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): July 31, 2018

 

 

Frontier Communications Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-11001   06-0619596

(State or other jurisdiction

of incorporation)

  (Commission File Number)  

(IRS Employer

Identification No.)

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

(203) 614-5600

(Registrant’s telephone number, including area code)

Not Applicable

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

 

 

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

 

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

 

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

 

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

 

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

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 July 31, 2018, Frontier Communications Corporation (“Frontier”) issued a press release announcing its second quarter 2018 financial results. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated by reference herein.

As previously announced, Frontier will hold a conference call at 4:30 p.m., Eastern Time, on July 31, 2018, to discuss its financial results for the second quarter 2018. Also furnished and incorporated by reference herein as Exhibit 99.2 is supplemental material to be used in connection with the conference call. This information is available on Frontier’s Investor Relations website at www.frontier.com/ir.

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

 

Item 9.01 Financial Statements and Exhibits

 

(d) Exhibits

 

Exhibit

Number

  

Description

99.1    Press Release
99.2    Presentation regarding Second Quarter 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: July 31, 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 2018 Second Quarter Results

Second Quarter

 

    Total revenue of $2.16 billion

 

    Continued progress toward improving subscriber trends, offset by typical summer seasonality

 

    Successfully concluded the $350 million synergy program on schedule

 

    Next phase of transformation initiatives target $500 million EBITDA benefit by year-end 2020

 

    Net loss of $18 million

 

    Adjusted EBITDA1 of $884 million

Norwalk, Conn., July 31, 2018 – Frontier Communications Corporation (NASDAQ:FTR) today reported financial results for the second quarter ended June 30, 2018.

“We continued to make further progress in the second quarter with the key initiatives that we have underway across the company,” said Dan McCarthy, President and CEO. “We are pleased to have maintained good subscriber momentum despite facing typical second-quarter seasonal headwinds. Underlying trends should continue improving in the latter half of this year, once summer seasonality is behind us. I am also pleased that our efforts in Commercial have begun to drive improved revenue trends.”

“We successfully concluded our $350 million synergy program in the second quarter,” said McCarthy. “We have begun our next phase of corporate transformation, which entails both revenue enhancement and productivity improvement initiatives with targeted EBITDA benefits of $500 million by year-end 2020. The entire Frontier team remains focused on enhancing the customer experience, achieving further improvements in churn and subscriber trends, maintaining strong cash flow, strengthening the balance sheet, and improving shareholder value.”

 

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


Consolidated Results

Consolidated revenue for the second quarter 2018 was $2.16 billion. Within consolidated revenue, consumer revenue was $1.10 billion, commercial revenue was $970 million, and subsidy and other regulatory revenue was $97 million.

Net loss for the second quarter of 2018 was $18 million. Net loss for the second quarter attributable to common shares was $72 million, for a diluted net loss per common share of $0.92. Adjusted EBITDA totaled $884 million, for an adjusted EBITDA margin2 of 40.9%.

The Company successfully completed its program to attain $350 million in annualized cost synergies in the second quarter, in line with its stated target.

For the second quarter of 2018, net cash provided from operating activities was $672 million and operating free cash flow3 was $351 million. Over the four-quarter period ending June 30, 2018, net cash provided from operating activities was $1,944 million and operating free cash flow was $721 million.

Consumer Business Highlights

 

   

Revenue of $1.10 billion.

 

   

Customer churn of 1.95% (1.76% for Legacy and 2.25% for CTF operations) reflected the impact of summer seasonality.

 

   

Average Revenue Per Customer (ARPC) of $85.28 ($83.17 excluding adoption of ASC 606, stable sequentially).

Commercial Business Highlights

 

   

Revenue of $970 million.

 

   

Total commercial customers of 430,000 compared to 441,000 during the first quarter of 2018.

 

   

Wholesale revenue was stable sequentially, and the trend in SME revenue improved sequentially.

 

2 

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.

3 

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


Capital Structure and Capital Allocation

 

   

As of June 30, 2018, Frontier’s leverage ratio was 4.70:1.

 

   

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

 

   

Frontier purchased $48 million principal amount of its 2018 senior unsecured notes on the open market during the second quarter of 2018.

 

   

On July 3, 2018 Frontier added $240 million to its existing Term Loan B facility maturing June 15, 2024. Proceeds were used to repay the entire $228 million of the CoBank senior term loan maturing October 24, 2019 and $6 million of the CoBank senior term loan maturing October 12, 2021.

 

   

Frontier’s 11.125% Mandatory Convertible Preferred Stock converted into shares of Frontier common stock on June 29, 2018. The mandatory conversion increased common shares outstanding by 25.5 million, resulting in total common shares outstanding of 105.8 million as of June 30, 2018.

Guidance

Guidance for 2018 remains unchanged.

 

   

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

 

   

Cash interest expense – Approximately $1.5 billion for the full year; third quarter cash interest payments of approximately $600 million

 

   

Operating free cash flow – Approximately $800 million


Non-GAAP Financial Measures

Frontier uses certain non-GAAP financial measures in evaluating its performance, including EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, operating free cash flow, and adjusted operating expenses, each of which is described below. Management uses these non-GAAP financial measures internally to (i) assist in analyzing Frontier’s underlying financial performance from period to period, (ii) analyze and evaluate strategic and operational decisions, (iii) establish criteria for compensation decisions, and (iv) assist in the understanding of Frontier’s ability to generate cash flow and, as a result, to plan for future capital and operational decisions. Management believes that the presentation of these non-GAAP financial measures provides useful information to investors regarding Frontier’s financial condition and results of operations because these measures, when used in conjunction with related GAAP financial measures (i) provide a more comprehensive view of Frontier’s core operations and ability to generate cash flow, (ii) provide investors with the financial analytical framework upon which management bases financial, operational, compensation, and planning decisions and (iii) present measurements that investors and rating agencies have indicated to management are useful to them in assessing Frontier and its results of operations.

