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): October 31, 2017

 

 

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)

 

(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 (see General Instruction A.2. below):

 

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 October 31, 2017, Frontier Communications Corporation (“Frontier”) issued a press release announcing third quarter 2017 financial results. A copy of the press release is attached hereto as Exhibit 99.1.

All information in Item 2.02 of this Form 8-K and in Exhibit 99.1 attached hereto is furnished but not filed.

 

Item 7.01 Regulation FD Disclosure

On October 31, 2017 at 4:30 p.m. Eastern Time, Frontier will host a conference call to discuss third quarter 2017 financial results. A copy of the materials to be used during the conference call is attached hereto as Exhibit 99.2.

All information in Item 7.01 of this Form 8-K and in Exhibit 99.2 attached hereto is furnished but not filed.

 

Item 9.01 Financial Statements and Exhibits

 

  (d) Exhibits
99.1    Press Release of Frontier issued October 31, 2017.
99.2    Presentation regarding third quarter 2017 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: October 31, 2017

    By:   /s/ R. Perley McBride
      R. Perley McBride
      Executive Vice President and Chief Financial Officer
EX-99.1

Exhibit 99.1

 

LOGO

401 Merritt 7

Norwalk, CT 06851

(203) 614-5600

www.frontier.com

Frontier Communications Reports 2017 Third Quarter Results

 

    Total revenue of $2.25 billion

 

    Consumer customer churn improved to 2.08% from 2.24% in Q2 2017, driven by CTF FiOS®

 

    Achieved pre-acquisition level of CTF FiOS broadband gross adds

 

    Net loss of $38 million

 

    Adjusted EBITDA1 of $914 million

Norwalk, Conn., October 31, 2017 – Frontier Communications Corporation (NASDAQ:FTR) today reported financial results for the third quarter ended September 30, 2017.

“Our third quarter results highlight the ongoing stabilization across our business as we focus on executing our strategy,” said Dan McCarthy, President and CEO. “During the quarter, we were pleased with the continued improvement in subscriber trends and churn in our California, Texas and Florida (CTF) markets, ongoing stabilization in our commercial business, and continued operating efficiencies. We remain committed to enhancing the customer experience, further reducing churn, generating cash flow, and improving the balance sheet to further stabilize the business and grow longer-term.”

Consolidated Results

Consolidated revenues for the third quarter were $2.25 billion. Within consolidated revenue, consumer revenue was $1.1 billion, commercial revenue was $958 million and regulatory revenue was $191 million.

Net loss for the third quarter of 2017 was $38 million. Net loss attributable to common shares was $92 million for a diluted net loss per common share of $1.19. Adjusted EBITDA2 totaled $914 million for

 

1  During the third quarter of 2017, we revised our methodology for calculating adjusted EBITDA to exclude GAAP pension/OPEB expense instead of excluding non-cash pension/OPEB costs. We also revised our methodology to exclude stock-based compensation expense. We revised our methodology for calculating adjusted EBITDA because: 1) by excluding GAAP pension/OPEB expense, instead of non-cash pension/OPEB costs, we made adjusted EBITDA a more transparent measure; 2) adjusted EBITDA now is directly calculable from our GAAP financial statements; and 3) the revision made adjusted EBITDA more completely a performance measure by insulating quarterly adjusted EBITDA from fluctuations caused by quarterly differences in our cash contributions to our pension fund, which is a liquidity-related factor unrelated to the performance of the business. See “Non-GAAP Measures” for a description of this measure and its calculation. See Schedule A for a reconciliation to net loss.
2  See Note 1, above.


an adjusted EBITDA margin3 of 40.6%. During the third quarter of 2017, we revised our methodology for calculating adjusted EBITDA. See footnote 1, above, for a detailed description of the revision and the reasons for making the revision.

The Company achieved more than $19 million of synergies in Q3 and remains on track to achieve its target of $350 million in annual savings by mid-2018.

Net cash provided from operating activities was $356 million for the third quarter of 2017. Adjusted free cash flow4 was $182 million for the third quarter.

Consumer Business Highlights

 

    Revenue was $1.1 billion, a sequential decline of $22 million versus the $40 million sequential decline in the second quarter. The improved trend was entirely driven by a stronger performance in CTF.

 

    Customer churn improved to 2.08% (1.92% for Frontier Legacy and 2.33% for CTF operations) compared to 2.24% for the second quarter of 2017 (1.95% for Frontier Legacy and 2.69% for CTF operations), with CTF FiOS being the primary driver of the overall improvement.

 

    Combined Average Revenue Per Customer (ARPC) of $80.91 ($63.99 for Frontier Legacy and $107.33 for CTF operations). Excluding the positive one-time impact of the Mayweather vs. McGregor fight in the quarter, each of these measures of ARPC was stable sequentially.

Commercial Business Highlights

 

    Revenue of $958 million, was roughly stable with the second quarter, adjusted for the divestiture of the Frontier Secure Strategic Partnerships business.

 

    Total commercial customers of 463,000 compared to 473,000 during the second quarter of 2017.

Capital Structure

 

    We purchased $45 million principal amount of our senior unsecured notes on the open market during the third quarter of 2017.

 

    As of September 30, 2017, our Leverage Ratio (as calculated in accordance with our credit agreements) was 4.39:1, which complies with our obligations under our credit agreements. The Leverage Ratio was 4.20:1 as of June 30, 2017.

 

3  See Note 1, above. Adjusted EBITDA margin is a non-GAAP measure of performance, calculated as adjusted EBITDA, divided by total revenue. See “Non-GAAP Measures” for a description of this measure and its calculation. See Schedule A for a reconciliation to net loss.
4  Adjusted 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.


    The Company remains committed to deleveraging the business.

