LITTLE ROCK, Ark. – Windstream Holdings, Inc. (NASDAQ: WIN), a leading provider of advanced network communications and technology solutions, today reported fourth-quarter and full-year 2016 results.
“Our 2016 results demonstrate continued progress executing our focused operational strategy. We achieved the financial guidance provided for 2016, delivered consistent results across our core business units and returned value to shareholders through our dividend,” said Tony Thomas, president and chief executive officer at Windstream.
“We grew enterprise service revenue for the year and significantly expanded enterprise contribution margin by $78 million or 32 percent. We expanded the availability of premium broadband speeds and rolled out 1 Gigabit service in four markets, which led to improved consumer trends. We expanded our metro fiber network and fixed wireless service in key cities and extended our fiber transport network throughout the western United States to provide increased sales opportunities. Additionally, we laid the groundwork for the launch earlier this year of software-defined wide area network solutions, or SD-WAN, a technology that will transform how businesses design and manage their networks.
“Our 2017 priorities build on the advancements in 2016. Our EarthLink merger integration planning is progressing well, and we expect to achieve $150 million in annual synergies within three years, exceeding our original expectations by $25 million. We will deliver improved consumer trends as we deliver faster broadband speeds to more customers. We will drive continued growth in enterprise contribution margin in 2017. And we will continue to leverage next generation technology, such as SD-WAN, to drive sales and improve the customer experience,” Thomas said.
Results under GAAP
For the fourth quarter, total revenues and sales were $1.31 billion and total service revenues were $1.29 billion compared to $1.43 billion and $1.39 billion respectively year-over-year. Operating income was $74 million compared to $132 million in the same period a year ago. The company reported a net loss of $87 million or a loss of 94 cents per share compared to net income of $141 million or $1.41 per share a year ago. Fourth-quarter 2016 results include a pre-tax expense of $61 million related to the company’s pension plan. This non-cash charge resulted from a decrease in the discount rate used to measure the company’s pension obligations. Additionally, the company’s fourth-quarter 2015 results included the sale of the company’s data center business.
For 2016, total revenues and sales were $5.39 billion and total service revenues were $5.28 billion compared to $5.76 billion and $5.60 billion respectively year-over-year. Operating income was $515 million compared to $509 million in the same period a year ago. The company reported a net loss of $384 million or a loss of $4.11 per share compared to net income of $27 million or 24-cents per share a year ago.
Adjusted Results of Operations
Adjusted revenues and sales were $1.31 billion in the fourth quarter, a decline of 6 percent from the same period a year ago, and $5.39 billion for the year, a decline of 4 percent year-over-year.
Adjusted service revenues were $1.29 billion in the fourth quarter, a decrease of 5 percent year-over-year, and $5.28 billion for the year, a decline of 3 percent year-over year.
Adjusted OIBDAR was $482 million in the fourth quarter, a decrease of 4 percent year-over-year, and $1.91 billion for the year, a decline of 5 percent from the same period a year ago.
Consumer and small business ILEC service revenues were $392 million in the fourth quarter, a decrease of 1 percent from the same period a year ago, and $1.58 billion for the year, a decline of 1 percent from 2015. Contribution margin was $233 million or 60 percent in the fourth quarter, an increase of $21 million or 10 percent sequentially, and $899 million or 57 percent for the year. Consumer average revenue per household increased in the fourth quarter for the eighth quarter in a row and more than 6 percent year-over-year driven by broadband speed penetration gains across all tiers and sales of bundled services.
Wholesale service revenues were $153 million in the fourth quarter, a decrease of 11 percent year-over-year, and $631 million for the year, a decline of 8 percent from 2015. Contribution margin was $109 or 71 percent in the fourth quarter and $452 million or 72 percent for the year.
Enterprise service revenues were $486 million in the fourth quarter, a decrease of 2 percent year-over-year, and $1.96 billion for the year, an increase of 1 percent from 2015. Contribution margin was $85 million or 17 percent in the fourth quarter, an increase of $8 million or 10 percent year-over-year, and $319 million or 16 percent for the year, an increase of $78 million or 32 percent from 2015.
Small business CLEC service revenues were $111 million in the fourth quarter, a decline of 16 percent year-over-year, and $484 million for the year, a decrease of 13 percent from 2015. Contribution margin was $35 million or 32 percent in the fourth quarter and $155 million or 32 percent for the year.
The company generated $107 million in adjusted free cash flow for 2016.
Windstream has no near-term debt maturities and expects to reduce leverage by 0.5 times after synergies through the EarthLink merger.
Windstream and EarthLink Pro Forma Financial Results
Windstream also today released financial results for Windstream and EarthLink on a pro forma basis as if the merger with EarthLink occurred on Jan. 1, 2015.
