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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): August 6, 2019

 

 

Frontier Communications Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-11001   06-0619596

(State or other jurisdiction

of incorporation)

 

(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))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol

 

Name of each exchange

on which registered

Common Stock, $0.25 par value   FTR   The Nasdaq Stock Market LLC

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 August 6, 2019, Frontier Communications Corporation (“Frontier”) issued a press release announcing its second quarter 2019 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 August 6, 2019, to discuss its financial results for the second quarter of 2019. 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 Second Quarter 2019 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: August 6, 2019     By:  

/s/ Mark D. Nielsen

      Mark D. Nielsen
      Executive Vice President, Chief Legal Officer, Chief Transaction 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 Second Quarter 2019 Results

 

   

Total second quarter revenue of $2.07 billion

 

   

Net loss of $5.32 billion, includes a goodwill impairment of $5.45 billion

 

   

Second quarter Adjusted EBITDA1 of $882 million

 

   

Net broadband unit losses of 71,000

 

   

Realized a $160 million annualized transformation program EBITDA benefit in second quarter; expecting a $200 million annualized exit-rate transformation EBITDA benefit at year-end 2019

 

   

Reducing 2019 Adjusted EBITDA guidance range to $3.35 billion to $3.42 billion; reducing 2020 transformation benefit target

 

   

Company maintains liquidity of $786 million as of June 30, 2019

Norwalk, Conn., August 6, 2019 – Frontier Communications Corporation (NASDAQ:FTR) today reported financial results for the second quarter ended June 30, 2019.

“We continue to strive to optimize our business by leveraging our best assets for future growth while managing the segments of our business in secular decline by executing on cost efficiency programs and selective capital investment. Although we achieved second quarter Adjusted EBITDA of $882 million, we continue to be challenged by ongoing revenue declines, content cost escalations, higher labor costs, and other pressures across the business,” said Dan McCarthy, President and CEO.

“The reduction in 2019 guidance reflects pressures on the business and planned incremental investments in both Consumer and Commercial during the second half of the year,” Mr. McCarthy continued. “The expense-reduction initiatives of the transformation program have resulted in an annualized EBITDA benefit of $160 million in the second quarter. We now expect to attain in-year EBITDA benefits of $110 million to $150 million in 2019, as compared to our prior target of $50

 

1 

Adjusted EBITDA is a non-GAAP measure. See “Non-GAAP Measures” for a description of this measure and its calculation. See Schedule A on page 13 for a reconciliation to net income/(loss).


million to $100 million. That said, we are reducing our target of $500 million in annualized EBITDA benefits exiting 2020 to a range of $200 million to $250 million largely because of challenges in achieving targets for improvements in revenue and customer trends. We continue to anticipate a 2019 exit-rate of $200 million in annualized EBITDA benefits, driven almost entirely by cost reductions rather than revenue improvements.”

Consolidated Results

Consolidated revenue for the second quarter of 2019 was $2.07 billion, as compared with $2.10 billion in the first quarter. Within second quarter consolidated revenue, Consumer revenue was $1.05 billion, Commercial revenue was $922 million, and subsidy revenue was $95 million.

Net loss for the second quarter of 2019 was $5.32 billion, representing a net loss per common share of $51.07. Net loss included a $5.45 billion goodwill impairment or $4.93 billion net of tax, a $384 million loss on the anticipated sale of operations and assets in Washington, Oregon, Idaho, and Montana, and $31 million of restructuring expenses. The impairment reflects, among other things, our expectation of continued revenue declines because of pressures on the business, reduced expectations for the transformation program, the long-term sustainability of our capital structure, a lower outlook for our overall industry, and the cumulative impact of all these factors on business trends going forward. Our goodwill balance as of June 30, 2019 is $276 million, and further impairments are possible as a result of ongoing reviews of the business and operations.

Second quarter Adjusted EBITDA was $882 million, representing an Adjusted EBITDA margin2 of 42.7%. This compares with Adjusted EBITDA of $873 million in the first quarter of 2019. The benefits from our transformation program yielded a $26 million sequential increase. The second quarter also had approximately $10 million of net benefits related to some expenses being lower than originally estimated or accrued as well as the deferral of certain investments and expenses including delays in anticipated staffing. Offsetting these benefits was the impact of a $34 million sequential decline in revenue.