Guidance

For the full year 2017, Frontier’s guidance is the following:

 

    Adjusted free cash flow5 - $730 million to $750 million

 

    Capital expenditures - $1.15 billion to $1.2 billion

 

    Integration - operating expense $20 million; capital expenditures $50 million

 

    Storm impact - operating expense $28 million; capital expenditures $12 million

 

    Net cash tax refund - $50 million

For the fourth quarter 2017, Frontier’s guidance is the following:

 

    Adjusted EBITDA6 - $910 million to $930 million

 

    Cash pension/OPEB - $34 million

Non-GAAP Measures

Frontier uses certain non-GAAP financial measures in evaluating its performance, including EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, free cash flow, adjusted free cash flow, adjusted operating expenses, and dividend payout 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. We believe that the presentation of these non-GAAP financial measures provides useful information to investors regarding our 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 our 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, losses on extinguishment of debt and depreciation and amortization. EBITDA margin is calculated by dividing EBITDA by total revenues.

 

5  See Note 4, above.
6  See Note 1, above.


Adjusted EBITDA is defined as EBITDA, as described above, adjusted to exclude acquisition and integration costs, GAAP pension/OPEB expense (including pension settlement costs), restructuring costs and other charges, stock-based compensation expense, goodwill impairment charges, and certain other items (storm-related costs in the third quarter of 2017). Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by total revenues.

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. We believe that these non-GAAP measures provide useful information for investors in evaluating our 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 one-time storm-related costs in Q3 2017 (and which, owing to the timing of the storms, also will be excluded in Q4 of 2017). Adjustments have also been made to exclude the financing costs and related income tax effects associated with the April 1, 2016 Verizon Transaction, including interest expense on debt raised to finance the transaction and preferred dividends paid, in each case prior to our ownership of the CTF Operations. Adjusting for these items allows investors to better understand and analyze our financial performance over the periods presented.

Free cash flow, as used by management in the operation of its business, is defined as net cash provided from operating activities less capital expenditures for business operations and preferred dividends. In determining free cash flow, further adjustments are made to exclude acquisition and integration expense, income taxes, restructuring costs, one-time storm-related costs and capital expenditures, and interest expense on commitment fees, which provides a better comparison of our core operations from period to period. Changes in working capital accounts are excluded from this calculation due to seasonality and specific timing of cash receipts and disbursements between various reporting periods.

Adjusted free cash flow is defined as free cash flow, as described above, adjusted by excluding interest expense, prior to our April 1, 2016 ownership of the CTF Operations, on debt we incurred to finance the Verizon Transaction, and preferred stock dividends paid prior to April 1, 2016.

Management uses free cash flow and adjusted free cash flow to assist it in comparing liquidity from period to period and to obtain a more comprehensive view of our core operations and ability to generate cash flow. We believe that these non-GAAP measures are useful to investors in evaluating cash available to service debt and pay dividends. In addition, we believe that adjusted free cash flow provides a useful comparison from period to period because it excludes the impact of financing (debt and preferred stock) raised in connection with the Verizon Transaction during periods prior to our ownership of the CTF Operations. These non-GAAP financial measures have certain shortcomings; they do not represent the residual cash flow available for discretionary expenditures, since items such as


debt repayments, changes in working capital, and common stock dividends are not deducted in determining such measures. Management compensates for these shortcomings by utilizing these non-GAAP financial measures in conjunction with the comparable GAAP financial measures.

Dividend payout ratio is calculated by dividing the dividends paid on common stock (as adjusted) by adjusted free cash flow. Dividends paid on common stock has been adjusted to exclude dividends paid on common stock issued in June 2015, from the date of issuance until April 1, 2016, when the proceeds of the issuance were used in the Verizon Transaction that generated adjusted free cash flow from that date. Management uses the dividend payout ratio as a metric to indicate the proportion of our adjusted free cash flow that we used to pay dividends to our common shareholders. We have made adjustments to exclude the impact of financing raised in connection with the Verizon Transaction during periods prior to our ownership of the CTF Operations, which we believe provides a useful comparison from period to period.

Adjusted operating expenses is defined as operating expenses adjusted to exclude depreciation and amortization, acquisition and integration costs, goodwill impairment charges, GAAP pension/OPEB expense (including pension settlement costs), stock-based compensation expense, one-time storm-related costs, and restructuring costs and other charges. Investors have indicated that this non-GAAP measure is useful in evaluating Frontier’s performance.

The information in this press release should be read in conjunction with the financial statements and footnotes contained in our documents filed with the U.S. Securities and Exchange Commission.

Conference Call and Webcast

We 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 third quarter 2017 results. The conference call will be webcast and may be accessed in the Webcasts & Presentations section of Frontier’s Investor Relations website at www.frontier.com/ir.

A telephonic replay of the conference call will be available from 8:00 P.M. Eastern Time on October 31, 2017, through 8:00 P.M. Eastern Time on November 5, 2017 at 888-203-1112 for callers dialing from the U.S. or Canada, and at 719-457-0820 for those dialing from outside the U.S. or Canada. Use the passcode 3909760 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 Edge™ offers communications solutions to small, medium, and enterprise businesses. More information about Frontier is available at www.frontier.com.

Forward-Looking Statements

This earnings release contains “forward-looking statements,” related to future, not past, events. Forward-looking statements address our expected future business and financial performance and financial condition, and contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” or “target.”


Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include: competition from cable, wireless and wireline carriers, satellite, and OTT companies, and the risk that we will not respond on a timely or profitable basis; our ability to successfully adjust to changes in the communications industry, including the effects of technological changes and competition on our capital expenditures, products and service offerings; risks related to the operation of properties acquired from Verizon, including our ability to retain or obtain customers in those markets, our ability to realize anticipated cost savings, and our ability to meet commitments made in connection with the acquisition; reductions in revenue from our voice customers that we cannot offset with increases in revenue from broadband and video subscribers and sales of other products and services; our ability to maintain relationships with customers, employees or suppliers; our ability to attract/retain key talent; the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks; continued reductions in switched access revenues 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 us and our competitors; our ability to effectively manage service quality in our territories and meet mandated service quality metrics; our ability to successfully introduce new product offerings; the effects of changes in accounting policies or practices, including potential future impairment charges with respect to our intangible assets; our ability to effectively manage our operations, operating expenses, capital expenditures, debt service requirements and cash paid for income taxes and liquidity, which may affect payment of dividends on our common and preferred shares; the effects of changes in both general and local economic conditions on the markets that we serve; the effects of increased medical expenses and pension and postemployment expenses; the effects of changes in income tax rates, tax laws, regulations or rulings, or federal or state tax assessments; our ability to successfully renegotiate union contracts; changes in pension plan assumptions, interest rates, regulatory rules and/or the value of our pension plan assets, which could require us to make increased contributions to the pension plan in 2017 and beyond; adverse changes in the credit markets; adverse changes in the ratings given to our debt securities by nationally accredited ratings organizations; the availability and cost of financing in the credit markets; covenants in our indentures and credit agreements that may limit our operational and financial flexibility; the effects of state regulatory cash management practices that could limit our ability to transfer cash among our subsidiaries or dividend funds up to the parent company; the effects of severe weather events or other natural or man-made disasters, which may increase our operating expenses or adversely impact customer revenue; the impact of potential information technology or data security breaches or other disruptions; and the risks and other factors contained in our filings with the U.S. Securities and Exchange Commission, including our reports on Forms 10-K and 10-Q. Any of the foregoing events, or other events, could cause our results to vary from management’s forward-looking statements included in this earnings release. These risks and uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We have no obligation to update or revise these forward-looking statements and do not undertake to do so.

