Second Quarter
- Total revenue of $2.16 billion
- Continued progress toward improving
subscriber trends, offset by typical summer seasonality
- Successfully concluded the $350 million
synergy program on schedule
- Next phase of transformation
initiatives target $500 million EBITDA benefit by year-end
2020
- Net loss of $18 million
- Adjusted EBITDA1 of $884 million
Frontier Communications Corporation (NASDAQ:FTR) today reported
financial results for the second quarter ended June 30, 2018.
“We continued to make further progress in the second quarter
with the key initiatives that we have underway across the company,”
said Dan McCarthy, President and CEO. “We are pleased to have
maintained good subscriber momentum despite facing typical
second-quarter seasonal headwinds. Underlying trends should
continue improving in the latter half of this year, once summer
seasonality is behind us. I am also pleased that our efforts in
Commercial have begun to drive improved revenue trends.”
“We successfully concluded our $350 million synergy program in
the second quarter,” said McCarthy. “We have begun our next phase
of corporate transformation, which entails both revenue enhancement
and productivity improvement initiatives with targeted EBITDA
benefits of $500 million by year-end 2020. The entire Frontier team
remains focused on enhancing the customer experience, achieving
further improvements in churn and subscriber trends, maintaining
strong cash flow, strengthening the balance sheet, and improving
shareholder value.”
______________________________
1 See “Non-GAAP Measures” for a description of this measure and its
calculation. See Schedule A for a reconciliation to net
income/(loss).
Consolidated Results
Consolidated revenue for the second quarter 2018 was $2.16
billion. Within consolidated revenue, consumer revenue was $1.10
billion, commercial revenue was $970 million, and subsidy and other
regulatory revenue was $97 million.
Net loss for the second quarter of 2018 was $18 million. Net
loss for the second quarter attributable to common shares was $72
million, for a diluted net loss per common share of $0.92. Adjusted
EBITDA totaled $884 million, for an adjusted EBITDA margin2 of
40.9%.
The Company successfully completed its program to attain $350
million in annualized cost synergies in the second quarter, in line
with its stated target.
For the second quarter of 2018, net cash provided from operating
activities was $672 million and operating free cash flow3 was $351
million. Over the four-quarter period ending June 30, 2018, net
cash provided from operating activities was $1,944 million and
operating free cash flow was $721 million.
Consumer Business Highlights
- Revenue of $1.10 billion.
- Customer churn of 1.95% (1.76% for
Legacy and 2.25% for CTF operations) reflected the impact of summer
seasonality.
- Average Revenue Per Customer (ARPC) of
$85.28 ($83.17 excluding adoption of ASC 606, stable
sequentially).
Commercial Business Highlights
- Revenue of $970 million.
- Total commercial customers of 430,000
compared to 441,000 during the first quarter of 2018.
- Wholesale revenue was stable
sequentially, and the trend in SME revenue improved
sequentially.
______________________________
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.
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.
Capital Structure and Capital Allocation
- As of June 30, 2018, Frontier’s
leverage ratio was 4.70:1.
- Frontier remains committed to reducing
debt and improving its financial leverage profile.
- Frontier purchased $48 million
principal amount of its 2018 senior unsecured notes on the open
market during the second quarter of 2018.
- On July 3, 2018 Frontier added $240
million to its existing Term Loan B facility maturing June 15,
2024. Proceeds were used to repay the entire $228 million of the
CoBank senior term loan maturing October 24, 2019 and $6 million of
the CoBank senior term loan maturing October 12, 2021.
- Frontier’s 11.125% Mandatory
Convertible Preferred Stock converted into shares of Frontier
common stock on June 29, 2018. The mandatory conversion increased
common shares outstanding by 25.5 million, resulting in total
common shares outstanding of 105.8 million as of June 30,
2018.