A reconciliation of these measures to the most comparable financial measures calculated and presented in accordance with GAAP is included in the accompanying tables. These non-GAAP financial measures are not measures of financial performance or liquidity under GAAP, nor are they alternatives to GAAP measures and they may not be comparable to similarly titled measures of other companies.

EBITDA is defined as net income (loss) less income tax expense (benefit), interest expense, investment and other income, pension settlement costs, gains/losses on extinguishment of debt, and depreciation and amortization. EBITDA margin is calculated by dividing EBITDA by total revenue.

Adjusted EBITDA is defined as EBITDA, as described above, adjusted to exclude acquisition and integration costs, certain pension/OPEB expenses, restructuring costs and other charges, stock-based compensation expense, goodwill impairment charges, and certain other non-recurring items including work stoppage costs. Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by total revenue.

Management uses EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin to assist it in comparing performance from period to period and as measures of operational performance. Management believes that these non-GAAP measures provide useful information for investors in evaluating Frontier’s operational performance from period to period because they exclude depreciation and amortization expenses related to investments made in prior periods and are determined without regard to capital structure or investment activities. By excluding capital expenditures, debt repayments and dividends, among other factors, these non-GAAP financial measures have certain shortcomings. Management compensates for these shortcomings by utilizing these non-GAAP financial measures in conjunction with the comparable GAAP financial measures.

Adjusted net income (loss) attributable to Frontier common shareholders is defined as net income (loss) attributable to Frontier common shareholders and excludes acquisition and integration costs, restructuring costs and other charges, pension settlement costs, goodwill impairment charges, certain income tax items and the income tax effect of these items, and certain other non-recurring items including work stoppage costs. Adjusting for these items allows investors to better understand and analyze Frontier’s financial performance over the periods presented.


Management defines operating free cash flow, a non-GAAP measure, as net cash provided from operating activities less capital expenditures. Management uses operating free cash flow to assist it in comparing liquidity from period to period and to obtain a more comprehensive view of Frontier’s core operations and ability to generate cash flow. Management believes that this non-GAAP measure is useful to investors in evaluating cash available to service debt and pay dividends. This non-GAAP financial measure has certain shortcomings; it does not represent the residual cash flow available for discretionary expenditures, as items such as debt repayments and preferred stock dividends are not deducted in determining such measure. Management compensates for these shortcomings by utilizing this non-GAAP financial measure in conjunction with the comparable GAAP financial measure.

Adjusted operating expenses is defined as operating expenses adjusted to exclude depreciation and amortization, acquisition and integration costs, restructuring and other charges, goodwill impairment charges, certain pension/OPEB expenses, stock-based compensation expense, and certain other non-recurring items including work stoppage costs. 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 second quarter 2018 results. The conference call will be webcast and may be accessed in the Webcasts & Presentations section of Frontier’s Investor Relations website at www.frontier.com/ir.

A telephonic replay of the conference call will be available from 7:30 P.M. Eastern Time on Tuesday, July 31, 2018, through 7:30 P.M. Eastern Time on Sunday, August 5, 2018 at 888-203-1112. Use the passcode 3090153 to access the replay. A webcast replay of the call will be available at www.frontier.com/ir.

About Frontier Communications

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

Forward-Looking Statements

This earnings release contains “forward-looking statements,” related to future events. Forward-looking statements address Frontier’s expected future business, financial performance, and financial condition, and contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “may,” “will,” “would,” or “target.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For Frontier, particular uncertainties that could cause actual results to be materially different than those expressed in such forward-looking statements include: 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; declines in revenue from Frontier’s voice services, switched and non-switched access and video and data services that it cannot stabilize or offset with increases in revenue from other products and services; Frontier’s ability to successfully implement strategic initiatives, including opportunities to enhance revenue and realize operational improvements; risks related to disruptions in Frontier’s networks, infrastructure and information technology that may result in customer loss and/or incurrence of additional expenses; Frontier’s ability to retain or attract new customers and to maintain relationships with customers, employees or suppliers; Frontier’s ability to realize anticipated benefits from recent acquisitions; Frontier’s ability to successfully introduce new product offerings; Frontier’s ability to dispose of certain assets or asset groups on terms that are attractive to Frontier, or at all; the effects of governmental legislation and regulation on Frontier’s business; the impact of regulatory, investigative and legal proceedings and legal compliance risks; government infrastructure projects that impact capital expenditures; continued reductions in switched access revenue as a result of regulation, competition or technology substitutions; the effects of changes in the availability of federal and state universal service funding or other subsidies to Frontier and its competitors; Frontier’s ability to meet its remaining CAF II funding obligations on a timely basis and the risk of penalties or obligations to return certain CAF II funds; Frontier’s ability to effectively manage service quality and meet mandated service quality metrics; the effects of changes in accounting policies or practices, including potential future impairment charges with respect to intangible assets; the effects of 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 its pension plans; Frontier’s ability to effectively manage its operations, operating expenses, capital expenditures, debt service requirements and cash paid for income taxes and liquidity; adverse changes in the credit markets, which could impact the availability and cost of financing; adverse changes in the ratings given to Frontier’s debt securities by nationally accredited ratings organizations; covenants in Frontier’s indentures and credit agreements that may limit Frontier’s operational and financial flexibility as well as its ability to access the capital markets in the future; the effects of state regulatory 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 changes in both general and local economic conditions in the markets that Frontier serves; Frontier’s ability to hire or retain key personnel; the effects of severe weather events or other natural or man-made disasters, which may increase operating and capital expenses or adversely impact customer revenue; 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 six months ended  

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

   June 30, 2018 (1)     March 31, 2018 (1)     June 30, 2017     June 30, 2018 (1)     June 30, 2017  

Statement of Operations Data

          

Revenue

   $ 2,162     $ 2,199     $ 2,304     $ 4,361     $ 4,660  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

