Ahead of bankruptcy exit, Windstream Holdings posts loss of $162 million in Q2

Windstream
Broadband subscriber additions highlight Windstream's second quarter earnings results. (Windstream)

With the expected emergence from Chapter 11 bankruptcy in late August, sunnier days are ahead for Windstream Holdings. In what most likely will be its last earnings report before becoming a privately-held company, Windstream reported a net loss of $162.4 million in Q2 Thursday morning.

Windstream's quarterly revenues were $1.185 billion, which was down from $1.286 billion in the same quarter a year ago. On the other hand, Windstream's second quarter net loss of $162.4 million was a marked improvement from last year's loss of $544.1 million.

Windstream added 22,000 Kinetic broadband subscribers in the second quarter, which was the company's highest quarter net subscriber additions in over a decade.

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In the first six months of this year, Windstream has reeled in more than 40,000 net new subscribers. Based on those results, Windstream increased its 2020 full-year guidance to 60,000 net new broadband subscribers.

On the pre-recorded earnings call, Windstream CEO Tony Thomas said more Kinetic broadband subscriber opportunities were ahead across its ILEC  footprint. Windstream is also aggressively building out its fiber footprint with the addition of $2 billion in capital in order to offer its 1-Gig broadband service in rural areas.

Thomas said 56% of Windstream's Kinetic customer base now has speeds of 25 Mbps or greater, which was up from 47% a year ago.

"While this is impressive year-over-year growth, we still have a tremendous opportunity in front of us to increase the number of customers that enjoy these faster broadband speed tiers," Thomas said on the earnings call. "Windstream remains the nation’s largest SD-WAN service provider with 3,200 SD-WAN customers under contract representing over 29,000 endpoint locations. OfficeSuite demand also remains strong as we now have approximately 550,000 UCaaS seats installed."

For the first six months of this year, Windstream Enterprise's revenues increased 24% compared to the first half of 2019.

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Among other opportunities, Thomas said Windstream plans to participate in the Rural Digital Opportunity Fund (RDOF) auction in October. In January, the Federal Communications Commission (FCC) announced its RDOF program for faster broadband speeds in order to help close the digital divide in rural areas. RDOF will push out up to $20.4 billion in funding over the next 10 years to build and connect gigabit broadband speeds in unserved rural areas.

RELATED: Windstream's restructuring plan gets green light from judge as it targets late August to emerge from Chapter 11

After a federal bankruptcy judge signed off on its re-organization plans in June, Windstream has lightened its debt load by $4 billion. Windstream also reorganized its governance, which included naming some of its creditors to seats on the company's new board of directors. Windstream announced its new board of directors earlier this week.

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The reorganization plan eliminated junior bondholders who were owed close to $2.4 billion, converted some senior debt to equity and made Elliott Management Windstream's largest shareholder.

Windstream has operated under of Chapter 11 bankruptcy since February of last year after it lost a legal battle with New York hedge fund Aurelius Capital Management over whether Windstream had defaulted on bonds by spinning off the Uniti Group four years ago.

As part of that spinoff, Windstream transferred copper-based network assets to Uniti, which Windstream leased back from Uniti to serve its 1.4 million residential and business customers across its 18-state footprint. Windstream was paying $54 million per month to Uniti for access to Uniti's network assets.

The master lease with Uniti was set to expire in 2030, and had an annual rent of approximately $659 million. Windstream filed a complaint against Uniti on July 25 that sought to re-characterize its relationship with Uniti from a lease to a financing arrangement.

For months, Windstream and Uniti couldn't come to an agreement on the terms of the master lease and were headed to a court date earlier this year before agreeing to new terms in early March. Windstream's plan for ditching Chapter 11 received a boost in May when Judge Robert Drain, of the U.S. Bankruptcy Court for the Southern District of New York, approved Windstream's settlement agreement with Uniti Group.

As part of a lease renegotiation, Uniti Group agreed in March to invest up to $1.75 billion in growth capital improvements, including "long-term fiber" and related assets in certain Windstream CLEC and ILEC properties.

Thomas has said that Windstream would use some of that investment to deliver 1 Gig internet speed to approximately half of its Kinetic broadband footprint that serves consumers and small businesses.

Uniti will also pay Windstream approximately $490 million and buy certain unused and underutilized dark fiber assets from Windstream for an additional $285 million rights of use (IRU) rights of contract, which currently generate about $21 million in annual EBITDA, and its rights to use 1.8 million fiber strand miles currently leased by Windstream that are either unutilized or utilized for the dark fiber IRUs being transferred.

"I am excited to report that our path to emerge from restructuring is clear," Thomas said on the Q2 earnings call. "Our settlement with Uniti enhances Windstream’s cash flow profile by nearly $300 million per year from 2021 to 2024.

"As a private company, Windstream will have increased flexibility to invest in our network, accelerate our transformation and return to growth."

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