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Section 1: 8-K (FORM 8-K)

Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (date of earliest event reported): February 26, 2019

 

 

Frontier Communications Corporation

(Exact name of registrant as specified in its charter)

 

 

Delaware

(State or other jurisdiction of incorporation)

 

001-11001   06-0619596
(Commission File Number)   (IRS Employer Identification No.)
401 Merritt 7, Norwalk, Connecticut   06851
(Address of principal executive offices)   (Zip Code)

(203) 614-5600

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging Growth Company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


Item 2.02 Results of Operations and Financial Condition

On February 26, 2019, Frontier Communications Corporation (“Frontier”) issued a press release announcing its fourth quarter and full year 2018 financial results. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated by reference herein.

As previously announced, Frontier will hold a conference call at 4:30 p.m., Eastern Time, on February 26, 2019, to discuss its financial results for the fourth quarter and full year 2018. Also furnished and incorporated by reference herein as Exhibit 99.2 is supplemental material to be used in connection with the conference call. This information is available on Frontier’s Investor Relations website at www.frontier.com/ir.

The information provided pursuant to this Item 2.02, including Exhibits 99.1 and 99.2, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any of Frontier’s other filings under the Securities Act of 1933 or the Exchange Act.

Item 9.01 Financial Statements and Exhibits

(d)    Exhibits

 

Exhibit

Number

  

Description

99.1    Press Release
99.2    Presentation Regarding Fourth Quarter and Full Year 2018 Financial Results


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    FRONTIER COMMUNICATIONS CORPORATION
Date: February 26, 2019     By:  

/s/ Mark D. Nielsen

      Mark D. Nielsen
      Executive Vice President, Chief Legal Officer and Secretary
(Back To Top)

Section 2: EX-99.1 (EX-99.1)

EX-99.1

Exhibit 99.1

 

 

LOGO

401 Merritt 7

Norwalk, CT 06851

(203) 614-5600

www.frontier.com

Frontier Communications Reports Fourth Quarter and Full Year 2018 Results

 

   

Total fourth quarter revenue of $2.12 billion, stable sequentially

 

   

Net loss of $219 million in the fourth quarter, with loss driven by goodwill impairment

 

   

Adjusted EBITDA1 of $895 million, a sequential increase driven by improved Consumer revenue performance, continued strong expense management, and early benefits from the company’s transformation program

 

   

Transformation program initiatives expanded further in the fourth quarter, and the program enters 2019 with strong momentum

Norwalk, Conn., February 26, 2019 – Frontier Communications Corporation (NASDAQ:FTR) today reported financial results for the fourth quarter and full year ended December 31, 2018.

“I am very pleased that fourth quarter results reflect our improving execution as well as initial benefits from our transformation program,” said Dan McCarthy, President and CEO. “A robust result in Consumer, together with strong expense management, drove a sequential increase in fourth quarter Adjusted EBITDA,” McCarthy added. “We continued to expand the scope of initiatives underway in our transformation program in the fourth quarter, and multiple teams are now scaling a range of solutions that were developed through transformation initiatives. I look forward to continued progress and expansion of the program over the course of 2019 and 2020 as we advance toward our targeted $500 million EBITDA benefit.”

Consolidated Results

Consolidated revenue for the fourth quarter of 2018 was $2.12 billion. Within consolidated revenue, Consumer revenue was $1.09 billion, Commercial revenue was $942 million, and subsidy and other regulatory revenue was $94 million.

 

1 

See “Non-GAAP Measures” for a description of this measure and its calculation. See Schedule A for a reconciliation to net income/(loss).


Net loss for the fourth quarter of 2018 was $219 million, representing a net loss per common share of $2.12. Net loss included a goodwill impairment of $241 million ($214 million net of tax). Fourth quarter Adjusted EBITDA was $895 million, for an Adjusted EBITDA margin2 of 42.1%.

Net cash provided from operating activities for the fourth quarter of 2018 was $603 million and operating free cash flow3 was $358 million. For the full year 2018, net cash provided from operating activities was $1,812 million and operating free cash flow was $620 million.

Consumer Business Highlights

 

   

Revenue of $1.09 billion.

 

   

Customer churn of 1.94% (1.79% for Legacy markets and 2.17% for CTF markets), with each measure improving both sequentially and relative to the fourth quarter of 2017.

 

   

Average Revenue Per Customer (ARPC) of $88.37; excluding adoption of ASC 606, ARPC was $86.05, an increase both sequentially and relative to the fourth quarter 2017.

Commercial Business Highlights

 

   

Revenue of $942 million.

 

   

Total commercial customers of 411,000 compared with 422,000 during the third quarter of 2018.

 

   

Commercial wholesale revenue declined sequentially, driven by wireless backhaul and voice revenue, and Commercial SME revenue was stable sequentially.

Capital Structure and Capital Allocation

 

   

As of December 31, 2018, Frontier’s leverage ratio was 4.72:1.

 

   

Frontier remains committed to reducing debt and improving its financial leverage profile.

 

  o

Retired the $431 million principal amount outstanding of its senior unsecured notes maturing October 1, 2018, as scheduled.

 

  o

Purchased $56 million principal amount of its March 15, 2019 senior unsecured notes in the open market during the fourth quarter of 2018.

 

   

In January 2019 Frontier closed the sale of wireless towers for $76 million. The transaction is expected to be immaterial to revenue, earnings, and Adjusted EBITDA.

