Windstream Corporation
May 8, 2014
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Windstream Reports First-Quarter Results

Company Affirms Full-Year Financial Guidance

LITTLE ROCK, Ark., May 8, 2014 (GLOBE NEWSWIRE) -- Windstream (Nasdaq:WIN) today reported first-quarter results highlighted by improved year-over-year revenue trends and strong adjusted free cash flow.

"Total revenue trends improved both year-over-year and sequentially as wholesale pressures began to abate," said Jeff Gardner, president and CEO. "We are very focused on improving business revenue trends and are taking many proactive steps to accelerate sales and strengthen our competitive position. In addition, we are investing in both the business and consumer network to drive growth opportunities and improve the customer experience."

Pro Forma Financial Results

Total revenues and sales were $1.5 billion in the first quarter, a decline of 2 percent from the same period a year ago.

Excluding carrier service revenue, business service revenue was $748 million, largely flat year-over-year. Data and integrated services grew 3 percent in the first quarter from the same period a year ago to $414 million due to sales of IP-based solutions and next generation data. Data center and managed services revenues, which total approximately $30 million, increased 23 percent from the same period a year ago.

Enterprise customer locations grew 3 percent from the same period a year ago, and average revenue per business customer increased 8 percent year-over-year.

Windstream implemented new initiatives during the quarter to enhance business sales and productivity. The company also launched an expanded advertising campaign to increase brand awareness and highlight its integrated value proposition and customized service.

"We are seeing positive momentum as the new marketing program gains traction. This momentum, combined with pricing initiatives planned for mid-year, should result in improving business revenue trends," Gardner said.

Carrier revenue was $162 million, down 3 percent from the same period a year ago, pressured by wireless carriers decommissioning legacy circuits and other transport related network grooming. The decline was partially offset by solid growth in fiber-to-the-tower revenues. Windstream deployed fiber to 95 towers during the quarter, bringing the total number of towers completed to date to almost 4,600 with another 300 under construction.

Consumer broadband service revenues in the first quarter were $120 million, up 2 percent from the same period in 2013. Broadband subscriber additions were essentially flat, representing the best performance in the last six quarters.

Overall consumer service revenues in the first quarter were $313 million, a decrease of 4 percent from the same period a year ago.

"We achieved meaningful financial and operating improvements in our consumer business in the quarter. This progress was driven by an increased focus on marketing and sales, as well as network enhancements and expansion," Gardner said.

Wholesale revenues in the first quarter were $142 million, a decrease of 7 percent from the same period a year ago primarily due to a decline in switched access revenue from lower intrastate access rates and fewer minutes of use.

In the first quarter, adjusted OIBDA was $540 million and adjusted capital expenditures were $153 million. Adjusted free cash flow was $314 million, an increase of 27 percent year-over-year due to declining fiber-to-the-tower investments and lower cash interest. The company returned $150 million to shareholders in the form of dividends during the quarter.

Windstream also affirmed its previously provided financial guidance for 2014. Guidance includes total revenue for the year within a range of a 2.5 percent decline to a 1 percent increase as compared to 2013 revenue; adjusted capital expenditures ranging from $800 million to $850 million, and adjusted free cash flow of $775 million to $885 million, resulting in a dividend payout ratio ranging from 68 percent to 78 percent for the year.

GAAP Financial Results

In the first quarter under Generally Accepted Accounting Principles (GAAP), Windstream reported total revenues and sales of $1.46 billion and net income of $16 million, or 2 cents per share. That compares to total revenues and sales of $1.50 billion and net income of $52 million, or 9 cents per share, during the same period in 2013.

GAAP results include approximately 2 cents in after-tax merger and integration, restructuring and other expense. Excluding these items, adjusted earnings per share would have been 4 cents for the first quarter.

Conference Call

Windstream will hold a conference call at 7:30 a.m. CDT today to review the company's first-quarter earnings results.

To access the call:

Interested parties can access the call by dialing 1-877-374-3977, conference ID 24524892, ten minutes prior to the start time.

To access the call replay:

A replay of the call will be available beginning at 10:30 a.m. CDT today and ending at midnight on May 15. The replay can be accessed by dialing 1-855-859-2056, conference ID 24524892.

Webcast information:

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. CDT today.

About Windstream

Windstream (Nasdaq:WIN), a FORTUNE 500 and S&P 500 company, is a leading provider of advanced network communications, including cloud computing and managed services, to businesses nationwide. The company also offers broadband, phone and digital TV services to consumers primarily in rural areas. For more information, visit www.windstream.com.

Pro forma results adjust results of operations under GAAP to exclude all merger and integration costs related to strategic transactions. A reconciliation of pro forma results to the comparable GAAP measures is available on the company's Web site at www.windstream.com/investors.

OIBDA is operating income before depreciation and amortization and merger and integration costs. Adjusted OIBDA adjusts OIBDA for the impact of restructuring charges, pension expense and stock-based compensation. Adjusted capital expenditures exclude the impact of integration-related capital expenditures. Adjusted free cash flow is adjusted OIBDA, excluding merger and integration expense, minus cash interest, cash taxes and adjusted capital expenditures.

