Windstream reports second-quarter results

August 4, 2016

Expanded enterprise contribution margin; Significantly reduced debt

LITTLE ROCK, Ark. – Windstream (NASDAQ: WIN), a leading provider of advanced network communications and technology solutions, today reported second-quarter results.

“We are making solid progress on achieving our 2016 goals. Each business unit is executing an operational strategy to advance the goal of stabilizing and growing operating cash flow over time. We are making the right investments and optimizing the balance sheet. All of which will drive improving results and create value for investors,” said Tony Thomas, president and chief executive officer at Windstream.

Results under GAAP

Total revenues and sales were $1.36 billion and total service revenues were $1.33 billion in the second quarter compared to $1.42 billion and $1.38 billion respectively year-over-year. Operating income was $155 million compared to $79 million in the period a year ago. Net income was $1.5 million or 1 cent per share compared to a loss of $111 million or a loss of $1.13 per share a year ago.

Adjusted Results of Operations

Adjusted service revenues were $1.33 billion, a decrease of 1 percent from the same period a year ago. Adjusted OIBDAR was $482 million, an increase of 1 percent year-over-year.

Consumer and small business ILEC service revenues were $395 million, a decrease of 2 percent from the same period a year ago. Consumer service revenues were $311 million, a decrease of 1 percent year-over-year. Consumer average revenue per household increased 1 percent sequentially and 5 percent year-over-year driven partly by higher consumer adoption rates of premium Internet speeds.

Carrier service revenues were $160 million, a decrease of 7 percent year-over-year. Core carrier and wholesale revenues were $149 million, a decrease of $1 million sequentially.

Enterprise service revenues were $491 million, an increase of 3 percent year-over-year. Enterprise contribution margin was $80 million, or 15.7 percent, an increase of $32 million, or 68 percent, year-over-year, and an increase of $9 million, or 13 percent, sequentially.

Small business CLEC service revenues were $125 million, a 12 percent decrease year-over-year. Small business CLEC contribution margin remained steady sequentially at $41 million, or 33 percent.

Balance Sheet

During the quarter, Windstream completed the disposition of all of its shares in Communications Sales & Leasing (CS&L) in a debt-for-equity exchange to retire approximately $672 million in debt. Through the debt-for-equity exchange and open market debt repurchases over the last 12 months to date, the company has lowered debt by $740 million.

Quarterly Dividend

On Aug. 3, 2016, the board of directors declared a quarterly dividend of 15 cents per share payable Oct. 17, 2016, to stockholders of record as of Sept. 30, 2016.

Financial Outlook for 2016

Windstream affirmed its previously provided financial guidance for the year with improved cash interest and cash tax guidance.

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, which excludes approximately $200 million in expected investments to complete Project Excel, a program funded by a portion of the proceeds from the sale of the company’s data center business. Project Excel accelerates Windstream’s plans to upgrade and modernize its broadband capabilities to the latest technology by year-end 2016, or two years ahead of the company’s previous timeline.

The company now expects cash interest expense of approximately $365 million and cash taxes of about $10 million, resulting in adjusted free cash flow of approximately $100 million in 2016.

Conference Call

Windstream will hold a conference call at 7:30 a.m. CDT on Aug. 4 to review the company's second-quarter earnings results.

To access the call:

Interested parties can access the call by dialing 1-877-374-3977, conference ID 46000332.

To access the call replay:

A replay of the call will be available beginning at 10:30 a.m. CDT on Aug. 4 and ending at midnight on Aug. 11. The replay can be accessed by dialing 1-855-859-2056, conference ID 46000332.

Webcast information:

The conference call also will be streamed live over the company's website at . 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. CDT on Aug. 4 and ending at midnight on Aug. 11.

About Windstream

Windstream (NASDAQ: WIN), a FORTUNE 500 company, is a leading provider of advanced network communications and technology solutions for consumers, small businesses, enterprise organizations and carrier partners 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 business and enterprise clients. The company supplies core transport solutions on a local and long-haul fiber-optic network spanning approximately 125,000 miles. Additional information is available at Please visit our newsroom at 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 .

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 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 subject to 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 adjusted service revenue, adjusted OIBDAR and adjusted capital expenditures, along with statements regarding free cash flow, cash interest expense and cash taxes in 2016; 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 to improve network capabilities; the anticipated increase in availability of higher Internet speeds; the completion and benefits of network investments pursuant to the Connect America Fund; expectations regarding deployments of Windstream’s IPTV service, 1 Gig service and expanding the carrier network, products and customer verticals; and Windstream’s ability to improve its debt profile and reduce interest costs. 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 are reasonable but are not guarantees of future events and results. Actual future events and results of Windstream may differ materially from those expressed in these forward-looking statements as a result of a number of important factors. For risk factors that could cause actual results and events to differ materially from those expressed, refer to Windstream’s filings with the Securities and Exchange Commission.

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

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