Consolidated Communications Holdings
Nov 3, 2016

Consolidated Communications Reports Third Quarter 2016 Results

MATTOON, Ill., Nov. 03, 2016 (GLOBE NEWSWIRE) -- Consolidated Communications Holdings, Inc. (Nasdaq:CNSL) (the "Company") reported results for the third quarter 2016.  

Third quarter financial summary:

"I am pleased with the solid financial results for the quarter and the strong growth in our fiber-based commercial and carrier sales," said Bob Udell, President and Chief Executive Officer.  "We delivered another comfortable dividend payout ratio and our year-to-date payout of 69.2% is right on plan."

"During the third quarter, we closed on both the acquisition in Illinois of Champaign Telephone Company, a fiber-based business communications provider, and the sale of our rural independent local exchange company in Iowa," added Udell.  "These transactions strengthen our strategic focus on expanding our fiber footprint and delivering fiber-based products and services."

"Finally, in early October, we completed a refinancing of our secured bank facility.  This transaction is expected to improve our annual cash interest expenses by approximately $2.0 million.  In addition, it extended our maturities by three years and increased our revolver capacity to $110.0 million from $75.0 million.  We could not have been more pleased with the results of the transaction, and I would like to thank all of our investors and underwriters for their support," Udell concluded.   

Financial Results for the Third Quarter   

Financial Results for the Nine Months Ended September 30, 2016

Cash Available to Pay Dividends
For the quarter, cash available to pay dividends, or CAPD, was $26.4 million, and the dividend payout ratio was 74.4%.  At September 30, 2016, cash and cash equivalents were $33.4 million.  Capital expenditures for the quarter were $31.9 million. 

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

 

     
   2016 Updated Guidance   2016 Original Guidance 
     
Cash Interest Expense $72.0 million to $73.0 million $73.0 million to $75.0 million
Cash Income Taxes Less than $1.0 million $1.0 million to $3.0 million
Capital Expenditures $125.0 million to $130.0 million $125.0 million to $130.0 million
     

Dividend Payments
On October 31, 2016, the Company's board of directors declared its next quarterly dividend of $0.38738 per common share, which is payable on February 1, 2017 to stockholders of record at the close of business on January 13, 2017.  This will represent the 46th consecutive quarterly dividend paid by the Company. 

Conference Call Information 
The Company will host a conference call today at 11:00 a.m. ET / 10:00 a.m. CT to discuss third 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 94247732.  A telephonic replay of the conference call will be available through November 10, 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 Communications
Consolidated Communications provides business and broadband communications services across its 11-state service area to carrier, commercial and consumer customers. For more than a century, the Company has consistently provided innovative, reliable, high-quality products and services. The Company offers a wide range of communications solutions including: High-Speed Internet, Data, Digital TV, Phone, managed and cloud services and wireless backhaul over an extensive fiber optic network.

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) 
  September 30,  December 31, 
   2016     2015  
   
 ASSETS   
Current assets:  
Cash and cash equivalents$33,403  $15,878 
Accounts receivable, net 68,447   68,848 
Income tax receivable 9,132   23,867 
Prepaid expenses and other current assets 18,081   17,815 
Total current assets 129,063   126,408 
   
Property, plant and equipment, net 1,065,528   1,093,261 
Investments 106,916   105,543 
Goodwill 760,998   764,630 
Other intangible assets 34,758   43,497 
Other assets 6,896   5,187 
Total assets$2,104,159  $2,138,526 
        
 LIABILITIES AND SHAREHOLDERS' EQUITY   
Current liabilities:  
Accounts payable$15,010  $12,576 
Advance billings and customer deposits 29,255   27,616 
Dividends payable 19,623   19,551 
Accrued compensation 17,569   21,883 
Accrued interest 17,564   9,353 
Accrued expense 38,154   42,384 
Current portion of long-term debt and capital lease obligations 14,429   10,937 
Total current liabilities 151,604   144,300 
   
Long-term debt and capital lease obligations 1,377,549   1,377,892 
Deferred income taxes 238,359   236,529 
Pension and other post-retirement obligations 109,035   112,966 
Other long-term liabilities 16,091   16,140 
Total liabilities 1,892,638   1,887,827 
        
Shareholders' equity:  
Common stock, par value $0.01 per share; 100,000,000 shares  
authorized, 50,654,989 and 50,470,096, shares outstanding  
as of September 30, 2016 and December 31, 2015, respectively 507   505 
Additional paid-in capital 239,559   281,738 
Retained earnings (deficit) -   (881)
Accumulated other comprehensive loss, net (33,792)  (35,699)
Noncontrolling interest 5,247   5,036 
Total shareholders' equity 211,521   250,699 
Total liabilities and shareholders' equity$2,104,159  $2,138,526 
        

