Consolidated Communications Reports Fourth Quarter 2019 Results

Fourth Quarter Highlights

• Revenue totaled $331 million, generating Adjusted EBITDA of $130.9 million
• Data and transport revenue was up 2 percent
• Broadband revenue grew 1.4 percent
• Net cash from operating activities was $90.5 million
• Cost management efforts resulted in reduced operating expense, excluding depreciation and amortization, of $24.6 million or 10.4 percent  
• Retired over $27 million of senior unsecured notes at par value; executing on capital allocation plan

Full-Year 2019 Highlights

• Revenue totaled $1.34 billion, generating Adjusted EBITDA of $523.5 million
• Data and transport revenue and broadband revenue both grew 2 percent
• Net cash from operating activities was $339.1 million
• Fiber lit buildings increased 18 percent and 600 fiber-route miles were built
• Capital allocation plan resulted in $55 million of senior unsecured notes at par value being retired in the last half of the year

MATTOON, Ill. , Feb. 20, 2020 (GLOBE NEWSWIRE) -- Consolidated Communications Holdings, Inc. (Nasdaq: CNSL) (the “Company” or “Consolidated”) reported results for the fourth quarter 2019 and will hold a conference call and simultaneous webcast to discuss its results and developments today at 10 a.m. E.T.

“We produced another quarter of consistent and stable Adjusted EBITDA and revenue,” said Bob Udell, president and chief executive officer of Consolidated Communications. “Consumer broadband revenue grew 1.4 percent and our commercial and carrier data-transport revenue grew 2 percent in the quarter. We achieved a 10.4 percent reduction in operating expenses as a result of disciplined cost management and process improvements within our operations.” 

“Our number one priority in 2019 was executing on our capital allocation plan and reducing our debt, and I am very pleased with our progress in this area,” added Udell. “We retired $27 million in senior unsecured notes in the recent quarter and $55 million in the last half of the year. We are intensely focused on deleveraging and we will allocate substantially all free cash flow in 2020 to pay down debt and strengthen the balance sheet.”  

Financial Results for the Fourth Quarter   

• Revenues totaled $331.0 million, a decline of $13.7 million compared to fourth quarter 2018.
  
  
  • Data and transport service revenue increased 2 percent or $1.8 million.
  • Broadband revenue increased 1.4 percent or $876,000.
  • Commercial and carrier other revenue was down $3.9 million primarily due to timing on equipment sales.
  • Voice services revenue across all customer channels declined 6.3 percent or $6.1 million.
  • Network access revenues declined 11.6 percent or $4.3 million.
     
• Income from operations increased to $26.7 million compared to $3.6 million in the fourth quarter of 2018. The change was primarily due to operating expense reductions of $24.6 million were largely attributed to ongoing cost savings initiatives along with continued network cost optimization. Depreciation and amortization expense declined $12.3 million primarily due to certain acquired assets, which became fully depreciated.
  
  
• Net interest expense was $33.4 million, down $2.1 million from the same period last year. After giving effect to interest rate swap agreements, as of Dec. 31, our weighted average cost of debt was approximately 5.6 percent.
  
  
• Cash distributions from the Company’s wireless partnerships totaled $7.0 million, compared to $10.3 million for the prior year period, down due to accelerated partnership capital expenditures in the quarter.  
  
  
• Other income was a net loss of $286,000 compared to income of $11.1 million in the fourth quarter of 2018. The change was due to lower income from the Company’s minority interest in wireless partnerships and a non-cash, pension settlement charge of $6.7 million in the fourth quarter as a result of the transfer of certain pension benefit obligations to an annuity provider during the quarter.
     
• On a GAAP basis, net loss was $5.8 million, compared to a net loss of $14.0 million for the same period last year. GAAP net loss per share was $(0.08). 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 $0.01 in the fourth quarter of 2019, compared to a net loss per share of $(0.09) in the fourth quarter of 2018. 
  
  
• Adjusted EBITDA was $130.9 million compared to $132.4 million in the fourth quarter last year.
  
  
• The total net debt to last 12-month Adjusted EBITDA ratio was 4.33x, an improvement over the prior quarter primarily due to the retirement of over $27 million senior unsecured notes at par value.
  
  
• Capital expenditures totaled $47.9 million in the fourth quarter driven by success-based, fiber and wireless tower projects and broadband network investments. 

Full Year 2019 Results

• For the full year 2019, operating revenue totaled $1.34 billion, down 4.5 percent from fiscal year 2018. The decline was primarily due to the continued transition of legacy voice services and access revenues as well as the final step down in CAF II funding support.
  
  
• Net cash from operating activities was $339.1 million.
  
  
• Adjusted EBITDA was $523.5 million, in line with the Company’s 2019 guidance range. Adjusted diluted net income per share was $0.02.
  
