CNSL Consolidated Communications Holdings Inc

Consolidated Communications Holdings, Inc. (Nasdaq: CNSL) (the “Company” or “Consolidated”) reported results for the third quarter 2020.

“Consolidated’s very solid third quarter results demonstrate both the resiliency of our business and strong execution on improving revenue trends, growing adjusted EBITDA and strengthening the balance sheet,” said Bob Udell, president and chief executive officer of Consolidated Communications. “Revenue growth trends in both broadband and data-transport services sequentially and year-over-year combined with lower operating expenses contributed to our strong third quarter results.”

“We’ve made great progress with our capital allocation plan having successfully completed a global debt refinance which extends maturities, significantly increases liquidity and strengthens our balance sheet, enabling us to immediately pivot and implement our growth plans.”

“Our new capitalization coupled with the strategic investment from Searchlight Capital Partners enables us to accelerate our fiber expansion plans and upgrade more than 1 million passings bringing significant benefits to customers. This multi-year, build plan will put us on a path to return to overall revenue growth,” concluded Udell.

Financial Results for the Third Quarter

• Revenue totaled $327.1 million, a decline of 1.9 percent compared to the third quarter 2019.
  • Data and transport service revenue increased 1.6 percent or $1.4 million;
  • Broadband revenue increased 2.6 percent or $1.7 million;
  • Voice services revenue across all customer channels improved 400 basis points and declined 4.3 percent or $4.0 million; and
  • Network access revenues declined $2.2 million primarily due to declines in special access.
• Income from operations increased $13.8 million and totaled $37.4 million in the third quarter of 2020. The change was primarily due to operating expense reductions of $7.2 million offsetting revenue declines. Depreciation and amortization expense declined $12.8 million primarily due to certain acquired assets, which became fully depreciated.
• Net interest expense was $31.7 million, down $2.6 million from the same period last year, primarily due to declines in variable interest rates on the term loan and repurchases on the Company’s 6.50 percent Senior Notes in prior periods.
• Cash distributions from the Company’s wireless partnerships totaled $12.3 million, up $1.4 million from a year ago.
• Other income was $13.5 million compared to income of $11.2 million one year ago primarily due to a reduction in non-operating pension/OPEB expense of $2.0 million.    
• On a GAAP basis, net income was $14.6 million, compared to $389,000 for the same period last year. GAAP net income per share was $0.20. 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 third quarter of 2020, compared to $0.06 in the third quarter of 2019.
• Adjusted EBITDA was $132.2 million, an increase of 1 percent compared to $131.0 million in the third quarter last year.
• The total net debt to last 12-month Adjusted EBITDA ratio improved to 4.0x, as the Company continued to execute on its delever-first strategy and build cash on the balance sheet. Pro forma for the recapitalization announced on Oct. 2, resulted in net debt leverage of 3.5x.
• Capital expenditures totaled $56 million in the third quarter driven by success-based, fiber and wireless tower projects and broadband network investments.

Conference Call

Consolidated’s third-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. The live conference call dial-in number for investors and analysts is 1-877-374-3981, conference ID 7219487. A telephonic replay of the conference call will be available through Nov. 5 and can be accessed by calling 855-859-2056.

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 46,300 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

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 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; the possibility that any of the anticipated benefits of the strategic investment from Searchlight or our refinancing of outstanding debt, including our senior secured credit facilities, will not be realized; the outcome of any legal proceedings that may be instituted against the Company or its directors; the ability to obtain regulatory approvals and meet other closing conditions to the investment on a timely basis or at all, including the risk that regulatory approvals required for the investment are not obtained on a timely basis or at all, or are obtained subject to conditions that are not anticipated or that could adversely affect the Company or the expected benefits of the investment; the anticipated use of proceeds of the strategic investment; 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 the Company 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 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.

