Part I. Financial Information (Unaudited) Item 1. Financial Statements This section presents unaudited consolidated financial statements and notes, highlighting Fresh Start Accounting and data incomparability Consolidated Balance Sheets as of September 30, 2022, and December 31, 2021 Consolidated Balance Sheets (million USD) | Indicator | September 30, 2022 (million USD) | December 31, 2021 (million USD) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | 230 | 2,127 | | Short-term investments | 2,325 | - | | Total current assets | 3,078 | 2,688 | | Property, plant, and equipment, net | 10,847 | 9,199 | | Other intangible assets, net | 3,986 | 4,227 | | Total assets | 18,273 | 16,481 | | Liabilities and Equity | | | | Total current liabilities | 1,977 | 1,451 | | Long-term debt | 9,120 | 7,968 | | Total liabilities | 13,340 | 11,881 | | Total equity | 4,933 | 4,600 | | Total liabilities and equity | 18,273 | 16,481 | - As of September 30, 2022, total company assets increased to $18,273 million, up from $16,481 million as of December 31, 2021. Cash and cash equivalents significantly decreased, but $2,325 million in short-term investments were added. Long-term debt and total liabilities increased, while total equity also saw a slight rise8 Consolidated Statements of Income for the three months ended September 30, 2022 (Successor), and the three months ended September 30, 2021 (Successor) Consolidated Statements of Income (million USD) | Indicator (million USD) | For the three months ended September 30, 2022 | For the three months ended September 30, 2021 | | :--- | :--- | :--- | | Revenue | 1,444 | 1,576 | | Operating expenses | 1,275 | 1,292 | | Operating income | 169 | 284 | | Investment and Other Income (Loss), Net | 211 | (37) | | Pension settlement costs | (50) | - | | Interest expense | (135) | (90) | | Income tax expense | 75 | 31 | | Net income | 120 | 126 | | Basic net earnings per share | 0.49 | 0.52 | | Diluted net earnings per share | 0.49 | 0.51 | - For the three months ended September 30, 2022, company revenue decreased year-over-year by 8% to $1,444 million, and operating income decreased by 40% to $169 million. Net income decreased year-over-year to $120 million. Net Investment and Other Income (Loss) significantly turned positive, from a $37 million loss in the prior year period to a $211 million profit, primarily due to revaluation gains from pension and OPEB plans1195 Consolidated Statements of Income for the nine months ended September 30, 2022 (Successor), the five months ended September 30, 2021 (Successor), and the four months ended April 30, 2021 (Predecessor) Consolidated Statements of Income (million USD) | Indicator (million USD) | For the nine months ended September 30, 2022 (Successor) | For the five months ended September 30, 2021 (Successor) | For the four months ended April 30, 2021 (Predecessor) | | :--- | :--- | :--- | :--- | | Revenue | 4,350 | 2,637 | 2,231 | | Operating expenses | 3,894 | 2,147 | 1,880 | | Operating income | 456 | 490 | 351 | | Investment and Other Income (Loss), Net | 410 | (39) | 1 | | Pension settlement costs | (50) | - | - | | Restructuring Items, Net | - | - | 4,171 | | Interest expense | (356) | (152) | (118) | | Income tax expense (benefit) | 174 | 74 | (136) | | Net income | 286 | 225 | 4,541 | | Basic net earnings per share | 1.17 | 0.92 | 43.42 | | Diluted net earnings per share | 1.17 | 0.92 | 43.28 | - For the nine months ended September 30, 2022, Successor period revenue was $4.35 billion, with net income of $286 million. Compared to the prior year period, Net Investment and Other Income (Loss) for the Successor period significantly improved, turning from a loss to a $410 million profit, primarily due to revaluation gains from pension and OPEB plans. The Predecessor period's net income included net restructuring items of $4.17 billion, resulting in significantly higher net income and earnings per share than the Successor period1395 Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income (million USD) | Indicator (million USD) | For the three months ended September 30, 2022 | For the three months ended September 30, 2021 | | :--- | :--- | :--- | | Net income | 120 | 126 | | Other Comprehensive (Loss) Income, Net | (2) | 3 | | Comprehensive Income | 118 | 129 | | Indicator (million USD) | For the nine months ended September 30, 2022 (Successor) | For the five months ended September 30, 2021 (Successor) | For the four months ended April 30, 2021 (Predecessor) | | :--- | :--- | :--- | :--- | | Net income | 286 | 225 | 4,541 | | Other Comprehensive Income, Net | - | 44 | 359 | | Comprehensive Income | 286 | 269 | 4,900 | - For the three months ended September 30, 2022, comprehensive income was $118 million, slightly lower than $129 million in the prior year period. For the nine months ended September 30, 2022, Successor period comprehensive income was $286 