Jul 30, 2020

Consolidated Communications Reports Second Quarter 2020 Results

Company delivered stable revenue and Adjusted EBITDA growth;
Substantially increased free cash flow; demonstrating continued progress on deleveraging

Second Quarter Highlights

  • Revenue totaled $325.2 million, generating increased Adjusted EBITDA of $133.1 million, up 1.3 percent
  • Consumer Broadband revenue grew 2.3 percent, representing the fifth consecutive growth quarter
  • Commercial and Carrier Data-Transport revenue grew 1.2 percent; fiber projects driving growth opportunities
  • Operating expenses, excluding depreciation and amortization, were reduced by $17.6 million or 7.9 percent
  • Free Cash Flow increased $39.4 million in the recent quarter and is up $89.3 million year-to-date
  • Net debt leverage improved to 4.14x, down from 4.33x at year-end 2019 reflecting significant progress on deleveraging strategy

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

MATTOON, Ill., July 30, 2020 (GLOBE NEWSWIRE) -- Consolidated Communications Holdings, Inc. (Nasdaq: CNSL) (the “Company” or “Consolidated”) reported results for the second quarter 2020.

“I’m pleased to report we had another strong quarter, delivering revenue growth in both broadband and data-transport services, while decreasing operating expenses and increasing Adjusted EBITDA,” said Bob Udell, president and chief executive officer of Consolidated Communications. “Our business remains strong and we continue to operate seamlessly through this unprecedented time. As a critical infrastructure provider, we are laser focused on supporting our residential, business and carrier customers with flexible solutions that meet their unique needs right now – whether at home, at work, at a tower or at a data center. The safety and wellness of our employees and customers remain our number one priority.”

“For the fifth consecutive quarter, we grew broadband revenue by leveraging our speed improvements,” added Udell. “Additionally, we reduced our debt leverage from 4.33x at the end of 2019 to 4.14x as we further execute on our delever first strategy. Through high-return fiber investments and innovative public-private partnerships, we are delivering results where we invest and executing on a strategy that positions us well for continued growth.”    

Financial Results for the Second Quarter   

  • Revenue totaled $325.2 million, a decline of 2.5 percent compared to second quarter 2019.

    • Data and transport service revenue increased 1.2 percent or $1.0 million;
    • Commercial and carrier other revenue was down $3.0 million primarily due to equipment sales;
    • Broadband revenue increased 2.3 percent or $1.5 million;
    • Voice services revenue across all customer channels declined 3.8 percent or $3.5 million, which is less than half the decline compared to the prior-year period; and
    • Network access revenues declined $3.7 million primarily due to declines in special access.
       
  • Income from operations increased $25.5 million and totaled $39.8 million in the second quarter of 2020. The change was primarily due to operating expense reductions of $17.6 million that were largely attributed to ongoing cost savings initiatives and lower direct product costs. Depreciation and amortization expense declined $16.2 million primarily due to certain acquired assets, which became fully depreciated.

  • Net interest expense was $31.5 million, down $3.3 million from the same period last year. As of June 30, our weighted average cost of debt was approximately 5.3 percent.

  • Cash distributions from the Company’s wireless partnerships totaled $9.6 million, down $1.0 million from a year ago.   

  • Other income was $9.9 million compared to income of $9.1 million one year ago. A reduction in non-operating pension/OPEB expense of $2.3 million offset a decline of $1.6 million in investment income from the Company’s minority interest in wireless partnerships. 
     
  • On a GAAP basis, net income was $13.9 million, compared to a net loss of $7.3 million for the same period last year. GAAP net income per share was $0.19. 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 $0.21 in the second quarter of 2020, compared to a net loss per share of $(0.03) in the second quarter of 2019. 

  • Adjusted EBITDA was $133.1 million, up compared to $131.4 million in the second quarter last year.

  • The total net debt to last 12-month Adjusted EBITDA ratio improved to 4.14x, as the Company continued to execute on its delever strategy and build cash on the balance sheet.

  • Capital expenditures totaled $53.8 million in the second quarter driven by success-based, fiber and wireless tower projects and broadband network investments. 

