Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (date of earliest event reported): February 27, 2018

 

 

Frontier Communications Corporation

(Exact name of registrant as specified in its charter)

 

 

Delaware

(State or other jurisdiction of incorporation)

 

001-11001   06-0619596
(Commission File Number)   (IRS Employer Identification No.)

 

401 Merritt 7, Norwalk, Connecticut   06851
(Address of principal executive offices)   (Zip Code)

(203) 614-5600

(Registrant’s telephone number, including area code)

Not Applicable

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

 

 

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

 

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

 

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

 

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

 

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

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

Emerging Growth Company  ☐

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

 

 

 


Item 2.02 Results of Operations and Financial Condition

On February 27, 2018, Frontier Communications Corporation (“Frontier”) issued a press release announcing fourth quarter and full-year 2017 financial results. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated by reference herein.

 

Item 7.01 Regulation FD Disclosure

As previously announced, Frontier will hold a conference call at 4:30 p.m., Eastern Time, on February 27, 2018, to discuss its financial results for the fourth quarter and full-year 2017. A copy of the materials to be used during the conference call is attached hereto as Exhibit 99.2 and incorporated by reference herein.

The information provided pursuant to Item 2.02 and this Item 7.01, 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.

Frontier uses the “Investor Relations” section of its website (investor.frontier.com) as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.

 

Item 9.01 Financial Statements and Exhibits

 

(d) Exhibits

 

Exhibit
Number
  

Description

99.1    Press Release issued on February 27, 2018
99.2    Presentation regarding Fourth Quarter and Full-Year Financial Results


SIGNATURES

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

 

       FRONTIER COMMUNICATIONS CORPORATION
Date: February 27, 2018     By:      /s/ Mark D. Nielsen
       Mark D. Nielsen
     

 Executive Vice President, Chief Legal Officer and

 Secretary

EX-99.1

Exhibit 99.1

LOGO

401 Merritt 7

Norwalk, CT 06851

(203) 614-5600

www.frontier.com

Frontier Communications Reports Fourth Quarter and Full Year 2017 Results

Fourth Quarter

 

    Total revenue of $2.22 billion

 

    Consumer customer churn improved to 1.98% from 2.08% in Q3 2017, driven by both CTF FiOS® and Legacy

 

    Continued sequential improvement in CTF FiOS® broadband gross and net additions

 

    Net loss of $1.03 billion, driven by goodwill impairment, partially offset by tax benefit

 

    Adjusted EBITDA1 of $919 million, in line with guidance range

 

    Purchased $110 million principal amount of senior unsecured notes

 

    Board of Directors suspends the quarterly cash dividend on the Company’s common stock

Norwalk, Conn., February 27, 2018 – Frontier Communications Corporation (NASDAQ:FTR) today reported financial results for the fourth quarter and full year ended December 31, 2017.

“Our fourth quarter results highlight the ongoing progress on our key initiatives to improve customer retention, enhance the customer experience, and align our cost structure,” said Dan McCarthy, President and CEO. “We are pleased with continued improvement in subscriber trends and churn in our California, Texas and Florida (CTF) markets, and the continued operating efficiencies achieved in the fourth quarter. As we implement our strategy, our board regularly evaluates the optimal long-term capital allocation for the business, and has voted to suspend the dividend on common shares. The suspension will make available an additional $250 million annually2 to accelerate debt reduction. For 2018, we remain committed to enhancing the customer experience, further improving churn, maintaining strong cash flow, and strengthening the balance sheet as we pursue further stabilization of the business and growth longer-term.”

 

 

1  See “Non-GAAP Measures” for a description of this measure and its calculation. See Schedule A for a reconciliation to net loss.
2  Following conversion of the Frontier Communication 11.125% Mandatory Convertible Preferred Stock into common stock in June 2018, the common stock dividends would have been approximately $250 million annually at the dividend rate paid in Q4 2017.


Consolidated Results

Consolidated revenues for the fourth quarter 2017 were $2.22 billion. Within consolidated revenue, consumer revenue was $1.09 billion, commercial revenue was $941 million and regulatory revenue was $190 million. Consolidated revenues for the full year 2017 were $9.13 billion. Within consolidated revenue, consumer revenue was $4.48 billion, commercial revenue was $3.88 billion and regulatory revenue was $776 million.

Net loss for the fourth quarter of 2017 was $1.03 billion. Net loss for the fourth quarter included an $830 million tax benefit resulting from the reduction in federal tax rates, and a $1.82 billion (after tax) goodwill impairment. Net loss for the fourth quarter attributable to common shares was $1.08 billion, for a diluted net loss per common share of $13.91. Adjusted EBITDA3 totaled $919 million for an adjusted EBITDA margin4 of 41.5%. For the full year 2017, net loss was $1.80 billion. Net loss for 2017 included an $830 million tax benefit resulting from the reduction in federal tax rates and a $2.35 billion (after tax) goodwill impairment. Net loss attributable to common shares was $2.02 billion, for a diluted net loss per common share of $25.99. Full year 2017 adjusted EBITDA totaled $3.68 billion, for an adjusted EBITDA margin of 40.4%.

The Company attained more than $190 million in annualized cost synergies and remains on track to achieve its target of $350 million in annualized run-rate cost synergies by mid-2018.

For the fourth quarter of 2017, net cash provided from operating activities was $665 million and adjusted free cash flow5 was $228 million. For the full year 2017, net cash provided from operating activities was $1.85 billion and adjusted free cash flow5 was $790 million.

Consumer Business Highlights for the Fourth Quarter

 

    Revenue was $1.09 billion, a sequential decline of $16 million versus the $22 million sequential decline in the third quarter. The improved trend was driven by a stronger performance in both Legacy and CTF revenue.

 

    Customer churn improved to 1.98% (1.83% for Frontier Legacy and 2.22% for CTF operations) compared to 2.08% for the third quarter of 2017 (1.92% for Frontier Legacy and 2.33% for CTF operations), with CTF FiOS® and Legacy contributing to the overall improvement.

 

    Combined Average Revenue Per Customer (ARPC) of $81.61 ($65.11 for Frontier Legacy and $107.35 for CTF operations). Each measure of ARPC improved sequentially, despite the benefit to third quarter ARPC associated with the Mayweather vs. McGregor fight.

 

 

3  See Note 1, above.
4  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.
5  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 Schedules A for a reconciliation to net cash provided from operating activities.


Commercial Business Highlights for the Fourth Quarter

 

    Revenue of $941 million, a sequential decline of $17 million versus the $24 million sequential decline in the third quarter. The decline was predominantly driven by carrier/wholesale revenue.

