-looking statements included in this earnings release. These
risks and uncertainties may cause our actual future results to be
materially different than those expressed in our forward-looking
statements. We have no obligation to update or revise these
forward-looking statements and do not undertake to do so.
________________________
1 During the third quarter of 2017, we revised our methodology
for calculating adjusted EBITDA to exclude GAAP pension/OPEB
expense instead of excluding non-cash pension/OPEB costs. We also
revised our methodology to exclude stock-based compensation
expense. We revised our methodology for calculating adjusted EBITDA
because: 1) by excluding GAAP pension/OPEB expense, instead of
non-cash pension/OPEB costs, we made adjusted EBITDA a more
transparent measure; 2) adjusted EBITDA now is directly calculable
from our GAAP financial statements; and 3) the revision made
adjusted EBITDA more completely a performance measure by insulating
quarterly adjusted EBITDA from fluctuations caused by quarterly
differences in our cash contributions to our pension fund, which is
a liquidity-related factor unrelated to the performance of the
business. See “Non-GAAP Measures” for a description of this measure
and its calculation. See Schedule A for a reconciliation to net
loss.
2 See Note 1, above.
3 See Note 1, above. Adjusted EBITDA margin is a non-GAAP
measure of performance, calculated as adjusted EBITDA, divided by
total revenue. See “Non-GAAP Measures” for a description of this
measure and its calculation. See Schedule A for a reconciliation to
net loss.
4 Adjusted free cash flow is a non-GAAP measure of liquidity
derived from net cash provided from operating activities. See
“Non-GAAP Measures” for a description of this measure and its
calculation, and Schedule A for a reconciliation to net cash
provided from operating activities.
5 See Note 4, above.
6 See Note 1, above.
Frontier Communications Corporation Consolidated
Financial Data For the quarter ended
For the nine months ended
($ in millions and
shares in thousands, except per share amounts)
September 30, 2017 June 30, 2017
September 30, 2016 September 30, 2017 September 30,
2016
Statement of Operations Data Revenue $ 2,251
$ 2,304 $ 2,524 $ 6,911 $ 6,487
Operating expenses: Network access expenses 390 408 440
1,209 1,053 Network related expenses 497 477 527 1,468 1,399
Selling, general and administrative expenses 486 531 582 1,561
1,535 Depreciation and amortization 539 552 578 1,670 1,469
Goodwill impairment - 670 - 670 - Acquisition and integration costs
1 12 122 15 387 Pension settlement costs 15 19 - 77 - Restructuring
costs and other charges 14 29 11
55 11 Total operating expenses
1,942 2,698 2,260
6,725 5,854 Operating income (loss) 309
(394 ) 264 186 633 Investment and other income, net 2 - 3 5
14 Loss (gain) on extinguishment of debt and debt exchanges (1 ) 90
7 89 7 Interest expense 381 388
386 1,157 1,145 Loss
before income taxes (69 ) (872 ) (126 ) (1,055 ) (505 ) Income tax
benefit (31 ) (210 ) (46 ) (280 )
(212 )
Net loss (38 ) (662 ) (80 ) (775 ) (293
) Less: Dividends on preferred stock 54
53 54 161 161
Net loss attributable to Frontier common shareholders
$ (92 ) $ (715 ) $ (134 ) $ (936 ) $ (454 ) Weighted average
shares outstanding - basic 77,797 77,795 77,612 77,714 77,608
Weighted average shares outstanding - diluted 77,797 77,951 77,612
77,875 77,608
Basic net loss per common share $ (1.19
