Apr 30, 2020

Consolidated Communications Reports First Quarter 2020 Results

Company delivered strong performance and stable Adjusted EBITDA; Reduced debt by $43 million and executing on Capital Allocation Plan 

First Quarter Highlights

  • Revenue totaled $325.7 million, generating Adjusted EBITDA of $131.6 million
  • Data-transport and broadband revenue both grew 1.6 percent
  • Operating activities generated net cash of $85 million
  • Operating expenses, excluding depreciation and amortization, improved by $17 million or 8 percent
  • Debt reduced by $43 million and leverage ratio lowered to 4.23x

MATTOON, Ill., April 30, 2020 (GLOBE NEWSWIRE) -- Consolidated Communications Holdings, Inc. (Nasdaq: CNSL) (the “Company” or “Consolidated”) reported results for the first quarter 2020 and will hold a conference call and simultaneous webcast to discuss its results and developments today at 10 a.m. E.T.

“During this time and in response to the COVID-19 pandemic, we are first and foremost focused on ensuring the safety of our employees and customers, while maintaining business continuity,” said Bob Udell, president and chief executive officer of Consolidated Communications. “As a critical infrastructure provider, we have responded quickly to identify new and innovative ways to serve our customers. We are effectively managing a substantial increase in service orders and bandwidth upgrades, while maintaining reliable services and support to all customers. Our network is performing as designed against a heavier load of voice and data traffic even considering our no cap policy on broadband services.” 

“I want to especially thank our teams who continue to work tirelessly and demonstrate flexibility and commitment to ensure business resiliency. As an essential partner, we are here to support our customers and the communities we serve with critical communication solutions, and look forward to being part of the economic recovery.”

“2020 began with strong momentum, improving revenue trends and stable Adjusted EBITDA, both of which contributed to significant debt reduction in the first quarter,” added Udell. “I’m very pleased with the revenue growth within data-transport and broadband services, both of which grew approximately 2 percent in the quarter. Additionally, we continued to improve our cost structure as we reduced operating expenses by 8 percent in the recent quarter.”     

Financial Results for the First Quarter   

  • Revenue totaled $325.7 million, a decline of 3.8 percent compared to first quarter 2019.

    • Data and transport service revenue increased 1.6 percent or $1.4 million.
    • Commercial and carrier other revenue was down $3.5 million primarily due to timing on equipment sales.
    • Broadband revenue increased 1.6 percent or $991,000.
    • Voice services revenue across all customer channels declined 5.4 percent or $5.1 million. This reflects a moderated level of decline compared to prior periods.
    • Network access revenues declined $5.1 million primarily due to declines in special access.

  • Income from operations increased to $37.4 million compared to $16.7 million in the first quarter of 2019. The change was primarily due to operating expense reductions of $17.1 million that were largely attributed to ongoing cost savings initiatives along with continued network cost optimization. Depreciation and amortization expense declined $16.5 million primarily due to certain acquired assets, which became fully depreciated.

  • Net interest expense was $32.1 million, down $2.2 million from the same period last year. As of March 31, our weighted average cost of debt was approximately 5.3 percent.

  • Cash distributions from the Company’s wireless partnerships totaled $10.1 million, compared to $7.3 million for the prior year period.  
     
  • Other income was $15.2 million compared to income of $7.2 million one year ago. The change was primarily due to higher income from the Company’s minority interest in wireless partnerships combined with a gain of $3.7 million on an asset sale.  

  • On a GAAP basis, net income was $15.6 million, compared to a net loss of $7.2 million for the same period last year. GAAP net income per share was $0.22. Adjusted diluted net income (loss) per share excludes certain items as outlined in the table provided in this release. Adjusted diluted net income per share was $0.23 in the first quarter of 2020, compared to a net loss per share of $(0.03) in the first quarter of 2019. 

  • Adjusted EBITDA was $131.6 million, up compared to $130.3 million in the first quarter last year.

  • The total net debt to last 12-month Adjusted EBITDA ratio improved to 4.23x, as the Company committed substantially all of its free cash flow towards $43 million in debt reduction in the first quarter. 

  • Capital expenditures totaled $42.4 million in the first quarter driven by success-based, fiber and wireless tower projects and broadband network investments. 

Guidance

Due to the lack of visibility related to the COVID-19 pandemic and recovery, the Company has withdrawn financial guidance at this time.

Conference Call Information

Consolidated’s first-quarter earnings conference call will be webcast today at 10 a.m. ET. The live webcast and replay will be available on the Investor Relations section of the Company’s website at http://ir.consolidated.com.

