Windstream reports third-quarter results

November 8, 2018

Grew broadband customer base for second consecutive quarter
Continued acceleration in SD-WAN and Enterprise strategic sales
Delivered third consecutive quarter of Adjusted OIBDAR year-over-year growth

LITTLE ROCK, Ark., Nov. 08, 2018 (GLOBE NEWSWIRE) -- Windstream Holdings, Inc. (NASDAQ: WIN), a leading provider of advanced network communications and technology solutions, today reported third-quarter results, highlighted by continued growth in consumer broadband customers and enterprise strategic sales.

“Windstream added 8,400 broadband customers in the third quarter, our strongest residential subscriber growth in years,” said Tony Thomas, president and chief executive officer. “This growth is clear evidence that customers are responding as we deploy faster broadband speeds across our very rural footprint, and we will continue to build on that success. We expect to double the availability of 100 Mbps internet service to 30 percent of the households in our markets by the end of March 2019.

“Our Enterprise segment saw continued acceleration of SD-WAN and strategic sales, which represented 54 percent of total enterprise sales during the quarter,” Thomas said. “Our intense focus on higher-margin strategic sales enhances both our competitiveness and contribution margins. At the end of the quarter, annualized strategic product revenue was $165 million, representing a 71 percent year-over-year growth rate.

“These results, combined with ongoing reductions in network interconnection expenses and optimization of other costs, helped deliver year-over-year growth in Adjusted OIBDAR for the third consecutive quarter, as well as improved free cash flow trends,” Thomas said. “Windstream is on a clear path going forward to improve revenue trends, drive Adjusted OIBDAR growth and create value for all our stakeholders.”

Results under GAAP

Total revenues and sales were $1.42 billion, a decrease of 5 percent from the same period a year ago, and total service revenues were $1.40 billion, a decrease of 5 percent year-over-year. Operating income was $76 million compared to $41 million in the same period a year ago. The company reported net income of $41 million, or 97 cents per share, compared to a net loss of $102 million, or a loss of $2.76 per share, a year ago.

ILEC consumer and small business service revenues were $459 million, a decrease of 4 percent from the same period a year ago, and segment income was $266 million compared to $270 million year-over-year.

Enterprise service revenues were $717 million, a 5 percent decrease from the same period a year ago, and segment income was $161 million compared to $147 million year-over-year.

Wholesale service revenues were $181 million, a 5 percent decrease from the same period a year ago, and segment income was $127 million compared to $133 million year-over-year.

CLEC consumer services revenues were $44 million, a decrease of 16 percent from the same period a year ago, and segment income was $25 million, essentially unchanged year-over-year.

Adjusted Results of Operations

Adjusted total revenues and sales were $1.42 billion compared to $1.50 billion in the same period a year ago. Adjusted total service revenues were $1.40 billion compared to $1.47 billion year-over-year.

Adjusted OIBDAR was $496 million compared to $490 million in the same period a year ago.

Adjusted capital expenditures were $188 million compared to $205 million in the same period a year ago.

ILEC consumer and small business service revenues were $459 million, a 4 percent decrease from the same period a year ago, and contribution margin was $266 million compared to $270 million a year ago.

Enterprise service revenues were $717 million, a 5 percent decrease from the same period a year ago, and contribution margin was $161 million compared to $147 million a year ago, an increase of 9 percent year-over-year.

Wholesale service revenues were $181 million, a decrease of 5 percent from the same period a year ago, and contribution margin was $127 million compared to $133 million a year ago.

CLEC consumer service revenues were $44 million, a 15 percent decrease from the same period a year ago, and contribution margin was $25 million, essentially unchanged from a year ago.

Note: Adjusted results of operations are based on the combined historical financial information of Windstream and EarthLink and assume the merger was completed on Jan. 1, 2017. Operating results for Broadview, MASS Communications and ATC are included beginning on July 28, 2017; March 27, 2018; and Aug. 31, 2018, the dates of the acquisitions. 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 investor.windstream.com.

About Windstream

Windstream Holdings, Inc. (NASDAQ: WIN), a FORTUNE 500 company, is a leading provider of advanced network communications and technology solutions. Windstream provides data networking, core transport, security, unified communications and managed services to mid-market, enterprise and wholesale customers across the U.S. The company also offers broadband, entertainment and security services for consumers and small and medium-sized businesses primarily in rural areas in 18 states. Services are delivered over multiple network platforms including a nationwide IP network, our proprietary cloud core architecture and on a local and long-haul fiber network spanning approximately 150,000 miles. Additional information is available at windstream.com or windstreamenterprise.com. Please visit our newsroom at news.windstream.com or follow us on Twitter at @Windstream or @WindstreamBiz.