Net cash provided from operating activities for the second quarter of 2019 was $575 million and operating free cash flow3 was $300 million. For the four-quarter period ended June 30, 2019, net cash provided from operating activities was $1,746 million and operating free cash flow was $592 million.

 

 

2 

Adjusted EBITDA margin is a non-GAAP measure of performance, calculated as Adjusted EBITDA, divided by total revenue. See “Non-GAAP Measures” on page 5 for a description of this measure and its calculation. See Schedule A on page 13 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” on page 5 for a description of this measure and its calculation and Schedule A on page 13 for a reconciliation to net cash provided from operating activities.

 

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Consumer Business Highlights

 

   

Revenue of $1.05 billion. The sequential decline was driven by customer losses.

 

   

Customer churn of 2.14%, an increase from the first quarter of 2019. The level of second quarter churn was impacted by seasonality, an elevated level of rolloff of bill credits offered to customers in 2017, and ongoing industry pressure.

 

   

Consumer fiber broadband net losses were 10,000 and consumer copper broadband net losses were 46,000, in each case reflecting seasonality and increased churn. Both Consumer fiber broadband and Consumer copper broadband revenue declined sequentially, reversing the trend in the first quarter. Broadband accounts for more than 40% of Consumer revenue.

 

   

Average Revenue Per Customer (ARPC) of $88.68, a sequential decrease largely reflecting video customer declines.

Commercial Business Highlights

 

   

Revenue of $922 million.

 

   

Total commercial customers of 390,000 compared with 400,000 during the first quarter of 2019.

 

   

Commercial wholesale revenue declined 0.5% sequentially, with the decline in legacy circuits and voice being nearly offset by the increase in Ethernet and other services. Wholesale represents slightly more than half of Commercial revenue. Wireless backhaul, one element of wholesale revenue, represents less than 3% of total company revenue, and continued revenue declines are expected.

 

   

Commercial SME revenue declined 1.8% sequentially largely driven by the ongoing decline in voice services. Voice revenue accounts for approximately half of SME revenue.

Capital Structure

As previously announced, the Finance Committee of the Board of Directors is evaluating Frontier’s capital structure. This includes considering, evaluating and negotiating capital markets and/or financing transactions and/or strategic alternatives. Frontier remains committed to reducing debt and improving its leverage profile.

Developments include the following:

 

   

As of June 30, 2019, Frontier’s leverage ratio4 was 4.69:1.

 

   

On May 28, 2019 we entered into a definitive agreement to sell operations and all associated assets in Washington, Oregon, Idaho, and Montana for $1.352 billion in cash at closing.

 

   

Three new directors were elected to our Board on June 6, 2019.

 

   

As of June 30, 2019, the company had total liquidity5 of $786 million.

 

 

4 

Leverage ratio is calculated as net debt (total debt less cash and cash equivalents) divided by Adjusted EBITDA for the most recent four quarters. See Schedule C on page 15 for its calculation.

5 

Total liquidity is calculated as revolver borrowing availability ($850M in borrowing capacity, less outstanding borrowings of $250 million and letters of credit of $81 million issued under the revolver), plus cash and cash equivalents of $267 million.

 

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Guidance

Guidance for 2019 is being updated.

 

   

Adjusted EBITDA of $3.35 billion to $3.42 billion, which includes an anticipated $110 million to $150 million benefit from the transformation program during 2019

 

   

Capital expenditures – Approximately $1.20 billion, plus up to an additional $15 million in capital to prepare for the announced divestiture

 

   

Cash taxes – Less than $25 million

 

   

Cash pension/OPEB – Approximately $175 million; Cash pension/OPEB contribution has been $77 million through June 30, 2019

 

   

Cash interest expense – Approximately $1.475 billion

 

   

Operating free cash flow – $290 million to $360 million

The company does not intend to provide any further commentary regarding its financial outlook going forward, and this includes making any further revisions to guidance.    

Divestiture Announced

As previously announced, the company has entered into a definitive agreement to sell operations and all associated assets in Washington, Oregon, Idaho, and Montana.    

