Pomerantz LLP announces that a class action lawsuit has been filed against Frontier Communications Corporation (“Frontier” or the “Company”) and certain of its officers. The class action, filed in United States District Court, District of Connecticut, and docketed under 17-cv-01672, is on behalf of a class consisting of investors who purchased or otherwise acquired Frontier securities, seeking to recover compensable damages caused by defendants’ violations of the Securities Exchange Act of 1934.
Frontier provides communications services in the United States, including broadband, video, and voice services. According to the Company, it acquired the wireline operations of Verizon Communications, Inc. (the “Verizon Acquisition”) in California, Texas and Florida on April 1, 2016, for a purchase price of $10.5 billion in cash and assumed debt. Throughout the Class Period defendants allegedly failed to disclose the underperformance of the Verizon Acquisition.
The complaint alleges that throughout the Class Period, defendants made materially false and misleading statements regarding the Company’s business, operational and compliance policies. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (i) the Company acquired a substantial number of non-paying accounts as part of its acquisition of the wireline operations of Verizon Communications, Inc.; (ii) as a result, the Company would be required to increase its reserves, and write-off amounts from accounts receivable associated with the non-paying accounts; and (iii) as a result of the foregoing, Frontier’s public statements were materially false and misleading at all relevant times.
On February 27, 2017, the Company disclosed a net loss of $80 million for the fourth quarter of 2016, and stated that its results were impacted by the “resolution of nonpaying acquired CTF accounts.” Chief Executive Officer (“CEO”) Daniel J. McCarthy (“McCarthy”) elaborated, stating: “Results for the fourth quarter were impacted by our intensified efforts to resolve acquired accounts in California, Texas and Florida that we have determined to be non-paying.”
On that same day, February 27, 2017, the Company held a conference call to discuss its financial results. On the call, Defendant McCarthy stated that the Company had been working through the account cleanup process since July 20, 2016, that the Company began disconnecting non-paying accounts at the end of August 2016, and that the disconnects continued through the first quarter of 2017. McCarthy further stated that the Company began to reserve aging accounts in accordance with in normal policies in Q2 2016 and then increased its reserves. Finally. McCarthy stated that the Company began permanent disconnects and receivable write-offs in the third quarter of 2016, and continued them in the fourth quarter of 2016.
On this news, the Company's stock price fell $0.36 per share, almost 11%, to close at $2.93 per share on February 28, 2017, on unusually heavy trading volume.
On May 2, 2017, the Company reported a first quarter 2017 net loss of $75 million and a year-over-year first quarter revenue decline of $53 million. On the same day, the Company held a conference call to discuss its first quarter financial results. On the call, Chief Financial Officer Ralph Perley McBride (“McBride”) stated that approximately $16 million of the sequential revenue decline was a result of cleanup of CTF non-paying accounts and the automation of legacy non-pay disconnects. Specifically, he stated that “[Ole CTF account cleanup reduced Q1 revenue by $11 million, and the one-time impact related to automating the non-pay disconnect process for the legacy properties, reduced Q1 revenue by $5 million.]”
On this news, the Company's stock price fell $0.32 per share, or more than 16%, to close at $1.61 per share on May 3, 2017, on unusually heavy trading volume.