Consolidated Communications Holdings
Aug 8, 2013

Consolidated Communications Reports Second Quarter 2013 Results

MATTOON, Ill., Aug. 8, 2013 (GLOBE NEWSWIRE) -- Consolidated Communications Holdings, Inc. (Nasdaq:CNSL) reported results for the second quarter 2013.

Second quarter financial summary for continuing operations:

"I am pleased with our financial and operating results in the quarter," said Bob Currey, President and Chief Executive Officer. "The performance was consistent with our expectations and our strategy of delivering cash flow supporting the dividend and investments for growth. Our broadband adds were solid in what is historically a slow quarter and our business and broadband revenues increased to 79% of our total top-line."

"The accomplishments we have achieved in the first year after closing the SureWest transaction have been tremendous. Our integration is going well and we exceeded our first year synergy targets. We set out to build a stronger, more competitive company and that is precisely what we have done," Currey concluded.

Operating Statistics at June 30, 2013, Compared to pro forma June 30, 2012.

  Period Ended June 30,    
  2013 2012 Increase/(decrease) %
Data connections 251,306 242,681  8,625 3.6%
Video connections 109,083 102,837  6,246 6.1%
ILEC access lines 262,581 274,363 (11,782) (4.3%)
Voice connections (non-ILEC)  126,114  133,042  (6,928) (5.2%)
Total connections 749,084 752,923 (3,839) (0.5%)

"As you review the tables in our earnings release and subsequent 10-Q filing, you will notice that based on the pending disposition of our Prison Services business, we are treating the results from this business unit as discontinued operations leaving us with only one reportable segment," said Steve Childers, Chief Financial Officer. "With respect to Prison Services, as a reminder, all sites under the State of Illinois contract were transitioned to the new provider as of the end of the first quarter, and as a result, we expect to sell certain related assets we no longer require on a go-forward basis in the third quarter."

Cash Available to Pay Dividends

For the quarter, cash available to pay dividends, or CAPD, was $25.5 million, and the dividend payout ratio was 60.9%. At June 30, 2013, cash and cash equivalents were $3.5 million. The Company made capital expenditures of $25.1 million.  

Financial Highlights for the Second Quarter Ended June 30, 2013 

Financial Highlights for the Six Months Ended June 30, 2012

Financial Guidance

For 2013, the Company is reiterating the following full year guidance:

  2013 Guidance 
Cash Interest Expense $80.0 million to $85.0 million
Cash Income Taxes $1.0 million to $3.0 million
Capital Expenditures $100.0 million to $110.0 million *
*   2013 Capital Expenditure guidance includes $4.0 million in one-time integration costs.  

Dividend Payments

On August 5, 2013, the Company's board of directors declared its next quarterly dividend of $0.38738 per common share, which is payable on November 1, 2013 to stockholders of record at the close of business on October 15, 2013. This will represent the 33rd consecutive quarterly dividend paid by the Company. 

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 If you do not have internet access, the conference call dial-in number is 1-877-374-3981 with pass code 14873876. International parties can access the call by dialing 1-253-237-1158. A telephonic replay of the conference call will also be available starting three hours after completion of the call until August 15, 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", "adjusted net income attributable to common stockholders" and "adjusted pro forma metrics", all of which are non-GAAP financial measures and described in this section as not being in compliance with Regulation S-X. 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 with the reconciliation to net income. EBITDA is defined as net earnings before interest expense, income taxes, depreciation and amortization on a historical basis.   

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 credit agreement that requires 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 credit agreement 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 measures differ in material respects from the ratios used in our Senior Notes indenture. 

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.

Certain current and prior year GAAP amounts have been modified to give effect to pro forma events that are directly attributable to the acquisition of SureWest Communications (the "Acquisition") and factually supportable and are expected to have a continuing impact. The unaudited Pro forma financial information, which has been prepared for the periods presented, gives effect to the Acquisition as if it had occurred on January 1, 2012. 

We have also presented various Adjusted Pro Forma metrics and financial information as if the acquisition had occurred as of January 1, 2012 in order to provide a better view of the combined Company's period over period performance. In calculating the unaudited Adjusted Pro Forma metrics and financial information, we did not adjust certain items to give effect to the Acquisition as if it had occurred on January 1, 2012, as required by Rule 3-05 of Regulation S-X.