 

    Total commercial customers of 453,000 compared to 463,000 during the third quarter of 2017.

 

    SME (Small, Medium, & Enterprise) revenue was roughly stable sequentially.

Capital Structure and Capital Allocation

 

    Frontier purchased $110 million principal amount of its 2018 and 2019 senior unsecured notes on the open market during the fourth quarter of 2017.

 

    As of December 31, 2017, Frontier’s leverage ratio (as calculated in accordance with its credit agreements) was 4.59:1, which complied with its obligations under its credit agreements. The leverage ratio was 4.39:1 as of September 30, 2017.

 

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

 

    Subsequent to the quarter, on January 25, 2018, Frontier amended its credit facilities to provide increased flexibility in managing its capital structure.

 

    The Board of Directors has suspended the quarterly cash dividend on the Company’s common stock beginning with the first quarter of 2018. This change allows for a reallocation of approximately $250 million annually, following the conversion of Frontier’s 11.125% Mandatory Convertible Series A Preferred Stock (Convertible Preferred) to common stock in June 2018.

 

    The Board of Directors has declared a regular quarterly dividend on the Convertible Preferred of $2.78125 per share, payable in cash on March 30, 2018 to holders of record at the close of business on March 15, 2018.

Guidance

Our full year 2018 guidance includes a new metric, operating free cash flow. Operating free cash flow, a non-GAAP measure, is defined as net cash provided from operating activities less capital expenditures. Operating free cash flow is directly calculable from our GAAP financial statements and is a more appropriate free cash flow metric for the Company now that the integration of the CTF properties, with its associated integration and acquisition costs, is complete.

For the full year 2018, Frontier’s guidance is the following:

 

    Adjusted EBITDA6 – Approximately $3.6 billion

 

    Capital expenditures – $1.0 billion to $1.15 billion

 

    Cash taxes – Less than $25 million

 

    Cash pension/OPEB – Approximately $150 million

 

    Interest expense – Approximately $1.5 billion

 

    Operating free cash flow7 – Approximately $800 million

 

 

6  See Note 1, above.
7  Operating free cash flow is a non-GAAP measure of liquidity derived from net cash provided from operating activities. See “Non-GAAP Measures” for a description of this measure and its calculation and Schedule D for a reconciliation to net cash provided from operating activities and to our prior cash flow metric, adjusted free cash flow.


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, operating 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. 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, gains/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 non-recurring items (e.g. storm-related costs in the fourth 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. Management believes that these non-GAAP measures provide useful information for investors in evaluating Frontier’s operational performance from period to period because they exclude depreciation and amortization expenses related to investments made in prior periods and are determined without regard to capital structure or investment activities. By excluding capital expenditures, debt repayments and dividends, among other factors, these non-GAAP financial measures have certain shortcomings. Management compensates for these shortcomings by utilizing these non-GAAP financial measures in conjunction with the comparable GAAP financial measures.

Adjusted net income (loss) attributable to Frontier common shareholders is defined as net income (loss) attributable to Frontier common shareholders and excludes acquisition and integration costs, restructuring costs and other charges, pension settlement costs, goodwill impairment charges, certain


income tax items and the income tax effect of these items, and 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 Frontier’s ownership of the CTF Operations. Adjusting for these items allows investors to better understand and analyze Frontier’s financial performance over the periods presented.

Management defines free cash flow 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 associated capital expenditures, and interest expense on commitment fees, which provides a better comparison of 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 Frontier’s April 1, 2016 ownership of the CTF Operations, on debt Frontier incurred to finance the Verizon Transaction, and preferred stock dividends paid prior to April 1, 2016.

In 2018, the Company is introducing a more traditional and simplified measurement for free cash flow: operating free cash flow. Management defines operating free cash flow, a non-GAAP measure, as net cash provided from operating activities less capital expenditures.

Management uses free cash flow, adjusted free cash flow, and 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 these non-GAAP measures are useful to investors in evaluating cash available to service debt and pay dividends. These non-GAAP financial measures have certain shortcomings; they do not represent the residual cash flow available for discretionary expenditures, as items such as debt repayments 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 Frontier’s adjusted free cash flow that is used to pay dividends to its common shareholders. Management has made adjustments to exclude the impact of financing raised in connection with the Verizon Transaction during periods prior to Frontier’s ownership of the CTF Operations, which management believes 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 Frontier’s documents filed with the U.S. Securities and Exchange Commission.

Conference Call and Webcast

Frontier will host a conference call today at 4:30 P.M. Eastern time. In connection with the conference call and as a convenience to investors, Frontier furnished today, under cover of a Current Report on Form 8-K, additional materials regarding fourth quarter 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 February 27, 2018, through 8:00 P.M. Eastern Time on March 4, 2018, 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 7023822 to access the replay. A webcast replay of the call will be available at www.frontier.com/ir.

About Frontier Communications

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

Forward-Looking Statements

This earnings release contains “forward-looking statements,” related to future, not past, events. Forward-looking statements express management’s expectations regarding Frontier’s future business, financial performance, and financial condition, and contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “may,” “will,” “would,” or “target.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For Frontier, particular uncertainties that could cause actual results to be materially different than those expressed in such forward-looking statements include: competition from cable, wireless and wireline carriers, satellite, and OTT companies, and the risk that Frontier will not respond on a timely or profitable basis; Frontier’s ability to successfully adjust to changes in the communications industry, including the effects of technological changes and competition on its capital expenditures, products and service offerings; Frontier’s ability to implement organizational structure changes; risks related to the operation of Frontier’s properties, including Frontier’s ability to retain or obtain customers in Frontier’s legacy markets and those acquired from Verizon; Frontier’s ability to realize anticipated cost savings, and ability to meet commitments made in connection with the Verizon acquisition; reductions in revenue from voice customers that Frontier cannot offset with increases in revenue from broadband and video subscribers and sales of other products and services; Frontier’s ability to maintain relationships with customers, employees or suppliers; Frontier’s ability to attract/retain key talent; 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 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 Frontier and its competitors; Frontier’s ability to meet its remaining CAF II broadband buildout obligations on a timely basis; Frontier’s ability to effectively manage service quality and meet mandated service quality metrics; Frontier’s ability to successfully introduce new product offerings; the effects of