 

   

Received early termination of Hart-Scott-Rodino Act waiting period

 

   

Federal Communication Commission and required state applications filed

 

   

Approval process proceeding as planned

 

   

Second quarter revenue was $152 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, adjusted operating expenses, and leverage ratio, each of which is described below. Management uses these non-GAAP financial measures internally to (i) assist in analyzing Frontier’s underlying financial performance from period to period, (ii) analyze and evaluate strategic and operational decisions, (iii) establish criteria for compensation decisions, and (iv) assist in the understanding of Frontier’s ability to generate cash flow and, as a result, to plan for future capital and operational decisions. 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 (loss), 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, 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, 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, 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.

Leverage ratio is calculated as net debt (total debt less cash and cash equivalents) divided by Adjusted EBITDA for the most recent four quarters. Investors have indicated that this non-GAAP measure is useful in evaluating Frontier’s debt levels.

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. Management will present prepared remarks. There will not be a question and answer session. 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 2019 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 in the Webcasts & Presentations section of Frontier’s Investor Relations website 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-

 

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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 our transformation program; 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 obtain future subsidies, including participation in the proposed RDOF program; Frontier’s ability to effectively manage service quality and meet mandated service quality metrics; the effects of changes in accounting policies or practices; the impact of current and potential future impairment charges with respect to goodwill or other 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 well as 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 CONTACTS:      
Luke Szymczak    Javier Mendoza       Brigid Smith
Vice President    Vice President    or    Assistant Vice President
(203) 614-5044    (562) 305-2345       (203) 614-5042
[email protected]    [email protected]       [email protected]

 

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Frontier Communications Corporation

Unaudited Consolidated Financial Data

 

     For the quarter ended     For the six months ended  

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

   June 30, 2019     March 31, 2019     June 30, 2018     June 30, 2019     June 30, 2018  

Statement of Operations Data

          

Revenue

   $ 2,067     $ 2,101     $ 2,162     $ 4,168     $ 4,361  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

          

Network access expenses

     318       338       369       656       741  

Network related expenses

     445       456       478       901       961  

Selling, general and administrative expenses

     445       456       460       901       929  

Depreciation and amortization

     454       484       486       938       991  

Goodwill impairment

     5,449       —         —         5,449       —    

Loss on disposal of Northwest Operations

     384       —         —         384       —    

Restructuring costs and other charges

     31       28       2       59       6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     7,526       1,762       1,795       9,288       3,628  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (5,459     339       367       (5,120     733  

Investment and other income (loss), net

     (9     (9     5       (18     13  

Pension settlement costs

     —         —         25       —         25  

Gain (Loss) on early extinguishment of debt

     —         (20     —         (20     33  

Interest expense

     383       379       385       762       759  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (Loss) before income taxes

     (5,851     (69     (38     (5,920     (5

Income tax expense (benefit)

     (534     18       (20     (516     (7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (5,317     (87     (18     (5,404     2  

Less: Dividends on preferred stock

     —         —         54       —         107  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Frontier common shareholders

   $ (5,317   $ (87   $ (72   $ (5,404   $ (105
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding—basic and diluted

     104,118       103,885       78,026       103,987       77,685  

Basic and diluted net loss per common share

   $ (51.07   $ (0.84   $ (0.92   $ (51.97   $ (1.35
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Financial Data:

          

Capital expenditures

   $ 275     $ 305     $ 321     $ 580     $ 618  

Dividends declared—Preferred stock

   $ —       $ —       $ 54     $ —       $ 107  

 

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Frontier Communications Corporation

Unaudited Consolidated Financial Data

 

     For the quarter ended      For the six months ended  
     June 30, 2019      March 31, 2019      June 30, 2018      June 30, 2019      June 30, 2018  

($ in millions)

                                  

Selected Statement of Operations Data

              

Revenue:

              

Data and Internet services

   $ 963      $ 967      $ 973      $ 1,930      $ 1,958  

Voice services

     629        650        682        1,279        1,384  

Video services

     260        268        270        528        550  

Other

     120        124        140        244        275  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Customer revenue