          

Network access expenses

     369       372       408       741       819  

Network related expenses

     478       483       477 (2)      961       970 (2) 

Selling, general and administrative expenses

     460       469       531 (2)      929       1,073 (2) 

Depreciation and amortization

     486       505       552       991       1,131  

Goodwill impairment

     —         —         670       —         670  

Acquisition and integration costs

     —         —         12       —         14  

Restructuring costs and other charges

     2       4       29       6       41  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     1,795       1,833       2,679 (2)      3,628       4,718 (2) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     367       366       (375 )(2)      733       (58 )(2) 

Investment and other income (loss), net

     5       8       —   (2)      13       —   (2) 

Pension settlement costs

     25       —         19       25       62  

Gain (Loss) on extinguishment of debt

     —         33       (90     33       (90

Interest expense

     385       374       388       759       776  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (38     33       (872     (5     (986

Income tax expense (benefit)

     (20     13       (210     (7     (249
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (loss)

     (18     20       (662     2       (737

Less: Dividends on preferred stock

     54       53       53       107       107  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Frontier common shareholders

   $ (72   $ (33   $ (715   $ (105   $ (844
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding—basic (3)

     78,026       77,416       77,795       77,685       77,679  

Weighted average shares outstanding—diluted (3)

     78,026       77,416       77,951       77,685       77,835  

Basic net loss per common share

   $ (0.92   $ (0.44   $ (9.20   $ (1.35   $ (10.88
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net loss per common share

   $ (0.92   $ (0.44   $ (9.21   $ (1.35   $ (10.89
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Financial Data:

          

Capital expenditures—Business operations

   $ 321     $ 297     $ 263     $ 618     $ 578  

Capital expenditures—Integration activities

   $ —       $ —       $ 4     $ —       $ 5  

Dividends declared—Common stock

   $ —       $ —       $ 48     $ —       $ 172  

Dividends declared—Preferred stock

   $ 54     $ 53     $ 53     $ 107     $ 107  

 

(1)  We adopted Accounting Standard Update 2014-09, “Revenue from Contracts with Customers (ASC 606)” on January 1, 2018, using the modified retrospective application. This method does not impact the prior periods, which continue to reflect the accounting treatment prior to the adoption of ASC 606. As a result, for items that were affected by our adoption of ASC 606, financial results of periods prior to January 1, 2018 are not comparable to the current period financial results. To provide comparability to our results, we provide a supplemental schedule (see Schedule D) which contains certain financial information on a pre adoption of ASC 606 basis.
(2)  Effective January 1, 2018, Frontier adopted ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The standard requires certain benefit costs to be reclassified from operating expenses to non-operating expenses. This change in policy was applied using a retrospective approach and accordingly we have reclassified $0 and $3 million of net operating expenses as non-operating expense for the three and six months ended June 30, 2017, respectively. Additional pension settlement costs of $19 million and $62 million for the three and six months ended June 30, 2017, respectively, were reclassified from operating expense to non-operating expense.
(3)  As of June 30, 2018, there were 106 million of common shares outstanding and 0 shares of preferred stock.

 

1


Frontier Communications Corporation

Consolidated Financial Data

 

     For the quarter ended     For the six months ended  
     June 30, 2018 (1)      March 31, 2018 (1)      June 30, 2017     June 30, 2018 (1)      June 30, 2017  
($ in millions)                                  

Selected Statement of Operations Data

 

          

Revenue:

             

Data and internet services

   $ 973      $ 985      $ 974 (2)     $ 1,958      $ 1,967 (2)  

Voice services

     682        702        724       1,384        1,475  

Video services

     270        280        329       550        676  

Other

     140        135        79       275        147  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Customer revenue

     2,065        2,102        2,106 (2)       4,167        4,265 (2)  

Subsidy and other regulatory revenue

     97        97        198       194        395  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total revenue

   $ 2,162      $ 2,199      $ 2,304 (2)     $ 4,361      $ 4,660 (2)  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Other Financial Data

             

Revenue:

             

Consumer

   $ 1,095      $ 1,128      $ 1,124     $ 2,223      $ 2,288  

Commercial

     970        974        982 (2)       1,944        1,977 (2)  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Customer revenue

     2,065        2,102        2,106 (2)       4,167        4,265 (2)  

Subsidy and other regulatory revenue

     97        97        198       194        395  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total revenue

   $ 2,162      $ 2,199      $ 2,304 (2)     $ 4,361      $ 4,660 (2)  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) 

We adopted Accounting Standard Update 2014-09, “Revenue from Contracts with Customers (ASC 606)” on January 1, 2018, using the modified retrospective application. This method does not impact the prior periods, which continue to reflect the accounting treatment prior to the adoption of ASC 606. As a result, for items that were affected by our adoption of ASC 606, financial results of periods prior to January 1, 2018 are not comparable to the current period financial results. To provide comparability to our results, we provide a supplemental schedule (see Schedule D) which contains certain financial information on a pre adoption of ASC 606 basis.

(2)

Includes revenue from Frontier Secure Strategic Partnerships business, which was sold in May of 2017, of $15 million and $40 million for the three and six months ended June 30, 2017, respectively.