changes in accounting policies or practices, including potential future impairment charges with respect to intangible assets; Frontier’s ability to effectively manage its operations, operating expenses, capital expenditures, debt service requirements and cash paid for income taxes and liquidity; the effects of changes in both general and local economic conditions in the markets that Frontier serves; the effects of increased medical expenses and pension and postemployment expenses; the effects of changes in income tax rates, tax laws, regulations or rulings, or federal or state tax assessments; Frontier’s ability to successfully renegotiate union contracts; changes in pension plan assumptions, interest rates, discount rates, regulatory rules and/or the value of Frontier’s pension plan assets, which could require Frontier to make increased contributions to the pension plan; adverse changes in the credit markets; adverse changes in the ratings given to Frontier’s debt securities by nationally accredited ratings organizations; the availability and cost of financing in the credit markets; covenants in Frontier’s indentures and credit agreements that may limit Frontier’s operational and financial flexibility as well as its ability to access the capital markets in the future; the effects of state regulatory cash management practices that could limit Frontier’s ability to transfer cash among its subsidiaries or dividend funds up to the parent company; the effects of severe weather events or other natural or man-made disasters, which may increase 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 Frontier’s filings with the U.S. Securities and Exchange Commission, including its reports on Forms 10-K and 10-Q. These risks and uncertainties may cause actual future results to be materially different than those expressed in such forward-looking statements. Frontier has no obligation to update or revise these forward-looking statements and does not undertake to do so.

 

INVESTOR CONTACT:   MEDIA CONTACT
Luke Szymczak   Brigid Smith
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 year ended  

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

   December 31,
2017
    September 30,
2017
    December 31,
2016
    December 31,
2017
    December 31,
2016
 

Statement of Operations Data

          

Revenue

   $ 2,217     $ 2,251     $ 2,409     $ 9,128     $ 8,896  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

          

Network access expenses

     388       390       417       1,597       1,470  

Network related expenses

     491       497       488       1,959       1,887  

Selling, general and administrative expenses

     457       486       558       2,018       2,093  

Depreciation and amortization

     514       539       562       2,184       2,031  

Goodwill impairment

     2,078       —         —         2,748       —    

Acquisition and integration costs

     10       1       49       25       436  

Pension settlement costs

     6       15       —         83       —    

Restructuring costs and other charges

     27       14       80       82       91  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     3,971       1,942       2,154       10,696       8,008  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (1,754     309       255       (1,568     888  

Investment and other income (loss), net

     (2     3       13       3       27  

Loss (gain) on extinguishment of debt and debt exchanges

     (1     (1     —         88       7  

Interest expense

     377       382       386       1,534       1,531  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (2,132     (69     (118     (3,187     (623

Income tax benefit

     (1,103     (31     (38     (1,383     (250
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (1,029     (38     (80     (1,804     (373

Less: Dividends on preferred stock

     53       54       53       214       214  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Frontier common shareholders

   $ (1,082   $ (92   $ (133   $ (2,018   $ (587
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding—basic

     77,805       77,797       77,606       77,736       77,607  

Weighted average shares outstanding—diluted

     77,805       77,797       77,606       77,736       77,607  

Basic net loss per common share

   $ (13.91   $ (1.19   $ (1.73   $ (25.99   $ (7.61
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net loss per common share

   $ (13.91   $ (1.19   $ (1.73   $ (25.99   $ (7.61
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Financial Data:

          

Capital expenditures—Business operations

   $ 308     $ 268     $ 299     $ 1,154     $ 1,259  

Capital expenditures—Integration activities

     15       14       43       34       142  

Dividends paid—Common stock

     47       47       123       266       493  

Dividends paid—Preferred stock

     53       54       53       214       214  

 

1


Frontier Communications Corporation

Consolidated Financial Data

 

     For the quarter ended      For the year ended  
     December 31,
2017
     September 30,
2017
     December 31,
2016
     December 31,
2017
     December 31,
2016
 
($ in millions)                                   

Selected Statement of Operations Data

              

Revenue:

              

Data and internet services (1)

   $ 939      $ 956      $ 1,013      $ 3,862      $ 3,693  

Voice services

     687        702        774        2,864        2,886  

Video services

     310        318        365        1,304        1,244  

Other

     91        84        58        322        276  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Customer revenue (1)

     2,027        2,060        2,210        8,352        8,099  

Switched access and subsidy

     190        191        199        776        797  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue (1)

   $ 2,217      $ 2,251      $ 2,409      $ 9,128      $ 8,896  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other Financial Data

              

Revenue:

              

Consumer

   $ 1,086      $ 1,102      $ 1,196      $ 4,476      $ 4,383  

Commercial (1)

     941        958        1,014        3,876        3,716  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Customer revenue (1)

     2,027        2,060        2,210        8,352        8,099  

Switched access and subsidy

     190        191        199        776        797  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue (1)

   $ 2,217      $ 2,251      $ 2,409      $ 9,128      $ 8,896  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  Includes revenue from Frontier Secure Strategic Partnerships business, which was sold in May 2017, of $20 million for the three months ended December 31, 2016 and $40 million and $84 million for the twelve months ended December 31, 2017 and 2016, respectively.

 

2


Frontier Communications Corporation

Consolidated Financial and Operating Data

 

     For the quarter ended     For the year ended  
     December 31,
2017
    September 30,
2017
    December 31,
2016
    December 31,
2017
    December 31,
2016
 

Customers (in thousands)

     4,850       4,949       5,393       4,850       5,393  

Consumer customer metrics

          

Customers (in thousands)

     4,397       4,486       4,891       4,397       4,891  

Net customer additions/(losses)

     (89     (99     (144 )(1)      (494     1,767 (1) 

Average monthly consumer revenue per customer

   $ 81.61     $ 80.91     $ 80.33     $ 80.96     $ 77.47  

Customer monthly churn

     1.98     2.08     2.08     2.17     1.98

Commercial customer metrics

          

Customers (in thousands)

     453       463       502 (1)      453       502 (1) 

Broadband subscriber metrics (in thousands)

          

Broadband subscribers

     3,938       4,000       4,271       3,938       4,271  

Net subscriber additions/(losses)

     (63     (63     (91 )(2)      (333     1,809 (2) 

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

          

Video subscribers

     961       981       1,145       961       1,145  

Net subscriber additions/(losses)

     (20     (26     (77 )(2)      (184     903 (2) 

Video—DISH subscriber metrics (in thousands)

          

DISH subscribers

     235       244       274       235       274  

Net subscriber additions/(losses)

     (9     (10     (7 )(2)      (39     (38 )(2) 

Employees

     22,736 (3)      23,181       28,332       22,736 (3)      28,332  

 

(1) 2,283,000 consumer customers, 250,000 commercial customers and 2,533,000 total customers were acquired at the time of the April 2016 CTF Acquisition.
(2)  2,052,000 broadband subscribers and 1,165,000 video subscribers were acquired at the time of the April 2016 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.