About Consolidated Communications 

Consolidated Communications Holdings, Inc. (NASDAQ: CNSL) is a leading broadband and business communications provider serving consumers, businesses, and wireless and wireline carriers across rural and metro communities and a 23-state service area. Leveraging an advanced fiber network spanning 37,500 fiber route miles, Consolidated Communications offers a wide range of communications solutions, including: high-speed Internet, data, phone, security, managed services, cloud services and wholesale, carrier solutions. From our first connection 125 years ago, Consolidated is dedicated to turning technology into solutions, connecting people and enriching how they work and live. Visit www.consolidated.com for more information.

Use of Non-GAAP Financial Measures                         

This press release, as well as the conference call, includes disclosures regarding “EBITDA,” “adjusted EBITDA,” “total net debt to last twelve month adjusted EBITDA ratio,” “free cash flow” and “adjusted diluted net income (loss) per share,” 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.  

We present adjusted EBITDA for several reasons.  Management believes adjusted EBITDA is useful as a means to evaluate our ability to fund our estimated uses of cash (including interest on our debt). In addition, we have presented adjusted EBITDA to investors in the past because it is frequently used by investors, securities analysts and other interested parties in the evaluation of companies in our industry, and management believes presenting it here provides a measure of consistency in our financial reporting. Adjusted EBITDA, referred to as Available Cash in our credit agreement, is also a component 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. The definitions in these covenants and ratios are based on adjusted EBITDA after giving effect to specified charges. In addition, adjusted EBITDA provides our board of directors with meaningful information, with other data, assumptions and considerations, to measure our ability to service and repay debt.  We present the related “total net debt to last twelve month adjusted EBITDA 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. Because adjusted EBITDA is a component of 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 this ratio is useful as a means to evaluate our ability to incur additional indebtedness in the future. 

Free cash flow represents net cash provided by operating activities adjusted for capital expenditures, cash dividends and proceeds received from the sale of assets. Free cash flow is a measure of operating cash flows available for corporate purposes after providing sufficient fixed asset additions. The tables that follow include a calculation of free cash flow for each of the periods presented with a reconciliation to net cash provided by operating activities. Free cash flow provides useful information to investors in the evaluation of our operating performance and liquidity.

We present the non-GAAP measure “adjusted diluted net income (loss) per share” because our net income (loss) and net income (loss) 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.
                       
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 communication 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 the uncertainties relating to the impact of the novel coronavirus (COVID-19) pandemic on the company’s business, results of operations, cash flows, stock price and employees; economic and financial market conditions generally and economic conditions in our service areas;  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  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; cyber-attacks, information or security breaches or technology failure of ours or of a third party; 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; new or changing tax laws or regulations; 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; and risks associated with discontinuing paying dividends on our common stock. 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 SEC, 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 communication.  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 SEC, 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.

Company Contact                                                                      

Jennifer Spaude, Consolidated Communications
Phone:  507-386-3765
jennifer.spaude@consolidated.com


  
Consolidated Communications Holdings, Inc. 
Condensed Consolidated Balance Sheets 
(Dollars in thousands, except share and per share amounts) 
(Unaudited) 
 March 31, December 31, 
  2020   2019  
         
     
ASSETS    
Current assets:    
Cash and cash equivalents$14,139  $12,395  
Accounts receivable, net 122,340   120,016  
Income tax receivable 4,174   2,669  
Prepaid expenses and other current assets 45,175   41,787  
Total current assets 185,828   176,867  
     
Property, plant and equipment, net 1,806,945   1,835,878  
Investments 113,197   112,717  
Goodwill 1,035,274   1,035,274  
Customer relationships, net 151,407   164,069  
Other intangible assets 10,557   10,557  
Other assets 51,925   54,915  
Total assets$3,355,133  $3,390,277  
         
     
LIABILITIES AND SHAREHOLDERS' EQUITY    
Current liabilities:    
Accounts payable$19,902  $30,936  
Advance billings and customer deposits 47,224   45,710  
Accrued compensation 56,105   57,069  
Accrued interest 14,945   7,874  
Accrued expense 73,776   75,406  
Current portion of long-term debt and finance lease obligations 25,722   27,301  
Total current liabilities 237,674   244,296  
     
Long-term debt and finance lease obligations 2,209,748   2,250,677  
Deferred income taxes 174,489   173,027  
Pension and other post-retirement obligations 293,145   302,296  
Other long-term liabilities 86,418   72,730  
         
         
Total liabilities 3,001,474   3,043,026  
         
         
     