million. The Predecessor period's comprehensive income reached $4.90 billion for the four months ended April 30, 2021, primarily influenced by net restructuring items in net income15 Consolidated Statements of Equity for the nine months ended September 30, 2022 (Successor); and for Consolidated Statements of Equity (million USD) | Indicator (million USD) | Balance as of January 1, 2022 | Balance as of September 30, 2022 | | :--- | :--- | :--- | | Common Stock | 2 | 2 | | Additional Paid-in Capital | 4,124 | 4,171 | | Retained Earnings | 414 | 700 | | Accumulated Other Comprehensive Income, Net | 60 | 60 | | Total Equity | 4,600 | 4,933 | | Indicator (million USD) | Balance as of January 1, 2021 (Predecessor) | Balance as of April 30, 2021 (Successor) | Balance as of September 30, 2021 | | :--- | :--- | :--- | :--- | | Total Equity (Deficit) | (4,900) | 4,108 | 4,385 | - As of September 30, 2022, total company equity increased to $4.93 billion, up from $4.60 billion as of January 1, 2022, primarily due to an increase in retained earnings. Following the bankruptcy reorganization on April 30, 2021, the Predecessor period's significant accumulated deficit was eliminated, with the Successor period's equity starting at $4.11 billion18 Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 (Successor), the five months ended September 30, 2021 (Successor), and the four months ended April 30, 2021 (Predecessor) Consolidated Statements of Cash Flows (million USD) | Indicator (million USD) | For the nine months ended September 30, 2022 (Successor) | For the five months ended September 30, 2021 (Successor) | For the four months ended April 30, 2021 (Predecessor) | | :--- | :--- | :--- | :--- | | Net Cash Flow from Operating Activities | 1,041 | 983 | (654) | | Net Cash Flow from Investing Activities | (4,178) | (645) | (490) | | Net Cash Flow from Financing Activities | 1,219 | (17) | 197 | | Change in Cash, Cash Equivalents, and Restricted Cash | (1,918) | 321 | (947) | | End of Period Cash, Cash Equivalents, and Restricted Cash | 260 | 1,261 | 940 | - For the nine months ended September 30, 2022, net cash flow from operating activities was $1.04 billion, an improvement from the prior year period (Successor + Predecessor combined). Net cash flow from investing activities was negative $4.18 billion, primarily due to $3.23 billion in short-term investments purchased and $1.86 billion in capital expenditures. Net cash flow from financing activities was $1.22 billion, primarily from $1.2 billion in long-term debt borrowings20252255 Notes to Consolidated Financial Statements (1) Summary of Significant Accounting Policies Outlines significant accounting policies, emphasizing Fresh Start Accounting post-reorganization and subsequent policy changes - The company completed bankruptcy reorganization on April 30, 2021, adopting Fresh Start Accounting, rendering financial information incomparable between Predecessor and Successor periods2629 - Post-reorganization, several accounting policy changes occurred: - Universal Service Fund (USF) and other surcharges: changed from gross to net presentation - Allowance for doubtful accounts: changed from revenue deduction to inclusion in 'Sales, General and Administrative expenses' - Contract acquisition costs: changed from deferred amortization to expensed as incurred - Pension plan actuarial losses: changed from amortization through accumulated other comprehensive income to immediate recognition in 'Investment and Other Income (Loss)' as incurred - Government grant revenue: changed from net presentation against capital expenditures to gross inclusion in 'Revenue' - Administrative expenses: changed from capitalization to expensed as incurred303132333536 (2) Recent Accounting Literature Discusses recent accounting pronouncements not yet adopted, including ASU 2020-04 and ASU 2021-10 - ASU 2020-04 (reference rate reform) is not expected to materially impact the company's financial condition or operating results53 - The company is evaluating the impact of ASU 2021-10 (government assistance disclosures) on its disclosures, which requires information on the nature, accounting policies, affected financial statement items, and amounts of government assistance5455 (3) Revenue Recognition Details revenue composition by service and customer type, noting a decline from reduced subsidies and voice/video services Revenue by Service Category (million USD) | Service Category | For the three months ended September 30, 2022 | For the three months ended September 30, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Data and Internet Services | 848 | 834 | 2% | | Voice Services | 369 | 411 | (10)% | | Video Services | 127 | 149 | (15)% | | Other | 82 | 99 | (17)% | | Total Customer Contract Revenue | 1,426 | 1,493 | (4)% | | Subsidies and Other Revenue | 18 | 83 | (78)% | | Total Revenue | 1,444 | 1,576 | (8)% | Revenue