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Consolidated Communications Reports First Quarter 2022 Results Including a Record Increase in Fiber Subscribers

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Added record 8,000 total fiber subscribers and achieved 2x growth from a year ago;
Achieved net positive broadband connections in Northern New England

Built fiber to 83,700 additional locations, bringing total fiber passings to 690,000 or 25% of Company’s service area

Fidium launching in Texas, California, Minnesota, Illinois, and Pennsylvania communities

MATTOON, Ill., May 05, 2022--(BUSINESS WIRE)--Consolidated Communications Holdings, Inc. (Nasdaq: CNSL) (the "Company" or "Consolidated"), a top 10 fiber provider in the U.S., today reported results for the first quarter 2022.

"Our first quarter results demonstrate the continued success of our fiber construction engine with 83,700 locations upgraded to fiber services with multi-gig capable speeds," said Bob Udell, president and chief executive officer at Consolidated Communications. "We added a record 8,000 total fiber subscribers in the first quarter and achieved net positive adds in Northern New England. We are on track to build 400,000 fiber passings this year as part of our plan to bring FttP to 70% of our addressable market by 2025. We are building strong momentum to achieve sustained long-term growth and return to revenue growth in 2023."

First Quarter 2022 Highlights and Results (compared to first quarter 2021)

  • Revenue totaled $300.3 million, generating Adjusted EBITDA of $107.2 million.

  • Consumer broadband revenue, normalized for the sale of our Ohio assets, grew 1%.

  • Consumer fiber revenue grew 22%, driven by 2x consumer fiber net adds with positive net adds in Northern New England.

  • Commercial Data-Transport revenue was $57.9 million, up 1.4%.

  • Subsidy revenue was $6.6 million, a decline of $10.8 million, primarily reflecting the expected transition to the Rural Digital Opportunity Fund (RDOF).

  • Other Products and Services included revenue associated with public-private partnership network builds, was $4.5 million compared to $6.5 million a year ago.

  • Upgraded 83,700 locations to fiber services with Gig+ capable speeds.

  • Net cash from operating activities was $81.6 million. Cash and short-term investments totaled $159.9 million.

  • Total committed capital expenditures were $157.7 million, primarily driven by the Company’s fiber build expansion plan.

  • Operating expenses, excluding the loss on impairment of assets held for sale, were $209.2 million, down $1.6 million from a year ago. The primary drivers were lower expenses associated with public-private partnership builds and other product-related costs partially offset by increased marketing expenses.

The Company recognized a non-cash impairment charge of $126.5 million in the recent quarter related to the Kansas City assets held for sale. This charge resulted in a loss from operations totaling ($107.7 million), compared to income from operations of $38.3 million a year ago. Excluding the non-cash impairment charge, income from operations for the quarter was $18.7 million, a year-over-year decrease of $19.6 million, primarily due to the decline in revenue of $24.5 million offset by a decline in depreciation and amortization expense of $3.3 million and slightly lower operating expenses.

Net interest expense was $29.5 million, a decrease of $18.9 million compared to a year ago primarily as a result of non-cash interest of $10.2 million on the Searchlight note, which was converted to perpetual preferred stock in conjunction with the second stage closing of the Searchlight investment in December 2021. The remaining reduction in interest expense was primarily the result of favorable repricing of the Company’s term loan in April 2021.

Cash distributions from the Company’s wireless partnerships totaled $8.2 million, compared to $9.4 million a year ago.

GAAP net loss was ($125.3 million) compared to a net loss of ($62.1 million) for the same period a year ago. GAAP net loss per share was ($1.12) compared to a net loss of ($0.80) in the prior year. Adjusted diluted net income per share excludes certain items as outlined in the table provided in this release. Adjusted diluted net income per share was $0.02 compared to $0.21 in the year ago quarter.

Adjusted EBITDA was $107.2 million, compared to $126.6 million in the prior year.

Asset Divestitures

As part of the Company’s ongoing market portfolio review and focus on its fiber expansion plans, the Company is providing an update on recent divestiture activities.

On Jan. 31, 2022, Consolidated closed on the sale of substantially all of its Ohio assets, for total cash proceeds of $26 million.

On Mar. 3, 2022, Consolidated announced an agreement to sell substantially all of its Kansas City assets. The Company currently expects net cash proceeds of approximately $90 million for the sale, subject to certain purchase price adjustments, closing conditions and customary regulatory approvals. The transaction is expected to close in the second half of 2022.

The Company intends to use proceeds from these asset sales to further support its fiber expansion plans.

2022 Outlook

Consolidated Communications reaffirmed its previous guidance for the full-year 2022.

  • Adjusted EBITDA is expected to be in a range of $410 million to $425 million.

  • Capital expenditures are expected to be in a range of $475 million to $495 million.

  • Cash interest expense is expected to be in a range of $123 million to $127 million.

