Consolidated Communications Reports Transformational Second Quarter 2022 Results

• Achieved net-positive, total consumer broadband connections for first time in seven years. Added a record 9,600 fiber subscribers and achieved 3x fiber subscriber growth year over year.
• Built fiber to record 142,300 new locations, tripled the Company’s fiber passings in six quarters. Consolidated now passes over 800,000 locations with fiber becoming one of the largest fiber-to-the-home providers in the U.S. based on locations.
• Subsequent to the end of the quarter, announced $490 million agreement to sell wireless investments to Verizon to support the Company’s fiber expansion plan and pivot to a pure-play fiber company.
• Announced over $600 million in aggregate divestitures of non-core assets over the last year.
  
  

Note: Cosolidated’s second quarter earnings conference call will be webcast on Aug. 2 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.

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 2022.

“In the second quarter, we added a record 9,600 net fiber subscribers, a three-fold increase from a year ago, and achieved total consumer net positive broadband connections for the first time in over seven years,” said Bob Udell, president and chief executive officer at Consolidated Communications. “These important milestones demonstrate strong execution on our strategic priorities. Our Gig+ fiber network and Fidium product now reaches 30% of passings, an improvement from 10% at the start of 2021.”

“Additionally, we reached an agreement with Verizon Wireless to sell our interests in five limited partnerships for $490 million in the aggregate, which will provide additional liquidity to fund our fiber expansion plan and bring FttP to 70% of our addressable market by 2025.”

Second Quarter 2022 Highlights and Results (compared to Second Quarter 2021)

• Revenue totaled $298.4 million, generating Adjusted EBITDA of $107.5 million.
• Consumer fiber revenue grew 28.0%, driven by more than 3x consumer fiber net adds.
• Commercial data services revenue was $57.1 million, up 0.4%.
• Carrier data-transport revenue grew $2.3 million or 6.8% aided by a $3.1 million one-time fiber build project.
• Commercial other revenue increased $2.2 million driven primarily by higher equipment sales.
• Subsidy revenue was $6.5 million, a decline of $10.9 million, primarily reflecting the transition to the Rural Digital Opportunity Fund (RDOF).
• Total committed capital expenditures were $179.1 million driven by a record 142,300 fiber upgrades in the second quarter, which included acceleration of 40,000 fiber upgrades and preconstruction for future quarter fiber builds mitigating inflationary pressures.
• Operating expenses were $211.4 million, down $2.9 million from a year ago. The primary drivers were a $4.8 million decline in video programming expense, a $3.0 million reduction in Universal Services Fees offset by $2.1 increase in fuel and travel expenses combined with one-time cost of $2.2 million related to the fiber build project sale previously noted.

Income from operations totaled $14.4 million, down from $30.0 million a year ago. The year-over-year decrease was primarily the result of a revenue decline of $22.0 million offset by lower operating expenses of $2.9 million and a decline in depreciation and amortization expense of $3.5 million.

Net interest expense was $30.2 million, a decrease of $15.3 million compared to a year ago, primarily as a result of non-cash interest of $10.9 million on the Searchlight note, which was converted to perpetual preferred stock in conjunction with the second stage closing of the Searchlight investment in December 2021. The remaining reduction in interest expense was primarily the result of the maturity of an interest swap agreement in July 2021.

Cash distributions from the Company’s wireless partnerships totaled $11.3 million, compared to $12.7 million a year ago.

GAAP net loss was ($1.5 million) compared to a net loss of ($55.1 million) for the same period a year ago. GAAP net loss per share was ($0.10) compared to a net loss of ($0.71) in the prior year. Adjusted diluted net income per share excludes certain items as outlined in the table provided in this release. Adjusted diluted net income per share was $0.01 compared to $0.09 a year ago.

Adjusted EBITDA was $107.5 million, compared to $126.7 million in the prior year.

Sale of Investments in Wireless Partnerships

The Company announced the sale of its limited partnership interests in five wireless partnerships to Cellco Partnership, d/b/a Verizon Wireless, for an aggregate price of $490 million. The sale transactions are expected to close by the end of 2022, subject to certain closing conditions and third-party purchase rights available to other partners in the partnership. The Company expects to use the net proceeds from the sale to support its fiber expansion plan.

