Market Overview

Consolidated Communications Reports Second Quarter 2016 Results

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  • Delivered strong growth in Metro Ethernet circuits with a year over year increase of 19%
  • Added 3,000 data connections for a 28% improvement over the same quarter last year
  • Grew our fiber-to-the-tower business by 50 additional sites during the quarter
  • Increased year over year commercial and carrier data and transport revenue by 5.2%
  • Closed on the acquisition of fiber-based Champaign Telephone Company on July 1st

MATTOON, Ill., Aug. 04, 2016 (GLOBE NEWSWIRE) -- Consolidated Communications Holdings, Inc. (Nasdaq: CNSL) (the "Company") reported results for the second quarter 2016.  

Second quarter financial summary:

  • Revenue was $186.9 million.
  • Net cash from operations was $56.0 million.
  • Adjusted EBITDA was $78.0 million.
  • Dividend payout ratio was 73.4%.

"The growth in Metro Ethernet and data services reflects our strategic focus in delivering high-bandwidth services across our sales channels," said Bob Udell, President and Chief Executive Officer.  "We continue to successfully expand our fiber network for commercial and carrier opportunities that meet our return thresholds."

"On July 1st, we closed on the acquisition of Champaign Telephone Company, which has an all fiber network providing communication services to businesses and enterprises throughout the Champaign-Urbana, IL area.  This acquisition fits very well with our strategic focus on expanding our fiber footprint and delivering fiber-based products and services," Udell concluded.

The Company also previously announced that it has agreed to the sale of its rural independent local exchange company (ILEC) in northwest Iowa to Premier Communications and Winnebago Cooperative Telephone Association. The Company expects the sale to close in the third quarter.       

Financial Results for the Second Quarter   

  • Total revenues were $186.9 million, compared to $201.0 million for the same period last year.  Excluding the combined $10.0 million decline in revenue from our equipment sales and the revenue associated with the October 2015 sale of the Enventis third party billing platform, revenues were lower by $4.1 million compared to the second quarter of 2015.  Growth in strategic revenues, which we define as commercial, carrier and consumer broadband, were offset by declines in legacy voice revenues, network access, and subsidy step-downs from CAF II and Texas USF support.    
  • Income from operations was $23.0 million, compared to $27.7 million in the second quarter of 2015.  The decrease is primarily attributable to lower revenue as described above.  Also, in the quarter, the Company recognized a non-cash impairment charge of $0.6 million for the sale of the ILEC in northwest Iowa.  Additionally, in the quarter, the Company accelerated certain advertising costs, incurred higher access costs on fiber to the tower sales, and recognized roughly $0.5 million in labor and service costs related to the storms that occurred in our Texas market.   
  • Interest expense, net improved by $1.3 million to $19.1 million from $20.4 million for the same period last year.  The improvement is primarily due to the use of proceeds from the add-on we completed in June of 2015 to our 6.5% senior notes due 2022.  We used certain of the proceeds to redeem the entire remaining portion of our then-outstanding 10 7/8% senior notes.     
  • Other income, net was $8.6 million, compared to $9.0 million for the same period in 2015.   
  • On a GAAP basis, net income and net income per share were $0.1 million and $0.00, respectively.  Adjusted diluted net income per share excludes certain items in the manner described in the table provided in this release.  Adjusted diluted net income per share was $0.20 for the current quarter, compared to $0.24 the same period last year. 
  • Cash distributions from our Verizon Wireless partnerships were $7.8 million compared to $7.1 million for the second quarter of 2015. 
  • Adjusted EBITDA was $78.0 million compared to $80.3 million for the same period in 2015.
  • The total net debt to last twelve month adjusted EBITDA ratio improved to 4.20.

Financial Results for the Six Months Ended June 30, 2016

  • Revenues were $375.7 million and adjusted EBITDA was $156.6 million.

Cash Available to Pay Dividends
For the quarter, cash available to pay dividends, or CAPD, was $26.7 million, and the dividend payout ratio was 73.4%.  At June 30, 2016, cash and cash equivalents were $24.6 million.  Capital expenditures for the quarter were $33.6 million. 