Investor and Media Contact                                                   

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

Consolidated Communications Holdings, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except share and per share amounts)
(Unaudited)
	Sept. 30,				Dec. 31,
		2020				2019
ASSETS
Current assets:
Cash and cash equivalents	$	99,719			$	12,395
Accounts receivable, net		119,076				120,016
Income tax receivable		5,175				2,669
Prepaid expenses and other current assets		42,473				41,787
Total current assets		266,443				176,867
Property, plant and equipment, net		1,782,183				1,835,878
Investments		111,555				112,717
Goodwill		1,035,274				1,035,274
Customer relationships, net		126,081				164,069
Other intangible assets		10,557				10,557
Other assets		51,735				54,915
Total assets	$	3,383,828			$	3,390,277
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	22,385			$	30,936
Advance billings and customer deposits		50,045				45,710
Accrued compensation		61,804				57,069
Accrued interest		15,195				7,874
Accrued expense		89,871				75,406
Current portion of long-term debt and finance lease obligations		23,827				27,301
Total current liabilities		263,127				244,296
Long-term debt and finance lease obligations		2,193,828				2,250,677
Deferred income taxes		185,017				173,027
Pension and other post-retirement obligations		272,023				302,296
Other long-term liabilities		78,257				72,730
Total liabilities		2,992,252				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 September 30, 2020 and December 31, 2019, respectively		731				720
Additional paid-in capital		497,722				492,246
Accumulated deficit		(27,594	)			(71,217	)
Accumulated other comprehensive loss, net		(85,896	)			(80,868	)
Noncontrolling interest		6,613				6,370
Total shareholders' equity		391,576				347,251
Total liabilities and shareholders' equity	$	3,383,828			$	3,390,277

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,
		2020				2019				2020				2019
Net revenues	$	327,066			$	333,326			$	977,904			$	1,005,507
Operating expenses:
Cost of services and products		144,428				146,636				421,717				438,735
Selling, general and administrative expenses		65,066				70,100				197,679				222,615
Depreciation and amortization		80,220				93,048				244,024				289,595
Income from operations		37,352				23,542				114,484				54,562
Other income (expense):
Interest expense, net of interest income		(31,661	)			(34,250	)			(95,215	)			(103,270	)
Gain on extinguishment of debt		-				1,121				234				1,370
Other income, net		13,467				11,180				38,529				27,510
Income (loss) before income taxes		19,158				1,593				58,032				(19,828	)
Income tax expense (benefit)		4,576				1,204				13,892				(5,719	)
Net income (loss)		14,582				389				44,140				(14,109	)
Less: net income attributable to noncontrolling interest		72				132				243				286
Net income (loss) attributable to common shareholders	$	14,510			$	257			$	43,897			$	(14,395	)
Net income (loss) per basic and diluted common shares attributable to common shareholders	$	0.20			$	-			$	0.60			$	(0.21	)

Consolidated Communications Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
			Three Months Ended								Nine Months Ended
			September 30,								September 30,
				2020				2019				2020				2019
OPERATING ACTIVITIES
	Net income (loss)		$	14,582			$	389			$	44,140			$	(14,109	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Depreciation and amortization			80,220				93,048				244,024				289,595
	Deferred income taxes			-				639				-				639
	Cash distributions from wireless partnerships in excess of (less than) earnings			857				(349	)			1,001				(1,561	)
	Pension and post-retirement contributions in excess of expense			(13,681	)			(11,649	)			(29,666	)			(24,261	)
	Non-cash, stock-based compensation			2,263				1,928				5,487				5,240
	Amortization of deferred financing			1,222				1,240				3,628				3,679
	Gain on extinguishment of debt			-				(1,121	)			(234	)			(1,370	)
	Other adjustments, net			(255	)			(4	)			(4,485	)			791
	Changes in operating assets and liabilities, net			30,421				1,254				33,455				(10,006	)
	Net cash provided by operating activities			115,629				85,375				297,350				248,637
INVESTING ACTIVITIES
	Purchase of property, plant and equipment, net			(55,978	)			(64,575	)			(152,215	)			(184,343	)
	Proceeds from sale of assets			904				140				6,977				14,343
	Proceeds from sale of investments			-				-				426				329
	Other			-				-				-				(450	)
	Net cash used in investing activities			(55,074	)			(64,435	)			(144,812	)			(170,121	)
FINANCING ACTIVITIES
	Proceeds from issuance of long-term debt			-				45,000				40,000				152,000
	Payment of finance lease obligations			(2,124	)			(2,932	)			(7,243	)			(9,743	)
	Payment on long-term debt			(4,588	)			(45,588	)			(93,763	)			(142,763	)
	Repurchase of senior notes			-				(21,692	)			(4,208	)			(25,986	)
	Dividends on common stock			-				-				-				(55,445	)
	Net cash used in financing activities			(6,712	)			(25,212	)			(65,214	)			(81,937	)
Net change in cash and cash equivalents				53,843				(4,272	)			87,324				(3,421	)
Cash and cash equivalents at beginning of period				45,876				10,450				12,395				9,599
Cash and cash equivalents at end of period			$	99,719			$	6,178			$	99,719			$	6,178