 

 

2 

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 of EBITDA to net loss.

3

Operating free cash flow is a non-GAAP measure of liquidity derived from net cash provided from operating activities. See “Non-GAAP Measures” for a description of this measure and its calculation and Schedule A for a reconciliation to net cash provided from operating activities.

 

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Guidance

Frontier is issuing the following financial guidance for 2019:

 

   

Adjusted EBITDA – $3.45 billion to $3.55 billion

 

   

Capital expenditures – Approximately $1.15 billion

 

   

Cash taxes – Less than $25 million

 

   

Cash pension/OPEB – Approximately $175 million

 

   

Cash interest expense – Approximately $1.475 billion

 

   

Operating free cash flow – $575 million to $675 million

 

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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. 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. Adjusting for these items allows investors to better understand and analyze Frontier’s financial performance over the periods presented.

 

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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. 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 fourth 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, February 26, 2019, through 7:30 P.M. Eastern Time on Sunday, March 3, 2019 at 719-457-0820 or 888-203-1112. Use the passcode 3377896 to access the replay. A webcast replay of the call will be available at www.frontier.com/ir.

About Frontier Communications

Frontier Communications Corporation (NASDAQ: FTR) is a leader in providing communications services to urban, suburban, and rural communities in 29 states. Frontier offers a variety of services to residential customers over its fiber-optic and copper networks, including video, high-speed internet, advanced voice, and Frontier Secure® digital protection solutions. Frontier Business offers communications solutions to small, medium, and enterprise businesses. More information about Frontier is available at www.frontier.com.

Forward-Looking Statements

This earnings release contains “forward-looking statements,” related to future events. Forward-looking statements address Frontier’s expected future business, financial performance, and financial condition, and contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “may,” “will,” “would,” or “target.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For Frontier, particular uncertainties that could cause actual results to be materially different than those expressed in such forward-looking statements include: declines in revenue from Frontier’s voice services, switched and non-switched access and video and data services that it cannot stabilize or offset with increases in revenue from other products and services; Frontier’s ability to successfully implement strategic initiatives, including opportunities to

 

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enhance revenue and realize operational improvements; competition from cable, wireless and wireline carriers, satellite, and OTT companies, and the risk that Frontier will not respond on a timely or profitable basis; Frontier’s ability to successfully adjust to changes in the communications industry, including the effects of technological changes and competition on its capital expenditures, products and service offerings; risks related to disruptions in Frontier’s networks, infrastructure and information technology that may result in customer loss and/or incurrence of additional expenses; the impact of potential information technology or data security breaches or other cyber attacks or other disruptions; Frontier’s ability to retain or attract new customers and to maintain relationships with customers, employees or suppliers; Frontier’s ability to hire or retain key personnel; Frontier’s ability to realize anticipated benefits from recent acquisitions; Frontier’s ability to dispose of certain assets or asset groups on terms that are attractive to it, or at all; Frontier’s ability to effectively manage its operations, operating expenses, capital expenditures, debt service requirements and cash paid for income taxes and liquidity; Frontier’s ability to defend against litigation and potentially unfavorable results from current pending and future litigation; adverse changes in the credit markets, which could impact the availability and cost of financing; Frontier’s ability to repay or refinance its debt through, among other things, accessing the capital markets, notes repurchases and/or redemptions, tender offers and exchange offers; adverse changes in the ratings given to Frontier’s debt securities by nationally accredited ratings organizations; covenants in Frontier’s indentures and credit agreements that may limit Frontier’s operational and financial flexibility as well as its ability to access the capital markets in the future; the effects of state regulatory requirements that could limit Frontier’s ability to transfer cash among its subsidiaries or dividend funds up to the parent company; the effects of governmental legislation and regulation on Frontier’s business; the impact of regulatory, investigative and legal proceedings and legal compliance risks; government infrastructure projects that impact capital expenditures; continued reductions in switched access revenue as a result of regulation, competition or technology substitutions; the effects of changes in the availability of federal and state universal service funding or other subsidies to Frontier and its competitors; Frontier’s ability to meet its remaining CAF II funding obligations and the risk of penalties or obligations to return certain CAF II funds; Frontier’s ability to effectively manage service quality and meet mandated service quality metrics; the effects of changes in accounting policies or practices, including potential future impairment charges with respect to intangible assets; the effects of changes in income tax rates, tax laws, regulations or rulings, or federal or state tax assessments, including the risk that such changes may benefit Frontier’s competitors more than it, as wells potential future decreases in the value of Frontier’s deferred tax assets; the effects of increased medical expenses and pension and postemployment expenses; Frontier’s ability to successfully renegotiate union contracts; changes in pension plan assumptions, interest rates, discount rates, regulatory rules and/or the value of Frontier’s pension plan assets, which could require Frontier to make increased contributions to its pension plans; the effects of changes in both general and local economic conditions in the markets that Frontier serves; the effects of severe weather events or other natural or man-made disasters, which may increase operating and capital expenses or adversely impact customer revenue; and the risks and other factors contained in Frontier’s filings with the U.S. Securities and Exchange Commission, including its reports on Forms 10-K and 10-Q. These risks and uncertainties may cause actual future results to be materially different than those expressed in such forward-looking statements. Frontier has no obligation to update or revise these forward-looking statements and does not undertake to do so.

