FairPoint Communications Reports 2012 First Quarter Results

 FairPoint Communications, Inc., a leading communications provider, today announced its financial results for the quarter ended March 31, 2012.  As before announced, the Company will host a conference call and simultaneous webcast to discuss its results at 8:30 a.m. on Thursday, May 3, 2012.

"We're off to a solid start in 2012 and our financial results reflect that," said Paul H. Sunu, CEO of FairPoint. "Free cash flow growth is the result of our 'four pillars' strategy for increasing shareholder value:  operational gains, regulatory progress, revenue transformation and human resource strategy.  I'm pleased to report progress in all four areas this quarter and I look forward to sharing our successes going forward."

Broadband subscribers grew 7.1% year-over-year and 1.4% sequentially.  FairPoint added more than 21,000 broadband subscribers in the last twelve months and penetration reached 31.4% of voice access lines at March 31, 2012.  The Company reported the highest percentage increase in broadband subscribers of any major telephone or cable company in 2011.

"We had a significant win in the state of Maine last month with the substantive deregulation of retail products and services," said Sunu.  "The landmark legislation in Maine came right on the heels of the breakthrough Incentive Regulation Plan in Vermont we reported before this year.  Without our early operational gains, we could not have been so effective changing our regulatory environment.  We believe these important steps forward in Maine and Vermont will allow us to compete more effectively for business and broadband clients in order to transform our revenue composition for growth," Sunu said.

On April 12, 2012, Governor LePage of Maine signed into law historic legislation that substantially deregulates FairPoint's retail operations in Maine.  Among other benefits, FairPoint now has greater regulatory flexibility for all products and services except unbundled basic local voice calling.  The regulatory framework has been dramatically simplified.  Retail service quality penalties are now capped at $2 million per year-down from $12.5 million-which serves to de-risk the business going forward.

The operational

"With the operational and regulatory gains we have already achieved, we now have the proper foundation to transform our revenue composition for growth," said Sunu.  "This solid foundation, along with our then-generation network and an insurgent's market share, represents fertile ground for revenue growth," he added.

FairPoint recently announced the addition of Tony Tomae as Executive Vice President and Chief Revenue Officer.  In this role, Mr. Tomae will spearhead the development and implementation of FairPoint's revenue transformation strategy.  His past experience leading revenue growth in the competitive telecom marketplace gives him a unequalled perspective and key skills that will help the Company transform its top line-especially in northern New England where FairPoint now has over 14,000 fiber route miles and only 26% of the retail business market.

Mr. Tomae will continue to build upon FairPoint's early successes in the business segment.  Since the launch of a new small business bundle in early 2011, FairPoint has seen a steady improvement in its ability to attract and retain business clients, which contributed to an improvement in the rate of business voice access line loss.  The rate of loss in business voice access lines, which stood at 4.0% for the twelve months ended March 31, 2012, is near half the 7.8% loss FairPoint experienced for the twelve months ended March 31, 2011.  Business voice access lines declined only 0.7% sequentially versus Dec. 31, 2011.

In addition, the Company is pleased by the early adoption of its new Ethernet services.  For instance, FairPoint's carrier Ethernet offering contributed roughly $9 million of revenue in the first quarter of 2012 as compared to $7 million in the fourth quarter of 2011 and $2 million in the first quarter of 2011.  Growth in the Company's Ethernet products is expected to continue as regional banks, healthcare networks and wireless carriers transition away from legacy technologies like frame relay.

Revenue was $248.5 million in the first quarter of 2012 as compared to $254.2 million in the fourth quarter of 2011.  The fourth quarter of 2011 included a reversal of service quality penalties totaling $3.9 million, during the first quarter of 2012 included a reversal of $1.2 million in penalties.  Service quality penalties impact voice services revenue.  A decline in voice access lines led to a furthermore decline in voice services and access revenue, during an increase in broadband subscribers led to a $0.6 million increase in data and Internet services revenue.

Consolidated EBITDAR was $55.3 million in the first quarter of 2012 as compared to $70.0 million in the fourth quarter of 2011.  Adjusting for the impact of the annual vacation expense, Consolidated EBITDAR was flat versus the fourth quarter of 2011.  Operating expense reductions more than offset the impact of the revenue decline and the cash pension contribution of $5.7 million made while the first quarter. The Company did not make a cash pension contribution in the fourth quarter of 2011.

