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): November 6, 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 November 6, 2018, Frontier Communications Corporation (“Frontier”) issued a press release announcing its third 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 November 6, 2018, to discuss its financial results for the third 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 Third 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: November 6, 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 Third Quarter Results

Third Quarter

 

   

Total revenue of $2.13 billion

 

   

Net loss of $426 million principally driven by goodwill impairment

 

   

Adjusted EBITDA1 of $878 million, reflecting continued strong expense management

 

   

Substantial expansion of transformation initiatives occurred in the third quarter, and will continue to accelerate through 2019

Norwalk, Conn., November 6, 2018 – Frontier Communications Corporation (NASDAQ:FTR) today reported financial results for the third quarter ended September 30, 2018.

“I am pleased with our progress and trends as we enter the fourth quarter,” said Dan McCarthy, President and CEO. “Achievement of third quarter Adjusted EBITDA of $878 million illustrates our ongoing discipline in managing costs as we were successful in largely offsetting the impact of revenue declines and incurred expenses related to the launch of our new branding. We have made continued progress in our Consumer business which we expect should manifest itself in an improved revenue trend in the fourth quarter.”

“We anticipate that our transformation program will begin to yield benefits over the course of 2019,” Dan McCarthy continued. “We are currently engaged in a broad range of initiatives that target improvements in customer experience, churn, and operational efficiency. We are also introducing new products, such as our new SD-WAN offering in our Commercial business, and enhancing existing products, such as expanding availability of Gigabit broadband service across our fiber footprint. We remain confident in achieving the $500 million EBITDA benefit target of our transformation program by year-end 2020. We fully expect that this will improve our cash flow trends, strengthen our balance sheet, and contribute to 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 third quarter of 2018 was $2.13 billion. Within consolidated revenue, Consumer revenue was $1.07 billion, Commercial revenue was $962 million, and subsidy and other regulatory revenue was $95 million.

Net loss for the third quarter of 2018 was $426 million, representing net loss per common share of $4.11. Net loss included a goodwill impairment of $400 million ($354 million net of tax) and a tax valuation allowance related to certain state NOLs of $44 million. Third quarter adjusted EBITDA was $878 million, for an adjusted EBITDA margin2 of 41.3%.

Net cash provided from operating activities for the third quarter of 2018 was $286 million and operating free cash flow3 was ($43) million. Over the four-quarter period ending September 30, 2018, net cash provided from operating activities was $1,874 million and operating free cash flow was $604 million.

Consumer Business Highlights

 

   

Revenue of $1.07 billion.

 

   

Customer churn of 2.03% (1.91% for Legacy and 2.22% for CTF operations) reflects the impact of summer seasonality, and relative to results in the third quarter of 2017 illustrates stability with Legacy’s result of 1.92% and progress against CTF’s 2.33%.

 

   

Average Revenue Per Customer (ARPC) of $84.92; excluding adoption of ASC 606, ARPC was $83.20, stable sequentially.

Commercial Business Highlights

 

   

Revenue of $962 million.

 

   

Total commercial customers of 422,000 compared to 430,000 during the second quarter of 2018.

 

   

Commercial wholesale revenue was roughly stable sequentially, and Commercial SME revenue declined 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 Schedule A for a reconciliation to net cash provided from operating activities.


Capital Structure and Capital Allocation

 

   

As of September 30, 2018, Frontier’s leverage ratio was 4.78:1.

 

   

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

 

  o

Frontier purchased $12 million principal amount of its 2018 senior unsecured notes in the open market during the third quarter of 2018.

 

  o

Following the close of the quarter, Frontier retired the remaining October 1, 2018 maturity of $431 million.

 

   

Frontier’s 11.125% Mandatory Convertible Preferred Stock converted into shares of Frontier common stock on June 29, 2018. The final dividend payment was made on July 2nd.

