Frontier Posts $5.2B Loss That Includes $5.4B Goodwill Write-Down

Frontier Communications continued to bleed subscribers and money, including a $5.4-billion write-down due to long-term business prospects, during its second quarter.

The operator reported net loss of $5.32 billion, or $51.07 per diluted share, for the quarter ended June 30, compared to a loss of $72 million, or $0.72 per share, in the year-ago period. Frontier earned revenue of $2.07 billion, a drop of 4.4% from $2.16 billion 12 months earlier.

The $5.4 billion goodwill impairment includes losses on Frontier's anticipated sale of operations and assets in Washington, Oregon, Idaho and Montana, as well as $31 million in restructuring expenses, Frontier said in a release. It has $276 million in remaining goodwill, which can include "brand value and other factors," and cautioned that more impairments are possible.

"The impairment reflects, among other things, our expectation of continued revenue declines because of pressures on the business, reduced expectations for the transformation program, the long-term sustainability of our capital structure, a lower outlook for our overall industry and the cumulative impact of all these factors on business trends going forward," Frontier said in its earnings release.

Drilling down further into the numbers, Frontier's Q2 adjusted EBITDA was $882 million -- an adjusted EBITDA margin of 42.7% -- up $26 million from Q1 2019, but down 49.7% year-over-year from $1.76 billion in Q2 2018. Frontier attributed the uptick in quarter-over-quarter to $10 million in reduced expenses plus the "benefits from our transformation program," the release said. The operator also deferred hiring and certain investments, it added. Frontier lost subscribers and revenue across its broadband services: Fiber broadband subs declined by 10,000, while consumer copper broadband subs fell 46,000, it said. Broadband accounted for 40% of consumer revenue.

Churn increased to 2.14% in Q2 from 1.99% in the Q1 2019 and 1.94% a year ago. Frontier cited ongoing industry pressure and bill credits from competitors, but local news reports make note other factors. From a blistering report about service in the state of California to lawsuits by 150 consumers in one region (subscription required), Frontier has challenges.

In the commercial space, Frontier generated $922 million in Q2 revenue from 390,000 customers. By comparison, last quarter it earned $932 million from 400,000 commercial accounts. Wholesale, which accounts for slightly more than half Frontier's commercial revenue, declined a minimal 0.5% sequentially. Commercial SME revenue dropped 1.8% sequentially, mainly due to the ongoing reduction in voice revenue, which represents about half SME revenue, Frontier said.

Rural broadband
For years, Frontier has participated in government programs to deploy broadband to underserved and unserved regions. The last three months were no exception, and Frontier served more households using Connect America Fund Phase II (CAF II) monies.

"In Q2 we enabled 12,000 households through the CAF II program," Frontier President and CEO Dan McCarthy said during Tuesday's earnings call, according to a Seeking Alpha transcript. "We expect to enable more than 100,000 additional locations through the remainder of 2019."

As CAF II sunsets in a couple of years and the Federal Communications Commission replaces it with a new offering, Frontier is unsure how this will impact the provider's bottom line, he said.

"Our current level of CAF II subsidy is approximately $332 million per year and favorably impacts EBITDA," said McCarthy. "It would be premature to speculate on the economics of any new program, but we do anticipate that the reverse auction approach may have terms that are less favorable to Frontier than the existing program. We intend to be part of the process with the FCC and look forward to receiving more details on the design of this plan as it proceeds."

Related posts:

• Rural Is Central to Frontier's $1.35B Broadband Sale
• Frontier Raises Its Broadband Game
• Frontier Names Treasurer as Interim CFO

— Alison Diana, Editor, Broadband World News. Follow us on Twitter or @alisoncdiana.