 

3


Frontier Communications Corporation

Condensed Consolidated Balance Sheet Data

 

($ in millions)    December 31, 2017      December 31, 2016  

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 362      $ 522  

Accounts receivable, net

     819        938  

Other current assets

     142        196  
  

 

 

    

 

 

 

Total current assets

     1,323        1,656  

Property, plant and equipment, net

     14,377        14,902  

Other assets—principally goodwill

     9,184        12,455  
  

 

 

    

 

 

 

Total assets

   $ 24,884      $ 29,013  
  

 

 

    

 

 

 

LIABILITIES AND EQUITY

     

Current liabilities:

     

Long-term debt due within one year

   $ 656      $ 363  

Accounts payable and other current liabilities

     1,852        2,081  
  

 

 

    

 

 

 

Total current liabilities

     2,508        2,444  

Deferred income taxes and other liabilities

     3,132        4,490  

Long-term debt

     16,970        17,560  

Equity

     2,274        4,519  
  

 

 

    

 

 

 

Total liabilities and equity

   $ 24,884      $ 29,013  
  

 

 

    

 

 

 

 

4


Frontier Communications Corporation

Consolidated Cash Flow Data

 

     For the year ended December 31,  
($ in millions)    2017     2016  

Cash flows provided from (used by) operating activities:

    

Net loss

   $ (1,804   $ (373

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

    

Depreciation and amortization

     2,184       2,031  

Loss on extinguishment of debt and debt exchanges

     88       7  

Special termination benefits

     5       26  

Pension settlement costs

     83       —    

Pension/OPEB costs

     17       79  

Stock-based compensation expense

     14       24  

Amortization of deferred financing costs

     33       46  

Other adjustments

     (14     (12

Deferred income taxes

     (1,385     (206

Goodwill impairment

     2,748       —    

Change in accounts receivable

     122       (19

Change in accounts payable and other liabilities

     (315     (12

Change in other current assets

     74       85  
  

 

 

   

 

 

 

Net cash provided from operating activities

     1,850       1,676  

Cash flows provided from (used by) investing activities:

    

Capital expenditures—Business operations

     (1,154     (1,259

Capital expenditures—Integration activities

     (34     (142

Cash paid for the CTF Acquisition

     —         (9,871

Proceeds on sale of assets

     110       8  

Other

     24       5  
  

 

 

   

 

 

 

Net cash used by investing activities

     (1,054     (11,259

Cash flows provided from (used by) financing activities:

    

Proceeds from long-term debt borrowings

     1,500       1,940  

Long-term debt payments

     (1,811     (453

Financing costs paid

     (15     (39

Premium paid to retire debt

     (86     —    

Dividends paid on common stock

     (266     (493

Dividends paid on preferred stock

     (214     (214

Capital lease obligation payments

     (42     (8

Other

     (8     (8
  

 

 

   

 

 

 

Net cash provided from (used by) financing activities

     (942     725  

Decrease in cash, cash equivalents, and restricted cash

     (146     (8,858

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

     522       9,380  
  

 

 

   

 

 

 

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

   $ 376     $ 522  
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid (received) during the period for:

    

Interest

   $ 1,548     $ 1,467  

Income tax refunds, net

   $ (51   $ (120

Non-cash investing and financing activities:

    

Financing obligation for contributions of real property to pension plan

   $ —       $ 15  

Reduction of pension obligation

   $ —       $ 15  

Increase (decrease) in capital expenditures due to changes in accounts payable

   $ 50     $ (60

Conversion of operating leases to capital leases

   $ 17     $ 111  

 

5


SCHEDULE A

Frontier Communications Corporation

Reconciliation of Non-GAAP Financial Measures

 

     For the quarter ended     For the year ended  
($ in millions)    December 31,
2017
    September 30,
2017
    December 31,
2016
    December 31,
2017
    December 31,
2016
 

EBITDA

          

Net Loss

   $ (1,029   $ (38   $ (80   $ (1,804   $ (373

Add back (subtract):

          

Income tax benefit

     (1,103     (31     (38     (1,383     (250

Interest expense

     377       382       386       1,534       1,531  

Investment and other income (loss), net

     2       (3     (13     (3     (27

Loss (gain) on extinguishment of debt and debt exchanges

     (1     (1     —         88       7  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (1,754     309       255       (1,568     888  

Depreciation and amortization

     514       539       562       2,184       2,031  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     (1,240     848       817       616       2,919  

Add back:

          

Acquisition and integration costs

     10       1       49       25       436  

Pension/OPEB expense

     21       23       27       94       104  

Restructuring costs and other charges

     27       14       80       82       91  

Pension settlement costs

     6       15       —         83       —    

Stock-based compensation expense

     4       4       3       14       24  

Storm-related costs

     13       9       —         22       —    

Goodwill impairment

     2,078       —         —         2,748       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 919     $ 914     $ 976     $ 3,684     $ 3,574  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

     -55.9     37.6     33.9     6.7     32.8

Adjusted EBITDA margin

     41.5     40.6     40.4     40.4     40.2

Free Cash Flow

          

Net cash provided from operating activities

   $ 665     $ 356     $ 714     $ 1,850     $ 1,676  

Add back (subtract):

          

Capital expenditures—Business operations

     (308     (268     (299     (1,154     (1,259

Capital expenditures—Storm-related costs

     23       3       —         26       —    

Acquisition and integration costs

     10       1       49       25       436  

Deferred income taxes

     1,099       32       43       1,385       206  

Income tax benefit

     (1,103     (31     (38     (1,383     (250

Dividends on preferred stock

     (53     (54     (53     (214     (214

Non-cash gains, net(1)

     (4     (2     (35     (19     (73

Changes in current assets and liabilities

     (188     121       (230     119       (54

Cash refunded for income taxes

     47       1       85       51       120  

Restructuring costs and other charges

     27       14       80       82       91  

Storm-related costs

     13       9       —         22       —    

Interest expense—commitment fees(2)

     —         —         —         —         10  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Free cash flow

   $ 228     $ 182     $ 316     $ 790     $ 689  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Dividends on preferred stock

     —         —         —         —         54  

Incremental interest on new debt

     —         —         —         —         178  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted free cash flow

   $ 228     $ 182     $ 316     $ 790     $ 921  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  Includes amortization of deferred financing costs and other non-cash adjustments from the consolidated cash flow data.
(2)  Includes interest expense of $10 million for the nine months ended September 30, 2016 related to commitment fees on bridge loan facilities.

