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Consolidated Communications Reports First Quarter 2013 Results

  • Achieved first year annualized synergy target of $20 million a full quarter ahead of plan
  • Increased broadband (video and data) subscribers by 4,055
  • Delivered strong financial results with a 13% increase in pro forma adjusted EBITDA on a year-over-year basis
  • Provided another solid dividend payout ratio

MATTOON, Ill., May 9, 2013 (GLOBE NEWSWIRE) -- Consolidated Communications Holdings, Inc. (Nasdaq:CNSL) reported results for the first quarter 2013.

First quarter financial summary:

  • Revenue was $156.3 million.
  • Net cash from operations was $36.2 million.
  • Adjusted EBITDA was $74.1 million.
  • Dividend payout ratio was 62.4%.

"We had an outstanding quarter with strong financial results and continued operating and integration success," said Bob Currey, President and Chief Executive Officer. "Our strategy is working. The business is achieving solid growth with more diversified revenues and cash flows. We are delivering cash flow supporting the dividend and making success-based capital investments to sustain future growth."

"Since we closed on the acquisition of SureWest in July of last year, we have accomplished a tremendous amount. We reached our first milestone target of $20 million in annual run-rate synergies a full quarter ahead of schedule. We are in great shape to exceed our targeted $25 million in annual run-rate synergies by June of next year," Currey concluded.

Operating Statistics at March 31, 2013, Compared to pro forma March 31, 2012.

Period Ended March 31,
2013 2012 Increase/(decrease) %
Data connections 250,350 238,581 11,769 4.9%
Video connections 107,475 102,006 5,469 5.4%
ILEC access lines 265,855 277,051 (11,196) (4.0%)
Voice connections (non-ILEC) 127,866 35,082 (7,216) (5.3%)
Total connections 751,546 752,720 (1,174) (0.2%)

Cash Available to Pay Dividends

For the quarter, cash available to pay dividends, or CAPD, was $24.7 million, and the dividend payout ratio was 62.4%. At March 31, 2013, cash and cash equivalents were $8.6 million. The Company made capital expenditures of $27.5 million.

Financial Highlights for the First Quarter Ended March 31, 2013

  • Revenues were $156.3 million, compared to $93.4 million in the same period of 2012. On a pro forma basis, revenues were flat year-over-year and increased by 1.4% when excluding the loss of our prison services contract with the State of Illinois. Increases in data, internet and subsidy revenues were offset by declines in local calling, network access, long distance and prison services (which is in other operations).
  • Income from operations was $28.4 million, compared to $11.0 million in the first quarter of 2012. The increase is primarily due to the SureWest acquisition, growth in the business and synergy realization. In addition, the first quarter of 2012 included $4.8 million in transaction and severance costs related to the acquisition versus $1.6 million in the current quarter.
  • Interest expense, net was $24.6 million, compared to $14.6 million in the same quarter last year. The increase is mostly attributable to $8.2 million in expense related to our Senior Notes offering for the SureWest acquisition and, in part, to our fourth quarter 2012 refinancing of our term debt.
  • Other income, net was $8.7 million, compared to $6.5 million for same period in 2012. Cash distributions from our Verizon wireless partnerships were $8.1 million for the first quarter of 2013 compared to $6.2 million for the same quarter of 2012.
  • Net income attributable to common stockholders was $6.8 million, compared to $1.8 million in the first quarter of 2012. "Adjusted net income attributable to common stockholders" excludes certain items in the manner described in the table provided in this release. On that basis, "adjusted net income attributable to common stockholders" was $8.2 million, compared to $5.2 million in the same quarter of 2012.
  • Diluted net income per common share was $0.17, compared to $0.06 in the first quarter of 2012. "Adjusted diluted net income per share" excludes certain items in the manner described in the table provided in this release. On that basis, "adjusted diluted net income per share" for the current quarter was $0.21 compared to $0.18 for the prior year period.
  • Net cash provided from operating activities was $36.2 million, compared to $21.6 million for the first quarter in 2012.
  • Adjusted EBITDA was $74.1 million, which represented an $8.5 million, or 13.0% increase versus $65.6 million on a pro forma basis for the same period in 2012.
  • The total net debt to last twelve month adjusted EBITDA coverage ratio improved to 4.25 times to one.

Financial Guidance

For 2013, the Company is reiterating the following full year guidance:

2013 Guidance
Cash Interest Expense $80.0 million to $85.0 million
Cash Income Taxes $1.0 million to $3.0 million
Capital Expenditures $100.0 million to $110.0 million *
* 2013 Capital Expenditure guidance includes $4.0 million in one-time integration costs.

Dividend Payments

On May 7, 2013, the Company's board of directors declared its next quarterly dividend of $0.38738 per common share, which is payable on August 1, 2013 to stockholders of record at the close of business on July 15, 2013.

