News Column

Consolidated Communications Reports First Quarter 2014 Results

May 1, 2014

Delivered another strong quarter of operating and financial results Increased data and video subs by a combined 3,197 Provided solid growth in our commercial sales with a year over year increase of 21% in Metro Ethernet revenue Generated $48.4 million in cash from operations and a dividend payout ratio of 56.9%

MATTOON, Ill., May 1, 2014 (GLOBE NEWSWIRE) -- Consolidated Communications Holdings, Inc. (Nasdaq:CNSL) reported results for the first quarter 2014.

First quarter financial summary:

• Revenue was $149.6 million.• Net cash from continuing operations was $48.4 million.• Adjusted EBITDA was $71.1 million.• Dividend payout ratio was 56.9%.

"We kicked off 2014 with a strong quarter," said Bob Currey, Chairman and Chief Executive Officer. "Our focus on broadband growth, along with commercial and carrier sales, drove our positive operating and financial results. Metro Ethernet continues to be a leading product with a 21% increase in revenue compared to the first quarter of last year. Overall, we added 3,197 broadband connections and continued to increase speeds across our network."

"Our financial performance included a strong quarter of cash flow generation resulting in a comfortable dividend payout ratio of 56.9%. We achieved an additional $0.6 million in annualized synergies from the SureWest acquisition and the completion of the final phase of billing integration remains on schedule for the third quarter of 2014," Currey concluded.

Operating Statistics at March 31, 2014, Compared to March 31, 2013.

 

  Period Ended March 31,    
  2014 2013 Increase/(decrease) %
         
Data connections 258,244 250,334  7,910 3.2%
Video connections 110,805 107,492  3,313 3.1%
ILEC access lines 254,061 265,855 (11,794) (4.4%)
Voice connections (non-ILEC) 122,172 127,866  (5,694) (4.5%)
Total connections 745,282 751,547 (6,265) (0.8%)
       


Cash Available to Pay Dividends

For the quarter, cash available to pay dividends, or CAPD, was $27.3 million, and the dividend payout ratio was 56.9%. At March 31, 2014, cash and cash equivalents were $6.8 million. The Company made capital expenditures of $25.4 million during the quarter.  

Financial Highlights for the First Quarter Ended March 31, 2014 

• Revenues were $149.6 million, compared to $151.5 million from continuing operations in the first quarter of 2013. Decreases in our network access and subsidy revenues were partially offset by growth in data and video revenues.  • Income from operations was $25.9 million, compared to $28.3 million from continuing operations in the first quarter of 2013. The decrease was primarily due to higher video programming costs and increases in our sales related expenses for our growth and expansion initiatives.   • Interest expense, net was $19.8 million, compared to $24.6 million for the same period last year. The improvement was driven by a lower overall cost of debt due to the successful December 2013 refinancing of our secured term debt as well as the March and September 2013 maturities of several higher cost interest rate swaps.      • Other income, net was $7.4 million, compared to $8.7 million for the same period in 2013.  The current quarter includes approximately $0.7 million in a non-cash loss on the disposal of assets as the result of the sale of a building in our Pennsylvania market. Cash distributions from our Verizon Wireless partnerships were $9.1 million compared to $8.1 million for the first quarter of 2013.• Net income attributable to common stockholders was $8.3 million, compared to $6.8 million in the same period of 2013. "Adjusted net income attributable to common stockholders" excludes certain items in the manner described in the table provided in this release and was $10.0 million, compared to $8.2 million in the same quarter of 2013. • Diluted net income per common share was $0.20 compared to $0.17 in the first quarter of 2013. "Adjusted diluted net income per share" excludes certain items in the manner described in the table provided in this release and was $0.25 compared to $0.21 for the prior year period. • Net cash provided by operating activities was $48.4 million compared to $36.2 million for the first quarter in 2013. • Adjusted EBITDA was $71.1 million compared to $73.5 million from continuing operations in the same period in 2013. • The total net debt to last twelve month adjusted EBITDA coverage ratio was 4.25 times to one.

Financial Guidance

The Company is reiterating its full year guidance:

     
  2014 Guidance  2013 Results 
   
Cash Interest Expense$75.0 million to $78.0 million  $81.9 million 
Cash Income Taxes$10.0 million to $15.0 million  $1.0 million
Capital Expenditures$97.0 million to $103.0 million$107.4 million


Dividend Payments

On April 29, 2014, the Company's board of directors declared its next quarterly dividend of $0.38738 per common share, which is payable on August 1, 2014 to stockholders of record at the close of business on July 15, 2014. This will represent the 36th consecutive quarterly dividend paid by the Company. 