Consolidated Communications Holdings, Inc.
Consolidated Revenue by Category
(Dollars in thousands)
(Unaudited)
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
			2020			2019					2020			2019
Commercial and carrier:
Data and transport services (includes VoIP)		$	90,153		$	88,756				$	269,297		$	265,420
Voice services			45,343			46,606					136,838			141,812
Other			10,909			11,828					33,027			40,394
			146,405			147,190					439,162			447,626
Consumer:
Broadband (VoIP and Data)			67,163			65,456					196,806			192,609
Video services			18,452			20,463					56,796			61,540
Voice services			42,775			45,487					129,072			136,601
			128,390			131,406					382,674			390,750
Subsidies			18,064			18,025					54,587			54,318
Network access			32,009			34,211					93,947			105,000
Other products and services			2,198			2,494					7,534			7,813
Total operating revenue		$	327,066		$	333,326				$	977,904		$	1,005,507

Consolidated Communications Holdings, Inc.
Consolidated Revenue Trend by Category
(Dollars in thousands)
(Unaudited)
		Three Months Ended
		Q3 2020			Q2 2020			Q1 2020			Q4 2019			Q3 2019
Commercial and carrier:
Data and transport services (includes VoIP)		$	90,153		$	89,572		$	89,572		$	89,905		$	88,756
Voice services			45,343			45,775			45,720			46,510			46,606
Other			10,909			10,406			11,712			12,500			11,828
			146,405			145,753			147,004			148,915			147,190
Consumer:
Broadband (VoIP and Data)			67,163			65,567			64,076			64,474			65,456
Video services			18,452			19,213			19,131			19,838			20,463
Voice services			42,775			43,121			43,176			44,238			45,487
			128,390			127,901			126,383			128,550			131,406
Subsidies			18,064			18,069			18,454			18,122			18,025
Network access			32,009			30,473			31,465			33,056			34,211
Other products and services			2,198			2,980			2,356			2,392			2,494
Total operating revenue		$	327,066		$	325,176		$	325,662		$	331,035		$	333,326

Consolidated Communications Holdings, Inc.
Schedule of Adjusted EBITDA Calculation
(Dollars in thousands)
(Unaudited)
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
		2020				2019				2020				2019
Net income (loss)	$	14,582			$	389			$	44,140			$	(14,109	)
Add (subtract):
Income tax expense (benefit)		4,576				1,204				13,892				(5,719	)
Interest expense, net		31,661				34,250				95,215				103,270
Depreciation and amortization		80,220				93,048				244,024				289,595
EBITDA		131,039				128,891				397,271				373,037
Adjustments to EBITDA (1):
Other, net (2)		35				1,141				(3,280	)			13,840
Investment income (accrual basis)		(11,510	)			(11,254	)			(31,269	)			(30,605	)
Investment distributions (cash basis)		12,350				10,905				32,046				28,823
Pension/OPEB expense		(1,937	)			483				(3,107	)			3,690
Gain on extinguishment of debt		-				(1,121	)			(234	)			(1,370	)
Non-cash compensation (3)		2,263				1,928				5,487				5,240
Adjusted EBITDA	$	132,240			$	130,973			$	396,914			$	392,655
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								Nine Months Ended
	September 30,								September 30,
		2020				2019				2020				2019
Net cash provided by operating activities	$	115,629			$	85,375			$	297,350			$	248,637
Add (subtract):
Capital expenditures		(55,978	)			(64,575	)			(152,215	)			(184,343	)
Dividends paid		-				-				-				(55,445	)
Proceeds from the sale of assets		904				140				6,977				14,343
Free cash flow	$	60,555			$	20,940			$	152,112			$	23,192

