Consolidated Communications Holdings
Nov 5, 2015

Consolidated Communications Reports Third Quarter 2015 Results

MATTOON, Ill., Nov. 5, 2015 (GLOBE NEWSWIRE) -- Consolidated Communications Holdings, Inc. (Nasdaq:CNSL) (the "Company") reported results for the third quarter 2015.  

Third quarter financial summary:

"The third quarter was another solid quarter of results as we continued to execute on our strategy and delivered cash flows providing a comfortable dividend payout ratio," said Bob Udell, President and Chief Executive Officer. "We added over 3,300 net data subscribers and the strong growth in our data services drove commercial and carrier revenues higher by 3.0% over last year."

"It has been one year since the close of the Enventis acquisition, and I could not be more pleased with how well the integration has gone. The fiber-centric assets and the culture of the employee base have been a great fit. The acquisition strengthened our market and product diversification and positioned us well for the future," Udell concluded.

Pro Forma Financial Results for the Third Quarter 

We have presented various adjusted pro forma information below and in the tables at the end of the release. This information is presented as if the acquisition of Enventis had occurred on January 1, 2014 in order to provide a better view of the period over period performance for the combined business.

Financial Results for the Nine Months Ended September 30, 2015

Cash Available to Pay Dividends

For the quarter, cash available to pay dividends, or CAPD, was $36.2 million, and the dividend payout ratio was 54.0%. At September 30, 2015, cash and cash equivalents were $23.9 million. Capital expenditures for the quarter were $34.6 million. 

Financial Guidance

The Company is reiterating its full year guidance, which was previously updated in the second quarter. The table below reflects pro forma results for the full year of 2014.

  2015 Guidance  2014 Pro Forma Results 
     
Cash Interest Expense $76.5 million to $77.5 million $81.4 million
Cash Income Taxes $2.0 million to $3.0 million $12.4 million
Capital Expenses* $128.0 million to $132.0 million $131.3 million

*2015 capital guidance includes $5.2 million of integration related expenses. 

Dividend Payments

On November 2, 2015, the Company's board of directors declared its next quarterly dividend of $0.38738 per common share, which is payable on February 1, 2016 to stockholders of record at the close of business on January 15, 2016. This will represent the 42nd 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 http://www.consolidated.com. The conference call dial-in number is 1-877-374-3981 with pass code 56543992. 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 November 12, 2015 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 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 our credit agreement 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 our 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 our 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 our 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 certain 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.

About Consolidated

Consolidated Communications Holdings, Inc. is a leading communications provider within its 11-state operations. Headquartered in Mattoon, IL, the Company has been providing services in many of its markets for over a century. The Company leverages its advanced fiber optic network to offer a wide range of solutions including: high speed internet, metro Ethernet, digital TV, Voice, wireless backhaul and cloud and managed services.

Safe Harbor 

The Securities and Exchange Commission ("SEC") encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions.  Certain statements in this press release are forward-looking statements and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995.  These forward-looking statements reflect, among other things, our current expectations, plans, strategies, and anticipated financial results.  There are a number of risks, uncertainties, and conditions that may cause our actual results to differ materially from those expressed or implied by these forward-looking statements.  These risks and uncertainties include our ability to successfully integrate Enventis' operations and realize the synergies from the acquisition, as well as a number of factors related to our business, including economic and financial market conditions generally and economic conditions in our service areas; various risks to shareholders of not receiving dividends and risks to our ability to pursue growth opportunities if we continue to pay dividends according to the current dividend policy; various risks to the price and volatility of our common stock; changes in the valuation of pension plan assets; the substantial amount of debt and our ability to repay or refinance it or incur additional debt in the future; our need for a significant amount of cash to service and repay the debt and to pay dividends on the common stock; restrictions contained in our 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; risks associated with our 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 our 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. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements are discussed in more detail in our filings with the Securities and Exchange Commission, including our reports on Form 10-K and Form 10-Q. Many of these circumstances are beyond our ability to control or predict.  Moreover, forward-looking statements necessarily involve assumptions on our part.  These forward-looking statements generally are identified by the words "believe", "expect", "anticipate", "estimate", "project", "intend", "plan", "should", "may", "will", "would", "will be", "will continue" or similar expressions.  Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Consolidated Communications Holdings, Inc. and its subsidiaries to be different from those expressed or implied in the forward-looking statements.  All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements that appear throughout this press release.  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 disclaim any intention or obligation to update or revise publicly any forward-looking statements.  You should not place undue reliance on forward-looking statements.