     1,972        2,009        2,065        3,981        4,167  

Subsidy revenue

     95        92        97        187        194  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 2,067      $ 2,101      $ 2,162      $ 4,168      $ 4,361  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other Financial Data

              

Revenue:

              

Consumer

   $ 1,050      $ 1,077      $ 1,095      $ 2,127      $ 2,223  

Commercial

     922        932        970        1,854        1,944  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Customer revenue

     1,972        2,009        2,065        3,981        4,167  

Subsidy revenue

     95        92        97        187        194  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 2,067      $ 2,101      $ 2,162      $ 4,168      $ 4,361  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Frontier Communications Corporation

Unaudited Consolidated Financial and Operating Data

 

     For the quarter ended     For the six months ended  
     June 30, 2019     March 31, 2019     June 30, 2018     June 30, 2019     June 30, 2018  

Customers (in thousands)

     4,292       4,395       4,667       4,292       4,667  

Consumer customer metrics

          

Customers (in thousands)

     3,902       3,995       4,237       3,902       4,237  

Net customer additions (losses)

     (93     (65     (86     (158     (160

Average monthly consumer revenue per customer

   $ 88.68     $ 89.14     $ 85.28     $ 88.94     $ 85.79  

Customer monthly churn

     2.14     1.99     1.95     2.07     1.94

Commercial customer metrics

          

Customers (in thousands)

     390       400       430       390       430  

Broadband subscriber metrics (in thousands)

          

Broadband subscribers

     3,626       3,697       3,863       3,626       3,863  

Net subscriber additions (losses)

     (71     (38     (32     (109     (75

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

          

Video subscribers

     738       784       902       738       902  

Net subscriber additions (losses)

     (46     (54     (32     (100     (60

Video - DISH subscriber metrics (in thousands)

          

DISH subscribers

     190       198       219       190       219  

Net subscriber additions (losses)

     (8     (7     (8     (16     (16

Employees

     19,872       20,439       21,718       19,872       21,718  

 

- 10 of 15 -


Frontier Communications Corporation

Condensed Consolidated Balance Sheet Data

 

     (Unaudited)        

($ in millions)

   June 30, 2019     December 31, 2018  

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 267     $ 354  

Accounts receivable, net

     674       723  

Assets held for sale

     1,405       —    

Other current assets

     268       253  
  

 

 

   

 

 

 

Total current assets

     2,614       1,330  

Property, plant and equipment, net

     12,999       14,187  

Other assets

     1,952       8,142  
  

 

 

   

 

 

 

Total assets

   $ 17,565     $ 23,659  
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Current liabilities:

    

Long-term debt due within one year

   $ 440     $ 814  

Liabilities held for sale

     134       —    

Accounts payable and other current liabilities

     1,726       1,747  
  

 

 

   

 

 

 

Total current liabilities

     2,300       2,561  

Deferred income taxes and other liabilities

     2,679       3,140  

Long-term debt

     16,357       16,358  

Equity (deficit)

     (3,771     1,600  
  

 

 

   

 

 

 

Total liabilities and equity (deficit)

   $ 17,565     $ 23,659  
  

 

 

   

 

 

 

 

- 11 of 15 -


Frontier Communications Corporation

Unaudited Consolidated Cash Flow Data

 

     For the six months ended  

($ in millions)

   June 30, 2019     June 30, 2018  

Cash flows provided from (used by) operating activities:

    

Net income (loss)

   $ (5,404   $ 2  

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

    

Depreciation and amortization

     938       991  

(Gain) Loss on extinguishment of debt

     20       (33

Pension settlement costs

     —         25  

Stock-based compensation expense

     7       9  

Amortization of deferred financing costs

     15       17  

Other adjustments

     1       (20

Deferred income taxes

     (519     (9

Goodwill impairment

     5,449       —    

Loss on disposal of Northwest Operations

     384       —    

Change in accounts receivable

     (1     37  

Change in accounts payable and other liabilities

     (14     (72

Change in prepaid expenses, income taxes, and other assets

     (19     (24
  

 

 

   

 

 

 

Net cash provided from operating activities

     857       923  

Cash flows provided from (used by) investing activities:

    

Capital expenditures

     (580     (618

Proceeds on sale of assets

     74       11  

Other

     1       (10
  

 

