Consolidated Communications Holdings
Aug 4, 2011

Consolidated Communications Reports Second Quarter 2011 Results

MATTOON, Ill., Aug. 4, 2011 (GLOBE NEWSWIRE) -- Consolidated Communications Holdings, Inc. (Nasdaq:CNSL)reported results for the second quarter ended June 30, 2011.

Second quarter 2011 financial summary:

"We delivered a solid quarter of cash from operations and a comfortable dividend payout ratio," said Bob Currey, President and Chief Executive Officer. "Operationally, we produced another strong access line performance and grew broadband subscribers by 1.3%."

"The quarter also included the completion of two important strategic initiatives. First, we were pleased with the terms of our refinancing that successfully extended $409.1 million of our term loan by three years and our undrawn $50 million revolver by nearly two and half years. Second, we realigned functional responsibilities to bring customer facing employees into a single group and identified approximately $2.5 million in annual expense reductions to be implemented throughout the rest of the year," Currey concluded.

Operating Statistics at June 30, 2011, Compared to June 30, 2010.

  Period Ended June 30,    
  2011 2010 Increase/(decrease) %
         
Total connections 462,704 454,075 8,629 1.9%
Local access lines 232,360 242,282 (9,922) (4.1)%
DSL subscribers 108,581 103,428 5,153 5.0%
IPTV subscribers 31,218 26,074 5,144 19.7%
ILEC VOIP lines 8,799 8,605 194 2.3%
CLEC access line equivalents 81,746 73,686 8,060 10.9%

"We were pleased to deliver another solid quarter of financials despite a $0.7 million access settlement that negatively impacted both revenue and earnings. In addition, the extension of maturities on a portion of our debt was a positive outcome providing us with additional balance sheet flexibility," said Steve Childers, Chief Financial Officer.

Cash Available to Pay Dividends

For the quarter, cash available to pay dividends, or CAPD, was $21.1 million, and the dividend payout ratio was 55.1%. At June 30, 2011, cash and cash equivalents were $82.0 million, representing an increase of $28.4 million over the prior year. The Company made capital expenditures of $10.7 million compared to $10.9 million in the second quarter of 2010.  

Financial Highlights for the Second Quarter Ended June 30, 2011 

Financial Highlights for the Six Months Ended June 30, 2011 

Financial Guidance

For 2011, the Company is reiterating its full year guidance for capital expenditures and cash interest expenses of $38.0 million to $41.0 million and $45.0 million to $48.0 million, respectively. In addition to the impacts from the refinancing, the Company is increasing its estimates on the benefits of bonus deprecation and, as a result, is lowering its cash tax guidance by $5.0 million to a new range of $9.0 million to $11.0 million from previous guidance of $14.0 million to $16.0 million.    

Dividend Payments

On August 1, 2011, the Company's board of directors declared its next quarterly dividend of $0.38738 per common share, which is payable on November 1, 2011 to stockholders of record at the close of business on October 15, 2011. 

Conference Call Information 

The Company will host a conference call today at 11:00 a.m. Eastern Time / 10:00 a.m. Central Time to discuss second quarter earnings and developments with respect to the Company. The call is being webcast and archived on the "Investor Relations" section of the Company's website at http://www.consolidated.com. If you do not have internet access, the conference call dial-in number is 1-877-374-3981 with pass code 81927799. International parties can access the call by dialing 1-253-237-1158. A telephonic replay of the conference call will also be available starting two hours after completion of the call until August 11, 2011 at midnight Eastern Time. To hear the replay, parties in the United States and Canada should call 1-800-642-1687 and international parties should call 1-706-645-9291. 

Use of Non-GAAP Financial Measures

This press release, as well as the conference call, includes disclosures regarding "EBITDA", "adjusted EBITDA", "cash available to pay dividends" and the related "dividend payout ratio", "total net debt to last twelve month adjusted EBITDA coverage ratio", adjusted diluted net income per share" and "adjusted net income attributable to common stockholders", all of which are non-GAAP financial measures. Accordingly, they should not be construed as alternatives to net cash from operating or investing activities, cash and cash equivalents, cash flows from operations, net income or net income per share as defined by GAAP and are not, on their own, necessarily indicative of cash available to fund cash needs as determined in accordance with GAAP. In addition, not all companies use identical calculations, and the non-GAAP financial measures may not be comparable to other similarly titled measures of other companies. A reconciliation of the differences between these non-GAAP financial measures and the most directly comparable financial measures presented in accordance with GAAP is included in the tables that follow.