Capital expenditures were $26.3 million in the first quarter of 2012 as compared to $35.1 million in the fourth quarter of 2011.  During FairPoint will continue to be diligent in its approach to capital spending, the Company expects capital expenditures will increase for the remainder of 2012 as the northern New England build season begins and the Company expands its broadband footprint in New Hampshire under a regulatory commitment to reach 95% of its clients in the state by March 31, 2013.  Just in case, certain success-based projects that were originally scheduled to begin in the first quarter of 2012 are now expected to start later in the year.

Revenue was $248.5 million in the first quarter of 2012 as compared to $254.8 million a year previously.  The unfavorable variance of $6.3 million was primarily the result of an 8.1% decline in voice access lines, partially offset by a decline in service quality penalties and growth in data and Internet services and other earnings.

Consolidated EBITDAR was $55.3 million in the first quarter of 2012 as compared to $49.1 million a year before.  Operating expense reductions more than offset the impact of the revenue decline and a cash pension contribution of $5.7 million made while the first quarter of 2012. FairPoint did not make a cash pension contribution in the first quarter of 2011.

Capital expenditures were $26.3 million in the first quarter of 2012 as compared to $53.7 million a year before, when the Company was aggressively building fiber to towers and completing its regulatory commitment for broadband expansion in Vermont.  As discussed above, FairPoint expects capital expenditures will increase for the remainder of 2012.

Participants should call 783-2142 or 350-1601 at 8:20 a.m. and enter the passcode 68118910 when prompted.   The title of the call is the Q1 2012 FairPoint Communications, Inc. Revenues Conference Call.

However, the non-GAAP financial measures, as used herein, are not necessarily comparable to similarly titled measures of other companies. Even more, Consolidated EBITDAR and Unlevered Free Cash Flow have limitations as analytical tools and should not be considered in isolation from, or as an alternative to, net income or loss, operating income, cash flow or other combined income or cash flow data prepared pursuant to this agreement GAAP. Because of these limitations, Consolidated EBITDAR, Unlevered Free Cash Flow and related ratios should not be considered as measures of discretionary cash available to invest in business growth or reduce indebtedness. The Company compensates for these limitations by relying primarily on its GAAP results and using Consolidated EBITDAR and Unlevered Free Cash Flow only supplementally.  A reconciliation of Consolidated EBITDAR and Unlevered Free Cash Flow to net income is contained in the attachments to this press release.

FairPoint Communications, Inc. is a leading communications provider of broadband Internet access, local and long-distance phone, television and other high-capacity data services to clients in communities across 18 states. Through its fast, reliable fiber network, FairPoint delivers high-quality data and voice networking communications solutions to residential, business and wholesale clients. FairPoint delivers VantagePoint(SM) services through its resilient IP-based network in northern New England. This state-of-the-art fiber network provides carrier Ethernet connections to support the surging bandwidth and performance requirements for cloud-based applications like network storage, disaster recovery, distance learning, medical imaging, video conferencing and CAD/CAM along with traditional voice, VoIP (Voice over Internet Protocol), video and Internet access solutions. Additional information about FairPoint products and services is available at www.FairPoint.com.

Certain information contained herein or discussed on our revenues conference call may constitute guidance as to projected financial results and the Company's future performance that represents management's estimates as of the date hereof. This guidance, which consists of forward-looking statements, is prepared by the Company's management and is qualified by, and subject to, certain assumptions. Guidance is not prepared with a view toward compliance with published guidelines of the American Institute of Certified Public Accountants, and neither the Company's independent registered public accounting firm nor any other independent expert or outside party compiles or examines the guidance and, consequently, no such person expresses any opinion or any other form of assurance with respect thereto. Guidance is based upon a number of assumptions and estimates that, during presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company's control and are based upon specific assumptions with respect to future business decisions, some of which will change. Management usually states possible outcomes as high and low ranges which are intended to provide a sensitivity analysis as variables are changed nevertheless are not intended to represent actual results, which could fall outside of the recommended ranges. The principal reason that the Company releases this data is to provide a basis for management to discuss the Company's business outlook with analysts and investors. The Company does not accept any responsibility for any projections or reports published by any such outside analysts or investors. Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions of the guidance furnished by us will not materialize or will vary significantly from actual results. Consequently, the Company's guidance is only an estimate of what management believes is realizable as of the date hereof. Actual results will vary from the guidance and the variations may be material. Investors should as well recognize that the reliability of any forecasted financial data diminishes the farther hereafter that the data is forecast. In light of the foregoing, investors are urged to put the guidance in context and not to place undue reliance on it.