Consolidated Communications Reports First Quarter 2015 Results

  • Increased year over year commercial and carrier revenue by 3.7%
  • Delivered over 3,100 net data adds
  • Signed agreements for 200 new fiber to the cell tower sites
  • Achieved an additional $2.0 million in annual synergies

MATTOON, Ill., May 7, 2015 (GLOBE NEWSWIRE) -- Consolidated Communications Holdings, Inc. (Nasdaq:CNSL) reported results for the first quarter 2015.

First quarter financial summary:

  • Revenue was $192.6 million.
  • Net cash from continuing operations was $52.4 million.
  • Adjusted EBITDA was $79.7 million.
  • Dividend payout ratio was 71.4%.

"We kicked off 2015 with a solid quarter both financially and operationally," said Bob Udell, President and Chief Executive Officer. "The results reflect our success in generating growth in our strategic areas and offsetting legacy revenue declines. Our broadband additions were strong, and we continued to upsell customers to our higher speed offerings."

"With the Enventis acquisition now six months behind us, I could not be more pleased with how the assets have performed and how well our team has executed in integrating the companies. We are delivering on our plans and, during the quarter, achieved an additional $2.0 million in annual synergies. In addition, we signed agreements for a record 200 fiber to the tower sites with a majority of these coming from the Enventis markets," Udell concluded.

Pro Forma Financial Results for the First Quarter

As reflected in the tables provided in this release, Consolidated has improved its revenue and metric presentations to provide more meaningful information aligned with the strategic management of the business. In an effort to provide an orderly transition, Consolidated has provided revenues in both the old format and the new format, which includes historical information for the last five quarters. In future periods, revenues will be provided in the new format only.

  • Revenues were $192.6 million, compared to $193.9 million for the first quarter of 2014. Excluding the $1.4 million decline in equipment sales and service, revenues increased by $0.1 million. We continued to deliver strong growth in our strategic sales channels of commercial and carrier. Consumer revenues in the quarter were flat compared to the same period last year.
  • Income from operations was $26.7 million, compared to $26.2 million in the first quarter of 2014. The increase was primarily due to synergy realization from the Enventis acquisition and other efficiency improvements. These cost savings were partially offset by continued increases in video programming expenses.
  • Interest expense, net was $20.7 million, compared to $22.0 million for the same period last year. The improvement in interest cost was attributable to the fourth quarter 2014 repurchases of $73 million in 10 7/8% senior notes due 2020 which were replaced using excess funding from our 6.5% senior notes due 2022 and our revolver.
  • Other income, net was $6.4 million, compared to $7.4 million for the same period in 2014. The current quarter included a $0.8 million non-cash impairment loss for our investment in Central Valley Independent Network, LLC ("CVIN"). In the first quarter of last year, a $0.7 million non-cash loss was recognized for the sale of a building in Pennsylvania. Cash distributions from our Verizon Wireless partnerships were $7.1 million compared to $9.1 million for the first quarter of 2014.
  • Adjusted diluted net income per share excludes items in the manner described in the table provided in this release. Adjusted diluted net income per share for the current quarter was $0.20 compared to $0.18 for the prior year period. Prior to the adjustments, diluted net income per common share was $0.15 compared to $0.14 in the first quarter of 2014.
  • Adjusted EBITDA was $79.7 million compared to $83.4 million for the same period in 2014.
  • The total net debt to last twelve month adjusted EBITDA coverage ratio was 4.20 times to one.

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 71.4%. At March 31, 2015, cash and cash equivalents were $9.3 million. Capital expenditures for the quarter were $32.6 million.

Financial Guidance

Consolidated is reiterating its full year guidance. The table below reflects pro forma results for the full year of 2014.

2015 Guidance 2014 Pro Forma Results
Cash Interest Expense $78.0 million to $81.0 million $81.4 million
Cash Income Taxes $4.0 million to $8.0 million $12.4 million
Capital Expenses* $122.0 million to $129.0 million $131.3 million
*2015 capital guidance includes $5.2 million of integration related expenses.

Dividend Payments

On May 4, 2015, Consolidated's board of directors declared its next quarterly dividend of $0.38738 per common share, which is payable on August 1, 2015 to stockholders of record at the close of business on July 15, 2015. This will represent the 40th 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 22705444. 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 14, 2015 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 eleven state operations. Headquartered in Mattoon, IL, the Company has been providing services in many of its markets for over a century. The Company leverages its advanced fiber optic network and multiple data centers to offer a wide range of communications services, including data, voice, video, managed services, cloud computing and wireless backhaul.