) $ (9.20 ) $ (1.73 ) $ (12.06 ) $ (5.87 )
Diluted net loss per
common share $ (1.19 ) $ (9.21 ) $ (1.73 ) $ (12.07 ) $ (5.87 )
Other Financial Data: Capital expenditures - Business
operations $ 268 $ 263 $ 403 $ 846 $ 960 Capital expenditures -
Integration activities 14 4 11 19 99 Dividends paid - Common stock
47 48 124 219 370 Dividends paid - Preferred stock 54 53 54 161 161
Frontier Communications Corporation
Consolidated Financial Data For the
quarter ended For the nine months ended September 30,
2017 June 30, 2017 September 30, 2016
September 30, 2017 September 30, 2016
($ in
millions)
Selected Statement of Operations Data Revenue:
Data and internet services $ 956 $ 974 $ 1,045 $ 2,923 $ 2,680
Voice services 702 724 809 2,177 2,112 Video services 318 329 392
994 879 Other 84 79 73 231 218
Customer revenue 2,060 2,106 2,319 6,325 5,889 Switched access and
subsidy 191 198 205 586 598
Total revenue $ 2,251 $ 2,304 $ 2,524 $ 6,911 $ 6,487
Other Financial Data Revenue: Consumer $ 1,102 $
1,124 $ 1,272 $ 3,390 $ 3,187 Commercial 958 982
1,047 2,935 2,702 Customer revenue 2,060 2,106
2,319 6,325 5,889 Switched access and subsidy 191 198
205 586 598 Total revenue $ 2,251 $ 2,304 $
2,524 $ 6,911 $ 6,487
Operating Expenses: Network
access expenses $ 390 $ 408 $ 440 $ 1,209 $ 1,053 Network related
expenses 497 477 527 1,468 1,399 Selling, general and
administrative expenses 486 531 582 1,561 1,535 Goodwill impairment
- 670 - 670 - Acquisition and integration costs 1 12 122 15 387
Pension settlement costs 15 19 - 77 - Restructuring costs and other
charges 14 29 11 55 11 Cost and
expenses (exclusive of depreciation and amortization) 1,403 2,146
1,682 5,055 4,385 Depreciation and amortization 539
552 578 1,670 1,469
Total Operating
Expenses $ 1,942 $ 2,698 $ 2,260 $ 6,725 $ 5,854
Frontier Communications Corporation Consolidated
Financial and Operating Data For the
quarter ended For the nine months ended September 30,
2017 June 30, 2017 September 30, 2016
September 30, 2017 September 30, 2016
Customers (in thousands) 4,949 5,058 5,551
(1)
4,949 5,551
(1)
Consumer customer metrics Customers (in thousands)
4,486 4,585 5,035
(1)
4,486 5,035
(1)
Net customer additions/(losses) (99 ) (151 ) (155 ) (405 ) 1,910
Average monthly consumer revenue per customer $ 80.91 $ 80.38 $
82.34 $ 80.73 $ 76.11 Customer monthly churn 2.08 % 2.24 % 2.08 %
2.23 % 1.94 %
Commercial customer metrics Customers
(in thousands) 463 473 516
(1)
463 516
(1)
Broadband subscriber metrics (in thousands) Broadband
subscribers 4,000 4,063 4,362
(2)
4,000 4,362
(2)
Net subscriber additions/(losses) (63 ) (100 ) (99 ) (271 ) 1,900
Video (excl. DISH) subscriber metrics (in thousands)
Video subscribers 981 1,007 1,222
(2)
981 1,222
(2)
Net subscriber additions/(losses) (26 ) (58 ) (82 ) (164 ) 980
Video - DISH subscriber metrics (in thousands) DISH
subscribers 244 254 281
(2)
244 281
(2)
Net subscriber additions/(losses) (10 ) (12 ) (11 ) (30 ) (31 )
Employees 23,181
(3)
23,924 30,358 23,181
(3)
30,358
(1) 2,283,000 consumer customers, 250,000
commercial customers and 2,533,000 total customers were acquired at
the time of the CTF Acquisition.
(2) 2,052,000 broadband subscribers and
1,165,000 video subscribers were acquired at the time of the CTF
Acquisition.
(3) At December 31, 2016, we had
approximately 1,900 employees from our Frontier Secure Partnerships
business, which was sold in May 2017.