 

   

 

 

 

Net cash used by investing activities

     (505     (617

Cash flows provided from (used by) financing activities:

    

Long-term debt payments

     (1,999     (1,714

Proceeds from long-term debt borrowings

     1,650       1,600  

Proceeds from revolving debt

     450       —    

Repayment of revolving debt

     (475     —    

Financing costs paid

     (44     (39

Dividends paid on preferred stock

     —         (53

Premium paid to retire debt

     —         (17

Finance lease obligation payments

     (17     (17

Other

     (4     (8
  

 

 

   

 

 

 

Net cash used by financing activities

     (439     (248

Decrease in cash, cash equivalents, and restricted cash

     (87     58  

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

     404       376  
  

 

 

   

 

 

 

Cash, cash equivalents, and restricted cash at June 30,

   $ 317     $ 434  
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid (received) during the period for:

    

Interest

   $ 712     $ 716  

Income tax payments, net

   $ 5     $ 5  

 

- 12 of 15 -


SCHEDULE A

Frontier Communications Corporation

Reconciliation of Non-GAAP Financial Measures

 

     For the quarter ended     For the six months ended  

($ in millions)

   June 30, 2019     March 31, 2019     June 30, 2018     June 30, 2019     June 30, 2018  

EBITDA

          

Net income (loss)

   $ (5,317   $ (87   $ (18   $ (5,404   $ 2  

Add back (subtract):

          

Income tax expense (benefit)

     (534     18       (20     (516     (7

Interest expense

     383       379       385       762       759  

Investment and other (income) loss, net

     9       9       (5     18       (13

Pension settlement costs

     —         —         25       —         25  

(Gain) Loss on extinguishment of debt

     —         20       —         20       (33
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (5,459     339       367       (5,120     733  

Depreciation and amortization

     454       484       486       938       991  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ (5,005   $ 823     $ 853     $ (4,182   $ 1,724  

Add back:

          

Pension/OPEB expense

     19       20       23       39       45  

Restructuring costs and other charges

     31       28       2       59       6  

Stock-based compensation expense

     4       3       5       7       9  

Storm-related insurance proceeds

     —         (1     —         (1     —    

Work stoppage costs

     —         —         1       —         8  

Goodwill impairment

     5,449       —         —         5,449       —    

Loss on disposal of Northwest Operations

     384       —         —         384       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 882     $ 873     $ 884     $ 1,755     $ 1,792  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

     -242.1     39.1     39.5     -100.3     39.5

Adjusted EBITDA margin

     42.7     41.6     40.9     42.1     41.1

Free Cash Flow

          

Net cash provided from operating activities

   $ 575     $ 282     $ 672     $ 857     $ 923  

Capital expenditures

     (275     (305     (321     (580     (618
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating free cash flow

   $ 300     $ (23   $ 351     $ 277     $ 305  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

- 13 of 15 -


SCHEDULE B

Frontier Communications Corporation

Reconciliation of Non-GAAP Financial Measures

 

 

 

    For the quarter ended     For the six months ended  
    June 30, 2019     March 31, 2019     June 30, 2018     June 30, 2019     June 30, 2018  

($ 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

  $ (5,317   $ (51.07   $ (87   $ (0.84   $ (72   $ (0.92   $ (5,404   $ (51.97   $ (105   $ (1.35
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Restructuring costs and other charges

    31         28         2         59         6    

Pension settlement costs

    —           —           25         —           25    

(Gain) Loss on extinguishment of debt

    —           20         —           20         (33  

Goodwill impairment

    5,449         —           —           5,449         —      

Loss on disposal of Northwest Operations

    384         —           —           384         —      

Storm-related insurance proceeds

    —           (1       —           (1       —      

Work stoppage costs

    —           —           1         —           8    

Certain other tax items (1)

    87         30         (12       117         (8  

Income tax effect on above items:

                   

Restructuring costs and other charges

    (8       (5       —           (13       (1  

Pension settlement costs

    —           —           (6       —           (6  

(Gain) Loss on extinguishment of debt

    —           (4       —           (4       9    

Goodwill impairment

    (524       —           —           (524       —      

Work stoppage costs

    —           —           —           —           (2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 5,419     $ 52.05     $ 68     $ 0.65     $ 10     $ 0.12     $ 5,487     $ 52.77     $ (2   $ (0.03

Adjusted net income (loss) attributable to Frontier common shareholders(2)

  $ 102     $ 0.98     $ (19   $ (0.18   $ (62   $ (0.80   $ 83     $ 0.80     $ (107   $ (1.38
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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.