 

INVESTOR CONTACT:   MEDIA CONTACT
Luke Szymczak   Brigid Smith
VP, Investor Relations   AVP, Corporate Communications
(203) 614-5044   (203) 614-5042
luke.szymczak@ftr.com   brigid.smith@ftr.com


Frontier Communications Corporation

Consolidated Financial Data

 

     For the quarter ended     For the nine months ended  

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

   September 30,
2017
    June 30,
2017
    September 30,
2016
    September 30,
2017
    September 30,
2016
 

Statement of Operations Data

          

Revenue

   $ 2,251     $ 2,304     $ 2,524     $ 6,911     $ 6,487  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

          

Network access expenses

     390       408       440       1,209       1,053  

Network related expenses

     497       477       527       1,468       1,399  

Selling, general and administrative expenses

     486       531       582       1,561       1,535  

Depreciation and amortization

     539       552       578       1,670       1,469  

Goodwill impairment

     —         670       —         670       —    

Acquisition and integration costs

     1       12       122       15       387  

Pension settlement costs

     15       19       —         77       —    

Restructuring costs and other charges

     14       29       11       55       11  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     1,942       2,698       2,260       6,725       5,854  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     309       (394     264       186       633  

Investment and other income, net

     2       —         3       5       14  

Loss (gain) on extinguishment of debt and debt exchanges

     (1     90       7       89       7  

Interest expense

     381       388       386       1,157       1,145  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (69     (872     (126     (1,055     (505

Income tax benefit

     (31     (210     (46     (280     (212
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (38     (662     (80     (775     (293

Less: Dividends on preferred stock

     54       53       54       161       161  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Frontier common shareholders

   $ (92   $ (715   $ (134   $ (936   $ (454
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding - basic

     77,797       77,795       77,612       77,714       77,608  

Weighted average shares outstanding - diluted

     77,797       77,951       77,612       77,875       77,608  

Basic net loss per common share

   $ (1.19   $ (9.20   $ (1.73   $ (12.06   $ (5.87
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net loss per common share

   $ (1.19   $ (9.21   $ (1.73   $ (12.07   $ (5.87
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Financial Data:

          

Capital expenditures - Business operations

   $ 268     $ 263     $ 403     $ 846     $ 960  

Capital expenditures - Integration activities

     14       4       11       19       99  

Dividends paid - Common stock

     47       48       124       219       370  

Dividends paid - Preferred stock

     54       53       54       161       161  


Frontier Communications Corporation

Consolidated Financial Data

 

     For the quarter ended      For the nine months ended  

($ in millions)

   September 30,
2017
     June 30,
2017
     September 30,
2016
     September 30,
2017
     September 30,
2016
 

Selected Statement of Operations Data

              

Revenue:

              

Data and internet services

   $ 956      $ 974      $ 1,045      $ 2,923      $ 2,680  

Voice services

     702        724        809        2,177        2,112  

Video services

     318        329        392        994        879  

Other

     84        79        73        231        218  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Customer revenue

     2,060        2,106        2,319        6,325        5,889  

Switched access and subsidy

     191        198        205        586        598  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 2,251      $ 2,304      $ 2,524      $ 6,911      $ 6,487  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other Financial Data

              

Revenue:

              

Consumer

   $ 1,102      $ 1,124      $ 1,272      $ 3,390      $ 3,187  

Commercial

     958        982        1,047        2,935        2,702  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Customer revenue

     2,060        2,106        2,319        6,325        5,889  

Switched access and subsidy

     191        198        205        586        598  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 2,251      $ 2,304      $ 2,524      $ 6,911      $ 6,487  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Operating Expenses:

              

Network access expenses

   $ 390      $ 408      $ 440      $ 1,209      $ 1,053  

Network related expenses

     497        477        527        1,468        1,399  

Selling, general and administrative expenses

     486        531        582        1,561        1,535  

Goodwill impairment

     —          670        —          670        —    

Acquisition and integration costs

     1        12        122        15        387  

Pension settlement costs

     15        19        —          77        —    

Restructuring costs and other charges

     14        29        11        55        11  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cost and expenses (exclusive of depreciation and amortization)

     1,403        2,146        1,682        5,055        4,385  

Depreciation and amortization

     539        552        578        1,670        1,469  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Operating Expenses

   $ 1,942      $ 2,698      $ 2,260      $ 6,725      $ 5,854  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 


Frontier Communications Corporation    

Consolidated Financial and Operating Data    

 

    For the quarter ended     For the nine months ended  
    September 30,
2017
    June 30,
2017
    September 30,
2016
    September 30,
2017
    September 30,
2016
 

Customers (in thousands)

    4,949       5,058       5,551  (1)      4,949       5,551  (1) 

Consumer customer metrics

         

Customers (in thousands)

    4,486       4,585       5,035  (1)      4,486       5,035  (1) 

Net customer additions/(losses)

    (99     (151     (155     (405     1,910  

Average monthly consumer revenue per customer

  $ 80.91     $ 80.38     $ 82.34     $ 80.73     $ 76.11  

Customer monthly churn

    2.08     2.24     2.08     2.23     1.94

Commercial customer metrics

         

