Part I [Business](index=3&type=section&id=Item%201.%20Business) Consolidated Communications is a broadband and business communications provider focused on fiber network expansion and diversified revenue streams [Business Overview and Strategy](index=3&type=section&id=Item%201.%20Business.Description%20of%20Our%20Business) The company is executing a five-year plan to upgrade 1.6 million premises to FTTP, supported by a $425 million strategic investment - The company is executing a five-year plan to upgrade approximately **1.6 million** residential and small business premises to fiber-to-the-home/premise (FTTP), enabling multi-Gig symmetrical speeds. In 2021, approximately **330,000** locations were upgraded, with plans for an additional **400,000** in 2022[10](index=10&type=chunk)[29](index=29&type=chunk) - A strategic investment from Searchlight Capital Partners, totaling **$425.0 million**, is providing the capital to accelerate this fiber expansion and growth plan[8](index=8&type=chunk)[12](index=12&type=chunk) - In November 2021, the company launched Fidium Fiber, its new consumer product brand for Gigabit fiber services, as part of its broadband-first strategy[10](index=10&type=chunk)[28](index=28&type=chunk) [Sources of Revenue and Key Statistics](index=5&type=section&id=Item%201.%20Business.Sources%20of%20Revenue) Revenue is diversified across commercial, consumer, subsidies, and network access, with declining voice/video offset by broadband growth Operating Revenues by Source (2019-2021) | (In millions) | 2021 $ | % of Revenues | 2020 $ | % of Revenues | 2019 $ | % of Revenues | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Commercial and carrier:** | | | | | | | | Data and transport services | 362.3 | 28.3% | 362.1 | 27.8% | 355.3 | 26.6% | | Voice services | 171.8 | 13.4% | 181.7 | 13.9% | 188.3 | 14.1% | | Other | 41.6 | 3.2% | 45.1 | 3.5% | 52.9 | 4.0% | | **Total Commercial and carrier** | **575.7** | **44.9%** | **588.9** | **45.2%** | **596.5** | **44.6%** | | **Consumer:** | | | | | | | | Broadband (Data and VoIP) | 269.3 | 21.0% | 263.1 | 20.1% | 257.1 | 19.2% | | Video services | 65.1 | 5.1% | 74.3 | 5.7% | 81.4 | 6.1% | | Voice services | 160.7 | 12.5% | 170.5 | 13.1% | 180.8 | 13.5% | | **Total Consumer** | **495.1** | **38.6%** | **507.9** | **38.9%** | **519.3** | **38.9%** | | Subsidies | 69.8 | 5.4% | 72.0 | 5.5% | 72.4 | 5.4% | | Network access | 120.5 | 9.4% | 125.3 | 9.6% | 138.1 | 10.3% | | Other products and services | 21.1 | 1.6% | 9.9 | 0.8% | 10.2 | 0.8% | | **Total operating revenues** | **1,282.2** | **100.0%** | **1,304.0** | **100.0%** | **1,336.5** | **100.0%** | Key Operating Statistics (as of December 31) | | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Consumer customers | 516,949 | 554,763 | 582,818 | | Consumer data connections | 384,564 | 401,357 | 417,410 | | Consumer voice connections | 328,849 | 370,660 | 404,943 | | Video connections | 63,447 | 76,041 | 84,171 | - The company recognized income of **$41.8 million**, **$40.7 million**, and **$37.7 million** in 2021, 2020, and 2019, respectively, from its five wireless partnership investments[25](index=25&type=chunk) [Network Architecture and Technology](index=8&type=section&id=Item%201.%20Business.Network%20Architecture%20and%20Technology) The company operates a 52,400-mile 100% fiber backbone network, connecting over 2.7 million homes and 14,981 commercial buildings - As of December 31, 2021, the fiber-optic network consisted of over **52,400 route-miles**, passing more than **2.7 million** homes[26](index=26&type=chunk) - The network has direct fiber connections to **14,981** on-net commercial building locations and supports **3,628** cell sites for wireless carriers[26](index=26&type=chunk) [Regulatory Environment](index=12&type=section&id=Item%201.%20Business.Regulatory%20Environment) The company operates in a highly regulated environment, facing a $42.2 million reduction in federal subsidies from the RDOF transition - The company's participation in the FCC's Rural Digital Opportunity Fund (RDOF) auction will result in a reduction of approximately **$42.2 million** in annual support beginning January 1, 2022[52](index=52&type=chunk)[96](index=96&type=chunk)[119](index=119&type=chunk) - The company received annual support of **$48.1 million** through the FCC's CAF Phase II funding through 2021, which required building out broadband to approximately **124,500** locations by December 31, 2020[52](index=52&type=chunk)[127](index=127&type=chunk) - The company is participating in the Affordable Connectivity Program (ACP), which replaces the Emergency Broadband Benefit (EBB) and provides discounts on internet service for eligible households[61](index=61&type=chunk)[134](index=134&type=chunk) [Risk Factors](index=16&type=page&id=Item%201A.%20Risk%20Factors) The company faces significant risks including intense competition, reduced federal subsidies, substantial debt, and labor contract expirations - The company faces intense competition from other local telephone companies, cable operators, wireless carriers, and OTT providers, which could lead to loss of customers, revenue, and market share[65](index=65&type=chunk)[67](index=67&type=chunk) - A significant portion of revenues comes from federal and state support funds (USF/CAF), and the transition to the Rural Digital Opportunity Fund (RDOF) will result in a reduction of approximately **$42.2 million** in annual support beginning in 2022[71](index=71&type=chunk) - As of December 31, 2021, the company had **$2.1 billion** of debt outstanding. This substantial indebtedness could require a large portion of cash flow for debt service, limiting funds for operations and capital expenditures[76](index=76&type=chunk) - Approximately **48%** of employees are covered by collective bargaining agreements, with contracts covering **41%** of employees set to expire in 2022, posing a risk of work stoppages or increased labor costs[73](index=73&type=chunk) [Properties](index=25&type=section&id=Item%202.%20Properties) The company owns its corporate headquarters and various operational facilities, including extensive fiber and cable network infrastructure - The company owns its corporate headquarters in Mattoon, Illinois, and owns and leases numerous other facilities necessary for its operations[85](index=85&type=chunk) - Property consists of central office equipment, customer premises equipment, outside plant facilities (poles, cable, fiber), vehicles, and other equipment[85](index=85&type=chunk) [Legal Proceedings](index=25&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in routine industry litigation, with management not expecting a material adverse financial impact - The company is subject to routine litigation and regulatory issues common in its industry[86](index=86&type=chunk) - Management does not expect any ongoing legal matters to have a material adverse impact on the company's financial results[86](index=86&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=26&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Consolidated's common stock trades on NASDAQ, with recent share repurchases and historical underperformance against market indices - The company's common stock is traded on the NASDAQ under the symbol 'CNSL'[89](index=89&type=chunk) Share Repurchases (Q4 2021) | Purchase period | Total number of shares purchased | Average price paid per share | | :--- | :--- | :--- | | October 1-October 31, 2021 | — | — | | November 1-November 30, 2021 | — | — | | December 1-December 31, 2021 | 219,067 | $ 7.85 | - The company's 5-year cumulative total return of **$36.37** on a **$100** investment significantly underperformed the S&P 500 (**$233.41**) and the NASDAQ Telecommunications Index (**$174.78**)[93](index=93&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=28&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Total operating revenues decreased 2% in 2021, resulting in a net loss primarily due to non-cash charges and increased capital expenditures [Results of Operations](index=31&type=section&id=Item%207.%20MD%26A.Results%20of%20Operations) Total operating revenues decreased 2% in 2021, leading to a net loss of $106.7 million primarily due to non-cash charges Financial Highlights (2021 vs. 2020) | Metric (In millions) | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Total operating revenues | $1,282.2 | $1,304.0 | (2)% | | Income from operations | $135.2 | $135.5 | (0)% | | Net income (loss) | $(106.7) | $37.3 | (386)% | | Adjusted EBITDA (Non-GAAP) | $506.9 | $529.2 | (4)% | - The significant net loss in 2021 was primarily driven by a non-cash loss of **$86.5 million** from the change in fair value of contingent payment rights and a **$17.1 million** loss on debt extinguishment[105](index=105&type=chunk)[140](index=140&type=chunk) - Consumer broadband revenue increased by **$6.2 million (2%)** in 2021, while consumer voice and video revenues decreased by **$9.8 million (6%)** and **$9.2 million (12%)**, respectively, reflecting a shift in product mix[105](index=105&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Item%207.%20MD%26A.Liquidity%20and%20Capital%20Resources) Net cash from operations decreased, while capital expenditures surged to $480.3 million for fiber expansion, with total debt at $2.16 billion Cash Flow Summary (In thousands) | Cash flows provided by (used in): | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Operating activities | $ 318,867 | $ 364,980 | $ 339,096 | | Investing activities | $ (586,443) | $ (210,066) | $ (217,819) | | Financing activities | $ 211,650 | $ (11,748) | $ (118,481) | - Capital expenditures increased significantly to **$480.3 million** in 2021 from **$217.6 million** in 2020, primarily to fund the fiber expansion plan. 2022 capex is projected to be between **$475.0 million** and **$495.0 million**[153](index=153&type=chunk) Indebtedness as of Dec 31, 2021 (In thousands) | Debt Instrument | Balance | Maturity Date | | :--- | :--- | :--- | | 6.50% Senior Notes | $ 750,000 | Oct 1, 2028 | | 5.00% Senior Notes | $ 400,000 | Oct 1, 2028 | | Term loans, net of discount | $ 989,567 | Oct 2, 2027 | | Finance leases | $ 24,990 | Various | | **Total** | **$ 2,164,557** | | [Critical Accounting Estimates](index=46&type=section&id=Item%207.