 

2


Frontier Communications Corporation

Consolidated Financial and Operating Data

 

     For the quarter ended     For the six months ended  
     June 30, 2018     March 31, 2018     June 30, 2017     June 30, 2018     June 30, 2017  

Customers (in thousands)

     4,667       4,765       5,058       4,667       5,058  

Consumer customer metrics

          

Customers (in thousands)

     4,237       4,324       4,585       4,237       4,585  

Net customer additions/(losses)

     (86     (74     (151     (160     (306

Average monthly consumer revenue per customer

   $ 85.28 (1)     $ 86.21 (1)     $ 80.38     $ 85.79 (1)     $ 80.59  

Customer monthly churn

     1.95     1.94     2.24     1.94     2.31

Commercial customer metrics

          

Customers (in thousands)

     430       441       473       430       473  

Broadband subscriber metrics (in thousands)

          

Broadband subscribers

     3,863       3,895       4,063       3,863       4,063  

Net subscriber additions/(losses)

     (32     (43     (100     (75     (208

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

          

Video subscribers

     902       934       1,007       902       1,007  

Net subscriber additions/(losses)

     (32     (28     (58     (60     (138

Video—DISH subscriber metrics (in thousands)

          

DISH subscribers

     219       227       254       219       254  

Net subscriber additions/(losses)

     (8     (8     (12     (16     (20

Employees

     21,718       22,081       23,924       21,718       23,924  

 

(1) 

We adopted Accounting Standard Update 2014-09, “Revenue from Contracts with Customers (ASC 606)” on January 1, 2018, using the modified retrospective application. This method does not impact the prior periods, which continue to reflect the accounting treatment prior to the adoption of ASC 606. As a result, for items that were affected by our adoption of ASC 606, financial results of periods prior to January 1, 2018 are not comparable to the current period financial results. To provide comparability to our results, we provide a supplemental schedule (see Schedule D) which contains certain financial information on a pre adoption of ASC 606 basis.

 

3


Frontier Communications Corporation

Condensed Consolidated Balance Sheet Data

 

($ in millions)

   June 30, 2018      December 31, 2017  

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 384      $ 362  

Accounts receivable, net

     751        819  

Other current assets

     293        142  
  

 

 

    

 

 

 

Total current assets

     1,428        1,323  

Property, plant and equipment, net

     14,282        14,377  

Other assets—principally goodwill

     9,020        9,184  
  

 

 

    

 

 

 

Total assets

   $ 24,730      $ 24,884  
  

 

 

    

 

 

 

LIABILITIES AND EQUITY

     

Current liabilities:

     

Long-term debt due within one year

   $ 1,228      $ 656  

Accounts payable and other current liabilities

     1,828        1,852  
  

 

 

    

 

 

 

Total current liabilities

     3,056        2,508  

Deferred income taxes and other liabilities

     3,064        3,132  

Long-term debt

     16,209        16,970  

Equity

     2,401        2,274  
  

 

 

    

 

 

 

Total liabilities and equity

   $ 24,730      $ 24,884  
  

 

 

    

 

 

 

 

4


Frontier Communications Corporation

Consolidated Cash Flow Data

 

     For the six months ended  

($ in millions)

   June 30, 2018     June 30, 2017  

Cash flows provided from (used by) operating activities:

    

Net income (loss)

   $ 2     $ (737

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

    

Depreciation and amortization

     991       1,131  

(Gain) loss on extinguishment of debt

     (33     90  

Pension settlement costs

     25       62  

Stock-based compensation expense

     9       6  

Amortization of deferred financing costs

     17       17  

Other adjustments

     (20     (4

Deferred income taxes

     (9     (254

Goodwill impairment

     —         670  

Change in accounts receivable

     37       151  

Change in accounts payable and other liabilities

     (72     (253

Change in other current assets

     (24     (50
  

 

 

   

 

 

 

Net cash provided from operating activities

     923       829  

Cash flows provided from (used by) investing activities:

    

Capital expenditures—Business operations

     (618     (578

Capital expenditures—Integration activities

     —         (5

Proceeds on sale of assets

     11       94  

Other

     (10     5  
  

 

 

   

 

 

 

Net cash used by investing activities

     (617     (484

Cash flows provided from (used by) financing activities:

    

Proceeds from long-term debt borrowings

     1,600       1,500  

Long-term debt payments

     (1,714     (1,576

Financing costs paid

     (39     (15

Premium paid to retire debt

     (17     (80

Dividends paid on common stock

     —         (172

Dividends paid on preferred stock

     (53     (107

Capital lease obligation payments

     (17     (25

Other

     (8     (5
  

 

 

   

 

 

 

Net cash provided used by financing activities

     (248     (480

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

     58       (135

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

     376       522  
  

 

 

   

 

 

 

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

   $ 434     $ 387  
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid (received) during the period for:

    

Interest

   $ 716     $ 797  

Income tax payments (refunds), net

   $ 5     $ (3

 

5


SCHEDULE A

Frontier Communications Corporation

Reconciliation of Non-GAAP Financial Measures

 

     For the quarter ended     For the six months ended  

($ in millions)

   June 30, 2018     March 31, 2018     June 30, 2017     June 30, 2018     June 30, 2017  

EBITDA

          

Net income (loss)

   $ (18   $ 20     $ (662   $ 2     $ (737

Add back (subtract):

          

Income tax expense (benefit)

     (20     13       (210     (7     (249

Interest expense

     385       374       388       759       776  

Investment and other (income) loss, net

     (5     (8     —         (13     —    

Pension settlement costs

     25       —         19       25       62  

(Gain) Loss on extinguishment of debt

     —         (33     90       (33     90  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     367       366       (375     733       (58

Depreciation and amortization

     486       505       552       991       1,131  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     853       871       177       1,724       1,073  

Add back:

          

Acquisition and integration costs

     —         —         12       —         14  

Pension/OPEB expense

     23       22       25       45       47  

Restructuring costs and other charges

     2       4       29       6       41  

Stock-based compensation expense

     5       4       3       9       6  

Work stoppage costs

     1       7       —         8       —    

Goodwill impairment

     —         —         670       —         670  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 884     $ 908     $ 916     $ 1,792     $ 1,851  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

     39.5     39.6     7.7     39.5     23.0

Adjusted EBITDA margin

     40.9     41.3     39.8     41.1     39.7

Free Cash Flow

          

Net cash provided from operating activities

   $ 672     $ 251     $ 529     $ 923     $ 829  

Add back (subtract):

          