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 45,850 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) 
 June 30, December 31, 
  2020   2019  
     
ASSETS    
Current assets:    
  Cash and cash equivalents$45,876  $12,395  
  Accounts receivable, net 116,493   120,016  
  Income tax receivable 4,374   2,669  
  Prepaid expenses and other current assets 41,164   41,787  
Total current assets 207,907   176,867  
     
Property, plant and equipment, net 1,793,340   1,835,878  
Investments 112,541   112,717  
Goodwill 1,035,274   1,035,274  
Customer relationships, net 138,744   164,069  
Other intangible assets 10,557   10,557  
Other assets 49,274   54,915  
Total assets$3,347,637  $3,390,277  
     
LIABILITIES AND SHAREHOLDERS' EQUITY    
Current liabilities:    
  Accounts payable$16,707  $30,936  
  Advance billings and customer deposits 44,574   45,710  
  Accrued compensation 55,089   57,069  
  Accrued interest 7,793   7,874  
  Accrued expense 75,705   75,406  
  Current portion of long-term debt and finance lease obligations 24,889   27,301  
Total current liabilities 224,757   244,296  
     
Long-term debt and finance lease obligations 2,198,003   2,250,677  
Deferred income taxes 179,573   173,027  
Pension and other post-retirement obligations 285,253   302,296  
Other long-term liabilities 87,843   72,730  
Total liabilities 2,975,429   3,043,026  
     
Shareholders' equity:    
Common stock, par value $0.01 per share; 100,000,000 shares    
authorized, 73,057,683 and 71,961,045, shares outstanding    
as of June 30, 2020 and December 31, 2019, respectively 731   720  
Additional paid-in capital 495,459   492,246  
Accumulated deficit (42,104)  (71,217) 
Accumulated other comprehensive loss, net (88,419)  (80,868) 
Noncontrolling interest 6,541   6,370  
Total shareholders' equity 372,208   347,251  
Total liabilities and shareholders' equity$3,347,637  $3,390,277  
     


Consolidated Communications Holdings, Inc.
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
        
 Three Months Ended Six Months Ended
 June 30, June 30,
  2020   2019   2020   2019 
        
Net revenues$325,176  $333,532  $650,838  $672,181 
Operating expenses:       
  Cost of services and products 139,534   143,780   277,289   292,099 
  Selling, general and administrative expenses 64,796   78,148   132,613   152,515 
  Depreciation and amortization 81,066   97,304   163,804   196,547 
Income from operations 39,780   14,300   77,132   31,020 
Other income (expense):       
  Interest expense, net of interest income (31,459)  (34,737)  (63,554)  (69,020)
  Gain on extinguishment of debt -   249   234   249 
  Other income, net 9,889   9,098   25,062   16,330 
Income (loss) before income taxes 18,210   (11,090)  38,874   (21,421)
Income tax expense (benefit) 4,275   (3,778)  9,316   (6,923)
Net income (loss) 13,935   (7,312)  29,558   (14,498)
Less: net income attributable to noncontrolling interest 95   75   171   154 
        
Net income (loss) attributable to common shareholders$13,840  $(7,387) $29,387  $(14,652)
        
 Net income (loss) per basic and diluted common shares       
  attributable to common shareholders$0.19  $(0.10) $0.40  $(0.21)
        


Consolidated Communications Holdings, Inc. 
Condensed Consolidated Statements of Cash Flows 
  (Dollars in thousands) 
(Unaudited) 
           
