Consolidated Communications Announces Second Quarter Financial Results; Delivers 93% Growth in Consumer Fiber Net Adds

Consolidated Communications Holdings, Inc. (Nasdaq: CNSL) (the “Company” or “Consolidated”), a top 10 fiber provider in the U.S., today reported results for the second quarter of 2023.

“With an improved go-to-market strategy, we have great momentum, as evidenced by 18,651 consumer fiber net adds in the second quarter and nearly 7,000 overall consumer broadband net adds, representing 190% growth versus the first quarter,” said Bob Udell, president and chief executive officer at Consolidated. “We carried this momentum into July by adding nearly 7,300 consumer fiber subscribers in the month.”

Udell added, “As we move into the second half of the year, we’ll continue to build upon a fiber-first strategy across our consumer, commercial and carrier channels as we generate long-term revenue growth and deliver the most reliable services for our customers. We expect that our business simplification and cost savings initiatives will contribute over $30 million on an annualized basis to improve EBITDA and margins starting in the second half of 2023.”

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¹ Q2 2022 normalized for the divestitures of the Company’s Kansas assets, where applicable, which closed on Nov. 30, 2022. Refer to the tables contained in this press release for a reconciliation of all non-GAAP measures.

Second Quarter 2023 Results (compared to second quarter 2022 where applicable)

• Revenue totaled $275.2 million, down 7.8% or 3.0% normalized¹.

• Consumer fiber revenue was $29.6 million, up approximately 54% or 58% normalized¹, driven by strong operating metrics including 18,651 consumer fiber net adds and increased ARPU of 5.1%.

• Consumer broadband revenue was $71.3 million, up 5.5% or 8.4% normalized¹.

• Commercial data services revenue was $53.2 million, down 6.8% or up 0.5% normalized¹.

• Carrier data-transport revenue was $31.2 million, down 13.9% or 5.1% normalized¹.

• Other products and services revenue was $1.6 million, a decrease of $2.3 million, largely due to lower recognition of public private partnership construction projects.

• Net loss was ($119.0 million). Adjusted EBITDA was $76.9 million.

• Total committed capital expenditures were $164.4 million.

Operating expenses decreased $0.9 million versus the prior year driven by lower video programming costs and network access expense, in addition to the impact of the divestiture of the Kansas City operations on Nov. 30, 2022. The decline was mitigated by higher marketing and advertising expenses to drive growth and additional costs related to professional fees for customer service and process improvement initiatives.

Net interest expense was $36.9 million, an increase of $6.7 million versus the prior year, primarily as a result of higher interest on the term loan. The Company entered into a new three-year interest rate swap agreement for $500 million of its term loan debt, commencing upon the termination of its previous swap agreement. Including the new swap agreement, the Company has 77% of its total debt at a fixed rate through September 2026. As of June 30, 2023, the weighted average cost of debt was 6.72%.

Net loss in the second quarter of 2023, which includes an impairment loss of $77.8 million recorded in relation to the Washington assets held for sale, was ($119.0 million) compared to ($11.5 million) in the second quarter of 2022, which included $9.1 million of income from discontinued operations. Net loss per share was ($1.05) in the second quarter of 2023 as compared to ($0.10) in the second quarter of 2022. Adjusted diluted net income (loss) per share excludes certain items as outlined in the table provided in this release. Adjusted diluted net loss per share from continuing operations was ($0.28) compared to ($0.08) in the second quarter of 2022.

Capital Expenditures

Total committed capital expenditures were $164.4 million, driven by 57,438 new fiber passings added in the quarter, record second quarter fiber adds, seasonal infrastructure projects and pre-committed inventory purchases in support of future install and build activity.

Business Simplification and Cost Savings Initiatives

The Company has initiated a significant business simplification and cost savings initiative to further align and focus as a fiber-first provider, better serve its communities, generate efficiencies and drive improved margins. These actions are estimated to result in an annualized benefit of more than $30 million commencing in the second half of 2023.

Washington Divestiture

The Company entered into an agreement to sell its Washington assets for gross proceeds of $73 million, subject to the finalization of certain working capital and other post-closing purchase price adjustments, to Palisade Infrastructure in an all-cash transaction. This was a result of the Company’s ongoing strategic asset review and focus on its fiber expansion plans in its core regions. The transaction is expected to close in the second half of 2024. In the quarter, the Company recognized an impairment loss of $77.8 million associated with this transaction.

Capital Structure

As of June 30, 2023, the Company maintained liquidity with cash and short-term investments of approximately $203 million and $215 million of available borrowing capacity on the revolving credit facility, subject to certain covenants. The net leverage ratio for the trailing 12 months ended June 30, 2023, was 5.55x. The Company continues to balance its fiber build and growth initiatives with the timing of governmental broadband partnerships and its liquidity, which is being enhanced through recent actions, including cost savings initiatives and the sale of non-core assets.

Proposal by Searchlight Capital Partners

Discussions continue between the Special Committee of the Board of Directors and Searchlight Capital Partners regarding the non-binding proposal announced on April 13, 2023.

2023 Outlook

Consolidated Communications updated its guidance for capital expenditures and reaffirmed its guidance for all other metrics for the full-year 2023.

• Adjusted EBITDA is expected to be in a range of $310 million to $330 million.

• Capital expenditures are expected to be approximately $495 million. Previous capital outlook was $425 million to $445 million.