 

6


SCHEDULE B

Frontier Communications Corporation

Reconciliation of Non-GAAP Financial Measures

 

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

  $ (1,082   $ (13.91   $ (92   $ (1.19   $ (133   $ (1.73
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Acquisition and integration costs

    10         1         49    

Restructuring costs and other charges

    27         14         80    

Pension settlement costs

    6         15         —      

Loss (gain) on extinguishment of debt and debt exchanges

    (1       (1       —      

Goodwill impairment

    2,078         —           —      

Storm-related costs

    13         9         —      

Effect of tax reform

    (830          

Certain other tax items (2)

    8         (5       (17  

Income tax effect on above items:

           

Acquisition and integration costs

    (3       (1       (1  

Acquisition related interest expense

    —           —           7    

Restructuring costs and other charges

    (10       (5       (28  

Pension settlement costs

    (2       (5       —      

Loss (gain) on extinguishment of debt and debt exchanges

    1         —           —      

Goodwill impairment

    (256       —           —      

Storm-related costs

    (5       (3       —      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    1,036       13.32       19       0.24       90       1.16  

Adjusted net loss attributable to Frontier common shareholders(3)

  $ (46   $ (0.59   $ (73   $ (0.94   $ (43   $ (0.55
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    For the year ended  
    December 31, 2017                 December 31, 2016  
    Net Income (Loss)     Basic Earnings
(Loss) Per Share
                Net Income
(Loss)
    Basic Earnings
(Loss) Per Share
 

Net loss attributable to Frontier common shareholders

  $ (2,018   $ (25.99       $ (587   $ (7.61
 

 

 

   

 

 

       

 

 

   

 

 

 

Acquisition and integration costs

    25             436    

Acquisition related interest expense (1)

    —               188    

Restructuring costs and other charges

    82             91    

Pension settlement costs

    83             —      

Loss (gain) on extinguishment of debt and debt exchanges

    88             —      

Goodwill impairment

    2,748             —      

Storm-related costs

    22             —      

Effect of tax reform

    (830          

Certain other tax items (2)

    8             (31  

Income tax effect on above items:

           

Acquisition and integration costs

    (9           (153  

Acquisition related interest expense

    —               (66  

Restructuring costs and other charges

    (30           (32  

Pension settlement costs

    (30           —      

Loss (gain) on extinguishment of debt and debt exchanges

    (32           —      

Goodwill impairment

    (394           —      

Storm-related costs

    (8           —      
 

 

 

   

 

 

       

 

 

   

 

 

 
    1,723       22.16           433       5.58  

Dividends on preferred stock

    —         —             54       0.70  
 

 

 

   

 

 

       

 

 

   

 

 

 

Adjusted net loss attributable to Frontier common shareholders(3)

  $ (295   $ (3.79       $ (100   $ (1.29
 

 

 

   

 

 

       

 

 

   

 

 

 

 

(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.

 

7


SCHEDULE C

Frontier Communications Corporation

Reconciliation of Non-GAAP Financial Measures

 

     For the quarter ended     For the year ended  
($ in millions)    December 31,
2017
    September 30,
2017
    December 31,
2016
    December 31,
2017
    December 31,
2016
 
Adjusted Operating Expenses           

Total operating expenses

   $ 3,971     $ 1,942     $ 2,154     $ 10,696     $ 8,008  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtract:

          

Depreciation and amortization

     514       539       562       2,184       2,031  

Goodwill impairment

     2,078       —         —         2,748       —    

Acquisition and integration costs

     10       1       49       25       436  

Pension /OPEB expense

     21       23       27       94       104  

Restructuring costs and other charges

     27       14       80       82       91  

Stock-based compensation expense

     4       4       3       14       24  

Pension settlement costs

     6       15       —         83       —    

Storm-related costs

     13       9       —         22       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted operating expenses

   $ 1,298     $ 1,337     $ 1,433     $ 5,444     $ 5,322  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     For the quarter ended     For the year ended  
     December 31,
2017
    September 30,
2017
    December 31,
2016
    December 31,
2017
    December 31,
2016
 
Dividend Payout Ratio           

Numerator

          

Dividends paid on common stock

   $ 47     $ 47     $ 123     $ 266     $ 493  

Less: Dividends on June 2015 common stock issuance

     —         —         —         —         (18
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 47     $ 47     $ 123     $ 266     $ 475  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Denominator

          

Free cash flow (see Schedule A)

   $ 228     $ 182     $ 316     $ 790     $ 689  

Dividends on preferred stock

     —         —         —         —         54  

Incremental interest expense

     —         —         —         —         178  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted free cash flow

   $ 228     $ 182     $ 316     $ 790     $ 921  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Dividend payout ratio

     21     26     39     34     52

 

8


SCHEDULE D

Frontier Communications Corporation

Reconciliation of Non-GAAP Financial Measures

 

    For the quarter ended  
    December 31,
2017
    September 30,
2017
    June 30,
2017
    March 31,
2017
    December 31,
2016
    September 30,
2016
    June 30,
2016
    March 31,
2016
 

Net cash provided from (used by) operating activities

  $ 665     $ 356     $ 529     $ 300     $ 714     $ 321     $ 693     $ (52

Add back (subtract):

               

Capital expenditures—Business operations

    (308     (268     (263     (315     (299     (403     (350     (207

Capital expenditures—Integration

    (15     (14     (4     (1     (43     (11     (36     (52
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating free cash flow

    342       74       262       (16     372       (93     307       (311

Capital expenditures—Integration

    15       14       4       1       43       11       36       52  

Capital expenditures—Storm-related costs

    23       3       —         —         —         —         —         —    

Acquisition and integration costs

    10       1       12       2       49       122       127       138  

Deferred income taxes

    1,099       32       213       41       43       (8     52       119  

Income tax benefit

    (1,103     (31     (210     (39     (38     (46     (48     (118

Dividends on preferred stock

    (53     (54     (53     (54     (53     (54     (53     (54

Non-cash (gains)/losses, net

    (4     (2     (4     (9     (35     (8     (9     (21

Changes in current assets and liabilities

    (188     121       (48     234       (230     230       (162     108  

Cash refunded for income taxes

    47       1       —         3       85       3       —         32  

Restructuring costs and other charges

    27       14       29       12       80       11       —         —    

Storm-related costs

    13       9       —         —         —         —         —         —    

Interest expense—commitment fees

    —         —         —         —         —         —         —         10  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Free cash flow