   Three Months Ended Six Months Ended 
   June 30, June 30, 
    2020   2019   2020   2019  
OPERATING ACTIVITIES         
 Net income (loss) $13,935  $(7,312) $29,558  $(14,498) 
 Adjustments to reconcile net income (loss) to net cash provided by operating activities:         
 Depreciation and amortization  81,066   97,304   163,804   196,547  
 Cash distributions from wireless partnerships in excess of (less than) earnings  451   (94)  144   (1,212) 
 Pension and post-retirement contributions in excess of expense  (7,414)  (6,632)  (15,985)  (12,612) 
 Non-cash, stock-based compensation  2,334   1,814   3,224   3,312  
 Amortization of deferred financing  1,210   1,226   2,406   2,439  
 Gain on extinguishment of debt  -   (249)  (234)  (249) 
 Other adjustments, net  (92)  398   (4,230)  795  
 Changes in operating assets and liabilities, net  5,241   1,810   3,034   (11,260) 
 Net cash provided by operating activities  96,731   88,265   181,721   163,262  
INVESTING ACTIVITIES         
 Purchase of property, plant and equipment, net  (53,848)  (66,374)  (96,237)  (119,768) 
 Proceeds from sale of assets  3,886   13,338   6,073   14,203  
 Proceeds from sale of investments  -   -   426   329  
 Other  -   (450)  -   (450) 
 Net cash used in investing activities  (49,962)  (53,486)  (89,738)  (105,686) 
FINANCING ACTIVITIES         
 Proceeds from issuance of long-term debt  30,000   56,000   40,000   107,000  
 Payment of finance lease obligations  (2,445)  (3,304)  (5,119)  (6,811) 
 Payment on long-term debt  (42,587)  (51,587)  (89,175)  (97,175) 
 Repurchase of senior notes  -   (4,294)  (4,208)  (4,294) 
 Dividends on common stock  -   (27,868)  -   (55,445) 
 Net cash used in financing activities  (15,032)  (31,053)  (58,502)  (56,725) 
Net change in cash and cash equivalents  31,737   3,726   33,481   851  
Cash and cash equivalents at beginning of period  14,139   6,724   12,395   9,599  
Cash and cash equivalents at end of period $45,876  $10,450  $45,876  $10,450  
           


Consolidated Communications Holdings, Inc. 
Consolidated Revenue by Category 
(Dollars in thousands) 
(Unaudited) 
             
   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
    2020  2019    2020  2019 
Commercial and carrier:            
Data and transport services (includes VoIP)  $89,572 $88,538   $179,144 $176,664 
Voice services   45,775  47,136    91,495  95,206 
Other   10,406  13,390    22,118  28,566 
    145,753  149,064    292,757  300,436 
Consumer:            
Broadband (VoIP and Data)   65,567  64,068    129,643  127,153 
Video services   19,213  20,341    38,344  41,077 
Voice services   43,121  45,235    86,297  91,114 
    127,901  129,644    254,284  259,344 
             
Subsidies   18,069  18,134    36,523  36,293 
Network access   30,473  34,198    61,938  70,789 
Other products and services   2,980  2,492    5,336  5,319 
Total operating revenue  $325,176 $333,532   $650,838 $672,181 
             


Consolidated Communications Holdings, Inc.
Consolidated Revenue by Category
(Dollars in thousands)
(Unaudited)
            
           
  Three Months Ended 
  Q2 2020 Q1 2020 Q4 2019 Q3 2019 Q2 2019 
Commercial and carrier:           
Data and transport services (includes VoIP) $89,572 $89,572 $89,905 $88,756 $88,538 
Voice services  45,775  45,720  46,510  46,606  47,136 
Other  10,406  11,712  12,500  11,828  13,390 
   145,753  147,004  148,915  147,190  149,064 
Consumer:           
Broadband (VoIP and Data)  65,567  64,076  64,474  65,456  64,068 
Video services  19,213  19,131  19,838  20,463  20,341 
Voice services  43,121  43,176  44,238  45,487  45,235 
   127,901  126,383  128,550  131,406  129,644 
            
Subsidies  18,069  18,454  18,122  18,025  18,134 
Network access  30,473  31,465  33,056  34,211  34,198 
Other products and services  2,980  2,356  2,392  2,494  2,492 
Total operating revenue $325,176 $325,662 $331,035 $333,326 $333,532 
            


Consolidated Communications Holdings, Inc.
Schedule of Adjusted EBITDA Calculation
(Dollars in thousands)
(Unaudited)
         
         
 Three Months Ended Six Months Ended 
 June 30, June 30, 
  2020   2019   2020   2019  
Net income (loss)$13,935  $(7,312) $29,558  $(14,498) 
Add (subtract):        
  Income tax expense (benefit) 4,275   (3,778)  9,316   (6,923) 
  Interest expense, net 31,459   34,737   63,554   69,020  
  Depreciation and amortization 81,066   97,304   163,804   196,547  
EBITDA 130,735   120,951   266,232   244,146  
         
