Consolidated Communications Holdings
Feb 25, 2016

Consolidated Communications Reports Fourth Quarter 2015 Results

MATTOON, Ill., Feb. 25, 2016 (GLOBE NEWSWIRE) -- Consolidated Communications Holdings, Inc. (Nasdaq:CNSL) (the "Company") reported results for the fourth quarter 2015.  

Fourth quarter financial summary:

"The fourth quarter concluded another solid year for the Company with strong growth in our commercial and carrier revenues led by metro Ethernet and new fiber to the tower sites," said Bob Udell, President and Chief Executive Officer.  "The successful execution of our strategy is evident by the continued expansion of our fiber network, growth in our business and broadband services, and consistent cash flows supporting our dividend to shareholders."

Pro Forma Financial Results for the Fourth 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 Twelve Months Ended December 31, 2015

Cash Available to Pay Dividends
For the quarter, cash available to pay dividends, or CAPD, was $27.1 million, and the dividend payout ratio was 72.2%.  At December 31, 2015, cash and cash equivalents were $15.9 million.  Capital expenditures for the quarter were $33.8 million. 

Financial Guidance
The Company is providing its full year 2016 guidance as outlined below.   

    
  2016 Guidance     2015 Results   
    
Cash Interest Expense  $73.0 million to $75.0 million   $76.9 million 
Cash Income Taxes$1.0 million to $3.0 million   $1.8 million
Capital Expenditures$125.0 million to $130.0 million $133.9 million
    

Dividend Payments
On February 19, 2016, the Company's board of directors declared its next quarterly dividend of $0.38738 per common share, which is payable on May 2, 2016 to stockholders of record at the close of business on April 15, 2016.  This will represent the 43rd 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 fourth quarter earnings and developments with respect to the Company.  The live webcast and replay can be accessed from the "Investor Relations" section of the company's website at http://ir.consolidated.com. The live conference call dial-in number is 1-877-374-3981 with conference ID 24959106.  A telephonic replay of the conference call will be available through March 3, 2016 and can be accessed by calling 1-855-859-2056.  

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, Data and Ethernet solutions, Digital TV, Voice, managed and cloud services and wireless backhaul.

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 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) 
 
  December 31, 
  December 31,  
   2015     2014   
       
 ASSETS    
Current assets:    
Cash and cash equivalents $  15,878  $  6,679  
Accounts receivable, net    68,848     77,536  
Income tax receivable    23,867     18,940  
Deferred income taxes    -     13,374  
Prepaid expenses and other current assets    17,815     17,616  
Total current assets    126,408     134,145  
    
Property, plant and equipment, net    1,093,261     1,137,478  
Investments    105,543     115,376  
Goodwill    764,630     764,630  
Other intangible assets    43,497     56,322  
Other assets    5,187     3,892  
Total assets $  2,138,526  $  2,211,843  
       
LIABILITIES AND SHAREHOLDERS' EQUITY    
Current liabilities:    
Accounts payable $  12,576  $  15,277  
Advance billings and customer deposits    27,616     31,933  
Dividends payable    19,551     19,510  
Accrued compensation    21,883     32,581  
Accrued interest    9,353     6,784  
Accrued expense    42,384     40,141  
Current portion of long-term debt and capital lease obligations    10,937     9,849  
Total current liabilities    144,300     156,075  
    
Long-term debt and capital lease obligations    1,377,892     1,341,332  
Deferred income taxes    236,529     246,665  
Pension and other post-retirement obligations    112,966     122,363  
Other long-term liabilities    16,140     14,579  
Total liabilities    1,887,827     1,881,014  
       
Shareholders' equity:    
Common stock, par value $0.01 per share; 100,000,000 shares    
  authorized, 50,470,096 and 50,364,579, shares outstanding    
  as of December 31, 2015 and December 31, 2014, respectively     505     504  
Additional paid in capital    281,738     357,139  
Retained earnings (deficit)    (881)    -   
Accumulated other comprehensive loss, net    (35,699)    (31,640) 
Noncontrolling interest   5,036     4,826  
Total shareholders' equity   250,699     330,829  
Total liabilities and shareholders' equity$  2,138,526  $  2,211,843  
       