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 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 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)
 June 30, 
December 31, 
Current assets:     
Cash and cash equivalents   $ 3,520  $ 17,854
Accounts receivable, net   56,527  57,957
Income tax receivable   1,954  12,020
Deferred income taxes   8,984  8,984
Prepaid expenses and other current assets   13,761  11,269
Assets of discontinued operations   714  1,772
Total current assets   85,460  109,856
Property, plant and equipment, net   895,597  907,672
Investments   111,800  109,750
Goodwill   603,446  603,446
Other intangible assets   44,994  49,530
Deferred debt issuance costs, net and other assets   15,992  13,800
Total assets   $ 1,757,289  $ 1,794,054
Current liabilities:     
Accounts payable   $ 7,630  $ 14,954
Advance billings and customer deposits   26,485  27,654
Dividends payable   15,538  15,463
Accrued compensation   19,445  21,912
Accrued expense   33,755  47,225
Current portion of long-term debt and capital lease obligations   9,849  9,596
Current portion of derivative liability   371  3,164
Liabilities of discontinued operations   254  4,209
Total current liabilities   113,327  144,177
Long-term debt and capital lease obligations   1,214,404  1,208,248
Deferred income taxes   140,320  138,068
Pension and other post-retirement obligations   149,672  156,710
Other long-term liabilities   12,989  10,746
Total liabilities   1,630,712  1,657,949
Shareholders' equity:     
Common stock, par value $0.01 per share; 100,000,000 shares authorized, 40,111,518 and 39,877,998, shares outstanding as of June 30, 2013 and December 31, 2012, respectively   401  399
Additional paid in capital   163,668  177,315
Accumulated other comprehensive loss   (41,859)  (45,784)
Noncontrolling interest  4,367  4,175
Total shareholders' equity  126,577  136,105
Total liabilities and shareholders' equity  $ 1,757,289  $ 1,794,054
Consolidated Communications Holdings, Inc.
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
  Three Months Ended 
June 30, 
 Six Months Ended
June 30, 
  2013  2012  2013  2012 
Revenues   $ 151,320  $ 86,557  $ 302,848  $ 173,008
Operating expenses:         
Cost of services and products   55,942  32,019  110,994  63,073
Selling, general and administrative expenses   33,544  19,121  66,670  37,804
Financing and other transaction costs   178  562  357  5,384
Depreciation and amortization   34,709  21,708  69,550  43,682
Income from operations   26,947  13,147  55,277  23,065
Other income (expense):         
Interest expense, net   (20,697)  (16,893)  (45,297)  (31,493)
Other income, net   8,775  6,947  17,452  13,427
Income from continuing operations before income taxes   15,025  3,201  27,432  4,999
Income tax expense   5,465  880  11,014  1,501
Income from continuing operations   9,560  2,321  16,418  3,498
Income (loss) from discontinued operations, net of tax   (272)  585  (248)  1,292
Net income   9,288  2,906  16,170  4,790
Less: net income attributable to noncontrolling interest   94  120  193  245
Net income attributable to common shareholders   $ 9,194  $ 2,786  $ 15,977  $ 4,545
Net income per common share - basic and diluted         
Income from continuing operations  $ 0.23  $ 0.07  $ 0.40  $ 0.11
Income (loss) from discontinued operations, net of tax  (0.01)  0.02  (0.01)  0.04
Net income per basic and diluted common share attributable to common shareholders  $ 0.22  $ 0.09  $ 0.39  $ 0.15
Consolidated Communications Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
  Three Months Ended
June 30, 
 Six Months Ended
June 30, 
  2013  2012  2013  2012 
Net income  $ 9,288  $ 2,906  $ 16,170  $ 4,790
Loss (income) from discontinued operations, net of tax  272  (585)  248  (1,292)