%20MD%26A.Critical%20Accounting%20Estimates) Key estimates include goodwill impairment testing, deferred income taxes, and significant assumptions for pension and post-retirement benefit obligations - Goodwill, with a carrying value of **$1,013.2 million** at year-end 2021, is tested for impairment annually. The 2021 qualitative assessment concluded that fair value was more likely than not greater than the carrying value[184](index=184&type=chunk)[263](index=263&type=chunk) - Pension and post-retirement benefit calculations rely on critical assumptions. For 2021, the weighted-average discount rate for pension obligations was **3.05%** and the expected long-term rate of return on plan assets was **6.00%**[190](index=190&type=chunk)[177](index=177&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate fluctuations on variable-rate debt, managed through interest rate swaps - The company's main market risk is interest rate changes on its variable-rate debt. A hypothetical **1.00%** increase in market interest rates would raise annual interest expense by about **$1.8 million**[194](index=194&type=chunk) - The company uses interest rate swap agreements to hedge against interest rate volatility. At December 31, 2021, the fair value of these swaps was a liability of **$12.8 million**[194](index=194&type=chunk) [Financial Statements and Supplementary Data](index=49&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements and the independent auditor's unqualified opinion on financial statements and internal controls - The Report of Independent Registered Public Accounting Firm, Ernst & Young LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[204](index=204&type=chunk)[227](index=227&type=chunk) - The auditor identified the valuation of Defined Benefit Pension and Other Post-Retirement Benefit Obligations as a Critical Audit Matter due to the highly judgmental nature of the discount rate assumptions used in the measurement process[229](index=229&type=chunk)[232](index=232&type=chunk) [Controls and Procedures](index=49&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management and auditors concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[195](index=195&type=chunk) - Management's report on internal control over financial reporting concluded that controls were effective as of December 31, 2021, an assessment audited and affirmed by Ernst & Young LLP[197](index=197&type=chunk)[199](index=199&type=chunk)[204](index=204&type=chunk) Part III [Directors, Executive Compensation, and Corporate Governance](index=52&type=section&id=Item%2010%2C%2011%2C%2012%2C%2013%2C%2014) Information on directors, executive compensation, and corporate governance is incorporated by reference from the forthcoming proxy statement - Information regarding directors, executive compensation, security ownership, and other governance matters is incorporated by reference from the company's forthcoming proxy statement[211](index=211&type=chunk)[212](index=212&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=53&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K, including corporate governance and debt agreements - This section contains a list of all exhibits filed with the 10-K, including the company's certificate of incorporation, bylaws, debt indentures, and executive compensation plans[215](index=215&type=chunk)[216](index=216&type=chunk)

Financial Data and Key Metrics Changes - Operating revenue for Q4 2021 totaled $318.5 million, down 2.3% year-over-year [18] - Adjusted EBITDA was $126.2 million, resulting in a 39.6% adjusted EBITDA margin for the quarter [18] - Capital expenditures for Q4 were $176.3 million, totaling $515.8 million for the year [18][19] - Net debt leverage was 3.78 times as of December 31, slightly up from the end of Q3 [26] Business Line Data and Key Metrics Changes - Consumer channel revenue was $121.9 million, down 2.7% year-over-year, with broadband growth contributing to a 1.1% increase in consumer broadband revenue [20][21] - Commercial and carrier revenue totaled $143.3 million, down 4.3%, with data and transport revenue at $90.1 million, down 2.9% year-over-year [22][23] - Fiber net additions reached 4,500 in Q4, with a total of 15,500 fiber net additions in the first year of the build plan [7][11] Market Data and Key Metrics Changes - The company upgraded 330,700 fiber passings in 2021, doubling fiber coverage to 22% of addressable markets [11] - The fiber build plan aims to upgrade 1.6 million locations, or 70% of the total footprint, by 2025 [11][32] - The company is positioned to capitalize on government programs and broadband infrastructure grants, recently receiving $18.3 million for fiber expansion in Maine [12] Company Strategy and Development Direction - The company is focused on a fiber-first strategy, with a five-year plan to expand fiber services and improve customer experience [4][32] - The launch of the Fidium fiber brand aims to simplify broadband offerings and enhance customer acquisition [6][32] - The strategy includes leveraging unique fiber assets for commercial and carrier data transport growth, targeting long-term relationships with businesses [13][15] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth plan and the potential for significant returns in markets with limited competition [20] - The company anticipates 2022 to be a pivotal year for EBITDA growth, with expectations of net positive fiber net adds [30][52] - Management highlighted the importance of executing the fiber expansion plan and maintaining a disciplined capital allocation strategy [34] Other Important Information - The company announced the sale of its Kansas City assets, expected to close in the second half of 2022, with estimated net proceeds of approximately $90 million [27][28] - The Kansas City market is considered highly competitive, and the divestiture aligns with the company's capital allocation plan [28] - The company ended the year with over $460 million in liquidity, providing flexibility for its build plan [27] Q&A Session Summary Question: Update on government funding and margin trajectory - Management is assessing opportunities for government funding and believes Q1 2022 will likely be the low point for EBITDA margins [37][39] Question: Full-year EBITDA contribution from Kansas City assets - The Kansas City assets are expected to contribute between $3 to $4 million for Q4, with annualizing that figure for full-year impact [41][42] Question: Labor costs and leverage expectations - Management indicated that 2022 is expected to be the high point for leverage, with confidence in EBITDA growth and margin expansion [49][52] Question: Liquidity profile and cash flow expectations - Management expressed confidence in the liquidity position and the ability to execute the growth plan despite potential working capital uses [57][60] Question: Stranded costs from divested assets - There may be some stranded costs associated with the divestitures, but management is focused on managing these costs over time [61]

Financial Data and Key Metrics Changes - Operating revenue for Q3 2021 totaled $318.6 million, down 2.6% year-over-year, primarily due to declines in legacy products for voice, video, and network access, partially offset by growth in strategic revenues for data and transport and consumer broadband services [23][24] - Adjusted EBITDA was $127.4 million, representing a 40% adjusted EBITDA margin for the quarter [23] - Consumer broadband revenue was $68.6 million, up approximately 1% sequentially and up 2.1% year-over-year, marking the tenth consecutive quarter of year-over-year growth in broadband revenue [24][25] Business Line Data and Key Metrics Changes - Total consumer revenue was $125.4 million, down 2.4% year-over-year, with over 75% of the decline attributed to linear video services [24] - Data and transport revenue in the commercial and carrier segment totaled $91.1 million, up approximately 1.1% year-over-year, indicating continued growth in this area [31] - Commercial voice revenue declined by $2.7 million or 6% due to access declines and migration to VoIP solutions [31] Market Data and Key Metrics Changes - The company upgraded 97,000 passings to fiber Gig capable service in Q3 2021, with a total of 219,000 upgrades year-to-date, on track to exceed the target of 300,000 fiber upgrades for the year [9][10] - Fiber gig subscriber base increased by over 20% year-to-date, with more than 4,000 net one gig subscribers added in Q3 [12][26] - The total fiber gig plus penetration at the end of Q3 was 13%, measured on total inventory, including recently upgraded passings [27] Company Strategy and Development Direction - The company is focused on a multiyear value creation fiber expansion plan, aiming to upgrade 1.6 million passings by the end of 2025, which represents over 70% of total passings [10][44] - A new brand launch is expected to enhance customer experience and offer superior gig symmetrical speeds, with no data caps and competitive pricing [14][18] - The strategy includes leveraging fiber network investments to grow commercial and carrier data transport revenue, with a focus on Ethernet and 5G network opportunities [22][44] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about business recovery from the pandemic and the receptiveness of customers to in-person meetings [22] - The company anticipates a step down in revenue and margins in 2022 due to the decline in CAF 2 revenue, but expects to show sequential growth later in the year and full-year growth in 2023 [55][56] - The management highlighted the importance of public/private partnerships to maximize infrastructure funding opportunities [60][62] Other Important Information - Capital expenditures for Q3 totaled $144.3 million, with year-to-date CapEx at $339.5 million, reflecting proactive measures to secure fiber materials amid supply chain challenges [37][39] - The company recorded a non-cash pretax loss of $5.7 million on assets held for sale, related to the sale of non-core Ohio assets for approximately $26 million [34] Q&A Session Summary Question: Customer mix in terms of net ads from existing DSL customers versus new relationships - Management indicated that the mix started at 60% new and 40% upgrades, now shifting to 80% new and 20% upgrades as they exit Q3 [46] Question: Supply chain concerns and CapEx guidance - Management confirmed they are seeing supply constraints and have increased inventory, pulling forward some 2022 CapEx to 2021 due to anticipated supply chain issues [51][54] Question: Tailwinds or headwinds for 2022 EBITDA outlook - Management noted infrastructure funding as a potential tailwind and emphasized the importance of public/private partnerships to maximize opportunities [60][62]