by Service Category (million USD) | Service Category | For the nine months ended September 30, 2022 (Successor) | For the five months ended September 30, 2021 (Successor) | For the four months ended April 30, 2021 (Predecessor) | | :--- | :--- | :--- | :--- | | Data and Internet Services | 2,531 | 1,390 | 1,125 | | Voice Services | 1,136 | 694 | 647 | | Video Services | 398 | 254 | 223 | | Other | 245 | 161 | 125 | | Total Customer Contract Revenue | 4,310 | 2,499 | 2,120 | | Subsidies and Other Revenue | 40 | 138 | 111 | | Total Revenue | 4,350 | 2,637 | 2,231 | - Subsidies and Other revenue decreased by 78% and 84% for the three and nine months ended September 30, 2022, respectively, primarily due to the conclusion of the CAF II program in 2021, while RDOF funding began in the second quarter of 202259214 (4) Accounts Receivable Provides net accounts receivable composition and changes in the allowance for doubtful accounts, which decreased Accounts Receivable (million USD) | Indicator (million USD) | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Retail and Wholesale Accounts Receivable | 403 | 441 | | Other Accounts Receivable | 66 | 74 | | Less: Allowance for Doubtful Accounts | (47) | (57) | | Accounts Receivable, Net | 422 | 458 | - As of September 30, 2022, the allowance for doubtful accounts balance was $47 million, a decrease from $57 million as of December 31, 2021. Bad debt expense for the three and nine months ended September 30, 2022, was $5 million and $19 million, respectively636465 (5) Property, Plant and Equipment Presents net property, plant, and equipment and depreciation, noting increased net assets and capital expenditures Property, Plant and Equipment (million USD) | Indicator (million USD) | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Property, Plant and Equipment | 11,948 | 9,707 | | Less: Accumulated Depreciation | (1,101) | (508) | | Property, Plant and Equipment, Net | 10,847 | 9,199 | Depreciation Expense (million USD) | Period | For the three months ended September 30, 2022 | For the three months ended September 30, 2021 | | :--- | :--- | :--- | | Depreciation Expense | 215 | 191 | | Period | For the nine months ended September 30, 2022 (Successor) | For the five months ended September 30, 2021 (Successor) | For the four months ended April 30, 2021 (Predecessor) | | :--- | :--- | :--- | :--- | | Depreciation Expense | 629 | 318 | 407 | - For the nine months ended September 30, 2022, capital expenditures were $1.86 billion, with approximately 57% allocated to fiber network projects, reflecting increased investment in fiber networks68253 (6) Other Intangibles Details composition and amortization of other intangible assets, which slightly decreased net, with increased amortization Other Intangibles (million USD) | Intangible Asset Category (million USD) | September 30, 2022 Net | December 31, 2021 Net | | :--- | :--- | :--- | | Customer Relationships - Business | 697 | 752 | | Customer Relationships - Wholesale | 3,182 | 3,345 | | Trademarks and Trade Names | 107 | 130 | | Total Other Intangible Assets | 3,986 | 4,227 | Amortization Expense (million USD) | Period | For the three months ended September 30, 2022 | For the three months ended September 30, 2021 | | :--- | :--- | :--- | | Amortization Expense | 81 | 82 | | Period | For the nine months ended September 30, 2022 (Successor) | For the five months ended September 30, 2021 (Successor) | For the four months ended April 30, 2021 (Predecessor) | | :--- | :--- | :--- | :--- | | Amortization Expense | 241 | 134 | 99 | - Post-bankruptcy reorganization effective date, the company amortizes intangible assets using the straight-line method: wholesale customer relationships over 16 years, business customer relationships over 11 years, and trademarks and trade names over 5 years70 (7) Fair Value of Financial Instruments Provides carrying and estimated fair values of long-term debt, indicating fair value was below carrying value Fair Value of Financial Instruments (million USD) | Indicator (million USD) | September 30, 2022 Carrying Value | September 30, 2022 Fair Value | December 31, 2021 Carrying Value | December 31, 2021 Fair Value | | :--- | :--- | :--- | :--- | :--- | | Total Debt | 8,966 | 8,015 | 7,777 | 7,996 | - As of September 30, 2022, the company's total debt had a carrying value of $8.97 billion and an estimated fair value of $8.02 billion74 (8) Long-Term Debt Details long-term debt structure and changes post-reorganization, showing an increase from new notes and credit line Long-Term Debt (million USD) | Indicator (million USD) | January 1, 2022 | New Borrowings | September 30, 2022 | | :--- | :--- | :--- | :--- | | Frontier Issued Secured Debt | 6,927 | 1,200 | 8,116 | | Subsidiary Issued Secured Debt | 100 | - | 100 | | Subsidiary Issued Unsecured Debt | 750 | - | 750 | | Total Outstanding Principal | 7,777 | 1,200 | 8,966 | | Total Long-Term Debt | 7,968 | | 9,120 | - On May 12, 2022, the company issued $1.2 billion of 8.750% First Lien Secured Notes for fiber construction and operating costs. The revolving credit facility increased by $275 million, totaling $900 million8285 - As of September 30, 2022, the company's total outstanding principal was $8.97 billion, with a weighted average interest rate of 6.366%, up from 5.702% as of December 31, 202180 (9) Restructuring Costs and Other Charges Outlines restructuring costs and other charges, which significantly increased due to lease impairments and severance - For the nine months ended September 30, 2022, Restructuring Costs and Other Charges were $88 million, including $44 million for facility lease impairment, $35 million for severance and employee costs, and $9 million for other restructuring activities89 - For the three months ended September 30, 2022, Restructuring Costs and Other Charges were $4 million, a 50% decrease from the prior year period11184 (10) Investment and Other Income Details investment and other income, which significantly increased in 2022, primarily from pension and OPEB revaluation Investment and Other Income (million USD) | Indicator (million USD) | For the three months ended September 30, 2022 | For the three months ended September 30, 2021 | | :--- | :--- | :--- | | Interest and dividend income | 16 | 1 | | Pension benefits | 24 | 23 | | OPEB costs | (5) | (59) | | OPEB revaluation gains | 84 | - | | Pension revaluation gains | 91 | - | | Other, net | 1 | (2) | | Investment and Other Income (Loss), Net | 211 | (37) | | Indicator (million USD) | For the nine months ended September 30, 2022 (Successor) | For the five months ended September 30, 2021 (Successor) | For the four months ended April 30, 2021 (Predecessor) | | :--- | :--- | :--- | :--- | | Investment and Other Income (Loss), Net | 410 | (39) | 1 | - For the nine months ended September 30, 2022, the company recognized $234 million in OPEB revaluation gains and $91 million in pension plan revaluation gains due to revisions in medical coverage for certain post-retirement benefit plans95 (11) Stock Plans Introduces RSU and PSU details under the 2021 incentive plan, including grants, vesting, and compensation expenses - As of September 30, 2022, approximately 2,559,000 unvested Restricted Stock Units (RSUs) were outstanding under the 2021 incentive plan, with $56 million in unrecognized compensation cost expected to be recognized over approximately 2 years9899 - Performance Stock Units (PSUs) performance metrics include adjusted fiber EBITDA, fiber location builds, and expanded fiber penetration, subject to relative Total Shareholder Return (TSR) adjustment101 - For the nine months ended September 30, 2022, compensation expense related to RSUs and PSUs was $27 million each, recognized in 'Sales, General and Administrative expenses'100105 (12) Income Taxes Provides income tax expense reconciliation to federal statutory rate, explaining effective tax rate changes Income Taxes | Indicator | For the three months ended September 30, 2022 | For the nine months ended September 30, 2022 | | :--- | :--- | :--- | | Consolidated Tax Expense at Federal Statutory Rate | 21.0 % | 21.0 % | | State Income Tax Expense, Net of Federal Tax | 14.7 | 13.1 | | Certain Deferred Tax Balance Changes | 2.1 | 1.5 | | Non-Deductible Executive Compensation | 1.5 | 2.5 | | Effective Tax Rate | 38.5 % | 37.8 % | - As of September 30, 2022, the company recorded $77 million ($61 million net of federal tax) in valuation allowances, leading to an increased effective tax rate107 - The Inflation Reduction Act was signed into law on August 16, 2022, and the company is evaluating its potential impact on tax law changes effective January 1, 2023110 (13) Net Earnings Per Share Provides net earnings per share calculation reconciliation, including basic and diluted EPS Net Earnings Per Share | Indicator | For the three months ended September 30, 2022 | For the three months ended September 30, 2021 | | :--- | :--- | :--- | | Basic Net Income Attributable to Frontier Common Stockholders | 120 | 126 | | Diluted Net Income Attributable to Frontier Common Stockholders | 120 | 126 | | Basic Net Earnings Per Share | 0.49 | 0.52 | | Diluted Net Earnings Per Share | 0.49 | 0.51 | | Indicator | For the nine months ended September 30, 2022 (Successor) | For the five months ended September 30, 2021 (Successor) | For the four months ended April 30, 2021 (Predecessor) | | :--- | :--- | :--- | :--- | | Basic Net Income Attributable to Frontier Common Stockholders | 286 | 225 | 4,541 | | Diluted Net Income Attributable to Frontier Common Stockholders | 286 | 225 | 4,541 | | Basic Net Earnings Per Share | 1.17 | 0.92 | 43.42 | | Diluted Net Earnings Per Share | 1.17 | 0.92 | 43.28 | - For the three months ended September 30, 2022, basic and diluted net earnings