 

   

In November 2018 we entered into an agreement to sell 95 wireless towers for approximately $80 million. The transaction will be immaterial to revenue, earnings, and Adjusted EBITDA, and is subject to customary diligence closing conditions.

Guidance

We are updating 2018 Guidance as follows:

 

   

Adjusted EBITDA – Approximately $3.55 billion

 

   

Capital expenditures – $1.15 billion to $1.20 billion

 

   

Cash taxes – Less than $10 million

 

   

Cash pension/OPEB – Approximately $140 million

 

   

Cash interest expense – Approximately $1.5 billion for the full year; fourth quarter cash interest payments of approximately $230 million

 

   

Operating free cash flow – Approximately $625 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 third 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, November 6, 2018, through 7:30 P.M. Eastern Time on Sunday, November 11, 2018 at 888-203-1112 or 719-457-0820. Use the passcode 5159524 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 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, including the risk that such changes may benefit our competitors more than us, as wells potential future decreases in the value of our deferred tax assets; 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 requirements 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

VP, Investor Relations

(203) 614-5044

luke.szymczak@ftr.com

  

Brigid Smith

AVP, Corporate Communications

(203) 614-5042

brigid.smith@ftr.com


Frontier Communications Corporation

Consolidated Financial Data

 

     For the quarter ended     For the nine months ended  

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

   September 30, 2018 (1)     June 30, 2018 (1)     September 30, 2017     September 30, 2018 (1)     September 30, 2017  

Statement of Operations Data

          

Revenue

   $ 2,126     $ 2,162     $ 2,251     $ 6,487     $ 6,911  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

          

Network access expenses

     353       369       390       1,094       1,209  

Network related expenses

     476       478       498 (2)       1,437       1,468 (2)  

Selling, general and administrative expenses

     445       460       487 (2)       1,374       1,560 (2)  

Depreciation and amortization

     471       486       539       1,462       1,670  

Goodwill impairment

     400       —         —         400       670  

Acquisition and integration costs

     —         —         1       —         15  

Restructuring costs and other charges

     14       2       14       20       55  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     2,159       1,795       1,929 (2)       5,787       6,647 (2)  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (33     367       322 (2)        700       264 (2)  

Investment and other income (loss), net

     3       5       4 (2)       16       4 (2)  

Pension settlement costs

     9       25       15       34       77  

Gain (Loss) on extinguishment of debt

     (2     —         1       31       (89

Interest expense

     389       385       381       1,148       1,157  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (430     (38     (69     (435     (1,055

Income tax benefit

     (4     (20     (31     (11     (280
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (426     (18     (38     (424     (775

Less: Dividends on preferred stock

     —         54       54       107       161  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Frontier common shareholders

   $ (426)     $ (72)     $ (92)     $ (531)     $ (936)  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding - basic (3)

     103,665       78,026       77,797       87,138       77,714  

Weighted average shares outstanding - diluted (3)

     103,665       78,026       77,797       87,138       77,875  

Basic net loss per common share

   $ (4.11   $ (0.92   $ (1.19   $ (6.09   $ (12.06
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net loss per common share

   $ (4.11   $ (0.92   $ (1.19   $ (6.09   $ (12.07
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Financial Data:

          

Capital expenditures - Business operations

   $ 329     $ 321     $ 268     $ 947     $ 846  

Capital expenditures - Integration activities

   $ —       $ —       $ 14     $ —       $ 19  

Dividends declared - Common stock

   $ —       $ —       $ 47     $ —       $ 219  

Dividends declared - Preferred stock

   $ —       $ 54     $ 54     $ 107     $ 161  

 

(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 $(2) and $1 million of net operating expenses as non-operating expense for the three and nine months ended September 30, 2017, respectively. Additional pension settlement costs of $15 million and $77 million for the three and nine months ended September 30, 2017, respectively, were reclassified from operating expense to non-operating expense.