Frontier Communications Corporation
Condensed Consolidated Balance Sheet Data
($ in
millions)
September 30, 2017 December 31, 2016
ASSETS
Current assets: Cash and cash equivalents $ 286 $ 522 Accounts
receivable, net 780 938 Other current assets 196 196
Total current assets 1,262 1,656 Property, plant and
equipment, net 14,375 14,902 Other assets - principally goodwill
11,439 12,455 Total assets $ 27,076 $ 29,013
LIABILITIES AND
EQUITY
Current liabilities: Long-term debt due within one year $ 166 $ 363
Accounts payable and other current liabilities 1,627
2,081
Total current liabilities
1,793 2,444 Deferred income taxes and other liabilities
4,269 4,490 Long-term debt 17,604 17,560 Equity 3,410
4,519 Total liabilities and equity $ 27,076 $ 29,013
Frontier Communications Corporation
Consolidated Cash Flow Data For the nine months ended
September 30,
($ in
millions)
2017 2016
Cash flows provided from (used by) operating
activities: Net loss $ (775 ) $ (293 ) Adjustments to reconcile
net loss to net cash provided from (used by) operating activities:
Depreciation and amortization 1,670 1,469 Loss on extinguishment of
debt and debt exchanges 89 7 Pension settlement costs 77 -
Pension/OPEB costs 22 59 Stock-based compensation expense 10 21
Amortization of deferred financing costs 26 38 Other adjustments
(11 ) - Deferred income taxes (286 ) (163 ) Goodwill impairment 670
- Change in accounts receivable 161 (56 ) Change in accounts
payable and other liabilities (471 ) (108 ) Change in other current
assets 3 (12 )
Net cash provided from
operating activities 1,185 962
Cash flows provided
from (used by) investing activities: Capital expenditures -
Business operations (846 ) (960 ) Capital expenditures -
Integration activities (19 ) (99 ) Cash paid for the CTF
Acquisition - (9,886 ) Proceeds on sale of assets 109 - Other
6 -
Net cash used by investing
activities (750 ) (10,945 )
Cash flows provided from
(used by) financing activities: Proceeds from long-term debt
borrowings 1,500 1,625 Long-term debt payments (1,662 ) (113 )
Financing costs paid (15 ) (38 ) Premium paid to retire debt (80 )
- Dividends paid on common stock (219 ) (370 ) Dividends paid on
preferred stock (161 ) (161 ) Capital lease obligation payments (30
) (8 ) Taxes paid on behalf of employees for shares withheld (5 )
(10 ) Other 1 9
Net cash provided
from (used by) financing activities (671 ) 934 Decrease
in cash, cash equivalents, and restricted cash (236 ) (9,049 )
Cash, cash equivalents, and restricted cash at January 1,
522 9,380
Cash, cash equivalents,
and restricted cash at September 30, $ 286 $ 331
Supplemental cash flow information: Cash paid
(received) during the period for: Interest $ 1,373 $ 1,277
Income tax refunds, net $ (4 ) $ (35 )
SCHEDULE A Frontier Communications Corporation
Reconciliation of Non-GAAP Financial Measures
For the quarter ended For the nine months ended
($ in
millions)
September 30, 2017 June 30, 2017 September 30,
2016 September 30, 2017 September 30, 2016
EBITDA
Net Loss $ (38 ) $ (662 ) $ (80 ) $ (775 ) $ (293 ) Add back
(subtract): Income tax benefit (31 ) (210 ) (46 ) (280 ) (212 )
Interest expense 381 388 386 1,157 1,145 Investment and other
income, net (2 ) - (3 ) (5 ) (14 ) Loss (gain) on extinguishment of
debt and debt exchanges (1 ) 90 7
89 7 Operating income (loss) 309
(394 ) 264 186 633 Depreciation and amortization 539
552 578 1,670
1,469
EBITDA 848 158 842
1,856 2,102 Add back: Acquisition and
integration costs 1 12 122 15 387 Pension/OPEB expense 23 25 28 73
77 Restructuring costs and other charges 14 29 11 55 11 Pension
settlement costs 15 19 - 77 - Stock-based compensation expense 4 3