Financial Guidance
The Company is reiterating 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 August 1, 2016, the Company's board of directors declared its next quarterly dividend of $0.38738 per common share, which is payable on November 1, 2016 to stockholders of record at the close of business on October 14, 2016.  This will represent the 45th consecutive quarterly dividend paid by the Company. 

Conference Call Information 
The Company will host a conference call today at 11:00 a.m. Eastern Time / 10:00 a.m. Central Time to discuss second quarter earnings and developments with respect to the Company.  The 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 46166233.  A telephonic replay of the conference call will be available through August 11, 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 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.

  
Consolidated Communications Holdings, Inc. 
Condensed Consolidated Balance Sheets 
(Dollars in thousands, except par value) 
  (Unaudited)
 
  June 30,  December 31,  
   2016    2015   
    
 ASSETS    
Current assets:   
Cash and cash equivalents$  24,555 $  15,878  
Accounts receivable, net   64,524    68,848  
Income tax receivable   13,959    23,867  
Prepaid expenses and other current assets   21,922    17,815  
Assets held for sale   28,689    -  
Total current assets   153,649    126,408  
    
Property, plant and equipment, net   1,062,181    1,093,261  
Investments   106,931    105,543  
Goodwill   756,373    764,630  
Other intangible assets   37,023    43,497  
Other assets   6,682    5,187  
Total assets$  2,122,839 $  2,138,526  
    
 LIABILITIES AND SHAREHOLDERS' EQUITY    
Current liabilities:   
Accounts payable$  17,295 $  12,576  
Advance billings and customer deposits   26,921    27,616  
Dividends payable   19,623    19,551  
Accrued compensation   19,986    21,883  
Accrued interest   9,405    9,353  
Accrued expense   43,284    42,384  
Current portion of long-term debt and capital lease obligations   13,171    10,937  
Liabilities held for sale   7,746    -   
Total current liabilities   157,431    144,300  
    
Long-term debt and capital lease obligations   1,378,788    1,377,892  
Deferred income taxes   237,363    236,529  
Pension and other post-retirement obligations   110,325    112,966  
Other long-term liabilities   16,544    16,140  
Total liabilities   1,900,451    1,887,827  
    
Shareholders' equity:   
Common stock, par value $0.01 per share; 100,000,000 shares   
authorized, 50,654,989 and 50,470,096, shares outstanding   
as of June 30, 2016 and December 31, 2015, respectively   507    505  
Additional paid-in capital   251,344    281,738  
Retained earnings (deficit)   -     (881) 
Accumulated other comprehensive loss, net    (34,633)   (35,699) 
Noncontrolling interest   5,170    5,036  
Total shareholders' equity   222,388    250,699  
Total liabilities and shareholders' equity$  2,122,839 $  2,138,526  
    


  
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,  
   2016     2015     2016     2015   
         
         
Net revenues$186,871  $201,010  $375,717  $393,588  
Operating expenses:        
Cost of services and products 80,763   86,376   160,483   166,268  
Selling, general and administrative        
expenses 39,053   43,308   79,729   85,693  
Loss on impairment 610   -   610   -  
Depreciation and amortization 43,491   43,651   87,631   87,207  
Income from operations 22,954   27,675   47,264   54,420  
Other income (expense):        
Interest expense, net of interest income (19,106)  (20,429)  (37,752)  (41,103) 
Loss on extinguishment of debt -   (41,242)  -   (41,242) 
Other income, net 8,632   8,964   15,843   15,348  
Income (loss) before income taxes 12,480   (25,032)  25,355   (12,577) 
Income tax expense (benefit) 12,323   (9,104)  17,296   (4,478) 
Net income (loss) 157   (15,928)  8,059   (8,099) 
         
Less: net income attributable to noncontrolling interest 81   40   134   59  
         
Net income (loss) attributable to common shareholders$76  $(15,968) $7,925  $(8,158) 
         
Net income (loss) per basic and diluted common shares        
attributable to common shareholders$-  $(0.32) $0.15  $(0.16) 
         