per share were both $0.49, down from $0.52 and $0.51 in the prior year period. For the nine months ended September 30, 2022, basic and diluted net earnings per share for the Successor period were both $1.17113115 (14) Comprehensive Income (Loss) Presents comprehensive income components, including net income and other equity-impacting items, with stable AOCI Comprehensive Income (Loss) (million USD) | Indicator (million USD) | Balance as of January 1, 2022 (Successor) | Balance as of September 30, 2022 (Successor) | | :--- | :--- | :--- | | Pension Costs | - | - | | OPEB Costs | 60 | 60 | | Total | 60 | 60 | | Indicator (million USD) | Balance as of January 1, 2021 (Predecessor) | Balance as of April 30, 2021 (Successor) | Balance as of September 30, 2021 (Successor) | | :--- | :--- | :--- | :--- | | Pension Costs | (699) | - | - | | OPEB Costs | (56) | - | 44 | | Total | (755) | - | 44 | - As of September 30, 2022, accumulated other comprehensive income, net, was $60 million, consistent with January 1, 2022119 (15) Retirement Plans Details pension and OPEB costs, revaluation gains, and settlement costs, noting asset decrease and actuarial gains Pension Benefit Costs (million USD) | Indicator | For the three months ended September 30, 2022 | For the three months ended September 30, 2021 | | :--- | :--- | :--- | | Service Costs | 14 | 20 | | Interest Costs | 22 | 26 | | Expected Return on Plan Assets | (46) | (49) | | Pension Settlement Costs | 50 | - | | Pension Revaluation Gains | (91) | - | | Total Pension (Benefit) Costs | (51) | (3) | | Indicator | For the nine months ended September 30, 2022 (Successor) | For the five months ended September 30, 2021 (Successor) | For the four months ended April 30, 2021 (Predecessor) | | :--- | :--- | :--- | :--- | | Total Pension (Benefit) Costs | (60) | (3) | 26 | - As of September 30, 2022, pension plan asset value decreased by $696 million from $2.66 billion as of December 31, 2021, to $1.96 billion, primarily due to market value changes and benefit payments125292 - For the first nine months of 2022, the company paid $177 million for pension settlements, recognizing $50 million in non-cash settlement expenses. Concurrently, $91 million in revaluation gains arose from pension plan obligation revaluation, and $234 million in actuarial gains from OPEB obligation revaluation127128129 (16) Commitments and Contingencies Discloses commitments and contingencies, including government subsidy obligations, legal proceedings, and lease commitments - The company accepted the FCC's RDOF Phase I program, receiving approximately $371 million in annual support over ten years to build fiber-to-the-home networks in eight states, covering approximately 127,000 locations. Funding began in Q2 2022, with a deployment deadline of December 31, 2028134269 - The Connecticut Public Utilities Regulatory Authority (PURA) issued a notice of violation on July 27, 2022, alleging the company and its contractors failed to comply with state excavation regulations during fiber deployment. The company paid fines and submitted a compliance plan, approved by PURA on August 26, 2022, to continue underground fiber deployment135299 - The company is a party to multiple legal proceedings, but management believes their ultimate resolution, considering insurance or other indemnification, will not materially adversely affect the company's financial condition, results of operations, or cash flows136139300 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's detailed analysis of financial condition and operating results, focusing on fiber expansion, customer trends, and liquidity Business Overview Aims to expand fiber coverage to 10 million locations by 2025, achieving significant deployment and customer growth, exceeding cost targets - The company aims to 'Build Gigabit America,' planning to expand fiber coverage to 10 million locations by December 31, 2025153154 - In Q3 2022, the company constructed approximately 351,000 fiber locations, bringing total fiber coverage to approximately 4.8 million. Fiber broadband customer net additions were 66,000, a 15.8% year-over-year increase156 - As of September 30, 2022, the company achieved $244 million in annual total cost savings, exceeding its 2023 target over a year ahead of schedule, and raised its year-end 2024 annual total cost savings target to $400 million156 Financial Overview Operating income declined due to reduced subsidies, voice/video services, and lease impairment, partially offset by lower costs Financial Overview (million USD) | Indicator (million USD) | For the three months ended September 30, 2022 | For the three months ended September 30, 2021 | Change Amount | | :--- | :--- | :--- | :--- | | Operating income | 169 | 284 | (115) | | Indicator (million USD) | For the nine months ended September 30, 2022 | For the nine months ended September 30, 2021 (non-GAAP