• Cash interest expense is expected to be in a range of $145 million to $155 million.

• Cash income taxes are expected to be below $10 million.

Conference Call Information

Consolidated’s second quarter earnings conference call will be webcast today at 8:30 am ET. The webcast and materials will be available on Consolidated’s Investor Relations website at http://ir.consolidated.com. The live conference call dial-in number for analysts and investors is 888-440-5977, conference ID 8956400. A replay of the webcast, together with a transcript thereof, will be available on the website following the earnings conference call.

About Consolidated Communications

Consolidated Communications Holdings, Inc. (Nasdaq: CNSL) is dedicated to moving people, businesses and communities forward by delivering the most reliable fiber communications solutions. Consumers, businesses and wireless and wireline carriers depend on Consolidated for a wide range of high-speed internet, data, phone, security, cloud and wholesale carrier solutions. With a network spanning nearly 59,000 fiber route miles, Consolidated is a top 10 U.S. fiber provider, turning technology into solutions that are backed by exceptional customer support. Learn more at consolidated.com.

Use of Non-GAAP Financial Measures

This press release, as well as the conference call, includes disclosures regarding “EBITDA,” “adjusted EBITDA,” “total net debt to last 12 month adjusted EBITDA ratio” or “Net debt leverage ratio,” “adjusted diluted net income (loss) per share,” and “Normalized revenue,” 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 these non-GAAP financial measures to 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 (loss) from continuing operations. EBITDA is defined as income (loss) from continuing operations before interest expense, income taxes, depreciation and amortization on a historical basis.

We present adjusted EBITDA for several reasons. Management believes adjusted EBITDA is useful as a means to evaluate our ability to fund our estimated uses of cash (including interest on our debt). In addition, we have presented adjusted EBITDA to investors in the past because it is frequently used by investors, securities analysts and other interested parties in the evaluation of companies in our industry, and management believes presenting it here provides a measure of consistency in our financial reporting. Adjusted EBITDA, referred to as Available Cash in our credit agreement, is also a component of the restrictive covenants and financial ratios contained in our credit agreement that requires us to maintain compliance with these covenants and limit certain activities, such as our ability to incur debt. The definitions in these covenants and ratios are based on Adjusted EBITDA after giving effect to specified charges. In addition, Adjusted EBITDA provides our board of directors with meaningful information, with other data, assumptions and considerations, to measure our ability to service and repay debt. We present the related “total net debt to last 12 month adjusted EBITDA ratio” or “Net debt leverage ratio” principally to help investors understand how we measure leverage and facilitate comparisons by investors, security analysts and others. Total net debt is defined as the current and long-term portions of debt and finance lease obligations less cash, cash equivalents and short-term investments, deferred debt issuance costs and discounts on debt. Our Net debt leverage ratio differs in certain respects from the similar ratio used in our credit agreement or against comparable measures of certain other companies in our industry. These measures differ in certain respects from the ratios used in our senior notes indenture.

These non-GAAP financial measures have certain shortcomings. In particular, Adjusted EBITDA does not represent the residual cash flows available for discretionary expenditures, since items such as debt repayment and interest payments are not deducted from such measure. In addition, the ratio of total net debt to last 12-month adjusted EBITDA is subject to the risk that we may not be able to use the cash on the balance sheet to reduce our debt on a dollar-for-dollar basis. Management believes this ratio is useful as a means to evaluate our ability to incur additional indebtedness in the future.

We present the non-GAAP measure “adjusted diluted net income (loss) per share” because our net income (loss) and net income (loss) per share are regularly affected by items that occur at irregular intervals or are non-cash items. We believe that disclosing these measures assists investors, securities analysts and other interested parties in evaluating both our company over time and the relative performance of the companies in our industry.

Forward-Looking Statements

Certain statements in this press release, including those relating to the current expectations, plans, strategies, anticipated financial results, contributions to EBITDA and margins as a result of business simplification and cost savings initiatives, and the timeline for and anticipated benefits related to the closing of the sale of certain Washington non-core assets in the second half of 2024, are forward-looking statements and are made pursuant to the safe harbor provisions of the Private 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, including: significant competition in all parts of our business and among our customer channels; our ability to adapt to rapid technological changes; shifts in our product mix that may result in a decline in operating profitability; public health threats, including the COVID-19 pandemic; continued receipt of support from various funds established under federal and state laws; disruptions in our networks and infrastructure and any related service delays or disruptions could cause us to lose customers and incur additional expenses; cyber-attacks may lead to unauthorized access to confidential customer, personnel and business information that could adversely affect our business; our operations require substantial capital expenditures and our business, financial condition, results of operations and liquidity may be impacted if funds for capital expenditures are not available when needed; our ability to obtain and maintain necessary rights-of-way for our networks; our ability to obtain necessary hardware, software and operational support from third-party vendors; substantial video content costs continue to rise; our ability to enter into new collective bargaining agreements or renew existing agreements; our ability to attract and/or retain certain key management and other personnel in the future; risks associated with acquisitions and the realization of anticipated benefits from such acquisitions; increasing attention to, and evolving expectations for, environmental, social and governance initiatives; unfavorable changes in financial markets could affect pension plan investments; weak economic conditions, and the other risk factors described in Part I, Item 1A of Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022. 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. 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, undue reliance should not be placed on forward-looking statements, which are based on the information currently available to us and speak only as of the date they are made. Except as required under 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.

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