Adjusted OIBDA is operating income before depreciation and amortization, excluding pension expense, share-based compensation expense, restructuring charges, merger, integration and certain other costs.

Adjusted OIBDAR is Adjusted OIBDA before the annual cash rent payment due under the master lease agreement with Uniti Group, Inc.

Adjusted free cash flow is defined as Adjusted OIBDA, less adjusted capital expenditures, cash taxes and cash interest on long-term debt.

Cautionary Statement Regarding Forward Looking Statements

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, 2018 guidance for service revenue, adjusted OIBDAR, adjusted capital expenditures, and adjusted free cash flow, along with statements regarding cash taxes, future growth of adjusted OIBDAR and free cash flow; revenue and contribution margin trends and sales opportunities in our business units; improvement in our ability to compete, including opportunities associated with, and expected sales growth, of strategic products and services; increasing deployment and penetration levels, along with availability of faster broadband speeds to more households within our service areas, along with subscriber trends; the benefits of the mergers with EarthLink Holdings Corp. and Broadview Network Holdings, Inc. including projected synergies and the timing of the synergies; our ability to improve our debt profile and balance sheet and overall reduction in net leverage; expectations regarding expense management activities, including interconnection expense, and the timing and benefit of such activities; and opportunities regarding sales or divestitures of certain assets; any other 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 are 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. 

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 mergers with EarthLink and Broadview may not be fully realized or may take longer to realize than expected;
  • the integration of Windstream and EarthLink and Broadview may not be successful, may cause disruption in relationships with customers, vendors and suppliers and may divert attention of management and key personnel;
  • the impact of the Federal Communications Commission’s comprehensive business data services reforms or additional FCC reforms or actions, including actions related to unbundled network elements, that may result in greater capital investments and customer and revenue churn because of possible price increases by our ILEC suppliers for certain services we use to serve customer locations where we do not have facilities;
  • the potential for incumbent carriers to impose monetary penalties for failure to meet specific volume and term commitments under their special access pricing and tariff plans, which Windstream uses to lease last-mile connections to serve its retail business data service customers, without FCC action;
  • the impact of new, emerging or competing technologies and our ability to utilize these technologies to provide services to our customers;
  • the alleged ability of one or more purported noteholders to establish that transactions related to the spin-off of certain assets in 2015 into a publicly-traded real estate investment trust allegedly violated certain covenants in existing indentures governing certain outstanding senior notes;
  • the benefits of our current capital allocation strategy, which may be changed at any time at the discretion of our board of directors, and certain cost reduction activities may not be fully realized or may take longer to realize than expected, or the implementation of these initiatives may adversely affect our sales and operational activities or otherwise disrupt our business and personnel;
  • the availability and cost of financing in the corporate debt markets;
  • 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;
  • for certain operations where we purchase bandwidth 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;
  • 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;
  • 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
  • further adverse changes in economic conditions in the markets served by us;
  • the extent, timing and overall effects of competition in the communications business;
  • 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 and enterprise customers;
  • the impact of adverse changes in the ratings given to our debt securities by nationally accredited ratings organizations and the potential for additional adverse changes in the future;
  • 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, including 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, including changes implemented by administrative agencies, governing the communications industry;
  • continued loss of consumer households served;
  • 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 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 with the Securities and Exchange Commission at www.sec.gov.

Media Contact:
David Avery, 501-748-5876
david.avery@windstream.com                    

Investor Contact:
Chris King, 704-319-1025
christopher.c.king@windstream.com

 

                               
                               