  $ 228     $ 182     $ 205     $ 175     $ 316     $ 168     $ 250     $ (45
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Dividends on preferred stock

    —         —         —         —         —         —         —         54  

Incremental interest on new debt

    —         —         —         —         —         —         —         178  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted free cash flow

  $ 228     $ 182     $ 205     $ 175     $ 316     $ 168     $ 250     $ 187  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Trailing Twelve Months  
    December 31,
2017
    September 30,
2017
    June 30,
2017
    March 31,
2017
    December 31,
2016
    September 30,
2016
    June 30,
2016
    March 31,
2016
 

Net cash provided from operating activities

  $ 1,850     $ 1,899     $ 1,864     $ 2,028     $ 1,676     $ 1,303     $ 1,327     $ 1,001  

Add back (subtract):

               

Capital expenditures—Business operations

    (1,154     (1,145     (1,280     (1,367     (1,259     (1,145     (919     (747

Capital expenditures—Integration

    (34     (62     (59     (91     (142     (151     (203     (195
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating free cash flow

    662       692       525       570       275       7       205       59  

Capital expenditures—Integration

    34       62       59       91       142       151       203       195  

Capital expenditures—Storm-related costs

    26       3       —         —         —         —         —         —    

Acquisition and integration costs

    25       64       185       300       436       473       409       317  

Deferred income taxes

    1,385       329       289       128       206       167       453       253  

Income tax benefit

    (1,383     (318     (333     (171     (250     (285     (263     (253

Dividends on preferred stock

    (214     (214     (214     (214     (214     (214     (227     (174

Non-cash (gains)/losses, net

    (19     (50     (56     (61     (73     (35     (93     (162

Changes in current assets and liabilities

    119       77       186       72       (54     65       (407     (77

Cash refunded for income taxes

    51       89       91       91       120       35       25       22  

Restructuring costs and other charges

    82       135       132       103       91       11       1       1  

Storm-related costs

    22       9       —         —         —         —         —         —    

Interest expense—commitment fees

    —         —         —         —         10       10       62       137  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Free cash flow

  $ 790     $ 878     $ 864     $ 909     $ 689     $ 385     $ 368     $ 318  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Dividends on preferred stock

    —         —         —         —         54       107       174       174  

Incremental interest on new debt

    —         —         —         —         178       356       367       367  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted free cash flow

  $ 790     $ 878     $ 864     $ 909     $ 921     $ 848     $ 909     $ 859  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

9

EX-99.2

Slide 1

Investor Update Fourth Quarter 2017 FEBRUARY 27, 2018 Exhibit 99.2


Slide 2

Strategic and Operational Review Daniel McCarthy President & Chief Executive Officer


Slide 3

Business Update Total revenues of $2.22 billion Consumer revenue was $1.09 billion in the fourth quarter, rate of decline improved sequentially Consumer customer churn continues to trend down, improving to 1.98% from 2.08% in Q3 2017 & 2.24% in Q2 2017 driven by both CTF FiOS® and Legacy Combined consumer ARPC of $81.61 ($65.11 for Frontier Legacy and $107.35 for CTF operations) Commercial revenue of $941 million, a slight decline from the prior period due to carrier/wholesale revenue, while SME (Small, Medium, & Enterprise) revenue was broadly stable sequentially Commercial customers of 453,000 reflects continued improvement in churn Net loss of $1.03 billion, driven by goodwill impairment, partially offset by tax benefit Adjusted EBITDA of $919 million* Subsequent to quarter-end we amended the terms of our credit agreements, providing additional financial flexibility Storm impact of $36 million: operating expenses $13 million; capital expenditures $23 million Remain on track to achieve $350 million annualized cost synergies by end of Q2 2018 * Adjusted EBITDA is a non-GAAP measure - see Appendix for a description of the calculation of Adjusted EBITDA.


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 Continued expense discipline Net loss of $1.03 billion, driven by goodwill impairment, partially offset by tax benefit Improved Adjusted EBITDA reflects synergies and cost reduction programs  ($ in Millions) Q1 '17 Q2 '17 Q3 '17 Q4 '17 2017 Total Revenues $2,356 $2,304 $2,251 $2,217 $9,128 Customer $2,159 $2,106 $2,060 $2,027 $8,352 Regulatory $197 $198 $191 $190 $776 Net Loss ($75) ($662) ($38) ($1,029) ($1,804) Net Cash provided from Operating Activities $300 $529 $356 $665 $1,850 Adjusted Operating Expenses* $1,421 $1,388 $1,337 $1,298 $5,444 Adjusted EBITDA* $935 $916 $914 $919 $3,684 Adjusted EBITDA Margin* 39.7% 39.8% 40.6% 41.5% 40.4% CapEx $315 $263 $268 $308 $1,154 Adjusted Free Cash Flow* $175 $205 $182 $228 $790


Slide 6

 ($ in Millions) Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17 Data & internet services* $992 $968 $959 $956 $939 Voice Services $774 $751 $724 $702 $687 Video services $365 $347 $329 $318 $310 Other $58 $68 $79 $84 $91 Total Customer Revenue* $2,190 $2,134 $2,091 $2,060 $2,027 Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17 Consumer $1,196 $1,164 $1,124 $1,102 $1,086 Commercial $1,014 $995 $982 $958 $941 Partnerships Revenue ($20) ($25) ($15) $0 $0 Commercial excl. Partnerships* $994 $970 $967 $958 $941 Total Customer Revenue* $2,190 $2,134 $2,091 $2,060 $2,027 Product & Customer Revenue Data & Internet services revenue declined primarily due to carrier/wholesale Video revenue trend continues to improve Consumer Revenue reflects improvement in sequential decline Improved CTF FiOS® customer trends Focus for 2018 is a renewed emphasis on driving penetration in our copper markets including low density markets associated with CAF Commercial business stabilization Improved trends in SME Focus for 2018 is on improving the customer experience, increasing sales productivity and providing quicker installations: Increase direct sales headcount in high potential territories Leverage fiber-connected buildings and towers *Excludes Frontier Secure Strategic Partnerships revenues


Slide 7

CTF Broadband and Video Services Significant improvement in CTF FiOS® net adds CTF FiOS® broadband gross adds are at the highest level since we acquired the business Churn improvement continued (Net Adds in Thousands) n Copper Broadband n FiOS® Broadband n Video (excl. Dish®)