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, Windstream's 2014 guidance for revenue, adjusted OBIDA, adjusted capital expenditures, adjusted free cash flow, dividend payout ratio and cash tax payments for 2014. These statements, along with other forward-looking statements, including statements regarding Windstream's business outlook, expectations for improved revenue trends and sales growth, adjusted OIBDA margins for 2014, current capital allocation strategy, capital expenditure levels, current dividend practice, the company's ability to generate, and amount of, cash flows in future periods, and completion of systems conversion, 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.

Factors that could cause actual results to differ materially from those contemplated in Windstream's forward-looking statements include, among others:

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.

         
WINDSTREAM HOLDINGS, INC.        
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME        
(In millions, except per share amounts) THREE MONTHS ENDED
      Increase  
  March 31, March 31, (Decrease)  
  2014 2013 Amount %
UNDER GAAP:        
Revenues and sales:        
Service revenues  $ 1,419.7  $ 1,451.3  $ (31.6)  (2)
Product sales  45.2  45.2  —  —
Total revenues and sales  1,464.9  1,496.5  (31.6)  (2)
Costs and expenses:        
Cost of services (exclusive of depreciation and amortization included below)  644.6  641.2  3.4  1
Cost of products sold  41.1  42.6  (1.5)  (4)
Selling, general and administrative  252.2  237.5  14.7  6
Depreciation and amortization  338.9  329.3  9.6  3
Merger and integration costs  7.4  5.1  2.3 45
Restructuring charges  12.9  4.9  8.0  *
Total costs and expenses  1,297.1  1,260.6  36.5  3
Operating income  167.8  235.9  (68.1)  (29)
Other income, net  0.9  2.3  (1.4)  (61)
Loss on early extinguishment of debt  —  (13.8)  13.8 *
Interest expense  (141.9)  (168.9)  27.0  (16)
Income from continuing operations before income taxes  26.8  55.5  (28.7)  (52)
Income taxes  10.8  3.5  7.3 *
Income from continuing operations  16.0  52.0  (36.0)  (69)
Discontinued operations, net of tax  —  0.3  (0.3) *
Net income  $ 16.0  $ 52.3  $ (36.3)  (69)
         
Weighted average common shares  594.1  586.6  7.5  1
Common shares outstanding  602.7  592.7  10.0  2
         
Basic and diluted earnings per share:        
Net income  $.02  $.09  ($.07)  (78)
         
PRO FORMA RESULTS OF OPERATIONS (A):        
OIBDA (B)  $ 514.1  $ 570.3  $ (56.2)  (10)
Adjusted OIBDA (C)  $ 540.4  $ 586.3  $ (45.9)  (8)
Adjusted capital expenditures (D)  $ 153.0  $ 233.9  $ (80.9)  (35)
         
* Not meaningful        
(A) Pro forma results adjusts results of operations under GAAP to exclude all merger and integration costs related to strategic transactions. For further details on these adjustments, see the Notes to Unaudited Reconciliation of Operating Income and Capital Expenditures Under GAAP to Pro Forma Adjusted OIBDA and Pro Forma Adjusted Capital Expenditures.
(B) OIBDA is operating income before depreciation and amortization and merger and integration costs.
(C) Adjusted OIBDA adjusts OIBDA for the impact of restructuring charges, pension expense and share-based compensation. For further details on these adjustments, see the Notes to Unaudited Reconciliation of Operating Income and Capital Expenditures Under GAAP to Pro Forma Adjusted OIBDA and Pro Forma Adjusted Capital Expenditures.
(D) Adjusted capital expenditures exclude the impact of integration-related capital expenditures. For further details on these adjustments, see the Notes to Unaudited Reconciliation of Operating Income and Capital Expenditures Under GAAP to Pro Forma Adjusted OIBDA and Pro Forma Adjusted Capital Expenditures.
         
WINDSTREAM HOLDINGS, INC.        
UNAUDITED SUPPLEMENTAL OPERATING INFORMATION    
(In thousands)        
  THREE MONTHS ENDED
      Increase  
  March 31, March 31, (Decrease)  
  2014 2013 Amount %
         
Business operating metrics:        
Customer locations (A)        
Enterprise (B)  212.2  207.0  5.2  3
Small business (C)  385.8  421.5  (35.7)  (8)
Total customer locations  598.0  628.5  (30.5)  (5)
Net customer location losses  (7.7)  (6.8)  (0.9)  13
         
Total Business Customers  378.7  409.4  (30.7)  (7)
         
Carrier special access circuits (D)  93.4  103.6  (10.2)  (10)
         
Consumer operating metrics:        
Voice lines  1,703.2  1,812.9  (109.7)  (6)
High-speed Internet  1,170.4  1,205.9  (35.5)  (3)
Digital television customers  398.9  421.1  (22.2)  (5)
Total consumer connections  3,272.5  3,439.9  (167.4)  (5)
         
Net voice line losses  (19.1)  (29.0)  9.9  (34)
Net high-speed Internet losses  (0.5)  (8.6)  8.1  (94)
         
         
(A) Business customer locations include each individual location to which we provide service and exclude carrier special access circuits.
(B) Enterprise locations represent customer relationships that generate $750 or more in revenue per month.
(C) Small business locations represent customer relationships that generate less than $750 in revenue per month.
(D) Carrier special access circuits are dedicated circuits purchased by telecommunication carriers to transport traffic from wireless towers, between points on their network or from their network to a customer location.
             
