Windstream reports 2Q loss of $94 million, beats Wall Street expectations

Windstream Holdings Inc.’s second quarter financial results beat Wall Street expectations even as losses widened to nearly $94 million amid the company’s ongoing legal battle over debt swaps related to the 2015 spin-off of Little Rock-based Uniti Group.

For the period ended June 30, the Little Rock-based broadband provider reported a net loss of $94 million, or $2.30 per share, compared to a net loss of $68 million, or $1.83 per share, in the same period of 2017. Total revenues fell 3% to $1.44 billion in the second quarter, compared to $1.49 billion a year ago.

Wall Street had forecasted the company to report second quarter losses of $2.66 per share on revenue of $1.44 billion, according to Thomson Reuters. Windstream President and CEO Tony Thomas noted the addition of 2,300 broadband subscribers in the second quarter as the company struggles to return to profitability.

“Our Consumer segment delivered a successful quarter … This continued an upward trend that we have experienced for the past several quarters and was driven by both strong sales and lower churn,” said Thomas. “It demonstrates that our network investments are paying off and enables us to say with confidence that we expect to grow our consumer broadband base in 2018.”

Companywide, sales in Windstream’s legacy phone service and small business group totaled $466 million, a decrease of 6% from the same period a year ago. Segment income for the company’s so-called ILEC, or incumbent local exchange carrier business, fell 5.2% to $274 million, compared to $289 million year-over-year. In the company’s Enterprise business, service revenues rose 1% to $730 million from a year ago. Segment income also jumped 13.4% to $161 million, a strong year-over-year improvement from $142 million in the same period of 2017.

Wholesale service revenues and income decline to $182 million and $129 million, respectively, compared to $197 million and $135 million year-over-year. Windstream’s CLEC consumer services revenues were $46 million, a decrease of 10% from the same period a year ago. Segment income was $27 million compared to $26 million year-over-year.

Nearly a week ago, Windstream financed more than $1.4 billion in bonds and extended maturities an average of two years. The Little Rock-based Fortune 500 firm reported that it now has no significant bond maturities until 2023. Altogether, as part of the debt exchange offers, Windstream reduced its total debt by more than $227 million.

“I want to thank our bondholders for their ongoing support,” said CFO Bob Gunderman. “Their confidence in Windstream’s ability to execute on our strategy to drive growth and create long-term value has enabled us to significantly strengthen our balance sheet over the past 12 months.”

The debt reduction and extension of bond securities occurs as Windstream recently resumed its legal battle in U.S. District Court in the Southern District of New York against Wall Street hedge fund Aurelius Capital Management that alleges the Little Rock telecom violated bond agreements related to the spin-off of the former Communications Sales & Leasing (CS&L) into a publicly-held real estate investment trust (REIT).

A bench trial was completed on Aug. 31, and U.S. Judge Jesse Furman is expected to render a decision in the coming months. Nearly a year ago, Judge Furman ordered Windstream to file a motion to dismiss Aurelius’s lawsuit “on mootness grounds.”

For its part, Aurelius has urged the trustee, US Bank, not to authenticate debt securities due 2023 because it has said Windstream’s 2015 spinoff of its former real estate assets violated an agreement for certain bonds. In Wall Street circles, Aurelius and its billionaire chairman Mark Brodsky are known as a “vulture fund,” or a venture capitalist who invests in a business in the hopes that it fails and then swoons in and takes over the assets and sells them for a profit.

Over the past year, Windstream shares have struggled to regain their footing due to the Wall Street concerns on whether the former Alltel Corp. landline company can continue to generate enough cash to fund its ongoing operations, while also reducing short- and long-term debt.

Uniti Group, which officially got rid of its CS&L corporate name in February 2017, has also seen its shares pinched because the Arkansas REIT gets 70% of its revenues by serving as the landlord for properties where its former parent is the main leaseholder. Uniti Group is expected to also posts its second quarter financials today after the close of market.

During the busy second quarter, Windstream also completed its previously announced 1-for-5 reverse stock split and share reduction on May 21. As a result, the authorized shares of common stock decreased from 375,000,000 shares to 75,000,000 shares. The company’s total shares outstanding also declined by nearly 200 million shares to approximately 40 million shares.

Ahead of Thursday’s opening bell, Windstream’s shares (NASDAQ: WIN) were trending up 11 cents at $4 a share.