Adjustments to EBITDA (1):        
Other, net (2) 161   7,374   (3,315)  12,699  
Investment income (accrual basis) (9,180)  (10,750)  (19,759)  (19,351) 
Investment distributions (cash basis) 9,632   10,628   19,696   17,918  
Pension/OPEB expense (586)  1,603   (1,170)  3,207  
Gain on extinguishment of debt -   (249)  (234)  (249) 
Non-cash compensation (3) 2,334   1,814   3,224   3,312  
Adjusted EBITDA$133,096  $131,371  $264,674  $261,682  
         
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 Six Months Ended
 June 30, June 30,
  2020   2019   2020   2019 
Net cash provided by operating activities$96,731  $88,265  $181,721  $163,262 
Add (subtract):       
Capital expenditures (53,848)  (66,374)  (96,237)  (119,768)
Dividends paid -   (27,868)  -   (55,445)
Proceeds from the sale of assets 3,886   13,338   6,073   14,203 
Free cash flow$46,769  $7,361  $91,557  $2,252 
        


Consolidated Communications Holdings, Inc.
Total Net Debt to LTM Adjusted EBITDA Ratio
(Dollars in thousands)
(Unaudited)
   
 June 30, 
Summary of Outstanding Debt: 2020  
Term loans, net of discount $4,893$1,770,644  
Senior unsecured notes due 2022, net of discount $1,653 438,856  
Finance leases 20,145  
Total debt as of June 30, 2020$2,229,645  
Less deferred debt issuance costs (6,753) 
Less cash on hand (45,876) 
Total net debt as of June 30, 2020$2,177,016  
   
Adjusted EBITDA for the twelve  
months ended June 30, 2020$526,532  
   
Total Net Debt to last twelve months  
Adjusted EBITDA 4.14x  
   


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 Six Months Ended 
 June 30, June 30, 
  2020   2019   2020   2019  
Net income (loss)$13,935  $(7,312) $29,558  $(14,498) 
Integration and severance related costs, net of tax (269)  4,595   32   8,006  
Storm costs (recoveries), net of tax (194)  (506)  (110)  (256) 
Gain on extinguishment of debt, net of tax -   (164)  (178)  (169) 
Non-cash interest expense for swaps, net of tax (198)  (10)  (381)  238  
Non-cash stock compensation, net of tax 1,786   1,195   2,450   2,242  
Adjusted net income (loss)$15,060  $(2,202) $31,371  $(4,437) 
         
Weighted average number of shares outstanding 71,153   70,813   71,153   70,813  
Adjusted diluted net income (loss) per share$0.21  $(0.03) $0.44  $(0.06) 
         
Notes:        
         
Calculations above assume a 23.5% and 34.1% effective tax rate for the three months ended and 24.0% and 32.3% for the six months ended June 30, 2020 and 2019, respectively. 
         


Consolidated Communications Holdings, Inc. 
Key Operating Statistics 
(Unaudited) 
             
   June 30, March 31, % Change  June 30, % Change  
    2020   2020  in Qtr  2019  YOY 
             
Voice Connections  809,457   820,620  (1.4%)  873,269  (7.3%) 
             
Data and Internet Connections  791,203   786,125  0.6%  783,008  1.0% 
             
Video Connections  80,053   82,633  (3.1%)  89,531  (10.6%) 
             
Business and Broadband as % of total revenue (1)  76.1%  76.1% 0.0%  76.2% (0.1%) 
             
Fiber route network miles (long-haul, metro and FTTH) (2)  45,847   37,757  21.4%  37,167  23.4% 
             
On-net buildings  12,882   12,536  2.8%  11,164  15.4% 
             
Consumer Customers  569,148   574,597  (0.9%)  609,876  (6.7%) 
             
Consumer ARPU $74.91  $73.32  2.2% $70.86  5.7% 
             
             
Notes:           
(1) Business and Broadband revenue % includes: commercial/carrier, equipment sales and service, directory, consumer broadband and special access. 
             
(2) FTTH miles added to fiber route network miles in Q2 2020, which were previously not included. Prior period amounts have not been restated to the current period presentation.