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 35430459. 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 16, 2013 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. 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 the credit facility 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. EBITDA is defined as net earnings before interest expense, income taxes, depreciation and amortization on a historical basis. We believe net cash provided by operating activities is the GAAP financial measure most directly comparable to EBITDA.

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 the 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 the 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 the 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 material 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.

Certain current and prior year GAAP amounts have been modified to give effect to pro forma events that are directly attributable to the acquisition of SureWest Communications (the "Acquisition") and factually supportable and are expected to have a continuing impact. The unaudited Pro forma financial information, which has been prepared for the periods presented, gives effect to the Acquisition as if it had occurred on January 1, 2012.

We have also presented various Adjusted Pro Forma metrics and financial information as if the acquisition had occurred as of December 31, 2011 in order to provide a better view of the combined Company's period over period performance. In calculating the unaudited Adjusted Pro Forma metrics and financial information, we did not adjust certain items to give effect to the Acquisition as if it had occurred on January 1, 2012, as required by Rule 3-05 of Regulation S-X.

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 ("SureWest") 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 and SureWest's filings with the Securities and Exchange Commission, including our respective 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)
March 31, December 31,
2013 2012
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 8,624 $ 17,854
Accounts receivable, net 56,229 58,582
Income tax receivable 6,344 11,819
Deferred income taxes 9,000 9,000
Prepaid expenses and other current assets 13,444 11,269
Total current assets 93,641 108,524
Property, plant and equipment, net 902,260 908,236
Investments 110,752 109,750
Goodwill 604,988 604,988
Other intangible assets 47,300 49,530
Deferred debt issuance costs, net and other assets 12,975 13,800
Total assets $ 1,771,916 $ 1,794,828
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,272 $ 14,967
Advance billings and customer deposits 28,433 28,592
Dividends payable 15,539 15,463
Accrued compensation 21,751 21,968
Accrued interest 11,534 2,962
Accrued expense 40,744 47,465
Current portion of long-term debt and capital lease obligations 9,612 9,596
Current portion of derivative liability 720 3,164
Total current liabilities 130,605 144,177
Long-term debt and capital lease obligations 1,206,065 1,208,248
Deferred income taxes 140,351 138,842
Pension and other post-retirement obligations 153,540 156,710
Other long-term liabilities 10,503 10,746
Total liabilities 1,641,064 1,658,723
Shareholders' equity:
Common stock, par value $0.01 per share; 100,000,000 shares authorized, 40,113,018 and 39,877,998, shares outstanding as of March 31, 2013 and December 31, 2012, respectively 399 399
Additional paid in capital 169,231 177,315
Accumulated other comprehensive loss (43,052) (45,784)
Noncontrolling interest 4,274 4,175
Total shareholders' equity 130,852 136,105
Total liabilities and shareholders' equity $ 1,771,916 $ 1,794,828
Consolidated Communications Holdings, Inc.
Condensed Consolidated Statement of Income
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
2013 2012
Revenues $ 156,295 $ 93,364
Operating expenses:
Cost of services and products 58,332 35,864
Selling, general and administrative expenses 34,275 19,528
Financing and other transaction costs 179 4,822
Depreciation and amortization 35,111 22,137
Income from operations 28,398 11,013
Other income (expense):
Interest expense, net (24,600) (14,600)
Other income, net 8,677 6,480
Income before income taxes 12,475 2,893
Income tax expense 5,593 1,009
Net income 6,882 1,884
Less: Net income attributable to noncontrolling interest 99 125
Net income attributable to Consolidated Communications Holdings, Inc. $ 6,783 $ 1,759
Diluted net income attributable to Consolidated Communications Holdings, Inc. per common share $ 0.17 $ 0.06
Consolidated Communications Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
2013 2012
OPERATING ACTIVITIES
Net income $ 6,882 $ 1,884
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 35,111 22,137
Deferred income taxes (124) --
Cash distributions from wireless partnerships less than earnings (770) (374)
Non- cash stock-based compensation 656 501
Amortization of deferred financing 544 3,463
Other adjustments, net 2,519 60
Changes in operating assets and liabilities, net (8,626) (6,052)