(3) 

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


Frontier Communications Corporation

Consolidated Financial Data

 

     For the quarter ended      For the nine months ended  
     September 30, 2018 (1)      June 30, 2018 (1)      September 30, 2017      September 30, 2018 (1)      September 30, 2017  
($ in millions)                                   

Selected Statement of Operations Data

              

Revenue:

              

Data and internet services

   $ 961      $ 973      $ 956      $ 2,919      $ 2,923 (2)  

Voice services

     669        682        702        2,053        2,177  

Video services

     260        270        318        810        994  

Other

     141        140        84        416        231  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Customer revenue

     2,031        2,065        2,060        6,198        6,325 (2)  

Subsidy and other regulatory revenue

     95        97        191        289        586  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 2,126      $ 2,162      $ 2,251      $ 6,487      $ 6,911 (2)  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other Financial Data

              

Revenue:

              

Consumer

   $ 1,069      $ 1,095      $ 1,102      $ 3,292      $ 3,390  

Commercial

     962        970        958        2,906        2,935 (2)  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Customer revenue

     2,031        2,065        2,060        6,198        6,325 (2)  

Subsidy and other regulatory revenue

     95        97        191        289        586  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 2,126      $ 2,162      $ 2,251      $ 6,487      $ 6,911 (2)  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

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

(2)

Includes revenue from Frontier Secure Strategic Partnerships business, which was sold in May of 2017, $40 million for the nine months ended September 30, 2017.


Frontier Communications Corporation

Consolidated Financial and Operating Data

 

     For the quarter ended     For the nine months ended  
     September 30, 2018     June 30, 2018     September 30, 2017     September 30, 2018     September 30, 2017  

Customers (in thousands)

     4,574       4,667       4,949       4,574       4,949  

Consumer customer metrics

          

Customers (in thousands)

     4,152       4,237       4,486       4,152       4,486  

Net customer additions/(losses)

     (86     (86     (99     (245     (405

Average monthly consumer revenue per customer

   $
 
 
84.92
 
(1)  
  $
 
 
85.28
 
(1)  
  $ 80.91     $
 
 
85.54
 
(1)  
  $ 80.73  

Customer monthly churn

     2.03     1.95     2.08     2.03     2.23

Commercial customer metrics

          

Customers (in thousands)

     422       430       463       422       463  

Broadband subscriber metrics (in thousands)

          

Broadband subscribers

     3,802       3,865       4,000       3,802       4,000  

Net subscriber additions/(losses)

     (61     (32     (63     (136     (271

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

          

Video subscribers

     873       902       981       873       981  

Net subscriber additions/(losses)

     (29     (32     (26     (88     (164

Video - DISH subscriber metrics (in thousands)

          

DISH subscribers

     211       219       244       211       244  

Net subscriber additions/(losses)

     (8     (8     (10     (24     (30

Employees

     21,375       21,718       23,181       21,375       23,181  

 

(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.


Frontier Communications Corporation

Condensed Consolidated Balance Sheet Data

 

($ in millions)    September 30, 2018      December 31, 2017  

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 238      $ 362  

Accounts receivable, net

     744        819  

Other current assets

     300        142  
  

 

 

    

 

 

 

Total current assets

     1,282        1,323  

Property, plant and equipment, net

     14,268        14,377  

Other assets - principally goodwill

     8,483        9,184  
  

 

 

    

 

 

 

Total assets

   $ 24,033      $ 24,884  
  

 

 

    

 

 

 

LIABILITIES AND EQUITY

     

Current liabilities:

     

Long-term debt due within one year

   $ 1,005      $ 656  

Accounts payable and other current liabilities

     1,612        1,852  
  

 

 

    

 

 

 

Total current liabilities

     2,617        2,508  

Deferred income taxes and other liabilities

     3,071        3,132  

Long-term debt

     16,402        16,970  

Equity

     1,943        2,274  
  

 

 

    

 

 

 

Total liabilities and equity

   $ 24,033      $ 24,884  
  

 