 

INVESTOR CONTACT:   MEDIA CONTACT:
Luke Szymczak   Brigid Smith
Vice President   Assistant Vice President
(203) 614-5044   (203) 614-5042
[email protected]   [email protected]

 

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Frontier Communications Corporation

Consolidated Financial Data

 

     For the quarter ended     For the year ended  

($ in millions and shares in thousands, except
per share amounts)

   December 31, 2018(1)     September 30, 2018(1)     December 31, 2017     December 31, 2018(1)     December 31, 2017  

Statement of Operations Data

          

Revenue

   $ 2,124     $ 2,126     $ 2,217     $ 8,611     $ 9,128  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

          

Network access expenses

     347       353       388       1,441       1,597  

Network related expenses

     461       476       490  (2)       1,898       1,958  (2)  

Selling, general and administrative expenses

     441       445       457  (2)       1,815       2,017  (2)  

Depreciation and amortization

     492       471       514       1,954       2,184  

Goodwill impairment

     241       400       2,078       641       2,748  

Acquisition and integration costs

     —         —         10       —         25  

Restructuring costs and other charges

     15       14       27       35       82  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     1,997       2,159       3,964  (2)       7,784       10,611  (2)  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     127       (33     (1,747 )(2)      827       (1,483 )(2) 

Investment and other income (loss), net

     (3     3       (3 )(2)      13       1  (2)  

Pension settlement costs

     7       9       6       41       83  

Gain (Loss) on early extinguishment of debt and debt exchanges

     1       (2     1       32       (88

Interest expense

     388       389       377       1,536       1,534  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (270     (430     (2,132     (705     (3,187

Income tax benefit

     (51     (4     (1,103     (62     (1,383
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (219     (426     (1,029     (643     (1,804

Less: Dividends on preferred stock

     —         —         53       107       214  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Frontier common shareholders

   $ (219   $ (426   $ (1,082   $ (750   $ (2,018
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding - basic and diluted(3)

     103,680       103,665       77,805       89,683       77,736  

Basic and diluted net loss per common share

   $ (2.12   $ (4.11   $ (13.91   $ (8.37   $ (25.99
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Financial Data:

          

Capital expenditures - Business operations

   $ 245     $ 329     $ 308     $ 1,192     $ 1,154  

Capital expenditures - Integration activities

   $ —       $ —       $ 15     $ —       $ 34  

Dividends declared - Common stock

   $ —       $ —       $ 47     $ —       $ 266  

Dividends declared - Preferred stock

   $ —       $ —       $ 53     $ 107     $ 214  

 

(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 and $2 million of net operating expenses as non-operating expense for the quarter and year ended December 31, 2017, respectively. Additional pension settlement costs of $6 million and $83 million for the quarter and year ended December 31, 2017, respectively, were reclassified from operating expense to non-operating expense.

 

(3) 

As of December 31, 2018 and September 30, 2018, there were approximately 106 million of common shares outstanding and 0 shares of preferred stock.

 

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Frontier Communications Corporation

Consolidated Financial Data

 

     For the quarter ended      For the year ended  
     December 31, 2018(1)      September 30, 2018(1)      December 31, 2017      December 31, 2018(1)      December 31, 2017  

($ in millions)

                                  

Selected Statement of Operations Data

              

Revenue:

              

Data and Internet services

   $ 959      $ 961      $ 939      $ 3,878      $ 3,862 (2)  

Voice services

     668        669        687        2,721        2,864  

Video services

     275        260        310        1,085        1,304  

Other

     128        141        91        544        322  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Customer revenue

     2,030        2,031        2,027        8,228        8,352 (2)  

Subsidy and other regulatory revenue

     94        95        190        383        776  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 2,124      $ 2,126      $ 2,217      $ 8,611      $ 9,128 (2)  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other Financial Data

              

Revenue:

              

Consumer

   $ 1,088      $ 1,069      $ 1,086      $ 4,380      $ 4,476  

Commercial

     942        962        941        3,848        3,876 (2)  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Customer revenue

     2,030        2,031        2,027        8,228        8,352 (2)  

Subsidy and other regulatory revenue

     94        95        190        383        776  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 2,124      $ 2,126      $ 2,217      $ 8,611      $ 9,128 (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, $40 million for the year ended December 31, 2017.

 

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Frontier Communications Corporation

Consolidated Financial and Operating Data

 

     For the quarter ended     For the year ended  
     December 31, 2018     September 30, 2018     December 31, 2017     December 31, 2018     December 31, 2017  

Customers (in thousands)

     4,471       4,574       4,850       4,471       4,850  

Consumer customer metrics

          

Customers (in thousands)

     4,060       4,152       4,397       4,060       4,397  

Net customer additions (losses)

     (92     (86     (89     (337     (494

Average monthly consumer revenue per customer

   $ 88.37 (1)     $ 84.92 (1)     $ 81.61     $ 86.26 (1)     $ 80.96  

Customer monthly churn

     1.94     2.03     1.98     1.97     2.17

Commercial customer metrics

          

Customers (in thousands)

     411       422       453       411       453  

Broadband subscriber metrics (in thousands)

          

Broadband subscribers

     3,735       3,802       3,938       3,735       3,938  

Net subscriber additions (losses)

     (67     (61     (63     (203     (333

Video (excl. DISH) subscriber metrics (in thousands)

          

Video subscribers

     838       873       961       838       961  

Net subscriber additions (losses)

     (35     (29     (20     (123     (184

Video - DISH subscriber metrics (in thousands)

          

DISH subscribers

     205       211       235       205       235  

Net subscriber additions (losses)

     (6     (8     (9     (30     (39

Employees

     21,173       21,375       22,736       21,173       22,736  

 

(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.