- Tables Follow -

     
Consolidated Communications Holdings, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par value)
(Unaudited)
  September 30,  December 31, 
  2015  2014 
     
ASSETS    
Current assets:    
Cash and cash equivalents  $ 23,854  $ 6,679
Accounts receivable, net  73,304  77,536
Income tax receivable  27,198  18,940
Deferred income taxes  13,216  13,374
Prepaid expenses and other current assets  17,528  17,616
Total current assets  155,100  134,145
     
Property, plant and equipment, net  1,113,890  1,137,478
Investments  106,183  115,376
Goodwill  764,630  764,630
Other intangible assets  46,909  56,322
Deferred debt issuance costs, net and other assets  16,373  19,313
Total assets  $ 2,203,085  $ 2,227,264
     
LIABILITIES AND SHAREHOLDERS' EQUITY    
Current liabilities:    
Accounts payable  $ 13,903  $ 15,277
Advance billings and customer deposits  31,407  31,933
Dividends payable  19,566  19,510
Accrued compensation  22,865  32,581
Accrued interest  17,330  6,784
Accrued expense  39,469  39,698
Current portion of long-term debt and capital lease obligations  10,120  9,849
Current portion of derivative liability  362  443
Total current liabilities  155,022  156,075
     
Long-term debt and capital lease obligations  1,406,297  1,356,753
Deferred income taxes  251,217  246,665
Pension and other post-retirement obligations  104,247  122,363
Other long-term liabilities  16,070  14,579
Total liabilities  1,932,853  1,896,435
     
Shareholders' equity:    
Common stock, par value $0.01 per share; 100,000,000 shares authorized, 50,509,148 and 50,364,579, shares outstanding as of September 30, 2015 and December 31, 2014, respectively  505  504
Additional paid in capital  295,581  357,139
Accumulated other comprehensive loss, net  (30,889)  (31,640)
Noncontrolling interest  5,035  4,826
Total shareholders' equity  270,232  330,829
Total liabilities and shareholders' equity  $ 2,203,085  $ 2,227,264
         
 
Consolidated Communications Holdings, Inc.
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
         
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2015  2014  2015  2014 
         
         
Net revenues  $ 193,958  $ 149,040  $ 587,546  $ 449,724
Operating expenses:        
Cost of services and products  83,209  56,435  249,477  167,653
Selling, general and administrative expenses  50,649  32,659  135,682  97,945
Acquisition and other transaction costs  395  729  1,055  1,995
Depreciation and amortization  46,057  34,968  133,264  106,515
Income from operations  13,648  24,249  68,068  75,616
Other income (expense):        
Interest expense, net of interest income  (19,174)  (20,721)  (60,277)  (60,280)
Loss on extinguishment of debt  --   --   (41,242)  -- 
Other income, net  10,491  8,608  25,839  25,102
Income (loss) before income taxes  4,965  12,136  (7,612)  40,438
Income tax expense (benefit)  2,220  4,387  (2,258)  14,380
Net income (loss)  2,745  7,749  (5,354)  26,058
         
Less: net income attributable to noncontrolling interest  150  107  209  285
         
Net income (loss) attributable to common shareholders  $ 2,595  $ 7,642  $ (5,563)  $ 25,773
         
Net income (loss) per basic and diluted common share attributable to common shareholders  $ 0.05  $ 0.19  $ (0.11)  $ 0.63
         
Consolidated Communications Holdings, Inc.
Pro Forma Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
         
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
    Pro Forma    Pro Forma 
  2015  2014  2015  2014 
         
         
Net revenues  $ 193,958  $ 203,450  $ 587,546  $ 598,097
Operating expenses:        
Operating expenses (exclusive of depreciation and amortization) 134,253 131,121 386,214 377,215
Depreciation and amortization  46,057  46,824  133,264  142,082
Income from operations  13,648  25,505  68,068  78,800
Other income (expense):        
Interest expense, net of interest income  (19,174)  (21,775)  (60,277)  (65,554)
Loss on extinguishment of debt  --   --   (41,242)  -- 
Other income, net  10,491  8,608  25,839  25,102
Income (loss) from before income taxes  4,965  12,338  (7,612)  38,348
Income tax expense (benefit)  2,220  4,507  (2,258)  13,724
Net Income (loss)  2,745  7,831  (5,354)  24,624
Less: net income attributable to noncontrolling interest  150  107  209  285
         