WINDSTREAM HOLDINGS, INC.                              
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS                              
(In millions, except per share amounts) THREE MONTHS ENDED   NINE MONTHS ENDED
    September 30,   September 30,   Increase (Decrease)   September 30,   September 30,   Increase (Decrease)
      2018       2017     Amount   %     2018       2017     Amount   %
UNDER GAAP:                              
Revenues and sales:                              
  Service revenues $ 1,400.1     $ 1,472.4     $ (72.3 )   (5 )   $ 4,260.1     $ 4,282.4     $ (22.3 )   (1 )
  Product sales   20.5       25.3       (4.8 )   (19 )     59.2       72.6       (13.4 )   (18 )
  Total revenues and sales   1,420.6       1,497.7       (77.1 )   (5 )     4,319.3       4,355.0       (35.7 )   (1 )
Costs and expenses:                              
  Cost of services (exclusive of depreciation and amortization included below)   700.2       780.5       (80.3 )   (10 )   $ 2,159.9       2,215.0       (55.1 )   (2 )
  Cost of products sold   19.7       22.3       (2.6 )   (12 )     54.7       72.8       (18.1 )   (25 )
  Selling, general and administrative   225.8       231.8       (6.0 )   (3 )     679.1       672.0       7.1     1  
  Depreciation and amortization   383.8       365.4       18.4     5       1,136.3       1,066.3       70.0     7  
  Merger, integration and other costs   9.0       33.7       (24.7 )   (73 )     30.4       107.4       (77.0 )   (72 )
  Restructuring charges   6.5       22.8       (16.3 )   (71 )     26.0       33.7       (7.7 )   (23 )
  Total costs and expenses   1,345.0       1,456.5       (111.5 )   (8 )     4,086.4       4,167.2       (80.8 )   (2 )
Operating income   75.6       41.2       34.4     83       232.9       187.8       45.1     24  
Other income, net   3.2       1.7       1.5     88       12.9       8.5       4.4     52  
Net gain on early extinguishment of debt   190.3       5.2       185.1     *     190.3       2.0       188.3     *
Interest expense (A)   (230.0 )     (216.4 )     13.6     6       (677.5 )     (642.6 )     34.9     5  
Income (loss) before income taxes   39.1       (168.3 )     207.4     123       (241.4 )     (444.3 )     202.9     46  
Income tax benefit   (2.2 )     (66.8 )     (64.6 )   (97 )     (67.6 )     (163.4 )     (95.8 )   (59 )
Net income (loss) $ 41.3     $ (101.5 )   $ 142.8     141     $ (173.8 )   $ (280.9 )   $ 107.1     38  
                                 
Weighted average common shares   42.5       36.8       5.7     15       40.2       33.2       7.0     21  
Common shares outstanding   42.9       36.6       6.3     17                  
                                 
Basic and diluted income (loss) per share:                              
Net income (loss)   $.97       ($2.76 )   $ 3.73     135       ($4.32 )     ($8.50 )   $ 4.18     49  
                                 
ADJUSTED RESULTS OF OPERATIONS (B):                              
Adjusted service revenues $ 1,400.1     $ 1,472.4     $ (72.3 )   (5 )   $ 4,260.1     $ 4,431.7     $ (171.6 )   (4 )
Adjusted revenues and sales $ 1,420.6     $ 1,497.7     $ (77.1 )   (5 )   $ 4,319.3     $ 4,504.5     $ (185.2 )   (4 )
Adjusted OIBDAR (C) $ 495.7     $ 490.3     $ 5.4     1     $ 1,502.8     $ 1,489.4     $ 13.4     1  
Adjusted OIBDA (D) $ 331.5     $ 327.0     $ 4.5     1     $ 1,011.3     $ 999.3     $ 12.0     1  
Adjusted capital expenditures (E) $ 187.6     $ 205.2     $ (17.6 )   (9 )   $ 575.9     $ 667.4     $ (91.5 )   (14 )
                                 
* Not meaningful                              
(A) Includes interest expense associated with the master lease agreement with Uniti of $116.2 million and $352.1 million for the three and nine month periods ended September 30, 2018, respectively, as compared to $120.7 million and $365.2 million for the three and nine month periods ended September 30, 2017.
(B) Adjusted results of operations are based upon the combined historical financial information of Windstream and EarthLink for all periods presented.  See Notes to Reconciliation of Non-GAAP Financial Measures.
(C) Adjusted OIBDAR is adjusted OIBDA before the annual cash rent payment due under the master lease agreement with Uniti.
(D) Adjusted OIBDA is operating income before depreciation and amortization, excluding pension expense, share-based compensation expense, restructuring charges, merger, integration and certain other costs.
(E) Adjusted capital expenditures includes applicable amounts for EarthLink for periods prior to the merger date of February 27, 2017 and excludes post-merger integration capital expenditures for Broadview and EarthLink and amounts related to Project Excel, a capital program funded entirely using a portion of the proceeds from the sale of the data center business completed in December 2015.
   