Investment and Financing - Searchlight Capital Partners committed to invest up to $425.0 million, enabling the company to enhance its fiber infrastructure and upgrade approximately 1.6 million passings over the next five years[27]. - The company has received a total investment commitment of $425 million from Searchlight, with $350 million already invested, representing approximately 24.5% of the company's outstanding common stock[57][59]. - The second stage of the investment from Searchlight, amounting to an additional $75 million, is expected to close later this year, pending regulatory approvals[58][60]. - The company completed a refinancing of long-term debt, issuing $2,250 million in new secured debt[155]. - The company issued $400 million of 5.00% Senior Notes due 2028 on March 18, 2021, to repay a portion of outstanding Term Loans[93]. - The company incurred a loss of $12.0 million on the extinguishment of debt related to the repayment of $397.0 million of outstanding term loans during the nine months ended September 30, 2021[211]. Revenue and Earnings - Total operating revenues for the quarter ended September 30, 2021, were $318.584 million, a decrease from $327.066 million in the same quarter of 2020[44]. - For the quarter ended September 30, 2021, the company reported a net loss of $4.481 million compared to a net income of $14.582 million for the same quarter in 2020[56]. - The diluted earnings per share (EPS) for the quarter was $(0.05), a decrease from $0.20 in the same quarter of the previous year[56]. - Adjusted EBITDA for the quarter was $127.4 million, down $4.8 million (4%) from $132.2 million in the previous year[165]. - EBITDA for Q3 2021 was $117.4 million, down from $131.0 million in Q3 2020; nine-month EBITDA was $245.9 million, compared to $397.3 million in the same period in 2020[222]. - Adjusted EBITDA for Q3 2021 was $127.4 million, slightly down from $132.2 million in Q3 2020; nine-month adjusted EBITDA was $380.7 million, compared to $396.9 million in 2020[222]. Assets and Liabilities - Accounts receivable, net, increased to $133.524 million as of September 30, 2021, compared to $119.076 million as of September 30, 2020[45]. - Contract liabilities rose to $62.210 million as of September 30, 2021, from $56.086 million as of September 30, 2020[45]. - As of September 30, 2021, the company held $154.963 million in short-term investments, primarily in held-to-maturity debt securities[66]. - Long-term debt increased to $2.115 billion as of September 30, 2021, compared to $1.933 billion at December 31, 2020[81]. - The fair value of long-term debt, excluding finance leases, was $2.225 billion as of September 30, 2021, compared to $2.040 billion at December 31, 2020[78]. - The estimated fair value of the contingent payment obligation (CPR) was $105.8 million as of September 30, 2021, down from $123.2 million at the end of 2020[75]. Operational Performance - The company plans to upgrade approximately 300,000 homes and small businesses in 2021 as part of its fiber build plan[27]. - The company plans to upgrade approximately 1.6 million passings over five years to enable multi-Gig capable services[147]. - The company operates an advanced fiber network spanning approximately 50,000 fiber route miles across a 23-state service area, focusing on broadband and business communications[142]. - Commercial and carrier services are the largest source of operating revenues and are expected to be key growth areas in the future[143]. - Total video connections decreased by 14% as of September 30, 2021, compared to the same date in 2020[148]. - Total voice connections decreased by 7% as of September 30, 2021, compared to 2020[149]. Tax and Regulatory Matters - The effective tax rate for the quarter ended September 30, 2021, was 1,047.9%, significantly higher than 23.9% for the same quarter in 2020, primarily due to non-cash adjustments related to the Searchlight and Ohio transactions[131]. - The company has reserved $0.8 million and $1.6 million for potential additional tax liabilities related to ongoing audits for its subsidiaries[135]. - The company does not expect any material change in its unrecognized tax benefits during the remainder of 2021, which stood at $4.9 million as of September 30, 2021[125]. Impairments and Losses - The company recognized an impairment loss of $5.7 million during the quarter and nine months ended September 30, 2021, related to assets held for sale[36]. - The company recognized a loss of $99.6 million on the increase in the fair value of the contingent payment right (CPR) during the nine months ended September 30, 2021[63]. - The company recorded a $5.7 million impairment loss related to noncash goodwill during the quarter due to the Ohio transaction[218]. Cash Flow and Investments - Cash flows from operating activities for the nine months ended September 30, 2021, were $295.98 million, compared to $297.35 million in the same period in 2020[225]. - Cash used in investing activities for the nine months ended September 30, 2021, was $(493.13) million, significantly higher than $(144.81) million in 2020[225]. - Cash provided by financing activities for the nine months ended September 30, 2021, was $140.27 million, compared to $(65.21) million in the same period in 2020[225].

Cowen 7th Annual Communications Infrastructure Summit Aug. 10, 2021 NASDAQ: CNSL | www.consolidated.com 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 communication are forward-looking statements and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. These ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides the company's unaudited condensed consolidated financial statements and related notes [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents unaudited condensed consolidated financial statements, including statements of operations, balance sheets, cash flows, and detailed notes on accounting policies, revenue, debt, and equity [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported a net loss for Q2 and 6M 2021, a decline from prior year net income, driven by increased interest expense, debt extinguishment losses, and contingent payment rights fair value changes Condensed Consolidated Statements of Operations (Amounts in thousands except per share amounts) | Metric (in thousands) | Q2 2021 | Q2 2020 | 6M 2021 | 6M 2020 | | :-------------------- | :------ | :------ | :------ | :------ | | Net revenues | $320,403 | $325,176 | $645,169 | $650,838 | | Income from operations | $30,015 | $39,780 | $68,341 | $77,132 | | Interest expense, net | $(45,431) | $(31,459) | $(93,846) | $(63,554) | | Loss on extinguishment of debt | $(5,121) | — | $(17,101) | $234 | | Change in fair value of contingent payment rights | $(39,826) | — | $(97,414) | — | | Net income (loss) | $(55,089) | $13,935 | $(117,172) | $29,558 | | Net income (loss) per basic and diluted common shares | $(0.71) | $0.19 | $(1.51) | $0.40 | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) The company reported a total comprehensive loss attributable to common shareholders of $(51.8) million for Q2 2021 and $(109.9) million for the six months ended June 30, 2021, a significant decrease from comprehensive income in the prior year, primarily due to the net loss and changes in derivative fair values Condensed Consolidated Statements of Comprehensive Income (Loss) (Amounts in thousands) | Metric (in thousands) | Q2 2021 | Q2 2020 | 6M 2021 | 6M 2020 | | :-------------------- | :------ | :------ | :------ | :------ | | Net income (loss) | $(55,089) | $13,935 | $(117,172) | $29,558 | | Total comprehensive income (loss) attributable to common shareholders | $(51,772) | $16,289 | $(109,960) | $21,836 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2021, total assets increased to $3.69 billion from $3.51 billion at December 31, 2020, driven by increases in cash, short-term investments, and property, plant and equipment. Total liabilities also increased significantly to $3.40 billion from $3.12 billion, mainly due to higher long-term debt and contingent payment rights Condensed Consolidated Balance Sheets (Amounts in thousands) | Metric (in thousands) | June 30, 2021 | December 31, 2020 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Total assets | $3,686,800 | $3,507,300 | +$179,500 | | Total liabilities | $3,403,306 | $3,118,072 | +$285,234 | | Total shareholders' equity | $283,494 | $389,228 | $(105,734) | | Cash and cash equivalents | $199,314 | $155,561 | +$43,753 | | Short-term investments | $89,967 | — | +$89,967 | | Long-term debt and finance lease obligations | $2,113,269 | $1,932,666 | +$180,603 | | Contingent payment rights | $220,655 | $123,241 | +$97,414 | [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity) Total shareholders' equity decreased from $389.2 million at December 31, 2020, to $283.5 million at June 30, 2021, primarily due to a net loss of $(151.9) million for the period, partially offset by increases in additional paid-in capital from share-based compensation and other comprehensive income Changes in Shareholders' Equity (Amounts in thousands) | Metric (in thousands) | Balance at Dec 31, 2020 | Shares issued under employee plan, net of forfeitures | Non-cash, share-based compensation | Other comprehensive income (loss) | Net income (loss) | Balance at June 30, 2021 | | :-------------------- | :---------------------- | :---------------------------------------------------- | :--------------------------------- | :-------------------------------- | :---------------- | :----------------------- | | Common Stock Amount | $792 | $8 | — | — | — | $809 | | Additional Paid-in Capital | $525,673 | $(8) | $2,493 | — | — | $529,599 | | Accumulated Deficit | $(34,514) | — | — | — | $(151,969) | $(151,969)$ | | Accumulated Other Comprehensive Loss, net | $(109,418)$ | — | — | $7,495 | — | $(101,923)$ | | Noncontrolling Interest | $6,695 | — | — | — | $283 | $6,978 | | Total | $389,228 | — | $2,493 | $7,495 | $(151,969)$ | $283,494 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities increased slightly to $185.8 million for the six months ended June 30, 2021. However, net cash used in investing activities significantly increased to $283.9 million, primarily due to higher capital expenditures and short-term investment purchases. Net cash provided by financing activities was $141.8 million, a reversal from a net use in the prior year, driven by bond offerings and long-term debt issuance Condensed Consolidated Statements of Cash Flows (Amounts in thousands) | Cash Flow Activity (in thousands) | 6M 2021 | 6M 2020 | Change | | :-------------------------------- | :------ | :------ | :------ | | Net cash provided by operating activities | $185,831 | $181,721 | +$4,110 | | Net cash used in investing activities | $(283,876) | $(89,738) | $(194,138) | | Net cash provided by (used in) financing activities | $141,798 | $(58,502) | +$200,300 | | Change in cash and cash equivalents | $43,753 | $33,481 | +$10,272 | | Cash and cash equivalents at end of period | $199,314 | $45,876 | +$153,438 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, revenue, EPS, Searchlight investment, fair value, debt, derivatives, leases, equity, pension benefits, income taxes, and commitments [1. Summary of Significant Accounting Policies](index=9&type=section&id=1.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) The company provides communication solutions across 23 states, leveraging a 50,000-mile fiber network. Recent developments include a $425 million investment commitment from Searchlight Capital Partners and ongoing monitoring of COVID-19 impacts, which have not materially affected financial results to date. The company adopted new accounting standards (ASU 2020-06 and ASU 2019-12) in January 2021, neither of which had a material impact - Consolidated Communications Holdings, Inc. provides communication solutions to consumer, commercial, and carrier customers across a 23-state service area, utilizing an advanced fiber network spanning approximately **50,000 fiber route miles**[24](index=24&type=chunk)[25](index=25&type=chunk) - Searchlight Capital Partners committed to invest up to **$425.0 million** in the Company, structured in two stages, with the first stage completed on October 2, 2020[27](index=27&type=chunk) - The COVID-19 pandemic has not had a significant adverse impact on financial results to date, but the company continues to monitor potential future impacts. The CARES Act and American Rescue Plan Act of 2021 did not materially impact consolidated financial statements[28](index=28&type=chunk)[30](index=30&type=chunk) Allowance for Credit Losses (ACL) Activity (In thousands) | Metric (in thousands) | 2021 | 2020 | | :-------------------- | :--- | :--- | | Balance at beginning of year | $9,136 | $4,549 | | Provision charged to expense | $4,282 | $4,565 | | Write-offs, less recoveries | $(2,884) | $(3,290) | | Balance at end of year | $10,534 | $5,968 | [2. Revenue](index=12&type=section&id=2.