 

- 14 of 15 -


SCHEDULE C

Frontier Communications Corporation

Reconciliation of Non-GAAP Financial Measures

 

     For the quarter ended      For the six months ended  

($ in millions)

   June 30, 2019      March 31, 2019     June 30, 2018      June 30, 2019     June 30, 2018  

Adjusted Operating Expenses

            

Total operating expenses

   $ 7,526      $ 1,762     $ 1,795      $ 9,288     $ 3,628  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Subtract:

            

Depreciation and amortization

     454        484       486        938       991  

Goodwill impairment

     5,449        —         —          5,449       —    

Loss on disposal of Northwest Operations

     384        —         —          384       —    

Pension/OPEB expense

     19        20       23        39       45  

Restructuring costs and other charges

     31        28       2        59       6  

Stock-based compensation expense

     4        3       5        7       9  

Storm-related insurance proceeds

     —          (1     —          (1     —    

Work stoppage costs

     —          —         1        —         8  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted operating expenses

   $ 1,185      $ 1,228     $ 1,278      $ 2,413     $ 2,569  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

     For the quarter ended  
     June 30, 2019  

Leverage Ratio

  

Numerator

  

Long-term debt

   $ 16,357  

Long-term debt due within one year

     440  

Cash and cash equivalents

     (267
  

 

 

 
   $ 16,530  
  

 

 

 

Denominator

  

Adjusted EBITDA - last 4 quarters

   $ 3,528  
  

 

 

 

Leverage Ratio

     4.69x  

 

- 15 of 15 -

(Back To Top)

Section 3: EX-99.2 (EX-99.2)

EX-99.2

Slide 1

INVESTOR UPDATE Second Quarter 2019 August 6, 2019 Exhibit 99.2


Slide 2

Agenda STRATEGIC AND OPERATIONAL REVIEW DANIEL McCARTHY President & Chief Executive Officer FINANCIAL REVIEW SHELDON BRUHA Executive Vice President & Chief Financial Officer


Slide 3

Business Update Consumer revenue of $1,050 million Consumer customer churn of 2.14%, a sequential increase Consumer ARPC of $88.68, a sequential decline Commercial revenue of $922 million Commercial customers of 390,000 $2.07B TOTAL REVENUE Net loss1 Includes goodwill impairment of $5.45 billion and loss on disposal of Northwest Operations of $384 million $5.32B Adjusted EBITDA2 Driven by transformation benefits, partial reversal of Q1 seasonal expense pressure, and delayed investments $882M Asset sale announced Closing anticipated by Q2 2020 $1.352B Transformation EBITDA benefit attained in Q2 (Annualized) $160M 1 Includes goodwill impairment of $5,449 million, loss on disposal of Northwest Operations of $384 million, and restructuring expenses of $31 million. 2 Adjusted EBITDA is a non-GAAP measure – see Appendix for its calculation


Slide 4

Broadband Unit Trends Seasonality and customer save credit rolloffs impacted broadband unit trends Customer save credit rolloffs impacted fiber more than copper Copper losses reflect sequential churn increase and sequential gross adds decline Total Broadband (Consumer & Commercial) Consumer Copper Broadband Consumer Fiber Broadband Commercial Broadband Net Adds (000s) 2017 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2019 2018


Slide 5

Customer Churn Trends Q2 churn increased sequentially because of seasonality, competitive pressures, and rolloffs of save credits Churn improvement initiatives are continuing Consumer video churn in 2019 remains above levels in prior years 2017 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2018 2019 Q2


Slide 6

FINANCIAL REVIEW SHELDON BRUHA Executive Vice President & Chief Financial Officer Agenda STRATEGIC AND OPERATIONAL REVIEW DANIEL McCARTHY President & Chief Executive Officer STRATEGIC AND OPERATIONAL REVIEW DANIEL McCARTHY President & Chief Executive Officer