   

 

WINDSTREAM HOLDINGS, INC.                              
UNAUDITED BUSINESS SEGMENT RESULTS UNDER GAAP                              
(In millions) THREE MONTHS ENDED   NINE MONTHS ENDED
    September 30,   September 30,   Increase (Decrease)   September 30,   September 30,   Increase (Decrease)
      2018       2017     Amount   %     2018       2017     Amount   %
Consumer & Small Business                              
  Revenues and sales:                              
  Service revenues $ 458.9     $ 479.0     $ (20.1 )   (4 )   $ 1,395.8     $ 1,468.9     $ (73.1 )   (5 )
  Product sales   7.5       8.3       (0.8 )   (10 )     19.6       27.7       (8.1 )   (29 )
  Total revenue and sales   466.4       487.3       (20.9 )   (4 )     1,415.4       1,496.6       (81.2 )   (5 )
  Costs and expenses   200.3       217.3       (17.0 )   (8 )     593.8       648.6       (54.8 )   (8 )
  Segment income $ 266.1     $ 270.0     $ (3.9 )   (1 )   $ 821.6     $ 848.0     $ (26.4 )   (3 )
                                 
Windstream Enterprise & Wholesale                              
Enterprise                              
  Revenues and sales:                              
  Service revenues $ 716.5     $ 750.3     $ (33.8 )   (5 )   $ 2,179.5     $ 2,122.8     $ 56.7     3  
  Product sales   12.6       16.8       (4.2 )   (25 )     38.8       44.5       (5.7 )   (13 )
  Total revenue and sales   729.1       767.1       (38.0 )   (5 )     2,218.3       2,167.3       51.0     2  
  Costs and expenses   568.2       620.0       (51.8 )   (8 )     1,750.4       1,754.5       (4.1 )   *
  Segment income $ 160.9     $ 147.1     $ 13.8     9     $ 467.9     $ 412.8     $ 55.1     13  
                                 
Wholesale                              
  Revenue and sales:                              
  Service revenues $ 180.9     $ 191.2     $ (10.3 )   (5 )   $ 546.9     $ 566.6     $ (19.7 )   (3 )
  Product sales   0.2       0.1       0.1     100       0.4       0.1       0.3     *
  Total revenue and sales   181.1       191.3       (10.2 )   (5 )     547.3       566.7       (19.4 )   (3 )
  Costs and expenses   54.5       58.1       (3.6 )   (6 )     163.6       171.4       (7.8 )   (5 )
  Segment income $ 126.6     $ 133.2     $ (6.6 )   (5 )   $ 383.7     $ 395.3     $ (11.6 )   (3 )
                                 
Consumer CLEC                              
  Revenues and sales:                              
  Service revenues $ 43.8     $ 51.9     $ (8.1 )   (16 )   $ 137.9     $ 124.1     $ 13.8     11  
  Product sales   0.2       0.1       0.1     100       0.4       0.3       0.1     33  
  Total revenue and sales   44.0       52.0       (8.0 )   (15 )     138.3       124.4       13.9     11  
  Costs and expenses   19.1       27.2       (8.1 )   (30 )     59.6       62.9       (3.3 )   (5 )
  Segment income $ 24.9     $ 24.8     $ 0.1     *   $ 78.7     $ 61.5     $ 17.2     28  
                                 
Total segment revenues and sales:                              
Service revenues $ 1,400.1     $ 1,472.4     $ (72.3 )   (5 )   $ 4,260.1     $ 4,282.4     $ (22.3 )   (1 )
Product sales   20.5       25.3       (4.8 )   (19 )     59.2       72.6       (13.4 )   (18 )
Total segment revenues and sales   1,420.6       1,497.7       (77.1 )   (5 )     4,319.3       4,355.0       (35.7 )   (1 )
Total segment costs and expenses   842.1       922.6       (80.5 )   (9 )     2,567.4       2,637.4       (70.0 )   (3 )
Total segment income   578.5       575.1       3.4     1       1,751.9       1,717.6       34.3     2  
  Other unassigned operating expenses (A)   (103.6 )     (112.0 )     (8.4 )   (8 )     (326.3 )     (322.4 )     3.9     1  
  Merger, integration and other costs   (9.0 )     (33.7 )     (24.7 )   (73 )     (30.4 )     (107.4 )     (77.0 )   (72 )
  Restructuring charges   (6.5 )     (22.8 )     (16.3 )   (71 )     (26.0 )     (33.7 )     (7.7 )   (23 )
  Depreciation and amortization   (383.8 )     (365.4 )     18.4     5       (1,136.3 )     (1,066.3 )     70.0     7  
Operating income $ 75.6     $ 41.2     $ 34.4     83     $ 232.9     $ 187.8     $ 45.1     24  
                                 
(A) These expenses are not allocated to the business segments. Unallocated expenses include stock-based compensation, pension expense, and shared services, such as accounting and finance, information technology, network management, legal, human resources, and investor relations. These expenses are centrally managed and are not monitored by management at a segment level.
 

