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Press Release -- May 5th, 2016
Source: Windstream

Windstream reports first-quarter results

* Grew consumer revenue sequentially
* Expanded enterprise contribution margin
* Improved debt maturity profile

LITTLE ROCK, Ark. – Windstream (NYSE:WIN, news, filings), a leading provider of advanced network communications and technology solutions, today reported first-quarter results.

“Our first quarter achievements demonstrate solid progress on our 2016 priorities. We produced sequential revenue growth in our consumer business unit through our upgraded broadband network that now offers Internet speeds up to 1Gbps. We increased profitability in our Enterprise business unit by targeting middle-market business customers with advanced, customized solutions while reducing costs. Additionally, we significantly improved our balance sheet through debt refinancing initiatives. Overall we had a very productive quarter and are on track to achieve our goals for the year,” said Tony Thomas, president and chief executive officer at Windstream.

“Our vision is to provide a best-in-class customer experience through our network and our people. This is centered on providing advanced, reliable services to our customers while making smart, targeted investments to increase the value of our extensive network and generate higher returns for our shareholders. Through our focused operational strategy, we have multiple paths to drive improving financial results,” Thomas said.

Pro Forma Financial Results

Total revenues and sales were $1.37 billion and total service revenues were $1.34 billion in the first quarter, essentially flat respectively from the same period a year ago.

Consumer and small business ILEC service revenues were $397 million, a decrease of 1 percent from the same period a year ago. Consumer service revenues were $312 million, an increase of approximately $1 million from the fourth quarter driven by growth in high-speed Internet bundle revenue.

Carrier service revenues were $163 million, a decrease of 7 percent year-over-year, driven largely by declining legacy services offset in part by sales of Ethernet and Optical Wave services utilizing the company’s robust 100G fiber transport network.

Enterprise service revenues were $491 million, an increase of 3 percent year-over-year. Enterprise contribution margin was 13.7 percent, or $71 million, representing an increase of 36 percent year-over-year.

Small business CLEC service revenues were $129 million, a 12 percent decrease year-over-year.

Adjusted OIBDAR, which excludes the lease payment to Communications Sales & Leasing, Inc. (CS&L), was $485 million for the first quarter, an increase of almost 1 percent year-over-year.

Share Repurchase Program and Quarterly Dividend

During the quarter, Windstream completed the $75 million share repurchase plan approved by its board of directors in August 2015. In addition, on May 4, 2016, the board of directors declared a quarterly dividend of 15-cents per share payable July 15, 2016, to stockholders of record as of June 30, 2016.

Balance Sheet

During the quarter, Windstream issued a $600 million term loan and used the proceeds to repay future high-cost debt and improve cash interest.

GAAP Financial Results

In the first quarter under Generally Accepted Accounting Principles (GAAP), Windstream reported total revenues and sales of $1.37 billion and a net loss of $232 million, or a loss of $2.52 per share. That compares to total revenues and sales of $1.42 billion and net income of $5 million, or 5 cents per share, during the same period in 2015.

GAAP results include a non-cash impairment charge of $182 million related to a decrease in the market value of Windstream’s investment holdings of CS&L. Following the spinoff of CS&L in April 2015, Windstream retained an approximate 20 percent equity stake in CS&L. The impairment charge reflects the cumulative unrealized loss in the market value of the CS&L stock from the date of the spinoff to March 31, 2016. Since the date of the impairment, the CS&L shares have continued to appreciate and were valued at approximately $686 million as of May 4, 2016.

Windstream plans to monetize the holdings in the future and use the proceeds to further reduce debt.

Financial Outlook for 2016

Windstream today affirmed its previously provided financial guidance for the year.

The company expects total service revenue of $5.275 billion to $5.425 billion and adjusted OIBDAR of $1.90 billion to $1.95 billion.

Adjusted capital expenditures are expected to be between $800 million and $850 million, which excludes approximately $200 million in expected investments to complete Project Excel, a program funded by a portion of the proceeds from the sale of the company’s data center business to accelerate Windstream’s plans to upgrade and modernize its broadband capabilities to the latest technology by year-end 2016, or two years ahead of the company’s previous timeline.

The company expects cash interest expense of approximately $385 million and cash taxes of less than $20 million, resulting in adjusted free cash flow of approximately $100 million in 2016.

Conference Call

Windstream will hold a conference call at 7:30 a.m. CDT today to review the company’s first-quarter results.

To access the call:

Interested parties can access the call by dialing 1-877-374-3977, conference ID 86862448.
To access the call replay:

A replay of the call will be available beginning at 10:30 a.m. CDT today and ending at midnight on May 12. The replay can be accessed by dialing 1-855-859-2056, conference ID 86862448.

Webcast information:

The conference call also will be streamed live over the company’s website at Financial, statistical and other information related to the call will be posted on the site. A replay of the webcast will be available on the website beginning at 10:30 a.m. CDT today and ending at midnight on May 12.

About Windstream

Windstream (NASDAQ: WIN), a FORTUNE 500 company, is a leading provider of advanced network communications and technology solutions for consumers, small businesses, enterprise organizations and carrier partners across the U.S. Windstream offers bundled services, including broadband, security solutions, voice and digital TV to consumers. The company also provides data, cloud solutions, unified communications and managed services to business and enterprise clients. The company supplies core transport solutions on a local and long-haul fiber-optic network spanning approximately 125,000 miles. Additional information is available at Please visit our newsroom at or follow us on Twitter at @WindstreamNews.

