First Quarter
- Total revenue of $2.20 billion
- Achieved sequential growth in consumer
revenue
- Broadband trends improved
sequentially
- The first quarter of positive CTF FiOS®
broadband net additions since acquisition
- Net income of $20 million
- Adjusted EBITDA1 of $908 million
Frontier Communications Corporation (NASDAQ:FTR) today reported
financial results for the first quarter ended March 31, 2018.
“In the first quarter we achieved growth in consumer revenue,
reflecting the early results of the substantial initiatives we have
underway across the company,” said Dan McCarthy, President and CEO.
“We are also extremely pleased with the continued improvement in
subscriber trends in our California, Texas and Florida (CTF)
markets, most notably that we have achieved our first quarter of
positive FiOS broadband net additions. We also have begun to
improve the trends in the Legacy markets. The entire Frontier team
remains focused on continuing to enhance the customer experience,
achieving further improvements in churn, maintaining strong cash
flow, and strengthening the balance sheet. We are very confident
that we have the opportunity for sustained growth in consumer, and
improvement in commercial.”
Consolidated Results
The Company adopted the new revenue recognition standard ASC 606
using the modified retrospective method effective January 1, 2018.
The table below reflects the results for the first quarter under
ASC 606, as well as what the first quarter results would have been
under ASC 605, the prior accounting standard. For comparison, we
have also included our fourth quarter results as reported under ASC
605.
______________________________1 See “Non-GAAP Measures” for a
description of this measure and its calculation. See Schedule A for
a reconciliation to net income/(loss).
$ in millions (except ARPC) Q1 2018 Q1 2018 Q4
2017 As Reported Excluding As Reported (Under ASC 606) Adoption
(Under ASC 605) of ASC 606 Revenue Consumer $ 1,128 $ 1,089
$ 1,086 Commercial 974 917 941 Subsidy and Other Regulatory Revenue
97 187 190 Total Revenue
$ 2,199 $ 2,193 $ 2,217 Data & Internet Services 985 942
939 Voice Services 702 670 687 Video Services 280 309 310 Other
135 85 91 Total Customer
Revenue 2,102 2,006 2,027 Subsidy and Other Regulatory Revenue
97 187 190 Total Revenue
$ 2,199 $ 2,193 $ 2,217 Net Income/(Loss) $ 20 $ 14 $ (1,029
) Adjusted EBITDA $ 908 $ 901 $ 919 Adjusted EBITDA Margin
41.3 % 41.1 % 41.5 % Consumer ARPC $ 86.21 $ 83.26 $ 81.61
Consolidated revenue for the first quarter 2018 was $2.20
billion. Within consolidated revenue, consumer revenue was $1.13
billion, commercial revenue was $974 million and subsidy and other
regulatory revenue was $97 million. For the fourth quarter 2017,
consolidated revenue was $2.22 billion, consumer revenue was $1.09
billion, commercial revenue was $941 million and subsidy and other
regulatory revenue was $190 million.
Net income for the first quarter of 2018 was $20 million. Net
loss for the first quarter attributable to common shares was $(33)
million, for a diluted net loss per common share of $(0.44).
Adjusted EBITDA totaled $908 million, for an adjusted EBITDA
margin2 of 41.3%. For the fourth quarter of 2017, net loss was
$(1.03) billion. Net loss for the fourth quarter attributable to
common shares was $(1.08) billion, for a diluted net loss per
common share of $(13.91). Adjusted EBITDA totaled $919 million for
an adjusted EBITDA margin of 41.5%.
____________________________________2 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.
As of the end of the first quarter, the Company had attained
approximately $275 million in annualized cost synergies, and the
Company remains on track to achieve its target of $350 million in
annualized run-rate cost synergies by mid-2018.
For the first quarter of 2018, net cash provided from operating
activities was $251 million and operating free cash flow3 was $(46)
million, which reflects cash interest payments of $593 million, or
40% of the $1.5 billion expected annual cash interest expense. Over
the four-quarter period ending March 31, 2018, net cash provided
from operating activities was $1,801 million and operating free
cash flow was $632 million.