For 2016, total revenues and sales were $6.37 billion and total service revenues were $6.26 billion compared to $6.72 billion and $6.55 billion respectively in 2015. Adjusted OIBDAR was $2.13 billion compared to $2.24 billion in 2015.
Financial Outlook for 2017
Windstream expects total service revenue declines to be similar to full-year 2016 trends. The company expects adjusted OIBDAR in the range of $2.0 billion to $2.06 billion. Adjusted capital expenditures are expected to be between $790 million and $840 million.
The company expects to generate adjusted free cash flow of approximately $200 million. The company expects cash interest expense of $360 million and cash taxes of $5 million.
Windstream will hold a conference call at 7:30 a.m. CST today to review the company’s fourth-quarter and full-year 2016 results.
To access the call:
Interested parties can access the call by dialing 1-877-374-3977, conference ID 68435009.
To access the call replay:
A replay of the call will be available beginning at 10:30 a.m. CST today and ending at 10:30 a. m. CST on March 8. The replay can be accessed by dialing 1-855-859-2056, conference ID 68435009.
The conference call also will be streamed live over the company's website at www.windstream.com/investors. Financial, statistical and other information related to the call will be posted on the site. A replay of the webcast will be available on the website beginning at 10:30 a.m. CST today and ending at 10:30 a.m. CST on March 8.
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 147,000 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, integration and other 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 Uniti Group, Inc., formerly 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 Uniti, less adjusted capital expenditures, cash taxes, cash interest on long-term debt, plus cash dividends received from Uniti.
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, 2017 guidance for service revenue, adjusted OIBDAR and adjusted capital expenditures, along with statements regarding adjusted free cash flow, cash interest and cash taxes; directional outlook for the company’s business units in 2017; statements regarding the benefits of the merger with EarthLink Holdings Corp., including future financial and operating results, projected synergies in operating and capital expenditures and the timing of the synergies, reduction in net leverage, dividend policy of the combined company, and improvement in our ability to compete; expectations regarding revenue trends, sales opportunities and improving margins in the business units; network cost optimization; stability and growth in adjusted OIBDAR; the anticipated benefits of Project Excel, allowing Windstream to offer premium Internet speeds, and of network investments pursuant to the Connect America Fund; the availability of higher Internet speeds and the ability to leverage next generation technology in products and services offered to customers; the ability to continue to improve our debt profile and reduce interest costs; along with statements regarding plans, objectives, expectations and intentions and other statements that are not historical facts. These statements, along with other forward-looking statements regarding Windstream’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 that the cost savings and anticipated synergies from the merger with EarthLink Holdings Corp., may not be fully realized or may take longer to realize than expected; that the businesses will not be integrated successfully; that disruption from the merger may make it more difficult to maintain relationships with customers, employees or suppliers; that the attention of management and key personnel may be diverted by integration matters related to the merger; general worldwide economic conditions and related uncertainties; and the effect of any changes in governmental regulations or statutes. For other risk factors that could cause actual results and events to differ materially from those expressed, please refer to our filings with the Securities and Exchange Commission. 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 our forward-looking statements include, among others:
• the cost savings and expected synergies from the merger with EarthLink may not be fully realized or may take longer to realize than expected;
• the integration of Windstream and EarthLink may not be successful, may cause disruption in relationships with customers, vendors and suppliers and may divert attention of management and key personnel;
• changes to our current dividend practice which is subject to our capital allocation policy and may be changed at any time at the discretion of our board of directors;
• further adverse changes in economic conditions in the markets served by us;
• the extent, timing and overall effects of competition in the communications business;
• our election to accept state-wide offers under the FCC’s Connect America Fund, Phase II, and the impact of such election on our future receipt of federal universal service funds and capital expenditures, and any return of support received pursuant to the program;
• 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 and our ability to utilize these technologies to provide services to our customers;
• for certain operations where we lease facilities from other carriers, adverse effects on the availability, quality of service, price of facilities and services provided by other carriers on which our services depend;
• unfavorable rulings by state public service commissions in current and further 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;
• our ability to make rent payments under the master lease to Uniti, which may be affected by results of operations, changes in our cash requirements, cash tax payment obligations, or overall financial position;
• unanticipated increases or other changes in our 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 our debt securities by nationally accredited ratings organizations;
• earnings on pension plan investments significantly below our 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 us;
• the risks associated with non-compliance by us with regulations or statutes applicable to government programs under which we receive material amounts of end user revenue and government subsidies, or non-compliance by us, our partners, or our subcontractors with any terms of our government contracts;
• the effects of federal and state legislation, and rules and regulations, and changes thereto, 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 our employees or employees of other communications companies on whom we rely for service; and
• those additional factors under “Risk Factors” in Item 1A of Windstream’s Annual Report on Form 10-K for the year ended December 31, 2016, 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.