  • Cash income taxes are expected to be in a range of $2 million to $4 million.

Conference Call

Consolidated’s first quarter 2022 earnings conference call will be webcast live today at 8:30 a.m. ET. The 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 analysts and investors is 888-440-5977, conference ID 8956400. A phone replay of the conference call will be available through May 16 by calling 800-770-2030, enter ID 8956400.

About Consolidated Communications

Consolidated Communications Holdings, Inc. (NASDAQ: CNSL) is dedicated to moving people, businesses and communities forward by delivering the latest reliable communications solutions. Consumers, businesses and wireless and wireline carriers depend on Consolidated for a wide range of high-speed internet, data, phone, security, cloud and wholesale carrier solutions. With a network spanning 50,000 fiber route miles, Consolidated is a top 10 U.S. fiber provider, turning technology into solutions that are backed by exceptional customer support. Learn more at consolidated.com.

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 12 month adjusted EBITDA ratio" or "Net debt leverage ratio," 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 12 month adjusted EBITDA ratio" or "Net debt leverage ratio" principally to help investors understand how we measure leverage and facilitate comparisons by investors, security analysts and others. This ratio differs in certain respects from the similar ratio used in our credit agreement against comparable measures of certain other companies in our industry. 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. In addition, the ratio of total net debt to last 12-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.

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 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 or failure to consummate acquisitions or dispositions; 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; liability and compliance costs regarding environmental regulations; and risks associated with discontinuing paying dividends on our common stock; and the potential for the rights of our series A preferred stock to negatively impact our cash flow. 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.

Consolidated Communications Holdings, Inc.

Condensed Consolidated Balance Sheets

(Dollars in thousands, except share and per share amounts)

(Unaudited)

March 31,

December 31,

2022

2021

ASSETS

Current assets:

Cash and cash equivalents

$

74,171

$

99,635

Short-term investments

85,767

110,801

Accounts receivable, net

118,596

133,362

Income tax receivable

2,733

1,134

Prepaid expenses and other current assets

61,319

56,831

Assets held for sale

94,368

26,052

Total current assets

436,954

427,815

Property, plant and equipment, net

1,983,819

2,019,444

Investments

109,034

109,578

Goodwill

929,570

1,013,243

Customer relationships, net

66,226

73,939

Other intangible assets

10,557

10,557

Other assets

59,288

58,116

Total assets

$

3,595,448

$

3,712,692

LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

39,807

$

40,953

Advance billings and customer deposits

53,002

53,028

Accrued compensation

63,951

68,272

Accrued interest

35,020

17,819

Accrued expense

97,243

97,417

Current portion of long-term debt and finance lease obligations

8,379

7,959

Liabilities held for sale

5,021

97

Total current liabilities

302,423

285,545

Long-term debt and finance lease obligations

2,120,930

2,118,853

Deferred income taxes

185,985

194,458

Pension and other post-retirement obligations

205,350

214,671

Other long-term liabilities

51,923

62,789

Total liabilities

2,866,611

2,876,316

Series A Preferred Stock, par value $0.01 per share; 10,000,000 shares authorized, 436,943 and 434,266 shares outstanding as of March 31, 2022 and December 31, 2021, respectively; liquidation preference of $446,541 and $436,943 as of March 31, 2022 and December 31, 2021, respectively

298,174

288,576

Shareholders' equity:

Common stock, par value $0.01 per share; 150,000,000 shares authorized, 115,423,869 and 113,647,364 shares outstanding as of March 31, 2022 and December 31, 2021, respectively

1,154

1,137

Additional paid-in capital

733,216

740,746

Accumulated deficit

(257,263

)

(141,599

)

Accumulated other comprehensive loss, net

(53,646

)

(59,571

)

Noncontrolling interest

7,202

7,087

Total shareholders' equity

430,663

547,800

Total liabilities, mezzanine equity and shareholders' equity

$

3,595,448

$

3,712,692

Consolidated Communications Holdings, Inc.

Condensed Consolidated Statements of Operations

(Dollars in thousands, except per share amounts)

(Unaudited)

Three Months Ended

March 31,

2022

2021

Net revenues

$

300,278

$

324,766

Operating expenses:

Cost of services and products

135,895

143,979

Selling, general and administrative expenses

73,285

66,850

Loss on impairment of assets held for sale

126,490

Depreciation and amortization

72,350

75,611

Income (loss) from operations

(107,742

)

38,326

Other income (expense):

Interest expense, net of interest income

(29,515

)

(48,415

)

Loss on extinguishment of debt

(11,980

)

Change in fair value of contingent payment rights

(57,588

)

Other income, net

11,405

12,274

Loss before income taxes

(125,852

)

(67,383

)

Income tax benefit

(10,303

)

(5,300

)

Net loss

(115,549

)

(62,083

)

Less: dividends on Series A preferred stock

9,598

Less: net income attributable to noncontrolling interest

115

16

Net loss attributable to common shareholders

$

(125,262

)