combined) | Change Amount | | :--- | :--- | :--- | :--- | | Operating income | 456 | 841 | (385) | - Operating income decreased primarily due to reduced subsidies and other revenue, voice and video service revenue, and lease impairment charges, partially offset by lower service costs and depreciation and amortization expenses161 Presentation of Results of Operations Management considers consumer customer count and ARPC as key metrics for evaluating consumer trends and additional service potential - Management considers consumer customer count and Average Revenue Per Consumer (ARPC) as important factors for evaluating consumer customer trends. The company continues to explore the potential to offer additional services to customers162 - Customer metrics and operating revenue components discussed in this section are primarily based on non-GAAP financial results for the nine months ended September 30, 2022, compared to financial results for the nine months ended September 30, 2021164 Customer Trends Consumer customer count slightly decreased, with significant fiber broadband customer growth offsetting accelerated copper losses Customer and Employee Metrics (thousand) | Indicator | For the three months ended September 30, 2022 | For the three months ended September 30, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Consumer Customers | 3,142 | 3,173 | (1)% | | Consumer Net Additions (Losses) | (17) | (23) | (26)% | | Consumer ARPC | $83.05 | $83.77 | (1)% | | Consumer Churn Rate | 1.76% | 1.64% | 7% | | Fiber Broadband Consumer Customers | 1,502 | 1,292 | 16% | | Fiber Broadband Consumer Net Additions | 64 | 29 | 121% | | Copper Broadband Consumer Customers | 1,105 | 1,264 | (13)% | | Copper Broadband Consumer Net Additions (Losses) | (58) | (33) | 76% | | Employees | 14,746 | 15,803 | (7)% | - For the three months ended September 30, 2022, total consumer customers decreased by approximately 1% year-over-year. Fiber broadband consumer net additions significantly increased by 121% to 64,000, while copper broadband consumer losses accelerated, with net losses of 58,000167170173179 - Consumer Average Revenue Per Customer (ARPC) decreased by 1% to $83.05 for the three months ended September 30, 2022, primarily due to reduced video and consumer voice services, partially offset by fiber data growth170171 Financial Results Fiber revenue increased while copper revenue declined, reflecting the company's strategic shift towards fiber network expansion Revenue by Service Category (million USD) | Indicator | For the three months ended September 30, 2022 | For the three months ended September 30, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Data and Internet Services | 848 | 834 | 2% | | Voice Services | 369 | 411 | (10)% | | Video Services | 127 | 149 | (15)% | | Other | 82 | 99 | (17)% | | Total Customer Contract Revenue | 1,426 | 1,493 | (4)% | | Subsidies and Other Revenue | 18 | 83 | (78)% | | Total Revenue | 1,444 | 1,576 | (8)% | Revenue by Customer Type (million USD) | Indicator | For the three months ended September 30, 2022 | For the three months ended September 30, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Consumer | 785 | 800 | (2)% | | Business and Wholesale | 641 | 693 | (8)% | | Total Customer Contract Revenue | 1,426 | 1,493 | (4)% | | Subsidies and Other Revenue | 18 | 83 | (78)% | | Total Revenue | 1,444 | 1,576 | (8)% | - For the three months ended September 30, 2022, fiber revenue increased by 1% to $691 million, while copper revenue decreased by 9% to $735 million, reflecting the company's strategic shift towards fiber networks184 Revenue Total revenue decreased due to lower subsidies and declines in voice/video services, partially offset by fiber broadband growth Revenue by Technology (million USD) | Technology | For the three months ended September 30, 2022 | For the three months ended September 30, 2021 | Change Amount | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Fiber | 691 | 684 | 7 | 1% | | Copper | 735 | 809 | (74) | (9)% | | Total Customer Contract Revenue | 1,426 | 1,493 | (67) | (4)% | | Subsidies and Other Revenue | 18 | 83 | (65) | (78)% | | Total Revenue | 1,444 | 1,576 | (132) | (8)% | Revenue by Technology (million USD) | Technology | For the nine months ended September 30, 2022 (Successor) | For the nine months ended September 30, 2021 (non-GAAP combined) | Change Amount | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Fiber | 2,048 | 2,042 | 6 | 0% | | Copper | 2,262 | 2,500 | (238) | (10)% | | Other | - | 77 | (77) | (100)% | | Total Customer Contract Revenue | 4,310 | 4,619 | (309) | (7)% | | Subsidies and Other Revenue | 40 | 249 | (209) | (84)% | | Total Revenue | 4,350 | 4,868 | (518) | (11)% | - Consumer revenue decreased by 2% for the three months ended September 30, 2022, primarily due to a 1% decrease in ARPC. For the nine months ended September 30, 2022, consumer