 

    

 

 

 


Frontier Communications Corporation

Consolidated Cash Flow Data

 

     For the nine months ended  
($ in millions)    September 30, 2018     September 30, 2017  

Cash flows provided from (used by) operating activities:

    

Net loss

   $ (424   $ (775

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

    

Depreciation and amortization

     1,462       1,670  

(Gain) loss on extinguishment of debt

     (31     89  

Pension settlement costs

     34       77  

Stock-based compensation expense

     14       10  

Amortization of deferred financing costs

     26       26  

Other adjustments

     (24     (11

Deferred income taxes

     (12     (286

Goodwill impairment

     400       670  

Change in accounts receivable

     43       161  

Change in accounts payable and other liabilities

     (239     (449

Change in prepaid expenses, income taxes, and other assets

     (40     3  
  

 

 

   

 

 

 

Net cash provided from operating activities

     1,209       1,185  

Cash flows provided from (used by) investing activities:

    

Capital expenditures - Business operations

     (947     (846

Capital expenditures - Integration activities

     —         (19

Proceeds on sale of assets

     11       109  

Other

     4       6  
  

 

 

   

 

 

 

Net cash used by investing activities

     (932     (750

Cash flows provided from (used by) financing activities:

    

Proceeds from long-term debt borrowings

     1,840       1,500  

Long-term debt payments

     (1,997     (1,662

Financing costs paid

     (43     (15

Premium paid to retire debt

     (17     (80

Dividends paid on common stock

     —         (219

Dividends paid on preferred stock

     (107     (161

Capital lease obligation payments

     (30     (30

Other

     (11     (4
  

 

 

   

 

 

 

Net cash used by financing activities

     (365     (671

Decrease in cash, cash equivalents, and restricted cash

     (88     (236

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

     376       522  
  

 

 

   

 

 

 

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

   $ 288     $ 286  
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid (received) during the period for:

    

Interest

   $ 1,266     $ 1,373  

Income tax payments (refunds), net

   $ 5     $ (4


SCHEDULE A

Frontier Communications Corporation

Reconciliation of Non-GAAP Financial Measures

 

     For the quarter ended     For the nine months ended  
($ in millions)    September 30, 2018     June 30, 2018     September 30, 2017     September 30, 2018     September 30, 2017  

EBITDA

          

Net loss

   $ (426   $ (18   $ (38   $ (424   $ (775

Add back (subtract):

          

Income tax benefit

     (4     (20     (31     (11     (280

Interest expense

     389       385       381       1,148       1,157  

Investment and other (income) loss, net

     (3     (5     (4     (16     (4

Pension settlement costs

     9       25       15       34       77  

(Gain) Loss on extinguishment of debt

     2       —         (1     (31     89  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (33     367       322       700       264  

Depreciation and amortization

     471       486       539       1,462       1,670  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     438       853       861       2,162       1,934  

Add back:

          

Acquisition and integration costs

     —         —         1       —         15  

Pension/OPEB expense

     21       23       25       66       72  

Restructuring costs and other charges

     14       2       14       20       55  

Stock-based compensation expense

     5       5       4       14       10  

Storm-related costs

     —         —         9       —         9  

Work stoppage costs

     —         1       —         8       —    

Goodwill impairment

     400       —         —         400       670  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 878     $ 884     $ 914     $ 2,670     $ 2,765  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA margin

     20.6     39.5     38.2     33.3     28.0

Adjusted EBITDA margin

     41.3     40.9     40.6     41.2     40.0

Free Cash Flow

          

Net cash provided from operating activities

   $ 286     $ 672     $ 356     $ 1,209     $ 1,185  

Add back (subtract):

          

Capital expenditures - Business operations

     (329     (321     (268     (947     (846

Capital expenditures - Integration

     —         —         (14     —         (19
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating free cash flow

   $ (43   $ 351     $ 74     $ 262     $ 320  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