%20REVENUE) Revenue is disaggregated across commercial and carrier, consumer, subsidies, network access, and other products/services. Total operating revenues decreased slightly to $320.4 million for Q2 2021 and $645.2 million for 6M 2021 compared to prior year periods. Commercial and carrier data and transport services showed growth, while voice and video services declined across both segments Operating Revenues (In thousands) | Operating Revenues (in thousands) | Q2 2021 | Q2 2020 | 6M 2021 | 6M 2020 | | :-------------------------------- | :------ | :------ | :------ | :------ | | Commercial and carrier: Data and transport services | $90,813 | $89,572 | $181,161 | $179,144 | | Commercial and carrier: Voice services | $43,461 | $45,775 | $87,740 | $91,495 | | Consumer: Broadband (VoIP and Data) | $67,981 | $65,567 | $133,736 | $129,643 | | Consumer: Video services | $16,799 | $19,213 | $33,580 | $38,344 | | Consumer: Voice services | $40,173 | $43,121 | $80,593 | $86,297 | | Subsidies | $17,465 | $18,069 | $34,804 | $36,523 | | Network access | $31,115 | $30,473 | $62,718 | $61,938 | | Other products and services | $3,110 | $2,980 | $11,632 | $5,336 | | Total operating revenues | $320,403 | $325,176 | $645,169 | $650,838 | Contract Assets and Liabilities (In thousands) | Metric (in thousands) | June 30, 2021 | June 30, 2020 | | :-------------------- | :------------ | :------------ | | Accounts receivable, net | $128,601 | $116,493 | | Contract assets | $21,874 | $20,130 | | Contract liabilities | $55,023 | $50,296 | [3. Earnings (Loss) Per Share](index=14&type=section&id=3.%20EARNINGS%20%28LOSS%29%20PER%20SHARE) The company reported a basic and diluted EPS loss of $(0.71) for Q2 2021 and $(1.51) for 6M 2021, compared to positive EPS in the prior year periods. Dilutive securities were excluded from loss per share calculations as their inclusion would be anti-dilutive Earnings (Loss) Per Share (Amounts in thousands, except per share amounts) | Metric | Q2 2021 | Q2 2020 | 6M 2021 | 6M 2020 | | :-------------------------------------------------------------------------------- | :------ | :------ | :------ | :------ | | Net income (loss) attributable to common shareholders, after earnings allocated to participating securities | $(55,356) | $13,480 | $(117,455) | $28,780 | | Weighted-average number of common shares outstanding | 78,029 | 71,153 | 78,029 | 71,153 | | Net income (loss) per common share attributable to common shareholders - basic and diluted | $(0.71) | $0.19 | $(1.51) | $0.40 | - Diluted EPS for Q2 and 6M 2021 excludes **20.4 million** and **19.9 million** potential common shares, respectively, due to their anti-dilutive effect[50](index=50&type=chunk) [4. Searchlight Investment](index=15&type=section&id=4.%20SEARCHLIGHT%20INVESTMENT) Searchlight Capital Partners committed **$425.0 million** in two stages; the first stage is complete, the CPR converted to shares, and the second stage is pending FCC approval - Searchlight Capital Partners committed to invest up to **$425.0 million** in the Company, structured in two stages. The first stage involved **$350.0 million** for common stock and a Contingent Payment Right (CPR)[53](index=53&type=chunk) - On July 16, 2021, the CPR was converted into **17,870,012 shares** of common stock, representing approximately **16.9%** of the Company's common stock, following regulatory and shareholder approvals[55](index=55&type=chunk) Fair Value of Contingent Payment Rights (In thousands) | Metric (in thousands) | June 30, 2021 | December 31, 2020 | | :-------------------- | :------------ | :---------------- | | Estimated fair value of CPR | $220,700 | $123,200 | | Loss on increase in fair value of CPR (Q2 2021) | $39,800 | — | | Loss on increase in fair value of CPR (6M 2021) | $97,400 | — | - The unsecured subordinated note bears interest at **9.0%** per annum, payable semi-annually, with a paid-in-kind (PIK) option for five years, which the Company intends to exercise through at least 2022[60](index=60&type=chunk) [5. Investments](index=16&type=section&id=5.%20INVESTMENTS) The company holds held-to-maturity debt securities, investments at cost (minority positions in cellular partnerships and CoBank stock), and equity method investments (significant influence in cellular partnerships). Cash distributions from cost and equity method investments totaled $10.4 million and $11.6 million, respectively, for the six months ended June 30, 2021 Investments (In thousands) | Investment Type (in thousands) | June 30, 2021 | December 31, 2020 | | :----------------------------- | :------------ | :---------------- | | Short-term investments: Held-to-maturity debt securities | $89,967 | — | | Long-term investments: Cash surrender value of life insurance policies | $2,666 | $2,536 | | Investments at cost (GTE Mobilnet, Pittsburgh SMSA, CoBank, Other) | $52,590 | $53,555 | | Equity method investments (GTE Mobilnet, Pennsylvania RSA 6(I), Pennsylvania RSA 6(II)) | $54,336 | $55,574 | | Totals | $109,542 | $111,665 | - Cash distributions from investments accounted for at cost (Mobilnet South Partnership, Pittsburgh SMSA Limited Partnership) totaled **$10.4 million** for the six months ended June 30, 2021, up from **$9.2 million** in 2020[65](index=65&type=chunk) - Cash distributions from equity method investments (RSA 17, RSA 6(I), RSA 6(II)) totaled **$11.6 million** for the six months ended June 30, 2021, up from **$10.5 million** in 2020[67](index=67&type=chunk) [6. Fair Value Measurements](index=18&type=section&id=6.%20FAIR%20VALUE%20MEASUREMENTS) Derivative instruments (interest rate swaps) are measured at fair value on a recurring basis and categorized as Level 2. The contingent payment obligation (CPR) is also measured at fair value on a recurring basis, classified as Level 2, with its estimated fair value increasing to $220.7 million at June 30, 2021. Long-term debt fair value is based on market prices and rates, also categorized as Level 2 Interest Rate Swap Liabilities (In thousands) | Metric (in thousands) | June 30, 2021 | December 31, 2020 | | :-------------------- | :------------ | :---------------- | | Current interest rate swap liabilities | $(896) | $(6,297) | | Long-term interest rate swap liabilities | $(18,089) | $(22,958) | | Total | $(18,985) | $(29,255) | - The estimated fair value of the Contingent Payment Right (CPR) was **$220.7 million** as of June 30, 2021, up from **$123.2 million** at December 31, 2020, and is classified as Level 2 within the fair value hierarchy[71](index=71&type=chunk) Long-term Debt Fair Value (In thousands) | Metric (in thousands) | June 30, 2021 Carrying Value | June 30, 2021 Fair Value | Dec 31, 2020 Carrying Value | Dec 31, 2020 Fair Value | | :-------------------- | :--------------------------- | :----------------------- | :-------------------------- | :---------------------- | | Long-term debt, excluding finance leases | $2,138,789 | $2,206,004 | $1,978,694 | $2,039,790 | [7. Long-Term Debt](index=20&type=section&id=7.%20LONG-TERM%20DEBT) Total long-term debt increased to $2.11 billion at June 30, 2021, from $1.93 billion at December 31, 2020. This was primarily due to the issuance of $150.0 million in incremental term loans and $400.0 million in 5.00% Senior Notes, partially offset by a $397.0 million repayment of term loans and a refinancing that reduced the interest rate on term loans. The company was in compliance with all Credit Agreement and Senior Notes covenants as of June 30, 2021 Long-Term Debt (In thousands) | Debt Type (in thousands) | June 30, 2021 | December 31, 2020 | | :----------------------- | :------------ | :---------------- | | Term loans, net | $988,789 | $1,228,694 | | 6.50% Senior notes due 2028 | $750,000 | $750,000 | | 5.00% Senior notes due 2028 | $400,000 | — | | Finance leases | $21,456 | $17,467 | | Total long-term debt | $2,113,269 | $1,932,666 | - The company borrowed an additional **$150.0 million** in incremental term loans on January 15, 2021[79](index=79&type=chunk) - A second amendment to the Credit Agreement on April 5, 2021, refinanced **$999.9 million** of Term Loans, reducing the interest rate to **3.50% plus LIBOR** subject to a **0.75% LIBOR floor** and resulting in a **$5.1 million** loss on extinguishment of debt[81](index=81&type=chunk) - The consolidated first lien leverage ratio was **3.96:1.00** as of June 30, 2021, in compliance with the Credit Agreement covenant (maximum **5.85:1.00**)[85](index=85&type=chunk) [8. Derivative Financial Instruments](index=24&type=section&id=8.%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) The company uses interest rate swaps to manage exposure to interest rate fluctuations, converting floating-rate debt to fixed-rate. As of June 30, 2021, total fair value of these swaps was a net liability of $(19.0) million. The refinancing of the Credit Agreement in April 2021 led to certain critical terms of the swaps no longer matching the variable rate debt, but they were still deemed highly effective Interest Rate Swaps Outstanding (In thousands) | Swap Type | Notional Amount | Fair Value (June 30, 2021) | Fair Value (Dec 31, 2020) | | :-------------------------------- | :-------------- | :------------------------- | :------------------------ | | Fixed to 1-month floating LIBOR (with floor) | $705,000 | $(896) | $(6,297) | | Fixed to 1-month floating LIBOR (with floor) | $500,000 | $(18,089) | $(22,958) | | Total Fair Values | | $(18,985) | $(29,255) | - The total pre-tax unrealized loss related to interest rate swap agreements included in Accumulated Other Comprehensive Income (AOCI) was **$(15.5) million** as of June 30, 2021, with an expected **$8.2 million** loss to be recognized in earnings in the next twelve months[98](index=98&type=chunk) [9. Leases](index=25&type=section&id=9.%20LEASES) The company acts as a lessor for network assets (tower space, colocation, conduit, dark fiber), primarily under operating leases. Sales-type leases, such as indefeasible right of use (IRU) arrangements for dark fiber, are also entered into, with one such arrangement in Q2/6M 2021 not having a material financial impact - The company has various arrangements as a lessor for network assets, including tower space, colocation, conduit, and dark fiber, primarily classified as operating leases[100](index=100&type=chunk) - Sales-type leases, such as indefeasible right of use (IRU) arrangements for dark fiber, are also utilized, with one such arrangement in Q2/6M 2021 not materially impacting financial statements[100](index=100&type=chunk) [10. Equity](index=25&type=section&id=10.