Consolidated Communications Reports Q4 and Full Year 2020 Results

MATTOON, Ill.–(BUSINESS WIRE)–Consolidated Communications Holdings reported results for the fourth quarter and full-year 2020.

“We finished the year with strong performance which included growing consumer broadband revenue for the seventh consecutive quarter, and robust data-transport revenue growth of 3.2% in the fourth quarter,” said Bob Udell, president and chief executive officer at Consolidated Communications. “Our fiber build plans are well underway.”

“We are heading into 2021 with solid momentum,” added Udell. “We have a fully funded growth plan, which is supported by our robust capital structure and the strategic partnership we secured in the fourth quarter with Searchlight Capital. Our long-term outlook is very positive. We are confident in our ability to upgrade more than 300,000 passings in 2021 as we execute on our fiber build plan and bring highly competitive, gigabit broadband services to 70% of our footprint by 2025.”

Financial Results for the Fourth Quarter

• Revenue totaled $326.1 million, a decline of 1.5% compared to the fourth quarter 2019.
  This reflects a 250 basis point improvement compared to the prior year. Data and transport service revenue increased 3.2% or $2.9 million. Broadband revenue increased 2.8% or $1.8 million. Voice services revenue rate of decline across all customer channels improved 1.4% or $1.7 million. Network access revenues declined $1.7 million primarily due to a decrease in special access.

• Income from operations totaled $21 million in the fourth quarter, a decline of $5.7 million. The year-over-year change was primarily due to a 1.5% revenue decline and transaction costs of $7.6 million related to the Searchlight investment. These costs were partially offset by a decrease of $10.8 million in depreciation and amortization expense where certain acquired assets became fully depreciated.

• Net interest expense was $48.4 million, an increase of $15 million, as a result of the recapitalization of the balance sheet associated with the Oct. 2, 2020 refinancing and the receipt of the $350 million Searchlight strategic investment. Interest expense increased $3.5 million due to the higher mix of 6.5% Senior notes in the Company’s external debt. Non-cash interest on the Searchlight note combined with amortization of deferred financing costs and the discount totaled $10.1 million. The Company expects to make Payment in Kind (PIK) interest payments on the Searchlight note through at least 2022.

• As part of the quarterly valuation of the Searchlight contingent payment right, the Company recognized a gain of $23.8 million in the fourth quarter related to a change in the fair value of contingent payment obligations as of Dec. 31, 2020. Upon receipt of all approvals and the completion of the second close which is expected in 2021, this contingent payment right will convert to common stock.

• Cash distributions from the Company’s wireless partnerships totaled $9.5 million, an increase of $2.5 million from a year ago.

• Other income, net was $12.2 million compared to expense of $286,000 one year ago. The change included a $2.5 million increase in investment income from the Company’s minority interest in wireless partnerships and a reduction in non-operating pension/OPEB expense of $8.8 million. The latter was the result of a non-cash pension settlement charge of $6.7 million in 2019.

• On a GAAP basis, net loss was $6.8 million, compared to a loss of $5.8 million for the same period a year ago. GAAP net loss per share was ($0.09). 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 $0.12 in the fourth quarter of 2020, compared to $0.01 in the fourth quarter of 2019.

• Adjusted EBITDA was $132.3 million, an increase of 1.1% from the fourth quarter a year ago.

• The total net debt leverage ratio was 3.39x, an improvement from 4.33x at Dec. 31, 2019.

• Capital expenditures totaled $65.3 million in the fourth quarter driven by success-based opportunities across all customer channels as well as preparations for the 2021 fiber build expansion.

Full Year 2020 Results

• Operating revenue totaled $1.30 billion, down 2.4% from fiscal year 2019. This reflects an overall 200 basis point improvement compared to the prior year.

• Total operating expenses were reduced 3.5% or $30.4 million primarily driven by reduced labor costs, lower expense associated with integration efforts and continued operating efficiencies.

• Net cash from operating activities was $365 million.

• Adjusted EBITDA was $529.2 million. Adjusted diluted net income per share was $0.78.

• Capital expenditures totaled $217.6 million in 2020 supporting success-based, fiber projects and broadband network investments.

On Oct. 2, 2020, Consolidated closed on stage one of Searchlight’s investment and received $350 million of the aggregate $425 million. Concurrent with Searchlight’s investment, Consolidated completed a global refinancing in which it raised $2.25 billion in new secured debt at attractive rates, including a $250 million revolving credit facility. On Jan. 15, 2021 the Company secured an additional $150 million term loan financing on substantially the same terms as the October refinancing.

2021 Outlook

For 2021, Consolidated Communications is providing outlook based on the Company’s new fiber build plan and current capital structure.

• Capital expenditures are expected to be in a range of $400 million to $420 million, reflecting a higher level of spending to support the build plan.
• Adjusted EBITDA is expected to be in a range of $500 million to $510 million, lower than 2020 primarily due to the start-up and acceleration of the fiber build expansion plan.
• Cash interest expense is expected to be in a range of $142 million to $152 million, reflecting the current debt structure.
• Cash income taxes are expected to be in a range of $2 million to $4 million.

Conference Call

Consolidated’s fourth-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 833-794-0898, conference ID 3278619. A telephonic replay of the conference call will be available through Mar. 4 and can be accessed by calling 800-585-8367, enter ID 3278619.

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 46,600 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 12 month adjusted EBITDA ratio” or “Net debt leverage 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 12 month adjusted EBITDA ratio” or “Net debt leverage 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, refinancing and investment. 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.

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