Frontier Communications reportedly is seeking a new CEO and leadership team to manage the service provider after it announced yet one more quarter of financial and subscriber losses, Bloomberg reported today, citing people knowledgeable about the issue.
The operator, which has suffered multiple quarters of financial losses, carries a debt of $17.5 billion. Creditors and analysts have recommended, in some cases aggressively, measures that include bankruptcy to deal with this heavy financial burden. Apparently dissatisfied with the lack of progress to date, some advisers have started seeking a potential replacement for CEO Dan McCarthy, who's held the role since 2015, these sources told Bloomberg. (They asked not to be identified, given the sensitivity of the subject.)
A Frontier representative told Bloomberg the company does not respond to speculation. McCarthy could not be reached for comment.
In its third-quarter earnings, released November 5, Frontier reported revenue of $1.9 billion, down 6.1% from $2.1 billion in the prior quarter. Net loss for Q3 was $345 million, accounting for a net loss per common share of $3.31. This net loss included a $276 million in goodwill impairment before and after tax, resulting in the net goodwill balance being zero at the end of the third quarter. There was an additional $30 million loss on the anticipated sale of broadband operations and assets in Washington, Oregon, Idaho and Montana to WaveDivision Capital and Searchlight Capital Partners.
Third-quarter adjusted EBITDA was $804 million, or an adjusted EBITDA margin of 40.3%. In Q2 2019, adjusted EBITDA was $882 million. The $70 million sequential decline in revenue, which included a $17 million sequential increase in accounts receivable reserves and an increase in adjusted operating expenses of $8 million, drove most of the adjusted EBITDA drop.
The number of consumer fiber subscribers dropped 1,000; consumer copper broadband users declined 52,000 and churn increased to 2.24% compared with the prior three months. In addition, Frontier lost 9,000 commercial customers, and wholesale revenue decreased 7% sequentially, driven by a $17 million increase in accounts receivables reserves for wholesale billing disputes and declines in legacy data products and Ethernet, Frontier said. Wholesale represented approximately half of commercial revenue in the third quarter. Wireless backhaul, which accounts for about 3% of total company revenue, declined 2%. Commercial SME revenue fell approximately 1% sequentially.
Frontier's broadband subscribers decreased about 5% year-over-year to 3.8 million at the end of September, with many going to top US cable operators such as Charter and Comcast, which gained 334,000 and 266,000 data subs, respectively, in the third quarter, a Market Realist blog reported.
In addition, the blog cited Frontier's poor stock performance compared with its competitors. While Frontier's stock has dropped 40.8% year-to-date and generated a return of -42% in the trailing one-month period and -49.7% in the trailing 12-month timeframe, Windstream Holdings fell 46.8% and AT&T's stock decreased 7.2% in the trailing year. On the other hand, CenturyLink's share price grew 29.6% and Verizon's share increased 28.2%, the blog said. Activist group Elliot Management Corp., which shook up AT&T, and Franklin Resources now hold almost half Frontier's bonds combined. They've teamed with law firm Akin Gump and investment bank Ducera Partners. Another group of creditors -- including GoldenTree Asset Management -- have affiliated with Houlihan Lokey and Mitbank. For its part, Kirkland & Ellis and Evercore are advising Frontier, Bloomberg reported.
Frontier executives did nothing to allay analysts' concerns because they did not engage with earnings-call attendees in the usual Q&A following prepared remarks. Instead, they read their presentations, then ended the call without taking questions.
— Alison Diana, Editor, Broadband World News. Follow us on Twitter or @alisoncdiana. Like what you read: Sign up for our weekly newsletter.