revenue decreased by 5%, primarily due to a 3% decrease in ARPC and a 1% decrease in customer count197 - Business and Wholesale revenue decreased by 8% and 9% for the three and nine months ended September 30, 2022, respectively, primarily due to structural pressure on copper voice revenue, loss of equipment revenue from the sale of an equipment subsidiary, and lower network access service rates for wholesale customers196 - Data and Internet Services revenue increased by 2% and 1% for the three and nine months ended September 30, 2022, respectively, primarily driven by fiber broadband revenue growth, partially offset by decreased copper broadband revenue and migration from legacy technology circuits to lower-priced Ethernet circuits199205 - Voice Services revenue decreased by 10% and 15% for the three and nine months ended September 30, 2022, respectively, primarily due to net losses of business and consumer customers and fewer customers with bundled voice services199207 - Video Services revenue decreased by 15% and 17% for the three and nine months ended September 30, 2022, respectively, primarily due to linear video customer churn, partially offset by price increases. The company has strategically limited traditional TV service sales, focusing instead on broadband products and OTT video options199208211 - Subsidies and Other revenue decreased by 78% and 84% for the three and nine months ended September 30, 2022, respectively, primarily due to the conclusion of the CAF II program in 2021199214 Operating Expenses Total operating expenses decreased, driven by lower service costs and D&A, despite increases in SG&A and restructuring costs Operating Expenses (million USD) | Indicator | For the three months ended September 30, 2022 | For the three months ended September 30, 2021 | Change Amount | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Service Costs | 544 | 590 | (46) | (8)% | | Sales, General and Administrative Expenses | 431 | 421 | 10 | 2% | | Depreciation and Amortization | 296 | 273 | 23 | 8% | | Restructuring Costs and Other Charges | 4 | 8 | (4) | (50)% | | Total Operating Expenses | 1,275 | 1,292 | (17) | (1)% | Operating Expenses (million USD) | Indicator | For the nine months ended September 30, 2022 (Successor) | For the nine months ended September 30, 2021 (non-GAAP combined) | Change Amount | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Service Costs | 1,643 | 1,816 | (173) | (10)% | | Sales, General and Administrative Expenses | 1,293 | 1,227 | 66 | 5% | | Depreciation and Amortization | 870 | 958 | (88) | (9)% | | Restructuring Costs and Other Charges | 88 | 26 | 62 | 238% | | Total Operating Expenses | 3,894 | 4,027 | (133) | (3)% | - Service Costs decreased by 8% and 10% for the three and nine months ended September 30, 2022, respectively, primarily due to lower video content and CPE costs, partially offset by increased fuel and energy prices and higher external service rates220 - Sales, General and Administrative (SG&A) expenses increased by 2% and 5% for the three and nine months ended September 30, 2022, respectively, primarily due to Fresh Start Accounting policy changes (bad debt allowance and certain administrative items expensed) and transformational investments like rebranding, professional services, and recruiting costs, partially offset by 2022 sales tax refunds222 - Depreciation and Amortization (D&A) expenses decreased by 9% for the nine months ended September 30, 2022, primarily due to reduced depreciation expenses from a lower fixed asset base post-Fresh Start Accounting adjustments226 - Restructuring Costs and Other Charges significantly increased by 238% for the nine months ended September 30, 2022, primarily due to $44 million in facility lease impairment costs and $35 million in severance and employee costs229 Other Non-Operating Income and Expense Net investment and other income significantly increased from OPEB and pension revaluation gains, while interest and tax expenses rose Other Non-Operating Income and Expense (million USD) | Indicator | For the three months ended September 30, 2022 | For the three months ended September 30, 2021 | Change Amount | | :--- | :--- | :--- | :--- | | Investment and Other Income (Loss), Net | 211 | (37) | 248 | | Pension settlement costs | (50) | - | (50) | | Interest expense | (135) | (90) | (45) | | Income tax expense | 75 | 31 | 44 | | Indicator | For the nine months ended September 30, 2022 (Successor) | For the nine months ended September 30, 2021 (non-GAAP combined) | Change Amount | | :--- | :--- | :--- | :--- | | Investment and Other Income (Loss), Net | 410 | (38) | 448 | | Pension settlement costs | (50) | - | (50) | | Restructuring Items, Net | - | 4,171 | (4,171) | | Interest expense | (356) | (270) | (86) | | Income tax expense (benefit) | 174 | (62) | 236 | - Net Investment and Other Income (Loss) increased by $248 