 

 
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, 
 2015 2014 2015 2014
        
        
Net revenues $  188,191  $  186,014  $  775,737  $  635,738 
Operating expenses:        
Cost of services and products    78,923     75,008     328,400     242,661 
Selling, general and administrative        
  expenses    42,545     42,691     178,227     140,636 
Acquisition and other transaction costs    358     9,822     1,413     11,817 
Depreciation and amortization    46,658     42,920     179,922     149,435 
Income from operations    19,707     15,573     87,775     91,189 
Other income (expense):        
Interest expense, net of interest income    (19,341)    (22,257)    (79,618)    (82,537)
Loss on extinguishment of debt    -      (13,785)    (41,242)    (13,785)
Other income, net    9,350     8,446     35,189     33,548 
Income (loss) before income taxes    9,716     (12,023)    2,104     28,415 
Income tax expense (benefit)    5,033     (1,353)    2,775     13,027 
Net income (loss)    4,683     (10,670)    (671)    15,388 
        
Less: net income attributable to noncontrolling interest    1     36     210     321 
        
Net income (loss) attributable to common shareholders $  4,682  $  (10,706) $  (881) $  15,067 
        
Net income (loss) per basic and diluted common share         
  attributable to common shareholders$  0.09  $  (0.22) $  (0.02) $  0.35 
        

 

 
Consolidated Communications Holdings, Inc.
Pro Forma Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
        
  Three Months Ended   Twelve Months Ended 
  December 31,   December 31, 
    Pro Forma     Pro Forma 
 2015 2014 2015 2014
        
        
Net revenues $  188,191  $  192,648  $  775,737  $  790,745 
Operating expenses:        
Operating expenses (exclusive of depreciation                
  and amortization)  121,826   121,878   508,040   499,093 
Depreciation and amortization    46,658     44,896     179,922     186,978 
Income from operations    19,707     25,874     87,775     104,674 
Other income (expense):        
Interest expense, net of interest income    (19,341)    (22,266)    (79,618)    (87,820)
Loss on extinguishment of debt    -      (13,785)    (41,242)    (13,785)
Other income, net    9,350     8,446     35,189     33,548 
Income (loss) from before income taxes    9,716     (1,731)    2,104     36,617 
Income tax expense (benefit)    5,033     4,245     2,775     17,969 
Net Income (loss)    4,683     (5,976)    (671)    18,648 
Less: net income attributable to noncontrolling interest    1     36     210     321 
        
Net income (loss) attributable to common shareholders $  4,682  $  (6,012) $  (881) $  18,327 
        
Net income (loss) per basic and diluted common share         
  attributable to common shareholders$  0.09  $  (0.12) $  (0.02) $  0.37 
        

 

 
  Consolidated Communications Holdings, Inc.
  Condensed Consolidated Statements of Cash Flows
  (Dollars in thousands)
  (Unaudited)
           
