Consolidated Communications Holdings
Mar 7, 2013

Consolidated Communications Reports Fourth Quarter and Full Year 2012 Results

MATTOON, Ill., March 7, 2013 (GLOBE NEWSWIRE) -- Consolidated Communications Holdings, Inc. (Nasdaq:CNSL) reported results for the fourth quarter and full year 2012.

Fourth quarter financial summary:

"We delivered another strong quarter of results reflecting our continued focus on profitable growth and increasing cash flow," said Bob Currey, President and Chief Executive Officer. "With 1.8% growth in revenue and 5.8% growth in adjusted EBITDA, the results show we are delivering on the diversification benefits and synergy savings of the SureWest transaction as outlined when we announced the deal.

"We continued to diversify our revenues with 74% now coming from the business and broadband growth areas. Total revenue was $160.1 million and adjusted EBITDA was $74.2 million for the quarter. These financials resulted in a very strong dividend payout ratio of 58.2%."

"The integration of SureWest is on plan and going well. We have successfully completed the first phase of billing integration and all of the corporate ERP systems, which include finance, human resources, payroll and supply chain management. We achieved an additional $3.0 million in annualized synergies throughout the fourth quarter giving us a total of $15.0 million. We are at 75% of our first year post-close target of $20.0 million," Currey concluded.

Operating Statistics at December 31, 2012, Compared to pro forma at December 31, 2011

  Period Ended December 31,    
  2012 2011 Increase/(decrease) %
         
Data connections 247,633 236,554 11,079 4.7%
Video connections 106,137 100,753 5,384 5.3%
ILEC access lines 268,597 280,708 (12,111) (4.3%)
Voice connections (non-ILEC) 129,729 136,217 (6,488) (4.8%)
Total connections 752,096 754,232 (2,136) (0.3%)

Operating metrics presented in the above table and at the end of the press release are presented for all periods on a pro forma basis for the SureWest acquisition. 

"On December 4, 2012, we closed on the refinancing of $515 million of term debt. The bank market environment was attractive and we took advantage by extending our maturities four years to the end of 2018. Our balance sheet is well positioned for the future," said Steve Childers, Chief Financial Officer.

Cash Available to Pay Dividends

For the quarter, cash available to pay dividends, or CAPD, was $26.6 million, and the dividend payout ratio was 58.2%. The Company made capital expenditures of $26.7 million.  

Financial Highlights for the Fourth Quarter Ended December 31, 2012 

Financial Highlights for the Twelve Months Ended December 31, 2012

Financial Guidance

The Company is providing the following full year guidance. The table below reflects pro forma results for the full year of 2012.

 2012 Adjusted Pro Forma Results 2013 Guidance
     
Cash Interest Expense $67.6 million $80.0 million to $85.0 million
Cash Income Taxes $4.3 million $1.0 million to $3.0 million
Capital Expenditures $114.4 million $100.0 million to $110.0 million *

*   2013 Capital Expenditure guidance includes $4.0 million in one-time integration costs.

Dividend Payments

On March 1, 2013, the Company's board of directors declared its next quarterly dividend of $0.38738 per common share, which is payable on May 1, 2013 to stockholders of record at the close of business on April 15, 2013. 

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 fourth quarter and full year 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 92976656. International parties can access the call by dialing 1-253-237-1158. A telephonic replay of the conference call will also be available starting four hours after the call until March 14, 2013 at midnight Eastern Time. To hear the replay, parties in the United States and Canada should call 1-855-859-2056 and international parties should call 1-404-537-3406. 

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 income 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.

As noted above, we have presented various adjusted pro forma metrics and financial information as if the acquisition had occurred as of December 31, 2011 in order to provide a better view of the combined Company's period over period performance.

About Consolidated

Consolidated Communications Holdings, Inc. is a leading communications provider within its six state operations of California, Illinois, Kansas, Missouri, Pennsylvania and Texas. Headquartered in Mattoon, IL, the Company has been providing services in many of its markets for over a century. With one of the highest quality networks in the industry, the Company offers a wide range of communications services, including IP-based digital and high definition television, high speed internet, Voice over IP, carrier access, directory publishing and local and long distance service.