Adjusted EBITDA is comprised of EBITDA, adjusted for certain items as permitted or required by the lenders under the credit facility in place at the end of each quarter in the periods presented. The tables that follow include an explanation of how adjusted EBITDA is calculated for each of the periods presented. EBITDA is defined as net earnings before interest expense, income taxes, depreciation and amortization on a historical basis. We believe net cash provided by operating activities is the GAAP financial measure most directly comparable to EBITDA.

Cash available to pay dividends represents adjusted EBITDA plus cash interest income less (1) cash interest expense, (2) capital expenditures and (3) cash taxes; this calculation differs in certain respects from the similar calculation used in the credit agreement. 

We present adjusted EBITDA, cash available to pay dividends and the related dividend payout ratio for several reasons. Management believes adjusted EBITDA, cash available to pay dividends and the dividend payout ratio are useful as a means to evaluate our ability to fund our estimated uses of cash (including interest on our debt) and pay dividends. In addition, we have presented adjusted EBITDA, cash available to pay dividends and the dividend payout ratio to investors in the past because they are frequently used by investors, securities analysts and other interested parties in the evaluation of companies in our industry, and management believes presenting them here provides a measure of consistency in our financial reporting. Adjusted EBITDA and cash available to pay dividends, referred to as Available Cash in our credit agreement, are also components of the restrictive covenants and financial ratios contained in the agreements governing our debt that require us to maintain compliance with these covenants and limit certain activities, such as our ability to incur debt and to pay dividends. The definitions in these covenants and ratios are based on adjusted EBITDA and cash available to pay dividends after giving effect to specified charges. In addition, adjusted EBITDA, cash available to pay dividends and the dividend payout ratio provide our board of directors with meaningful information to determine, with other data, assumptions and considerations, our dividend policy and our ability to pay dividends under the restrictive covenants in the agreements governing our debt and to measure our ability to service and repay debt.  We present the related "total net debt to last twelve month adjusted EBITDA coverage ratio" principally to put other non-GAAP measures in context and facilitate comparisons by investors, security analysts and others; this ratio differs in certain respects from the similar ratio used in our credit agreement. 

These non-GAAP financial measures have certain shortcomings. In particular, adjusted EBITDA does not represent the residual cash flows available for discretionary expenditures, since items such as debt repayment and interest payments are not deducted from such measure. Similarly, while we may generate cash available to pay dividends, we are not required to use any such cash to pay dividends, and the payment of any dividends is subject to declaration by our board of directors, compliance with applicable law and the terms of our credit agreement. Because adjusted EBITDA is a component of the dividend payout ratio and the ratio of total net debt to last twelve month adjusted EBITDA, these measures are also subject to the material limitations discussed above. In addition, the ratio of total net debt to last twelve month adjusted EBITDA is subject to the risk that we may not be able to use the cash on the balance sheet to reduce our debt on a dollar-for-dollar basis. Management believes these ratios are useful as a means to evaluate our ability to incur additional indebtedness in the future. 

We present the non-GAAP measures adjusted diluted net income per share and adjusted diluted net income attributable to common stockholders because our net income and net income per share are regularly affected by items that occur at irregular intervals or are non-cash items. We believe that disclosing these measures assists investors, securities analysts and other interested parties in evaluating both our company over time and the relative performance of the companies in our industry.

About Consolidated

Consolidated Communications Holdings, Inc. is an established rural local exchange company providing voice, data and video services to residential and business customers in Illinois, Texas and Pennsylvania. Each of the operating companies has been operating in its local market for over 100 years. As of June 30, 2011, the Company had 232,360 ILEC access lines, 81,746 Competitive Local Exchange Carrier (CLEC) access line equivalents, 108,581 DSL subscribers, 31,218 IPTV subscribers and 8,799 VOIP lines. The Company offers a wide range of telecommunications services, including local and long distance service, custom calling features, private line services, high-speed Internet access, digital TV, carrier access services and directory publishing.