Consumer Business Highlights
- Revenue was $1.13 billion; the improved
trend was driven by improved product mix and better base
management.
- Customer churn improved to 1.94% (1.71%
for Legacy and 2.30% for CTF operations).
- Average Revenue Per Customer (ARPC) of
$86.21.
Commercial Business Highlights
- Revenue of $974 million. Excluding the
impact of ASC 606, the commercial revenue decline was caused by the
Small, Medium, and Enterprise (SME) portion of the business.
- Total commercial customers of 441,000
compared to 453,000 during the fourth quarter of 2017.
- Carrier/wholesale revenue was roughly
stable sequentially.
Capital Structure and Capital Allocation
- In January 2018, Frontier amended its
credit facilities to provide increased flexibility in managing its
capital structure.
- In March 2018, Frontier issued $1.6
billion aggregate principal amount of Second Lien Secured Notes due
2026. Frontier used the proceeds and cash on hand to repurchase
$1.65 billion aggregate principal amount of notes due in 2020 and
2021.
- As of March 31, 2018, Frontier’s
leverage ratio (as calculated in accordance with its credit
agreements) was 4.77:1. The leverage ratio was 4.59:1 as of
December 31, 2017.
- The Board of Directors has declared a
regular and final quarterly dividend on the Convertible Preferred
of $2.78125 per share, payable in cash on June 29, 2018 to holders
of record at the close of business on June 15, 2018. The
Convertible Preferred will convert to common stock on June 29,
2018.
- Frontier remains committed to reducing
debt and improving its financial leverage profile.
_____________________________________3 Operating 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 Schedules A for
a reconciliation to net cash provided from operating
activities.
Guidance
Guidance for 2018 remains unchanged.
- Adjusted EBITDA – Approximately $3.6
billion
- Capital expenditures – $1.0 billion to
$1.15 billion
- Cash taxes – Less than $25 million
- Cash pension/OPEB – Approximately $150
million
- Cash interest expense – Approximately
$1.5 billion for the full year; second quarter cash interest
payments of approximately $150 million
- Operating free cash flow –
Approximately $800 million
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, and adjusted
operating expenses, 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, 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 acquisition and integration costs, certain
pension/OPEB expenses, restructuring costs and other charges,
stock-based compensation expense, goodwill impairment charges, and
certain other non-recurring items (e.g., storm-related costs and
work stoppage costs). 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 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 certain
non-recurring items (e.g., storm-related costs and work stoppage
costs). 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, acquisition and
integration costs, goodwill impairment charges, certain
pension/OPEB expenses, stock-based compensation expense, one-time
storm-related and work stoppage 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 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
2018 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 May 1, 2018, through 8:00
P.M. Eastern Time on May 6, 2018, 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 2051415 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, not past, events. Forward-looking statements
express management’s expectations regarding Frontier’s 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: 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;
Frontier’s ability to implement organizational structure changes;
risks related to the operation of Frontier’s properties and ability
to retain or attract new customers; Frontier’s ability to realize
anticipated cost savings and meet commitments made in connection
with the Verizon acquisition; reductions in revenue from voice
customers that Frontier cannot offset with increases in revenue
from broadband and video subscribers and sales of other products
and services; Frontier’s ability to maintain relationships with
customers, employees or suppliers; Frontier’s ability to
attract/retain key talent; 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
broadband buildout obligations on a timely basis; Frontier’s
ability to effectively manage service quality and meet mandated
service quality metrics; Frontier’s ability to successfully
introduce new product offerings; the effects of changes in
accounting policies or practices, including potential future
impairment charges with respect to intangible assets; Frontier’s
ability to effectively manage its operations, operating expenses,
capital expenditures, debt service requirements and cash paid for
income taxes and liquidity; the effects of changes in both general
and local economic conditions in the markets that Frontier serves;
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; 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; adverse changes in the credit
markets; adverse changes in the ratings given to Frontier’s debt
securities by nationally accredited ratings organizations; the
availability and cost of financing in the credit markets; 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 cash management practices that could limit
Frontier’s ability to transfer cash among its 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 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 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.