Customers (in thousands)

    463       473       516  (1)      463       516  (1) 

Broadband subscriber metrics (in thousands)

         

Broadband subscribers

    4,000       4,063       4,362  (2)      4,000       4,362  (2) 

Net subscriber additions/(losses)

    (63     (100     (99     (271     1,900  

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

         

Video subscribers

    981       1,007       1,222  (2)      981       1,222  (2) 

Net subscriber additions/(losses)

    (26     (58     (82     (164     980  

Video - DISH subscriber metrics (in thousands)

         

DISH subscribers

    244       254       281  (2)      244       281  (2) 

Net subscriber additions/(losses)

    (10     (12     (11     (30     (31

Employees

    23,181  (3)      23,924       30,358       23,181  (3)      30,358  

 

(1) 2,283,000 consumer customers, 250,000 commercial customers and 2,533,000 total customers were acquired at the time of the CTF Acquisition.    
(2)  2,052,000 broadband subscribers and 1,165,000 video subscribers were acquired at the time of the CTF Acquisition.    
(3)  At December 31, 2016, we had approximately 1,900 employees from our Frontier Secure Partnerships business, which was sold in May 2017    


Frontier Communications Corporation

Condensed Consolidated Balance Sheet Data

 

($ in millions)

   September 30, 2017      December 31, 2016  

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 286      $ 522  

Accounts receivable, net

     780        938  

Other current assets

     196        196  
  

 

 

    

 

 

 

Total current assets

     1,262        1,656  

Property, plant and equipment, net

     14,375        14,902  

Other assets - principally goodwill

     11,439        12,455  
  

 

 

    

 

 

 

Total assets

   $ 27,076      $ 29,013  
  

 

 

    

 

 

 

LIABILITIES AND EQUITY

     

Current liabilities:

     

Long-term debt due within one year

   $ 166      $ 363  

Accounts payable and other current liabilities

     1,627        2,081  
  

 

 

    

 

 

 

Total current liabilities

     1,793        2,444  

Deferred income taxes and other liabilities

     4,269        4,490  

Long-term debt

     17,604        17,560  

Equity

     3,410        4,519  
  

 

 

    

 

 

 

Total liabilities and equity

   $ 27,076      $ 29,013  
  

 

 

    

 

 

 


Frontier Communications Corporation

Consolidated Cash Flow Data

 

     For the nine months ended September 30,  

($ in millions)

   2017     2016  

Cash flows provided from (used by) operating activities:

    

Net loss

   $ (775   $ (293

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

    

Depreciation and amortization

     1,670       1,469  

Loss on extinguishment of debt and debt exchanges

     89       7  

Pension settlement costs

     77       —    

Pension/OPEB costs

     22       59  

Stock-based compensation expense

     10       21  

Amortization of deferred financing costs

     26       38  

Other adjustments

     (11     —    

Deferred income taxes

     (286     (163

Goodwill impairment

     670       —    

Change in accounts receivable

     161       (56

Change in accounts payable and other liabilities

     (471     (108

Change in other current assets

     3       (12
  

 

 

   

 

 

 

Net cash provided from operating activities

     1,185       962  

Cash flows provided from (used by) investing activities:

    

Capital expenditures - Business operations

     (846     (960

Capital expenditures - Integration activities

     (19     (99

Cash paid for the CTF Acquisition

     —         (9,886

Proceeds on sale of assets

     109       —    

Other

     6       —    
  

 

 

   

 

 

 

Net cash used by investing activities

     (750     (10,945

Cash flows provided from (used by) financing activities:

    

Proceeds from long-term debt borrowings

     1,500       1,625  

Long-term debt payments

     (1,662     (113

Financing costs paid

     (15     (38

Premium paid to retire debt

     (80     —    

Dividends paid on common stock

     (219     (370

Dividends paid on preferred stock

     (161     (161

Capital lease obligation payments

     (30     (8

Taxes paid on behalf of employees for shares withheld

     (5     (10

Other

     1       9  
  

 

 

   

 

 

 

Net cash provided from (used by) financing activities

     (671     934  

Decrease in cash, cash equivalents, and restricted cash

     (236     (9,049

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

     522       9,380  
  

 

 

   

 

 

 

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

   $ 286     $ 331  
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid (received) during the period for:

    

Interest

   $ 1,373     $ 1,277  

Income tax refunds, net

   $ (4   $ (35


SCHEDULE A

Frontier Communications Corporation

Reconciliation of Non-GAAP Financial Measures

 

    For the quarter ended     For the nine months ended  

($ in millions)

  September 30,
2017
    June 30,
2017
    September 30,
2016
    September 30,
2017
    September 30,
2016
 

EBITDA

         

Net Loss

  $ (38   $ (662   $ (80   $ (775   $ (293

Add back (subtract):

         

Income tax benefit

    (31     (210     (46     (280     (212

Interest expense

    381       388       386       1,157       1,145  

Investment and other income, net

    (2     —         (3     (5     (14

Loss (gain) on extinguishment of debt and debt exchanges

    (1     90       7       89       7  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    309       (394     264       186       633  

Depreciation and amortization

    539       552       578       1,670       1,469  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

    848       158       842       1,856       2,102  

Add back:

         

Acquisition and integration costs

    1       12       122       15       387  

Pension/OPEB expense

    23       25       28       73       77  

Restructuring costs and other charges

    14       29       11       55       11  

Pension settlement costs

    15       19       —         77       —    

Stock-based compensation expense

    4       3       6       10       21  

Storm-related costs

    9       —         —         9       —    

Goodwill impairment

    —         670       —         670       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA (1)

  $ 914     $ 916     $ 1,009     $ 2,765     $ 2,598  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

    37.6     6.9     33.4     26.9     32.4

Adjusted EBITDA margin

    40.6     39.8     40.0     40.0     40.0

Free Cash Flow

         

Net cash provided from operating activities

  $ 356     $ 529     $ 321     $ 1,185     $ 962  

Add back (subtract):

         