SCHEDULE B

Frontier Communications Corporation

Reconciliation of Non-GAAP Financial Measures

 

     For the quarter ended  
     September 30, 2018     June 30, 2018     September 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

   $ (426   $ (4.11   $ (72   $ (0.92   $ (92   $ (1.19
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Acquisition and integration costs

     —           —           1    

Restructuring costs and other charges

     14         2         14    

Pension settlement costs

     9         25         15    

(Gain) Loss on extinguishment of debt

     2         —           (1  

Goodwill impairment

     400         —           —      

Storm-related costs

     —           —           9    

Work stoppage costs

     —           1         —      

Certain other tax items (1)

     46         (12       (5  

Income tax effect on above items:

            

Acquisition and integration costs

     —           —           (1  

Restructuring costs and other charges

     (3       —           (5  

Pension settlement costs

     (2       (6       (5  

(Gain) Loss on extinguishment of debt

     (1       —           —      

Goodwill impairment

     (46       —           —      

Storm-related costs

     —           —           (3  

Work stoppage costs

     —           —           —      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     419       4.04       10       0.12       19       0.24  

Adjusted net loss attributable to Frontier common shareholders(2)

   $ (7   $ (0.07   $ (62   $ (0.80   $ (73   $ (0.94
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     For the nine months ended  
     September 30, 2018                 September 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

   $ (531   $ (6.09       $ (936   $ (12.06
  

 

 

   

 

 

       

 

 

   

 

 

 

Acquisition and integration costs

     —               15    

Restructuring costs and other charges

     20             55    

Pension settlement costs

     34             77    

(Gain) Loss on extinguishment of debt

     (31           89    

Goodwill impairment

     400             670    

Storm-related costs

     —               9    

Work stoppage costs

     8             —      

Certain other tax items (1)

     38             —      

Income tax effect on above items:

            

Acquisition and integration costs

     —               (6  

Restructuring costs and other charges

     (4           (20  

Pension settlement costs

     (8           (28  

(Gain) Loss on extinguishment of debt

     8             (33  

Goodwill impairment

     (46           (138  

Storm-related costs

     —               (3  

Work stoppage costs

     (2           —      
  

 

 

   

 

 

       

 

 

   

 

 

 
     417       4.79           687       8.84  

Adjusted net loss attributable to Frontier common shareholders(2)

   $ (114   $ (1.31       $ (249   $ (3.20
  

 

 

   

 

 

       

 

 

   

 

 

 

 

(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.


SCHEDULE C

Frontier Communications Corporation

Reconciliation of Non-GAAP Financial Measures

 

     For the quarter ended     For the nine months ended  
($ in millions)    September 30, 2018      June 30, 2018      September 30, 2017     September 30, 2018      September 30, 2017  

Adjusted Operating Expenses

             

Total operating expenses

   $ 2,159      $ 1,795      $ 1,929 (1)     $ 5,787      $ 6,647 (1)  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Subtract:

             

Depreciation and amortization

     471        486        539       1,462        1,670  

Goodwill impairment

     400        —          —         400        670  

Acquisition and integration costs

     —          —          1       —          15  

Pension/OPEB expense

     21        23        25 (1)       66        72 (1)  

Restructuring costs and other charges

     14        2        14       20        55  

Stock-based compensation expense

     5        5        4       14        10  

Storm-related costs

     —          —          9       —          9  

Work stoppage costs

     —          1        —         8        —    
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Adjusted operating expenses

   $ 1,248      $ 1,278      $ 1,337     $ 3,817      $ 4,146  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

(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 $(2) and $1 million of net operating expenses as non-operating expense for the three and nine months ended September 30, 2017, respectively. Additional pension settlement costs of $15 million and $77 million for the three and nine months ended September 30, 2017, respectively, were reclassified from operating expense to non-operating expense.