WINDSTREAM HOLDINGS, INC.            
UNAUDITED CONSOLIDATED BALANCE SHEETS UNDER GAAP        
(In millions)            
             
ASSETS               LIABILITIES AND SHAREHOLDERS' EQUITY    
             
  March 31, December 31,     March 31, December 31,
  2014 2013     2014 2013
CURRENT ASSETS:       CURRENT LIABILITIES:    
             
Cash and cash equivalents  $ 70.0  $ 48.2   Current maturities of long-term debt  $ 88.7  $ 85.0
Restricted cash  10.6  9.7   Current portion of interest rate swaps  30.8  30.0
Accounts receivable, net  632.7  635.3   Accounts payable  355.9  385.9
Inventories  70.4  67.7   Advance payments and customer deposits  222.0  223.5
Deferred income taxes  167.5  241.5   Accrued dividends  151.9  151.1
Prepaid income taxes  24.1  29.7   Accrued taxes  89.0  104.2
Prepaid expenses and other  168.1  152.7   Accrued interest  170.1  103.5
        Other current liabilities  319.2  362.4
             
Total current assets  1,143.4  1,184.8   Total current liabilities  1,427.6  1,445.6
             
Goodwill  4,331.4  4,331.4   Long-term debt  8,617.6  8,622.2
Other intangibles, net  1,954.5  2,020.1   Deferred income taxes  1,968.0  2,038.3
Net property, plant and equipment  5,610.1  5,702.6   Other liabilities  503.9  498.3
Other assets  200.4  205.7   Total liabilities  12,517.1  12,604.4
             
             
        SHAREHOLDERS' EQUITY:    
        Common stock  0.1  0.1
        Additional paid-in capital  703.3  811.6
        Accumulated other comprehensive income  19.3  28.5
        Retained earnings  —  —
        Total shareholders' equity  722.7  840.2
             
TOTAL ASSETS  $ 13,239.8  $ 13,444.6   TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  $ 13,239.8  $ 13,444.6
     
     
WINDSTREAM HOLDINGS, INC.    
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS UNDER GAAP    
(In millions)    
  THREE MONTHS ENDED
  March 31, March 31,
  2014 2013
Cash Provided from Operations:    
Net income  $ 16.0  $ 52.3
Adjustments to reconcile net income to net cash provided from operations:    
Depreciation and amortization  338.9  329.5
Provision for doubtful accounts  12.3  16.1
Share-based compensation expense  13.7  12.4
Deferred income taxes  9.3  26.9
Unamortized net premium on retired debt  —  (38.7)
Amortization of unrealized losses on de-designated interest rate swaps  4.2  13.2
Plan curtailment and other, net  (4.9)  (22.6)
     
Changes in operating assets and liabilities, net:    
Accounts receivable  (9.7)  3.9
Prepaid income taxes  5.6  (3.3)
Prepaid expenses and other  (20.1)  (25.6)
Accounts payable  (46.1)  (69.2)
Accrued interest  66.0  47.2
Accrued taxes  (15.2)  (8.1)
Other current liabilities  (32.4)  (31.6)
Other liabilities  (3.3)  (16.1)
Other, net  (14.5)  18.3
Net cash provided from operations  319.8  304.6
     
Cash Flows from Investing Activities:    
Additions to property, plant and equipment  (153.0)  (243.5)
Broadband network expansion funded by stimulus grants  (7.1)  (11.9)
Changes in restricted cash  (0.9)  7.6
Grant funds received for broadband stimulus projects  11.4  13.3
Grant funds received from Connect America Fund  26.0  —
Net cash used in investing activities  (123.6)  (234.5)
     
Cash Flows from Financing Activities:    
Dividends paid to shareholders  (150.2)  (148.1)
Repayments of debt and swaps  (331.6)  (2,164.9)
Proceeds of debt issuances  325.0  2,195.0
Debt issuance costs  —  (19.6)
Payments under capital lease obligations  (7.8)  (4.0)
Other, net  (9.8)  (6.1)
Net cash used in financing activities  (174.4)  (147.7)
     
Increase (decrease) in cash and cash equivalents  21.8  (77.6)
     
Cash and Cash Equivalents:    
Beginning of period  48.2  132.0
End of period  $ 70.0  $ 54.4
         
WINDSTREAM HOLDINGS, INC.        
UNAUDITED RECONCILIATION OF OPERATING INCOME AND CAPITAL EXPENDITURES UNDER GAAP TO PRO FORMA (A)      
ADJUSTED OIBDA AND PRO FORMA ADJUSTED CAPITAL EXPENDITURES (NON-GAAP)      
(In millions)