Frontier Communications (FTR) Q3 Loss Narrower Than Expected

Frontier Communications Corp FTR reported mixed financial results in third-quarter 2017. The company’s adjusted net loss was narrower than the Zacks Consensus Estimate while revenues lagged the same.

Frontier Communications currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Frontier Communications’ third-quarter 2017 net loss (on a GAAP basis) was $92 million or $1.19 per share compared with a net loss of $134 million or $1.73 in the prior-year quarter. However, quarterly adjusted (excluding special items) loss per share was 94 cents, narrower than the Zacks Consensus Estimate of a loss of $1.11.

Revenues

Total revenues deteriorated 10.8% year over year to $2,251 million, lagging the Zacks Consensus Estimate of $2,254 million. Segment-wise, Customer revenues totaled $2,060 million, down 11.2% year over year, while Switched access and subsidy revenues were $191 million, down 6.8% year over year.

Within the Customer segment, voice services revenues totaled $702 million, down 13.2% year over year. Data and internet services revenues were $956 million, down 8.5% year over year. Video revenues declined 18.9% to $318 million and Other revenues totaled $84 million, up 15.1% year over year.

Category-wise, Consumer revenues were $1,102 million, down 13.4%. Commercial revenues totaled $958 million, down 8.5%. Switched access and subsidy revenues were $191 million, down 6.8% year over year.

Operating Metrics

Operating income in third-quarter 2017 was $309 million as against $264 million in the prior-year quarter. Quarterly operating expenses were $1,942 million, down 14.1% year over year. Quarterly adjusted EBITDA was $914 million compared with $1,009 in the prior-year quarter. Adjusted EBITDA margin was 40.6% compared with 40.0% in the year-ago quarter.

Cash Flow

In the third quarter of 2017, Frontier Communications generated $356 million of cash from operations compared with $321 million in the prior-year quarter. Free cash flow in the reported quarter was $182 million compared with $168 million in the year-ago quarter.

Liquidity

Frontier Communications exited third-quarter 2017 with $286 million of cash and cash equivalents compared with $522 million at the end of 2016. Total debt at the end of the reported quarter was $17,770 million compared with $17,923 million at the end of 2016. At the end of third-quarter 2017, the debt-to-capitalization ratio was 0.66 compared with 0.62 at the end of 2016.

Subscriber Statistics

As of Sep 30, the number of consumer segment customers decreased 10.9% year over year to 4,486,000. The average monthly consumer revenues per customer were $80.91, down 1.7% sequentially. Consumer segment customer monthly churn was 2.08%, flat year over year. Commercial segment customers decreased 10.3%, year over year to 463,000. Frontier Communications had 4,000,000 high-speed broadband subscribers, down 8.3% and 981,000 video customers, down 19.7% year over year.

Fourth-Quarter 2017 Outlook

For fourth-quarter 2017, the company expects Adjusted EBITDA in the range of $910-$930 million. Cash pension/OPEB is projected around $34 million.

Full-Year 2017 Outlook

For 2017, Frontier Communications expects adjusted free cash flow in the range of $730-$750 million. Capital expenditures will be in the $1,150-$1,200 million range. Integration operating expenses is pegged at $20 million and capital expenditures are projected at $50 million. Storm impact operating expenses are pegged at $28 million and its capital expenditures will be $12 million. Net cash tax refund is estimated to be around $50 million.

Deterrents

Frontier Communications continues to suffer from the loss of legacy fixed telephony business to wireless, decline in access lines and wireless backhaul revenues due to customer migration to Ethernet solutions at lower price points. Reports about outages, bad telephone service and problems with billing in relation to the wireline assets purchased from Verizon Communications Inc VZ in California, Florida and Texas raises concern. By foraying into North Carolina, Frontier Communications will compete with major incumbents like AT&T Inc T and Charter Communications Inc CHTR.

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