 

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, 
   2016     2015     2016     2015  
        
        
Net revenues$191,541  $193,958  $567,258  $587,546 
Operating expenses:       
Cost of services and products 85,646   83,209   246,129   249,477 
Selling, general and administrative       
expenses 39,935   51,044   119,664   136,737 
Loss on impairment -   -   610   - 
Depreciation and amortization 43,224   46,057   130,855   133,264 
Income from operations 22,736   13,648   70,000   68,068 
Other income (expense):       
Interest expense, net of interest income (19,075)  (19,174)  (56,827)  (60,277)
Loss on extinguishment of debt -   -   -   (41,242)
Other income, net 8,419   10,491   24,262   25,839 
Income (loss) before income taxes 12,080   4,965   37,435   (7,612)
Income tax expense (benefit) 4,991   2,220   22,287   (2,258)
Net income (loss) 7,089   2,745   15,148   (5,354)
        
Less: net income attributable to noncontrolling interest 77   150   211   209 
                
Net income (loss) attributable to common shareholders$7,012  $2,595  $14,937  $(5,563)
                
Net income (loss) per basic and diluted common shares       
attributable to common shareholders$0.14  $0.05  $0.29  $(0.11)
        

 

  Consolidated Communications Holdings, Inc.    
  Condensed Consolidated Statements of Cash Flows    
  (Dollars in thousands)    
  (Unaudited)    
           
     Three Months Ended 
  Nine Months Ended 
     September 30, 
  September 30, 
      2016     2015     2016     2015  
OPERATING ACTIVITIES        
  Net income (loss) $7,089  $2,745  $15,148  $(5,354)
  Adjustments to reconcile net income (loss) to cash provided by operating activities:        
  Depreciation and amortization  43,224   46,057   130,855   133,264 
  Deferred income taxes  469   4,213   7,993   4,218 
  Cash distributions from wireless partnerships in excess of/(less than) earnings  (97)  9,396   (1,250)  7,840 
  Non- cash stock-based compensation  862   742   2,666   2,265 
  Amortization of deferred financing  815   770   2,413   2,592 
  Loss on extinguishment of debt  -   -   -   41,242 
  Other adjustments, net  382   226   1,017   924 
  Changes in operating assets and liabilities, net  5,342   7,672   14,749   (19,354)
  Net cash provided by operating activities  58,086   71,821   173,591   167,637 
INVESTING ACTIVITIES        
  Business acquisition, net of cash acquired  (13,422)  -   (13,422)  - 
  Purchase of property, plant and equipment, net  (31,887)  (34,581)  (94,158)  (100,119)
  Proceeds from sale of investments  -   -   -   846 
  Proceeds from sale of assets  20,913   61   20,963   118 
  Net cash used in investing activities  (24,396)  (34,520)  (86,617)  (99,155)
FINANCING ACTIVITIES        
  Proceeds from bond offering  -   -   -   294,780 
  Proceeds on issuance of long-term debt  24,000   21,000   31,000   61,000 
  Payment of capital lease obligation  (945)  (214)  (1,757)  (658)
  Payment on long-term debt  (28,275)  (21,275)  (39,825)  (80,825)
  Redemption of senior notes  -   -   -   (261,874)
  Payment of financing costs  -   (337)  -   (4,805)
  Share repurchases for minimum tax withholding  -   -   (71)  (282)
  Dividends on common stock  (19,622)  (19,567)  (58,796)  (58,643)
  Net cash used by financing activities  (24,842)  (20,393)  (69,449)  (51,307)
Net change in cash and cash equivalents  8,848   16,908   17,525   17,175 
Cash and cash equivalents at beginning of period  24,555   6,946   15,878   6,679 
Cash and cash equivalents at end of period $33,403  $23,854  $33,403  $23,854 
           

 

Consolidated Communications Holdings, Inc. 
Consolidated Revenue by Category 
(Dollars in thousands) 
 (Unaudited)  
 
      
 Q3'15Q4'15Q1'16Q2'16Q3'16
Commercial and carrier:     
Data and transport services (includes VoIP)$47,198 $47,969 $49,112 $48,558 $49,653 
Voice services 25,463  25,288  25,025  25,323  25,098 
Other 3,208  3,621  2,624  2,703  3,481 
  75,869  76,878  76,761  76,584  78,232 
Consumer:     
Broadband (VoIP, Data and Video) 52,956  52,863  54,559  53,103  51,363 
Voice services 15,143  14,829  14,491  14,028  13,717 
  68,099  67,692  69,050  67,131  65,080 
      
Equipment sales and service 14,759  10,080  9,640  10,448  17,695 
Subsidies 13,905  13,524  13,074  12,982  11,681 
Network access 16,912  16,563  16,813  16,305  15,536 
Other products and services 4,414  3,454  3,508  3,421  3,317 
Total operating revenue$193,958 $188,191 $188,846 $186,871 $191,541 
      