Safe Harbor 

Any statements other than statements of historical facts, 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 the ability of Consolidated Communications Holdings, Inc. (the "Company") to successfully integrate the operations of SureWest Communications ("SureWest") and realize the synergies from the acquisition, as well as a number of other factors related to the businesses of the Company, including various risks to stockholders of not receiving dividends and risks to the Company's ability to pursue growth opportunities if the Company continues to pay dividends according to the current dividend policy; various risks to the price and volatility of the Company's common stock; the substantial amount of debt and the Company's ability to repay or refinance it or incur additional debt in the future; the Company's need for a significant amount of cash to service and repay the debt and to pay dividends on the Company's common stock; changes in the valuation of pension plan assets; restrictions contained in the Company's debt agreements that limit the discretion of management in operating the business; regulatory changes, including changes to subsidies, rapid development and introduction of new technologies and intense competition in the telecommunications industry; changes in content costs, which have been substantial and continue to increase; risks associated with the Company's possible pursuit of acquisitions; economic conditions in the Company's service areas; 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 the Company's network; high costs of regulatory compliance; the competitive impact of legislation and regulatory changes on the telecommunications industry; and liability and compliance costs regarding environmental regulations. These and other risks and uncertainties are discussed in more detail in the Company's and SureWest's filings with the Securities and Exchange Commission, including our respective 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 the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements and risk factors contained in this communication and the Company'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, we do 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)    
     
  December 31,  December 31, 
  2012  2011 
 (Unaudited) 
 ASSETS     
Current assets:     
Cash and cash equivalents   $ 17,854  $ 105,704
Accounts receivable, net   58,582  35,492
Income tax receivable   11,819  8,988
Deferred income taxes   9,000  4,825
Prepaid expenses and other current assets   11,269  6,941
Total current assets   108,524  161,950
     
Property, plant and equipment, net   908,236  338,426
Investments   109,750  98,069
Goodwill   604,988  520,562
Other intangible assets   49,530  70,158
Deferred debt issuance costs, net and other assets   13,800  4,904
Total assets   $ 1,794,828  $ 1,194,069
     
LIABILITIES AND STOCKHOLDERS' EQUITY     
Current liabilities:     
Accounts payable   $ 19,162  $ 6,651
Advance billings and customer deposits   28,592  20,324
Dividends payable   15,463  11,571
Accrued compensation   21,968  12,814
Accrued expense   46,232  21,358
Current portion of long-term debt and capital lease obligations   9,596  8,992
Current portion of derivative liability   3,164  3,580
Total current liabilities   144,177  85,290
     
Long-term debt and capital lease obligations   1,208,248  875,719
Deferred income taxes   138,842  77,327
Pension and other post-retirement obligations   156,710  93,754
Other long-term liabilities   10,746  14,167
Total liabilities   1,658,723  1,146,257
     
Stockholders' equity:     
Common stock, $0.01 par value   399  299
Paid in capital   177,315  79,852
Accumulated other comprehensive loss   (45,784)  (37,833)
Total Consolidated Communications Holdings, Inc. stockholders' equity  131,930  42,318
Noncontrolling interest  4,175  5,494
Total stockholders' equity  136,105  47,812
Total liabilities and stockholders' equity  $ 1,794,828  $ 1,194,069
 
Consolidated Communications Holdings, Inc.
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)    
     
  Three Months Ended  Twelve Months Ended 
  December 31,  December 31, 
  2012  2011  2012  2011 
     
     
Revenues   $ 160,076  $ 93,651  $ 503,457  $ 374,263
Operating expenses:         
Cost of services and products   61,764  35,400  193,743  139,264
Selling, general and administrative expenses   36,525  20,056  111,617  81,050
Financing and other transaction costs   891  --  20,800  2,649
Impairment of intangible assets   2,923  --  2,923  --
Depreciation and amortization   38,670  22,439  120,976  88,745
Income from operations   19,303  15,756  53,398  62,555
Other income (expense):         
Interest expense, net   (20,487)  (11,611)  (72,604)  (49,394)
Loss on extinguishment of debt   (4,455)  --  (4,455)  --
Other income, net   9,380  8,296  31,268  28,666
Income before income taxes   3,741  12,441  7,607  41,827
Income tax expense   1,516  4,435  1,436  14,845
Net income   2,225  8,006  6,171  26,982
Less: Net income attributable to noncontrolling interest   165  130  531  572
Net income attributable to Consolidated Communications Holdings, Inc.   $ 2,060  $ 7,876  $ 5,640  $ 26,410
         
Diluted net income attributable to Consolidated Communications Holdings, Inc. per common share  $ 0.05  $ 0.27  $ 0.15  $ 0.88
 
Consolidated Communications Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
 (Unaudited) 
        