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; third quarter cash interest
payments of approximately $600 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 including 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 other
non-recurring items including 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, restructuring and other charges, goodwill
impairment charges, certain pension/OPEB expenses, stock-based
compensation expense, and certain other non-recurring items
including work stoppage costs. 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 second 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 7:30 P.M. Eastern Time on Tuesday, July 31, 2018, through 7:30
P.M. Eastern Time on Sunday, August 5, 2018 at 888-203-1112. Use
the passcode 3090153 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: 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; 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; risks related to disruptions in Frontier’s networks,
infrastructure and information technology that may result in
customer loss and/or incurrence of additional expenses; Frontier’s
ability to retain or attract new customers and to maintain
relationships with customers, employees or suppliers; Frontier’s
ability to realize anticipated benefits from recent acquisitions;
Frontier’s ability to successfully introduce new product offerings;
Frontier’s ability to dispose of certain assets or asset groups on
terms that are attractive to Frontier, or at all; 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 on a timely basis 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 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; Frontier’s ability to
effectively manage its operations, operating expenses, capital
expenditures, debt service requirements and cash paid for income
taxes and liquidity; adverse changes in the credit markets, which
could impact the availability and cost of financing; 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 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 changes in
both general and local economic conditions in the markets that
Frontier serves; Frontier’s ability to hire or retain key
personnel; 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; 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 For the six months
ended ($ in millions and shares in thousands, except per share
amounts) June 30, 2018 (1) March 31, 2018 (1) June 30, 2017 June
30, 2018 (1) June 30, 2017
Statement of Operations
Data Revenue $ 2,162 $ 2,199 $ 2,304 $ 4,361 $ 4,660
Operating expenses: Network access expenses 369 372 408 741 819
Network related expenses 478 483 477 (2) 961 970 (2) Selling,
general and administrative expenses 460 469 531 (2) 929 1,073 (2)
Depreciation and amortization 486 505 552 991 1,131 Goodwill
impairment - - 670 - 670 Acquisition and integration costs - - 12 -
14 Restructuring costs and other charges 2 4
29 6 41 Total operating expenses 1,795
1,833 2,679 (2) 3,628 4,718 (2) (1) (1) (1)
(1) Operating income (loss) 367 366 (375) (2) 733 (58) (2) (1) (1)
Investment and other income (loss), net 5 8 - (2) 13 - (2) Pension
settlement costs 25 - 19 25 62 Gain (Loss) on extinguishment of
debt - 33 (90) 33 (90) Interest expense 385 374
388 759 776 Income (loss) before income
taxes (38) 33 (872) (5) (986) Income tax expense (benefit)
(20) 13 (210) (7) (249) Net
income (2) Less: Income attributable to the noncontrolling interest
in a partnership
Net Income (loss) (18) 20 (662) 2 (737)
Less: Dividends on preferred stock 54 53
53 107 107
Net loss attributable to
Frontier common shareholders $ (72) $ (33) $ (715) $
(105) $ (844) Weighted average shares outstanding - basic
(3) 78,026 77,416 77,795 77,685 77,679 Weighted average shares
outstanding - diluted (3) 78,026 77,416 77,951 77,685 77,835
Basic net loss per common share $ (0.92) $ (0.44) $ (9.20) $
(1.35) $ (10.88)
Diluted net loss per common share $ (0.92)
$ (0.44) $ (9.21) $ (1.35) $ (10.89)
Other Financial
Data: Capital expenditures - Business operations $ 321 $ 297 $
263 $ 618 $ 578 Capital expenditures - Integration activities $ - $
- $ 4 $ - $ 5 Dividends declared - Common stock $ - $ - $ 48 $ - $
172 Dividends declared - Preferred stock $ 54 $ 53 $ 53 $ 107 $ 107
(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 $0 and
$3 million of net operating expenses as non-operating expense for
the three and six months ended June 30, 2017, respectively.
Additional pension settlement costs of $19 million and $62 million
for the three and six months ended June 30, 2017, respectively,
were reclassified from operating expense to non-operating expense.
(3) As of June 30, 2018, there were 106 million of common
shares outstanding and 0 shares of preferred stock.
