Windstream reports quarterly loss of $66 million, continues to invest and expand Internet backbone

After announcing a surprise $1.1 billion merger with Atlanta-based Earthlink ahead of Monday’s opening bell, Windstream Holdings posted another bruising quarterly loss as the Little Rock-based telecom expanded its national Internet backbone and fiber optic footprint to capture more business and wholesale customers.

For the period ended Sept. 30, the rural internet and fiber optic giant reported a net loss of $66 million or a loss of 72 cents per share, compared to a loss of $7 million or a loss of 8 cents per share a year ago. Revenues of $1.32 billion fell 12% below year ago levels of 1.5 billion.

A survey of nine Wall Street analysts had expected the Little Rock-based telecom and internet provider to report a third quarter net loss of 47 cents per share on revenue of $1.35 billion, according to Thomson Reuters.

“Windstream continues to advance our strategy to maximize shareholder value. During the third quarter, we further expanded enterprise contribution margin and grew consumer service revenue sequentially,” said Windstream President and CEO Tony Thomas. “We continued to make prudent capital investments to better leverage our extensive network to serve customers and provide incremental returns to shareholders. Additionally, we further improved our debt maturity profile and reduced future cash interest.”

Windstream said adjusted service revenues were $1.32 billion, a drop of 4% on a normalized basis, which excludes approximately $49 million in Connect America Fund Phase II revenue received in the third quarter of 2015 that related to prior periods. Connect America is the FCC’s program to expand access to voice and broadband services in hard-to-reach rural communities across the U.S.

Windstream officials said the publicly traded telecom was able to reduce cash expenses through expense management by $47 million, or 5% from year ago levels.

Consumer and small business ILEC service revenues were $395 million, a decrease of 1% from the same period a year ago. Consumer service revenues were $312 million, an increase of $1 million sequentially. Consumer average revenue per household rose 2% sequentially and 6% year-over-year driven by broadband speed penetration gains across all tiers, improved modem rentals and sales of bundled services.

Wholesale service revenues were $155 million, a decrease of 8% year-over-year. Core wholesale and resale revenues were $145 million, a decrease of $4 million sequentially. Enterprise service revenues were $495 million, an increase of $4 million sequentially. Enterprise contribution margin was $83 million, or 16%, an increase of $20 million, or 31%, year-over-year.

Small business CLEC service revenues were $119 million and contribution margin was $37 million, or 31%. Through targeted price increases and incremental sales of additional services, average revenue per user increased 5% year-over-year.

Windstream affirmed its previously provided guidance for year earnings and revenue. The company expects total service revenue of $5.275 billion to $5.425 billion and adjusted operating income of $1.9 billion to $1.95 billion. Adjusted capital spending is expected to be between $800 million and $850 million.

Windstream’s merger partner Earthlink also announced its third quarter earnings ahead of Monday’s opening bell. The Atlanta-based Internet provider eked out a small profit of $200,000 on revenue of $235.1 million, compared to a net loss of $10.5 million a year ago.