Slide 8

Legacy Broadband and Video Services n Broadband n Video (excl. Dish®) Legacy churn improved sequentially in Q4 Implementing initiatives to improve gross additions in Broadband coupled with new offers and capabilities in Q1 ‘18 Focus is on deepening the penetration in our copper markets along with driving growth in our low density markets associated with CAF (Net Adds in Thousands)


Slide 9

Consumer Broadband and Video Services n Copper Broadband n Fiber Broadband n Video (excl. Dish®) Fiber Broadband gross adds continue to improve reflecting positive impact of the Q3 promotional activity Video net adds continue to improve driven by improving churn (Net Adds in Thousands) n Copper Broadband n Fiber Broadband n Video (excl. Dish)


Slide 10

Commercial Broadband Services n Retail Broadband n Wholesale Broadband Retail Broadband sequential gross adds decline was mitigated by churn reduction in both copper and fiber (Net Adds in Thousands) n Retail Broadband n Wholesale Broadband


Slide 11

Consumer Customers (Net Adds in Thousands) Continued churn improvement a result of new initiatives and overall improvement in customer relationships


Slide 12

Consumer ARPC 2.9M 2.7M 2.7M Customers 2.8M 2.9M Legacy Operations CTF Operations 1.9M 1.8M 1.7M 1.8M 4.7M 4.5M 4.4M 4.6M Combined Consumer ARPC has trended up over the past two quarters Sequential increase despite Q3’s benefit associated with the Mayweather vs. McGregor fight New pricing initiatives had a positive uplift to ARPC while not meaningfully changing our churn trajectory 2.0M 4.9M Customers Customers


Slide 13

Capital Spending Update Growth initiatives comprise more than 75% of 2017 capital spending Continuing next generation network investments with the introduction of a SD-WAN product offering and SGS-PON deployments Continuing automation initiatives driven by the PEGA platform to enhance customer care, reduce costs, and enable efficiencies Recent Projects: Completed – 153K CA households with upgraded speeds (25 – 115Mbps) Completed fixed wireless field trials and expanding deployment in CAF areas in 2018 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 and to 60% by the end of 2018 As of December 31st, Frontier had reached the 40% milestone in all twenty nine states Frontier is on track with three states already exceeding the 60% threshold as of January 2018 Enabled broadband to 351K locations in CAF II—eligible areas 2017: $1.15 billion 2018 Guidance: $1.0 billion to $1.15 billion CapEx


Slide 14

Debt Maturity Profile Q4 open-market debt repurchases of $110 million in total principal amount Our near-term unsecured maturity profile is manageable, with $491 million of bonds due in Q4 2018 and $404 million of bonds due in 2019 and we continue to have an undrawn $850 million revolver* Frontier remains committed to deleveraging the business Debt Maturities as of December 31, 2017 ($ in Millions) n Senior Unsecured and Subsidiary n Senior Secured n $850M Revolver* * The amount under the revolver is reduced by associated letters of credit As of 12/31/17, $63M of letters of credits had been issued under the revolver


Slide 15

Adjusted and Operating Free Cash Flows ($ in Millions) n Trailing 12 Months Adj. Free Cash Flow n Trailing 12 Months Operating Free Cash Flow * Adjusted Free Cash Flow and Operating Free Cash Flow are non-GAAP measures - see Appendix for a description of their calculation


Slide 16

Adjusted EBITDA* Approximately $3.6 billion Capital expenditures $1.0 billion to $1.15 billion Cash taxes Less than $25 million Cash pension/OPEB Approximately $150 million Interest expense Approximately $1.5 billion Operating free cash flow* Approximately $800 million Guidance * Adjusted EBITDA and Operating free cash flow are non-GAAP measures - see Appendix for a description of its calculation


Slide 17

Well Positioned to Deliver Significant Value Improving revenue trends in Consumer CTF and Legacy Consumer revenue trends improved Improving CTF unit metrics CTF FiOS® broadband gross adds are maintaining momentum Continued sequential improvement in CTF FiOS® churn SME portion of Commercial was broadly stable sequentially Remain fully committed to strategic objectives of: Improving customer retention, enhancing the customer experience and aligning our cost structure On track for realizing $350 million in total annualized run-rate synergies by mid-2018 Improving Adjusted EBITDA* and operating free cash flow* Strengthening the balance sheet and enhancing financial flexibility * Adjusted EBITDA and Operating free cash flow are non-GAAP measures - see Appendix for a description of its calculation


Slide 18

Appendix


Slide 19

Safe Harbor Statement Forward-looking language This presentation contains "forward-looking statements," related to future, not past, events. Forward-looking statements express management’s expectations regarding Frontier’s future business, financial performance, and financial condition, and contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "see," "may," "will," "would," or "target." Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For Frontier, particular uncertainties that could cause actual results to be materially different than those expressed in such forward-looking statements include: competition from cable, wireless and wireline carriers, satellite, and OTT companies, and the risk that Frontier will not respond on a timely or profitable basis; Frontier’s ability to successfully adjust to changes in the communications industry, including the effects of technological changes and competition on its capital expenditures, products and service offerings; Frontier’s ability to implement organizational structure changes; risks related to the operation of Frontier’s properties, including Frontier’s ability to retain or obtain customers in Frontier’s legacy markets and those acquired from Verizon; Frontier’s ability to realize anticipated cost savings, and ability to meet commitments made in connection with the Verizon acquisition; reductions in revenue from voice customers that Frontier cannot offset with increases in revenue from broadband and video subscribers and sales of other products and services; Frontier’s ability to maintain relationships with customers, employees or suppliers; Frontier’s ability to attract/retain key talent; 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 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 Frontier and its competitors; Frontier’s ability to meet its remaining CAF II broadband buildout obligations on a timely basis; Frontier’s ability to effectively manage service quality and meet mandated service quality metrics; Frontier’s ability to successfully introduce new product offerings; the effects of changes in accounting policies or practices, including potential future impairment charges with respect to intangible assets; Frontier’s ability to effectively manage its operations, operating expenses, capital expenditures, debt service requirements and cash paid for income taxes and liquidity; the effects of changes in both general and local economic conditions in the markets that Frontier serves; the effects of increased medical expenses and pension and postemployment expenses; the effects of changes in income tax rates, tax laws, regulations or rulings, or federal or state tax assessments; Frontier’s ability to successfully renegotiate union contracts; changes in pension plan assumptions, interest rates, discount rates, regulatory rules and/or the value of Frontier’s pension plan assets, which could require Frontier to make increased contributions to the pension plan; adverse changes in the credit markets; adverse changes in the ratings given to Frontier’s debt securities by nationally accredited ratings organizations; the availability and cost of financing in the credit markets; covenants in Frontier’s indentures and credit agreements that may limit Frontier’s operational and financial flexibility as well as its ability to access the capital markets in the future; the effects of state regulatory cash management practices that could limit Frontier’s ability to transfer cash among its subsidiaries or dividend funds up to the parent company; the effects of severe weather events or other natural or man-made disasters, which may increase 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 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 20