 
  Consolidated Communications Holdings, Inc.
  Condensed Consolidated Statements of Cash Flows
  (Dollars in thousands)
  (Unaudited)
           
     Three Months Ended   Six Months Ended 
     June 30,   June 30, 
      2016     2015     2016     2015  
OPERATING ACTIVITIES        
  Net income (loss) $  157  $  (15,928) $  8,059  $  (8,099)
  Adjustments to reconcile net income to cash provided by operating activities:        
  Depreciation and amortization    43,491     43,651     87,631     87,207 
  Deferred income taxes    7,524     5     7,524     5 
  Cash distributions from wireless partnerships in excess of/(less than) earnings    (920)    (1,914)    (1,153)    (1,556)
  Non- cash stock-based compensation    912     710     1,804     1,523 
  Amortization of deferred financing    804     879     1,598     1,822 
  Loss on extinguishment of debt    -      41,242     -      41,242 
  Other adjustments, net    751     12     635     698 
  Changes in operating assets and liabilities, net    3,245     (25,245)    9,407     (27,026)
    Net cash provided by operating activities    55,964     43,412     115,505     95,816 
INVESTING ACTIVITIES        
  Purchase of property, plant and equipment, net    (33,583)    (32,986)    (62,271)    (65,538)
  Proceeds from sale of investments    -      846     -      846 
  Proceeds from sale of assets    36     28     50     57 
    Net cash used in investing activities    (33,547)    (32,112)    (62,221)    (64,635)
FINANCING ACTIVITIES        
  Proceeds from bond offering    -      294,780     -      294,780 
  Proceeds on issuance of long-term debt    7,000     20,000     7,000     40,000 
  Payment of capital lease obligation    (425)    (222)    (812)    (444)
  Payment on long-term debt    (9,275)    (42,275)    (11,550)    (59,550)
  Redemption of senior notes    -      (261,874)    -      (261,874)
  Payment of financing costs    -      (4,468)    -      (4,468)
  Share repurchases for minimum tax withholding    -      (68)    (71)    (282)
  Dividends on common stock     (19,623)    (19,566)    (39,174)    (39,076)
  Net cash used by financing activities    (22,323)    (13,693)    (44,607)    (30,914)
Net change in cash and cash equivalents    94     (2,393)    8,677     267 
Cash and cash equivalents at beginning of period    24,461     9,339     15,878     6,679 
Cash and cash equivalents at end of period $  24,555  $  6,946  $  24,555  $  6,946 
           


  
Consolidated Communications Holdings, Inc. 
Consolidated Revenue by Category 
(Dollars in thousands) 
 (Unaudited)  
        
        
 Q2'15Q3'15Q4'15Q1'16Q2'16  
Commercial and carrier:       
Data and transport services (includes VoIP)$  46,156 $  47,198 $  47,969 $  49,112 $  48,558   
Voice services   26,213    25,463    25,288    25,025    25,323   
Other   2,841    3,208    3,621    2,624    2,703   
    75,210    75,869    76,878    76,761    76,584   
Consumer:       
Broadband (VoIP, Data and Video)   54,051    52,956    52,863    54,559    53,103   
Voice services   15,120    15,143    14,829    14,491    14,028   
    69,171    68,099    67,692    69,050    67,131   
        
Equipment sales and service   19,309    14,759    10,080    9,640    10,448   
Subsidies   14,516    13,905    13,524    13,074    12,982   
Network access   17,949    16,912    16,563    16,813    16,305   
Other products and services   4,855    4,414    3,454    3,508    3,421   
Total operating revenue$  201,010 $  193,958 $  188,191 $  188,846 $  186,871   
        
        
Total revenues have not changed.       
        