 

       
WINDSTREAM HOLDINGS, INC.      
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In millions)      
       
  September 30,   December 31,
  2018   2017
Assets      
Current Assets:      
Cash and cash equivalents $ 37.3     $ 43.4  
Accounts receivable (less allowance for doubtful accounts of $24.8 and $29.7, respectively)   649.0       643.0  
Inventories   87.0       93.0  
Prepaid expenses and other   184.3       154.3  
Total current assets   957.6       933.7  
       
Goodwill   2,876.8       2,842.4  
Other intangibles, net   1,300.3       1,454.4  
Net property, plant and equipment   5,049.2       5,391.8  
Deferred income taxes   418.0       370.8  
Other assets   108.2       91.2  
Total Assets $ 10,710.1     $ 11,084.3  
       
Liabilities and Shareholders’ Deficit      
Current Liabilities:      
Current maturities of long-term debt $ 17.9     $ 169.3  
Current portion of long-term lease obligations   206.0       188.6  
Accounts payable   483.4       494.0  
Advance payments and customer deposits   195.2       207.3  
Accrued taxes   93.5       89.5  
Accrued interest   69.9       52.6  
Other current liabilities   308.8       342.1  
Total current liabilities   1,374.7       1,543.4  
       
Long-term debt   5,721.3       5,674.6  
Long-term lease obligations   4,486.5       4,643.3  
Other liabilities   488.5       521.9  
Total liabilities   12,071.0       12,383.2  
       
Shareholders’ Deficit:      
Common stock, $.0001 par value, 75.0 shares authorized, 42.9 and 36.5 shares issued and outstanding, respectively          
Additional paid-in capital   1,247.1       1,191.9  
Accumulated other comprehensive income   44.4       21.4  
Accumulated deficit   (2,652.4 )     (2,512.2 )
Total shareholders’ deficit   (1,360.9 )     (1,298.9 )
Total Liabilities and Shareholders’ Deficit $ 10,710.1     $ 11,084.3  
               

 

               
WINDSTREAM HOLDINGS, INC.              
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)              
  THREE MONTHS ENDED   NINE MONTHS ENDED
  September 30,   September 30,   September 30,   September 30,
  2018   2017   2018   2017
Cash Flows from Operating Activities:              
Net income (loss) $ 41.3     $ (101.5 )   $ (173.8 )   $ (280.9 )
Adjustments to reconcile net income (loss) to net cash provided from operations:              
Depreciation and amortization   383.8       365.4       1,136.3       1,066.3  
Provision for doubtful accounts   11.1       13.8       26.3       33.5  
Share-based compensation expense   7.1       12.8       25.5       45.2  
Deferred income taxes   (2.9 )     (48.0 )     (67.6 )     (145.3 )
Net gain on early extinguishment of debt   (190.3 )     (5.2 )     (190.3 )     (2.0 )
Other, net   5.8       7.6       10.1       15.5  
Changes in operating assets and liabilities, net:              
Accounts receivable   (31.7 )     (24.6 )     (25.9 )     (8.9 )
Prepaid income taxes   0.6       (0.4 )     (4.1 )     (5.6 )
Prepaid expenses and other   (2.7 )     (6.0 )     4.6       (20.3 )
Accounts payable   (29.9 )     25.1       (12.7 )     (31.2 )
Accrued interest   7.7       31.8       17.6       25.0  
Accrued taxes   5.9       1.6       (3.4 )     3.6  
Other current liabilities   16.2       6.9       (2.5 )     (13.2 )
Other liabilities   0.1       (0.3 )     7.1       1.2  
Other, net   (5.6 )     (7.3 )     9.0       (36.3 )
Net cash provided from operating activities   216.5       271.7       756.2       646.6  
Cash Flows from Investing Activities:              
Additions to property, plant and equipment   (196.9 )     (216.4 )     (603.2 )     (724.2 )
Acquisition of Broadview, net of cash acquired         (63.3 )           (63.3 )
Cash acquired from EarthLink                     5.0  
Acquisitions of MASS and ATC, net of cash acquired   (9.3 )           (46.9 )      
Other, net   1.2       2.4       (7.6 )     (9.4 )
Net cash used in investing activities   (205.0 )     (277.3 )     (657.7 )     (791.9 )
Cash Flows from Financing Activities:              
Dividends paid to shareholders         (28.8 )           (64.4 )
Proceeds from issuance of stock   1.1             12.2       9.6  
Repayments of debt and swaps   (127.3 )     (428.4 )     (540.4 )     (1,710.6 )
Proceeds from debt issuance   177.0       564.0       627.0       2,099.6  
Debt issuance costs   (11.9 )           (23.5 )     (7.3 )
Stock repurchases         (19.0 )           (19.0 )
Payments under long-term lease obligations   (48.1 )     (42.7 )     (139.5 )     (124.9 )
Payments under capital lease obligations   (10.4 )     (7.2 )     (38.1 )     (29.2 )
Other, net   0.1       (0.5 )     (2.3 )     (11.1 )
Net cash (used in) provided from financing activities   (19.5 )     37.4       (104.6 )     142.7  
Decrease (increase) in cash and cash equivalents   (8.0 )     31.8       (6.1 )     (2.6 )
Cash and Cash Equivalents:              
Beginning of period   45.3       24.7       43.4       59.1  
End of period $ 37.3     $ 56.5     $ 37.3     $ 56.5  
               