%20EQUITY) Shareholders approved an amendment to the Long-Term Incentive Plan, increasing authorized shares for issuance by 5.4 million to approximately 10.05 million. Share-based compensation expense for Q2 2021 was $2.49 million, and total unrecognized compensation cost for non-vested awards was $21.6 million as of June 30, 2021, to be recognized over approximately 1.7 years. Accumulated other comprehensive loss, net, improved to $(101.9) million from $(109.4) million at December 31, 2020 - Shareholders approved an amendment to the Long-Term Incentive Plan, increasing authorized shares for issuance by **5,400,000** to approximately **10,050,000 shares**[101](index=101&type=chunk) Share-Based Compensation Costs (In thousands) | Compensation Type (in thousands) | Q2 2021 | Q2 2020 | 6M 2021 | 6M 2020 | | :------------------------------- | :------ | :------ | :------ | :------ | | Restricted stock | $1,391 | $1,282 | $2,155 | $2,130 | | Performance shares | $1,102 | $1,052 | $1,788 | $1,094 | | Total | $2,493 | $2,334 | $3,943 | $3,224 | - Total unrecognized compensation cost related to non-vested Restricted Stock Awards (RSAs) and Performance Share Awards (PSAs) was **$21.6 million** as of June 30, 2021, to be recognized over a weighted-average period of approximately **1.7 years**[104](index=104&type=chunk) Changes in Accumulated Other Comprehensive Loss, net of tax (In thousands) | Component (in thousands) | Balance at Dec 31, 2020 | Net current period other comprehensive income | Balance at June 30, 2021 | | :----------------------- | :---------------------- | :-------------------------------------------- | :----------------------- | | Pension and Post-Retirement Obligations | $(90,887) | $324 | $(90,563) | | Derivative Instruments | $(18,531) | $7,171 | $(11,360) | | Total | $(109,418) | $7,495 | $(101,923) | [11. Pension Plan and Other Post-Retirement Benefits](index=27&type=section&id=11.%20PENSION%20PLAN%20AND%20OTHER%20POST-RETIREMENT%20BENEFITS) The company sponsors frozen defined benefit pension and post-retirement plans; net periodic pension benefit was a credit of **$(2.99) million** for Q2 2021, with **$20.7 million** expected contributions to Pension Plans in 2021 Net Periodic Pension Cost (In thousands) | Metric (in thousands) | Q2 2021 | Q2 2020 | 6M 2021 | 6M 2020 | | :-------------------- | :------ | :------ | :------ | :------ | | Interest cost | $5,680 | $6,519 | $11,361 | $13,039 | | Expected return on plan assets | $(9,263) | $(8,646) | $(18,526) | $(17,291) | | Net periodic pension benefit | $(2,995) | $(1,785) | $(5,990) | $(3,569) | Net Periodic Post-retirement Cost (In thousands) | Metric (in thousands) | Q2 2021 | Q2 2020 | 6M 2021 | 6M 2020 | | :-------------------- | :------ | :------ | :------ | :------ | | Service cost | $223 | $258 | $445 | $516 | | Interest cost | $657 | $885 | $1,314 | $1,769 | | Net periodic post-retirement cost | $462 | $1,209 | $924 | $2,418 | - Expected contributions for 2021 are approximately **$20.7 million** to Pension Plans and **$8.8 million** to Post-retirement Plans. As of June 30, 2021, **$8.9 million** and **$4.3 million**, respectively, have been contributed[115](index=115&type=chunk)[239](index=239&type=chunk) [12. Income Taxes](index=28&type=section&id=12.%20INCOME%20TAXES) Unrecognized tax benefits were $4.9 million as of June 30, 2021. The company used the discrete effective tax rate method due to uncertainty in estimating annual pretax earnings, resulting in an effective tax rate of (10.9)% for Q2 2021 and (0.1)% for 6M 2021. The Searchlight transaction's non-cash PIK interest expense and fair value adjustments are not recognized for federal income tax purposes, causing permanent adjustments to the effective tax rate - Unrecognized tax benefits were **$4.9 million** as of June 30, 2021, with a net impact of **$4.7 million** to the effective tax rate if recognized[116](index=116&type=chunk) Effective Tax Rate | Period | Effective Tax Rate | Effective Tax Rate (Exclusive of discrete method & Searchlight impact) | | :----- | :----------------- | :------------------------------------------------------------------- | | Q2 2021 | (10.9)% | 24.6% | | Q2 2020 | 23.5% | 23.5% | | 6M 2021 | (0.1)% | 24.5% | | 6M 2020 | 24.0% | 24.0% | - The company uses the discrete effective tax rate method due to high uncertainty in estimating annual pretax earnings, particularly related to the Searchlight transaction's regulatory approval and second closing date[122](index=122&type=chunk)[196](index=196&type=chunk) [13. Commitments and Contingencies](index=29&type=section&id=13.%20COMMITMENTS%20AND%20CONTINGENCIES) The company is involved in litigation, including appeals related to Pennsylvania Gross Receipts Tax assessments for tax years 2010 and 2014-2018, for which $0.8 million for CCPA and $1.6 million for CCES (including interest) have been reserved. Management believes the outcome of these and other legal matters will not have a material adverse impact on financial results or cash flows - The company is appealing Pennsylvania Gross Receipts Tax assessments for tax years **2010** (CCPA) and **2014-2018** (CCPA and CCES)[127](index=127&type=chunk) - Reserves of **$0.8 million** for CCPA and **$1.6 million** for CCES (including interest) have been made for potential additional tax liabilities[127](index=127&type=chunk) - Management does not believe the outcome of current litigation and regulatory proceedings will have a material adverse impact on the company's business, results of operations, financial condition, or cash flows[128](index=128&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=30&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses financial condition, operational results, fiber network expansion, financing, revenue and expense trends, regulatory matters, non-GAAP measures, and liquidity [Overview](index=30&type=section&id=Overview) Consolidated operates a **50,000-mile** fiber network across 23 states, focusing on broadband expansion, with **1.6 million** passings targeted over five years, while video and voice connections decline - Consolidated operates an advanced fiber network spanning approximately **50,000 fiber route miles** across 23 states, offering communication solutions to consumer, commercial, and carrier customers[132](index=132&type=chunk) - The company plans to upgrade approximately **1.6 million passings** over the next five years to enable multi-Gig capable services, including over **1 million** in northern New England, with **300,000** upgrades planned for 2021[137](index=137&type=chunk) - Video connections decreased **12%** and total voice connections decreased **7%** as of June 30, 2021, compared to June 30, 2020, due to changing consumer viewing habits and competition from alternative communication services[138](index=138&type=chunk)[139](index=139&type=chunk)[155](index=155&type=chunk) [Recent Developments](index=34&type=section&id=Recent%20Developments) Recent developments include the ongoing two-stage Searchlight investment, significant long-term debt refinancing, and continued monitoring of COVID-19 impacts, which have not materially affected financial results [Searchlight Investment](index=34&type=section&id=Searchlight%20Investment) Searchlight Capital Partners committed **$425.0 million** in two stages; the first stage is complete, the CPR converted to shares, and the second stage is pending FCC approval - Searchlight Capital Partners committed to invest up to **$425.0 million** in the Company, with **$350.0 million** invested in the first stage (October 2, 2020) for common stock and a Contingent Payment Right (CPR)[142](index=142&type=chunk) - On July 15, 2021, the company received all required state public utility commission regulatory approvals for the conversion of the CPR into **16.9%** additional shares of common stock, which were issued on July 16, 2021[144](index=144&type=chunk) - The second stage of the investment, an additional **$75.0 million**, is expected to close later in 2021, pending FCC approval and other customary closing conditions[144](index=144&type=chunk) [Refinancing of Long-term Debt](index=34&type=section&id=Refinancing%20of%20Long-term%20Debt) The company refinanced **$2.25 billion** in secured debt, extending maturities and reducing interest rates, including new term loans and senior notes, and an amendment to the credit agreement - On October 2, 2020, the company refinanced **$2.25 billion** in secured debt, including a new credit agreement and **$750.0 million** of **6.50%** senior secured notes due 2028[145](index=145&type=chunk)[86](index=86&type=chunk) - In 2021, the company issued an additional **$150.0 million** in incremental term loans and **$400.0 million** in **5.00%** Senior Notes, using the proceeds to repay **$397.0 million** of existing term loans[145](index=145&type=chunk)[87](index=87&type=chunk) - An amendment to the credit agreement on April 5, 2021, refinanced outstanding term loans and reduced the interest rate to **3.50% plus LIBOR** (**0.75% floor**)[145](index=145&type=chunk)[81](index=81&type=chunk) [COVID-19 Pandemic](index=36&type=section&id=COVID-19%20Pandemic) The company implemented safety measures and remote work policies in response to COVID-19, proactively monitoring and augmenting network capacity due to increased demand for data usage. While no significant adverse financial impact has been observed to date, future economic conditions could materially affect results. The CARES Act and American Rescue Plan Act of 2021 did not have a material impact on financial statements - The company implemented safety measures and remote work policies, and augmented network capacity to meet increased data usage demand during the COVID-19 pandemic[147](index=147&type=chunk) - No significant adverse financial impact from COVID-19 has been observed to date, but future economic conditions could materially affect results[148](index=148&type=chunk) - The CARES Act and American Rescue Plan Act of 2021 did not have a material impact on the company's consolidated financial statements[149](index=149&type=chunk) [Results of Operations](index=37&type=section&id=Results%20of%20Operations) Total operating revenues decreased by 1% for both Q2 and 6M 2021 compared to the prior year. Commercial and carrier data and transport services saw modest growth, while voice and video services continued to decline. Operating expenses increased by 2% for Q2 and 1% for 6M 2021, primarily due to higher cost of services and products, partially offset by lower depreciation and amortization. Income from operations decreased significantly by 24% for Q2 and 11% for 6M 2021 Key Financial Data (In millions, except for percentages) | Metric (in millions) | Q2 2021 | Q2 2020 | Q2 Change ($) | Q2 