Frontier Communications Corporation
Consolidated Financial Data For the quarter ended ($
in millions and shares in thousands, except per share amounts)
March 31, 2018 (1) December 31, 2017 March 31, 2017
Statement of Operations Data Revenue $ 2,199 $ 2,217
$ 2,356 Operating expenses: Network access
expenses 372 388 411 Network related expenses 483 491
(2)
493
(2)
Selling, general and administrative expenses 469 456
(2)
542
(2)
Depreciation and amortization 505 514 579 Goodwill impairment -
2,078 - Acquisition and integration costs - 10 2 Restructuring
costs and other charges 4 27 12
Total operating expenses 1,833 3,964
(2)
2,039
(2)
Operating income (loss) 366 (1,747 )
(2)
317
(2)
Investment and other income (loss), net 8 (3 )
(2)
-
(2)
Pension settlement costs - 6 43
Gain on extinguishment of debt 33 1 - Interest expense 374
377 388 Income (loss)
before income taxes 33 (2,132 ) (114 ) Income tax expense (benefit)
13 (1,103 ) (39 ) Net income (2)
Less: Income attributable to the
noncontrolling interest in a partnership
Net Income (loss) 20 (1,029 ) (75 ) Less: Dividends
on preferred stock 53 53 54
Net loss attributable to Frontier
common shareholders
$ (33 ) $ (1,082 ) $ (129 ) Weighted average shares
outstanding - basic 77,416 77,805 77,591 Weighted average shares
outstanding - diluted 77,416 77,805 77,591
Basic net loss
per common share $ (0.44 ) $ (13.91 ) $ (1.67 )
Diluted net
loss per common share $ (0.44 ) $ (13.91 ) $ (1.67 )
Other Financial Data: Capital expenditures - Business
operations $ 297 $ 308 $ 315 Capital expenditures - Integration
activities $ - $ 15 $ 1 Dividends paid - Common stock $ - $ 47 $
124 Dividends paid - Preferred stock $ 53 $ 53 $ 54 (1) We
adopted Accounting Standard Update 2014-09, “Revenue from Contracts
with Customers (ASC 606)” on January 1, 2018, using the modified
retrospective application. This method does not impact the prior
periods, which continue to reflect the accounting treatment prior
to the adoption of ASC 606. As a result, for items that were
affected by our adoption of ASC 606, financial results of periods
prior to January 1, 2018 are not comparable to the current period
financial results. To provide comparability to our results, we
provide a supplemental schedule (see Schedule D) which contains
certain financial information on a pre adoption of ASC 606 basis.
(2) Effective January 1, 2018, Frontier adopted ASU 2017-07,
“Improving the Presentation of Net Periodic Pension Cost and Net
Periodic Postretirement Benefit Cost.” The standard requires
certain benefit costs to be reclassified from operating expenses to
non-operating expenses. This change in policy was applied using a
retrospective approach and accordingly we have reclassified $1
million and $3 million of net operating expenses as non-operating
expense for the three months ended December 31, 2017 and March 31,
2017, respectively. Additional pension settlement costs of $6
million and $43 million for the three months ended December 31,
2017 and March 31, 2017, respectively, were reclassified from
operating expense to non-operating expense.
Frontier Communications Corporation
Consolidated Financial Data For the quarter ended
March 31, 2018 (1) December 31, 2017 March 31, 2017
($ in
millions)
Selected Statement of Operations Data Revenue:
Data and internet services $ 985 $ 939 $ 993 (2) Voice services 702
687 751 Video services 280 310 347 Other 135 91
68 Customer revenue 2,102 2,027 2,159 (2) Subsidy and other
regulatory revenue 97 190 197 Total revenue $
2,199 $ 2,217 $ 2,356 (2)
Other Financial Data
Revenue: Consumer $ 1,128 $ 1,086 $ 1,164 Commercial
974 941 995 (2)
Customer revenue
2,102 2,027 2,159 (2) Subsidy and other regulatory revenue
97 190 197 Total revenue $ 2,199 $ 2,217 $ 2,356 (2)
(1) We adopted Accounting Standard Update 2014-09, “Revenue
from Contracts with Customers (ASC 606)” on January 1, 2018, using
the modified retrospective application. This method does not impact
the prior periods, which continue to reflect the accounting
treatment prior to the adoption of ASC 606. As a result, for items
that were affected by our adoption of ASC 606, financial results of
periods prior to January 1, 2018 are not comparable to the current
period financial results. To provide comparability to our results,
we provide a supplemental schedule (see Schedule D) which contains
certain financial information on a pre adoption of ASC 606 basis.
