Windstream reports 4Q loss of $549 million amid Chapter 11 bankruptcy filing

by Wesley Brown (wesbrocomm@gmail.com) 507 views 

Losses continued to mount in the fourth quarter for beleaguered Windstream Holdings Inc. as the Little Rock rural telecom operator closed out a disappointing year with red ink of more than $723 million, the company announced Friday (March 15).

Nearly a month after postponing the fourth quarter results due to a Feb. 25 Chapter 11 bankruptcy filing, Windstream reported a net loss of $549 million, or a loss of $12.92 per share, for the three-month period ended Dec. 31, 2018, compared to a net loss of $1.84 billion, or a loss of $51.28 per share, a year ago. Fourth quarter revenue fell 7.3% to $1.39 billion, compared to $1.5 billion in the same period of 2017.

Last year, the fourth quarter results included a $1.8 billion non-cash goodwill impairment charge related to the company’s local telephone service for residential, small businesses and wholesale consumers. Wall Street analysts had forecasted the Little Rock telecom to report a fourth quarter loss of $2.87 per share on revenue of $1.4 billion, according to Thomson Reuters.

The disappointing fourth quarter results follow a string of closely-related events that pushed the former Fortune 500 telecom into Chapter 11 bankruptcy, which allows the former Alltel Corp. subsidiary to file a reorganization plan for its debt over a 120-day period.

Windstream first announced in late February that its holding company and subsidiary, Windstream Services LLC, had filed voluntary petitions for reorganization under Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York.

That default was precipitated by a Feb. 15 court ruling by U.S. District Judge Jesse Furman for the Southern District of New York that Windstream violated bond agreements after splitting off Arkansas’ first publicly held real estate investment trust in April 2015. That company was formerly known by the bulky name of Communications Sales & Leasing, but changed its name to Uniti Corp. two years ago.

Furman’s decisive ruling arose from challenges by Aurelius Capital Management and U.S. Bank National Association that the 2015 deal was invalid under the terms of a debt exchange offer and consent solicitations in respect to senior notes issued by its Windstream Services LLC to finance the spinoff of a Little Rock-based REIT, CS&L, which is now known as Uniti Corp. The court further ruled that Aurelius was entitled to a $310.5 million judgement, plus interest from and after July 23, 2018.

Last week, Windstream was also delisted from the Nasdaq Stock Market, largely due to the Chapter 11 bankruptcy filing and the exchange’s requirement that the company’s common stock remain above $1 over a 30-day period. Windstream President and CEO Tony Thomas, who inked a 5-year, multi-million dollar employment deal just ahead of the bankruptcy filing, said Windstream still expects to see strong growth in 2019.

“As we enter 2019, we will continue to focus on improving our sales productivity, reducing churn across all of our business units, improving the customer experience and maintaining our laser-focus on aggressive cost management and operational efficiencies,” he said. “We are confident we will emerge from the financial restructuring process as a healthier and even stronger company than we are today, and we are excited about the opportunities that lie ahead of us.”

For the full year, Windstream reported a net loss of $723 million, or $17.72 per share, compared to a net loss of $2.12 billion, or $62.66 per share, in 2017. Total revenues were $5.71 billion for the 12-month period, compared to $5.85 billion in the same period of 2017.

During the fourth quarter, Windstream said it signed up 6,000 new subscribers in the final three months of year. In 2018, company officials said the rural broadband carrier added 14,400 new customers, a significant improvement from a loss of 45,000 subscribers in 2017.

“Overall, we had a strong, transformational year in 2018. We continue to benefit from investments in our network infrastructure that enable us to deliver faster internet speeds to more customers,” said Thomas. “We have delivered 12 consecutive months of broadband subscriber growth through February of this year, and we expect that growth to continue throughout the year.”

On the last day of 2018, Windstream sold out its Earthlink branded internet service for $330 million in an all-cash deal with Trive Capital, a Dallas-based private equity firm that specializes in investing and acquiring middle-market firms and assets across multiple sectors.

Windstream originally closed on its acquisitions of Earthlink Holdings Inc. in February 2017 for $1.1 billion. Earthlink’s legacy internet business, one of the first ISPs to offer high-speed internet service in the late 1990s, now offers broadband, online back-up, managed web design, web hosting and various email services to over 600,000 customers across the U.S.

Since its merger with Earthlink in 2017, Windstream has struggled to return to profitability as rural consumers in areas where the company operates have vaulted to competitors with faster internet speeds.

On Dec. 18, Windstream completed another cash deal to sell off its dormant dark fiber assets in Minnesota and Nebraska to Arvig Enterprises Inc. for $60.5 million. Following that deal, Windstream CFO Bob Gunderman said the Little Rock-based telecom still had “significant asset value to monetize” across the company’s 150,000-mile telecom network.

Companywide, Windstream’s consumer and small business service revenues fell 4% in the fourth quarter to $455 million in the fourth quarter compared to a year ago. Enterprise service revenues were $704 million in the fourth quarter, a decrease of 7% year-over-year, and $2.88 billion for the year, essentially flat from 2017.

Wholesale service revenues were $175 million in the fourth quarter, a decrease of 7% year-over-year. For the year, revenues were $722 million for the year, a decline of 4% from 2017. CLEC consumer service revenues, which primarily consists of EarthLink’s consumer Internet business, were $43 million in the fourth quarter, a decline of 17% compared to a year ago. For the year, revenues rose 3% to $181 million.

Considering adjustments related to the Earthlink deal, Windstream said it had capital expenditures of $207 million in the fourth quarter compared to $172 million in the same period a year ago. For the year, the Little Rock telecom capital investment fell 6.7% to $783 million, compared to $839 million for 2017.

Windstream has not yet filed any details of its reorganization plan with federal bankruptcy officials in New York. Company officials would not offer a timetable on those plans, which have to be completed by late June.

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