Frontier Communications Reports First Quarter 2019 Results

Frontier Communications Corporation (NASDAQ:FTR) today reported
financial results for the first quarter ended March 31, 2019.

“We continue to focus on our long-term goals of improving revenue and
unit trends, realizing our transformation program targets, driving free
cash flow, and reducing leverage,” said Dan McCarthy, President and CEO.
“We began to realize some benefits from the extensive efforts underway
to improve our broadband unit performance, most notably an improvement
in consumer copper broadband subscriber trends where losses more than
halved sequentially,” McCarthy added. “Nonetheless we have substantial
work ahead. Our transformation program remains on track to achieve the
$50 to $100 million in EBITDA benefit we anticipate over the course of
2019.”

Consolidated Results

Consolidated revenue for the first quarter of 2019 was $2.10 billion, as
compared with $2.12 billion in the fourth quarter. Within first quarter
consolidated revenue, Consumer revenue was $1.08 billion, Commercial
revenue was $932 million, and subsidy revenue was $92 million.

Net loss for the first quarter of 2019 was $87 million, representing a
net loss per common share of $0.84. Net loss included $15 million of
severance expenses, $20 million for loss on early extinguishment of
debt, and $18 million in income tax expense.

First quarter Adjusted EBITDA was $873 million, representing an Adjusted
EBITDA margin² of 41.6%. This compares with Adjusted EBITDA
of $895 million in the fourth quarter of 2018. The primary factors
causing the sequential decline in Adjusted EBITDA were expense
seasonality and the sequential revenue decline, partly offset by
incremental benefits from the company’s transformation program.

Net cash provided from operating activities for the first quarter of
2019 was $282 million and operating free cash flow³ was ($23)
million, reflecting the higher level of interest payments in the first
quarter. For the four-quarter period ended March 31, 2019, net cash
provided from operating activities was $1,843 million and operating free
cash flow was $643 million.

Consumer Business Highlights

• Revenue of $1.08 billion.
• Customer churn of 1.99%, up slightly from the fourth quarter of 2018.
• Average Revenue Per Customer (ARPC) of $89.14, a sequential increase.

Commercial Business Highlights

• Revenue of $932 million.
• Total commercial customers of 400,000 compared with 411,000 during the
  fourth quarter of 2018.
• Commercial wholesale revenue was stable sequentially, and Commercial
  SME revenue declined sequentially, driven by voice services.

Capital Structure and Capital Allocation

• As of March 31, 2019, Frontier’s leverage ratio⁴ was 4.76:1.
• Frontier remains committed to reducing debt and improving its
  financial leverage profile.
  • Closed the sale of wireless towers for $76 million in January. The
    transaction was immaterial to revenue, earnings, and Adjusted
    EBITDA.
  • Issued $1,650 million of first lien secured notes, due 2027. The
    proceeds were used to retire the $1,402 million JPM Term Loan A
    due 2021 and the $239 million CoBank Loan due 2021, effectively
    extending the maturities by six years.
  • Extended the $850 million revolver by two years, to 2024.
  • Retired the outstanding $348 million, principal amount, of senior
    unsecured notes maturing March 15, 2019, as scheduled.

Guidance

Guidance for 2019 remains unchanged.

• Adjusted EBITDA – $3.45 billion to $3.55 billion, which includes an
  anticipated $50 million to $100 million benefit from the
  transformation program
• Capital expenditures – Approximately $1.15 billion
• Cash taxes – Less than $25 million
• Cash pension/OPEB – Approximately $175 million
• Cash interest expense – Approximately $1.475 billion
• Operating free cash flow – $575 million to $675 million

We are targeting an annualized benefit of $500 million from the
transformation program as measured at the exit of year-end 2020, which
may be offset by declines in the business.

Non-GAAP Financial Measures

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

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

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

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

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

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

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

Adjusted operating expenses is defined as operating expenses adjusted to
exclude depreciation and amortization, restructuring and other charges,
goodwill impairment charges, certain pension/OPEB expenses, stock-based
compensation expense, and certain other non-recurring items. Investors
have indicated that this non-GAAP measure is useful in evaluating
Frontier’s performance.