(2) Includes revenue from Frontier Secure
Strategic Partnerships business, which was sold in May of 2017, of
$25 million for the three months ended March 31, 2017.
Frontier Communications
Corporation Consolidated Financial and Operating Data
For the quarter ended March 31, 2018 December 31,
2017 March 31, 2017
Customers (in thousands) 4,765
4,850 5,220
Consumer customer metrics Customers (in
thousands) 4,324 4,397 4,736 Net customer additions/(losses) (74 )
(89 ) (155 )
Average monthly consumer revenue per
customer
$ 86.21
(1)
$ 81.61 $ 80.62 Customer monthly churn 1.94 % 1.98 % 2.37 %
Commercial customer metrics Customers (in thousands) 441 453
484
Broadband subscriber metrics (in thousands) Broadband
subscribers 3,895 3,938 4,164 Net subscriber additions/(losses) (43
) (63 ) (107 )
Video (excl. DISH) subscriber metrics (in
thousands) Video subscribers 934 961 1,065 Net subscriber
additions/(losses) (28 ) (20 ) (80 )
Video - DISH
subscriber metrics (in thousands) DISH subscribers 227 235 266
Net subscriber additions/(losses) (8 ) (9 ) (8 )
Employees 22,081 22,736 26,878
(2)
(1) We adopted Accounting Standard Update 2014-09, “Revenue
from Contracts with Customers (ASC 606)” on January 1, 2018, using
the modified retrospective application. This method does not impact
the prior periods, which continue to reflect the accounting
treatment prior to the adoption of ASC 606. As a result, for items
that were affected by our adoption of ASC 606, financial results of
periods prior to January 1, 2018 are not comparable to the current
period financial results. To provide comparability to our results,
we provide a supplemental schedule (see Schedule D) which contains
certain financial information on a pre adoption of ASC 606 basis.
(2) At March 31, 2017, 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)
March 31. 2018 December 31, 2017
ASSETS
Current assets: Cash and cash equivalents $ 201 $ 362 Accounts
receivable, net 778 819 Other current assets 223 142
Total current assets 1,202 1,323 Property, plant and
equipment, net 14,321 14,377 Other assets - principally goodwill
9,155 9,184 Total assets $ 24,678 $ 24,884
LIABILITIES AND
EQUITY
Current liabilities: Long-term debt due within one year $ 1,060 $
656 Accounts payable and other current liabilities 1,606
1,852
Total current liabilities
2,666 2,508 Deferred income taxes and other liabilities
3,157 3,132 Long-term debt 16,470 16,970 Equity 2,385
2,274 Total liabilities and equity $ 24,678 $ 24,884
Frontier Communications Corporation Consolidated
Cash Flow Data For the quarter ended March 31,
($ in
millions)
2018 2017
Cash flows provided from (used by) operating
activities: Net income (loss) $ 20 $ (75 )
Adjustments to reconcile net loss to net
cash provided from (used by) operating activities:
Depreciation and amortization 505 579 Gain on extinguishment of
debt (33 ) - Pension settlement costs - 43 Stock-based compensation
expense 4 3 Amortization of deferred financing costs 9 9 Other
adjustments (9 ) - Deferred income taxes 12 (41 ) Change in
accounts receivable 9 105 Change in accounts payable and other
liabilities (261 ) (312 ) Change in other current assets (5
) (11 )
Net cash provided from operating activities
251 300
Cash flows provided from (used by) investing
activities: Capital expenditures - Business operations (297 )
(315 ) Capital expenditures - Integration activities - (1 )
Proceeds on sale of assets 10 70 Other (2 ) 3
Net cash used by investing activities (289 ) (243 )
Cash flows provided from (used by) financing activities:
Proceeds from long-term debt borrowings 1,600 - Long-term debt
payments (1,627 ) (38 ) Financing costs paid (26 ) (6 ) Premium
paid to retire debt (16 ) - Dividends paid on common stock - (124 )
Dividends paid on preferred stock (53 ) (54 ) Capital lease
obligation payments (10 ) (10 ) Other (5 ) (6 )
Net cash provided used by financing activities (137 ) (238 )