Net income from continuing operations  9,560  2,321  16,418  3,498
Adjustments to reconcile net income to cash provided by operating activities:        
Depreciation and amortization  34,709  21,708  69,550  43,682
Deferred income taxes  --   --   (124)  -- 
Cash distributions from wireless partnerships less than earnings  (1,074)  (797)  (1,844)  (1,171)
Non- cash stock-based compensation  784  589  1,440  1,090
Amortization of deferred financing  575  1,557  1,119  5,020
Other adjustments, net  150  146  2,669  206
Changes in operating assets and liabilities, net  (15,081)  2,423  (21,882)  (3,097)
Net cash provided by operating activities  29,623  27,947  67,346  49,228
Net cash provided by (used in) discontinued operations  (1,566)  574  (3,097)  912
Net cash provided by operating activities  28,057  28,521  64,249  50,140
Purchase of property, plant and equipment, net  (25,117)  (10,749)  (52,623)  (20,715)
Purchase of investments  (47)  --   (131)  -- 
Proceeds from sale of assets  29  8  50  28
Restricted cash for acquisition of SureWest  --   (298,035)  --   (298,035)
Other  --   (406)  --   (314)
Net cash used in continuing operations  (25,135)  (309,182)  (52,704)  (319,036)
Net cash used in discontinued operations  (37)  (20)  (48)  (97)
Net cash used in investing activities  (25,172)  (309,202)  (52,752)  (319,133)
Proceeds on bond offering  --   298,055  --   298,055
Restricted cash on bond offering  --   (17,047)  --   (17,047)
Proceeds on issuance of long-term debt  36,000  --   49,000  -- 
Payment of capital lease obligation  (139)  (47)  (224)  (92)
Payment on long-term debt  (28,310)  (2,200)  (43,620)  (4,400)
Payment of financing costs  --   13  --   (5,070)
Dividends on common stock   (15,540)  (11,602)  (30,987)  (23,173)
Net cash provided by (used in) financing activities  (7,989)  267,172  (25,831)  248,273
Net change in cash and cash equivalents  (5,104)  (13,509)  (14,334)  (20,720)
Cash and cash equivalents at beginning of period  8,624  98,493  17,854  105,704
Cash and cash equivalents at end of period  $ 3,520  $ 84,984  $ 3,520  $ 84,984
 Consolidated Communications Holdings, Inc      
Consolidated Revenue by Category      
(Dollars in thousands)      
 Three Months Ended
June 30, 
 Six Months Ended 
June 30, 
Pro Forma 
Pro Forma 
Operating Revenues        
Local calling services  $ 26,041  $ 28,243  $ 52,388  $ 56,768
Network access services  28,891  30,755  58,545  61,615
Subsidies  13,481  12,378  26,927  24,573
Long distance services  4,475  5,462  9,110  11,107
Data, video and internet services  68,201  63,669  135,101  124,837
Other services  10,232  11,056  20,777  22,010
Revenue from continuing operations  151,321  151,563  302,848  300,910
Revenue from discontinued operations  482  6,448  5,249  13,361
Total revenues  $ 151,803  $ 158,011  $ 308,097  $ 314,271
Consolidated Communications Holdings, Inc.
Schedule of Adjusted EBITDA Calculation
(Dollars in thousands)
 Three Months Ended 
June 30, 
Six Months Ended
June 30, 
Adjusted Pro Forma 
Adjusted Pro Forma 
Net income (loss) from continuing operations  $ 9,560  $ (1,660)  $ 16,418  $ (761)
Add (subtract):        
Income tax expense (benefit)  5,465  (978)  11,014  (382)
Interest expense, net  20,697  21,704  45,297  40,636
Depreciation and amortization  34,709  39,415  69,550  79,096
EBITDA  70,431  58,481  142,279  118,589
Adjustments to EBITDA (1):        
Other, net (2)  (7,066)  (4,029)  (14,150)  (7,851)
Investment distributions (3)  7,660  5,901  15,761  12,112
Non-cash compensation (4)  784  3,270  1,440  5,130
Adjusted EBITDA  $ 71,809  $ 63,623  $ 145,330  $ 127,980
Footnotes for Adjusted EBITDA:        
(1) These adjustments reflect those required or permitted by the lenders under the credit agreement.  
(2) 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.  