Safe Harbor 

Any statements contained in this press release other than statements of historical fact, including statements about management's beliefs and expectations, are forward-looking statements and should be evaluated as such. These statements are made on the basis of management's views and assumptions regarding future events and business performance. Words such as "estimate," "believe," "anticipate," "expect," "intend," "plan," "target," "project," "should," "may," "will" and similar expressions are intended to identify forward-looking statements. Forward-looking statements (including oral representations) involve risks and uncertainties that may cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements. These risks and uncertainties include economic and financial market conditions generally and economic conditions in Consolidated's service areas; changes in the valuation of pension plan assets, as well as a number of other factors related to our business, including various risks to shareholders of not receiving dividends and risks to Consolidated's ability to pursue growth opportunities if Consolidated continues to pay dividends according to the current dividend policy; various risks to the price and volatility of Consolidated's common stock; the substantial amount of d-ebt and Consolidated's ability to refinance it or incur additional debt in the future; Consolidated's need for a significant amount of cash to service and repay the debt and to pay dividends on the common stock; restrictions contained in the debt agreements that limit the discretion of management in operating the business; the ability to refinance the existing debt as necessary; regulatory changes, including changes to subsidies, rapid development and introduction of new technologies and intense competition in the telecommunications industry; risks associated with Consolidated's possible pursuit of acquisitions; system failures; losses of large customers or government contracts; risks associated with the rights-of-way for the network; disruptions in the relationship with third party vendors; losses of key management personnel and the inability to attract and retain highly qualified management and personnel in the future; changes in the extensive governmental legislation and regulations governing telecommunications providers and the provision of telecommunications services; telecommunications carriers disputing and/or avoiding their obligations to pay network access charges for use of Consolidated's network; high costs of regulatory compliance; the competitive impact of legislation and regulatory changes in the telecommunications industry; and liability and compliance costs regarding environmental regulations. These and other risks and uncertainties are discussed in more detail in Consolidated's filings with the Securities and Exchange Commission, including our reports on Form 10-K and Form 10-Q. Many of these risks are beyond management's ability to control or predict. All forward-looking statements attributable to Consolidated or persons acting on behalf of us are expressly qualified in their entirety by the cautionary statements and risk factors contained in this press release and Consolidated's filings with the Securities and Exchange Commission. Because of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. Furthermore, forward-looking statements speak only as of the date they are made. Except as required under the federal securities laws or the rules and regulations of the Securities and Exchange Commission, Consolidated does not undertake any obligation to update or review any forward-looking information, whether as a result of new information, future events or otherwise. 

-- Tables Follow --

Consolidated Communications Holdings, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par value)
 
  June 30,  December 31,
  2011  2010
 (Unaudited) 
ASSETS    
Current assets:    
Cash and cash equivalents  $  82,007  $  67,654
Accounts receivable, net   37,058  42,012
Prepaid expenses and other current assets  25,372  26,584
Total current assets  144,437  136,250
Property, plant and equipment, net  344,181  356,057
Intangibles, net and other assets  706,463  717,239
Total assets  $ 1,195,081  $ 1,209,546
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
Current portion of long-term debt  $ 4,400  $  -- 
Current portion of capital lease obligation  170  132
Accounts payable  10,799  9,972
Accrued expenses and other current liabilities   57,989  65,488
Total current liabilities  73,358  75,592
     
Capital lease obligation less current portion  4,619  3,993
Long-term debt  875,600  880,000
Other long-term liabilities  175,026  178,086
Total liabilities  1,128,603  1,137,671
     
Stockholders' equity:    
Common stock, $0.01 par value  299  298
Paid in capital  88,741  98,126
Accumulated other comprehensive loss  (27,778)  (31,471)
Total Consolidated Communications Holdings, Inc.    
stockholders' equity  61,262  66,952
Noncontrolling interest  5,216  4,922
Total stockholders' equity  66,478   71,875
Total liabilities and stockholders' equity  $1,195,081  $ 1,209,546
 
 
Consolidated Communications Holdings, Inc.
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
 (Unaudited) 
      
  Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2011  2010  2011  2010 
         
Revenues   $ 92,623  $ 95,737  $ 188,064  $ 194,039
Operating expenses:         
Cost of services and products   34,267  35,649  69,951  71,589
Selling, general and administrative expenses   21,687  21,390  42,386  44,193
Depreciation and amortization   21,987  21,460  44,145  43,002
Income from operations   14,682  17,238  31,582  35,255
Other income (expense):         
Interest expense, net   (12,397)  (13,047)  (24,336)  (25,952)
Other income, net   6,307  6,620  13,451  12,986
Income before income taxes   8,592  10,811  20,697  22,289
Income tax expense   3,079  3,638  7,687  8,064
Net income   5,513  7,173  13,010  14,225
Less: Net income attributable to noncontrolling interest   162  124  294  255
         