Conference Call Information 

The Company will host a conference call today at 11:00 a.m. Eastern Time / 10:00 a.m. Central Time to discuss first quarter earnings and developments with respect to the Company. The call is being webcast and archived on the "Investor Relations" section of the Company's website at http://www.consolidated.com. If you do not have internet access, the conference call dial-in number is 1-877-374-3981 with pass code 26932945. International parties can access the call by dialing 1-253-237-1158. A telephonic replay of the conference call will also be available starting three hours after completion of the call until May 8, 2014 at midnight Eastern Time. To hear the replay, parties in the United States and Canada should call 1-855-859-2056 and international parties should call 1-404-537-3406. 

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.

About Consolidated

Consolidated Communications Holdings, Inc. is a leading communications provider within its six state operations of California, Illinois, Kansas, Missouri, Pennsylvania and Texas. Headquartered in Mattoon, IL, the Company has been providing services in many of its markets for over a century. With one of the highest quality networks in the industry, the Company offers a wide range of communications services, including IP-based digital and high definition television, high speed internet, Voice over IP, carrier access, directory publishing and local and long distance service.

Safe Harbor 

Any statements other than statements of historical facts, including statements about management's beliefs and expectations, are forward-looking statements and should be evaluated as such. These statements are made on the basis of management's views and assumptions regarding future events and business performance. Words such as "estimate," "believe," "anticipate," "expect," "intend," "plan, "target," "project," "should," "may," "will" and similar expressions are intended to identify forward-looking statements. Forward-looking statements (including oral representations) involve risks and uncertainties that may cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements. These risks and uncertainties include the ability of Consolidated Communications Holdings, Inc. (the "Company") to successfully integrate the operations of  SureWest Communications and realize the synergies from the acquisition, as well as a number of other factors related to the businesses of the Company, including various risks to stockholders of not receiving dividends and risks to the Company's ability to pursue growth opportunities if the Company continues to pay dividends according to the current dividend policy; various risks to the price and volatility of the Company's common stock; the substantial amount of debt and the Company's ability to repay or refinance it or incur additional debt in the future; the Company's need for a significant amount of cash to service and repay the debt and to pay dividends on the Company's common stock; changes in the valuation of pension plan assets; restrictions contained in the Company's 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; changes in content costs, which have been substantial and continue to increase; risks associated with the Company's possible pursuit of acquisitions; economic conditions in the Company's service areas; system failures; 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; telecommunications carriers disputing and/or avoiding their obligations to pay network access charges for use of the Company's network; high costs of regulatory compliance; the competitive impact of legislation and regulatory changes on the telecommunications industry; and liability and compliance costs regarding environmental regulations. These and other risks and uncertainties are discussed in more detail in the Company's filings with the Securities and Exchange Commission, including our reports on Form 10-K and Form 10-Q.

Many of these risks are beyond management's ability to control or predict. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements and risk factors contained in this communication and the Company's filings with the Securities and Exchange Commission. Because of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. 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 Securities and Exchange Commission, we do not undertake any obligation to update or review any forward-looking information, whether as a result of new information, future events or otherwise.

- Tables Follow –

     
Consolidated Communications Holdings, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par value)
 (Unaudited)
  March 31,  December 31, 
  2014  2013 
   
 ASSETS     
 Current assets:     
 Cash and cash equivalents   $ 6,829  $ 5,551
 Accounts receivable, net   52,368  52,033
 Income tax receivable   4,689  9,796
 Deferred income taxes   7,960  7,960
 Prepaid expenses and other current assets   14,151  12,380
 Total current assets   85,997  87,720
     
 Property, plant and equipment, net   875,467  885,362
 Investments   112,585  113,099
 Goodwill   603,446  603,446
 Other intangible assets   37,628  40,084
 Deferred debt issuance costs, net and other assets   17,891  17,667
 Total assets   $ 1,733,014  $ 1,747,378
     
 LIABILITIES AND SHAREHOLDERS' EQUITY     
 Current liabilities:     
 Accounts payable   $ 7,775  $ 4,885
 Advance billings and customer deposits   26,527  25,934
 Dividends payable   15,607  15,520
 Accrued compensation   17,333  22,252
 Accrued expense   43,132  38,697
 Current portion of long-term debt and capital lease obligations   9,773  9,751
 Current portion of derivative liability   694  660
 Total current liabilities   120,841  117,699
     
 Long-term debt and capital lease obligations   1,204,873  1,212,134
 Deferred income taxes   180,023  179,859
 Pension and other post-retirement obligations   71,066  75,754
 Other long-term liabilities   10,000  9,593
 Total liabilities   1,586,803  1,595,039
     