Capital expenditures - Business operations

    (268     (263     (403     (846     (960

Capital expenditures - Storm-related costs

    3       —         —         3       —    

Acquisition and integration costs

    1       12       122       15       387  

Deferred income taxes

    32       213       (8     286       163  

Income tax benefit

    (31     (210     (46     (280     (212

Dividends on preferred stock

    (54     (53     (54     (161     (161

Non-cash gains, net(2)

    (2     (4     (8     (15     (38

Changes in current assets and liabilities

    121       (48     230       307       176  

Cash refunded for income taxes

    1       —         3       4       35  

Restructuring costs and other charges

    14       29       11       55       11  

Storm-related costs

    9       —         —         9       —    

Interest expense - commitment fees(3)

    —         —         —         —         10  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Free cash flow

  $ 182     $ 205     $ 168     $ 562     $ 373  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Dividends on preferred stock

    —         —         —         —         54  

Incremental interest on new debt

    —         —         —         —         178  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted free cash flow

  $ 182     $ 205     $ 168     $ 562     $ 605  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  During the third quarter 2017, we revised our methodology for calculating adjusted EBITDA to exclude GAAP pension/OPEB expense instead of excluding non-cash pension/OPEB costs. We also revised our methodology to exclude stock-based compensation expense. We do not consider the revision to be significant, in part because the numerical effects are relatively small and in part because the revision insulates quarterly adjusted EBITDA from fluctuations caused by quarterly differences in our cash contributions to our pension fund, which is a liquidity-related factor unrelated to the performance of the business. Although the revision to the methodology is not significant, we have, in the interests of transparency and of providing greater comparability among periods, included adjusted EBITDA (and the corresponding reconciliation to net loss) calculated under the revised methodology for all periods presented in the table. Non-cash pension/OPEB costs were $(12) million, $18 million, and $24 million for the three months ended September 30, 2017, June 30, 2017 and September 30, 2016, respectively, and $22 million and $59 million for the nine months ended September 30, 2017 and September 30, 2016, respectively.     
(2)  Includes amortization of deferred financing costs and other non-cash adjustments from the consolidated cash flow data.    
(3)  Includes interest expense of $10 million for the nine months ended September 30, 2016 related to commitment fees on bridge loan facilities.     


SCHEDULE B

Frontier Communications Corporation

Reconciliation of Non-GAAP Financial Measures

 

    For the quarter ended  
    September 30, 2017     June 30, 2017     September 30, 2016  

($ 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 loss attributable to Frontier common shareholders

  $ (92   $ (1.19   $ (715   $ (9.20   $ (134   $ (1.73
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Acquisition and integration costs

    1         12         122    

Restructuring costs and other charges

    14         29         11    

Pension settlement costs

    15         19         —      

Loss (gain) on extinguishment of debt and debt exchanges

    (1       90         —      

Goodwill impairment

    —           670         —      

Storm-related costs

    9         —           —      

Certain other tax items (2)

    (5       4         3    

Income tax effect on above items:

           

Acquisition and integration costs

    (1       (4       (48  

Restructuring costs and other charges

    (5       (11       (4  

Pension settlement costs

    (5       (8       —      

Loss (gain) on extinguishment of debt and debt exchanges

    —           (33       —      

Goodwill impairment

    —           (138       —      

Storm-related costs

    (3       —           —      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    19       0.24       630       8.10       84       1.08  

Adjusted net loss attributable to Frontier common shareholders(3)

  $ (73   $ (0.94   $ (85   $ (1.10   $ (50   $ (0.64
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    For the nine months ended  
    September 30, 2017           September 30, 2016  
    Net Income
(Loss)
    Basic Earnings
(Loss) Per Share
                Net Income
(Loss)
    Basic Earnings
(Loss) Per Share
 

Net loss attributable to Frontier common shareholders

  $ (936   $ (12.06       $ (454   $ (5.87
 

 

 

   

 

 

       

 

 

   

 

 

 

Acquisition and integration costs

    15             387    

Acquisition related interest expense (1)

    —               188    

Restructuring costs and other charges

    55             11    

Pension settlement costs

    77             —      

Loss (gain) on extinguishment of debt and debt exchanges

    89             —      

Goodwill impairment

    670             —      

Storm-related costs

    9             —      

Certain other tax items (2)

    —               (14  

Income tax effect on above items:

           

Acquisition and integration costs

    (6           (152  

Acquisition related interest expense

    —               (73  

Restructuring costs and other charges

    (20           (4  

Pension settlement costs

    (28           —      

Loss (gain) on extinguishment of debt and debt exchanges

    (33           —      

Goodwill impairment

    (138           —      

Storm-related costs

    (3           —      
 

 

 

   

 

 

       

 

 

   

 

 

 
    687       8.84           343       4.42  

Dividends on preferred stock

    —         —             54       0.70  
 

 

 

   

 

 

       

 

 

   

 

 

 

Adjusted net loss attributable to Frontier common shareholders(3)

  $ (249   $ (3.20       $ (57   $ (0.73
 

 

 

   

 

 

       

 

 

   

 

 

 

 

(1) Represents interest expense related to commitment fees on bridge loan facilities in connection with the CTF Acquisition. Also includes interest expense, prior to April 1, 2016, related to the September 2015 debt offering in connection with financing the CTF Acquisition.
(2) Includes impact arising from federal research and development credits, the domestic production activities deduction, changes in certain deferred tax balances, state tax law changes, state filing method change, non-deductible transaction costs, and the net impact of uncertain tax positions.
(3) Adjusted net income (loss) attributable to Frontier common shareholders may not sum due to rounding.