Net income (loss) attributable to common shareholders  $ 2,595  $ 7,724  $ (5,563)  $ 24,339
         
Net income (loss) per basic and diluted common share attributable to common shareholders  $ 0.05  $ 0.15  $ (0.11)  $ 0.49
         
Consolidated Communications Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
         
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2015  2014  2015  2014 
OPERATING ACTIVITIES        
Net income (loss)  $ 2,745  $ 7,749  $ (5,354)  $ 26,058
Adjustments to reconcile net income to cash provided by operating activities:        
Depreciation and amortization  46,057  34,968  133,264  106,515
Deferred income taxes  4,213  (423)  4,218  (958)
Cash distributions from wireless partnerships in excess of/(less than) earnings  9,396  (807)  7,840  (784)
Non- cash stock-based compensation  742  948  2,265  2,672
Amortization of deferred financing  770  1,773  2,592  3,114
Loss on extinguishment of debt  --   --   41,242  -- 
Other adjustments, net  226  (311)  924  1,592
Changes in operating assets and liabilities, net  7,672  2,422  (19,354)  (4,845)
Net cash provided by operating activities  71,821  46,319  167,637  133,364
INVESTING ACTIVITIES        
Purchase of property, plant and equipment, net  (34,581)  (25,592)  (100,119)  (76,038)
Proceeds from sale of assets  61  313  118  1,563
Proceeds from the sale of investments  --   --   846  -- 
Restricted cash related to acquisition  --   (149,917)  --   (149,917)
Net cash used in investing activities  (34,520)  (175,196)  (99,155)  (224,392)
FINANCING ACTIVITIES        
Proceeds on bond offering  --   200,000  294,780  200,000
Restricted cash on bond offering  --   (54,886)  --   (54,886)
Proceeds on issuance of long-term debt  21,000  2,000  61,000  28,000
Payment of capital lease obligation  (214)  (164)  (658)  (481)
Payment on long-term debt  (21,275)  (2,275)  (80,825)  (32,825)
Redemption of senior notes  --   --   (261,874)  -- 
Payment of financing costs  (337)  (183)  (4,805)  (2,707)
Share repurchases for minimum tax withholding  --   --   (282)  -- 
Dividends on common stock  (19,567)  (15,607)  (58,643)  (46,734)
Net cash provided by financing activities  (20,393)  128,885  (51,307)  90,367
Net change in cash and cash equivalents  16,908  8  17,175  (661)
Cash and cash equivalents at beginning of period  6,946  4,882  6,679  5,551
Cash and cash equivalents at end of period  $ 23,854  $ 4,890  $ 23,854  $ 4,890
           
Consolidated Communications Holdings, Inc.
Consolidated Revenue by Category
(Dollars in thousands)
 (Unaudited) 
           
 PRO FORMA   
 Q3'14Q4'14Q1'15Q2'15Q3'15
Commercial and carrier:          
Data and transport services (includes VoIP)  $ 42,831  $ 43,392  $ 45,055  $ 45,049  $ 46,187
Voice services  26,834  26,346  26,055  26,213  25,463
Other  2,984  3,414  2,596  2,841  3,208
   72,649  73,152  73,706  74,103  74,858
Consumer:          
Broadband (VoIP, Data and Video)  53,516  53,394  53,725  54,051  52,956
Voice services  16,688  16,085  15,556  15,120  15,143
   70,204  69,479  69,281  69,171  68,099
           
Equipment Sales and Service  22,258  11,062  10,853  19,309  14,759
Subsidies  14,040  14,348  14,392  14,516  13,905
Network Access  19,680  19,789  19,399  19,056  17,923
Other products and services  4,619  4,818  4,947  4,855  4,414
Total operating revenue  $ 203,450  $ 192,648  $ 192,578  $ 201,010  $ 193,958
         
Consolidated Communications Holdings, Inc.
Schedule of Adjusted EBITDA Calculation
(Dollars in thousands)
(Unaudited)
         