Change (%) | 6M 2021 | 6M 2020 | 6M Change ($) | 6M Change (%) | | :------------------- | :------ | :------ | :------------ | :------------ | :------ | :------ | :------------ | :------------ | | Total operating revenues | $320.4 | $325.1 | $(4.7) | (1)% | $645.2 | $650.8 | $(5.6) | (1)% | | Total operating expenses | $290.4 | $285.4 | $5.0 | 2% | $576.9 | $573.7 | $3.2 | 1% | | Income from operations | $30.0 | $39.7 | $(9.7) | (24)% | $68.3 | $77.1 | $(8.8) | (11)% | Key Operating Statistics (As of June 30) | Metric | 2021 | 2020 | Change | % Change | | :------------------ | :----- | :----- | :----- | :------- | | Consumer customers | 535,070 | 569,148 | (34,078) | (6)% | | Voice connections | 752,240 | 809,457 | (57,217) | (7)% | | Data connections | 796,669 | 791,203 | 5,466 | 1% | | Video connections | 70,795 | 80,053 | (9,258) | (12)% | | Total connections | 1,619,704 | 1,680,713 | (61,009) | (4)% | [Operating Revenues](index=39&type=section&id=Operating%20Revenues) Operating revenues saw varied performance across segments. Commercial and carrier data and transport services experienced growth, while voice and video services for both commercial and consumer segments continued their decline. Subsidies decreased due to state support reductions, but network access revenues slightly increased. Other products and services revenues grew significantly, driven by Public Private Partnership construction projects [Commercial and Carrier](index=39&type=section&id=Commercial%20and%20Carrier) Commercial and carrier data and transport services revenues increased by $1.3 million (Q2) and $2.0 million (6M) due to growth in Metro Ethernet, VoIP, and SD-WAN. Voice services revenues decreased by $2.3 million (Q2) and $3.7 million (6M) due to a 7% decline in access lines. Other services revenues decreased by $0.9 million (Q2) and $2.9 million (6M) primarily due to the expiration of a 9-1-1 service contract in Vermont - Commercial and carrier data and transport services revenues increased by **$1.3 million** (Q2 2021) and **$2.0 million** (6M 2021) primarily due to continued growth in Metro Ethernet, VoIP, and SD-WAN services[157](index=157&type=chunk) - Commercial and carrier voice services revenues decreased by **$2.3 million** (Q2 2021) and **$3.7 million** (6M 2021) due to a **7%** decline in access lines as commercial customers increasingly choose alternative technologies[158](index=158&type=chunk) - Other commercial and carrier services revenues decreased by **$0.9 million** (Q2 2021) and **$2.9 million** (6M 2021) primarily due to the expiration of the 9-1-1 service contract in Vermont and declines in custom construction projects[161](index=161&type=chunk) [Consumer](index=41&type=section&id=Consumer) Consumer broadband services revenues increased by $2.4 million (Q2) and $4.1 million (6M) despite a decrease in data and VoIP connections, driven by price increases and growth in CCiTV. Video services revenues decreased by $2.4 million (Q2) and $4.7 million (6M) due to a 13% decline in connections as consumers shift to streaming. Consumer voice services revenues decreased by $2.9 million (Q2) and $5.7 million (6M) due to a 9% decline in access lines - Consumer broadband services revenues increased by **$2.4 million** (Q2 2021) and **$4.1 million** (6M 2021) due to price increases and growth in CCiTV, despite a decrease in data and VoIP connections[163](index=163&type=chunk) - Consumer video services revenues decreased by **$2.4 million** (Q2 2021) and **$4.7 million** (6M 2021) due to a **13%** decrease in connections as consumers adopt alternative streaming services[165](index=165&type=chunk) - Consumer voice services revenues decreased by **$2.9 million** (Q2 2021) and **$5.7 million** (6M 2021) due to a **9%** decline in access lines, impacted by competition from alternative technologies[166](index=166&type=chunk) [Subsidies](index=41&type=section&id=Subsidies) Subsidies revenues decreased by $0.7 million (Q2) and $1.7 million (6M) primarily due to a reduction in state subsidies support - Subsidies revenues decreased by **$0.7 million** (Q2 2021) and **$1.7 million** (6M 2021) primarily due to a reduction in state subsidies support[167](index=167&type=chunk) [Network Access Services](index=41&type=section&id=Network%20Access%20Services) Network access services revenues increased by $0.6 million (Q2) and $0.7 million (6M) due to increases in the Federal Universal Service Fund Contribution Factor, partially offset by declines in interstate rates, minutes of use, and voice connections - Network access services revenues increased by **$0.6 million** (Q2 2021) and **$0.7 million** (6M 2021) primarily due to increases in the Federal Universal Service Fund Contribution Factor, offset by the continuing decline in interstate rates, minutes of use, and voice connections[169](index=169&type=chunk) [Other Products and Services](index=43&type=section&id=Other%20Products%20and%20Services) Other products and services revenues increased by $0.2 million (Q2) and $6.3 million (6M) primarily due to revenue recognition from Public Private Partnership construction projects in 2021 - Other products and services revenues increased by **$0.2 million** (Q2 2021) and **$6.3 million** (6M 2021) primarily due to revenue recognition of Public Private Partnership construction projects during 2021[171](index=171&type=chunk) [Operating Expenses](index=43&type=section&id=Operating%20Expenses) Operating expenses increased due to higher cost of services and products, driven by fiber costs for Public Private Partnership agreements and early contract termination charges, as well as increased selling, general and administrative costs from advertising. These increases were partially offset by a decline in depreciation and amortization as certain assets became fully depreciated [Cost of Services and Products](index=43&type=section&id=Cost%20of%20Services%20and%20Products) Cost of services and products increased by $5.8 million (Q2) and $12.0 million (6M) due to higher access expense for fiber costs related to Public Private Partnership agreements, a $3.4 million charge for early termination of a fixed wireless services contract, and increased Federal USF contributions, partially offset by lower employee labor costs - Cost of services and products increased by **$5.8 million** (Q2 2021) and **$12.0 million** (6M 2021) primarily due to an increase in access expense related to fiber costs for the Public Private Partnership agreements[172](index=172&type=chunk) - The increase also includes **$3.4 million** in access charges related to the early termination of a contract obligation for fixed wireless services during Q2 2021 and increased required contributions to the Federal Universal Service Fund (USF)[172](index=172&type=chunk) [Selling, General and Administrative Costs](index=43&type=section&id=Selling%2C%20General%20and%20Administrative%20Costs) Selling, general and administrative costs increased by $4.2 million (Q2) and $3.3 million (6M) due to higher advertising expense for promoting new fiber broadband speeds, partially offset by reduced employee salaries and benefits from headcount reductions and lower property and real estate taxes - Selling, general and administrative costs increased by **$4.2 million** (Q2 2021) and **$3.3 million** (6M 2021) primarily due to an increase in advertising expense for additional radio and television advertising to promote new fiber broadband speeds[173](index=173&type=chunk) - These increases were reduced in part by a decline in employee salaries and benefits due to a reduction in headcount and decreased property and real estate taxes from refunds and settlements received in 2021[173](index=173&type=chunk) [Depreciation and Amortization](index=43&type=section&id=Depreciation%20and%20Amortization) Depreciation and amortization expense decreased by $5.0 million (Q2) and $12.1 million (6M) primarily because certain acquired assets became fully depreciated or amortized, and amortization expense for customer relationships declined. This was partially offset by ongoing capital expenditures for fiber network expansion and customer service improvements - Depreciation and amortization expense decreased by **$5.0 million** (Q2 2021) and **$12.1 million** (6M 2021) primarily due to certain acquired assets becoming fully depreciated or amortized and declining amortization expense for customer relationships[174](index=174&type=chunk) - These declines were offset in part by ongoing capital expenditures related to success-based capital projects for consumer and commercial services as well as the fiber network expansion and customer service improvements[174](index=174&type=chunk) [Regulatory Matters](index=43&type=section&id=Regulatory%20Matters) The company navigates extensive federal and state regulations, receiving $48.1 million annually from FCC CAF Phase II and winning $5.9 million annually in RDOF, while facing state subsidy reductions and expiring COVID-19 service pledges - The company receives **$48.1 million** annually through the FCC's Connect America Fund (CAF) Phase II funding through 2021 and has met all associated milestones[180](index=180&type=chunk) - Consolidated won bids in the Rural Digital Opportunity Fund (RDOF) auction for **$5.9 million** annually over 10 years to serve approximately **27,000 locations** with **1 Gbps** downstream and **500 Mbps** upstream speeds[183](index=183&type=chunk) - A Texas Universal Service Fund (TUSF) funding shortfall led to a **64%** reduction in support starting January 15, 2021, with a potential annual impact of approximately **$4.0 million**, currently under appeal[186](index=186&type=chunk) - New Hampshire allocated **$50.0 million** of CARES Act funding for broadband expansion, with Consolidated granted up to **$3.5 million** for projects in Danbury, Springfield, and Mason[187](index=187&type=chunk) [Non-Operating Items](index=49&type=section&id=Non-Operating%20Items) Non-operating items significantly impacted financial results, with increased interest expense, substantial losses on debt extinguishment and contingent payment rights, and income tax fluctuations due to the Searchlight transaction [Interest Expense, Net](index=49&type=section&id=Interest%20Expense%2C%20Net) Interest expense, net, increased by $14.0 million (Q2) and $30.3 million (6M) primarily due to $10.9 million (Q2) and $21.1 million (6M) in interest expense on the Searchlight Note and increased interest on outstanding senior notes following debt refinancing - Interest expense, net, increased by **$14.0 million** (Q2 2021) and **$30.3 million** (6M 2021) compared to the same periods in 2020[191](index=191&type=chunk) - This increase was primarily due to **$10.9 million** (Q2 2021) and **$21.1 million** (6M 2021) in interest expense on the Note issued to Searchlight and higher interest on outstanding senior notes after debt refinancing[191](index=191&type=chunk) [Gain on Extinguishment of Debt](index=49&type=section&id=Gain%20on%20Extinguishment%20of%20Debt) The company recognized a $12.0 million loss on