Net income attributable to Consolidated Communications Holdings, Inc.   $ 5,351  $ 7,049  $ 12,716  $ 13,970
         
Diluted net income attributable to Consolidated Communications Holdings, Inc. per common share  $ 0.18  $ 0.24  $ 0.42  $ 0.47
 
 
Consolidated Communications Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
 (Unaudited) 
 
  Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2011  2010  2011  2010 
     
OPERATING ACTIVITIES  
Net income  $ 5,513  $ 7,173  $ 13,010  $ 14,225
Adjustments to reconcile net income to cash provided by operating activities:    
Depreciation and amortization  21,987  21,460  44,145  43,002
Non-cash stock compensation  579  616  1,090  1,119
Loss on disposal of assets  --   884  4  888
Other adjustments, net  36  331  660  1,440
Changes in operating assets and liabilities, net  2,009  819  2,294  (5,602)
Net cash provided by operating activities  30,124  31,283  61,203  55,072
INVESTING ACTIVITIES    
Return of capital in excess of earnings  56  --   56  -- 
Proceeds from sale of investments  --   35  --   35
Proceeds from sale of assets  281  458  396  972
Capital expenditures  (10,653)  (10,885)  (20,704)  (21,820)
Net cash used in investing activities  (10,316)  (10,392)  (20,252)  (20,813)
FINANCING ACTIVITIES    
Payments made on long-term obligations  (37)  (103)  (71)  (344)
Refinancing fees  (3,399)  --   (3,399)  -- 
Dividends on common stock   (11,598)  (11,553)  (23,128)  (23,099)
Net cash used in financing activities  (15,034)  (11,656)  (26,598)  (23,443)
Net change in cash and cash equivalents  4,774  9,235  14,353  10,816
Cash and cash equivalents at beginning of period  77,233  44,339  67,654  42,758
Cash and cash equivalents at end of period  $ 82,007  $ 53,574  $ 82,007  $ 53,574
 
 
Consolidated Communications Holdings, Inc.
Consolidated Revenue by Category
(Dollars in thousands)
(Unaudited) 
 
  Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2011  2010  2011  2010 
         
Telephone Operations        
Local calling services  $ 21,981  $ 23,210  $ 44,049  $ 47,020
Network access services  19,292  20,883  40,680  42,085
Subsidies  11,107  11,820  22,655  24,024
Long distance services  4,121  4,730  8,418  9,363
Data and Internet services  20,018  18,681  39,647  36,682
Other services  8,290  8,389  16,753  17,322
Total Telephone Operations  84,809  87,713  172,202  176,496
Other Operations  7,814  8,024  15,862  17,543
Total operating revenues  $ 92,623  $ 95,737  $ 188,064  $ 194,039
 
 
Consolidated Communications Holdings, Inc.
Schedule of Adjusted EBITDA Calculation
(Dollars in thousands)
(Unaudited)
 
  Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2011  2010  2011  2010 
EBITDA:        
Net cash provided by operating activities  $ 30,124  $ 31,283  $ 61,203  $ 55,072
Adjustments:        
Compensation from restricted share plan  (579)  (616)  (1,090)  (1,119)
Other adjustments, net  (36)  (1,215)  (664)  (2,327)
Changes in operating assets and liabilities  (2,009)  (819)  (2,294)  5,602
Interest expense, net  12,397  13,047  24,336  25,952
Income taxes  3,079  3,638  7,687  8,064
EBITDA (1)  42,976  45,318  89,178  91,244
         
Adjustments to EBITDA (2):        
Other, net (3)  (3,558)  (6,519)  (9,293)  (12,791)
Investment distributions (4)  5,858  6,562  12,743  13,512
Non-cash compensation (5)  579  616  1,090  1,119
Adjusted EBITDA  $ 45,855  $ 45,977  $ 93,718  $ 93,084
         
Footnotes for Adjusted EBITDA:        
(1) EBITDA is defined as net earnings before interest expense, income taxes, depreciation and amortization on a historical basis.
(2) These adjustments reflect those required or permitted by the lenders under the credit facility in place at the end of each of the quarters included in the periods presented.
(3) Other, net includes the equity earnings from our investments, dividend income, income attributable to noncontrolling interests in subsidiaries and certain miscellaneous items.
(4) For purposes of calculating adjusted EBITDA, we include all cash dividends and other cash distributions received from our investments.
(5) Represents compensation expenses in connection with our Restricted Share Plan, which because of the non-cash nature of the expenses are being excluded from adjusted EBITDA.
 