 Shareholders' equity:     
 Common stock, par value $0.01 per share; 100,000,000 shares authorized, 40,287,654 and 40,065,246, shares outstanding as of March 31, 2014 and December 31, 2013, respectively   403  401
 Additional paid in capital   141,933  148,433
 Accumulated other comprehensive loss, net   (728)  (1,000)
Noncontrolling interest  4,603  4,505
Total shareholders' equity  146,211  152,339
Total liabilities and shareholders' equity  $ 1,733,014  $ 1,747,378
     
Consolidated Communications Holdings, Inc.
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
(Unaudited)
   
  Three Months Ended 
  March 31, 
  2014  2013 
   
   
 Net revenues   $ 149,648  $ 151,528
 Operating expenses:     
 Cost of services and products   55,300  55,052
 Selling, general and administrative expenses   32,864  33,305
 Depreciation and amortization   35,542  34,841
 Income from operations   25,942  28,330
 Other income (expense):     
 Interest expense, net of interest income   (19,831)  (24,600)
 Other income, net   7,433  8,677
 Income from continuing operations before income taxes   13,544  12,407
 Income tax expense   5,122  5,549
 Income from continuing operations   8,422  6,858
     
 Income from discontinued operations, net of tax   --   24
     
 Net income   8,422  6,882
 Less: net income attributable to noncontrolling interest   98  99
     
 Net income attributable to common shareholders   $ 8,324  $ 6,783
     
 Net income per common share - basic and diluted     
Income from continuing operations  $ 0.20  $ 0.17
Discontinued operations, net of tax  --   -- 
Net income per basic and diluted common share attributable to common shareholders  $ 0.20  $ 0.17
     
 Consolidated Communications Holdings, Inc.
 Condensed Consolidated Statements of Cash Flows
 (Dollars in thousands)
 (Unaudited) 
    
  Three Months Ended 
  March 31, 
  2014  2013 
OPERATING ACTIVITIES  
Net income   $ 8,422  $ 6,882
Income from discontinued operations, net of tax  --  (24)
Net income from continuing operations  8,422  6,858
Adjustments to reconcile net income to cash provided by operating activities:    
Depreciation and amortization  35,542  34,841
Deferred income taxes  --   (124)
Cash distributions from wireless partnerships in excess of/(less than) earnings  729  (770)
Non- cash stock-based compensation  784  656
Amortization of deferred financing  630  544
Other adjustments, net  1,391  2,519
Changes in operating assets and liabilities, net  896  (6,801)
Net cash provided by continuing operations  48,394  37,723
Net cash provided by (used in) discontinued operations  --   (1,531)
 Net cash provided by operating activities  48,394  36,192
INVESTING ACTIVITIES    
Purchase of property, plant and equipment, net  (25,405)  (27,506)
Proceeds from sale of assets  1,241  21
Other  --   (84)
Net cash used by continuing operations  (24,164)  (27,569)
Net cash used in discontinued operations  --   (11)
 Net cash used in investing activities  (24,164)  (27,580)
FINANCING ACTIVITIES    
Proceeds on issuance of long-term debt  10,000  13,000
Payment of capital lease obligation  (157)  (85)
Payment on long-term debt  (17,275)  (15,310)
Dividends on common stock   (15,520)  (15,447)
Net cash used in financing activities  (22,952)  (17,842)
Net change in cash and cash equivalents  1,278  (9,230)
Cash and cash equivalents at beginning of period  5,551  17,854
Cash and cash equivalents at end of period  $ 6,829  $ 8,624
     
Consolidated Communications Holdings, Inc.
Consolidated Revenue by Category
(Dollars in thousands)
 (Unaudited) 
   
  Three Months Ended 
  March 31, 
   
  2014  2013 
   
Operating Revenues    
Local calling services  $ 26,209  $ 26,580
Network access services  26,840  29,654
Subsidies  13,079  13,446
Long distance services  4,770  4,991
Data, video and internet services  68,189  66,312
Other services  10,561  10,545
Total operating revenue  $ 149,648  $ 151,528
     
Consolidated Communications Holdings, Inc.
Schedule of Adjusted EBITDA Calculation
(Dollars in thousands)
(Unaudited)
     
  Three Months Ended 
  March 31, 
   
  2014  2013 
Net income from continuing operations  $ 8,422  $ 6,858
Add (subtract):    
 Income tax expense  5,122  5,549
 Interest expense, net  19,831  24,600
 Depreciation and amortization  35,542  34,841
EBITDA  68,917  71,848
     
Adjustments to EBITDA (1):    
Other, net (2)  (7,717)  (7,084)
Investment distributions (3)  9,086  8,101
Non-cash compensation (4)  784  656
     
Adjusted EBITDA  $ 71,070  $ 73,521
     
Footnotes for Adjusted EBITDA:    
(1) These adjustments reflect those required or permitted by the lenders under our credit agreement.
(2) Other, net includes the equity earnings from our investments, dividend income, income attributable to noncontrolling interests in subsidiaries, transaction related costs and certain miscellaneous items.
(3) Includes all cash dividends and other cash distributions received from our investments.
(4) 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.
 Cash Available to Pay Dividends
 (Dollars in thousands)
 (Unaudited)
  
 Three Months Ended

March 31, 2014
Adjusted EBITDA  $ 71,070
   
 - Cash interest expense   (18,393)
 - Capital expenditures  (25,405)
 - Cash income taxes  (15)
   
Cash available to pay dividends  $ 27,257
   
Dividends Paid  $ 15,520
Payout Ratio 56.9%
   
* The above calculation excludes the principal payments on the amortization of our debt.
   
