Nov 07, 2016
Windstream reports third-quarter results
Expanded enterprise contribution margin; grew consumer revenue sequentially
LITTLE ROCK, Ark. – Windstream (NASDAQ: WIN), a leading provider of advanced network communications and technology solutions, today reported third-quarter results.
“Windstream continues to advance our strategy to maximize shareholder value. During the third quarter, we further expanded enterprise contribution margin and grew consumer service revenue sequentially. We continued to make prudent capital investments to better leverage our extensive network to serve customers and provide incremental returns to shareholders. Additionally we further improved our debt maturity profile and reduced future cash interest,” said Tony Thomas, president and chief executive officer at Windstream.
Results under GAAP
Total revenues and sales were $1.34 billion and total service revenues were $1.32 billion in the third quarter compared to $1.50 billion and $1.45 billion respectively year-over-year. Operating income was $129 million compared to $179 million in the same period a year ago. The company reported a net loss of $66 million or a loss of 72 cents per share compared to a loss of $7 million or a loss of 8 cents per share a year ago.
Adjusted Results of Operations
Adjusted service revenues were $1.32 billion, a decrease of 4 percent on a normalized basis, which excludes approximately $49 million in Connect America Fund Phase II revenue received in the third quarter of 2015 that related to prior periods. Through solid expense management, the company reduced cash expenses by $47 million, or 5 percent, relative to the same period a year ago and produced $465 million in Adjusted OIBDAR.
Consumer and small business ILEC service revenues were $395 million, a decrease of 1 percent from the same period a year ago. Consumer service revenues were $312 million, an increase of $1 million sequentially. Consumer average revenue per household increased 2 percent sequentially and 6 percent year-over-year driven by broadband speed penetration gains across all tiers, improved modem rentals and sales of bundled services.
Wholesale service revenues were $155 million, a decrease of 8 percent year-over-year. Core wholesale and resale revenues were $145 million, a decrease of $4 million sequentially.
Enterprise service revenues were $495 million, an increase of $4 million sequentially. Enterprise contribution margin was $83 million, or 16 percent, an increase of $20 million, or 31 percent, year-over-year.
Small business CLEC service revenues were $119 million and contribution margin was $37 million, or 31 percent. Through targeted price increases and incremental sales of additional services, average revenue per user increased 5 percent year-over-year.
During the quarter, Windstream redeemed its remaining 2017 notes using incremental term loan proceeds and revolver borrowings, which significantly enhanced the company’s debt maturity profile and provided attractive cash interest savings going forward. Reflecting all balance sheet initiatives to date, the company expects $325 million in cash interest expense in 2017. The company has no near-term maturities.
On Nov. 4, 2016, the board of directors declared a quarterly dividend of 15 cents per share payable Jan. 17, 2017, to stockholders of record as of Dec. 30, 2016.
Financial Outlook for 2016
Windstream affirmed its previously provided guidance for adjusted service revenue, adjusted OIBDAR and adjusted capital expenditures.
The company expects total service revenue of $5.275 billion to $5.425 billion and adjusted OIBDAR of $1.90 billion to $1.95 billion. Adjusted capital expenditures are expected to be between $800 million and $850 million.
Windstream Holdings, Inc. (NASDAQ: WIN), a FORTUNE 500 company, is a leading provider of advanced network communications and technology solutions for consumers, businesses, enterprise organizations and wholesale customers across the U.S. Windstream offers bundled services, including broadband, security solutions, voice and digital TV to consumers. The company also provides data, cloud solutions, unified communications and managed services to small business and enterprise clients. The company supplies core transport solutions on a local and long-haul fiber network spanning approximately 129,000 miles. Additional information is available at windstream.com. Please visit our newsroom at news.windstream.com or follow us on Twitter at @Windstream.
Adjusted results of operations exclude the impacts of the disposed data center and consumer CLEC businesses and directory publishing operations and all merger and integration costs related to strategic transactions. A reconciliation of adjusted results to the comparable GAAP measures is included in the financial information presented below. Additional supplemental quarterly financial information is available on the company’s Web site at www.windstream.com/investors.
Adjusted OIBDA is operating income before depreciation and amortization adjusted for the impact of restructuring charges, pension costs and share-based compensation.
Adjusted OIBDAR is adjusted OIBDA before the annual cash rent payment due under the master lease agreement with CS&L assuming the lease payments began on Jan. 1, 2015.
Adjusted free cash flow is defined as operating income plus depreciation and amortization, merger and integration costs, pension costs, share-based compensation expense, restructuring charges and the annual cash rent payment due under the master lease agreement with CS&L, less adjusted capital expenditures, cash taxes, cash interest on long-term debt, plus cash dividends received from CS&L.
Windstream Holdings, Inc. claims the protection of the safe-harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words or phrases such as “will,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “forecast” and other words and terms of similar meaning. Forward-looking statements are subject to risks and uncertainties that could cause actual future events and results to differ materially from those expressed in the forward-looking statements.