Consolidated Communications Holdings, Inc.
Total Net Debt to LTM Adjusted EBITDA Ratio
(Dollars in thousands)
(Unaudited)
	Sept. 30,
Summary of Outstanding Debt:		2020
Term loans, net of discount $4,533	$	1,766,416
Senior unsecured notes due 2022, net of discount $1,486		439,023
Finance leases		18,273
Total debt as of September 30, 2020		2,223,712
Less deferred debt issuance costs		(6,057	)
Less cash on hand		(99,719	)
Total net debt as of September 30, 2020	$	2,117,936
Adjusted EBITDA for the twelve months ended September 30, 2020	$	527,799
Total Net Debt to last twelve months
Adjusted EBITDA	4.01x

Consolidated Communications Holdings, Inc.
Total Net Debt to LTM Adjusted EBITDA Ratio - Pro Forma
(Dollars in thousands)
(Unaudited)
	Pro Forma
	Sept. 30,
Summary of Outstanding Debt:		2020
Term loans, net of discount of $18,750	$	1,231,250
Senior secured notes due 2028		750,000
Finance leases		18,273
Total debt		1,999,523
Less deferred debt issuance costs		(25,000	)
Less cash on hand		(142,043	)
Total net debt	$	1,832,480
Adjusted EBITDA for the twelve months ended September 30, 2020	$	527,799
Total Net Debt to last twelve months
Adjusted EBITDA - Pro Forma	3.47x
Notes:
Pro Forma net debt leverage ratio represents the effects of the refinancing and Searchlight Stage 1 investment of $350 million as if it was completed on September 30, 2020.

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								Nine Months Ended
	September 30,								September 30,
		2020				2019				2020				2019
Net income (loss)	$	14,582			$	389			$	44,140			$	(14,109	)
Integration and severance related costs, net of tax		-				2,761				31				10,931
Storm costs (recoveries), net of tax		6				-				(104	)			(257	)
Gain on extinguishment of debt, net of tax		-				(724	)			178				(930	)
Non-cash interest expense for swaps, net of tax		(187	)			(152	)			(568	)			78
Other, tax		-				639				-				639
Non-cash stock compensation, net of tax		1,722				1,245				4,176				3,558
Adjusted net income (loss)	$	16,123			$	4,158			$	47,853			$	(90	)
Weighted average number of shares outstanding		71,153				70,813				71,153				70,813
Adjusted diluted net income (loss) per share	$	0.23			$	0.06			$	0.67			$	-
Notes:
Calculations above assume a 23.9% and 35.4% effective tax rate for the three months ended and 23.9% and 32.1% for the nine months ended September 30, 2020 and 2019, respectively.

Consolidated Communications Holdings, Inc.
Key Operating Statistics
(Unaudited)
		Sept. 30,		June 30,		% Change		Sept. 30,		% Change
		2020		2020		in Qtr		2019		YOY
Voice Connections		794,333		809,457		(1.9%)		854,430		(7.0%)
Data and Internet Connections		792,211		791,203		0.1%		784,151		1.0%
Video Connections		77,854		80,053		(2.7%)		86,446		(9.9%)
Business and Broadband as % of total revenue (1)		75.9%		76.1%		(0.3%)		75.6%		0.4%
Fiber route network miles (long-haul, metro and FTTH) (2)		46,326		45,847		1.0%		37,359		24.0%
On-net buildings		13,202		12,882		2.5%		11,732		12.5%
Consumer Customers		562,587		569,148		(1.2%)		602,482		(6.6%)
Consumer ARPU		$76.07		$74.91		1.5%		$72.70		4.6%
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 beginning in Q2 2020, which were previously not included. Prior period amounts have not been restated to the current period presentation.