million and $448 million for the three and nine months ended September 30, 2022, respectively, primarily due to revaluation gains from OPEB and pension plans233 - Interest Expense increased by $45 million and $86 million for the three and nine months ended September 30, 2022, respectively, primarily due to increased debt balances and higher interest rates237239 - Income Tax Expense increased by $142 million and $236 million for the three and nine months ended September 30, 2022, respectively, primarily due to an increase in the effective tax rate232242 Liquidity and Capital Resources The company's liquidity is strong, with increased operating cash flow and significant capital expenditures for fiber projects - As of September 30, 2022, company liquidity was approximately $3.32 billion, including $230 million in cash and cash equivalents, $2.33 billion in short-term investments, and $767 million in available revolving credit facility245 - For the nine months ended September 30, 2022, net cash flow from operating activities increased by $712 million to $1.04 billion. Cash outflow from investing activities was $4.18 billion, primarily for short-term investments and capital expenditures250252 - Capital expenditures for the nine months ended September 30, 2022, were $1.86 billion, an increase from the prior year period, with approximately 57% allocated to fiber network projects253 - Net cash flow from financing activities increased by $1.04 billion to $1.22 billion, primarily from $1.2 billion in long-term debt borrowings255 - The company expects its operating cash flow and existing cash balances to be sufficient to meet working capital needs, capital expenditures, debt interest and principal payments, and other obligations261 - The company holds no off-balance sheet arrangements, transactions, obligations, or relationships with unconsolidated entities expected to materially impact financial statements263 Item 3. Quantitative and Qualitative Disclosures about Market Risk Discloses market risks, primarily interest rate and equity price risks, noting most debt is fixed-rate and pension assets/liabilities are market-affected - As of September 30, 2022, 84% of the company's total debt was fixed-rate. A 100-basis point change in LIBOR would result in approximately $15 million of additional interest expense286287 - The discount rate for pension benefit obligations increased from 2.90% as of December 31, 2021, to 5.60% as of September 30, 2022. The discount rate for OPEB obligations also increased from 3.00% to 5.60%288289 - Pension plan asset value decreased by $696 million from $2.66 billion as of December 31, 2021, to $1.96 billion as of September 30, 2022, primarily due to changes in investment market value. However, related liabilities are also expected to decrease due to the higher discount rate292295 Item 4. Controls and Procedures Confirms effective disclosure controls and procedures, with no significant changes in internal control over financial reporting - As of September 30, 2022, company management assessed and concluded that disclosure controls and procedures are effective296 - No material changes occurred in internal control over financial reporting during the first nine months of 2022297 Part II. Other Information Item 1. Legal Proceedings Discloses legal proceedings, including a Connecticut regulatory violation, not expected to materially impact financial condition - The Connecticut Public Utilities Regulatory Authority (PURA) issued a notice of violation on July 27, 2022, alleging the company and its contractors failed to comply with state excavation regulations during fiber deployment. The company paid fines and submitted a compliance plan, approved by PURA on August 26, 2022, to continue underground fiber deployment299 - The company is a party to multiple legal proceedings, but management believes their ultimate resolution, considering insurance or other indemnification, will not materially adversely affect the company's financial condition, results of operations, or cash flows300 Item 1A. Risk Factors States no material changes to risk factors previously disclosed in the company's annual report on Form 10-K - No material changes occurred to the risk factors described in the company's annual report on Form 10-K as of December 31, 2021301 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Confirms no unregistered sales of equity securities during the quarter ended September 30, 2022 - The company made no unregistered sales of equity securities during the quarter ended September 30, 2022302 Item 6. Exhibits Lists exhibits filed with the quarterly report, including executive certifications and financial statements in iXBRL format - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer, and consolidated financial statements and cover page in iXBRL format304
Frontier Communications(FYBR) - 2022 Q3 - Quarterly Report