Windstream Holdings Inc. reported that third quarter profits fell short of a year ago results as the Little Rock rural broadband operator continues to work through its Chapter 11 bankruptcy proceedings, including looking to rewrite the terms of a multimillion-dollar master lease agreement with former spinoff Uniti Corp.
For the period ended Sept. 30, Windstream reported Thursday (Nov. 7) adjusted earnings of $423 million, down 7.4%, compared to $457 million in the same period a year ago. Adjusted revenues also fell year-over-year to $1.27 billion, a decline of 7.9% compared to $1.38 billion a year ago.
In a statement, Windstream President and CEO Tony Thomas touted the fact that the company grew its high-speed broadband offering customers for the sixth-straight quarter, adding 5,700 new subscribers. For the year, Windstream said added about 19,000 new broadband subscribers year-to-date, a 126% increase from a year ago.
“Windstream continues to execute on our operational priorities and remains focused on taking care of our customers during the restructuring process. In the third quarter, we once again delivered broadband customer growth in our Kinetic business unit and grew sales of our Enterprise strategic products,” said Thomas. “I am proud of the continued focus of our team and appreciate the support of all of our stakeholders as we work through the restructuring process.
Windstream’s quarterly earnings statement did not include a quarterly breakdown of Windstream’s $650 million annual cash payment to Uniti as the landlord for the company’s telecom and fiber assets. Uniti and Windstream entered into talks earlier this summer on the master lease agreement after the latter filed voluntary petitions for reorganization in late February under federal Chapter 11 rules.
The controversial lease agreement provides for annual rent of $659 million to Uniti paid in equal monthly installments in advance, with an annual base rent escalator of 0.5%, according to securities filings. U.S. Bank and other unsecured creditors have tried to change the terms of the lease agreement.
In the original court decision that pushed Windstream into bankruptcy, U.S. District Judge Jesse Furman’s ruling first arose from challenges by Aurelius Capital Management and U.S. Bank that the spinoff of the Uniti in April 2015 was invalid under previous financial arrangements with Windstream. The court ruled on Feb. 15 that Aurelius was entitled to a $310.5 million judgment, plus interest.
In a conference call, Thomas briefly offered an update on the Little Rock telecom’s restructuring process now entering the ninth month, noting that he was only allowed to offer limited information concerning the ongoing talks with Uniti due to confidentiality agreements associated with court-ordered mediation. However, the Windstream CEO also stressed that the former Alltel landline subsidiary is prepared to moved forward with possible litigation if an agreement is not reached with the Little Rock-based REIT.
“Windstream remains focused on securing a result that maximizes value for all of the company’s stakeholders. As part of this process, Windstream continues to work to modify our arrangement with Uniti. As discussed on last quarter’s call, to increase the likelihood of an optimal result, Windstream is pursuing both litigation against and negotiations with Uniti,” said Thomas.
“We are hopeful this process will lead to a mutually satisfactory agreement between Windstream, Uniti, and our other key stakeholders. Absent an acceptable negotiated resolution, Windstream is prepared to pursue its litigation claims to conclusion,” continued the Windstream CEO, adding that a pending trial is scheduled to begin in the first week of March if the Uniti talks are not successful.
Companywide, Windstream said enterprise strategic sales also continued to accelerate, representing nearly 65% of total Enterprise sales during the third quarter. Sales of strategic products and services, now representing an annualized run-rate of $290 million in revenue and are growing at approximately 41% yearly, company officials said.
In each of its operating businesses, Windstream reported declining sales in the three-month period before heading into the fourth quarter. Windstream’s Kinetic service revenues dropped 3.6% to $506 million compared to $525 million in the same period a year ago, and segment contribution margin was $287 million compared to $308 million year-over-year.
Enterprise service revenues declined 11.8% to $650 million compared to $737 million in the same period a year ago, and segment contribution margin was $126 million compared to $145 million year-over-year. Wholesale service revenues fell 10.4% to $86 million, compared to $96 million in the same period a year ago, and segment contribution margin was $66 million compared to $68 million year-over-year.
Although Windstream’s shares no longer trade on Wall Street following its Chapter 11 bankruptcy filing, Uniti’s stock was down three cents to $6.76 in early trading on the Nasdaq Stock exchange, just off its 52-week low of $6.67 per share. Uniti will release its third quarter earnings after close of market today.