Shareholders' equity:    
Common stock, par value $0.01 per share; 100,000,000 shares    
authorized, 73,041,782 and 71,961,045, shares outstanding    
as of March 31, 2020 and December 31, 2019, respectively 731   720  
Additional paid-in capital 493,125   492,246  
Accumulated deficit (55,775)  (71,217) 
Accumulated other comprehensive loss, net (90,868)  (80,868) 
Noncontrolling interest 6,446   6,370  
Total shareholders' equity 353,659   347,251  
Total liabilities and shareholders' equity$3,355,133  $3,390,277  
         
     


Consolidated Communications Holdings, Inc.
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
    
 Three Months Ended
 March 31,
  2020   2019 
    
Net revenues$325,662  $338,649 
Operating expenses:   
Cost of services and products 137,755   148,319 
Selling, general and administrative expenses 67,817   74,367 
Depreciation and amortization 82,738   99,243 
Income from operations 37,352   16,720 
Other income (expense):   
Interest expense, net of interest income (32,095)  (34,283)
Gain on extinguishment of debt 234   - 
Other income, net 15,173   7,232 
Income (loss) before income taxes 20,664   (10,331)
Income tax expense (benefit) 5,041   (3,145)
Net income (loss) 15,623   (7,186)
Less: net income attributable to noncontrolling interest 76   79 
    
Net income (loss) attributable to common shareholders$15,547  $(7,265)
    
Net income (loss) per basic and diluted common shares   
attributable to common shareholders$0.22  $(0.11)
    


Consolidated Communications Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
  (Dollars in thousands)
(Unaudited)
       
   Three Months Ended 
   March 31, 
    2020   2019  
OPERATING ACTIVITIES     
 Net income (loss) $15,623  $(7,186) 
 Adjustments to reconcile net income (loss) to net cash provided by operating activities:     
 Depreciation and amortization  82,738   99,243  
 Cash distributions from wireless partnerships less than earnings  (307)  (1,118) 
 Pension and post-retirement contributions in excess of expense  (8,571)  (5,980) 
 Non-cash, stock-based compensation  890   1,498  
 Amortization of deferred financing  1,196   1,213  
 Gain on extinguishment of debt  (234)  -  
 Other adjustments, net  (4,138)  397  
 Changes in operating assets and liabilities, net  (2,207)  (13,070) 
 Net cash provided by operating activities  84,990   74,997  
INVESTING ACTIVITIES     
 Purchase of property, plant and equipment, net  (42,389)  (53,394) 
 Proceeds from sale of assets  2,187   865  
 Proceeds from sale of investments  426   329  
 Net cash used in investing activities  (39,776)  (52,200) 
FINANCING ACTIVITIES     
 Proceeds from issuance of long-term debt  10,000   51,000  
 Payment of finance lease obligations  (2,674)  (3,507) 
 Payment on long-term debt  (46,588)  (45,588) 
 Repurchase of senior notes  (4,208)  -  
 Dividends on common stock  -   (27,577) 
 Net cash used in financing activities  (43,470)  (25,672) 
Net change in cash and cash equivalents  1,744   (2,875) 
Cash and cash equivalents at beginning of period  12,395   9,599  
Cash and cash equivalents at end of period $14,139  $6,724  
       


Consolidated Communications Holdings, Inc.
Consolidated Revenue by Category
(Dollars in thousands)
(Unaudited)
      
   Three Months Ended
   March 31,
    2020  2019
Commercial and carrier:     
Data and transport services (includes VoIP)  $89,572 $88,126
Voice services   45,720  48,070
Other   11,712  15,176
    147,004  151,372
Consumer:     
Broadband (VoIP and Data)   64,076  63,085
Video services   19,131  20,736
Voice services   43,176  45,879
    126,383  129,700
      
Subsidies   18,454  18,159
Network access   31,465  36,591
Other products and services   2,356  2,827
Total operating revenue  $325,662 $338,649
      


Consolidated Communications Holdings, Inc. 
Consolidated Revenue by Category 
(Dollars in thousands) 
(Unaudited) 
             
            
  Three Months Ended  
  Q1 2020 Q4 2019 Q3 2019 Q2 2019 Q1 2019  
Commercial and carrier:            
Data and transport services (includes VoIP) $89,572 $89,905 $88,756 $88,538 $88,126  
Voice services  45,720  46,510  46,606  47,136  48,070  
Other  11,712  12,500  11,828  13,390  15,176  
   147,004  148,915  147,190  149,064  151,372  
Consumer:            
Broadband (VoIP and Data)  64,076  64,474  65,456  64,068  63,085  
Video services  19,131  19,838  20,463  20,341  20,736  
Voice services  43,176  44,238  45,487  45,235  45,879  
   126,383  128,550  131,406  129,644  129,700  
             