Consolidated Communications Holdings, Inc.
Total Net Debt to LTM Adjusted EBITDA Ratio
(Dollars in thousands)
(Unaudited)
  
Summary of Outstanding Debt 
Term loan, net of discount $4,391  $ 903,334
Drawn on $75.0 million revolver  8,000
Senior unsecured notes, net of discount of $1,653  298,347
Capital leases  4,965
Total debt as of March 31, 2014  $ 1,214,646
Less cash on hand  (6,829)
Total net debt as of March 31, 2014  $ 1,207,817
   
Adjusted EBITDA for the last twelve months ended March 31, 2014  $ 284,055
   
Total Net Debt to last twelve months  
Adjusted EBITDA  4.25x
     
Consolidated Communications Holdings, Inc.
 Adjusted Net Income and Per Share Attributable to Common Stockholders
(in thousands, except per share amounts)
(Unaudited)
     
  Three Months Ended 
  March 31,  March 31, 
  2014  2013 
Net income attributable to common shareholders  $ 8,324  $ 6,783
Transaction and severance related costs, net of tax  765  1,015
Loss related to sale of building, net of tax  460  --
Non-cash stock compensation, net of tax 488 412
Adjusted net income attributable to common stockholders  $ 10,037  $ 8,210
     
Weighted average number of shares outstanding  39,877  39,755
Adjusted diluted net income per share  $ 0.25  $ 0.21
     
* Calculations above assume a 37.8 and 37.2 percent effective tax rate for the three months ended March 31, 2014 and 2013, respectively.
           
Consolidated Communications Holdings, Inc.
Key Operating Statistics
(Unaudited)
           
 March 31,December 31,September 30,June 30,March 31,
  2014  2013  2013  2013  2013 
ILEC access lines          
Residential 145,814 147,247 148,811 150,711 152,644
Business 108,247 109,558 110,794 111,870 113,211
Total local access lines  254,061 256,805 259,605 262,581 265,855
 Quarterly change  (1.1%) (1.1%) (1.1%) (1.2%) (1.0%)
           
Voice Connections [1,2]          
Residential 72,080 73,219 74,588 76,101 77,515
Business 50,092 50,214 49,830 50,013 50,351
Total voice connections 122,172 123,433 124,418 126,114 127,866
 Quarterly change  (1.0%) (0.8%) (1.3%) (1.4%) (1.4%)
           
Data and Internet Connections [2] 258,244 255,231 252,506 251,294 250,334
 Quarterly change  1.2% 1.1% 0.5% 0.4% 1.1%
 Res. penetration of marketable homes 30.5% 30.3% 30.2% 30.3% 30.3%
           
Video Connections [2] 110,805 110,621 109,892 109,095 107,492
 Quarterly change  0.2% 0.7% 0.7% 1.5% 1.3%
 Res. penetration of marketable homes 20.5% 20.5% 20.5% 20.7% 20.5%
           
Total Connections 745,282 746,090 746,421 749,084 751,547
 Quarterly change  (0.1%) (0.0%) (0.4%) (0.3%) (0.1%)
           
Network Stats - Marketable Homes          
Fiber homes 203,273 201,720 199,826 197,355 195,962
HFC homes 94,568 94,559 94,540 94,534 94,433
Copper homes 399,547 399,547 399,547 399,547 399,547
 Total 697,388 695,826 693,913 691,436 689,942
           
Data marketable homes 684,960 683,398 681,485 679,008 677,514
 % of total marketable homes 98% 98% 98% 98% 98%
Video marketable homes 532,853 530,834 528,921 526,444 524,950
 % of total marketable homes 76% 76% 76% 76% 76%
           
Note: The figures in the table, excluding ILEC access lines, do not include SureWest business subscribers. 
           
[1] These include voice lines outside the ILECs and Voice-over-IP inside the ILECs.
[2] These connections are both residential and business (excluding SureWest business subscribers). They include services both inside and outside the ILECs.

CONTACT: Matt Smith VP of Finance & Treasurer 217-258-2959 matthew.smith@consolidated.com

Source: Consolidated Communications Holdings, Inc.


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