     Three Months Ended   Twelve Months Ended 
     December 31,   December 31, 
    2015 2014 2015 2014
OPERATING ACTIVITIES        
    Net income (loss) $  4,683  $  (10,670) $  (671) $  15,388 
  Adjustments to reconcile net income to cash provided by operating activities:        
  Depreciation and amortization    46,658     42,920     179,922     149,435 
  Deferred income taxes    1,610     11,202     5,828     10,244 
  Cash distributions from wireless partnerships in excess of/(less than) earnings      745     996     8,585     212 
    Non- cash stock-based compensation    795     964     3,060     3,636 
  Amortization of deferred financing    786     1,250     3,378     4,364 
  Loss on extinguishment of debt    -      13,785     41,242     13,785 
  Other adjustments, net    (418)    1,381     506     2,973 
  Changes in operating assets and liabilities, net    (3,317)    (7,407)    (22,671)    (12,252)
      Net cash provided by operating activities    51,542     54,421     219,179     187,785 
INVESTING ACTIVITIES        
  Business acquisition, net of cash acquired    -      (139,558)    -      (139,558)
  Purchase of property, plant and equipment, net    (33,815)    (32,960)    (133,934)    (108,998)
  Purchase of investments    -      (100)    -      (100)
  Proceeds from sale of assets    13,430     232     13,548     1,795 
  Proceeds from the sale of investments    -      -      846     -  
  Restricted cash related to acquisition    -      149,917     -      -  
      Net cash used in investing activities    (20,385)    (22,469)    (119,540)    (246,861)
FINANCING ACTIVITIES        
  Proceeds on bond offering    -      -      294,780     200,000 
  Restricted cash on bond offering    -      54,886     -      -  
  Proceeds on issuance of long-term debt    8,000     52,000     69,000     80,000 
  Payment of capital lease obligation    (449)    (222)    (1,107)    (703)
  Payment on long-term debt    (26,275)    (30,275)    (107,100)    (63,100)
  Partial redemption of senior notes    -      (84,127)    (261,874)    (84,127)
  Payment of financing costs    -      (4,731)    (4,805)    (7,438)
  Share repurchases for minimum tax withholding    (843)    (1,856)    (1,125)    (1,856)
  Dividends on common stock     (19,566)    (15,607)    (78,209)    (62,341)
  Other    -      (231)    -      (231)
  Net cash (used)/provided by financing activities    (39,133)    (30,163)    (90,440)    60,204 
Net change in cash and cash equivalents    (7,976)    1,789     9,199     1,128 
Cash and cash equivalents at beginning of period    23,854     4,890     6,679     5,551 
Cash and cash equivalents at end of period $  15,878  $  6,679  $  15,878  $  6,679 
           

 

 
Consolidated Communications Holdings, Inc.
Consolidated Revenue by Category
(Dollars in thousands)
 (Unaudited) 
      
      
 PRO FORMA    
 Q4'14
 Q1'15
 Q2'15
 Q3'15
 Q4'15
 
Commercial and carrier:     
Data and transport services (includes VoIP)  $  43,392 $  45,055 $  45,049 $  46,187 $  47,003 
Voice services   26,346    26,055    26,213    25,463    25,288 
Other   3,414    2,596    2,841    3,208    3,621 
    73,152    73,706    74,103    74,858    75,912 
Consumer:     
Broadband (VoIP, Data and Video)   53,394    53,725    54,051    52,956    52,863 
Voice services   16,085    15,556    15,120    15,143    14,829 
    69,479    69,281    69,171    68,099    67,692 
      
Equipment Sales and Service   11,062    10,853    19,309    14,759    10,080 
Subsidies   14,348    14,392    14,516    13,905    13,524 
Network Access   19,789    19,399    19,056    17,923    17,529 
Other products and services   4,818    4,947    4,855    4,414    3,454 
Total operating revenue$  192,648 $  192,578 $  201,010 $  193,958 $  188,191 
      

 

 
Consolidated Communications Holdings, Inc.
Schedule of Adjusted EBITDA Calculation
(Dollars in thousands)
(Unaudited)
        
  Three Months Ended   Twelve Months Ended 
  December 31,   December 31, 
    Pro forma     Pro forma 
 2015 2014 2015 2014
Net income (loss)$  4,683  $  (5,976) $  (671) $  18,648 
Add (subtract):       
Income tax expense (benefit)   5,033     4,245     2,775     17,969 
Interest expense, net   19,341     22,266     79,618     87,820 
Depreciation and amortization   46,658     44,896     179,922     186,978 
EBITDA   75,715     65,431     261,644     311,415 
        
Adjustments to EBITDA (1):       
Other, net (2)   2,425     (309)    14,330     (1,532)
Loss on extinguishment of debt   -      13,785     41,242     13,785 
Investment income (accrual basis)   (10,644)    (8,551)    (36,690)    (34,516)
Investment distributions (cash basis)   11,153     9,244     45,316     34,600 
Non-cash compensation (3)   795     1,014     3,060     4,301 
Adjusted EBITDA$  79,444  $  80,614  $  328,902  $  328,053 
        