Capital expenditures—Business operations

     (321     (297     (263     (618     (578

Capital expenditures—Integration

     —         —         (4     —         (5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating free cash flow

   $ 351     $ (46   $ 262     $ 305     $ 246  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

6


SCHEDULE B

Frontier Communications Corporation

Reconciliation of Non-GAAP Financial Measures

 

    For the quarter ended  
    June 30, 2018     March 31, 2018     June 30, 2017  

($ in millions, except per share amounts)

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

Net loss attributable to Frontier common shareholders

  $ (72   $ (0.92   $ (33   $ (0.44   $ (715   $ (9.20
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Acquisition and integration costs

    —           —           12    

Restructuring costs and other charges

    2         4         29    

Pension settlement costs

    25         —           19    

(Gain) Loss on extinguishment of debt

    —           (33       90    

Goodwill impairment

    —           —           670    

Work stoppage costs

    1         7         —      

Certain other tax items (1)

    (12       4         4    

Income tax effect on above items:

           

Acquisition and integration costs

    —           —           (4  

Restructuring costs and other charges

    —           (1       (11  

Pension settlement costs

    (6       —           (8  

(Gain) Loss on extinguishment of debt

    —           9         (33  

Goodwill impairment

    —           —           (138  

Work stoppage costs

    —           (2       —      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    10       0.12       (12     (0.15     630       8.10  

Adjusted net loss attributable to Frontier common shareholders(2)

  $ (62   $ (0.80   $ (45   $ (0.58   $ (85   $ (1.10
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    For the six months ended  
    June 30, 2018                 June 30, 2017  
    Net Income (Loss)     Basic Earnings
(Loss) Per Share
                Net Income
(Loss)
    Basic Earnings
(Loss) Per Share
 

Net loss attributable to Frontier common shareholders

  $ (105   $ (1.35       $ (844   $ (10.88
 

 

 

   

 

 

       

 

 

   

 

 

 

Acquisition and integration costs

    —               14    

Restructuring costs and other charges

    6             41    

Pension settlement costs

    25             62    

(Gain) Loss on extinguishment of debt

    (33           90    

Goodwill impairment

    —               670    

Work stoppage costs

    8             —      

Certain other tax items (1)

    (8           5    

Income tax effect on above items:

           

Acquisition and integration costs

    —               (5  

Restructuring costs and other charges

    (1           (15  

Pension settlement costs

    (6           (23  

(Gain) Loss on extinguishment of debt

    9             (33  

Goodwill impairment

    —               (138  

Work stoppage costs

    (2           —      
 

 

 

   

 

 

       

 

 

   

 

 

 
    (2     (0.03         668       8.60  

Adjusted net loss attributable to Frontier common shareholders(2)

  $ (107   $ (1.38       $ (176   $ (2.28
 

 

 

   

 

 

       

 

 

   

 

 

 

 

(1) Includes impact arising from federal research and development credits, changes in certain deferred tax balances, state tax law changes, state filing method change, and the net impact of uncertain tax positions.
(2)  Adjusted net income (loss) attributable to Frontier common shareholders may not sum due to rounding.

 

7


SCHEDULE C

Frontier Communications Corporation

Reconciliation of Non-GAAP Financial Measures

 

     For the quarter ended     For the six months ended  

($ in millions)

   June 30, 2018      March 31, 2018      June 30, 2017     June 30, 2018      June 30, 2017  

Adjusted Operating Expenses

             

Total operating expenses

   $ 1,795      $ 1,833      $ 2,679 (1)     $ 3,628      $ 4,718 (1)  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Subtract:

             

Depreciation and amortization

     486        505        552       991        1,131  

Goodwill impairment

     —          —          670       —          670  

Acquisition and integration costs

     —          —          12       —          14  

Pension/OPEB expense

     23        22        25 (1)       45        47 (1)  

Restructuring costs and other charges

     2        4        29       6        41  

Stock-based compensation expense

     5        4        3       9        6  

Work stoppage costs

     1        7        —         8        —    
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Adjusted operating expenses

   $ 1,278      $ 1,291      $ 1,388     $ 2,569      $ 2,809  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) 

Effective January 1, 2018, Frontier adopted ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The standard requires certain benefit costs to be reclassified from operating expenses to non-operating expenses. This change in policy was applied using a retrospective approach and accordingly we have reclassified $0 and $3 million of net operating expenses as non-operating expense for the three and six months ended June 30, 2017, respectively. Additional pension settlement costs of $19 million and $62 million for the three and six months ended June 30, 2017, respectively, were reclassified from operating expense to non-operating expense.

 

8


SCHEDULE D

Comparability Disclaimer:

We adopted Accounting Standard Update 2014-09, “Revenue from Contracts with Customers (ASC 606)” on January 1, 2018, using the modified retrospective application. This method does not impact the prior periods, which continue to reflect the accounting treatment prior to the adoption of ASC 606. As a result, for items that were affected by our adoption of ASC 606, financial results of periods prior to January 1, 2018 are not comparable to the current period financial results. To provide comparability to our results, we provide the following supplemental schedule which contains certain financial information on a pre-adoption of ASC 606 basis.