extinguishment of debt for the six months ended June 30, 2021, related to the repayment of $397.0 million in term loans, and an additional $5.1 million loss for Q2/6M 2021 from refinancing the credit agreement. In contrast, a $0.2 million gain was recognized in 6M 2020 from repurchasing senior notes - A **$12.0 million** loss on extinguishment of debt was recognized for 6M 2021 due to the repayment of **$397.0 million** in term loans[192](index=192&type=chunk) - An additional **$5.1 million** loss on extinguishment of debt was recognized for Q2/6M 2021 related to the refinancing of the credit agreement[192](index=192&type=chunk) - In 6M 2020, a **$0.2 million** gain on extinguishment of debt was recognized from repurchasing **$4.5 million** of **6.50%** Senior Notes due 2022[193](index=193&type=chunk) [Change in Fair Value of Contingent Payment Rights](index=49&type=section&id=Change%20in%20Fair%20Value%20of%20Contingent%20Payment%20Rights) The company recognized a loss of $39.8 million for Q2 2021 and $97.4 million for 6M 2021 due to the increase in the fair value of the contingent payment right issued to Searchlight - A loss of **$39.8 million** (Q2 2021) and **$97.4 million** (6M 2021) was recognized due to the increase in the fair value of the contingent payment right issued to Searchlight[194](index=194&type=chunk) [Other Income](index=49&type=section&id=Other%20Income) Other income increased by $0.7 million for Q2 2021 but decreased by $2.2 million for 6M 2021. Investment income from wireless partnerships increased, and pension/post-retirement expense decreased. However, a $3.6 million loss on wireless spectrum license disposition in Q2/6M 2021 contrasted with a $3.7 million gain from a similar sale in 6M 2020 - Investment income from wireless partnership interests increased by **$2.3 million** (Q2 2021) and **$1.2 million** (6M 2021)[195](index=195&type=chunk) - A loss of **$3.6 million** was recognized on the disposition of wireless spectrum licenses during Q2/6M 2021, compared to a **$3.7 million** gain from a similar sale in 6M 2020[195](index=195&type=chunk) [Income Taxes](index=49&type=section&id=Income%20Taxes) Income taxes increased by $1.2 million for Q2 2021 but decreased by $9.2 million for 6M 2021. The effective tax rate was (10.9)% for Q2 2021 and (0.1)% for 6M 2021, significantly impacted by the discrete effective tax rate method and permanent differences related to the Searchlight transaction - Income taxes increased by **$1.2 million** (Q2 2021) and decreased by **$9.2 million** (6M 2021) compared to the same periods in 2020[197](index=197&type=chunk) - The effective tax rate was **(10.9)%** for Q2 2021 and **(0.1)%** for 6M 2021, influenced by the discrete effective tax rate method and permanent income tax differences from the Searchlight transaction[199](index=199&type=chunk) [Non-GAAP Measures](index=51&type=section&id=Non-GAAP%20Measures) The company uses non-GAAP measures like EBITDA and Adjusted EBITDA to evaluate operating performance and facilitate comparisons; Adjusted EBITDA for Q2 2021 was **$126.7 million**, a **5%** decrease - The company uses non-GAAP measures such as EBITDA and Adjusted EBITDA to evaluate operating performance and trends, noting they should not be considered substitutes for GAAP measures[200](index=200&type=chunk)[201](index=201&type=chunk) Reconciliation of Net Income (Loss) to Adjusted EBITDA (In thousands, unaudited) | Metric (in thousands) | Q2 2021 | Q2 2020 | 6M 2021 | 6M 2020 | | :-------------------- | :------ | :------ | :------ | :------ | | Net income (loss) | $(55,089) | $13,935 | $(117,172) | $29,558 | | Interest expense, net of interest income | $45,431 | $31,459 | $93,846 | $63,554 | | Income tax expense | $5,413 | $4,275 | $113 | $9,316 | | Depreciation and amortization | $76,079 | $81,066 | $151,690 | $163,804 | | EBITDA | $71,834 | $130,735 | $128,477 | $266,232 | | Adjusted EBITDA | $126,697 | $133,096 | $253,326 | $264,674 | [Liquidity and Capital Resources](index=53&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is supported by operating cash flows, cash, and credit, with significant capital expenditures planned for fiber expansion; net working capital improved, and financing activities provided substantial cash, ensuring sufficient resources for the next twelve months [Outlook and Overview](index=53&type=section&id=Outlook%20and%20Overview) Future operating requirements are expected to be funded by cash flows from operations, existing cash, and revolving credit facility borrowings. A substantial portion of cash flow will fund capital expenditures for accelerated fiber network expansion and growth plans - Future operating requirements are expected to be funded from cash flows from operating activities, existing cash and cash equivalents and, if needed, borrowings under the revolving credit facility[206](index=206&type=chunk) - A substantial portion of cash flow will be used to fund capital expenditures for the accelerated fiber network expansion and growth plan and invest in future business opportunities[206](index=206&type=chunk) Summary of Cash Flows (In thousands) | Cash Flow Activity (in thousands) | 6M 2021 | 6M 2020 | | :-------------------------------- | :------ | :------ | | Operating activities | $185,831 | $181,721 | | Investing activities | $(283,876) | $(89,738) | | Financing activities | $141,798 | $(58,502) | | Change in cash and cash equivalents | $43,753 | $33,481 | [Cash Flows Provided by Operating Activities](index=53&type=section&id=Cash%20Flows%20Provided%20by%20Operating%20Activities) Net cash provided by operating activities increased by $4.1 million to $185.8 million for the six months ended June 30, 2021, primarily due to changes in working capital, timing of expenditures and receipts, increased cash distributions from wireless partnerships, and decreased pension plan contributions - Net cash provided by operating activities was **$185.8 million** during the six-month period ended June 30, 2021, an increase of **$4.1 million** compared to the same period in 2020[207](index=207&type=chunk) - The increase is primarily as a result of changes in working capital and the timing of expenditures and cash receipts, a **$2.3 million** increase in cash distributions from wireless partnerships, and a **$1.7 million** decrease in defined benefit pension plan contributions[207](index=207&type=chunk) [Cash Flows Used In Investing Activities](index=53&type=section&id=Cash%20Flows%20Used%20In%20Investing%20Activities) Net cash used in investing activities significantly increased to $283.9 million for the six months ended June 30, 2021, from $89.7 million in the prior year. This was driven by higher capital expenditures of $195.2 million (up from $96.2 million) and the purchase of $90.0 million in short-term investments. Capital expenditures for 2021 are projected to be $400.0 million to $420.0 million, supporting fiber network expansion - Net cash used in investing activities was **$283.9 million** during the six-month period ended June 30, 2021, a significant increase from **$89.7 million** in the same period in 2020[208](index=208&type=chunk) - Capital expenditures were **$195.2 million** for 6M 2021 (up from **$96.2 million** in 6M 2020) and are projected to be **$400.0 million** to **$420.0 million** for the full year 2021, primarily for fiber network expansion[208](index=208&type=chunk) - The company purchased **$90.0 million** in short-term investments during the six months ended June 30, 2021[209](index=209&type=chunk) [Cash Flows Used In Financing Activities](index=53&type=section&id=Cash%20Flows%20Used%20In%20Financing%20Activities) Net cash provided by financing activities was $141.8 million for the six months ended June 30, 2021, a significant shift from a net use in the prior year. This was primarily due to proceeds from bond offerings ($400.0 million) and issuance of long-term debt ($150.0 million), partially offset by payments on long-term debt ($397.0 million) and financing costs - Net cash provided by financing activities was **$141.798 million** for the six months ended June 30, 2021, compared to a net use of **$(58.502) million** in the prior year[20](index=20&type=chunk)[210](index=210&type=chunk) - Key financing activities included proceeds from a bond offering of **$400.0 million** and issuance of long-term debt of **$150.0 million**[20](index=20&type=chunk) - Payments on long-term debt totaled **$397.0 million**, and financing costs were **$8.266 million**[20](index=20&type=chunk) [Long-term Debt](index=54&type=section&id=Long-term%20Debt) The company's long-term debt structure was significantly altered by a new Credit Agreement in October 2020, including **$1.25 billion** in Initial Term Loans and a **$250.0 million** revolving facility, with subsequent refinancing reducing interest rates and maintaining covenant compliance - A new Credit Agreement in October 2020 established **$1.25 billion** in Initial Term Loans and a **$250.0 million** revolving loan facility, secured by substantially all company assets[212](index=212&type=chunk) - In January 2021, **$150.0 million** in Incremental Term Loans were borrowed. In March 2021, **$397.0 million** of Term Loans were repaid using proceeds from **$400.0 million** in **5.00%** Senior Notes, eliminating quarterly principal payments[214](index=214&type=chunk)[215](index=215&type=chunk) - An April 2021 amendment refinanced **$999.9 million** of Term Loans, reducing the interest rate to **3.50% plus LIBOR** (**0.75% floor**). The weighted-average interest rate on credit facility borrowings decreased from **5.75%** (Dec 31, 2020) to **4.25%** (June 30, 2021)[216](index=216&type=chunk)[218](index=218&type=chunk) - The company was in compliance with all Credit Agreement and Senior Notes covenants as of June 30, 2021, with a consolidated first lien leverage ratio of **3.96:1.00**[220](index=220&type=chunk)[224](index=224&type=chunk) [Finance Leases](index=56&type=section&id=Finance%20Leases) The company leases facilities and equipment under finance leases expiring between 2021 and 2040. As of June 30, 2021, the present value of minimum remaining lease commitments was $21.5 million, with $6.5 million due within the next twelve months - As of June 30, 2021, the present value of minimum remaining finance lease commitments was approximately **$21.5 million**[227](index=227&type=chunk) - Of the total, **$6.5 million** was due and payable within the next twelve months[227](index=227&type=chunk) [Searchlight Investment](index=56&type=section&id=Searchlight%20Investment) The first stage of Searchlight's $425.0 million strategic investment closed on October 2, 2020, providing $350.0 million. The second stage, an additional $75.0 million, is expected to close later in 2021, providing capital and financial flexibility for network expansion - The first stage of Searchlight's **$425.0 million** strategic investment closed on October 2, 2020, providing **$350.0 million**[228](index=228&type=chunk) - The second stage, an additional **$75.0 million**, is expected to close later in 