Decrease in cash, cash equivalents, and restricted cash (175
) (181 ) Cash, cash equivalents, and restricted cash at January 1,
376 522
Cash, cash
equivalents, and restricted cash at March 31, $ 201 $
341
Supplemental cash flow information:
Cash paid (received) during the period for: Interest $ 593 $
577 Income tax refunds, net $ - $ (3 )
SCHEDULE A Frontier Communications Corporation
Reconciliation of Non-GAAP Financial Measures For the
quarter ended
($ in
millions)
March 31. 2018 December 31, 2017 March 31, 2017
EBITDA
Net income (loss) $ 20 $ (1,029 ) $ (75 ) Add back (subtract):
Income tax expense (benefit) 13 (1,103 ) (39 ) Interest expense 374
377 388 Investment and other (income) loss, net (8 ) 3 - Pension
settlement costs - 6 43 Gain on extinguishment of debt (33 )
(1 ) - Operating income (loss) 366 (1,747 )
317 Depreciation and amortization 505
514 579
EBITDA 871 (1,233
) 896 Add back: Acquisition and integration
costs - 10 2 Pension/OPEB expense 22 20 22 Restructuring costs and
other charges 4 27 12 Stock-based compensation expense 4 4 3
Storm-related costs - 13 - Work stoppage costs 7 - - Goodwill
impairment - 2,078 -
Adjusted EBITDA $ 908 $
919 $ 935 EBITDA margin
39.6 % -55.6 % 38.0 % Adjusted EBITDA margin 41.3 % 41.5 % 39.7 %
Free Cash
Flow
Net cash provided from operating activities $ 251 $ 665 $
300 Add back (subtract): Capital expenditures - Business operations
(297 ) (308 ) (315 ) Capital expenditures - Integration -
(15 ) (1 )
Operating free cash flow
$ (46 ) $ 342 $
(16 )
SCHEDULE B Frontier Communications Corporation
Reconciliation of Non-GAAP Financial Measures For the
quarter ended March 31, 2018 December 31, 2017 March 31, 2017
($ 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 $ (33 ) $ (0.44 ) $ (1,082 ) $ (13.91
) $ (129 ) $ (1.67 ) Acquisition and integration costs - 10
2 Restructuring costs and other charges 4 27 12 Pension settlement
costs - 6 43 Gain on extinguishment of debt (33 ) (1 ) - Goodwill
impairment - 2,078 - Storm-related costs - 13 - Work stoppage costs
7 - - Effect of tax reform - (830 ) Certain other tax items (1) 4 8
1 Income tax effect on above items: Acquisition and integration
costs - (3 ) (1 ) Restructuring costs and other charges (1 ) (10 )
(4 ) Pension settlement costs - (2 ) (15 ) Gain on extinguishment
of debt 9 1 - Goodwill impairment - (256 ) - Storm-related costs -
(5 ) - Work stoppage costs (2 ) -
- (12 ) (0.15 )
1,036 13.32 38 0.49 Adjusted net loss attributable to Frontier
common shareholders(2) $ (45 ) $ (0.58 ) $ (46 ) $ (0.59 ) $ (91 )
$ (1.18 ) (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 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
($ in
millions)
March 31. 2018 December 31, 2017 March 31, 2017
Adjusted Operating
Expenses
Total operating expenses $ 1,833
$ 3,964
(1)
$ 2,039
(1)
Subtract: Depreciation and amortization 505 514 579 Goodwill
impairment - 2,078 -
Acquisition and integration costs
- 10 2 Pension/OPEB expense 22 20 (1) 22
(1)
Restructuring costs and other charges 4 27 12 Stock-based
compensation expense 4 4 3 Storm-related costs - 13 - Work stoppage
costs 7 - -
Adjusted operating expenses
$ 1,291 $ 1,298 $ 1,421
(1) Effective January 1, 2018, Frontier adopted ASU 2017-07,
“Improving the Presentation of Net Periodic Pension Cost and Net
Periodic Postretirement Benefit Cost.” The standard requires
certain benefit costs to be reclassified from operating expenses to
non-operating expenses. This change in policy was applied using a
retrospective approach and accordingly we have reclassified $1
million and $3 million of net operating expenses as non-operating
expense for the three months ended December 31, 2017 and March 31,
2017, respectively. Additional pension settlement costs of $6
million and $43 million for the three months ended December 31,
2017 and March 31, 2017 , respectively, were reclassified from
operating expense to non-operating expense.