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

($ in millions)

   September 30, 2018     June 30, 2018     September 30, 2018     June 30, 2018  

Selected Statement of Operations Data

        

Revenue:

        

Data and Internet services

   $ 961     $ 973     $ 938     $ 948  

Voice services

     669       682       634       648  

Video services

     260       270       287       297  

Other

     141       140       88       86  
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenue from contracts with customers

     2,031       2,065       1,947       1,979  

Subsidy and other regulatory revenue

     95       97       173       181  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

   $ 2,126     $ 2,162     $ 2,120     $ 2,160  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other Revenue Data

        

Revenue:

        

Consumer

   $ 1,069     $ 1,095     $ 1,047     $ 1,068  

Commercial

     962       970       900       911  
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenue from contracts

        

Revenue from contracts with customers

     2,031       2,065       1,947       1,979  

Subsidy and other regulatory revenue

     95       97       173       181  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

   $ 2,126     $ 2,162     $ 2,120     $ 2,160  
  

 

 

   

 

 

   

 

 

   

 

 

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

($ in millions)

   September 30, 2018     June 30, 2018     September 30, 2018     June 30, 2018  

Statement of Operations Data

        

Revenue

   $ 2,126     $ 2,162     $ 2,120     $ 2,160  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Network access expenses

     353       369       354       366  

Network related expenses

     476       478       476       478  

Selling, general and administrative expenses

     445       460       447       469  

Depreciation and amortization

     471       486       471       486  

Goodwill impairment

     400       —         400       —    

Restructuring costs and other charges

     14       2       14       2  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

   $ 2,159     $ 1,795     $ 2,162     $ 1,801  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (33     367       (42     359  

Investment and other income, net

     3       5       3       5  

Pension settlement costs

     9       25       9       25  

Loss on extinguishment of debt

     (2     —         (2     —    

Interest expense

     389       385       389       385  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (430     (38     (439     (46

Income tax benefit

     (4     (20     (4     (22
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (426     (18     (435     (24

Less: Dividends on preferred stock

     —         54       —         54  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Frontier common shareholders

   $ (426   $ (72   $ (435   $ (78
  

 

 

   

 

 

   

 

 

   

 

 

 

Other financial data:

        

Consumer ARPC

   $ 84.92     $ 85.28     $ 83.20     $ 83.17  
EX-99.2

Slide 1

Investor Update Third Quarter 2018 | November 6, 2018 Exhibit 99.2


Slide 2

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


Slide 3

Business Update Total Revenue Consumer revenue of $1,069 million Consumer customer churn of 2.03% reflects summer seasonality, and an improvement vs. Q3 2017 Consumer ARPC of $84.92; excluding adoption of ASC 606, ARPC of $83.20 was stable sequentially Commercial revenue of $962 million Commercial customers of 422,000 $2.13B $878M Adjusted EBITDA1 $475M Maturities retired and amortization paid2 $426M Net loss Reflects goodwill impairment and valuation allowance for certain state taxes $500M EBITDA benefit anticipated by YE 2020 Accelerating next phase of transformation initiatives 1Adjusted EBITDA is a non-GAAP measure - see Appendix for its calculation 2Including $431M in debt retired on October 1, 2018


Slide 4

Broadband Unit Trends Net Adds (000s) Improvement in Fiber 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 Q3 2018 Consumer Fiber Broadband Consumer Copper Broadband Total Broadband (Consumer & Commercial) Commercial Broadband


Slide 5

Customer Churn Trends Churn reflected typical Q3 seasonality CTF churn improved sequentially despite seasonality Improvements in CTF FiOS broadband churn exceeded CTF customer churn improvement Legacy churn stable with Q3 2017 Customer Churn Churn improved vs. Q3 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018