SCHEDULE C

Frontier Communications Corporation

Reconciliation of Non-GAAP Financial Measures

 

    For the quarter ended     For the nine months ended  

($ in millions)

  September 30,
2017
    June 30,
2017
    September 30,
2016
    September 30,
2017
    September 30,
2016
 

Adjusted Operating Expenses

         

Total operating expenses

  $ 1,942     $ 2,698     $ 2,260     $ 6,725     $ 5,854  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtract:

         

Depreciation and amortization

    539       552       578       1,670       1,469  

Goodwill impairment

    —         670       —         670       —    

Acquisition and integration costs

    1       12       122       15       387  

Pension /OPEB expense

    23       25       28       73       77  

Restructuring costs and other charges

    14       29       11       55       11  

Stock-based compensation expense

    4       3       6       10       21  

Pension settlement costs

    15       19       —         77       —    

Storm-related costs

    9       —         —         9       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted operating expenses (1)

  $ 1,337     $ 1,388     $ 1,515     $ 4,146     $ 3,889  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    For the quarter ended     For the nine months ended  
    September 30,
2017
    June 30,
2017
    September 30,
2016
    September 30,
2017
    September 30,
2016
 

Dividend Payout Ratio

         

Numerator

         

Dividends paid on common stock

  $ 47     $ 48     $ 124     $ 219     $ 370  

Less: Dividends on June 2015 common stock issuance

    —         —         —         —         (18
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 47     $ 48     $ 124     $ 219     $ 352  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Denominator

         

Free cash flow (see Schedule A)

  $ 182     $ 205     $ 168     $ 562     $ 373  

Dividends on preferred stock

    —         —         —         —         54  

Incremental interest expense

    —         —         —         —         178  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted free cash flow

  $ 182     $ 205     $ 168     $ 562     $ 605  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Dividend payout ratio

    26     23     74     39     59

 

(1)  During the third quarter of 2017, we revised our methodology for calculating adjusted operating expenses, making the same changes, and for the same reasons, as we did with respect to adjusted EBITDA. See, Note 1 to Schedule A    
EX-99.2

Slide 1

Investor Update Third Quarter 2017 OCTOBER 31, 2017 Exhibit 99.2


Slide 2

Strategic and Operational Review Daniel McCarthy President & Chief Executive Officer


Slide 3

Business Update Total revenues of $2.25 billion Consumer revenue was $1.1 billion in the third quarter compared to $1.12 billion for the second quarter of 2017. Consumer customer churn improved to 2.08% from 2.24% in Q2 2017 driven by CTF FiOS®. Q3 CTF FiOS broadband gross adds returned to pre-acquisition levels. Combined consumer ARPC of $80.91 ($63.99 for Frontier Legacy and $107.33 for CTF operations). Commercial revenue of $958 million. Commercial customers of 463,000, reflects improved sequential churn within our small and middle markets customers. Adjusted EBITDA* of $914 million. Total storm impact of $12 million; operating expenses $9 million, capital expenditures $3 million. Remain on track to achieve $350 million cost synergies by end of Q2 2018. * During the third quarter of 2017, we revised our methodology for calculating adjusted EBITDA. See footnote 1 to our earnings release for a detailed description of the revision and the reasons for it.


Slide 4

Financial Review Perley McBride Executive Vice President & Chief Financial Officer


Slide 5

Key Financial Highlights * Adjusted Operating Expenses, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Free Cash Flow are non-GAAP measures - see Appendix for a description of their calculations Customer revenue trend improved sequentially Continued expense discipline Stable Adjusted EBITDA reflects benefits of synergies and cost reduction programs Net loss of $38 million  ($ in Millions) Q2 '17 Q3 '17 Total Revenues $2,304 $2,251 Customer $2,106 $2,060 Regulatory $198 $191 Adjusted Operating Expenses* $1,388 $1,337 Adjusted EBITDA* $916 $914 Adjusted EBITDA Margin* 39.8% 40.6% CapEx $263 $268 Adjusted Free Cash Flow* $205 $182 Net Loss ($662) ($38) Net Cash provided by Operating Activities $529 $356


Slide 6

 ($ in Millions) Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17 Data & internet services* $1,024 $992 $968 $959 $956 Voice Services $809 $774 $751 $724 $702 Video services $392 $365 $347 $329 $318 Other $73 $58 $68 $79 $84 Total Customer Revenue* $2,297 $2,190 $2,134 $2,091 $2,060 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17 Consumer $1,272 $1,196 $1,164 $1,124 $1,102 Commercial $1,047 $1,014 $995 $982 $958 Partnerships Revenue ($22) ($20) ($25) ($15) $0 Commercial ex. Partnerships $1,025 $994 $970 $967 $958 Total Customer Revenue* $2,297 $2,190 $2,134 $2,091 $2,060 Product & Customer Revenue Data & Internet services revenue trend improved sequentially, led by CTF Voice services are following the industry trend of sequential declines Consumer Revenue reflects improvement in sequential decline Success of sales and retention initiatives in CTF Stabilizing CTF FIOS customer trends Commercial business stabilization Solid trends in the Enterprise and Medium business portions of SME and stable results from carriers Focus for remainder of 2017 and beyond: Targeting fiber-enabled buildings in footprint Implementing new tools for Ethernet in SME and carrier Driving growth with cloud based VoIP and data networking solutions *Excludes Frontier Secure Strategic Partnerships revenues


Slide 7

CTF Business CTF FiOS gross adds are at the highest level since we acquired the business, and back to pre-acquisition levels Churn improvement continued Significant improvement in CTF FIOS net adds New sales and retention initiatives are yielding results (Net Adds in Thousands)


Slide 8

Legacy Business n Broadband n Video (excl. Dish) Legacy gross add and churn trends were largely similar to Q2 Best video net add results (ex. DISH) since Q4 2015 because of marketing and reduced churn Increasing the focus on Legacy Consumer over coming quarters n Broadband n Video (excl. Dish) (Net Adds in Thousands)


Slide 9

Consumer ARPC Update 2.9M 2.8M 2.7M Customers 2.9M 3.0M Legacy Operations CTF Operations 2.0M 1.8M 1.8M 1.9M Customers 4.9M 4.6M 4.5M Customers 4.7M Combined Consumer ARPC has stabilized over the last few quarters mainly due to lower customer disconnect credits and improvement in A/R aging Q3 had one-time benefit of the Mayweather vs. McGregor fight which accounted for $0.29 of Combined ARPC and $0.68 of CTF ARPC 2.1M 5.0M