Frontier
Communications Corporation Consolidated Financial Data
For the quarter ended For the six months ended June 30, 2018
(1) March 31, 2018 (1) June 30, 2017 June 30, 2018 (1) June 30,
2017
($ in
millions)
Selected Statement of Operations Data Revenue:
Data and internet services $ 973 $ 985 $ 974 ((2 )) $ 1,958 $ 1,967
((2 )) Voice services 682 702 724 1,384 1,475 Video services 270
280 329 550 676 Other 140 135 79 275
147 Customer revenue 2,065 2,102 2,106 ((2 )) 4,167 4,265
((2 )) Subsidy and other regulatory revenue 97 97
198 194 395 Total revenue $ 2,162 $ 2,199 $
2,304 ((2 )) $ 4,361 $ 4,660 ((2 ))
Other Financial
Data Revenue: Consumer $ 1,095 $ 1,128 $ 1,124 $ 2,223 $
2,288 Commercial 970 974 982 ((2 ))
1,944 1,977 ((2 )) Customer revenue 2,065 2,102 2,106 ((2 ))
4,167 4,265 ((2 )) Subsidy and other regulatory revenue 97
97 198 194 395 Total revenue $ 2,162 $
2,199 $ 2,304 ((2 )) $ 4,361 $ 4,660 ((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
$15 million and $40 million for the three and six months ended June
30, 2017, respectively.
Frontier
Communications Corporation Consolidated Financial and
Operating Data For the quarter ended For the six
months ended June 30, 2018 March 31, 2018 June 30, 2017 June 30,
2018 June 30, 2017
Customers (in thousands)
4,667 4,765 5,058 4,667 5,058
Consumer customer
metrics Customers (in thousands) 4,237 4,324 4,585 4,237 4,585
Net customer additions/(losses) (86 ) (74 ) (151 ) (160 ) (306 )
Average monthly consumer revenue per customer $ 85.28
(1
)
$ 86.21
(1
)
$ 80.38 $ 85.79
(1
)
$ 80.59 Customer monthly churn 1.95 % 1.94 % 2.24 % 1.94 % 2.31 %
Commercial customer metrics Customers (in thousands)
430 441 473 430 473
Broadband subscriber metrics (in
thousands) Broadband subscribers 3,863 3,895 4,063 3,863 4,063
Net subscriber additions/(losses) (32 ) (43 ) (100 ) (75 ) (208 )
Video (excl. DISH) subscriber metrics (in thousands)
Video subscribers 902 934 1,007 902 1,007 Net subscriber
additions/(losses) (32 ) (28 ) (58 ) (60 ) (138 )
Video -
DISH subscriber metrics (in thousands) DISH subscribers 219 227
254 219 254 Net subscriber additions/(losses) (8 ) (8 ) (12 ) (16 )
(20 )
Employees 21,718 22,081 23,924 21,718 23,924
(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.
Frontier Communications
Corporation Condensed Consolidated Balance Sheet Data
($ in
millions)
June 30, 2018 December 31, 2017
ASSETS
Current assets: Cash and cash equivalents $ 384 $ 362 Accounts
receivable, net 751 819 Other current assets 293 142
Total current assets 1,428 1,323 Property, plant and
equipment, net 14,282 14,377 Other assets - principally goodwill
9,020 9,184 Total assets $ 24,730 $ 24,884
LIABILITIES AND
EQUITY
Current liabilities: Long-term debt due within one year $ 1,228 $
656 Accounts payable and other current liabilities 1,828
1,852 Total current liabilities 3,056 2,508 Deferred
income taxes and other liabilities 3,064 3,132 Long-term debt
16,209 16,970 Equity 2,401 2,274 Total liabilities
and equity $ 24,730 $ 24,884
Frontier Communications Corporation Consolidated Cash
Flow Data For the six months ended
($ in
millions)
June 30, 2018 June 30, 2017
Cash flows provided from
(used by) operating activities: Net income (loss) $ 2 $ (737)
Adjustments to reconcile net loss to net cash provided from
(used by) operating activities:
Depreciation and amortization 991 1,131 (Gain) loss on
extinguishment of debt (33) 90 Pension settlement costs 25 62
Stock-based compensation expense 9 6 Amortization of deferred
financing costs 17 17 Other adjustments (20) (4) Deferred income
taxes (9) (254) Goodwill impairment - 670 Change in accounts
receivable 37 151 Change in accounts payable and other liabilities
(72) (253) Change in other current assets (24) (50)
Net cash provided from operating activities 923 829
Cash flows provided from (used by) investing activities:
Capital expenditures - Business operations (618) (578) Capital