Subsidies  18,454  18,122  18,025  18,134  18,159  
Network access  31,465  33,056  34,211  34,198  36,591  
Other products and services  2,356  2,392  2,494  2,492  2,827  
Total operating revenue $325,662 $331,035 $333,326 $333,532 $338,649  
             


Consolidated Communications Holdings, Inc.
Schedule of Adjusted EBITDA Calculation
(Dollars in thousands)
(Unaudited)
    
    
 Three Months Ended
 March 31,
  2020   2019 
Net income (loss)$15,623  $(7,186)
Add (subtract):   
Income tax expense (benefit) 5,041   (3,145)
Interest expense, net 32,095   34,283 
Depreciation and amortization 82,738   99,243 
EBITDA 135,497   123,195 
    
Adjustments to EBITDA (1):   
Other, net (2) (3,476)  5,325 
Investment income (accrual basis) (10,579)  (8,601)
Investment distributions (cash basis) 10,064   7,290 
Pension/OPEB expense (584)  1,604 
Gain on extinguishment of debt (234)  - 
Non-cash compensation (3) 890   1,498 
Adjusted EBITDA$131,578  $130,311 
    
Notes:   
(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.
Schedule of Free Cash Flow Calculation
(Dollars in thousands)
(Unaudited)
     
     
 Three Months Ended 
 March 31, 
  2020   2019  
Net cash provided by operating activities$84,990  $74,997  
Add (subtract):    
Capital expenditures (42,389)  (53,394) 
Dividends paid -   (27,577) 
Proceeds from the sale of assets 2,187   865  
Free cash flow$44,788  $(5,109) 
     


Consolidated Communications Holdings, Inc.
Total Net Debt to LTM Adjusted EBITDA Ratio
(Dollars in thousands)
(Unaudited)
   
  March 31,  
Summary of Outstanding Debt: 2020  
Term loans, net of discount $5,250$1,774,875  
Revolving loan 8,000  
Senior unsecured notes due 2022, net of discount $1,817 438,692  
Finance leases 21,345  
Total debt as of March 31, 2020$2,242,912  
Less deferred debt issuance costs (7,442) 
Less cash on hand (14,139) 
Total net debt as of March 31, 2020$2,221,331  
   
Adjusted EBITDA for the twelve  
months ended March 31, 2020$524,807  
   
Total Net Debt to last twelve months  
Adjusted EBITDA 4.23x  
   


Consolidated Communications Holdings, Inc.
Adjusted Net Income (Loss) and Net Income (Loss) Per Share
(Dollars in thousands, except per share amounts)
(Unaudited)
     
 Three Months Ended 
 March 31, 
  2020   2019  
Net income (loss)$15,623  $(7,186) 
Integration and severance related costs, net of tax 297   3,378  
Storm costs (recoveries), net of tax 82   271  
Gain on extinguishment of debt, net of tax (177)  -  
Non-cash interest expense for swaps, net of tax (183)  255  
Non-cash stock compensation, net of tax 673   1,043  
Adjusted net income (loss)$16,315  $(2,239) 
     
Weighted average number of shares outstanding 71,153   70,813  
Adjusted diluted net income (loss) per share$0.23  $(0.03) 
     
Notes:    
     
Calculations above assume a 24.4% and 30.4% effective tax rate for the three months ended March 31, 2020 and 2019, respectively.
     


Consolidated Communications Holdings, Inc. 
Key Operating Statistics 
(Unaudited) 
             
    March 31,   December 31,  % Change    March 31,  % Change   
    2020   2019  in Qtr   2019  YOY  
             
Voice Connections  820,620   835,997  (1.8%)   887,357  (7.5%)  
             
Data and Internet Connections  786,125   784,165  0.2%   780,720  0.7%  
             
Video Connections  82,633   84,171  (1.8%)   91,269  (9.5%)  
             
Business and Broadband as % of total revenue (1) 76.1%   75.8%  0.4%   76.3%  (0.2%)  
             
Fiber route network miles (long-haul and metro)  37,757   37,511  0.7%   36,987  2.1%  
             
On-net buildings  12,536   12,264  2.2%   10,702  17.1%  
             
Consumer Customers  574,597   582,818  (1.4%)   616,091  (6.7%)  
             
Consumer ARPU  $73.32   $73.52  (0.3%)   $70.17  4.5%  
             
Notes:           
(1) Business and Broadband revenue % includes: commercial/carrier, equipment sales and service, directory, consumer broadband and special access.