Consolidated Communications Holdings, Inc.
Cash Available to Pay Dividends
(Dollars in thousands)
(Unaudited)
 
 Three Months
Ended June 30,
2011
Six Months
Ended June 30,
2011
Adjusted EBITDA  $ 45,855  $ 93,718
     
- Cash interest expense   (11,820)  (23,227)
- Capital expenditures  (10,653)  (20,696)
- Cash income taxes  (2,325)  (4,824)
     
Cash available to pay dividends  $ 21,057  $ 44,971
     
Dividends Paid  $ 11,598  $ 23,128
Payout Ratio 55.1% 51.4%
 
 
Consolidated Communications Holdings, Inc.
Total Net Debt to LTM Adjusted EBITDA Ratio
(Dollars in thousands)
(Unaudited)
 
Summary of Outstanding Debt  
Term loan   $ 880,000  
Capital leases  4,789  
Total debt as of June 30, 2011  $ 884,789  
Less cash on hand  (82,007)  
Total net debt as of June 30, 2011  $ 802,782  
     
Adjusted EBITDA for the last twelve months ended June 30, 2011   $ 185,858  
     
Total Net Debt to last twelve months    
Adjusted EBITDA  4.32  x 
 
 
Consolidated Communications Holdings, Inc.
Adjusted Net Income and Per Share Attributable to Common Stockholders
(in thousands, except per share amounts)
(Unaudited)
 
  Three Months Ended  Six Months Ended 
  June 30,  June 30,  June 30,  June 30, 
  2011  2010  2011  2010 
Reported net income attributable to common stockholders   $ 5,351  $ 7,049  $ 12,716  $ 13,970
Loss on disposal of assets, net of tax  --  526  --  526
Severance, net of tax   308  --  301  --
Refinancing charges, net of tax  1,631  --  1,598  --
Non-cash stock compensation, net of tax 372 408 686 714
Adjusted net income attributable to common stockholders  $ 7,662  $ 7,983  $ 15,301  $ 15,210
         
Weighted average number of shares outstanding  29,593  29,483  29,593  29,483
Adjusted diluted net income per share  $ 0.26  $ 0.27  $ 0.52  $ 0.52
 
Calculations above assume a 35.8 and 33.7 percent effective tax rate for the three months ended June 30, 2011 and 2010, respectively. The assumed effective tax rates for the six months ended June 30, 2011 and 2010 are 37.1 and 36.2 percent, respectively.
 
 
Consolidated Communications Holdings, Inc.
Key Operating Statistics
(Unaudited)
       
 June 30,March 31,June 30,
  2011  2011  2010 
Local access lines in service      
Residential  138,538  139,707  143,283
Business  93,822  95,221  98,999
Total local access lines   232,360  234,928  242,282
Total IPTV subscribers  31,218  30,380  26,074
ILEC DSL subscribers (1)  108,581  107,634  103,428
ILEC Broadband Connections  139,799  138,014  129,502
ILEC VOIP subscribers  8,799  8,665  8,605
CLEC Access Line Equivalents (2)  81,746  81,631  73,686
       
Total connections  462,704  463,238  454,075
       
Long distance lines (3)  175,439  174,944  170,374
       
IPTV Homes passed  209,609  207,796  197,766
IPTV penetration of homes passed 15% 15% 13%
 
(1) Includes only ILEC DSL. CLEC DSL is included in CLEC access line equivalents.
(2) CLEC access line equivalents represent a combination of voice services and data circuits. The calculations represent a conversion of data circuits to an access line basis. Equivalents are calculated by converting data circuits (basic rate interface (BRI), primary rate interface (PRI), DSL, DS-1, DS-3, and Ethernet) and SONET-based (optical) services (OC-3 and OC-48) to the equivalent of an access line. 
(3) Excludes CLEC LD subscribers.    
CONTACT: Company Contact:

         Matt Smith

         Treasurer & Director of Finance

         217-258-2959

         matthew.smith@consolidated.com