6 10 21 Storm-related costs 9 - - 9 - Goodwill impairment -
670 - 670 -
Adjusted EBITDA (1) $ 914
$ 916 $ 1,009 $
2,765 $ 2,598 EBITDA
margin 37.6 % 6.9 % 33.4 % 26.9 % 32.4 % Adjusted EBITDA margin
40.6 % 39.8 % 40.0 % 40.0 % 40.0 %
Free Cash
Flow
Net cash provided from operating activities $ 356 $ 529 $ 321 $
1,185 $ 962 Add back (subtract): Capital expenditures - Business
operations (268 ) (263 ) (403 ) (846 ) (960 ) Capital expenditures
- Storm-related costs 3 - - 3 - Acquisition and integration costs 1
12 122 15 387 Deferred income taxes 32 213 (8 ) 286 163 Income tax
benefit (31 ) (210 ) (46 ) (280 ) (212 ) Dividends on preferred
stock (54 ) (53 ) (54 ) (161 ) (161 ) Non-cash gains, net(2) (2 )
(4 ) (8 ) (15 ) (38 ) Changes in current assets and liabilities 121
(48 ) 230 307 176 Cash refunded for income taxes 1 - 3 4 35
Restructuring costs and other charges 14 29 11 55 11 Storm-related
costs 9 - - 9 - Interest expense - commitment fees(3) -
- - - 10
Free cash flow $ 182 $
205 $ 168 $ 562
$ 373 Dividends on preferred stock - -
- - 54 Incremental interest on new debt - -
- - 178
Adjusted free cash flow $ 182 $
205 $ 168 $ 562
$ 605
(1) During the third quarter 2017, we
revised our methodology for calculating adjusted EBITDA to exclude
GAAP pension/OPEB expense instead of excluding non-cash
pension/OPEB costs. We also revised our methodology to exclude
stock-based compensation expense. We do not consider the revision
to be significant, in part because the numerical effects are
relatively small and in part because the revision insulates
quarterly adjusted EBITDA from fluctuations caused by quarterly
differences in our cash contributions to our pension fund, which is
a liquidity-related factor unrelated to the performance of the
business. Although the revision to the methodology is not
significant, we have, in the interests of transparency and of
providing greater comparability among periods, included adjusted
EBITDA (and the corresponding reconciliation to net loss)
calculated under the revised methodology for all periods presented
in the table. Non-cash pension/OPEB costs were $(12) million, $18
million, and $24 million for the three months ended September 30,
2017, June 30, 2017 and September 30, 2016, respectively, and $22
million and $59 million for the nine months ended September 30,
2017 and September 30, 2016, respectively.
(2) Includes amortization of deferred financing costs and other
non-cash adjustments from the consolidated cash flow data. (3)
Includes interest expense of $10 million for the nine months ended
September 30, 2016 related to commitment fees on bridge loan
facilities.
SCHEDULE B Frontier
Communications Corporation Reconciliation of Non-GAAP
Financial Measures For the quarter ended
September 30, 2017 June 30, 2017 September 30,
2016
($ in millions,
except per share amounts)
Net Income(Loss)
Basic Earnings(Loss) PerShare
Net Income(Loss)
Basic Earnings(Loss) PerShare
Net Income
(Loss)
Basic Earnings(Loss) PerShare
Net loss attributable to Frontier common shareholders
$ (92 ) $ (1.19 ) $ (715 ) $ (9.20 ) $ (134 ) $ (1.73 )
Acquisition and integration costs 1 12 122 Restructuring costs and
other charges 14 29 11 Pension settlement costs 15 19 - Loss (gain)
on extinguishment of debt and debt exchanges (1 ) 90 - Goodwill
impairment - 670 - Storm-related costs 9 - - Certain other tax
items (2) (5 ) 4 3 Income tax effect on above items: Acquisition
and integration costs (1 ) (4 ) (48 ) Restructuring costs and other
charges (5 ) (11 ) (4 ) Pension settlement costs (5 ) (8 ) - Loss
(gain) on extinguishment of debt and debt exchanges - (33 ) -