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

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

Conference Call and Webcast

Frontier will host a conference call today at 4:30 P.M. Eastern time. 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 first quarter 2019 results. The
conference call will be webcast and may be accessed in the Webcasts
& Presentations section of Frontier’s Investor Relations website
at www.frontier.com/ir.

A telephonic replay of the conference call will be available from 7:30
P.M. Eastern Time on Tuesday, April 30, 2019, through 7:30 P.M. Eastern
Time on Sunday, May 5, 2019 at 719-457-0820 or 888-203-1112. Use the
passcode 7833067 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: 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;
competition from cable, wireless and wireline carriers, satellite, and
OTT companies, and the risk that Frontier will not respond on a timely
or profitable basis; Frontier’s ability to successfully adjust to
changes in the communications industry, including the effects of
technological changes and competition on its capital expenditures,
products and service offerings; risks related to disruptions in
Frontier’s networks, infrastructure and information technology that may
result in customer loss and/or incurrence of additional expenses; the
impact of potential information technology or data security breaches or
other cyber attacks or other disruptions; Frontier’s ability to retain
or attract new customers and to maintain relationships with customers,
employees or suppliers; Frontier’s ability to hire or retain key
personnel; Frontier’s ability to realize anticipated benefits from
recent acquisitions; Frontier’s ability to dispose of certain assets or
asset groups on terms that are attractive to it, or at all; Frontier’s
ability to effectively manage its operations, operating expenses,
capital expenditures, debt service requirements and cash paid for income
taxes and liquidity; Frontier’s ability to defend against litigation and
potentially unfavorable results from current pending and future
litigation; adverse changes in the credit markets, which could impact
the availability and cost of financing; Frontier’s ability to repay or
refinance its debt through, among other things, accessing the capital
markets, notes repurchases and/or redemptions, tender offers and
exchange offers; adverse changes in the ratings given to Frontier’s debt
securities by nationally accredited ratings organizations; covenants in
Frontier’s indentures and credit agreements that may limit Frontier’s
operational and financial flexibility as well as its ability to access
the capital markets in the future; the effects of state regulatory
requirements that could limit Frontier’s ability to transfer cash among
its subsidiaries or dividend funds up to the parent company; the effects
of governmental legislation and regulation on Frontier’s business; the
impact of regulatory, investigative and legal proceedings and legal
compliance risks; government infrastructure projects that impact capital
expenditures; continued reductions in switched access revenue as a
result of regulation, competition or technology substitutions; the
effects of changes in the availability of federal and state universal
service funding or other subsidies to Frontier and its competitors;
Frontier’s ability to meet its remaining CAF II funding obligations and
the risk of penalties or obligations to return certain CAF II funds;
Frontier’s ability to 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 changes in income tax
rates, tax laws, regulations or rulings, or federal or state tax
assessments, including the risk that such changes may benefit Frontier’s
competitors more than it, as wells potential future decreases in the
value of Frontier’s deferred tax assets; the effects of increased
medical expenses and pension and postemployment expenses; Frontier’s
ability to successfully renegotiate union contracts; changes in pension
plan assumptions, interest rates, discount rates, regulatory rules
and/or the value of Frontier’s pension plan assets, which could require
Frontier to make increased contributions to its pension plans; the
effects of changes in both general and local economic conditions in the
markets that Frontier serves; the effects of severe weather events or
other natural or man-made disasters, which may increase operating and
capital expenses or adversely impact customer revenue; and the risks and
other factors contained in Frontier’s filings with the U.S. Securities
and Exchange Commission, including its reports on Forms 10-K and 10-Q.
These risks and uncertainties may cause actual future results to be
materially different than those expressed in such forward-looking
statements. Frontier has no obligation to update or revise these
forward-looking statements and does not undertake to do so.

View source version on businesswire.com: https://www.businesswire.com/news/home/20190430006155/en/