  

               
WINDSTREAM HOLDINGS, INC.              
UNAUDITED SUPPLEMENTAL ADJUSTED OPERATING INFORMATION            
(In thousands)            
  THREE MONTHS ENDED   NINE MONTHS ENDED
  September 30,   September 30,   Increase (Decrease)   September 30,   September 30,   Increase (Decrease)
  2018   2017    Amount   %   2018   2017    Amount   %
Consumer - ILEC customers                              
Households served 1,250.5   1,288.2     (37.7 )   (3 )                
High-speed Internet customers 1,015.0   1,017.4     (2.4 )   *                
Digital television customers 247.1   289.6     (42.5 )   (15 )                
                               
Net household losses 0.8   19.6     (18.8 )   (96 )   18.3   66.4     (48.1 )   (72 )
Net high-speed Internet customer additions (losses) 8.3   (8.4 )   16.7     199     8.4   (33.7 )   42.1     125  
                               
Small Business - ILEC customers 120.5   131.2     (10.7 )   (8 )                
                               
Consumer CLEC customers 605.5   680.6     (75.1 )   (11 )                
                               

 

             
WINDSTREAM HOLDINGS, INC.            
NON-GAAP FINANCIAL MEASURES - ADJUSTED CAPITAL EXPENDITURES AND ADJUSTED FREE CASH FLOW      
(In millions)              
                 
    THREE MONTHS ENDED   NINE MONTHS ENDED
    September 30,   September 30,   September 30,   September 30,
      2018       2017       2018       2017  
  Adjusted Capital Expenditures:              
  Capital expenditures under GAAP $ 196.9     $ 216.4     $ 603.2     $ 724.2  
  EarthLink capital expenditures pre-merger                     15.2  
  Project Excel capital expenditures                     (49.9 )
  Integration capital expenditures   (9.3 )     (11.2 )     (27.3 )     (22.1 )
  Adjusted capital expenditures (A) $ 187.6     $ 205.2     $ 575.9     $ 667.4  
                 
                 
            THREE MONTHS ENDED   NINE MONTHS ENDED
            September 30,   September 30,
              2018       2018  
  Adjusted Free Cash Flow:              
  Operating income under GAAP         $ 75.6     $ 232.9  
  Depreciation and amortization           383.8       1,136.3  
  OIBDA           459.4       1,369.2  
  Adjustments:              
  Merger, integration and other costs           9.0       30.4  
  Restructuring charges           6.5       26.0  
  Other costs (B)           12.9       49.0  
  Pension expense           0.8       2.7  
  Share-based compensation           7.1       25.5  
  Master lease rent payment           (164.2 )     (491.5 )
  Adjusted OIBDA           331.5       1,011.3  
  Adjusted capital expenditures (per above)           (187.6 )     (575.9 )
  Cash paid for interest on long-term debt obligations           (95.4 )     (288.4 )
  Cash refunded for income taxes, net                 15.1  
  Adjusted free cash flow         $ 48.5     $ 162.1  
                 
(A) Adjusted capital expenditures includes applicable amounts for EarthLink for periods prior to the merger date of February 27, 2017 and excludes post-merger integration capital expenditures for Broadview and EarthLink and amounts related to Project Excel, a capital program funded entirely using a portion of the proceeds from the sale of the data center business completed in December 2015.
(B) Other costs primarily include business transformation expenses consisting of consulting fees, incremental marketing and rebranding costs, incremental labor, travel, training and other transition costs related to outsourcing certain support functions. These costs also include incremental network optimization costs incurred in migrating traffic to existing lower costs circuits and terminating contracts prior to their expiration. For a detailed breakdown of these amounts, see note (E) from the "Notes to Reconciliation of Non-GAAP Financial Measures."
   