 

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Frontier Communications Corporation

Condensed Consolidated Balance Sheet Data

 

($ in millions)

   December 31, 2018      December 31, 2017  

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 354      $ 362  

Accounts receivable, net

     723        819  

Other current assets

     253        142  
  

 

 

    

 

 

 

Total current assets

     1,330        1,323  

Property, plant and equipment, net

     14,187        14,377  

Other assets - principally goodwill

     8,142        9,184  
  

 

 

    

 

 

 

Total assets

   $ 23,659      $ 24,884  
  

 

 

    

 

 

 

LIABILITIES AND EQUITY

     

Current liabilities:

     

Long-term debt due within one year

   $ 814      $ 656  

Accounts payable and other current liabilities

     1,747        1,852  
  

 

 

    

 

 

 

Total current liabilities

     2,561        2,508  

Deferred income taxes and other liabilities

     3,140        3,132  

Long-term debt

     16,358        16,970  

Equity

     1,600        2,274  
  

 

 

    

 

 

 

Total liabilities and equity

   $ 23,659      $ 24,884  
  

 

 

    

 

 

 

 

- 10 of 15 -


Frontier Communications Corporation

Consolidated Cash Flow Data

 

     For the year ended  

($ in millions)

   December 31, 2018     December 31, 2017  

Cash flows provided from (used by) operating activities:

    

Net loss

   $ (643   $ (1,804

Adjustments to reconcile net loss to net cash provided from (used by) operating activities:

    

Depreciation and amortization

     1,954       2,184  

(Gain) Loss on extinguishment of debt and debt exchanges

     (32     88  

Special termination benefits

     —         5  

Pension settlement costs

     41       83  

Stock-based compensation expense

     18       14  

Amortization of deferred financing costs

     34       33  

Other adjustments

     (32     (14

Deferred income taxes

     (67     (1,385

Goodwill impairment

     641       2,748  

Change in accounts receivable

     65       122  

Change in accounts payable and other liabilities

     (141     (298

Change in prepaid expenses, income taxes, and other assets

     (26     74  
  

 

 

   

 

 

 

Net cash provided from operating activities

     1,812       1,850  

Cash flows provided from (used by) investing activities:

    

Capital expenditures - Business operations

     (1,192     (1,154

Capital expenditures - Integration activities

     —         (34

Proceeds on sale of assets

     11       110  

Other

     5       24  
  

 

 

   

 

 

 

Net cash used by investing activities

     (1,176     (1,054

Cash flows provided from (used by) financing activities:

    

Long-term debt payments

     (2,515     (1,811

Proceeds from long-term debt borrowings

     1,840       1,500  

Proceeds from revolving debt

     525       —    

Repayment of revolving debt

     (250     —    

Financing costs paid

     (43     (15

Dividends paid on common stock

     -       (266

Dividends paid on preferred stock

     (107     (214

Premium paid to retire debt

     (17     (86

Capital lease obligation payments

     (36     (42

Other

     (5     (8
  

 

 

   

 

 

 

Net cash used by financing activities

     (608     (942

Increase (Decrease) in cash, cash equivalents, and restricted cash

     28       (146

Cash, cash equivalents, and restricted cash at January 1,

     376       522  
  

 

 

   

 

 

 

Cash, cash equivalents, and restricted cash at December 31,

   $ 404     $ 376  
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid (received) during the period for:

    

Interest

   $ 1,507     $ 1,548  

Income tax payments (refunds), net

   $ 4     $ (51

 

- 11 of 15 -


SCHEDULE A

Frontier Communications Corporation

Reconciliation of Non-GAAP Financial Measures

 

     For the quarter ended     For the year ended  

($ in millions)

   December 31, 2018     September 30, 2018     December 31, 2017     December 31, 2018     December 31, 2017  

EBITDA

          

Net loss

   $ (219   $ (426   $ (1,029   $ (643   $ (1,804

Add back (subtract):

          

Income tax benefit

     (51     (4     (1,103     (62     (1,383

Interest expense

     388       389       377       1,536       1,534  

Investment and other (income) loss, net

     3       (3     3       (13     (1

Pension settlement costs

     7       9       6       41       83  

(Gain) Loss on extinguishment of debt

     (1     2       (1     (32     88  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     127       (33     (1,747     827       (1,483

Depreciation and amortization

     492       471       514       1,954       2,184  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 619     $ 438     $ (1,233 )    $ 2,781     $ 701  

Add back:

          

Acquisition and integration costs

     —         —         10       —         25  

Pension/OPEB expense

     19       21       20       85       92  

Restructuring costs and other charges

     15       14       27       35       82  

Stock-based compensation expense

     4       5       4       18       14  

Storm-related costs (insurance proceeds)

     (3     —         13       (3     22  

Work stoppage costs

     —         —         —         8       —    

Goodwill impairment

     241       400       2,078       641       2,748  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 895     $ 878     $ 919     $ 3,565     $ 3,684  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