Consolidated Communications Holdings, Inc. 
Schedule of Adjusted EBITDA Calculation 
(Dollars in thousands) 
(Unaudited) 
        
        
  Three Months Ended 
  Nine Months Ended 
  September 30, 
  September 30, 
   2016     2015     2016     2015  
Net income (loss)$7,089  $2,745  $15,148  $(5,354)
Add (subtract):       
Income tax expense (benefit) 4,991   2,220   22,287   (2,258)
Interest expense, net 19,075   19,174   56,827   60,277 
Depreciation and amortization 43,224   46,057   130,855   133,264 
EBITDA 74,379   70,196   225,117   185,929 
        
Adjustments to EBITDA (1):       
Other, net (2) 1,993   9,103   7,373   53,148 
Investment income (accrual basis) (8,735)  (10,601)  (24,636)  (26,046)
Investment distributions (cash basis) 8,638   19,996   23,218   34,162 
Non-cash compensation (3) 862   742   2,666   2,265 
        
Adjusted EBITDA$77,137  $89,436  $233,738  $249,458 
        
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    Nine Months Ended 
  September 30, 2016    September 30, 2016 
     
Adjusted EBITDA$77,137   $233,738 
     
- Cash interest expense (18,257)   (54,759)
- Capital expenditures (31,887)   (94,158)
- Cash income (taxes)/refund (616)   132 
     
Cash available to pay dividends$  26,377   $  84,953 
     
Dividends Paid$19,622   $58,796 
Payout Ratio 74.4%   69.2%
     
Note:  The above calculation excludes the principal payments on 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 $2,872$882,103 
Revolving loan 8,000 
Senior unsecured notes due 2022, net of discount $4,453 495,547 
Capital leases   17,141 
Total debt as of September 30, 2016$1,402,791 
Less deferred debt issuance costs (10,813)
Less cash on hand   (33,403)
Total net debt as of September 30, 2016$  1,358,575 
  
Adjusted EBITDA for the last 
twelve months ended September 30, 2016$313,184 
  
Total Net Debt to last twelve months 
Adjusted EBITDA4.34x
  

 

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 
  Sep 30,   Sep 30,   Sep 30,   Sep 30, 
   2016     2015     2016     2015  
Net income (loss)$7,089  $2,745  $15,148  $(5,354)
Transaction and severance related costs, net of tax 606   5,620   1,985   9,329 
Impairment charge for sale of Iowa ILEC, net of tax -   -   248   - 
Impairment charge for sale of CVIN Investment, net of tax -   -   -   573 
Deferred tax related to asset held for sale -   -   7,524   - 
Loss on extinguishment of debt, net of tax -   -   -   28,251 
Non-cash stock compensation, net of tax 506   433   1,082   1,552 
Adjusted net income$8,201  $8,798  $25,988  $34,351 
        
Weighted average number of shares outstanding 50,294   50,174   50,292   50,166 
Adjusted diluted net income per share$0.16  $0.18  $0.52  $0.68 
        
* Calculations above assume a 41.3% and 41.7% effective tax rate for the three months ended and 59.4% and 31.5% for the nine
months ended September 30, 2016 and 2015, respectively.
        

 

Consolidated Communications Holdings, Inc.
Key Operating Statistics
(Unaudited)
           
  30-Sep-16 30-Jun-16 % Change in Qtr 30-Sep-15 % Change yoy
           
Voice Connections  462,232   471,458   (2.0%)  488,037   (5.3%)
           
Data and Internet Connections  470,474   462,559   1.7%  452,265   4.0%
           
Video Connections   108,816   111,617   (2.5%)  119,643   (9.0%)
           
Business and Broadband as % of total revenue 82.5%  80.9%  2.0%  80.1%  3.0%
           
Fiber route network miles (long-haul and metro) 14,099   13,830   1.9%  13,441   4.9%
           
On-net buildings  5,497   5,348   2.8%  4,981   10.4%
           
Consumer Customers  257,106   262,177   (1.9%)  270,466   (4.9%)
           
Consumer ARPU $84.38  $85.35   (1.1%) $83.93   0.5%
           
           
Note:
1) BB% includes commercial/carrier, equipment sales and service, directory, consumer broadband and special access.
2) The acquisition of Champaign Telephone Co. and the sale of our Iowa ILEC resulted in a net increase of 4,905 data connections and
a net reduction of 4,290 voice connections in the third quarter 2016.
           
Company Contacts:                                                             
Jennifer Spaude
Senior Director of Corporate Communications and IR
507-386-3765
Jennifer.spaude@consolidated.com