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, operating 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. 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, gains/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 non-recurring items (e.g. storm-related costs in the fourth 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. Management believes that these non-GAAP measures provide useful information for investors in evaluating Frontier’s operational performance from period to period because they exclude depreciation and amortization expenses related to investments made in prior periods and are determined without regard to capital structure or investment activities. By excluding capital expenditures, debt repayments and dividends, among other factors, these non-GAAP financial measures have certain shortcomings. Management compensates for these shortcomings by utilizing these non-GAAP financial measures in conjunction with the comparable GAAP financial measures. Adjusted net income (loss) attributable to Frontier common shareholders is defined as net income (loss) attributable to Frontier common shareholders and excludes acquisition and integration costs, restructuring costs and other charges, pension settlement costs, goodwill impairment charges, certain income tax items and the income tax effect of these items, and 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 Frontier’s ownership of the CTF Operations. Adjusting for these items allows investors to better understand and analyze Frontier’s financial performance over the periods presented. Management defines free cash flow 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 associated capital expenditures, and interest expense on commitment fees, which provides a better comparison of 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 Frontier’s April 1, 2016 ownership of the CTF Operations, on debt Frontier incurred to finance the Verizon Transaction, and preferred stock dividends paid prior to April 1, 2016. In 2018, the Company is introducing a more traditional and simplified measurement for free cash flow: operating free cash flow. Management defines operating free cash flow, a non-GAAP measure, as net cash provided from operating activities less capital expenditures. Management uses free cash flow, adjusted free cash flow, and 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 these non-GAAP measures are useful to investors in evaluating cash available to service debt and pay dividends. These non-GAAP financial measures have certain shortcomings; they do not represent the residual cash flow available for discretionary expenditures, as items such as debt repayments 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 Frontier’s adjusted free cash flow that is used to pay dividends to its common shareholders. Management has made adjustments to exclude the impact of financing raised in connection with the Verizon Transaction during periods prior to Frontier’s ownership of the CTF Operations, which management believes 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 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 21

Non-GAAP Financial Measures EBITDA Net Loss $ (1,029) $ (38) $ (662) $ (75) $ (80) Add back (subtract): Income tax benefit (1,103) (31) (210) (39) (38) Interest expense 377 381 388 388 386 Investment and other income (loss), net 2 (2) - (3) (13) Losses (gains) on extinguishment of debt and debt exchanges (1) (1) 90 - - Operating (loss) income (1,754) 309 (394) 271 255 Depreciation and amortization 514 539 552 579 562 EBITDA (1,240) 848 158 850 817 Add back: Acquisition and integration costs 10 1 12 2 49 Pension/OPEB expense 21 23 25 25 27 Restructuring costs and other charges 27 14 29 12 80 Stock based compensation 4 4 3 3 3 Storm related costs 13 9 - - - Goodwill impairment 2,078 - 670 - - Pension settlement costs 6 15 19 43 - Adjusted EBITDA $ 919 $ 914 $ 916 $ 935 $ 976 EBITDA margin -55.9% 37.6% 6.9% 36.1% 33.9% Adjusted EBITDA margin 41.5% 40.6% 39.8% 39.7% 40.4% Adjusted Operating Expenses Total operating expenses $ 3,971 $ 1,942 $ 2,698 $ 2,085 $ 2,154 Subtract: Depreciation and amortization 514 539 552 579 562 Goodwill impairment 2,078 - 670 - - Acquisition and integration costs 10 1 12 2 49 Pension/OPEB expense 21 23 25 25 27 Restructuring costs and other charges 27 14 29 12 80 Stock based compensation 4 4 3 3 3 Storm related costs 13 9 - - - Pension settlement costs 6 15 19 43 - Adjusted operating expenses $ 1,298 $ 1,337 $ 1,388 $ 1,421 $ 1,433 Consolidated Amount For the quarter ended December 31, 2017 September 30, 2017 June 30, 2017 March 31, 2017 December 31, 2016 Consolidated Amount Amount Amount Consolidated Amount Consolidated Consolidated ($ in millions)


Slide 22

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 $ 665 $ 1,850 $ 1,899 $ 1,864 $ 2,028 $ 1,676 Add back (subtract): Capital expenditures - Business operations (308) (1,154) (1,145) (1,280) (1,367) (1,259) Capital expenditures - Storm related 23 26 3 - - - Acquisition and integration costs 10 25 64 185 300 436 Deferred income taxes 1,099 1,385 329 289 128 206 Income tax benefit (1,103) (1,383) (318) (333) (171) (250) Dividends on preferred stock (53) (214) (214) (214) (214) (214) Non-cash (gains)/losses, net (4) (19) (50) (56) (61) (73) Changes in current assets and liabilities (188) 119 77 186 72 (54) Cash refunded for income taxes 47 51 89 91 91 120 Restructuring costs and other charges 27 82 135 132 103 91 Interest expense - commitment fees - - - - - 10 Storm-related costs 13 22 9 - - - Dividends on preferred stock - - - - - 54 Incremental interest on new debt - - - - - 178 Adjusted free cash flow $ 228 $ 790 $ 878 $ 864 $ 909 $ 921 Dividends paid on common stock $ 47 $ 266 $ 342 $ 419 $ 494 $ 493 Less: dividends on June 2015 common stock issuance - - - - - (18) Dividends paid on common stock, as adjusted $ 47 $ 266 $ 342 $ 419 $ 494 $ 475 Dividend payout ratio* 20.8% 33.7% 38.9% 48.5% 54.4% 51.6% Three Months December 31, 2017 Trailing Twelve Months June 30, 2017 December 31, 2017 March 31, 2017 December 31, 2016 September 30, 2017


Slide 23

Non-GAAP Financial Measures ($ in Millions)


Slide 24

Frontier Communications – Revenue Breakout (1) For the three months ended December 31, 2016, consolidated revenues include $20 million of revenue from the Frontier Secure Strategic Partnerships business, which was sold in May 2017.