Slide 6

Transformation Activities Expanding Primary Value Levers Improve penetration Enhance customer experience Channel optimization New commercial products Driving $500 Million EBITDA Opportunity by Year End 2020 Primary Value Levers Improve field performance Reduce activities Network reliability enhancements Primary Value Levers Customer self service Reduce root causes Automate troubleshooting and repair EBITDA Drivers Revenue Enhancements $150-200M Care & Technical Support $125-175M Operational Enhancements $150-200M New, enhanced SD-WAN product Providing more interactive customer communications regarding repair and network activity Improving and streamlining processes that enhance customer experience Reducing call volumes through automation Curated call management capabilities


Slide 7

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


Slide 8

Key Financial Highlights  ($ in Millions) Q1 2018 Q2 2018 Q3 2018 Total Revenue $2,199 $2,162 $2,126 Customer $2,102 $2,065 $2,031 Regulatory $97 $97 $95 Net Income (Loss) $20 ($18) ($426) Net Cash provided from Operating Activities $251 $672 $286 Adjusted Operating Expenses* $1,291 $1,278 $1,248 Adjusted EBITDA* $908 $884 $878 Adjusted EBITDA Margin* 41.3% 40.9% 41.3% CapEx $297 $321 $329 LTM Operating Free Cash Flow* $632 $721 $604 * Adjusted Operating Expenses, Adjusted EBITDA, Adjusted EBITDA Margin and Operating Free Cash Flow are non-GAAP measures - see Appendix for their calculations Revenue decline largely offset by expense reductions Goodwill impairment of $354 million, net of tax, and valuation allowance for state tax of $44 million Adjusted EBITDA margin maintained in excess of 40% target


Slide 9

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


Slide 10

ASC 605 ASC 606 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q1 2018 Q2 2018 Q3 2018 Customers 4.7M 4.6M 4.5M 4.4M 4.3M 4.2M 4.2M 4.3M 4.2M 4.2M ARPC Consumer ARPC Consumer ARPC stable (ASC 605) for three consecutive quarters Effective Base management continues


Slide 11

Expanding Gigabit broadband availability across fiber footprint Building FTTH to > 18K rural HHs with state funding sources Fixed wireless broadband Building in both CAF and non-CAF locations CAF II Enabled broadband to ~395K locations in CAF II-eligible areas Automation initiatives based on PEGA platform to enhance customer care, reduce costs, and enable efficiency Capital Spending Update $947M CapEx Spent YTD in 2018 2018 CapEx Guidance of $1.15B-$1.20B Growth initiatives comprise ~75% of Q3 2018 capital spending PROJECTS UNDERWAY CapEx


Slide 12

Manageable Near-term Debt Maturities 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031+ Unsecured Debt Secured Debt $300M Drawn on Revolver ($ in Millions) Maturity profile is pro forma for the $431M 8.125% maturity repayment and for the outstanding revolver balance as of November 6, 2018 Repaid $431M unsecured 8.125% notes at maturity on October 1, 2018 During Q3, purchased $12M of 8.125% notes $450M of Revolver drawn on October 1, 2018, $300 million outstanding as of November 6, 2018 Proceeds of ~$80 million anticipated at closing of tower sale $4,514 $1,603 $1,364 $500 $547 $868 $1,604 $437 $595 $2,706 $14 $50 $2,380 Pro Forma, as of Nov. 6, 2018


Slide 13

Updating 2018 Guidance  ($ in Millions) Q1 Q2 Q3 Q4 FY 2018 Adjusted EBITDA* $908 $884 $878 ~$880 ~$3,550 Capital Expenditures $297 $321 $329 $200-$250 $1,150-$1,200 Operating Free Cash Flow* ($46) $351 ($43) ~$365 ~$625 ($ in Millions) FY 2018 Cash Interest Expense ~$1,500 Cash Taxes < $10 Cash Pension/OPEB ~$140 * Adjusted EBITDA and Operating free cash flow are non-GAAP measures - see Appendix for their calculations. Guidance


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 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, including the risk that such changes may benefit our competitors more than us, as well as potential future decreases in the value of our deferred tax assets; 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 requirements 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.


