FairPointCommunications, Inc. (Nasdaq: FRP) has announced its financial results for the first quarter endedMarch 31, 2014."I am pleased with the continuing trends in the business — our Adjusted EBITDA and Unlevered Free Cash Flow continue to be on track although quarterly revenue was somewhat lower than expected," saidPaul H. Sunu, Chief Executive Officer. "We saw a renewal of the trend of broadband subscriber growth and continued strength in our Ethernet products in the quarter, which provide momentum for the balance of the year."
Operating Highlights
-- Unlevered Free Cash Flow of $28.1 million
-- Adjusted EBITDA1 of $64.2 million
-- Capital expenditures of $28.1 million
-- Net loss of $32.2 million
FairPoint's revenue transformation strategy continued with positive momentum in its growth-oriented services. The Company experienced revenue growth in business, advanced data services such as Ethernet, high-capacity data transport and other IP-based services along with broadband services.
In the first quarter of 2014, data and Internet services revenue grew 10.9% versus a year ago as products likeFairPoint's retail Ethernet service offerings continued to attract new customers and broadband subscribers increased. Data and Internet services revenue increased sequentially in the first quarter, which is an increase for the fifth consecutive quarter.
Ethernet services contributed approximately$19.9 millionof revenue in the first quarter of 2014 as compared to$14.9 milliona year ago, as retail and wholesale Ethernet circuits grew 56.6% year-over-year. Growth in the Company's Ethernet products is expected to continue based on demand from customers like regional banks, healthcare networks and wireless carriers.
FairPointhas continued to invest in its broadband network to increase capacity, broaden its reach and offer more competitive services. Broadband subscribers grew by over 1,700 subscribers quarter-over-quarter, or 0.5% as penetration reached 38.4% of the Company's voice access lines atMarch 31, 2014. We continue to see strong interest in our broadband products and a lessening impact on our subscriber count from our continuing effort to improve the credit profile of customers.
Voice access lines declined 6.8% year-over-year as compared to 7.8% a year ago. The slower decline was driven by a reduction in the rate of loss in residential voice, business voice and wholesale access lines.
As ofMarch 31, 2014,FairPointhad 3,166 employees, a decrease of 4.7% versus a year ago, largely due to the completion of a previously announced workforce reduction.
Two of the Company's collective bargaining agreements that cover the majority of its represented employees in Northern New England expire in August 2014. OnApril 25, 2014, the Company participated in the first of the scheduled bargaining sessions and began good faith negotiations for successor collective bargaining agreements.
Financial Highlights
First Quarter 2014 as compared to Fourth Quarter 2013
Revenue decreased$2.8 millionduring the first quarter of 2014 to$230.6 million.
- Voice services declined$3.0 millionresulting from fewer lines in service, promotional discounts on certain residential products that have now been discontinued and seasonality;
- Access revenue declined$3.8 millionprimarily due to fourth quarter 2013 revenue assurance activities that did not recur to the same extent in the first quarter of 2014 partially offset by lower service quality penalties;
- Data and Internet services increased$0.7 millionreflecting continued strength in retail Ethernet; and
- Other services increased$3.3 millionprimarily driven by non-recurring revenue from certain special purpose construction projects.
Adjusting for items that are added back in the computation of Adjusted EBITDA, operating expenses were$166.4 millionin the first quarter of 2014 compared to$166.2 millionin the fourth quarter of 2013.
Adjusted EBITDA was$64.2 millionin the first quarter of 2014 compared to$67.2 millionin the fourth quarter of 2013. The decrease is primarily due to decreased revenue.
Capital expenditures were$28.1 millionin the first quarter of 2014 compared to$37.2 millionin the fourth quarter of 2013.
Unlevered Free Cash Flow, which measures Adjusted EBITDA minus capital expenditures, pension contributions and cash payments for other post-employment benefits ("OPEB"), was$28.1 millionin the first quarter of 2014 compared to$21.1 millionin the fourth quarter of 2013. Unlevered Free Cash Flow was higher in the first quarter of 2014 primarily due to lower capital expenditures.
Net loss was$32.2 millionin the first quarter of 2014 compared to net income of$6.1 millionin the fourth quarter of 2013. The change was due primarily to a$19.4 milliondecrease in income tax benefit due to a change in the valuation allowance as well as an increase in loss from operations of$15.9 millionfrom lower revenue and higher GAAP expenses, primarily related to expense for compensated absences (paid time-off). The expense for compensated absences for certain employees is accrued in the first quarter of 2014 and released as paid time-off is incurred.
Cash was$31.7 millionas ofMarch 31, 2014compared to$42.7 millionas ofDecember 31, 2013. The decrease is primarily due to the scheduled interest payment towards the Company's senior notes and the payment of 2013 annual performance bonuses in the first quarter. Total gross debt outstanding was$933.6 millionas ofMarch 31, 2014, after taking into consideration the regularly scheduled principal payment of$1.6 millionon the term loan made during the first quarter of 2014, as compared to$935.2 millionas ofDecember 31, 2013. The Company's$75.0 millionrevolving credit facility is undrawn, with$59.1 millionavailable for borrowing after applying$15.9 millionof outstanding letters of credit.
First Quarter 2014 as compared to First Quarter 2013
Revenue was$230.6 millionin the first quarter of 2014 compared to$235.5 milliona year earlier.