  
Consolidated Communications Holdings, Inc. 
Schedule of Adjusted EBITDA Calculation 
(Dollars in thousands) 
(Unaudited) 
           
           
  Three Months Ended   Six Months Ended    
  June 30,   June 30,    
   2016     2015     2016     2015     
Net income  (loss)$  157  $  (15,928) $  8,059  $  (8,099)   
Add (subtract):          
  Income tax expense (benefit)   12,323     (9,104)    17,296     (4,478)   
  Interest expense, net   19,106     20,429     37,752     41,103    
  Depreciation and amortization   43,491     43,651     87,631     87,207    
EBITDA   75,077     39,048     150,738     115,733    
           
Adjustments to EBITDA (1):          
Other, net (2)   2,909     42,505     5,380     44,046    
Investment income (accrual basis)   (8,705)    (9,004)    (15,901)    (15,446)   
Investment distributions (cash basis)   7,784     7,087     14,580     14,166    
Non-cash compensation (3)   912     710     1,804     1,523    
    
Adjusted EBITDA$  77,977  $  80,346  $  156,601  $  160,022    
           
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    Six Months Ended  
  June 30, 2016    June 30, 2016  
      
Adjusted EBITDA$  77,977   $  156,601  
      
- Cash interest expense    (18,279)     (36,502) 
- Capital expenditures   (33,583)     (62,271) 
- Cash income (taxes)/refund   615      748  
      
Cash available to pay dividends$  26,730   $  58,576  
      
Dividends Paid$  19,623   $  39,174  
Payout Ratio 73.4%   66.9% 
      
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 $3,029$  884,221   
Revolving loan   10,000   
Senior unsecured notes due 2022, net of discount $4,602   495,397   
Capital leases   13,662   
Total debt as of June 30, 2016$  1,403,280   
Less deferred debt issuance costs$  (11,321)  
Less cash on hand   (24,555)  
Total net debt as of June 30, 2016$  1,367,404   
    
Adjusted EBITDA for the last    
twelve months ended June 30, 2016$  325,483   
    
Total Net Debt to last twelve months   
Adjusted EBITDA  4.20x  
    

  

 
Consolidated Communications Holdings, Inc.
  Adjusted Net Income and Net Income Per Share 
(in thousands, except per share amounts)
(Unaudited)
        
  Three Months Ended   Six Months Ended 
  Jun 30,   Jun 30,   Jun 30,   Jun 30, 
   2016     2015     2016     2015  
Net income (loss)$157  $(15,928) $8,059  $(8,099)
Transaction and severance related costs, net of tax 1,352   1,173   2,368   2,564 
Impairment charge for sale of Iowa ILEC, net of tax 375   -   375   - 
Impairment charge for sale of CVIN Investment, net of tax -   -   -   539 
Deferred tax related to asset held for sale 7,524   -   7,524   - 
Loss on extinguishment of debt, net of tax -   26,230   -   26,560 
Non-cash stock compensation, net of tax 561   452   1,108   981 
Adjusted net income$9,969  $11,927  $19,434  $22,545 
        
Weighted average number of shares outstanding 50,294   50,175   50,291   50,161 
Adjusted diluted net income per share$0.20  $0.24  $0.39  $0.45 
        
* Calculations above assume a 38.5% and 36.4% effective tax rate for the three months ended and 38.6% and 35.6% for the six
months ended June 30, 2016 and 2015, respectively.       
        

 

             
     Consolidated Communications Holdings, Inc.       
     Key Operating Statistics       
     (Unaudited)       
             
   30-Jun-16 31-Mar-16 % Change in Qtr 30-Jun-15 % Change yoy 
             
Voice Connections  471,458   478,035   (1.4%)  493,540   (4.5%) 
             
Data and Internet Connections  462,559   459,597   0.6%  448,944   3.0% 
             
Video Connections   111,617   114,485   (2.5%)  122,155   (8.6%) 
             
Business and Broadband as % of total revenue 80.9%  80.7%  0.2%  80.0%  1.1% 
             
Fiber route network miles (long-haul and metro) 13,830   13,812   0.1%  13,262   4.3% 
             
On-net buildings  5,348   5,224   2.4%  4,804   11.3% 
             
Consumer Customers  262,177   265,428   (1.2%)  272,882   (3.9%) 
             
Consumer ARPU $85.35  $86.72   (1.6%) $84.50   1.0% 
             
             
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 

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