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Non-GAAP Financial Measures Frontier uses certain non-GAAP financial measures in evaluating its performance, including EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, operating free cash flow, and adjusted operating expenses, each of which is described below. Management uses these non-GAAP financial measures internally to (i) assist in analyzing Frontier's underlying financial performance from period to period, (ii) analyze and evaluate strategic and operational decisions, (iii) establish criteria for compensation decisions, and (iv) assist in the understanding of Frontier's ability to generate cash flow and, as a result, to plan for future capital and operational decisions. Management believes that the presentation of these non-GAAP financial measures provides useful information to investors regarding Frontier’s financial condition and results of operations because these measures, when used in conjunction with related GAAP financial measures (i) provide a more comprehensive view of Frontier’s core operations and ability to generate cash flow, (ii) provide investors with the financial analytical framework upon which management bases financial, operational, compensation, and planning decisions and (iii) present measurements that investors and rating agencies have indicated to management are useful to them in assessing Frontier and its results of operations. A reconciliation of these measures to the most comparable financial measures calculated and presented in accordance with GAAP is included in the accompanying tables. These non-GAAP financial measures are not measures of financial performance or liquidity under GAAP, nor are they alternatives to GAAP measures and they may not be comparable to similarly titled measures of other companies. EBITDA is defined as net income (loss) less income tax expense (benefit), interest expense, investment and other income, pension settlement costs, gains/losses on extinguishment of debt, and depreciation and amortization. EBITDA margin is calculated by dividing EBITDA by total revenue. Adjusted EBITDA is defined as EBITDA, as described above, adjusted to exclude acquisition and integration costs, certain pension/OPEB expenses, restructuring costs and other charges, stock-based compensation expense, goodwill impairment charges, and certain other non-recurring items 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.


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Non-GAAP Financial Measures  ($ in Millions) Q3 2018 Q2 2018 Q3 2017 Net Income/(Loss) (426) (18) (38) Add back (Subtract): Income Tax Expense/(Benefit) (4) (20) (31) Interest Expense 389 385 381 Investment and Other (Income)/Loss, Net (3) (5) (4) Pension Settlement Costs 9 25 15 (Gain)/Loss on Extinguishment of Debt and Debt Exchanges 2 - (1) Operating Income/(Loss) (33) 367 322 Depreciation and Amortization 471 486 539 EBITDA $438 $853 $861 Add back: Acquisition and Integration Costs - - 1 Pension/OPEB Expense 21 23 25 Restructuring Costs and Other Charges 14 2 14 Stock-based Compensation Expense 5 5 4 Work Stoppage Costs - 1 - Storm Related Costs - - 9 Goodwill Impairment 400 - - Adjusted EBITDA $878 $884 $914 EBITDA Margin 20.6% 39.5% 38.2% Adjusted EBITDA Margin 41.3% 40.9% 40.6%


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Non-GAAP Financial Measures  ($ in Millions) Q3 2018 Q2 2018 Q3 2017 Total Operating Expenses $2,159 $1,795 $1,9291 Subtract: Depreciation and Amortization 471 486 539 Goodwill Impairment 400 - - Acquisition and Integration Costs - - 1 Pension/OPEB Expense 21 23 251 Restructuring Costs and Other Charges 14 2 14 Stock-based Compensation Expense 5 5 4 Work Stoppage Costs - 1 - Storm Related Costs - - 9 Adjusted Operating Expenses $1,248 $1,278 $1,337 (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 $15 million for the three months ended September 30, 2017 were reclassified from operating expense to non-operating expense.


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


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Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 CTF & Legacy Broadband and Video Unit Trends CTF Net Adds (000s) CTF FiOS® Broadband Video (excl. Dish®) CTF Copper Broadband Improved CTF FiOS® broadband trends Three quarters of stable CTF Copper Broadband net adds Legacy trends reflect seasonality and lower gross additions Legacy Broadband Legacy Net Adds (000s)