SCHEDULE
D Comparability Disclaimer:
We adopted Accounting Standard Update
2014-09, “Revenue from Contracts with Customers (ASC 606)” on
January 1, 2018, using the modified retrospective application. This
method does not impact the prior periods, which continue to reflect
the accounting treatment prior to the adoption of ASC 606. As a
result, for items that were affected by our adoption of ASC 606,
financial results of periods prior to January 1, 2018 are not
comparable to the current period financial results. To provide
comparability to our results, we provide the following supplemental
schedule which contains certain financial information on a pre
adoption of ASC 606 basis.
Frontier Communications
Corporation Consolidated Financial Data For the
three months ended March 31, 2018 Impact Amounts Excluding
Adoption of Adoption of As reported
($ in
millions)
As reported ASC 606 ASC 606 December 31, 2017
Selected Statement
of Operations Data Revenue: Data and Internet services $ 985 $
(43 ) $ 942 $ 939 Voice services 702 (32 ) 670 687 Video services
280 29 309 310 Other 135 (50 ) 85
91 Revenue from contracts with customers 2,102
(96 ) 2,006 2,027 Subsidy and other regulatory revenue 97
90 187 190 Total
revenue $ 2,199 $ (6 ) $ 2,193 $ 2,217
Other Revenue Data Revenue: Consumer $ 1,128 $ (39 )
$ 1,089 $ 1,086 Commercial 974 (57 )
917 941 Revenue from contracts Revenue from
contracts with customers 2,102 (96 ) 2,006 2,027 Subsidy and other
regulatory revenue 97 90 187
190 Total revenue $ 2,199 $ (6 ) $
2,193 $ 2,217 For the three months
ended March 31, 2018 Impact of Amounts Excluding Adoption of
Adoption of As reported
($ in
millions)
As reported ASC 606 ASC 606 December 31, 2017
Statement
of Operations Data Revenue $ 2,199 $ (6 ) $ 2,193
$ 2,217 Operating expenses: Network access expenses 372 (3 )
369 388 Network related expenses 483 - 483 491 Selling, general and
administrative expenses 469 4 473 456 Depreciation and amortization
505 - 505 514 Goodwill impairment - - - 2,078 Acquisition and
integration costs - - - 10 Restructuring costs and other charges
4 - 4 27
Total operating expenses 1,833 1
1,834 3,964 Operating income (loss) 366
(7 ) 359 (1,747 ) Investment and other income (loss), net 8
- 8 (3 ) Pension settlement costs - - - 6 Gain on extinguishment of
debt 33 - 33 1 Interest expense 374 -
374 377 Income (loss) before
income taxes 33 (7 ) 26 (2,132 ) Income tax expense (benefit)
13 (1 ) 12 (1,103 )
Net Income (loss) 20 (6 ) 14 (1,029 ) Less: Dividends
on preferred stock 53 - 53
53
Net loss attributable to Frontier common
shareholders
$ (33 ) $ (6 ) $ (39 ) $ (1,082 ) Other financial data:
Consumer ARPC $ 86.21 $ 2.95 $ 83.26 $ 81.61
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Frontier Communications CorporationInvestors:Luke Szymczak, 203-614-5044VP, Investor
Relationsluke.szymczak@ftr.comorMedia:Brigid Smith, 203-614-5042AVP, Corporate
Communicationsbrigid.smith@ftr.com
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