FairPoint, which is being acquired by Consolidated Communications, says its focus will be on driving growth revenue from consumer broadband and business-grade Ethernet services.
Evidence of this trend was seen in the fourth quarter of 2016 as the company generated what it calls growth revenue of $67 million or 32.9% of total revenue, up from 29.7% of total revenue in the fourth quarter of 2015.
Broadband revenue grew quarter-over-quarter driven by rate increases and existing customer speed upgrades despite seasonal disconnects and lower subscriber counts.
“We are well positioned to continue our revenue transformation by leveraging our network and operational expertise to exceed our customers’ expectations,” said Paul Sunu, CEO of FairPoint, in the earnings release.
As Consolidated proceeds with its acquisition, FairPoint canceled its fourth-quarter earnings conference call.
Consolidated said it will hold a special meeting of stockholders to approve its proposed acquisition of FairPoint on March 28, 2017, at 9 a.m. CT at the Consolidated Communications headquarters location at 121 South 17th Street in Mattoon, Illinois.
Here’s a breakdown of FairPoint’s key metrics:
Business: Ethernet revenue was 12.1% of total revenue in the quarter as circuits rose 8.2% year-over-year. In the fourth quarter of 2016, Ethernet services revenue was $24.7 million, as Ethernet circuits grew 8.2% year-over-year.
Growth in the company's Ethernet products is expected to continue based on demand from customers such as regional banks, healthcare networks and wireless carriers. However, the commoditization of Ethernet services will continue to pressure average revenue per unit over time.
At the same time, FairPoint’s access revenue decreased $0.8 million due to the continued loss and conversion of legacy transport circuits to fiber-based Ethernet services, partially offset by the annual NECA cost study true-up which reduced revenue in the third quarter of 2016. Meanwhile, wholesale Ethernet revenue decreased due to the timing of the renewal of certain expiring long-term Ethernet contracts.
Data and internet services: Total data and internet services revenue rose $1.6 million to $49.1 million driven by higher broadband revenue due to rate increases and speed upgrades partially offset by broadband subscriber declines and seasonal subscriber disconnects.
Growth revenue increased $1.4 million, or 2.1%, primarily due to growth in broadband revenue driven by rate increases and customer speed upgrades which more than fully offset a decline in broadband subscribers and the impact of seasonal disconnects as well as the timing of the renewal of certain expiring long-term Ethernet contracts.
Consumer: The number of residential voice lines was down 10.7% year-on-year and 3.0% from Q3 to 366,111, and broadband subscribers dropped by 1.4% annually and 0.9% in the quarter to 306,624. Due to the loss of voice access lines, which included lower long-distance usage, voice services revenue were $50.9 million, down from $53.9 million in the third quarter.
Broadband revenue grew quarter-over-quarter driven by rate increases and existing customer speed upgrades despite seasonal disconnects and lower subscriber counts. However, the telco lost 2,923 broadband customers during the quarter, ending the period with a total of 306,624 subscribers.
Financials: FairPoint reported total revenues of $203.9 million for the quarter and $824.4 million for the year, and reported net income of $16.0 million for the quarter and $104.1 million for the year
Growth revenue increased by $4.6 million as the telco experienced growth in broadband revenue from speed upgrades and rate increases, as well as hosted and advanced services revenue due to the inclusion of revenue from CTI3 and customer growth, compared to the prior year.
Convertible revenue decreased by $4.5 million as customers continued to migrate from non-Ethernet circuits and businesses shifted from traditional voice products to VoIP and hosted products.
Legacy revenue decreased by $4.9 million resulting from a decline in voice access lines and legacy switched access revenue versus a year ago.
For full year 2017, the company expects to generate $105 million to $115 million of unlevered free cash flow. FairPoint expects annual capital expenditures will be between $110 million and $115 million.