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 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 our ability to successfully integrate Enventis' operations and realize the synergies from the acquisition, 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 shareholders 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 the 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; 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 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 Securities and Exchange Commission, 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 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 Securities and Exchange Commission, 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 par value)
(Unaudited)
March 31, December 31,
2015 2014
ASSETS
Current assets:
Cash and cash equivalents $ 9,339 $ 6,679
Accounts receivable, net 74,672 77,536
Income tax receivable 14,116 18,940
Deferred income taxes 13,374 13,374
Prepaid expenses and other current assets 20,892 17,616
Total current assets 132,393 134,145
Property, plant and equipment, net 1,129,757 1,137,478
Investments 114,641 115,376
Goodwill 764,630 764,630
Other intangible assets 53,228 56,322
Deferred debt issuance costs, net and other assets 18,707 19,313
Total assets $ 2,213,356 $ 2,227,264
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,433 $ 15,277
Advance billings and customer deposits 30,961 31,933
Dividends payable 19,527 19,510
Accrued compensation 23,536 32,581
Accrued interest 16,369 6,784
Accrued expense 40,835 39,698
Current portion of long-term debt and capital lease obligations 9,931 9,849
Current portion of derivative liability 583 443
Total current liabilities 153,175 156,075
Long-term debt and capital lease obligations 1,359,725 1,356,753
Deferred income taxes 246,734 246,665
Pension and other post-retirement obligations 117,859 122,363
Other long-term liabilities 15,279 14,579
Total liabilities 1,892,772 1,896,435
Shareholders' equity:
Common stock, par value $0.01 per share; 100,000,000 shares authorized, 50,515,950 and 50,364,579, shares outstanding as of March 31, 2015 and December 31, 2014, respectively 505 504
Additional paid in capital 346,775 357,139
Accumulated other comprehensive loss, net (31,541) (31,640)
Noncontrolling interest 4,845 4,826
Total shareholders' equity 320,584 330,829
Total liabilities and shareholders' equity $ 2,213,356 $ 2,227,264
Consolidated Communications Holdings, Inc.
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
2015 2014
Net revenues $ 192,578 $ 149,648
Operating expenses:
Cost of services and products 79,892 55,300
Selling, general and administrative expenses 41,948 32,575
Acquisition and other transaction costs 437 289
Depreciation and amortization 43,556 35,542
Income from operations 26,745 25,942
Other income (expense):
Interest expense, net of interest income (20,674) (19,831)
Other income, net 6,384 7,433
Income before income taxes 12,455 13,544
Income tax expense 4,626 5,122
Net income 7,829 8,422
Less: net income attributable to noncontrolling interest 19 98
Net income attributable to common shareholders $ 7,810 $ 8,324
Net income per basic and diluted common share attributable to common shareholders $ 0.15 $ 0.20
Consolidated Communications Holdings, Inc.
Pro Forma Condensed Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
Pro Forma
2015 2014
Net revenues $ 192,578 $ 193,888
Operating expenses:
Operating expenses (exclusive of depreciation and amortization) 122,277 120,331
Depreciation and amortization 43,556 47,398
Income from operations 26,745 26,159
Other income (expense):
Interest expense, net of interest income (20,674) (21,951)
Other income, net 6,384 7,433
Income from before income taxes 12,455 11,641
Income tax expense 4,626 4,450
Net Income 7,829 7,191
Less: net income attributable to noncontrolling interest 19 98
Net income attributable to common shareholders $ 7,810 $ 7,093
Net income per basic and diluted common share attributable to common shareholders $ 0.15 $ 0.14
Consolidated Communications Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
2015 2014
OPERATING ACTIVITIES
Net income $ 7,829 $ 8,422
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 43,556 35,542
Cash distributions from wireless partnerships in excess of/(less than) earnings 358 729
Non- cash stock-based compensation 813 784
Amortization of deferred financing 943 630
Other adjustments, net 686 1,391
Changes in operating assets and liabilities, net (1,781) 896
Net cash provided by operating activities 52,404 48,394
INVESTING ACTIVITIES
Purchase of property, plant and equipment, net (32,552) (25,405)
Proceeds from sale of assets 29 1,241
Net cash used in investing activities (32,523) (24,164)
FINANCING ACTIVITIES