Slide 10

Capital Spending Update Growth initiatives comprise more than 80% of YTD capital spending Automation initiatives focused on enhancing customer facing process, reducing costs, and driving revenue Enhanced commercial sales tool implemented in Q3 to shorten sale cycle thereby increasing revenue and focused network capital spend on expanding Ethernet and VoIP capacity to support commercial sales Recent Projects: Completed ~ 26k FTTH builds in new subdivisions YTD with ~13k more planned in Q4 Speed upgrades (25Mbps – 115Mbps) in CA copper markets for 150k households by 11/30. FCC program rules associated with CAF II require companies that accepted the funds to deploy broadband to 40% of the eligible locations by the end of 2017. As of September 30th, Frontier had reached the 40% milestone in nine states and expects to reach the required milestone in our remaining states by year-end. Frontier now enables broadband to 277k locations in its CAF II—eligible areas Investment in CAF II enabled ~39k households in Q3 YTD 2017: spend of $846 million 2017: $1.15 billion to $1.2 billion CapEx


Slide 11

Debt Maturity Profile Q3 open-market debt repurchases of $45 million in total principal amount Our near-term maturity profile is manageable, with $578 million of bonds due in Q4 2018, $428 million due in 2019, less than $1 billion due in 2020, and we continue to have an undrawn $850 million revolver. Frontier remains committed to deleveraging the business Debt Maturities as of September 30, 2017 ($ in Millions) n Senior Unsecured and Subsidiary n Senior Secured n Undrawn $850M Revolver


Slide 12

Q4 Adjusted EBITDA* $910 million to $930 million Capital expenditures $1.15 billion to $1.2 billion Integration Opex $20 million CapEx $50 million Storm impact Opex $28 million CapEx $12 million Net cash tax refund $50 million Adjusted free cash flow* $730 million to $750 million Q4 cash pension/OPEB $34 million Guidance * Adjusted EBITDA and adjusted free cash flow are non-GAAP measures. - see Appendix for a description of their calculation


Slide 13

Well Positioned to Deliver Significant Value Improving Trends in CTF CTF Customer sequential revenue decline improved approximately 50% from Q2 Improving CTF unit metrics CTF FiOS broadband gross adds are back to pre-acquisition levels Steady sequential improvement in CTF FiOS churn Continued Stability in Commercial Renewed Focus on Legacy Consumer Business Remain Fully Committed to Plan On track for realizing $350 million in synergies by mid-2018 Improving Adjusted EBITDA and FCF Reducing leverage


Slide 14

Appendix


Slide 15

Safe Harbor Statement Forward-looking language This earnings release contains "forward-looking statements," related to future, not past, events. Forward-looking statements address our expected future business and financial performance and financial condition, and contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "see," "will," "would," or "target." Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include: competition from cable, wireless and wireline carriers, satellite, and OTT companies, and the risk that we will not respond on a timely or profitable basis; our ability to successfully adjust to changes in the communications industry, including the effects of technological changes and competition on our capital expenditures, products and service offerings; risks related to the operation of properties acquired from Verizon, including our ability to retain or obtain customers in those markets, our ability to realize anticipated cost savings, and our ability to meet commitments made in connection with the acquisition; reductions in revenue from our voice customers that we cannot offset with increases in revenue from broadband and video subscribers and sales of other products and services; our ability to maintain relationships with customers, employees or suppliers; our ability to attract/retain key talent; the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks; continued reductions in switched access revenues 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 us and our competitors; our ability to effectively manage service quality in our territories and meet mandated service quality metrics; our ability to successfully introduce new product offerings; the effects of changes in accounting policies or practices, including potential future impairment charges with respect to our intangible assets; our ability to effectively manage our operations, operating expenses, capital expenditures, debt service requirements and cash paid for income taxes and liquidity, which may affect payment of dividends on our common and preferred shares; the effects of changes in both general and local economic conditions on the markets that we serve; the effects of increased medical expenses and pension and postemployment expenses; the effects of changes in income tax rates, tax laws, regulations or rulings, or federal or state tax assessments; our ability to successfully renegotiate union contracts; changes in pension plan assumptions, interest rates, regulatory rules and/or the value of our pension plan assets, which could require us to make increased contributions to the pension plan in 2017 and beyond; adverse changes in the credit markets; adverse changes in the ratings given to our debt securities by nationally accredited ratings organizations; the availability and cost of financing in the credit markets; covenants in our indentures and credit agreements that may limit our operational and financial flexibility; the effects of state regulatory cash management practices that could limit our ability to transfer cash among our subsidiaries or dividend funds up to the parent company; the effects of severe weather events or other natural or man-made disasters, which may increase our operating expenses or adversely impact customer revenue; the impact of potential information technology or data security breaches or other disruptions; and the risks and other factors contained in our filings with the U.S. Securities and Exchange Commission, including our reports on Forms 10-K and 10-Q. Any of the foregoing events, or other events, could cause our results to vary from management’s forward-looking statements included in this earnings release. These risks and uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We have no obligation to update or revise these forward-looking statements and do 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, free cash flow, adjusted free cash flow, adjusted operating expenses, and dividend payout 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. We believe that the presentation of these non-GAAP financial measures provides useful information to investors regarding our 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 our 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, losses on extinguishment of debt and depreciation and amortization. EBITDA margin is calculated by dividing EBITDA by total revenues. Adjusted EBITDA is defined as EBITDA, as described above, adjusted to exclude acquisition and integration costs, GAAP pension/OPEB expense (including pension settlement costs), restructuring costs and other charges, stock-based compensation expense, goodwill impairment charges, and certain other items (storm-related costs in the third quarter of 2017). Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by total revenues. 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. We believe that these non-GAAP measures provide useful information for investors in evaluating our 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 one-time storm-related costs in Q3 2017 (and which, owing to the timing of the storms, also will be excluded in Q4 of 2017). Adjustments have also been made to exclude the financing costs and related income tax effects associated with the April 1, 2016 Verizon Transaction, including interest expense on debt raised to finance the transaction and preferred dividends paid, in each case prior to our ownership of the CTF Operations. Adjusting for these items allows investors to better understand and analyze our financial performance over the periods presented. Free cash flow, as used by management in the operation of its business, is defined as net cash provided from operating activities less capital expenditures for business operations and preferred dividends. In determining free cash flow, further adjustments are made to exclude acquisition and integration expense, income taxes, restructuring costs, one-time storm-related costs and capital expenditures, and interest expense on commitment fees, which provides a better comparison of our core operations from period to period. Changes in working capital accounts are excluded from this calculation due to seasonality and specific timing of cash receipts and disbursements between various reporting periods. Adjusted free cash flow is defined as free cash flow, as described above, adjusted by excluding interest expense, prior to our April 1, 2016 ownership of the CTF Operations, on debt we incurred to finance the Verizon Transaction, and preferred stock dividends paid prior to April 1, 2016. Management uses free cash flow and adjusted free cash flow to assist it in comparing liquidity from period to period and to obtain a more comprehensive view of our core operations and ability to generate cash flow. We believe that these non-GAAP measures are useful to investors in evaluating cash available to service debt and pay dividends. In addition, we believe that adjusted free cash flow provides a useful comparison from period to period because it excludes the impact of financing (debt and preferred stock) raised in connection with the Verizon Transaction during periods prior to our ownership of the CTF Operations. These non-GAAP financial measures have certain shortcomings; they do not represent the residual cash flow available for discretionary expenditures, since items such as debt repayments, changes in working capital, and common stock dividends are not deducted in determining such measures. Management compensates for these shortcomings by utilizing these non-GAAP financial measures in conjunction with the comparable GAAP financial measures. Dividend payout ratio is calculated by dividing the dividends paid on common stock (as adjusted) by adjusted free cash flow. Dividends paid on common stock has been adjusted to exclude dividends paid on common stock issued in June 2015, from the date of issuance until April 1, 2016, when the proceeds of the issuance were used in the Verizon Transaction that generated adjusted free cash flow from that date. Management uses the dividend payout ratio as a metric to indicate the proportion of our adjusted free cash flow that we used to pay dividends to our common shareholders. We have made adjustments to exclude the impact of financing raised in connection with the Verizon Transaction during periods prior to our ownership of the CTF Operations, which we believe provides a useful comparison from period to period. Adjusted operating expenses is defined as operating expenses adjusted to exclude depreciation and amortization, acquisition and integration costs, goodwill impairment charges, GAAP pension/OPEB expense (including pension settlement costs), stock-based compensation expense, one-time storm-related costs, and restructuring costs and other charges. Investors have indicated that this non-GAAP measure is useful in evaluating Frontier’s performance. The information in this press release should be read in conjunction with the financial statements and footnotes contained in our documents filed with the U.S. Securities and Exchange Commission.