  
• $55 million of senior unsecured notes at par value were retired in 2019, per the capital allocation plan.
  
  
• Capital expenditures totaled $232.2 million in 2019, slightly higher than projected to support success-based, fiber projects and broadband network investments.

2020 Outlook

“We are excited about the strong momentum we have going into 2020, our financial priorities are well aligned to achieve our capital allocation plan and fiscal guidance including consistent Adjusted EBITDA,” commented Udell. “While our sector is undergoing continued transformation, Consolidated remains a top 10 fiber provider in the U.S., focused on growing our fiber network and delivering on our promise of competitive, broadband solutions to rural America.”

Consolidated Communications is providing the following financial guidance for 2020.

1. Cash income taxes primarily include local and state income taxes as federal income taxes will be shielded by existing net operating losses and the benefit of The Tax Cuts and Job Act of 2017 tax reform legislation, which was enacted in Dec. 2017.
2. 2019 Free Cash Flow of $121.6 million excludes $55.4 million of dividend payments made prior to the change in capital allocation policy announced in April.             

Conference Call Information

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

About Consolidated Communications 

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

Use of Non-GAAP Financial Measures                         

This press release, as well as the conference call, includes disclosures regarding “EBITDA,” “adjusted EBITDA,” “total net debt to last twelve month adjusted EBITDA ratio,” “free cash flow” and “adjusted diluted net income (loss) per share,” all of which are non-GAAP financial measures and described in this section as not being in compliance with Regulation S-X. Accordingly, they should not be construed as alternatives to net cash from operating or investing activities, cash and cash equivalents, cash flows from operations, net income or net income per share as defined by GAAP and are not, on their own, necessarily indicative of cash available to fund cash needs as determined in accordance with GAAP. In addition, not all companies use identical calculations, and the non-GAAP financial measures may not be comparable to other similarly titled measures of other companies. A reconciliation of the differences between these non-GAAP financial measures and the most directly comparable financial measures presented in accordance with GAAP is included in the tables that follow.

Adjusted EBITDA is comprised of EBITDA, adjusted for certain items as permitted or required by the lenders under our credit agreement in place at the end of each quarter in the periods presented.  The tables that follow include an explanation of how adjusted EBITDA is calculated for each of the periods presented with the reconciliation to net income.  EBITDA is defined as net earnings before interest expense, income taxes, depreciation and amortization on a historical basis. 

We present adjusted EBITDA for several reasons.  Management believes adjusted EBITDA is useful as a means to evaluate our ability to fund our estimated uses of cash (including interest on our debt). In addition, we have presented adjusted EBITDA to investors in the past because it is frequently used by investors, securities analysts and other interested parties in the evaluation of companies in our industry, and management believes presenting it here provides a measure of consistency in our financial reporting. Adjusted EBITDA, referred to as Available Cash in our credit agreement, is also a component of the restrictive covenants and financial ratios contained in our credit agreement that requires us to maintain compliance with these covenants and limit certain activities, such as our ability to incur debt. The definitions in these covenants and ratios are based on adjusted EBITDA after giving effect to specified charges. In addition, adjusted EBITDA provides our board of directors with meaningful information, with other data, assumptions and considerations, to measure our ability to service and repay debt.  We present the related “total net debt to last twelve month adjusted EBITDA ratio” principally to put other non-GAAP measures in context and facilitate comparisons by investors, security analysts and others; this ratio differs in certain respects from the similar ratio used in our credit agreement.  These measures differ in certain respects from the ratios used in our senior notes indenture. 

These non-GAAP financial measures have certain shortcomings. In particular, adjusted EBITDA does not represent the residual cash flows available for discretionary expenditures, since items such as debt repayment and interest payments are not deducted from such measure. Because adjusted EBITDA is a component of the ratio of total net debt to last twelve month adjusted EBITDA, these measures are also subject to the material limitations discussed above. In addition, the ratio of total net debt to last twelve month adjusted EBITDA is subject to the risk that we may not be able to use the cash on the balance sheet to reduce our debt on a dollar-for-dollar basis. Management believes this ratio is useful as a means to evaluate our ability to incur additional indebtedness in the future. 

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

We present the non-GAAP measure “adjusted diluted net income (loss) per share” because our net income (loss) and net income (loss) per share are regularly affected by items that occur at irregular intervals or are non-cash items.  We believe that disclosing these measures assists investors, securities analysts and other interested parties in evaluating both our company over time and the relative performance of the companies in our industry.

Safe Harbor                                         

The Securities and Exchange Commission (“SEC”) encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions.  Certain statements in this communication are forward-looking statements and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. These forward-looking statements reflect, among other things, our current expectations, plans, strategies, and anticipated financial results.  There are a number of risks, uncertainties, and conditions that may cause our actual results to differ materially from those expressed or implied by these forward-looking statements. These risks and uncertainties include a number of factors related to our business, including 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