Goodwill impairment - (138 ) - Storm-related costs (3 )
- - 19 0.24 630
8.10 84 1.08 Adjusted net loss attributable to Frontier common
shareholders(3) $ (73 ) $ (0.94 ) $ (85 ) $ (1.10 ) $ (50 ) $ (0.64
) For the nine months ended September 30, 2017
September 30, 2016 Net Income (Loss)
Basic Earnings(Loss) PerShare
Net Income(Loss)
Basic Earnings(Loss) PerShare
Net loss attributable to Frontier common shareholders $ (936 ) $
(12.06 ) $ (454 ) $ (5.87 ) Acquisition and integration
costs 15 387 Acquisition related interest expense (1) - 188
Restructuring costs and other charges 55 11 Pension settlement
costs 77 - Loss (gain) on extinguishment of debt and debt exchanges
89 - Goodwill impairment 670 - Storm-related costs 9 - Certain
other tax items (2) - (14 ) Income tax effect on above items:
Acquisition and integration costs (6 ) (152 ) Acquisition related
interest expense - (73 ) Restructuring costs and other charges (20
) (4 ) Pension settlement costs (28 ) - Loss (gain) on
extinguishment of debt and debt exchanges (33 ) - Goodwill
impairment (138 ) - Storm-related costs (3 ) -
687 8.84 343 4.42 Dividends on preferred stock
- - 54 0.70
Adjusted net loss attributable to Frontier common shareholders(3) $
(249 ) $ (3.20 ) $ (57 ) $ (0.73 )
(1) Represents interest expense related to
commitment fees on bridge loan facilities in connection with the
CTF Acquisition. Also includes interest expense, prior to April 1,
2016, related to the September 2015 debt offering in connection
with financing the CTF Acquisition.
(2) Includes impact arising from federal
research and development credits, the domestic production
activities deduction, changes in certain deferred tax balances,
state tax law changes, state filing method change, non-deductible
transaction costs, and the net impact of uncertain tax
positions.
(3) Adjusted net income (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
For the nine months ended
($ in
millions)
September 30, 2017 June 30, 2017
September 30, 2016 September 30, 2017 September 30,
2016
Adjusted Operating
Expenses
Total operating expenses $ 1,942
$ 2,698 $ 2,260 $
6,725 $ 5,854 Subtract:
Depreciation and amortization 539 552 578 1,670 1,469 Goodwill
impairment - 670 - 670 - Acquisition and integration costs 1 12 122
15 387 Pension /OPEB expense 23 25 28 73 77 Restructuring costs and
other charges 14 29 11 55 11 Stock-based compensation expense 4 3 6
10 21 Pension settlement costs 15 19 - 77 - Storm-related costs
9 - - 9
-
Adjusted operating expenses (1)
$ 1,337 $ 1,388 $
1,515 $ 4,146 $
3,889 For the quarter
ended For the nine months ended September 30, 2017 June 30, 2017
September 30, 2016 September 30, 2017 September 30, 2016
Dividend Payout
Ratio
Numerator Dividends paid on common stock $ 47 $ 48 $ 124 $
219 $ 370 Less: Dividends on June 2015 common stock issuance
- - - - (18
)
$ 47 $ 48 $
124 $ 219 $ 352
Denominator Free cash flow (see Schedule A) $ 182 $
205 $ 168 $ 562 $ 373 Dividends on preferred stock - - - - 54
Incremental interest expense - -
- - 178
Adjusted free cash
flow $ 182 $ 205
$ 168 $ 562 $
605 Dividend payout ratio 26
% 23 % 74 % 39 %
59 %
(1) During the third quarter of 2017, we
revised our methodology for calculating adjusted operating
expenses, making the same changes, and for the same reasons, as we
did with respect to adjusted EBITDA. See, Note 1 to Schedule A.
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Frontier Communications CorporationINVESTOR:Luke Szymczak, 203-614-5044VP, Investor
Relationsluke.szymczak@ftr.comorMEDIA:Brigid Smith, 203-614-5042AVP, Corporate
Communicationsbrigid.smith@ftr.com
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