Slide 7

Key Financial Highlights  ($ in Millions) Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Total Revenue $2,199 $2,162 $2,126 $2,124 $2,101 $2,067 Customer $2,102 $2,065 $2,031 $2,030 $2,009 $1,972 Subsidy $97 $97 $95 $94 $92 $95 Net Income (Loss) $20 ($18) ($426) ($219) ($87) ($5,317) Net Cash Provided from Operating Activities $251 $672 $286 $603 $282 $575 Adjusted Operating Expenses* $1,291 $1,278 $1,248 $1,229 $1,228 $1,185 Adjusted EBITDA* $908 $884 $878 $895 $873 $882 Adjusted EBITDA Margin* 41.3% 40.9% 41.3% 42.1% 41.6% 42.7% CapEx $297 $321 $329 $245 $305 $275 LTM Operating Free Cash Flow* $632 $721 $604 $620 $643 $592 Q2 revenue declined 1.6% sequentially and 4.4% yr/yr Q2 operating expenses benefited from transformation, seasonality, and deferred investments Goodwill impairment of $5.45 billion and loss on asset sale of $384 million Operating FCF* of $592M for trailing four quarters * Adjusted Operating Expenses, Adjusted EBITDA, Adjusted EBITDA Margin and Operating Free Cash Flow are non-GAAP measures - see Appendix for their calculations


Slide 8

Product & Customer Revenue Data & Internet services revenue sequential decline in Consumer, was partly offset by increase in Commercial Voice services revenue declines accelerated driven in part by lower USF rate Consumer revenue declined 2.5% sequentially Commercial revenue decline from continuing pressure in SME  ($ in Millions) Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Data & Internet Services $985 $973 $961 $959 $967 $963 Voice Services $702 $682 $669 $668 $650 $629 Video Services $280 $270 $260 $275 $268 $260 Other $135 $140 $141 $128 $124 $120 Total Customer Revenue $2,102 $2,065 $2,031 $2,030 $2,009 $1,972 Consumer $1,128 $1,095 $1,069 $1,088 $1,077 $1,050 Commercial $974 $970 $962 $942 $932 $922 Total Customer Revenue $2,102 $2,065 $2,031 $2,030 $2,009 $1,972 Subsidy Revenue $97 $97 $95 $94 $92 $95 Total Revenue $2,199 $2,162 $2,126 $2,124 $2,101 $2,067


Slide 9

Consumer ARPC Customers Q1 4.0M Q4 4.1M Q3 4.2M Q2 4.2M Q1 4.3M ARPC Consumer ARPC decreased slightly sequentially Base management techniques continue to contribute positively Consumer ARPC decline reflects impact of video losses partly offset by single-play voice losses 2018 Q2 2019 3.9M


Slide 10

Capital Spending Update Projects Completed & Underway Upgrading FTTH to 10 Gbps for Commercial applications--enabling 10 Gbps Ethernet, expanding 5G backhaul capacity, and enabling Gigabit Consumer broadband CAF II: ~508K locations enabled with CAF II broadband Building FTTH to ~19K rural HHs leveraging state funding sources Fixed wireless broadband builds continue in CAF areas $275M in CapEx Spent in 2Q 2019


Slide 11

Asset Sale Update Revenue Of Operations in Washington, Oregon, Idaho, and Montana Sale of operations in Washington, Oregon, Idaho, and Montana for $1.352B, subject to closing adjustments Approval process proceeding as planned Received early termination of Hart-Scott-Rodino waiting period Filed Federal Communications Commission and required state applications Expected closing by Q2 2020  ($ in Millions) Q1 2019 Q2 2019 Revenue $ 155 $ 152


Slide 12

Updating 2019 Guidance *Adjusted EBITDA and Operating Free Cash Flow are non-GAAP measures - see Appendix for their calculations. $3.35B-$3.42B Adjusted EBITDA* Includes $110M to $150M 2019 transformation benefit ~$175M Cash Pension / OPEB 1H 2019 Cash Pension/OPEB was $77M ~$1.20B Capital Expenditures Excludes an additional $15M related to asset sale ~$1.475B Cash Interest Expense <$25M Cash Taxes $290M-$360M Operating Free Cash Flow* Reflects additional uses of cash


Slide 13

Appendix


Slide 14

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 our transformation program; 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 obtain future subsidies, including participation in the proposed RDOF program; Frontier’s ability to effectively manage service quality and meet mandated service quality metrics; the effects of changes in accounting policies or practices; the impact of current and potential future impairment charges with respect to goodwill or other 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 well as 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.