- Voice services declined$8.2 millionresulting from the loss of voice access lines versus a year ago combined with lower long distance usage and promotional discounts on certain residential products that have now been discontinued;
- Access revenue declined$4.7 milliondue to decreased special access revenue driven by the continued conversion of legacy services to next generation fiber-based services and the exit from one National Exchange Carrier Association ("NECA") pool in the third quarter of 2013 partially offset by an increase in wholesale Ethernet revenue driven by legacy conversion and lower service quality penalties;
- Data and Internet services increased$4.2 millionreflecting strength in retail Ethernet services and broadband subscriber growth; and
- Other services increased$3.8 millionprimarily driven by non-recurring revenue from certain special purpose construction projects.
Adjusting for the impact of the sale of theIdaho-based operations onJanuary 31, 2013and the exit from one NECA pool, revenue declined$2.5 millionversus a year earlier.
Adjusting for items that are added back in the computation of Adjusted EBITDA, operating expenses were$166.4 millionin the first quarter of 2014 compared to$171.8 milliona year earlier. The decrease was primarily the result of lower employee costs and lower bad debt expenses.
Adjusted EBITDA was$64.2 millionin the first quarter of 2014 compared to$63.9 milliona year earlier. The increase is due to operating cost savings offset by lower revenue.
Capital expenditures were$28.1 millionin the first quarter of 2014 compared to$29.9 milliona year earlier.
Unlevered Free Cash Flow of$28.1 millionin the first quarter of 2014 declined compared to$32.9 milliona year earlier. The decrease was due primarily to a$7.5 millionpension contribution in the first quarter of 2014 compared to no contributions in the first quarter of 2013.
Net loss was$32.2 millionin the first quarter of 2014 compared to a net loss of$47.5 millionin the first quarter of 2013. The change was due primarily to lower operating expenses offset by lower income tax benefit, primarily due to a change in the valuation allowance, lower revenue and increased interest expense. The first quarter of 2013 included a loss on debt refinancing and a gain on the sale of theIdaho-based operations onJanuary 31, 2013.
2014 Guidance
FairPoint's fiscal year 2014 guidance remains unchanged.
The Company expects to generate$930 million to $940 millionin revenue, yielding$100 million to $110 millionof Unlevered Free Cash Flow. Unlevered Free Cash Flow refers to Adjusted EBITDA minus capital expenditures, pension contributions and cash payments for OPEB. In addition, for fiscal 2014, Adjusted EBITDA is expected to be$260 million to $270 millionand capital expenditures are expected to be approximately$125 million. Aggregate cash pension contributions and cash OPEB payments are expected to be approximately$35 million.
Quarterly Report
The information in this press release should be read in conjunction with the financial statements and footnotes contained in the Company's quarterly report on Form 10-Q for the three months endedMarch 31, 2014, which will be filed with the SEC no later thanMay 12, 2014. The Company's results for the quarter endedMarch 31, 2014are subject to the completion of such quarterly report.
FAIRPOINTCOMMUNICATIONS, INC.
Supplemental Financial Information
(Unaudited)
(in thousands, except operating and financial metrics)
1Q14
4Q13
3Q13
2Q13
1Q13
Summary Income Statement:
Revenue:
Voice services
$
95,495
$
98,510
$
101,272
$
101,660
$
103,717
Access
76,940
80,763
80,182
79,235
81,632
Data and Internet services
42,343
41,645
41,550
40,054
38,174
Other services
15,779
12,478
12,985
13,551
11,946
Total revenue
230,557
233,396
235,989
234,500
235,469
Operating expenses:
Operating expenses, excluding depreciation, amortization and reorganization
198,582
185,964
187,166
192,246
205,497
Depreciation and amortization
54,071
53,605
52,877
84,523
91,433
Reorganization (income) expense (post-emergence)
18
19
(229)
(398)
(163)
Total operating expenses
252,671
239,588
239,814
276,371
296,767
Loss from operations
(22,114)
(6,192)
(3,825)
(41,871)
(61,298)
Other income (expense):
Interest expense
(20,008)
(20,272)
(20,304)
(20,097)
(18,002)
Loss on debt refinancing
—
—
—
—
(6,787)
Other income (expense), net
215
3,477
951
10
425
Total other expense
(19,793)
(16,795)
(19,353)
(20,087)
(24,364)
Loss from continuing operations before income taxes
(41,907)
(22,987)
(23,178)
(61,958)
(85,662)
Income tax benefit
9,670
29,090
14,218
18,850
28,133
Net income (loss) from continuing operations
(32,237)
6,103
(8,960)
(43,108)
(57,529)
Gain on sale of discontinued operations
—
—
—
—
10,044
Net income (loss)
$
(32,237)
$
6,103
$
(8,960)
$
(43,108)
$
(47,485)
CHARLOTTE, N.C.,May 5, 2014/PRNewswire/ --FairPoint Communications, Inc. FairPoint Communications, Inc. (Nasdaq: FRP) provides advanced data, voice and video technologies to single and multi-site businesses, public and private institutions, consumers, wireless companies and wholesale re-sellers in 17 states. Leveraging an owned, fiber-core Ethernet network - including more than 16,000 route miles of fiber in northern New England - FairPoint has the network coverage, scalable bandwidth and transport capacity to support enhanced applications, including the next generation of mobile and cloud-based communications, such as small cell wireless backhaul technology, voice over IP, data center colocation services, managed services and disaster recovery. For more information, visit www.FairPoint.com.