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
    Pro forma    Pro forma 
  2015  2014  2015  2014 
Net income (loss)  $ 2,745  $ 7,831  $ (5,354)  $ 24,624
Add (subtract):        
Income tax expense (benefit)  2,220  4,507  (2,258)  13,724
Interest expense, net  19,174  21,775  60,277  65,554
Depreciation and amortization  46,057  46,824  133,264  142,082
EBITDA  70,196  80,937  185,929  245,984
         
Adjustments to EBITDA (1):        
Other, net (2)  (1,498)  (9,860)  27,102  (27,188)
Investment distributions (3)  19,996  7,564  34,162  25,356
Non-cash compensation (4)  742  1,140  2,265  3,287
         
Adjusted EBITDA  $ 89,436  $ 79,781  $ 249,458  $ 247,439
         
Footnotes for Adjusted EBITDA:        
(1) These adjustments reflect those required or permitted by the lenders under our credit agreement.
(2) Other, net includes the equity earnings from our investments, dividend income, income attributable to noncontrolling interests in subsidiaries, acquisition and non-recurring 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)
(Unaudited)
     
  Three Months Ended  Nine Months Ended 
  September 30, 2015  September 30, 2015 
     
Adjusted EBITDA  $ 89,436  $ 249,458
     
- Cash interest expense  (18,601)  (58,439)
- Capital expenditures  (34,581)  (100,119)
- Cash income taxes  (8)  (1,795)
     
Cash available to pay dividends  $ 36,246  $ 89,105
     
Dividends Paid  $ 19,567  $ 58,643
Payout Ratio 54.0% 65.8%
     
Note: 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 loan, net of discount $3,494  $ 890,581
Revolving loan  26,000
Senior unsecured notes due 2022, net of discount $5,035  494,965
Capital leases  4,871
Total debt as of September 30, 2015  $ 1,416,417
Less cash on hand  (23,854)
Total net debt as of September 30, 2015  $ 1,392,563
   
Adjusted EBITDA for the last twelve months ended September 30, 2015  $ 330,072
   
Total Net Debt to last twelve months  
Adjusted EBITDA  4.22x
         
Consolidated Communications Holdings, Inc.
Adjusted Net Income and Net Income Per Share
(in thousands, except per share amounts)
(Unaudited)
         
  Three Months Ended  Nine Months Ended 
    Pro Forma    Pro Forma 
  Sep 30,  Sep 30,  Sep 30,  Sep 30, 
  2015  2014  2015  2014 
Net income (loss)  $ 2,745  $ 7,831  $ (5,354)  $ 24,624
Transaction and severance related costs, net of tax  5,620  --  9,329  --
Loss on extinguishment of debt, net of tax  --  --  28,251  --
Loss related to sale of building, net of tax  --  --  --  474
Impairment charge for CVIN investment, net of tax  --  --  573  --
Non-cash stock compensation, net of tax 433 724 1,552 2,110
Adjusted net income  $ 8,798  $ 8,555  $ 34,351  $ 27,208
         
Weighted average number of shares outstanding  50,174  50,021  50,166  50,021
Adjusted diluted net income per share  $ 0.18  $ 0.17  $ 0.68  $ 0.54
         
* Calculations above assume a 41.7% and 36.5% effective tax rate for the three months ended and 31.5% and 35.8% for the nine months ended September 30, 2015 and 2014, respectively.
           
Consolidated Communications Holdings, Inc.
Key Operating Statistics
(Unaudited)
           
 30-Sep-1530-Jun-15% Change in Qtr30-Sep-14% Change yoy
           
Voice Connections 488,037 493,540 (1.1%) 508,409 (4.0%)
           
Data and Internet Connections 452,265 448,944 0.7% 440,868 2.6%
           
Video Connections 119,643 122,155 (2.1%) 124,326 (3.8%)
           
Business and Broadband as % of total revenue 80% 80% 0.0% 79% 1.3%
           
Fiber route network miles (long-haul and metro) 13,441 13,262 1.3% 12,561 7.0%
           
On-net buildings 4,981 4,840 2.9% 4,750 4.9%
           
Consumer Customers 270,466 272,882 (0.9%) 279,249 (3.1%)
           
Consumer ARPU $83.93 $84.50 (0.7%) $84.22 (0.3%)
           
Note:          
BB% includes commercial/carrier, equipment sales and service, directory, consumer broadband and special access
All periods are pro forma for the Enventis acquisition
CONTACT: Company Contact:

         Matt Smith

         Treasurer and VP of Finance & IR

         217-258-2959

         matthew.smith@consolidated.com