Net cash provided by operating activities 36,192 21,619
INVESTING ACTIVITIES
Purchase of property, plant and equipment, net (27,517) (10,043)
Purchase of investments (84) --
Proceeds from sale of assets 21 20
Other -- 92
Net cash used in investing activities (27,580) (9,931)
FINANCING ACTIVITIES
Proceeds on issuance of long-term debt 13,000 --
Payment of capital lease obligation (85) (45)
Payment on long-term debt (15,310) (2,200)
Payment of financing costs -- (5,083)
Dividends on common stock (15,447) (11,571)
Net cash provided by (used in) financing activities (17,842) (18,899)
Net change in cash and cash equivalents (9,230) (7,211)
Cash and cash equivalents at beginning of period 17,854 105,704
Cash and cash equivalents at end of period $ 8,624 $ 98,493
Consolidated Communications Holdings, Inc.
Consolidated Revenue by Category
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
Actuals Pro Forma
2013 2012
Telephone Operations
Local calling services $ 26,347 $ 28,526
Network access services 29,654 30,859
Subsidies 13,446 12,194
Long distance services 4,635 5,644
Data, Video and Internet services 66,901 61,168
Other services 9,363 9,587
Total Telephone Operations 150,346 147,978
Other Operations 5,949 8,282
Total operating revenues $ 156,295 $ 156,260
Consolidated Communications Holdings, Inc.
Schedule of Adjusted EBITDA Calculation
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
Adjusted
Actuals Pro Forma
2013 2012
Net cash provided by operating activities $ 36,192 $ 37,109
Add (subtract):
Income tax expense 5,593 984
Interest expense 24,600 18,932
Compensation from restricted share plan (656) (1,860)
Other adjustments, net (2,169) 2,358
Changes in operating assets and liabilities 8,626 3,843
EBITDA 72,186 61,366
Adjustments to EBITDA (1):
Other, net (2) (6,827) (3,822)
Investment distributions (3) 8,101 6,211
Non-cash compensation (4) 656 1,860
Adjusted EBITDA $ 74,116 $ 65,615
Footnotes for Adjusted EBITDA:
(1) These adjustments reflect those required or permitted by the lenders under the 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, 2013
Adjusted EBITDA $ 74,116
- Cash interest expense (21,737)
- Capital expenditures (27,517)
- Cash income taxes (118)
Cash available to pay dividends $ 24,744
Dividends Paid $ 15,447
Payout Ratio 62.4%
* 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 debt, net of discount of $4,902 $ 912,749
Senior unsecured notes, net of discount of $1,831 298,169
Capital leases 4,759
Total debt as of March 31, 2013 $ 1,215,677
Less cash on hand (8,624)
Total net debt as of March 31, 2013 $ 1,207,053
Adjusted EBITDA, pro forma, for the last twelve months ended March 31, 2013 $ 283,952
Total Net Debt to last twelve months
Adjusted EBITDA, pro forma 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,
2013 2012
Reported net income attributable to common stockholders $ 6,783 $ 1,759
Transaction and severance related costs, net of tax 1,015 3,140
Non-cash stock compensation, net of tax 412 326
Adjusted net income attributable to common stockholders $ 8,209 $ 5,225
Weighted average number of shares outstanding 39,755 29,689
Adjusted diluted net income per share $ 0.21 $ 0.18
Calculations above assume a 37.2 and 34.9 percent effective tax rate for the three months ended March 31, 2013 and 2012, respectively.
Consolidated Communications Holdings, Inc.
Key Operating Statistics
(Unaudited)
Actuals Actuals Actuals Pro Forma Pro Forma
March 31, December 31, September 30, June 30, March 31,
2013 2012 2012 2012 2012
ILEC access lines
Residential 152,644 153,855 155,274 157,293 159,141
Business 113,211 114,742 115,686 117,070 117,910
Total local access lines 265,855 268,597 270,960 274,363 277,051
Quarterly change (1.0%) (0.9%) (1.2%) (1.0%) (1.3%)
Voice Connections [1]
Residential 77,515 78,811 80,097 81,190 82,850
Business 50,351 50,918 51,360 51,852 52,232
Total voice connections 127,866 129,729 131,457 133,042 135,082
Quarterly change (1.4%) (1.3%) (1.2%) (1.5%) (0.8%)
Data and Internet Connections [2] 250,350 247,633 246,817 242,681 238,581
Quarterly change 1.1% 0.3% 1.7% 1.7% 0.8%
Res. penetration of marketable homes 30.3% 30.2% 30.2% 30.1% 30.3%
Video Connections [2] 107,475 106,137 105,202 102,837 102,006
Quarterly change 1.3% 0.9% 2.3% 0.8% 1.2%
Res. penetration of marketable homes 20.5% 20.3% 20.2% 19.9% 20.0%
Total Connections 751,546 752,096 754,436 752,923 752,720
Quarterly change (0.1%) (0.3%) 0.2% 0.0% (0.2%)
Network Stats - Marketable Homes
Fiber homes 195,962 194,895 192,475 187,591 182,639
HFC homes 94,433 94,418 94,272 94,258 94,251
Copper homes 399,547 399,547 399,547 399,547 399,547
Total 689,942 688,860 686,294 681,396 676,437
Data marketable homes 677,514 676,432 673,866
% of total marketable homes 98% 98% 98%
Video marketable homes 524,950 524,019 520,706
% of total marketable homes 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 Investor Relations & Treasurer 217-258-2959 matthew.smith@consolidated.comSource:Consolidated Communications Holdings, Inc.