FairPoint earnings down $22.7 million for 2Q with ‘continued pressures on legacy revenue’

The North Carolina-based FairPoint Communications reported a net loss of about $22.7 million for the second quarter of the year, bringing its losses to $54.9 million so far in 2014.

And a strike among its northern New England workers, who are working on the terms of a contract expired Aug. 2, could make things worse for the company that maintains about 450,000 telephone lines and the state’s telecom backbone.

Or, in the language of earnings statements:

Employees could engage in strikes or other concerted activities, which could materially adversely impact our business, financial condition, results of operations, liquidity and/or the market price of our outstanding securities.

Following the earnings announcement, union representatives in Maine sent out a press release reiterating that they reserve the right to strike at will despite continuing work under the expired contracts.

Neither party seems to be feeling very good about the talks, which haven’t progressed much beyond the exchange of barbs I reported on in early July.

That conflict is set against the backdrop of broader challenges for the company, which is also fighting for an exemption from new reporting rules that could mean  financial penalties based on the quality of service for its 29,000 “provider of last resort” customers. Among them, changing consumer habits away from landlines and the deregulation of the telecommunications industry in Maine in 2012.

Those issues of changing consumer habits and fallout of deregulation (which designated FairPoint and other telecom providers as mandatory service providers for certain areas of the state, regardless of whether they can turn a profit there) are at the forefront of FairPoint’s requests with the Maine Public Utilities Commission for about $66.9 million to subsidize its POLR service. The company wants the money from the Maine Universal Service Fund, from which other smaller POLR providers get money.

Paul Sunu, the company’s CEO, said in the earnings statement that the company continued to deliver on its earnings expectations “despite continued pressures on legacy revenue.” 

That’s reflected in the latest report. Revenue from its telephone business continues to decline as broadband and business ethernet service continues to grow and make up a larger share of the company’s revenue.

The $22.7 million loss for the quarter came with a $5 million drop in revenue, to $225.6 million, compared with the second quarter of 2013. In the third quarter, Sunu said he expects rate increases and the return of seasonal customers will provide a boost to revenues.

The latest earnings put a serious damper on the company’s stock price, which plunged about $1.82, or 11 percent, to $14.43 in mid-day trading. That’s as losses per share came in at $0.85, deeper than the $0.75 dip analysts expected.

Peter McLaughlin, lead negotiator and chairman of a regional council of the International Brotherhood of Electrical Workers, said that share price seems to be the main concern of negotiators, echoing concerns expressed earlier this year after Gov. Paul LePage vetoed a bill that would raise the regulatory review standards for telecom mergers in the state.

From an earlier story I reported:

Randy Barber, a consultant to the union, testified before the Legislature’s Energy, Utilities and Technology Committee in late February that four of FairPoint’s top five shareholders, a group of 191, are hedge funds.

The company’s stock has been on a steady climb since December, when analyst Christopher King with the St. Louis-based investment banking firm Stifel highlighted the company as a potential money maker for shareholders in 2014.

McLaughlin told me late Monday that the company sought concessions during negotiations that amounted to around $700 million in savings. The union, he said, countered with a proposal to save about $180 million and got no traction.

Speculating, he said the types of cuts the company is seeking lead him to believe a deal is near to sell the company.

“They’re looking to affect the balance side of the ledger… it’s not about cashflow,” he said. “What it looks like is that they are gussying up the company for a sale.”

Darren Fishell

About Darren Fishell

Darren is a Portland-based reporter for the Bangor Daily News writing about the Maine economy and business. He's interested in putting economic data in context and finding the stories behind the numbers.