 

                 
WINDSTREAM HOLDINGS, INC.                
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES                  
(In millions)                  
           
    THREE MONTHS ENDED     NINE MONTHS ENDED
    September 30,   September 30,     September 30,   September 30,
    2018     2017       2018     2017  
Reconciliation of Revenues and Sales under GAAP to Adjusted Revenues and Sales:                  
Service revenues under GAAP   $ 1,400.1     $ 1,472.4       $ 4,260.1     $ 4,282.4  
Adjustments:                  
EarthLink service revenues (A)             (A)         149.3  
Adjusted service revenues     1,400.1       1,472.4         4,260.1       4,431.7  
Product sales under GAAP     20.5       25.3         59.2       72.6  
Adjustments:                  
EarthLink product sales (A)             (A)         0.2  
Adjusted product sales     20.5       25.3         59.2       72.8  
Adjusted revenues and sales $ 1,420.6     $ 1,497.7       $ 4,319.3     $ 4,504.5  
                   
Reconciliation of Net Income (Loss) under GAAP to Adjusted OIBDA:                  
Net income (loss)   $ 41.3     $ (101.5 )     $ (173.8 )   $ (280.9 )
Adjustments:                  
Other income, net (B)   (3.2 )     (1.7 )   (B)   (12.9 )     (8.5 )
Net gain on early extinguishment of debt (B)   (190.3 )     (5.2 )   (B)   (190.3 )     (2.0 )
Interest expense (B)   230.0       216.4     (B)   677.5       642.6  
Income tax benefit (B)   (2.2 )     (66.8 )   (B)   (67.6 )     (163.4 )
Operating income under GAAP (B)   75.6       41.2     (B)   232.9       187.8  
Depreciation and amortization (B)   383.8       365.4     (B)   1,136.3       1,066.3  
Adjustments:                  
EarthLink operating income (C)             (C)         30.8  
Merger, integration and other costs (B)   9.0       33.7     (B)   30.4       107.4  
Restructuring charges (B)   6.5       22.8     (B)   26.0       33.7  
Other costs (E)   12.9       12.8     (E)   49.0       22.3  
Pension expense (B)   0.8       2.0     (B)   2.7       6.1  
Share-based compensation expense (F)   7.1       12.4     (F)   25.5       35.0  
Adjusted OIBDAR     495.7       490.3         1,502.8       1,489.4  
Master lease rent payment (D)   (164.2 )     (163.3 )   (D)   (491.5 )     (490.1 )
Adjusted OIBDA   $ 331.5     $ 327.0       $ 1,011.3     $ 999.3  
                   
See Notes to Reconciliation of Non-GAAP Financial Measures
 

 

                   
WINDSTREAM HOLDINGS, INC.                  
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In millions)   THREE MONTHS ENDED     NINE MONTHS ENDED
    September 30,   September 30,     September 30,   September 30,
    2018     2017       2018     2017  
Reconciliation of Net Cash Provided from Operating Activities to Adjusted OIBDA:                  
Net Cash Provided From Operating Activities   $ 216.5     $ 271.7       $ 756.2     $ 646.6  
Adjustments:                  
Master lease rent payment (D)   (164.2 )     (163.3 )   (D)   (491.5 )     (490.1 )
EarthLink operating income (C)             (C)         30.8  
Merger, integration and other costs (B)   9.0       33.7     (B)   30.4       107.4  
Restructuring charges (B)   6.5       22.8     (B)   26.0       33.7  
Other costs (E)   12.9       12.8     (E)   49.0       22.3  
Other income, net (B)   (3.2 )     (1.7 )   (B)   (12.9 )     (8.5 )
Interest expense (B)   230.0       216.4     (B)   677.5       642.6  
Income tax benefit, net of deferred income taxes     1.3       (18.8 )       0.8       (18.1 )
Provision for doubtful accounts (G)   (11.1 )     (13.8 )   (G)   (26.3 )     (33.5 )
Other noncash adjustments, net (H)   (4.7 )     (6.0 )   (H)   (7.3 )     (19.6 )
Changes in operating assets and liabilities, net (G)   38.5       (26.8 )   (G)   9.4       85.7  
Adjusted OIBDA   $ 331.5     $ 327.0       $ 1,011.3     $ 999.3  
                   
Reconciliation of Net Cash Provided from Operating Activities to Adjusted Free Cash Flow:                  
                   