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Non-GAAP Financial Measures * Dividends paid on common stock, as adjusted, divided by adjusted free cash flow ($ in Millions) Free Cash Flow Net cash provided from operating activities $ 356 $ 1,302 $ 1,676 $ 2,028 $ 1,864 $ 1,899 Add back (subtract): Capital expenditures - Business operations (268) (1,146) (1,259) (1,367) (1,280) (1,145) Capital expenditures - Storm-related 3 - - - - 3 Acquisition and integration costs 1 474 436 300 185 64 Deferred income taxes 32 166 206 128 289 329 Income tax benefit (31) (286) (250) (171) (333) (318) Dividends on preferred stock (54) (214) (214) (214) (214) (214) Non-cash (gains)/losses, net (2) (36) (73) (61) (56) (50) Changes in current assets and liabilities 121 66 (54) 72 186 77 Cash refunded for income taxes 1 35 120 91 91 89 Restructuring costs and other charges 14 11 91 103 132 135 Interest expense - commitment fees - 13 10 - - - Storm-related costs 9 - - - - 9 Dividends on preferred stock - 107 54 - - - Incremental interest on new debt - 356 178 - - - Adjusted free cash flow $ 182 $ 848 $ 921 $ 909 $ 864 $ 878 Dividends paid on common stock $ 47 $ 493 $ 493 $ 494 $ 419 $ 342 Less: dividends on June 2015 common stock issuance - (35) (18) - - - Dividends paid on common stock, as adjusted $ 47 $ 458 $ 475 $ 494 $ 419 $ 342 Dividend payout ratio* 26.2% 54.0% 51.6% 54.4% 48.5% 38.9% * Dividends paid on common stock, as adjusted, divided by adjusted free cash flow Q2 '17 Trailing 12 Months Three Months Q3 '17 Q1 '17 Q4 '16 Q3 '16 Q3 '17


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Frontier Communications – Revenue Breakout


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Non-GAAP Financial Measures ( $ in millions ) EBITDA Net Loss $ (38) $ (662) $ (75) $ (80) $ (80) Add back (subtract): Income tax benefit (31) (210) (39) (38) (46) Interest expense 381 388 388 386 386 Investment and other income (loss), net (2) - (3) (13) (3) Losses (gains) on extinguishment of debt and debt exchanges (1) 90 - - 7 Operating income 309 (394) 271 255 264 Depreciation and amortization 539 552 579 562 578 EBITDA 848 158 850 817 842 Add back: Acquisition and integration costs 1 12 2 49 122 Pension/OPEB expense 23 25 25 27 28 Restructuring costs and other charges 14 29 12 80 11 Stock-based compensation expense 4 3 3 3 6 Storm-related costs 9 - - - - Goodwill impairment - 670 - - - Pension settlement costs 15 19 43 - - Adjusted EBITDA $ 914 $ 916 $ 935 $ 976 $ 1,009 EBITDA margin 37.6% 6.9% 36.1% 33.9% 33.4% Adjusted EBITDA margin 40.6% 39.8% 39.7% 40.4% 40.0% Adjusted Operating Expenses Total operating expenses $ 1,942 $ 2,698 $ 2,085 $ 2,154 $ 2,260 Subtract: Depreciation and amortization 539 552 579 562 578 Goodwill impairment - 670 - - - Acquisition and integration costs 1 12 2 49 122 Pension/OPEB expense 23 25 25 27 28 Restructuring costs and other charges 14 29 12 80 11 Stock-based compensation expense 4 3 3 3 6 Storm-related costs 9 - - - - Pension settlement costs 15 19 43 - - Adjusted operating expenses $ 1,337 $ 1,388 $ 1,421 $ 1,433 $ 1,515 For the quarter ended September 30, 2016 Consolidated March 31, 2017 Consolidated June 30, 2017 Consolidated December 31, 2016 Amount Consolidated Amount Amount Amount Consolidated Amount September 30, 2017