     29.1     20.6     -55.6     32.3     7.7

Adjusted EBITDA margin

     42.1     41.3     41.5     41.4     40.4

Free Cash Flow

          

Net cash provided from operating activities

   $ 603     $ 286     $ 665     $ 1,812     $ 1,850  
Add back (subtract):           

Capital expenditures - Business operations

     (245     (329     (308     (1,192     (1,154

Capital expenditures - Integration activities

     —         —         (15     —         (34
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating free cash flow

   $ 358     $ (43 )    $ 342     $ 620     $ 662  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

- 12 of 15 -


SCHEDULE B

Frontier Communications Corporation

Reconciliation of Non-GAAP Financial Measures

 

     For the quarter ended     For the year ended  
     December 31, 2018     September 30, 2018     December 31, 2017     December 31, 2018      December 31, 2017  

($ in millions, except per share  amounts)

   Net Income
(Loss)
    Basic
Earnings
(Loss) Per
Share
    Net Income
(Loss)
    Basic
Earnings
(Loss) Per
Share
    Net Income
(Loss)
    Basic
Earnings
(Loss) Per
Share
    Net Income
(Loss)
     Basic
Earnings
(Loss) Per
Share
     Net Income
(Loss)
     Basic
Earnings
(Loss) Per
Share
 

Net loss attributable to Frontier common shareholders

   $ (219   $ (2.12   $ (426   $ (4.11   $ (1,082   $ (13.91   $ (750    $ (8.37    $ (2,018    $ (25.99
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Acquisition and integration costs

     —           —           10         —             25     

Restructuring costs and other charges

     15         14         27         35           82     

Pension settlement costs

     7         9         6         41           83     

(Gain) Loss on extinguishment of debt and debt exchanges

     (1       2         (1       (32         88     

Goodwill impairment

     241         400         2,078         641           2,748     

Storm-related costs (insurance proceeds)

     (3       —           13         (3         22     

Work stoppage costs

     —           —           —           8           —       

Effect of tax reform

     —           —           (830       —             (830   

Certain other tax items(1)

     (14       46         8         24           8     

Income tax effect on above items:

                       

Acquisition and integration costs

     —           —           (3       —             (9   

Restructuring costs and other charges

     (4       (3       (10       (8         (30   

Pension settlement costs

     (2       (2       (2       (10         (30   

(Gain) Loss on extinguishment of debt and debt exchanges

     —           (1       1         8           (32   

Goodwill impairment

     (27       (46       (256       (73         (394   

Storm-related costs (insurance proceeds)

     1         —           (5       1           (8   

Work stoppage costs

     —           —           —           (2         —       
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 
   $ 213     $ 2.05     $ 419     $ 4.04     $ 1,036     $ 13.32     $ 630      $ 7.02      $ 1,723      $ 22.16  

Adjusted net loss attributable to Frontier common shareholders(2)

   $ (6   $ (0.06   $ (7   $ (0.07   $ (46   $ (0.59   $ (120    $ (1.34    $ (295    $ (3.79
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Includes impact arising from federal research and development credits, changes in certain deferred tax balances, state tax law changes, state filing method change, and the net impact of uncertain tax positions.

(2) 

Adjusted net loss attributable to Frontier common shareholders may not sum due to rounding.

 

 

- 13 of 15 -


SCHEDULE C

Frontier Communications Corporation

Reconciliation of Non-GAAP Financial Measures

 

     For the quarter ended     For the year ended  

($ in millions)

   December 31, 2018     September 30, 2018      December 31, 2017     December 31, 2018     December 31, 2017  

Adjusted Operating Expenses

           

Total operating expenses

   $ 1,997     $ 2,159      $ 3,964 (1)     $ 7,784     $ 10,611 (1)  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Subtract:

           

Depreciation and amortization

     492       471        514       1,954       2,184  

Goodwill impairment

     241       400        2,078       641       2,748  

Acquisition and integration costs

     -       -        10       -       25  

Pension/OPEB expense

     19       21        20 (1)       85       92 (1)  

Restructuring costs and other charges

     15       14        27       35       82  

Stock-based compensation expense

     4       5        4       18       14  

Storm-related costs (insurance proceeds)

     (3     —          13       (3     22  

Work stoppage costs

     —         —          —         8       —    
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Adjusted operating expenses

   $ 1,229     $ 1,248      $ 1,298     $ 5,046     $ 5,444  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

 

(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 and $2 million of net operating expenses as non-operating expense for the quarter and year ended December 31, 2017, respectively. Additional pension settlement costs of $6 million and $83 million for the quarter and year ended December 31, 2017, respectively, were reclassified from operating expense to non-operating expense.

