Frontier Communications Reports 2016 Third Quarter Results

Frontier Communications Corporation (NASDAQ:FTR) today reported its third quarter financial results and provided an update on its progress with the acquisition of Verizon's wireline properties in California, Texas, and Florida (CTF).

Dan McCarthy, President and CEO, stated, "I am pleased that we achieved third quarter adjusted EBITDA of $1 billion. We are reaffirming our adjusted EBITDA guidance for the 4 th quarter and outlook for 2017. We are on course to improve our revenue performance, principally by returning to normal customer trends in the CTF market over the coming quarters."

Frontier today announced a new customer-focused organizational structure and the creation of Commercial and Consumer business units. The updated structure will result in enhanced focus on the commercial segment and more efficient capital allocation. Current regional support functions including Engineering, Finance, Human Resources, Communications and Marketing are being centralized to achieve improved operational performance as well as expense reductions.

Frontier's annualized cost synergy target is now $1.4 billion, up from the $1.25 billion target outlined in the second quarter earnings report. Yet-to-be attained cost synergies of $400 million are anticipated to be achieved by mid-year 2019, including $250 million anticipated to be achieved by mid-year 2017.

Frontier's priorities continue to be driving strong free cash flow and continuing a disciplined capital allocation policy. Frontier is committed to maintaining an attractive dividend, preserving its industry-leading dividend payout ratio, and reducing leverage.

1 See "Non-GAAP Measures" for a description of this measure and its calculation, and Schedule A for a reconciliation to net loss.

Financial Highlights for the Third Quarter 2016:
  • Revenue of $2,524 million
  • Operating income of $264 million, operating income margin of 10.5%
  • Net loss attributable to common shareholders of $134 million, or ($0.12) per share, and net loss of $80 million
  • Adjusted EBITDA of $1 billion, adjusted EBITDA margin 2 of 39.6%
  • Net cash provided from operating activities of $321 million
  • Adjusted Free Cash Flow 3 of $168 million

Revenue:
  For the quarter ended
September 30, 2016   June 30, 2016

( $ in millions)
Consolidated   CTF   Frontier Consolidated   CTF   Frontier
Amount   Operations Legacy Amount   Operations Legacy
 
Total revenue $ 2,524 $ 1,212 $ 1,312 $ 2,608 $ 1,282 $ 1,326

Revenues from CTF Operations were impacted by a slower than expected recovery of FiOS ® gross additions and an increased accounts receivable reserve associated with the resumption of normal customer collection activities. In addition, second quarter results included the one-time benefit of a true-up of CAF II revenues for the acquired states that did not recur in the third quarter.

2 Adjusted EBITDA margin is a non-GAAP measure of performance, calculated as Adjusted EBITDA, divided by total revenue. See Schedule A for a reconciliation to net loss. 3 Adjusted free cash flow is a non-GAAP measure of liquidity derived from net cash provided from operating activities ($321 million in Q3). See "Non-GAAP Measures" for a description of adjusted free cash flow and its calculation, and Schedule A for a reconciliation to net cash provided from operating activities.

Customers:
  As of and for the quarter ended
September 30, 2016  

June 30, 2016 4
Residential customer metrics:  
Customers (in thousands) 5,073 5,228
Average monthly residential revenue per customer $ 82.34 $ 83.20
Customer monthly churn 2.08% 1.91%
 
Business customer metrics:
Customers (in thousands) 516 528
Average monthly business revenue per customer $ 668.30 $ 658.00
 
Broadband subscribers (in thousands) 4,404 4,503
Video subscribers (in thousands) 1,526 1,618

The broadband and video unit results during the third quarter reflected the initiation of customer acquisition activities within the quarter in the acquired CTF markets. Frontier anticipates improved customer additions in the fourth quarter.

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