3Q10 Earnings: Frontier Communications

Source: Frontier Press Release

Frontier Communications (NYSE:FTR) reported 3Q10 results on November 8, 2010.  "Our Verizon transaction is off to a strong start with customer metrics stabilized, over $60 million of synergies realized during the third quarter, and broadband expansion to thousands of new homes and businesses," said Maggie Wilderotter, chairman & ceo of FTR. "Frontier's local customer engagement and dedicated employees once again drove solid quarterly performance. We made an excellent start toward our target of 85% broadband coverage, and we are increasing our synergy estimate to $550 million, all while generating healthy free cash flow that safely covered our $0.75 annual dividend."

3Q10 Highlights:

• Revenue for 3Q10 was $1.4b as compared to $526m in 3Q09. Revenue of $890m is attributable to the acquired Verizon properties for the three months ended September 30, 2010.
• Operating income of $234m for 3Q10.
• Net income attributable to common shareholders of $29m, or $0.03 per share, as compared to $52m, or $0.17 per share, in 3Q09. 
• After excluding $78.5m for acquisition and integration costs, net income attributable to common shareholders for the 3Q10 would have been $78.1m, or $0.08 per share.
• Capital expenditures were $174.6m for 3Q10 and $330.3m for the first nine months of 2010, including $15.6m for 3Q10 and $77.9m for the first nine months of 2010 related to Verizon integration activities.
• Operating cash flow, as adjusted, was $671.5m for 3Q10 resulting in an operating cash flow margin of 47.9%. Operating cash flow, as reported, of $573.9m has been adjusted to exclude $78.5m of acquisition and integration costs, $12.1m of non-cash pension and other postretirement benefit costs, and $7.0m of severance and early retirement costs for 3Q10.
• Free cash flow was $339.1m for 3Q10 and $625.3m for the first nine months of 2010. The company's dividend represents a payout of 55% of free cash flow for the first nine months of 2010. 

 Connections as of September 30, 2010:

• At September 30, 2010, the company had 3.5m residential customers and 381,000 business customers.
• Total access lines reached 5.9m in 3Q10.
• The company had net reductions of approximately 5,000 high-speed Internet customers since July 1, 2010, including 3,200 net additions for Frontier Legacy operations less 8,200 net losses for the acquired Verizon properties, and had 1.7m high-speed Internet customers at September 30, 2010.
• The company had net additions of approximately 11,100 video customers since July 1, 2010 and had 515,600 video customers at September 30, 2010.
• Total company ARPU was $69.58 in 3Q10, up from $66.90 in 3Q09.

Guidance:

• For the full year of 2010, the company revised its previously reported expectations for capital expenditures and free cash flow, excluding acquisition/integration costs and capital expenditures, to be within a range of $500.0m to $525.0m and $830.0m to $860.0m, respectively.