 

- 14 of 15 -


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
For the quarter ended
    Amounts Excluding Adoption of ASC 606
For the quarter ended
 

($ in millions)

   December 31, 2018     September 30, 2018     December 31, 2018     September 30, 2018  

Selected Statement of Operations Data

        

Revenue:

        

Data and Internet services

   $ 959     $ 961     $ 947     $ 938  

Voice services

     668       669       617       634  

Video services

     275       260       291       287  

Other

     128       141       92       88  
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenue from contracts with customers

     2,030       2,031       1,947       1,947  

Subsidy and other regulatory revenue

     94       95       176       173  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

   $ 2,124     $ 2,126     $ 2,123     $ 2,120  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other Revenue Data

        

Revenue:

        

Consumer

   $ 1,088     $ 1,069     $ 1,060     $ 1,047  

Commercial

     942       962       887       900  
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenue from contracts with customers

     2,030       2,031       1,947       1,947  

Subsidy and other regulatory revenue

     94       95       176       173  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

   $ 2,124     $ 2,126     $ 2,123     $ 2,120  
  

 

 

   

 

 

   

 

 

   

 

 

 
     As Reported
For the quarter ended
    Amounts Excluding Adoption of ASC 606
For the quarter ended
 

($ in millions)

   December 31, 2018     September 30, 2018     December 31, 2018     September 30, 2018  

Statement of Operations Data

        

Revenue

   $ 2,124     $ 2,126     $ 2,123     $ 2,120  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Network access expenses

     347       353       349       354  

Network related expenses

     461       476       461       476  

Selling, general and administrative expenses

     441       445       445       447  

Depreciation and amortization

     492       471       491       471  

Goodwill impairment

     241       400       241       400  

Restructuring costs and other charges

     15       14       15       14  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

   $ 1,997     $ 2,159     $ 2,002     $ 2,162  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     127       (33     121       (42

Investment and other income, net

     (3     3       (3     3  

Pension settlement costs

     7       9       7       9  

Gain (Loss) on extinguishment of debt

     1       (2     1       (2

Interest expense

     388       389       388       389  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (270     (430     (276     (439

Income tax benefit

     (51     (4     (54     (4
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (219     (426     (222     (435

Less: Dividends on preferred stock

     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Frontier common shareholders

   $ (219   $ (426   $ (222   $ (435
  

 

 

   

 

 

   

 

 

   

 

 

 

Other financial data:

        

Consumer ARPC

   $ 88.37     $ 84.92     $ 86.05     $ 83.20  

 

- 15 of 15 -

(Back To Top)

Section 3: EX-99.2 (EX-99.2)

EX-99.2

Slide 1

Investor Update Fourth Quarter 2018 | February 26, 2019 Exhibit 99.2


Slide 2

2 Agenda 1 Strategic and Operational Review Daniel McCarthy President & Chief Executive Officer Financial Review Sheldon Bruha Senior Vice President & Interim Chief Financial Officer


Slide 3

Business Update Total Revenue Consumer revenue of $1,088 million Consumer customer churn of 1.94%, improved sequentially and vs. Q4 2017 Consumer ARPC of $88.37; excluding adoption of ASC 606, ARPC of $86.05, a sequential increase Commercial revenue of $942 million Commercial customers of 411,000 $2.12B $895M Adjusted EBITDA1 Increased sequentially $519M Maturities retired and amortization paid Continued focus on improving financial profile $219M Net loss Reflects $214M goodwill impairment, net of tax $500M EBITDA benefit anticipated by YE 2020 Beginning to realize initial benefits from transformation initiatives 1Adjusted EBITDA is a non-GAAP measure - see Appendix for its calculation


Slide 4

Broadband Unit Trends Net Adds (000s) Strong focus on retention reflecting success with churn initiatives Consumer net additions reflect greater selectivity in customer acquisition Market positioning remains solid Copper trends stable sequentially Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Consumer Fiber Broadband Consumer Copper Broadband Total Broadband (Consumer & Commercial) Commercial Broadband


Slide 5

Customer Churn Trends Q4 churn improved sequentially and versus Q4 2017 Two years of improving churn trends Additional churn initiatives to drive further improvements Customer Churn Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018


Slide 6

Transformation Program Update $200M+ annual benefit potential $50-$100 million benefit expected to be realized during 2019 ~$200 million run rate exiting 2019 ~$500 million run rate exiting 2020 Anticipated EBITDA Benefits Current Status Initiative Examples 4 Initiatives complete 21 Solutions are being scaled 8 in capture phase: ~$60M/yr benefit 13 others in various phases of scaling 14 additional Initiatives underway now Full funnel of Initiatives ready to launch Field Ops – improving management of field resources More responsive allocation of resources Increasing efficiency and reducing rework Further benefits anticipated over course of 2019 Customer Technical Support Already achieved 20% of target to reduce dispatches through better remote diagnosis Call Center/Demand Generation Improving productivity and enhancing customer digital experience Churn improvements Addressing root causes of churn with multiple initiatives


Slide 7

2 Agenda 1 Strategic and Operational Review Daniel McCarthy President & Chief Executive Officer Financial Review Sheldon Bruha Senior Vice President & Interim Chief Financial Officer


Slide 8

Key Financial Highlights  ($ in Millions) Q1 2018 Q2 2018 Q3 2018 Q4 2018 Total Revenue $2,199 $2,162 $2,126 $2,124 Customer $2,102 $2,065 $2,031 $2,030 Regulatory $97 $97 $95 $94 Net Income (Loss) $20 ($18) ($426) ($219) Net Cash provided from Operating Activities $251 $672 $286 $603 Adjusted Operating Expenses* $1,291 $1,278 $1,248 $1,229 Adjusted EBITDA* $908 $884 $878 $895 Adjusted EBITDA Margin* 41.3% 40.9% 41.3% 42.1% CapEx $297 $321 $329 $245 LTM Operating Free Cash Flow* $632 $721 $604 $620 * Adjusted Operating Expenses, Adjusted EBITDA, Adjusted EBITDA Margin and Operating Free Cash Flow are non-GAAP measures - see Appendix for their calculations Q4 revenue stable sequentially Goodwill impairment of $241 million ($214 million net of tax) in Q4 Maintained >40% adjusted EBITDA margin consistently in 2018 Operating FCF of $620 million for 2018