Net Cash Provided From Operating Activities   $ 216.5           $ 756.2      
Adjustments:                  
Cash paid for interest on long-term debt obligations     (95.4 )           (288.4 )    
Cash refunded for income taxes                 15.1      
Capital expenditures     (196.9 )           (603.2 )    
Integration capital expenditures     9.3             27.3      
Master lease rent payment (D)   (164.2 )       (D)   (491.5 )    
Merger, integration and other costs (B)   9.0         (B)   30.4      
Restructuring charges (B)   6.5         (B)   26.0      
Other costs (E)   12.9         (E)   49.0      
Other income, net (B)   (3.2 )       (B)   (12.9 )    
Interest expense (B)   230.0         (B)   677.5      
Income tax benefit, net of deferred income taxes     1.3             0.8      
Provision for doubtful accounts (G)   (11.1 )       (G)   (26.3 )    
Other noncash adjustments, net (H)   (4.7 )       (H)   (7.3 )    
Changes in operating assets and liabilities, net (G)   38.5         (G)   9.4      
Adjusted Free Cash Flow   $ 48.5           $ 162.1      
                   
See Notes to Reconciliation of Non-GAAP Financial Measures
 

 

WINDSTREAM HOLDINGS, INC.
NOTES TO RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
               
Windstream Holdings, Inc. ("Windstream", "we", "us", "our") has presented in this package unaudited adjusted results, which includes the results of operations of EarthLink Holdings Corp. ("EarthLink") as if the merger with EarthLink had been completed as of January 1, 2016. The adjusted results are based upon the combined historical financial information of Windstream and EarthLink for all periods presented. We have made certain reclassifications to the historical financial information of EarthLink to conform to our presentation. Operating results of Broadview Networks Holdings, Inc. ("Broadview"), Mass Communications ("MASS") and American Telephone Company ("ATC") are included beginning on July 28, 2017, March 27, 2018, and August 31, 2018, respectively, the dates of acquisition.The adjusted results exclude pension costs, share-based compensation expense, restructuring charges, merger, integration and certain other costs. We have presented certain measures of our operating performance, on an adjusted basis, that reflects the impact of the annual cash rent payment due under the master lease agreement with Uniti Group, Inc. ("Uniti").
               
Our purpose for these adjustments is to improve the comparability of results of operations for all periods presented in order to focus on the true earnings capacity of our core business operations and our ability to generate cash flow. We use adjusted results, including adjusted OIBDA, adjusted OIBDAR, adjusted free cash flow and adjusted capital expenditures as key measures of the operational performance of our business. Our management, including the chief operating decision-maker, consistently uses these measures for internal reporting and the evaluation of business objectives, opportunities and performance.
   
(A) Represents EarthLink revenues and sales prior to the merger date of February 27, 2017.
(B) Represents applicable amount as reported under GAAP - See Unaudited Consolidated Statements of Operations.
(C) Represents EarthLink operating results for periods prior to the merger date of February 27, 2017.  These amounts exclude EarthLink's historical depreciation and amortization, restructuring, merger and integration costs and share-based compensation.
(D) Represents the impact of the annual cash rent payment due under the master lease agreement with Uniti.
(E) Other costs for the three and nine month periods ended September 30, 2018, primarily include business transformation expenses of $12.9 million and $49.0 million, respectively, consisting of consulting fees, incremental marketing and rebranding costs, incremental labor, travel, training and other transition costs related to outsourcing certain support functions of $6.8 million and $30.7 million, respectively. These costs also include $6.1 million and $17.7 million, respectively, of incremental network optimization costs incurred in migrating traffic to existing lower costs circuits and terminating contracts prior to their expiration. Comparatively, for the three month period ended September 30, 2017, other costs primarily consist of incremental expenses of $2.9 million related to Hurricanes Harvey and Irma and $8.3 million of costs incurred with a carrier access settlement. Other costs also include a reserve for a potential penalty attributable to not meeting certain spend commitments under a circuit discount plan of approximately of $7.7 million during the nine month period ended September 30, 2017.
(F) The three and nine month periods ended September 30, 2017 excludes $0.4 million and $10.2 million of share-based compensation expense included in merger, integration and other costs, respectively.
(G) Represents applicable amount reported under GAAP - See Unaudited Consolidated Statements of Cash Flows.
(H) Consists of non-cash amortization of debt issuance costs, debt discounts and premiums, accretion expense related to asset retirement obligations, gains on the sale of property, and other non-cash miscellaneous income and expenses.
               

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Source: Windstream Holdings, Inc.