Forward-looking statements include, but are not limited to, 2016 guidance for service revenue, adjusted OIBDAR and adjusted capital expenditures, along with statements regarding adjusted free cash flow, cash interest and cash taxes; expectations regarding revenue trends and improving margins in the business segments; network cost optimization; stability and growth in adjusted OIBDAR; the anticipated benefits of Project Excel, of network investments pursuant to the Connect America Fund, and of enhanced services available to customers; the ability to improve its debt profile and reduce interest costs; statements about the benefits of the proposed merger with EarthLink, including future financial and operating results, future revenue, projected synergies in operating and capital expenditures, the expected availability of net operating loss carryforwards to reduce future cash tax expenses, net leverage, adjusted OIBDA/OIBDAR, and adjusted free cash flow; Windstream and EarthLink’s expected dividend policy between the announcement of the transaction and proposed completion of the merger, and the dividend policy for the proposed combined company after the merger; the expected timing of completion of the transaction that is contingent upon stockholder approval of both companies and certain regulatory approvals, along with plans, objectives, expectations and intentions and other statements that are not historical facts. These statements, along with other forward-looking statements regarding Windstream’s and EarthLink’s overall business outlook, are based on estimates, projections, beliefs, and assumptions that Windstream believes is reasonable but are not guarantees of future events, performance or results. Actual future events and results may differ materially from those expressed in these forward-looking statements as a result of a number of important factors.
Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include risks and uncertainties relating to the ability to obtain the requisite Windstream and EarthLink stockholder approvals required to complete the merger; the ability to satisfy the conditions to consummation of the merger, including obtaining governmental and regulatory approvals required for the merger; the risk that required governmental and regulatory approvals may delay the merger or result in the imposition of conditions that could cause the parties to abandon the merger or materially impact the financial benefits of the proposed merger; timing to consummate the proposed merger; the risk that the businesses will not be integrated successfully; the risk that the cost savings and anticipated synergies from the transaction may not be fully realized or may take longer to realize than expected; disruption from the proposed transaction making it more difficult to maintain relationships with customers, employees or suppliers; the diversion of management time on merger-related issues; dividend policy changes for the combined company; general worldwide economic conditions and related uncertainties; and the effect of any changes in governmental regulations. Windstream does not undertake any obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.
Factors that could cause actual results to differ materially from those contemplated in Windstream’s forward looking statements include, among others:
• further adverse changes in economic conditions in the markets served by Windstream;
• the extent, timing and overall effects of competition in the communications business;
• the company’s election to accept state-wide offers under the FCC’s Connect America Fund, Phase 2, and the impact of such election on future receipt by the company of federal universal service funds and capital expenditures;
• the potential for incumbent carriers to impose monetary penalties for failure to meet specific volume and term commitments under their special access pricing plans, which Windstream uses to lease last-mile connections to serve its retail business data service customers, without further FCC action;
• the impact of new, emerging or competing technologies;
• for certain operations where Windstream leases facilities from other carriers, adverse effects on the availability, quality of service, price of facilities and services provided by other carriers on which Windstream’s services depend;
• unfavorable rulings by state public service commissions in proceedings regarding universal service funds, inter-carrier compensation or other matters that could reduce revenues or increase expenses;
• material changes in the communications industry that could adversely affect vendor relationships with equipment and network suppliers and customer relationships with wholesale customers;
• changes to Windstream’s current dividend practice which is subject to the company’s capital allocation policy and may be changed at any time at the discretion of its board of directors;
• the company’s ability to make rent payments under the master lease to CS&L, which may be affected by results of operations, changes in the company’s cash requirements, cash tax payment obligations, or overall financial position;
• unanticipated increases or other changes in the company’s future cash requirements, whether caused by unanticipated increases in capital expenditures, increases in pension funding requirements, or otherwise;
• the availability and cost of financing in the corporate debt markets;
• the potential for adverse changes in the ratings given to Windstream’s debt securities by nationally accredited ratings organizations;
• earnings on pension plan investments significantly below Windstream’s expected long term rate of return for plan assets or a significant change in the discount rate or other actuarial assumptions;
• unfavorable results of litigation or intellectual property infringement claims asserted against Windstream;
• the risks associated with non-compliance by Windstream with regulations or statutes applicable to government programs under which Windstream receives material amounts of end user revenue and government subsidies, or non-compliance by Windstream, its partners, or its subcontractors with any terms of its government contracts;
• the effects of federal and state legislation, and rules and regulations governing the communications industry;
• continued loss of consumer households served and consumer high-speed Internet customers;
• the impact of equipment failure, natural disasters or terrorist acts;
• the effects of work stoppages by Windstream employees or employees of other communications companies on whom Windstream relies for service; and
• those additional factors under “Risk Factors” in Item 1A of Part I of Windstream’s Annual Report on Form 10-K for the year ended December 31, 2015, and in subsequent filings with the Securities and Exchange Commission at www.sec.gov.
In addition to these factors, actual future performance, outcomes and results may differ materially because of more general factors including, among others, general industry and market conditions and growth rates, economic conditions, and governmental and public policy changes.
Windstream undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause Windstream’s actual results to differ materially from those contemplated in the forward-looking statements should be considered in connection with information regarding risks and uncertainties that may affect Windstream’s future results included in other filings by Windstream with the Securities and Exchange Commission at www.sec.gov.