expenditures - Integration activities - (5) Proceeds on sale of
assets 11 94 Other (10) 5
Net cash used by
investing activities (617) (484)
Cash flows provided
from (used by) financing activities: Proceeds from long-term
debt borrowings 1,600 1,500 Long-term debt payments (1,714) (1,576)
Financing costs paid (39) (15) Premium paid to retire debt (17)
(80) Dividends paid on common stock - (172) Dividends paid on
preferred stock (53) (107) Capital lease obligation payments (17)
(25) Other (8) (5)
Net cash provided used by
financing activities (248) (480) Increase/(Decrease) in
cash, cash equivalents, and restricted cash 58 (135) Cash, cash
equivalents, and restricted cash at January 1, 376
522
Cash, cash equivalents, and restricted cash at June
30, $ 434 $ 387
Supplemental cash flow
information: Cash paid (received) during the period for:
Interest $ 716 $ 797 Income tax payments (refunds), net $ 5 $ (3)
SCHEDULE A Frontier Communications
Corporation Reconciliation of Non-GAAP Financial
Measures For the quarter ended For the six months ended
($ in
millions)
June 30, 2018 March 31, 2018 June 30, 2017 June 30, 2018 June 30,
2017
EBITDA
Net income (loss) $ (18) $ 20 $ (662) $ 2 $ (737) Add back
(subtract): Income tax expense (benefit) (20) 13 (210) (7) (249)
Interest expense 385 374 388 759 776 Investment and other (income)
loss, net (5) (8) - (13) - Pension settlement costs 25 - 19 25 62
(Gain) Loss on extinguishment of debt - (33)
90 (33) 90 Operating income (loss) 367 366 (375) 733
(58) Depreciation and amortization 486 505 552
991 1,131
EBITDA 853 871
177 1,724 1,073 Add back: Acquisition
and integration costs - - 12 - 14 Pension/OPEB expense 23 22 25 45
47 Restructuring costs and other charges 2 4 29 6 41 Stock-based
compensation expense 5 4 3 9 6 Work stoppage costs 1 7 - 8 -
Goodwill impairment - - 670 -
670
Adjusted EBITDA $ 884 $ 908
$ 916 $ 1,792 $ 1,851
EBITDA margin 39.5% 39.6% 7.7% 39.5% 23.0% Adjusted EBITDA
margin 40.9% 41.3% 39.8% 41.1% 39.7%
Free Cash
Flow
Net cash provided from operating activities $ 672 $ 251 $
529 $ 923 $ 829 Add back (subtract): Capital expenditures -
Business operations (321) (297) (263) (618) (578) Capital
expenditures - Integration - - (4) -
(5)
Operating free cash flow $ 351
$ (46) $ 262 $ 305
$ 246
SCHEDULE B Frontier Communications Corporation
Reconciliation of Non-GAAP Financial Measures For the
quarter ended June 30, 2018 March 31, 2018 June 30, 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
$ (72) $ (0.92) $ (33) $ (0.44) $ (715) $ (9.20) Acquisition
and integration costs - - 12 Restructuring costs and other charges
2 4 29 Pension settlement costs 25 - 19 (Gain) Loss on
extinguishment of debt - (33) 90 Goodwill impairment - - 670 Work
stoppage costs 1 7 - Certain other tax items (1) (12) 4 4 Income
tax effect on above items: Acquisition and integration costs - -
(4) Restructuring costs and other charges - (1) (11) Pension
settlement costs (6) - (8) (Gain) Loss on extinguishment of debt -
9 (33) Goodwill impairment - - (138) Work stoppage costs -
(2) - 10
0.12 (12) (0.15) 630 8.10 Adjusted net loss attributable to
Frontier common shareholders(2) $ (62) $ (0.80) $ (45) $ (0.58) $
(85) $ (1.10) For the six months ended June 30, 2018 June
30, 2017
Net Income(Loss)
Basic Earnings(Loss) PerShare
Net Income(Loss)
Basic Earnings(Loss) PerShare
Net loss attributable to Frontier common shareholders $
(105) $ (1.35) $ (844) $ (10.88) Acquisition and integration
costs - 14 Restructuring costs and other charges 6 41 Pension
settlement costs 25 62 (Gain) Loss on extinguishment of debt (33)
90 Goodwill impairment - 670 Work stoppage costs 8 - Certain other
tax items (1) (8) 5 Income tax effect on above items: Acquisition
and integration costs - (5) Restructuring costs and other charges
(1) (15) Pension settlement costs (6) (23) (Gain) Loss on
extinguishment of debt 9 (33) Goodwill impairment - (138) Work
stoppage costs (2) - (2)
(0.03) 668 8.60 Adjusted net loss attributable to Frontier common