  Three Months Ended  Twelve Months Ended 
  December 31,  December 31, 
  2012  2011  2012  2011 
OPERATING ACTIVITIES    
Net income  $ 2,225  $ 8,006  $ 6,171  $ 26,982
Adjustments to reconcile net income to cash provided by operating activities:        
Depreciation and amortization  38,670  22,439  120,976  88,745
Intangible asset impairment  2,923  --  2,923  --
Deferred income taxes  1,538  6,748  (757)  8,546
Cash distributions from wireless partnerships in excess of (less than earnings)  365  733  (1,309)  945
Stock-based compensation expense  664  460  2,348  2,132
Amortization of deferred financing  570  375  6,360  1,411
Loss on extinguishment of debt  4,455  --  4,455  --
Other adjustments, net  (360)  220  (332)  108
Changes in operating assets and liabilities, net  265  (2,786)  (17,620)  635
Net cash provided by operating activities  51,315  36,195  123,215  129,504
INVESTING ACTIVITIES        
Business acquisition, net of cash acquired  (8,325)  --  (385,346)  --
Purchase of property, plant and equipment, net  (26,675)  (10,667)  (77,095)  (41,913)
Purchase of investments  (6,728)  --  (6,728)  --
Proceeds from sale of assets  509  413  924  840
Other  --  113  (314)  272
Net cash used in investing activities  (41,219)  (10,141)  (468,559)  (40,801)
FINANCING ACTIVITIES        
Proceeds on bond offering  --  --  298,035  --
Proceeds on issuance of long-term debt  509,850  --  544,850  --
Payment of capital lease obligation  (88)  (41)  (228)  (149)
Payment on long-term debt  (503,438)  --  (510,038)  --
Payment of financing costs  (5,469)  --  (18,616)  (3,471)
Distributions to non-controlling interests  (1,850)  --  (1,850)  --
Repurchase and retirement of common stock  (559)  (726)  (559)  (726)
Dividends on common stock   (15,463)  (11,588)  (54,100)  (46,307)
Net cash provided by (used in) financing activities  (17,017)  (12,355)  257,494  (50,653)
Net change in cash and cash equivalents  (6,921)  13,699  (87,850)  38,050
Cash and cash equivalents at beginning of period  24,775  92,005  105,704  67,654
Cash and cash equivalents at end of period  $ 17,854  $ 105,704  $ 17,854  $ 105,704
 
Consolidated Communications Holdings, Inc.
Consolidated Revenue by Category
(Dollars in thousands)
 (Unaudited) 
     
  Three Months Ended  Twelve Months Ended 
  December 31,  December 31, 
  Actuals  Pro Forma  Pro Forma  Pro Forma 
  2012  2011  2012  2011 
     
Telephone Operations        
Local calling services  $ 26,751  $ 29,181  $ 110,826  $ 119,267
Network access services  29,780  31,570  120,625  119,542
Subsidies  13,875  13,283  51,122  51,526
Long distance services  4,995  5,657  21,481  24,694
Data, Video and Internet services  66,928  59,820  256,760  238,286
Other services  10,212  9,781  39,146  38,608
Total Telephone Operations  152,541  149,292  599,960  591,923
Other Operations  7,535  8,020  31,397  31,665
Total operating revenues  $ 160,076  $ 157,312  $ 631,357  $ 623,588
 
Consolidated Communications Holdings, Inc.
Schedule of Adjusted EBITDA Calculation
(Dollars in thousands)
(Unaudited)
         
         
  Three Months Ended  Twelve Months Ended 
  December 31,  December 31, 
  Actuals  Adjusted Pro Forma  Adjusted Pro Forma  Adjusted Pro Forma 
  2012  2011  2012  2011 
Net income   $ 2,225  $ 4,805  $ 1,912  $ 9,969
Add (subtract):        
Income tax expense (benefit)  1,516  2,688  (447)  4,648
Interest expense  20,487  19,554  81,747  84,456
Depreciation and amortization  38,670  40,147  156,390  159,577
EBITDA (1)  62,898  67,194  239,602  258,650
         
Adjustments to EBITDA (2):        
Other, net (3)  1,255  (7,020)  244  (19,647)
Investment distributions (4)  9,382  8,718  29,217  28,409
Non-cash compensation (5)  663  1,223  6,388  6,470
Adjusted EBITDA  $ 74,198  $ 70,115  $ 275,451  $ 273,882
         
Footnotes for Adjusted EBITDA:
(1) EBITDA is defined as net earnings before income taxes, interest expense, and 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, transaction related costs 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
December 31, 2012
Adjusted Pro Forma 
Twelve Months
Ended December 31,
2012
Adjusted EBITDA  $ 74,198  $ 275,451
     
- Cash interest expense   (20,989)  (67,563)
- Capital expenditures  (26,675)  (114,440)
- Cash income taxes  55  (4,264)
     
Cash available to pay dividends  $ 26,589  $ 89,184
     
Dividends Paid  $ 15,463  $ 56,966
Payout Ratio 58.2% 63.9%
     
* The above calculation excludes the principal payments on the amortization of our debt.
 