2022 Outlook

“We are updating our 2022 outlook for adjusted EBITDA as a result of accelerated legacy revenue declines, inflationary pressures on utilities and fuel, and the timing of cash distributions from the sale of our wireless investments,” said Steve Childers, chief financial officer at Consolidated Communications. “Our updated capex outlook reflects primarily the pre-work associated with fiber expansion for 2023 and some inflationary cost pressures.”

Consolidated Communications provides updated guidance for the full-year 2022.

• Adjusted EBITDA is expected to be in a range of $400 million to $410 million.
  
  Previous outlook was $410 million to $425 million.
• Capital expenditures are expected to be in a range of $565 million to $585 million.
  
  Previous outlook was $475 million to $495 million.
• Cash interest expense is expected to be in a range of $125 million to $129 million.
  
  Previous outlook was $123 million to $127 million.
• Cash income taxes are expected to be in a range of $12 million to $17 million, an increase from previous outlook of $2 million to $4 million as a result of the estimated incremental state income taxes associated with the sale of the wireless investments.

About Consolidated Communications

Consolidated Communications Holdings, Inc. (NASDAQ: CNSL) is dedicated to moving people, businesses and communities forward by delivering the latest reliable 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 50,000 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,” and “adjusted diluted net income (loss) per share,” all of which are non-GAAP financial measures and described in this section as not being in compliance with Regulation S-X. Accordingly, they should not be construed as alternatives to net cash from operating or investing activities, cash and cash equivalents, cash flows from operations, net income or net income per share as defined by GAAP and are not, on their own, necessarily indicative of cash available to fund cash needs as determined in accordance with GAAP. In addition, not all companies use identical calculations, and the non-GAAP financial measures may not be comparable to other similarly titled measures of other companies. A reconciliation of the differences between these non-GAAP financial measures and the most directly comparable financial measures presented in accordance with GAAP is included in the tables that follow.

Adjusted EBITDA is comprised of EBITDA, adjusted for certain items as permitted or required by the lenders under our credit agreement in place at the end of each quarter in the periods presented. The tables that follow include an explanation of how adjusted EBITDA is calculated for each of the periods presented with the reconciliation to net income. EBITDA is defined as net earnings before interest expense, income taxes, depreciation and amortization on a historical basis.

We present adjusted EBITDA for several reasons. Management believes adjusted EBITDA is useful as a means to evaluate our ability to fund our estimated uses of cash (including interest on our debt). In addition, we have presented adjusted EBITDA to investors in the past because it is frequently used by investors, securities analysts and other interested parties in the evaluation of companies in our industry, and management believes presenting it here provides a measure of consistency in our financial reporting. Adjusted EBITDA, referred to as Available Cash in our credit agreement, is also a component of the restrictive covenants and financial ratios contained in our credit agreement that requires us to maintain compliance with these covenants and limit certain activities, such as our ability to incur debt. The definitions in these covenants and ratios are based on adjusted EBITDA after giving effect to specified charges. In addition, adjusted EBITDA provides our board of directors with meaningful information, with other data, assumptions and considerations, to measure our ability to service and repay debt. We present the related “total net debt to last 12 month adjusted EBITDA ratio” or “Net debt leverage ratio” principally to help investors understand how we measure leverage and facilitate comparisons by investors, security analysts and others. This ratio differs in certain respects from the similar ratio used in our credit agreement 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 communication 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. These risks and uncertainties include a number of factors related to our business, including the uncertainties relating to the impact of the novel coronavirus (COVID-19) pandemic on the Company’s business, results of operations, cash flows, stock price and employees; the possibility that any of the anticipated benefits of the strategic investment from Searchlight Capital Partners, L.P. or our refinancing of outstanding debt, including our senior secured credit facilities, or of the proposed sales of the limited partnership interests will not be realized; the ability to meet closing conditions to the proposed sales of the limited partnership interests on a timely basis or at all; the anticipated use of proceeds of the strategic investment or the proposed sales of the limited partnership interests; the outcome of any legal proceedings that may be instituted against the Company or its directors; economic and financial market conditions generally and economic conditions in our service areas; 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 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 or failure to consummate acquisitions or dispositions; system failures; cyber-attacks, information or security breaches or technology failure of ours or of a third party; 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; new or changing tax laws or regulations; 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; liability and compliance costs regarding environmental regulations; risks associated with discontinuing paying dividends on our common stock; and the potential for the rights of our series A preferred stock to negatively impact our cash flow. 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 (“SEC”), 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 the Company 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 communication. 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 SEC, 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.

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