Frontier Communications Corporation

Consolidated Financial Data

 

     As reported
For the three months ended
    Amounts Excluding Adoption of ASC 606
For the three months ended
 

($ in millions)

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

Selected Statement of Operations Data

        

Revenue:

        

Data and Internet services

   $ 973     $ 985     $ 948     $ 942  

Voice services

     682       702       648       670  

Video services

     270       280       297       309  

Other

     140       135       86       85  
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenue from contracts with customers

     2,065       2,102       1,979       2,006  

Subsidy and other regulatory revenue

     97       97       181       187  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

   $ 2,162     $ 2,199     $ 2,160     $ 2,193  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other Revenue Data

        

Revenue:

        

Consumer

   $ 1,095     $ 1,128     $ 1,068     $ 1,089  

Commercial

     970       974       911       917  
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenue from contracts

        

Revenue from contracts with customers

     2,065       2,102       1,979       2,006  

Subsidy and other regulatory revenue

     97       97       181       187  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

   $ 2,162     $ 2,199     $ 2,160     $ 2,193  
  

 

 

   

 

 

   

 

 

   

 

 

 
     As reported
For the three months ended
    Amounts Excluding Adoption of ASC 606
For the three months ended
 

($ in millions)

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

Statement of Operations Data

        

Revenue

   $ 2,162     $ 2,199     $ 2,160     $ 2,193  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Network access expenses

     369       372       366       369  

Network related expenses

     478       483       478       483  

Selling, general and administrative expenses

     460       469       469       473  

Depreciation and amortization

     486       505       486       505  

Restructuring costs and other charges

     2       4       2       4  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     1,795       1,833       1,801       1,834  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     367       366       359       359  

Investment and other income (loss), net

     5       8       5       8  

Pension settlement costs

     25       —         25       —    

Gain on extinguishment of debt

     —         33       —         33  

Interest expense

     385       374       385       374  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (38     33       (46     26  

Income tax expense (benefit)

     (20     13       (22     12  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (loss)

     (18     20       (24     14  

Less: Dividends on preferred stock

     54       53       54       53  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Frontier

        

common shareholders

   $ (72   $ (33   $ (78   $ (39
  

 

 

   

 

 

   

 

 

   

 

 

 

Other financial data:

        

Consumer ARPC

   $ 85.28     $ 86.21     $ 83.17     $ 83.26  

 

9

EX-99.2

Slide 1

Investor Update Second Quarter 2018 | July 31, 2018 Exhibit 99.2


Slide 2

2 Agenda 1 Strategic and Operational Review Daniel McCarthy President & Chief Executive Officer Financial Review Perley McBride Executive Vice President & Chief Financial Officer


Slide 3

Business Update Total Revenue Consumer revenue of $1,095 million Consumer customer churn of 1.95%, stable despite seasonality Consumer ARPC of $85.28; ($83.17 excluding adoption of ASC 606, stable sequentially) Commercial revenue of $970 million, nearly stable sequentially Commercial customers of 430,000 $2.16B $884M $350M Adjusted EBITDA* Cost synergies attained Program completed successfully * Adjusted EBITDA is a non-GAAP measure - see Appendix for its calculation $500M EBITDA improvement benefit by YE 2020 Accelerating next phase of transformation initiatives $18M Net loss


Slide 4

Broadband Unit Trends Net Adds (000s) Steady improvement in Broadband net additions Consumer net additions impacted by summer seasonality Market positioning remains solid Churn initiatives continue to yield results Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Churn Consumer Fiber Broadband Consumer Copper Broadband Consumer Customer Churn 2.37% Total Broadband (Consumer & Commercial) Commercial Broadband


Slide 5

Accelerating the Pace of Transformation Improve subscriber trends Enhance channel capabilities Recapture FTTH market share EBITDA Benefit Consumer Commercial Examples of Opportunities Accelerate penetration initiatives Expand channels and reach Accelerate next-gen product sales Continue reducing trouble ticket volumes Reduce network operating costs Increase automation enabling faster resolution of issues Improve 1st-call resolution Continue improving customer satisfaction Expand diagnostic capabilities Increase standardization Reduce reliance on external call centers/more volume in-house Revenue Enhancements Initiatives to Drive $500 Million EBITDA Opportunity by Year End 2020 $150-200M $150-200M $125-175M Operational Enhancements Care/ Technical Support


Slide 6

2 Agenda 1 Strategic and Operational Review Daniel McCarthy President & Chief Executive Officer Financial Review Perley McBride Executive Vice President & Chief Financial Officer


Slide 7

Key Financial Highlights  ($ in Millions) Q1 2018 Q2 2018 Total Revenue $2,199 $2,162 Customer $2,102 $2,065 Regulatory $97 $97 Net Income (Loss) $20 ($18) Net Cash provided from Operating Activities $251 $672 Adjusted Operating Expenses* $1,291 $1,278 Adjusted EBITDA* $908 $884 Adjusted EBITDA Margin* 41.3% 40.9% CapEx (excl. Integration) $297 $321 LTM Operating Free Cash Flow* $632 $721 * Adjusted Operating Expenses, Adjusted EBITDA, Adjusted EBITDA Margin and Operating Free Cash Flow are non-GAAP measures - see Appendix for their calculations Revenue decline driven by voice and video Pension settlement accounting contributed $19 million of after-tax net loss Adjusted EBITDA margin maintained in excess of 40% target


Slide 8

Product & Customer Revenue ASC 605 ASC 606  ($ in Millions) Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q1 2018 Q2 2018 Data & Internet Services* $968 $959 $956 $939 $942 $948 $985 $973 Voice Services 751 724 702 687 670 648 702 682 Video Services 347 329 318 310 309 297 280 270 Other 68 79 84 91 85 86 135 140 Total Customer Revenue* $2,134 $2,091 $2,060 $2,027 $2,006 $1,979 $2,102 $2,065 Consumer $1,164 $1,124 $1,102 $1,086 $1,089 $1,068 $1,128 $1,095 Commercial* 970 967 958 941 917 911 974 970 Total Customer Revenue* $2,134 $2,091 $2,060 $2,027 $2,006 $1,979 $2,102 $2,065 Regulatory Revenue 197 198 191 190 187 181 97 97 Total Revenue* $2,331 $2,289 $2,251 $2,217 $2,193 $2,160 $2,199 $2,162 Data & Internet services revenue increased (under ASC 605) Voice and video service revenue declines reflect industry trends Continued emphasis on Commercial improvement *Excludes Frontier Secure Strategic Partnerships revenue disposed in Q2 2017.