Slide 9

Product & Customer Revenue ASC 605 ASC 606  ($ in Millions) Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Data & Internet Services* $968 $959 $956 $939 $942 $948 $938 $947 $985 $973 $961 $959 Voice Services 751 724 702 687 670 648 634 617 702 682 669 668 Video Services 347 329 318 310 309 297 287 291 280 270 260 275 Other 68 79 84 91 85 86 88 92 135 140 141 128 Total Customer Revenue* $2,134 $2,091 $2,060 $2,027 $2,006 $1,979 $1,947 $1,947 $2,102 $2,065 $2,031 $2,030 Consumer $1,164 $1,124 $1,102 $1,086 $1,089 $1,068 $1,047 $1,060 $1,128 $1,095 $1,069 $1,088 Commercial* 970 967 958 941 917 911 900 887 974 970 962 942 Total Customer Revenue* $2,134 $2,091 $2,060 $2,027 $2,006 $1,979 $1,947 $1,947 $2,102 $2,065 $2,031 $2,030 Regulatory Revenue 197 198 191 190 187 181 173 176 97 97 95 94 Total Revenue* $2,331 $2,289 $2,251 $2,217 $2,193 $2,160 $2,120 $2,123 $2,199 $2,162 $2,126 $2,124 Data & Internet services revenue (under ASC 605) roughly stable for five quarters Voice service revenue declines similar to prior trends Consumer revenue increased sequentially *Frontier Secure Strategic Partnerships revenue excluded from Q1 and Q2 2017 Commercial revenues, reflecting Q2 2017 disposition.


Slide 10

ASC 605 ASC 606 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Customers 4.7M 4.6M 4.5M 4.4M 4.3M 4.2M 4.2M 4.1M 4.3M 4.2M 4.2M 4.1M ARPC Consumer ARPC Consumer ARPC increased sequentially Continued to improve base management techniques Maintaining an attractive mix of new customers


Slide 11

Expanding Gigabit broadband availability across fiber footprint CAF II: ~486K locations enabled with CAF II broadband New FTTH builds of >30K in 2018 reflecting new housing growth Upgrading FTTH to 10 Gbps to enable 10 Gbps Ethernet and expand 5G backhaul capacity Building FTTH to ~19K rural HHs with state funding sources Fixed wireless broadband builds continue in CAF areas Capital Spending Update $1.19 Billion in CapEx Spent in 2018 Growth initiatives comprise ~75% of FY 2018 capital spending PROJECTS COMPLETED & UNDERWAY CapEx


Slide 12

Manageable Near-term Debt Maturities 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031+ Unsecured Debt Secured Debt Drawn Revolver Balance ($ in Millions) Maturity profile is as of December 31, 2018 Repaid $431M of 8.125% unsecured notes at October 1, 2018 maturity $56M principal amount open-market purchases of 7.125% March 15, 2019 unsecured notes Closed $76M tower sale in January 2019 $4,514 $1,603 $1,364 $500 $547 $2,981 $14 $50 $2,380 As of December 31, 2018


Slide 13

2019 Guidance * Adjusted EBITDA and Operating free cash flow are non-GAAP measures - see Appendix for their calculations. $3.45- $3.55B Adjusted EBITDA* Operating Free Cash Flow* Cash Interest Expense Cash Pension/ OPEB Cash Taxes Capital Expenditures ~$1.15B <$25M ~$175M $575- $675M ~$1.475B


