FairPoint's Q1 2012 revenue stabilizes as broadband, Ethernet services grow

FairPoint Communications (Nasdaq: FRP) reported revenue of $248.5 million for the first quarter of 2012, down from $254.8 million in Q4 2011, due to an expected decline in voice access lines, but growth in business and broadband services continue to close that gap.

In Q1 2012, FairPoint's results included a reversal of $1.2 million in penalties, down from the $3.9 million in reversal of service quality penalties in Q4 2011.

The service provider narrowed its losses to $46.7 million, down from the $84.0 million it reported in Q4 2011.

On the regulatory front, the service provider did have a big win in this quarter when Gov. Paul LePage of Maine signed a law that deregulates its retail operations in Maine. This new law gives FairPoint flexibility to price their products and services to compete with area CLECs and cable operators, but as a carrier of last resort it has to maintain pricing unbundled basic local voice services. 

Here's a breakdown of its key metrics:

  • Broadband services: Broadband continues to be a growth engine in FairPoint's portfolio. Over the past year, broadband grew 7.1 percent year-over-year and 1.4 percent sequentially. FairPoint added more than 21,000 broadband subscribers in the last twelve months and penetration reached 31.4 percent of its voice access lines, as of the end of March.
  • Landline losses: While voice access lines declined 1.9 percent sequentially and 8.1 percent year-over-year, the service provider said it continued to lower its loss rate. At the end of Q1, FairPoint had over 1.01 million access lines, down from 1.03 million in Q4 2011.

  • Business services: Fueled by key products including a new small business bundle in early 2011 and Ethernet services in 2011, FairPoint said it has been able to attract and retain more business customers, a factor that has contributed to an improvement in the rate of business voice access line loss. It was able to reduce the rate of business voice access lines to 4 percent, down from the 7.8 percent loss it reported for the 12 months ended March 31, 2011. On a sequential basis, business voice access lines declined only 0.7 percent. The service provider's new carrier-Ethernet offering contributed approximately $9 million of revenue in Q1 2012, up from the $7 million in Q4 2011 and $2 million in the first quarter of 2011. It expects new Ethernet service adoption as regional banks, healthcare networks and wireless carriers transition away from legacy technologies like Frame Relay. Likewise, on the wholesale side, the service provider has built out fiber and Ethernet connections to nearly 800 of the cell towers it serves in its New England region.

FairPoint has maintained its previous guidance of generating Unlevered Free Cash Flow (after cash pension contributions) of $90 million to $100 million in 2012 by focusing on improving Consolidated EBITDAR margins and disciplined capital spending. 

David Tawil, co-founder and portfolio manager at Maglan Capital, said he thinks that "the company is on track to generate $280mm EBITDAR in 2012 with $150mm in Capex for the year and generate ~$50mm in free cash flow." 

The service provider's shares were trading at 4.92 down $0.06, or 1.20 percent on the Nasdaq stock exchange at Noon on Thursday.  

For more:
- see the earnings release

Special report: Wireline in the first quarter of 2012

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