Slide 9

Consumer ARPC ***Footnote Customers Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q1 2018 Q2 2018 4.7M 4.6M 4.5M 4.4M 4.3M 4.2M 4.3M 4.2M ASC 605 ASC606 Churn ARPC Consumer ARPC stable (under ASC 605) Churn stable sequentially despite seasonality 1.94% 1.95% 2.37%


Slide 10

Capital Spending Update $618M SPEND H1’18 Growth initiatives comprise ~80% of Q2 2018 capital spending PROJECTS UNDERWAY CapEx Building FTTH to > 18K rural HHs with state funding sources CAF II Enabled broadband to ~373K locations in CAF II-eligible areas Fixed wireless broadband Planning for both CAF and non-CAF locations Testing 10 Gbps XGS-PON and next-generation ONTs that reduce FTTH deployment cost by ~70% Automation initiatives based on PEGA platform to enhance customer care, reduce costs, and enable efficiency


Slide 11

Manageable Near-term Debt Maturities 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031+ Unsecured Debt Secured Debt Undrawn $850M Revolving Credit Facility ($ in Millions) Maturity profile is as of June 30, 2018 and pro forma for the $240M TLB add-on and CoBank refinancings which closed on July 3, 2018. Q2:Repurchased $48M unsecured notes due October 2018 July:Issued $240M term loan B to fully refinance CoBank facility due 2019 and partially refinance CoBank facility due 2021 $4,514 $2,153 $1,603 $1,364 $500 $547 $868 $1,604 $437 $595 $508 $2,706 $14 $50 $2,380


Slide 12

Operating Free Cash Flow * Operating Free Cash Flow is a non-GAAP measure - see Appendix for its calculation Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Trailing 12 Months Operating Free Cash Flow ($ in Millions) Operating free cash flow now fully available for debt reduction following conversion of Mandatory Preferred Stock


Slide 13

Reiterating Guidance * Adjusted EBITDA and Operating free cash flow are non-GAAP measures - see Appendix for their calculations. ~$3.6B Adjusted EBITDA* Operating Free Cash Flow* Cash Interest Expense Cash Pension/ OPEB Cash Taxes Capital Expenditures $1.0- $1.15B <$25M ~$150M ~$800M ~$1.5B Guidance for 2018 remains unchanged


Slide 14

Appendix


Slide 15

Safe Harbor Statement Forward-looking Language This earnings release contains “forward-looking statements,” related to future events. Forward-looking statements address Frontier’s expected future business, financial performance, and financial condition, and contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “may,” “will,” “would,” or “target.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For Frontier, particular uncertainties that could cause actual results to be materially different than those expressed in such forward-looking statements include: 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; declines in revenue from Frontier’s voice services, switched and non-switched access and video and data services that it cannot stabilize or offset with increases in revenue from other products and services; Frontier’s ability to successfully implement strategic initiatives, including opportunities to enhance revenue and realize operational improvements; risks related to disruptions in Frontier’s networks, infrastructure and information technology that may result in customer loss and/or incurrence of additional expenses; Frontier’s ability to retain or attract new customers and to maintain relationships with customers, employees or suppliers; Frontier’s ability to realize anticipated benefits from recent acquisitions; Frontier’s ability to successfully introduce new product offerings; Frontier’s ability to dispose of certain assets or asset groups on terms that are attractive to Frontier, or at all; the effects of governmental legislation and regulation on Frontier’s business; the impact of regulatory, investigative and legal proceedings and legal compliance risks; government infrastructure projects that impact capital expenditures; continued reductions in switched access revenue as a result of regulation, competition or technology substitutions; the effects of changes in the availability of federal and state universal service funding or other subsidies to Frontier and its competitors; Frontier’s ability to meet its remaining CAF II funding obligations on a timely basis and the risk of penalties or obligations to return certain CAF II funds; Frontier’s ability to effectively manage service quality and meet mandated service quality metrics; the effects of changes in accounting policies or practices, including potential future impairment charges with respect to intangible assets; the effects of 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 its pension plans; Frontier’s ability to effectively manage its operations, operating expenses, capital expenditures, debt service requirements and cash paid for income taxes and liquidity; adverse changes in the credit markets, which could impact the availability and cost of financing; adverse changes in the ratings given to Frontier’s debt securities by nationally accredited ratings organizations; covenants in Frontier’s indentures and credit agreements that may limit Frontier’s operational and financial flexibility as well as its ability to access the capital markets in the future; the effects of state regulatory 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 changes in both general and local economic conditions in the markets that Frontier serves; Frontier’s ability to hire or retain key personnel; the effects of severe weather events or other natural or man-made disasters, which may increase operating and capital expenses or adversely impact customer revenue; 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 16