Footnotes for Adjusted EBITDA:       
(1) These adjustments reflect those required or permitted by the lenders under our credit agreement. 
(2) Other, net includes income attributable to noncontrolling interests, acquisition and non-recurring related 
costs, and certain miscellaneous items. 
(3) 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    Twelve Months Ended 
  December 31, 2015    December 31, 2015 
     
Adjusted EBITDA$  79,444   $  328,902 
     
 - Cash interest expense    (18,474)     (76,913)
 - Capital expenditures   (33,815)     (133,934)
 - Cash income taxes   (40)     (1,835)
     
Cash available to pay dividends$  27,115   $  116,220 
     
Dividends Paid$  19,566   $  78,209 
Payout Ratio 72.2%   67.3%
     
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 $3,340$  888,460 
Revolving loan   10,000 
Senior unsecured notes due 2022, net of discount $4,893     495,107 
Capital leases   7,580 
Total debt as of December 31, 2015$  1,401,147 
Less cash on hand   (15,878)
Total net debt as of December 31, 2015$  1,385,269 
  
Adjusted EBITDA for the last  
  twelve months ended December 31, 2015$  328,902 
  
Total Net Debt to last twelve months 
  Adjusted EBITDA 4.21x 
  

 

 
Consolidated Communications Holdings, Inc.
  Adjusted Net Income and Net Income Per Share 
(in thousands, except per share amounts)
(Unaudited)
        
  Three Months Ended   Twelve Months Ended 
    Pro Forma     Pro Forma 
  Dec 31,   Dec 31,   Dec 31,   Dec 31, 
 2015 2014 2015 2014
Net income (loss)$  4,683  $  (5,976) $  (671) $  18,648 
Transaction and severance related costs, net of tax     1,024     823     9,386     1,626 
Loss on extinguishment of debt, net of tax   -     12,233     25,323     7,471 
Deferred tax rate change   1,931     -     1,931     - 
Loss related to sale of building, net of tax   -     -     -     401 
Impairment charge for CVIN investment, net of tax   -     -     514     - 
Non-cash stock compensation, net of tax 488   900   1,879   2,331 
Adjusted net income $  8,126  $  7,980  $  38,362  $  30,477 
        
Weighted average number of shares outstanding   50,206     50,053     50,176     50,030 
                
Adjusted diluted net income per share$  0.16  $  0.16  $  0.76  $  0.61 
        
* Calculations above assume a 38.6% and 11.3% effective tax rate for the three months ended and 
38.6% and 45.8% for the twelve months ended December 31, 2015 and 2014, respectively. 
        

 

 
Consolidated Communications Holdings, Inc.
Key Operating Statistics
(Unaudited)
           
  31-Dec-15 30-Sep-15 % Change in Qtr 31-Dec-14 % Change yoy
           
Voice Connections  482,735   488,037   (1.1%)  503,120   (4.1%)
           
Data and Internet Connections  456,100   452,265   0.8%  443,489   2.8%
           
Video Connections   117,882   119,643   (1.5%)  124,229   (5.1%)
           
Business and Broadband as % of total revenue  80.4%  80.1%  0.4%  80.7%  (0.4%)
           
Fiber route network miles (long-haul and metro)    13,717   13,441   2.1%  12,400   10.6%
           
On-net buildings  5,163   4,981   3.7%  4,660   10.8%
           
Consumer Customers  268,934   270,496   (0.6%)  277,753   (3.2%)
           
Consumer ARPU $83.90  $83.92   (0.0%) $72.58   15.6%
           
           
Note: 
BB% includes commercial/carrier, equipment sales and service, directory, consumer broadband and special access 
           


Company Contact:                                                               
Matt Smith   
Treasurer and VP of Finance & IR 
217-258-2959
matthew.smith@consolidated.com