Consolidated Communications Reports Third Quarter 2018 Results

• Grew commercial and carrier data and transport revenue 2.3 percent year over year
• Successfully ratified contract with union employees in Northern New England
• Increased synergy target from $55 million to $75 million
• Declared 54^th consecutive quarterly dividend

MATTOON, Ill., Nov. 01, 2018 (GLOBE NEWSWIRE) -- Consolidated Communications Holdings, Inc. (Nasdaq: CNSL) (the “Company”) reported results for the third quarter 2018 and will hold a conference call and simultaneous webcast to discuss its results and developments today at 10 a.m. ET.

Third quarter 2018 Consolidated Communications financial summary:

• Revenue totaled $348.1 million
• Net cash from operating activities was $69.7 million
• Adjusted EBITDA was $133.7 million
• Dividend payout ratio was 69.9 percent, impacted by increased capital expenditures during the quarter

“We continue to make steady progress growing our commercial and carrier revenues as we again experienced year over year growth of data and transport revenues,” said Bob Udell, president and chief executive officer of Consolidated Communications. “We delivered a solid quarter with improvement in data and broadband revenues and an increased synergy target which helps to offset declines in voice revenues. We are proud to annouce our 54^th consecutive dividend to our shareholders.”

“We’re pleased to have secured new labor agreements with our employees in Northern New England,” added Udell. “The new agreements give us increased flexibility to improve the customer experience and better manage our costs.  As a result, we are increasing our synergy target associated with the acquisition from $55 million to $75 million.”

Financial Results for the Third Quarter   

• Revenues were $348.1 million, compared to $363.3 million for the third quarter of 2017, a decrease of $15.2 million in the recent quarter. Commercial and carrier data and transport service revenue increased 2.3 percent or $2 million compared to the same period last year. Voice services revenue declined across all customer channels, accounting for $10.6 million of the revenue decline. Subsidies decreased $1.7 million during the quarter primarily due to the final CAF step down in transitional revenues, and network switched and special access revenues declined $3.1 million.
• Income from operations was $300,000, compared to a loss of $7.7 million in the third quarter of 2017. The year-over-year change is due to reductions in operating expense of $28 million, mainly from acquisition and transaction costs incurred during the third quarter of 2017, offset by the revenue decline. Income from operations was further impacted by an increase in depreciation and amortization expense of $4.7 million associated with higher capital expenditures.
• Interest expense, net was $33.5 million, compared to $36.3 million for the same period last year. The decrease was due to the recognition of a $5.8 million bridge commitment fee related to the FairPoint acquisition financing in the third quarter of 2017, offset by increases in LIBOR and costs of additional interest rate swaps put in place to maintain our fixed debt target of 75 percent.  As of Sept. 30, 2018, our weighted average cost of debt was approximately 5.5 percent.
• Cash distributions from the Company’s wireless partnerships were $8.1 million for the third quarter compared to $8.6 million for the prior year period. 
• Other income, net was $9.4 million, compared to $9.3 million in the third quarter of 2017.
• On a GAAP basis, net loss was $14.8 million and GAAP net loss per share was ($0.21). Adjusted diluted net loss per share excludes certain items as outlined in the table provided in this release.  Adjusted diluted net loss per share was ($0.09) in the third quarter, compared to $0.00 for the same period last year. 
• Adjusted EBITDA was $133.7 million compared to $137.4 million a year ago. The year over year change was primarily due to decreases in revenue and wireless distributions, offset by declines in operating expenses.
• The total net debt to pro forma last 12-month adjusted EBITDA ratio was 4.3x.

Cash Available to Pay Dividends, Capex

For the third quarter, cash available to pay dividends was $39.5 million, and the dividend payout ratio was 69.9 percent for the quarter and 67.1 percent year to date. At Sept. 30, 2018, cash and cash equivalents were $3.8 million.  Capital expenditures were $61.9 million for the third quarter. 

Financial Guidance

The Company updated its 2018 guidance as follows:

Dividend Payments

On Oct. 29, 2018, the Company’s board of directors declared a quarterly dividend of $0.38738 per common share, which is payable on Feb. 1, 2019 to stockholders of record at the close of business on Jan. 15, 2019. This will represent the 54^th consecutive quarterly dividend paid by the Company. 

Conference Call Information

The Company will host a conference call and webcast today at 10 a.m. ET / 9 a.m. CT to discuss third quarter earnings and developments with respect to the Company. The live webcast and replay can be accessed from the Investor Relations section of the Company’s website at http://ir.consolidated.com. The live conference call dial-in number is 1-877-374-3981, conference ID 6283078. A telephonic replay of the conference call will be available through Nov. 8, 2018 and can be accessed by calling 1-855-859-2056, conference ID 6283078.  
 
About Consolidated Communications 

Consolidated Communications Holdings, Inc. (NASDAQ: CNSL) is a leading broadband and business communications provider serving consumers, businesses of all sizes, and wireless companies and carriers, across a 23-state service area.  Leveraging its advanced fiber optic network spanning more than 36,000 fiber route miles, Consolidated Communications offers a wide range of communications solutions, including: data, voice, video, managed services, cloud computing and wireless backhaul. Headquartered in Mattoon, Ill., Consolidated Communications has been providing services in many of its markets for more than a century.

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.

Preliminary Pro Forma Results                                                                                 

Estimated pro forma results of operations presented herein gives effect to the acquisition of FairPoint Communications, Inc. as if it had occurred on Jan. 1, 2016.  The estimated pro forma results include certain accounting adjustments related to the acquisition that are expected to have a continuing impact on the combined results, including adjustments for depreciation and amortization of the acquired tangible and intangible assets , interest expense on the debt incurred to complete the acquisition and to repay certain existing indebtedness of FairPoint, the exclusion of certain acquisition related costs and the tax impact of these pro forma adjustments.  These adjustments and the related results are based on a preliminary valuation of the estimated fair value of the net assets acquired, which is subject to change upon the final assessment and such changes could be material.  The estimated pro forma information is not intended to represent or be indicative of the results of the combined company that would have been obtained had the acquisition been completed as of the dates presented and should not be taken as representative of the future consolidated results of the combined company.

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 our ability to successfully integrate FairPoint Communications, Inc.’s operations and realize the synergies from the integration, as well as 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 stockholders 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 our 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; 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. 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                                                                      

Lisa Hood, Consolidated Communications
Phone:  (844)-909-CNSL (2675)
Lisa.hood@consolidated.com

- Tables to follow –