Non-GAAP Financial Measures Frontier uses certain non-GAAP financial measures in evaluating its performance, including EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, operating free cash flow, and adjusted operating expenses, each of which is described below. Management uses these non-GAAP financial measures internally to (i) assist in analyzing Frontier's underlying financial performance from period to period, (ii) analyze and evaluate strategic and operational decisions, (iii) establish criteria for compensation decisions, and (iv) assist in the understanding of Frontier's ability to generate cash flow and, as a result, to plan for future capital and operational decisions. Management believes that the presentation of these non-GAAP financial measures provides useful information to investors regarding Frontier’s financial condition and results of operations because these measures, when used in conjunction with related GAAP financial measures (i) provide a more comprehensive view of Frontier’s core operations and ability to generate cash flow, (ii) provide investors with the financial analytical framework upon which management bases financial, operational, compensation, and planning decisions and (iii) present measurements that investors and rating agencies have indicated to management are useful to them in assessing Frontier and its results of operations. A reconciliation of these measures to the most comparable financial measures calculated and presented in accordance with GAAP is included in the accompanying tables. These non-GAAP financial measures are not measures of financial performance or liquidity under GAAP, nor are they alternatives to GAAP measures and they may not be comparable to similarly titled measures of other companies. EBITDA is defined as net income (loss) less income tax expense (benefit), interest expense, investment and other income, pension settlement costs, gains/losses on extinguishment of debt, and depreciation and amortization. EBITDA margin is calculated by dividing EBITDA by total revenue. Adjusted EBITDA is defined as EBITDA, as described above, adjusted to exclude acquisition and integration costs, certain pension/OPEB expenses, restructuring costs and other charges, stock-based compensation expense, goodwill impairment charges, and certain other non-recurring items including work stoppage costs. Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by total revenue. Management uses EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin to assist it in comparing performance from period to period and as measures of operational performance. Management believes that these non-GAAP measures provide useful information for investors in evaluating Frontier’s operational performance from period to period because they exclude depreciation and amortization expenses related to investments made in prior periods and are determined without regard to capital structure or investment activities. By excluding capital expenditures, debt repayments and dividends, among other factors, these non-GAAP financial measures have certain shortcomings. Management compensates for these shortcomings by utilizing these non-GAAP financial measures in conjunction with the comparable GAAP financial measures. Adjusted net income (loss) attributable to Frontier common shareholders is defined as net income (loss) attributable to Frontier common shareholders and excludes acquisition and integration costs, restructuring costs and other charges, pension settlement costs, goodwill impairment charges, certain income tax items and the income tax effect of these items, and certain non-recurring items including work stoppage costs. Adjusting for these items allows investors to better understand and analyze Frontier’s financial performance over the periods presented. Management defines operating free cash flow, a non-GAAP measure, as net cash provided from operating activities less capital expenditures. Management uses operating free cash flow to assist it in comparing liquidity from period to period and to obtain a more comprehensive view of Frontier’s core operations and ability to generate cash flow. Management believes that this non-GAAP measure is useful to investors in evaluating cash available to service debt and pay dividends. This non-GAAP financial measure has certain shortcomings; it does not represent the residual cash flow available for discretionary expenditures, as items such as debt repayments and stock dividends are not deducted in determining such measure. Management compensates for these shortcomings by utilizing this non-GAAP financial measure in conjunction with the comparable GAAP financial measure. Adjusted operating expenses is defined as operating expenses adjusted to exclude depreciation and amortization, acquisition and integration costs, restructuring costs and other charges, goodwill impairment charges, certain pension/OPEB expenses, stock-based compensation expense, and certain other non-recurring items including work stoppage costs. 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 17

Non-GAAP Financial Measures For the Quarter Ended  ($ in Millions) June 30, 2018 March 31, 2018 June 30, 2017 Net Income/(Loss) (18) $20 ($662) Add back (Subtract): Income Tax Expense/(Benefit) (20) 13 (210) Interest Expense 385 374 388 Investment and Other (Income)/Loss, Net (5) (8) - Pension Settlement Costs 25 - 19 (Gain)/Loss on Extinguishment of Debt and Debt Exchanges - (33) 90 Operating Income/(Loss) 367 366 (375) Depreciation and Amortization 486 505 552 EBITDA $853 $871 $177 Add back: Acquisition and Integration Costs - - 12 Pension/OPEB Expense 23 22 25 Restructuring Costs and Other Charges 2 4 29 Stock-based Compensation Expense 5 4 3 Work Stoppage Costs 1 7 - Goodwill Impairment - - 670 Adjusted EBITDA $884 $908 $916 EBITDA Margin 39.5% 39.6% 7.7% Adjusted EBITDA Margin 40.9% 41.3% 39.8%


Slide 18

Non-GAAP Financial Measures For the Quarter Ended  ($ in Millions) June 30, 2018 March 31, 2018 June 30, 2017 Total Operating Expenses $1,795 $1,833 $2,6791 Subtract: Depreciation and Amortization 486 505 552 Goodwill Impairment - - 670 Acquisition and Integration Costs - - 12 Pension/OPEB Expense 23 22 251 Restructuring Costs and Other Charges 2 4 29 Stock-based Compensation Expense 5 4 3 Work Stoppage Costs 1 7 - Adjusted Operating Expenses $1,278 $1,291 $1,388 (1) Effective January 1, 2018, Frontier adopted ASU 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." The standard requires certain benefit costs to be reclassified from operating expenses to non-operating expenses. This change in policy was applied using a retrospective approach. Pension settlement costs of $19 million for the three months ended June 30, 2017 were reclassified from operating expense to non-operating expense.


Slide 19

Non-GAAP Financial Measures For the Quarter Ended  ($ in Millions) Mar 31, 2017 Jun 30, 2017 Sep 30, 2017 Dec 31, 2017 Mar 31, 2018 Jun 30, 2018 Net Cash Provided from Operating Activities $300 $529 $356 $665 $251 $672 Add Back (Subtract): Capital Expenditures – Business Operations (315) (263) (268) (308) (297) (321) Capital Expenditures – Integration (1) (4) (14) (15) - - Operating Free Cash Flow ($16) $262 $74 $342 ($46) $351 Trailing Twelve Months Ended  ($ in Millions) Mar 31, 2017 Jun 30, 2017 Sep 30, 2017 Dec 31, 2017 Mar 31, 2018 Jun 30, 2018 Net Cash Provided from Operating Activities $2,028 $1,864 $1,899 $1,850 $1,801 $1,944 Add Back (Subtract): Capital Expenditures – Business Operations (1,367) (1,280) (1,145) (1,154) (1,136) (1,194) Capital Expenditures – Integration (91) (59) (62) (34) (33) (29) Operating Free Cash Flow $570 $525 $692 $662 $632 $721


Slide 20

Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 CTF & Legacy Broadband and Video Unit Trends CTF Net Adds (000s) CTF FiOS® Broadband Video (excl. Dish®) CTF Copper Broadband Improved Legacy Broadband trends Stable CTF Copper Broadband net adds Slight decline in CTF FiOS® Broadband net adds reflecting seasonality Legacy Broadband Legacy Net Adds (000s)