(3) Includes all cash dividends and other cash distributions received from our investments.  
(4) Represents compensation expenses in connection with our Restricted Share Plan, which because of the non-cash nature of the expenses are excluded from adjusted EBITDA.  
 Consolidated Communications Holdings, Inc.    
 Cash Available to Pay Dividends    
 (Dollars in thousands)    
 Three Months Ended
June 30, 2013
Six Months Ended
June 30, 2013
Adjusted EBITDA  $ 71,809  $ 145,330
 - Cash interest expense   (20,413)  (42,150)
 - Capital expenditures  (25,117)  (52,623)
 - Cash income taxes  (750)  (868)
Cash available to pay dividends  $ 25,529  $ 49,689
Dividends Paid  $ 15,540  $ 30,987
Payout Ratio 60.9% 62.4%
* 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)
Summary of Outstanding Debt 
Term loan 2  $ 402,916
Term loan 3, net of discount of $4,714  507,711
Senior unsecured notes, net of discount of $1,788  298,212
Drawn on revolver  10,000
Capital leases  5,414
Total debt as of June 30, 2013  $ 1,224,253
Less cash on hand  (3,520)
Total net debt as of June 30, 2013  $ 1,220,733
Adjusted EBITDA for the last twelve months ended June 30, 2013  $ 288,479
Total Net Debt to last twelve months  
Adjusted EBITDA  4.23x
Consolidated Communications Holdings, Inc.
Adjusted Net Income and Per Share Attributable to Common Stockholders
(in thousands, except per share amounts)
  Three Months Ended  Six Months Ended 
 June 30, 
June 30, 
 June 30,
June 30, 
Net income attributable to common shareholders  $ 9,194  $ 2,786  $ 15,977  $ 4,545
Transaction and severance related costs, net of tax  974  2,295  1,883  7,729
Non-cash stock compensation, net of tax 499 427 861 763
Adjusted net income attributable to common stockholders  $ 10,666  $ 5,508  $ 18,721  $ 13,037
Weighted average number of shares outstanding  39,755  29,689  39,755  29,689
Adjusted diluted net income per share  $ 0.27  $ 0.19  $ 0.47  $ 0.44
Calculations above assume a 36.4 and 27.5 percent effective tax rate for the three months ended June 30, 2013 and 2012, respectively. 
The assumed effective tax rates for the six months ended June 30, 2013 and 2012, are 40.2 and 30.0 percent, respectively.
Consolidated Communications Holdings, Inc.          
Key Operating Statistics       
June 30,
March 31, 
December 31, 
September 30,
Pro Forma
June 30, 
ILEC access lines        
Residential 150,711 152,644 153,855 155,274 157,293
Business 111,870 113,211 114,742 115,686 117,070
Total local access lines  262,581 265,855 268,597 270,960 274,363
Quarterly change  (1.2%) (1.0%) (0.9%) (1.2%) (1.0%)
Voice Connections [1]      
Residential 76,101 77,515 78,811 80,097 81,190
Business 50,013 50,351 50,918 51,360 51,852
Total voice connections 126,114 127,866 129,729 131,457 133,042
Quarterly change  (1.4%) (1.4%) (1.3%) (1.2%) (1.5%)
Data and Internet Connections [2] 251,306 250,350 247,633 246,817 242,681
Quarterly change  0.4% 1.1% 0.3% 1.7% 1.7%
Res. penetration of marketable homes 30.3% 30.3% 30.2% 30.2% 30.1%
Video Connections [2] 109,083 107,475 106,137 105,202 102,837
Quarterly change  1.5% 1.3% 0.9% 2.3% 0.8%
Res. penetration of marketable homes 20.7% 20.5% 20.3% 20.2% 19.9%
Total Connections 749,084 751,546 752,096 754,436 752,923
Quarterly change  (0.3%) (0.1%) (0.3%) 0.2% 0.0%
Network Stats - Marketable Homes      
Fiber homes 197,355 195,962 194,895 192,475 187,591
HFC homes 94,534 94,433 94,418 94,272 94,258
Copper homes 399,547 399,547 399,547 399,547 399,547
Total 691,436 689,942 688,860 686,294 681,396
Data marketable homes 679,008 677,514 676,432 673,866  
% of total marketable homes 98% 98% 98% 98%  
Video marketable homes 526,444 524,950 524,019 520,706  
% of total marketable homes 76% 76% 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

         VP of Investor Relations & Treasurer