Pro forma results adjust results of operations under GAAP to exclude the impacts of the disposed data center and consumer CLEC businesses and directory publishing operations and all merger and integration costs related to strategic transactions. A reconciliation of pro forma results to the comparable GAAP measures is available on the company’s Web site at OIBDA is operating income before depreciation and amortization and merger and integration costs. Adjusted OIBDA adjusts OIBDA for the impact of restructuring charges, pension expense and stock-based compensation. Adjusted OIBDAR is adjusted OIBDA before the CS&L lease payment. Adjusted free cash flow is adjusted OIBDA, excluding merger and integration expense, minus cash interest, cash taxes and adjusted capital expenditures, plus dividends received from CS&L.

Windstream claims the protection of the safe-harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to uncertainties that could cause actual future events and results to differ materially from those expressed in the forward-looking statements. Forward-looking statements include, but are not limited to, 2016 guidance for service revenue, adjusted OIBDAR and adjusted capital expenditures, along with statements regarding free cash flow, cash interest expense and cash taxes in 2016; expectations regarding the “network first” strategy to improve financial performance and increase market share and achievement of 2016 priorities; expectations regarding revenue trends and improving margins in the business segments; growth in adjusted OIBDAR; the anticipated benefits of Project Excel designed to accelerate certain broadband deployments and improve network capabilities; the anticipated increase in availability of higher Internet speeds; the completion and benefits of network investments pursuant to the Connect America Fund; expectations regarding deployments of Windstream’s IPTV service, 1 Gig service and expanding the carrier network; the amount that Windstream may reduce debt by selling its equity stake in Communications Sales & Leasing, Inc., and its ability to opportunistically improve its debt profile and reduce interest costs. These statements, along with other forward-looking statements regarding Windstream’s overall business outlook, are based on estimates, projections, beliefs and assumptions that Windstream believes are reasonable but are not guarantees of future events and results. Actual future events and results of Windstream may differ materially from those expressed in these forward-looking statements as a result of a number of important factors. For risk factors that could cause actual results and events to differ materially from those expressed, refer to Windstream’s filings with the Securities and Exchange Commission.

Factors that could cause actual results to differ materially from those contemplated in Windstream’s forward-looking statements include, among others:

• further adverse changes in economic conditions in the markets served by Windstream;
• the extent, timing and overall effects of competition in the communications business;
• the company’s election to accept state-wide offers under the Federal Communications Commission’s (‘FCC’) Connect America Fund, Phase 2, and the impact of such elections on future receipt by the company of federal universal service funds and capital expenditures;
• the impact of new, emerging or competing technologies;
• for certain operations where Windstream leases facilities from other carriers, adverse effects on the availability, quality of service and price of facilities and services provided by other carriers on which Windstream’s services depend;
• unfavorable rulings by state public service commissions in proceedings regarding universal service funds, intercarrier compensation or other matters that could reduce revenues or increase expenses;
• material changes in the communications industry that could adversely affect vendor relationships with equipment and network suppliers and customer relationships with wholesale customers;
• changes to Windstream’s current dividend practice, which is subject to the company’s capital allocation policy and may be changed at any time at the discretion of its board of directors;
• the company’s ability to make rent payments under the Master Lease to CS&L, which may be affected by results of operations, changes in our cash requirements, cash tax payment obligations, or overall financial position;
• unanticipated increases or other changes in the company’s future cash requirements, whether caused by unanticipated increases in capital expenditures, increases in pension funding requirements, or otherwise;
• the availability and cost of financing in the corporate debt markets;
• the potential for adverse changes in the ratings given to Windstream’s debt securities by nationally accredited ratings organizations;
• earnings on pension plan investments significantly below Windstream’s expected long term rate of return for plan assets or a significant change in the discount rate or other actuarial assumptions;
• unfavorable results of litigation or intellectual property infringement claims asserted against Windstream;
• the risks associated with non-compliance by Windstream with regulations or statutes applicable to government programs under which Windstream receives material amounts of end user revenue and government subsidies, or non-compliance by Windstream, its partners, or its subcontractors with any terms of its government contracts;
• the effects of federal and state legislation, and rules and regulations governing the communications industry;
• continued loss of consumer households served and consumer high-speed Internet customers;
• the impact of equipment failure, natural disasters or terrorist acts;
• the effects of work stoppages by Windstream employees or employees of other communications companies on whom Windstream relies for service; and
• those additional factors under “Risk Factors” in Item 1A of Part I of Windstream’s Annual Report on Form 10-K for the year ended December 31, 2015, and in subsequent filings with the Securities and Exchange Commission at

In addition to these factors, actual future performance, outcomes and results may differ materially because of more general factors including, among others, general industry and market conditions and growth rates, economic conditions, and governmental and public policy changes.

Windstream undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause Windstream’s actual results to differ materially from those contemplated in the forward-looking statements should be considered in connection with information regarding risks and uncertainties that may affect Windstream’s future results included in other filings by Windstream with the Securities and Exchange Commission at

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