Slide 15

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 (loss), 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 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 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, 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. Leverage ratio is calculated as net debt (total debt less cash and cash equivalents) divided by Adjusted EBITDA for the most recent four quarters. Investors have indicated that this non-GAAP measure is useful in evaluating Frontier’s debt levels. The information in this presentation 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.


Slide 16

 ($ in Millions) Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Net Income (Loss) 20 (18) (426) (219) (87) (5,317) Add back (Subtract): Income Tax Expense (Benefit) 13 (20) (4) (51) 18 (534) Interest Expense 374 385 389 388 379 383 Investment and Other (Income) Loss, Net (8) (5) (3) 3 9 9 Pension Settlement Costs - 25 9 7 - - (Gain) Loss on Extinguishment of Debt (33) - 2 (1) 20 - Operating Income (Loss) 366 367 (33) 127 339 (5,459) Depreciation and Amortization 505 486 471 492 484 454 EBITDA $871 $853 $438 $619 $823 ($5,005) Add back: Pension/OPEB Expense 22 23 21 19 20 19 Restructuring Costs and Other Charges 4 2 14 15 28 31 Stock-based Compensation Expense 4 5 5 4 3 4 Work Stoppage Costs 7 1 - - - - Storm Related Insurance Proceeds - - - (3) (1) - Loss on disposal of Northwest Operations - - - - - 384 Goodwill Impairment - - 400 241 - 5,449 Adjusted EBITDA* $908 $884 $878 $895 $873 $882 EBITDA Margin 39.6% 39.5% 20.6% 29.1% 39.1% -242.1% Adjusted EBITDA Margin 41.3% 40.9% 41.3% 42.1% 41.6% 42.7% Non-GAAP Financial Measures


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Non-GAAP Financial Measures  ($ in Millions) Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Total Operating Expenses $1,833 $1,795 $2,159 $1,997 $1,762 $7,526 Subtract: Depreciation and Amortization 505 486 471 492 484 454 Goodwill Impairment - - 400 241 - 5,449 Loss on disposal of Northwest Operations - - - - - 384 Pension/OPEB Expense 22 23 21 19 20 19 Restructuring Costs and Other Charges 4 2 14 15 28 31 Stock-based Compensation Expense 4 5 5 4 3 4 Work Stoppage Costs 7 1 - - - - Storm Related Insurance Proceeds - - - (3) (1) - Adjusted Operating Expenses $1,291 $1,278 $1,248 $1,229 $1,228 $1,185


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Non-GAAP Financial Measures Quarterly Results  ($ in Millions) Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Net Cash Provided from Operating Activities $251 $672 $286 $603 $282 $575 Capital Expenditures – Business Operations (297) (321) (329) (245) (305) (275) Operating Free Cash Flow ($46) $351 ($43) $358 ($23) $300 Trailing Four Quarter Results  ($ in Millions) Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Net Cash Provided from Operating Activities $1,801 $1,944 $1,874 $1,812 $1,843 $1,746 Capital Expenditures – Business Operations (1,136) (1,194) (1,255) (1,192) (1,200) (1,154) Capital Expenditures – Integration (33) (29) (15) - - - Operating Free Cash Flow $632 $721 $604 $620 $643 $592


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Debt Maturity Schedule As of June 30, 2019 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031+ $9 $245 $327 $2,706 $2,630 $4,514 $1,603 $2,197 $500 $50 $13 $1,364 $868 Unsecured Debt Secured Debt* $850M Revolving Credit Facility Revolver Balance Drawn as of 6/30/19 *Secured Debt includes Frontier’s Term Loan B and Revolving Credit Facility which will be subject to springing maturity under certain circumstances as described in Frontier’s SEC filings.

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