Proceeds on issuance of long-term debt 20,000 10,000
Payment of capital lease obligation (222) (157)
Payment on long-term debt (17,275) (17,275)
Repurchase and retirement of common stock (214) --
Dividends on common stock (19,510) (15,520)
Net cash used in financing activities (17,221) (22,952)
Net change in cash and cash equivalents 2,660 1,278
Cash and cash equivalents at beginning of period 6,679 5,551
Cash and cash equivalents at end of period $ 9,339 $ 6,829
Consolidated Communications Holdings, Inc.
Consolidated Revenue by Category
(Dollars in thousands)
(Unaudited)
PRO FORMA
Q1'14 Q2'14 Q3'14 Q4'14 Q1'15
Commercial and carrier:
Data and transport services (includes VoIP) $ 41,503 $ 42,198 $ 43,110 $ 43,668 $ 45,280
Voice services 26,582 26,937 26,573 26,098 25,865
Other 2,999 3,079 2,966 3,394 2,561
71,084 72,214 72,649 73,160 73,706
Consumer:
Broadband (VoIP, Data and Video) 52,665 53,885 53,595 53,465 53,775
Voice services 16,906 16,673 16,609 16,014 15,506
69,571 70,558 70,204 69,479 69,281
Equipment Sales and Service 12,248 17,407 22,224 11,008 10,853
Subsidies 14,667 14,851 14,040 14,348 14,392
Network Access 21,476 20,802 19,680 19,789 19,399
Other products and services 4,842 4,928 4,652 4,864 4,947
Total operating revenue $ 193,888 $ 200,760 $ 203,449 $ 192,648 $ 192,578
Consolidated Communications Holdings, Inc.
Consolidated Revenue by Category
(Dollars in thousands)
(Unaudited)
PRO FORMA
Q1'14 Q2'14 Q3'14 Q4'14 Q1'15
Local calling service 30,436 30,980 30,472 29,905 29,281
Network access revenues 30,044 29,252 28,439 28,370 28,451
Subsidies 14,667 14,851 14,040 14,348 14,392
Long distance services 5,964 5,922 5,778 5,613 5,628
Data and internet service 79,951 81,696 82,031 82,153 84,260
Equipment sales and services 12,248 17,407 22,224 11,008 10,853
Other services 20,578 20,652 20,465 21,251 19,713
Total 193,888 200,760 203,449 192,648 192,578
Consolidated Communications Holdings, Inc.
Schedule of Adjusted EBITDA Calculation
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
Pro forma
2015 2014
Net income $ 7,829 $ 7,191
Add (subtract):
Income tax expense 4,626 4,450
Interest expense, net 20,674 21,951
Depreciation and amortization 43,556 47,398
EBITDA 76,685 80,990
Adjustments to EBITDA (1):
Other, net (2) (4,901) (7,668)
Investment distributions (3) 7,079 9,086
Non-cash compensation (4) 813 1,015
Adjusted EBITDA $ 79,676 $ 83,423
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, acquisition and non-recurring 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, 2015
Adjusted EBITDA $ 79,676
- Cash interest expense (19,985)
- Capital expenditures (32,552)
- Cash income taxes 197
Cash available to pay dividends $ 27,336
Dividends Paid $ 19,510
Payout Ratio 71.4%
* 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 $3,797 $ 894,828
Revolving loan 44,000
Senior unsecured notes due 2020, net of discount of $1,054 226,164
Senior unsecured notes due 2022 200,000
Capital leases 4,664
Total debt as of March 31, 2015 $ 1,369,656
Less cash on hand (9,339)
Total net debt as of March 31, 2015 $ 1,360,317
Adjusted EBITDA for the last twelve months ended March 31, 2015 $ 324,306
Total Net Debt to last twelve months
Adjusted EBITDA 4.20x
Consolidated Communications Holdings, Inc.
Adjusted Net Income and Net Income Per Share
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended
Pro Forma
March 31, March 31,
2015 2014
Net income (loss) $ 7,829 $ 7,191
Transaction and severance related costs, net of tax 1,344 760
Loss related to sale of building, net of tax -- 457
Impairment charge for CVIN investment, net of tax 526 --
Non-cash stock compensation, net of tax 511 627
Adjusted net income $ 10,211 $ 9,036
Weighted average number of shares outstanding 50,148 50,021
Adjusted diluted net income per share $ 0.20 $ 0.18
* Calculations above assume a 37.1% and 38.2% effective tax rate for the three months ended March 31, 2015 and 2014, respectively.
Consolidated Communications Holdings, Inc.
Key Operating Statistics
(Unaudited)
31-Mar-15 31-Dec-14 % Change in Qtr 31-Mar-14 % Change yoy
Voice Connections 498,121 503,120 (1.0%) 519,361 (4.1%)
Data and Internet Connections 446,621 443,489 0.7% 439,551 1.6%
Video Connections 123,208 124,229 (0.8%) 124,463 (1.0%)
Business and Broadband as % of total revenue 80% 80% 0.0% 79% 1.3%
Fiber network miles (including long-haul and metro) 13,038 12,814 1.7% 12,400 5.1%
On-net buildings 4,804 4,768 0.8% 4,660 3.1%
Consumer Customers 274,484 276,466 (0.7%) 282,927 (3.0%)
Consumer ARPU $84.13 $83.77 0.4% $81.88 2.8%
Note:
BB% includes commercial/carrier, equipment sales, directory, special access and consumer broadband
All periods are pro forma for the Enventis acquisition

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

Source:Consolidated Communications Holdings, Inc.