Consolidated Communications Holdings, Inc.
Total Net Debt to LTM Adjusted EBITDA Ratio
(Dollars in thousands)
(Unaudited)
  
Summary of Outstanding Debt 
Term debt, net of discount of $5,088  $ 914,873
Senior unsecured notes, net of discount of $1,873  298,127
Capital leases  4,844
Total debt as of December 31, 2012  $ 1,217,844
Less cash on hand  (17,854)
Total net debt as of December 31, 2012  $ 1,199,990
   
Adjusted EBITDA, pro forma, for the last twelve months ended December 31, 2012  $ 275,451
   
Total Net Debt to last twelve months  
Adjusted EBITDA, pro forma  4.36  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  Twelve Months Ended 
  December 31,  December 31,  December 31,  December 31, 
  2012  2011  2012  2011 
Reported net income attributable to common stockholders   $ 2,060  $ 7,876  $ 5,640  $ 26,410
Acquisition related tax adjustments  --  --  883  --
Impairment, net of tax  1,738  --  2,371  --
Loss on extinguishment of debt, net of tax  2,649  --  3,614  --
Acquisition and financing related costs, net of tax  530  --  21,462  --
Integration and severance, net of tax   494  43  673  475
Refinancing fee charges, net of tax  165  --  226  1,709
Non-cash stock compensation, net of tax 394 297 1,904 1,375
Adjusted net income attributable to common stockholders  $ 8,030  $ 8,216  $ 36,773  $ 29,969
         
Weighted average number of shares outstanding  39,684  29,620  34,652  29,600
Adjusted diluted net income per share  $ 0.20  $ 0.28  $ 1.06  $ 1.01
         
Calculations above assume a 40.5 and 35.5 percent effective tax rate for the three months ended December 31, 2012 and 2011, respectively. The assumed effective tax rates for the twelve months ended December 31, 2012 and 2011 are 18.9 and 35.5 percent, respectively.
 
Consolidated Communications Holdings, Inc.
Key Operating Statistics
(Unaudited)  
           
  Actuals Actuals Pro Forma Pro Forma Pro Forma
 December 31,September 30,June 30,March 31,December 31,
  2012  2012  2012  2012  2011 
ILEC access lines          
Residential 153,855 155,274 157,293 159,141 161,080
Business 114,742 115,686 117,070 117,910 119,628
Total local access lines  268,597 270,960 274,363 277,051 280,708
Quarterly change  (0.9%) (1.2%) (1.0%) (1.3%) (1.4%)
           
Voice Connections [1]          
Residential 78,811 80,097 81,190 82,850 83,793
Business 50,918 51,360 51,852 52,232 52,424
Total voice connections 129,729 131,457 133,042 135,082 136,217
Quarterly change  (1.3%) (1.2%) (1.5%) (0.8%) (0.2%)
           
Data and Internet Connections [2] 247,633 246,817 242,681 238,562 236,554
Quarterly change  0.3% 1.7% 1.7% 0.8% 1.5%
Res. penetration of marketable homes 30.2% 30.2% 30.1% 30.3% 30.2%
           
Video Connections [2] 106,137 105,202 102,837 102,006 100,753
Quarterly change  0.9% 2.3% 0.8% 1.2% 2.7%
Res. penetration of marketable homes 20.3% 20.2% 19.9% 20.0% 19.9%
           
Total Connections 752,096 754,436 752,923 752,701 754,232
Quarterly change  (0.3%) 0.2% 0.0% (0.2%) 0.3%
           
Network Stats - Marketable Homes          
Fiber homes 194,895 192,475 187,591 182,639 180,257
HFC homes 94,418 94,272 94,258 94,251 94,022
Copper homes 399,547 399,547 399,547 399,547 399,547
Total 688,860 686,294 681,396 676,437 673,826
           
Data marketable homes 676,432 673,866      
% of total marketable homes 98% 98%      
Video marketable homes 524,019 520,706      
% of total marketable homes 76% 76%      
           
Note: The figures in the table, excluding ILEC access lines, do not include SureWest business subscribers. 
           
[1] These include voice lines outside the ILECs and Voice-over-IP inside the ILECs.
[2] These connections are both residential and business (excluding SureWest business subscribers). They include services both inside and outside the ILECs.
CONTACT: Matt Smith

         Treasurer & Investor Relations

         217-258-2959

         matthew.smith@consolidated.com