Slide 14

Appendix


Slide 15

Safe Harbor Statement Forward-looking Language This earnings release contains "forward-looking statements," related to future events. Forward-looking statements address Frontier’s expected future business, financial performance, and financial condition, and contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "see," "may," "will," "would," or "target." Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For Frontier, particular uncertainties that could cause actual results to be materially different than those expressed in such forward-looking statements include: declines in revenue from Frontier’s voice services, switched and non-switched access and video and data services that it cannot stabilize or offset with increases in revenue from other products and services; Frontier’s ability to successfully implement strategic initiatives, including opportunities to enhance revenue and realize operational improvements; competition from cable, wireless and wireline carriers, satellite, and OTT companies, and the risk that Frontier will not respond on a timely or profitable basis; Frontier’s ability to successfully adjust to changes in the communications industry, including the effects of technological changes and competition on its capital expenditures, products and service offerings; risks related to disruptions in Frontier’s networks, infrastructure and information technology that may result in customer loss and/or incurrence of additional expenses; the impact of potential information technology or data security breaches or other cyber attacks or other disruptions; Frontier’s ability to retain or attract new customers and to maintain relationships with customers, employees or suppliers; Frontier’s ability to hire or retain key personnel; Frontier’s ability to realize anticipated benefits from recent acquisitions; Frontier’s ability to dispose of certain assets or asset groups on terms that are attractive to it, or at all; Frontier’s ability to effectively manage its operations, operating expenses, capital expenditures, debt service requirements and cash paid for income taxes and liquidity; Frontier’s ability to defend against litigation and potentially unfavorable results from current pending and future litigation; adverse changes in the credit markets, which could impact the availability and cost of financing; Frontier’s ability to repay or refinance its debt through, among other things, accessing the capital markets, notes repurchases and/or redemptions, tender offers and exchange offers; adverse changes in the ratings given to Frontier’s debt securities by nationally accredited ratings organizations; covenants in Frontier’s indentures and credit agreements that may limit Frontier’s operational and financial flexibility as well as its ability to access the capital markets in the future; the effects of state regulatory requirements that could limit Frontier’s ability to transfer cash among its subsidiaries or dividend funds up to the parent company; the effects of governmental legislation and regulation on Frontier’s business; the impact of regulatory, investigative and legal proceedings and legal compliance risks; government infrastructure projects that impact capital expenditures; continued reductions in switched access revenue as a result of regulation, competition or technology substitutions; the effects of changes in the availability of federal and state universal service funding or other subsidies to Frontier and its competitors; Frontier’s ability to meet its remaining CAF II funding obligations and the risk of penalties or obligations to return certain CAF II funds; Frontier’s ability to effectively manage service quality and meet mandated service quality metrics; the effects of changes in accounting policies or practices, including potential future impairment charges with respect to intangible assets; the effects of changes in income tax rates, tax laws, regulations or rulings, or federal or state tax assessments, including the risk that such changes may benefit Frontier’s competitors more than it, as wells potential future decreases in the value of Frontier’s deferred tax assets; the effects of increased medical expenses and pension and postemployment expenses; Frontier’s ability to successfully renegotiate union contracts; changes in pension plan assumptions, interest rates, discount rates, regulatory rules and/or the value of Frontier’s pension plan assets, which could require Frontier to make increased contributions to its pension plans; the effects of changes in both general and local economic conditions in the markets that Frontier serves; the effects of severe weather events or other natural or man-made disasters, which may increase operating and capital expenses or adversely impact customer revenue; and the risks and other factors contained in Frontier’s filings with the U.S. Securities and Exchange Commission, including its reports on Forms 10-K and 10-Q. These risks and uncertainties may cause actual future results to be materially different than those expressed in such forward-looking statements. Frontier has no obligation to update or revise these forward-looking statements and does not undertake to do so.


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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. 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. 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. 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.


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Non-GAAP Financial Measures  ($ in Millions) Q4 2018 Q3 2018 Q4 2017 Net Income (Loss) (219) (426) (1,029) Add back (Subtract): Income Tax Expense (Benefit) (51) (4) (1,103) Interest Expense 388 389 377 Investment and Other (Income) Loss, Net 3 (3) 3 Pension Settlement Costs 7 9 6 (Gain) Loss on Extinguishment of Debt and Debt Exchanges (1) 2 (1) Operating Income (Loss) 127 (33) (1,747) Depreciation and Amortization 492 471 514 EBITDA $619 $438 ($1,233) Add back: Acquisition and Integration Costs - - 10 Pension/OPEB Expense 19 21 20 Restructuring Costs and Other Charges 15 14 27 Stock-based Compensation Expense 4 5 4 Storm Related Costs (Insurance Proceeds) (3) - 13 Goodwill Impairment 241 400 2,078 Adjusted EBITDA $895 $878 $919 EBITDA Margin 29.1% 20.6% (55.6%) Adjusted EBITDA Margin 42.1% 41.3% 41.5%


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Non-GAAP Financial Measures  ($ in Millions) Q4 2018 Q3 2018 Q4 2017 Total Operating Expenses $1,997 $2,159 $3,9641 Subtract: Depreciation and Amortization 492 471 514 Goodwill Impairment 241 400 2,078 Acquisition and Integration Costs - - 10 Pension/OPEB Expense 19 21 201 Restructuring Costs and Other Charges 15 14 27 Stock-based Compensation Expense 4 5 4 Storm Related Costs (Insurance Proceeds) (3) - 13 Adjusted Operating Expenses $1,229 $1,248 $1,298 (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. Pension settlement costs of $6 million for the three months ended December 31, 2017 were reclassified from operating expense to non-operating expense.


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Non-GAAP Financial Measures Quarterly Results  ($ in Millions) Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Net Cash Provided from Operating Activities $300 $529 $356 $665 $251 $672 $286 $603 Add Back (Subtract): Capital Expenditures – Business Operations (315) (263) (268) (308) (297) (321) (329) (245) Capital Expenditures – Integration (1) (4) (14) (15) - - - - Operating Free Cash Flow ($16) $262 $74 $342 ($46) $351 ($43) $358 Trailing Four Quarter Results  ($ in Millions) Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Net Cash Provided from Operating Activities $2,028 $1,864 $1,899 $1,850 $1,801 $1,944 $1,874 $1,812 Add Back (Subtract): Capital Expenditures – Business Operations (1,367) (1,280) (1,145) (1,154) (1,136) (1,194) (1,255) (1,192) Capital Expenditures – Integration (91) (59) (62) (34) (33) (29) (15) - Operating Free Cash Flow $570 $525 $692 $662 $632 $721 $604 $620


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Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 CTF & Legacy Broadband and Video Unit Trends CTF Net Adds (000s) CTF FiOS® Broadband Video (excl. Dish®) CTF Copper Broadband CTF FiOS broadband net adds reflect greater selectivity in customer acquisition Four quarters of stable CTF Copper broadband trends Legacy broadband net additions improved slightly sequentially and stable with Q4 2017 Legacy Broadband Legacy Net Adds (000s)

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