$

(62,099

)

Net loss per basic and diluted common shares attributable to common shareholders

$

(1.12

)

$

(0.80

)

Consolidated Communications Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

Three Months Ended

March 31,

2022

2021

OPERATING ACTIVITIES

Net loss

$

(115,549

)

$

(62,083

)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

72,350

75,611

Cash distributions from wireless partnerships in excess of earnings

153

11

Pension and post-retirement contributions in excess of expense

(9,342

)

(8,770

)

Non-cash, stock-based compensation

2,199

1,450

Amortization of deferred financing costs and discounts

1,802

4,283

Non-cash interest expense on convertible security interest

7,875

Loss on extinguishment of debt

11,980

Loss on change in fair value of contingent payment rights

57,588

Loss on impairment of assets held for sale

126,490

Other adjustments, net

(189

)

(368

)

Changes in operating assets and liabilities, net

3,646

10,913

Net cash provided by operating activities

81,560

98,490

INVESTING ACTIVITIES

Purchase of property, plant and equipment, net

(156,480

)

(75,960

)

Purchase of investments

(39,959

)

Proceeds from sale of assets

74

24

Proceeds from business dispositions

26,042

Proceeds from sale and maturity of investments

65,754

1,198

Net cash used in investing activities

(104,569

)

(74,738

)

FINANCING ACTIVITIES

Proceeds from bond offering

400,000

Proceeds from issuance of long-term debt

150,000

Payment of finance lease obligations

(2,341

)

(1,598

)

Payment on long-term debt

(397,000

)

Payment of financing costs

(5,573

)

Share repurchases for minimum tax withholding

(114

)

Net cash provided by (used in) financing activities

(2,455

)

145,829

Net change in cash and cash equivalents

(25,464

)

169,581

Cash and cash equivalents at beginning of period

99,635

155,561

Cash and cash equivalents at end of period

$

74,171

$

325,142

Consolidated Communications Holdings, Inc.

Consolidated Revenue by Category

(Dollars in thousands)

(Unaudited)

Three Months Ended

March 31,

2022

2021

Consumer:

Broadband (Data and VoIP)

$

65,911

$

65,755

Voice services

37,452

40,420

Video services

14,366

16,781

117,729

122,956

Commercial:

Data services (includes VoIP)

57,895

57,071

Voice services

36,339

39,753

Other

11,560

9,328

105,794

106,152

Carrier:

Data and transport services

33,485

33,277

Voice services

3,852

4,526

Other

391

391

37,728

38,194

Subsidies

6,583

17,339

Network access

26,213

31,603

Other products and services

6,231

8,522

Total operating revenue

$

300,278

$

324,766

Consolidated Communications Holdings, Inc.

Consolidated Revenue Trend by Category

(Dollars in thousands)

(Unaudited)

Three Months Ended

Q1 2022

Q4 2021

Q3 2021

Q2 2021

Q1 2021

Consumer:

Broadband (Data and VoIP)

$

65,911

$

66,983

$

68,604

$

67,981

$

65,755

Voice services

37,452

39,518

40,587

40,173

40,420

Video services

14,366

15,371

16,163

16,799

16,781

117,729

121,872

125,354

124,953

122,956

Commercial:

Data services (includes VoIP)

57,895

57,444

57,545

56,871

57,071

Voice services

36,339

37,303

38,446

39,065

39,753

Other

11,560

11,408

10,205

9,091

9,328

105,794

106,155

106,196

105,027

106,152

Carrier:

Data and transport services

33,485

32,659

33,556

33,942

33,277

Voice services

3,852

4,088

4,173

4,396

4,526

Other

391

431

375

395

391

37,728

37,178

38,104

38,733

38,194

Subsidies

6,583

17,671

17,264

17,465

17,339

Network access

26,213

27,846

29,923

31,115

31,603

Other products and services

6,231

7,758

1,743

3,110

8,522

Total operating revenue

$

300,278

$

318,480

$

318,584

$

320,403

$

324,766

Consolidated Communications Holdings, Inc.

Schedule of Adjusted EBITDA Calculation

(Dollars in thousands)

(Unaudited)

Three Months Ended

March 31,

2022

2021

Net loss

$

(115,549

)

$

(62,083

)

Add (subtract):

Income tax benefit

(10,303

)

(5,300

)

Interest expense, net

29,515

48,415

Depreciation and amortization

72,350

75,611

EBITDA

(23,987

)

56,643

Adjustments to EBITDA (1):

Other, net (2)

5,510

1,688

Investment income (accrual basis)

(8,249

)

(9,556

)

Investment distributions (cash basis)

8,216

9,377

Pension/OPEB benefit

(2,983

)

(2,541

)

Loss on extinguishment of debt

11,980

Loss on impairment

126,490

Change in fair value of contingent payment right

...

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