shareholders(2) $ (107) $ (1.38) $ (176) $ (2.28) (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 For the six months ended
($ in
millions)
June 30, 2018 March 31, 2018 June 30, 2017 June 30, 2018 June 30,
2017
Adjusted Operating
Expenses
Total operating expenses $ 1,795
$ 1,833 $ 2,679 (1)
$
3,628 $ 4,718 (1) Subtract:
Depreciation and amortization 486 505 552 991 1,131 Goodwill
impairment - - 670 - 670 Acquisition and integration costs - - 12 -
14 Pension/OPEB expense 23 22 25 (1) 45 47 (1) Restructuring costs
and other charges 2 4 29 6 41 Stock-based compensation expense 5 4
3 9 6 Work stoppage costs 1 7 - 8
-
Adjusted operating expenses $ 1,278
$ 1,291 $ 1,388 $ 2,569
$ 2,809 (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 $0 and $3 million of net
operating expenses as non-operating expense for the three and six
months ended June 30, 2017, respectively. Additional pension
settlement costs of $19 million and $62 million for the three and
six months ended June 30, 2017, respectively, were reclassified
from operating expense to non-operating expense.
SCHEDULE
D Comparability Disclaimer: We adopted Accounting
Standard Update 2014-09, “Revenue from Contracts with Customers
(ASC 606)” on January 1, 2018, using the modified retrospective
application. This method does not impact the prior periods, which
continue to reflect the accounting treatment prior to the adoption
of ASC 606. As a result, for items that were affected by our
adoption of ASC 606, financial results of periods prior to January
1, 2018 are not comparable to the current period financial results.
To provide comparability to our results, we provide the following
supplemental schedule which contains certain financial information
on a pre-adoption of ASC 606 basis.
Frontier Communications
Corporation Consolidated Financial Data
As reported Amounts
Excluding Adoption of ASC 606 For the three months ended For the
three months ended
($ in millions) June 30, 2018 March
31, 2018 June 30, 2018 March 31, 2018
Selected Statement
of Operations Data Revenue: Data and Internet services $ 973 $
985 $ 948 $ 942 Voice services 682 702 648 670 Video services 270
280 297 309 Other 140 135 86 85 Revenue
from contracts with customers 2,065 2,102 1,979 2,006 Subsidy and
other regulatory revenue 97 97 181 187
Total revenue $ 2,162 $ 2,199 $ 2,160 $ 2,193
Other
Revenue Data Revenue: Consumer $ 1,095 $ 1,128 $ 1,068 $ 1,089
Commercial 970 974 911 917 Revenue from
contracts Revenue from contracts with customers 2,065 2,102 1,979
2,006 Subsidy and other regulatory revenue 97 97
181 187 Total revenue $ 2,162 $ 2,199 $ 2,160 $ 2,193
As reported Amounts Excluding Adoption of ASC 606 For
the three months ended For the three months ended
($ in
millions)
June 30, 2018 March 31, 2018 June 30, 2018 March 31, 2018
Statement of Operations Data Revenue $ 2,162 $ 2,199 $ 2,160
$ 2,193 Operating expenses: Network access expenses 369 372 366 369
Network related expenses 478 483 478 483 Selling, general and
administrative expenses 460 469 469 473 Depreciation and
amortization 486 505 486 505 Restructuring costs and other charges
2 4 2 4 Total operating expenses
1,795 1,833 1,801 1,834 Operating
income (loss) 367 366 359 359 Investment and other income
(loss), net 5 8 5 8 Pension settlement costs 25 - 25 - Gain on
extinguishment of debt - 33 - 33 Interest expense 385
374 385 374 Income (loss) before income taxes
(38) 33 (46) 26 Income tax expense (benefit) (20) 13
(22) 12 Net Income (loss) (18) 20 (24) 14
Less: Dividends on preferred stock 54 53
54 53 Net loss attributable to Frontier common
shareholders $ (72) $ (33) $ (78) $ (39) Other financial
data: Consumer ARPC $ 85.28 $ 86.21 $ 83.17 $ 83.26
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version on businesswire.com: https://www.businesswire.com/news/home/20180731005853/en/
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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