2021, providing capital and financial flexibility for network expansion[228](index=228&type=chunk) [Sufficiency of Cash Resources](index=56&type=section&id=Sufficiency%20of%20Cash%20Resources) Net working capital improved by $125.1 million to $195.3 million as of June 30, 2021, driven by increased cash and reduced current debt, with sufficient resources expected for the next twelve months, allocating funds for interest and capital expenditures Selected Financial Condition Information (In thousands, except for ratio) | Metric (in thousands) | June 30, 2021 | December 31, 2020 | | :-------------------- | :------------ | :---------------- | | Cash, cash equivalents and short-term investments | $289,281 | $155,561 | | Working capital | $195,318 | $70,191 | | Current ratio | 1.71 | 1.26 | - Net working capital improved by **$125.1 million** as of June 30, 2021, primarily due to a **$133.7 million** increase in cash, cash equivalents, and short-term investments, and an **$11.1 million** decline in the current portion of long-term debt[230](index=230&type=chunk) - Expected uses of funds for the remainder of 2021 include **$60.0 million** to **$65.0 million** for interest payments and **$205.0 million** to **$225.0 million** for capital expenditures[231](index=231&type=chunk) - The company believes cash flows from operating activities, existing cash, and available revolving credit will be sufficient for at least the next twelve months[232](index=232&type=chunk) [Surety Bonds](index=58&type=section&id=Surety%20Bonds) As of June 30, 2021, the company had approximately $6.3 million in surety, performance, and similar bonds outstanding, entered into as required by certain jurisdictions - As of June 30, 2021, the company had approximately **$6.3 million** of surety, performance, and similar bonds outstanding[236](index=236&type=chunk) [Defined Benefit Pension Plans](index=58&type=section&id=Defined%20Benefit%20Pension%20Plans) The company's Pension Plans are affected by investment returns and discount rates, with $20.7 million expected contributions for 2021, and a sustained market downturn could require material contributions - The cost and future funding requirements of Pension Plans are affected by expected return on investment (estimated at **6.00%**) and changes in the discount rate[238](index=238&type=chunk) - Expected contributions for 2021 are approximately **$20.7 million** to Pension Plans and **$8.8 million** to other post-retirement benefit plans. As of June 30, 2021, **$8.9 million** and **$4.3 million**, respectively, have been contributed[239](index=239&type=chunk) [Income Taxes](index=58&type=section&id=Income%20Taxes) The timing of cash payments for income taxes may differ from GAAP tax expense due to factors like accelerated depreciation, potentially leading to cash payments exceeding GAAP tax expense in the future - The timing of cash payments for income taxes may differ from GAAP tax expense due to factors like accelerated depreciation, potentially causing cash payments to exceed GAAP tax expense in the future[240](index=240&type=chunk) [Critical Accounting Estimates](index=60&type=section&id=Critical%20Accounting%20Estimates) The preparation of financial statements requires management to make estimates and assumptions, which are detailed in the 2020 Annual Report on Form 10-K - Financial statements are prepared using management's estimates and assumptions, as detailed in the 2020 Annual Report on Form 10-K[242](index=242&type=chunk) [Recent Accounting Pronouncements](index=60&type=section&id=Recent%20Accounting%20Pronouncements) Information regarding the impact of recent accounting pronouncements is provided in Note 1 to the Condensed Consolidated Financial Statements - Information on recent accounting pronouncements is available in Note 1 "Summary of Significant Accounting Policies" of the Condensed Consolidated Financial Statements[243](index=243&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=60&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's primary market risk is interest rate fluctuations on variable-rate debt, managed with swaps, with a **1.00%** rate increase impacting annual interest by **$1.6 million** - The company's primary market risk is from interest rate fluctuations on variable-rate debt, managed using interest rate swaps[244](index=244&type=chunk) - A **1.00%** increase in market interest rates would increase annual interest expense by approximately **$1.6 million**, while a decrease would have no impact due to the **0.75% LIBOR floor** on most variable-rate debt[245](index=245&type=chunk) - As of June 30, 2021, the fair value of interest rate swap agreements amounted to a net liability of **$19.0 million**[246](index=246&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=60&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management confirmed effective disclosure controls and procedures as of June 30, 2021, with no material changes in internal control over financial reporting - Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective as of June 30, 2021[247](index=247&type=chunk) - There have been no material changes in internal control over financial reporting during the quarter ended June 30, 2021[249](index=249&type=chunk) - Internal control systems are designed to provide reasonable assurance to management and the Board of Directors regarding the reliability of financial reporting[250](index=250&type=chunk) [PART II. OTHER INFORMATION](index=63&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, and exhibits filed with the Form 10-Q [ITEM 1. LEGAL PROCEEDINGS](index=63&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is involved in various legal and regulatory proceedings, including tax appeals, with no anticipated material adverse impact on financial results - The company is involved in litigation and regulatory proceedings, including appeals related to Pennsylvania Gross Receipts Tax assessments[252](index=252&type=chunk) - Management does not believe the outcome of these legal matters will have a material adverse impact on the company's business, results of operations, financial condition, or cash flows[252](index=252&type=chunk) [ITEM 6. EXHIBITS](index=64&type=section&id=ITEM%206.%20EXHIBITS) This section lists Form 10-Q exhibits, including corporate amendments, debt agreements, and CEO/CFO certifications - The exhibits include amendments to the Certificate of Incorporation and Bylaws, joinder agreements, security agreements, pledge agreements, and supplements to indentures related to the company's debt[254](index=254&type=chunk)[255](index=255&type=chunk)[256](index=256&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to the Sarbanes-Oxley Act of 2002 are also included[257](index=257&type=chunk) [SIGNATURES](index=67&type=section&id=SIGNATURES) The report was officially signed by the Chief Executive Officer and Chief Financial Officer [SIGNATURES](index=67&type=section&id=SIGNATURES) The report was officially signed by the Chief Executive Officer and Chief Financial Officer - The report was signed by C. Robert Udell Jr., Chief Executive Officer, and Steven L. Childers, Chief Financial Officer, on August 4, 2021[261](index=261&type=chunk)

Financial Data and Key Metrics Changes - Operating revenue for Q2 2021 was $320.4 million, down 1.5% year-over-year [25] - Adjusted EBITDA was $126.7 million, aligning with guidance that includes startup investments for the fiber build plan [25] - Net interest expense increased to $45.4 million, up $14 million from the previous year due to a new capitalized balance sheet [35] Business Line Data and Key Metrics Changes - Total commercial and carrier revenue was $143.8 million, down 1.4% [26] - Data and transport revenue grew 1.4% year-over-year to $19.8 million, driven by increased demand for dedicated Internet bandwidth and VoIP solutions [20][26] - Consumer broadband revenue was $68 million, reflecting a 3.7% increase, marking the highest growth rate in recent years [28] Market Data and Key Metrics Changes - Fiber upgrades reached 122,000 locations year-to-date, with a target of over 300,000 for 2021 [6][8] - The company added approximately 3,000 consumer fiber gig-capable subscribers in Q2 2021, totaling nearly 7,000 year-to-date [15] - Penetration rates in early Q1 build areas with cable competition achieved double-digit growth [15] Company Strategy and Development Direction - The company is focused on a "fiber first" strategy, aiming to upgrade 70% of its service area with fiber gig-capable services over five years [43] - Investments in digital transformation projects are expected to enhance customer experience and operational efficiency [12] - The company is cautiously optimistic about meeting its construction forecasts and is already planning for 2022 and beyond [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving top-line growth by 2023, driven by fiber broadband and commercial segments [47] - The company is not currently facing significant bottlenecks or inflation issues in fiber construction [54] - Management highlighted strong relationships with community partners and a solid track record in securing funding for broadband expansion [17] Other Important Information - Capital expenditures for Q2 totaled $119.2 million, with 40% supporting fiber network expansion [42] - The company expects cash interest expense to be in the range of $130 million to $135 million for the year [44] - The Searchlight investment is expected to total $425 million, with the second stage of investment pending FCC approval [41] Q&A Session Summary Question: Wireless cash distribution trends - Management indicated that wireless cash distributions are running ahead of expectations, potentially exceeding the previously guided range of $37 million to $39 million for the year [49][51] Question: Bottlenecks and inflation concerns - Management reported no current bottlenecks in fiber construction and noted improved delivery on commit dates, although they are cautious about chip supply for Wi-Fi 6 [54][56] Question: Competitive response from cable companies - Management observed that cable companies are naturally upgrading speeds in response to fiber deployments, but they believe their product offerings are superior [57] Question: Fiber build customer acquisition - Approximately 60% of new fiber customers are net new ads, with increasing competitive activity leading to higher gross new ads [62] Question: Top-line growth aspirations - Management is optimistic about offsetting legacy declines in voice with growth in commercial and carrier segments, particularly in Ethernet and SD WAN [64][66] Question: Promotional pricing strategies - Management confirmed they are competitive on pricing but not underpricing competition, focusing on customer relationships and tailored solutions [72][73] Question: Labor market and operational challenges - Management stated they have sufficient resources to meet their plans and do not foresee labor shortages impacting operations [75][76] Question: Potential for acquisitions - Management remains focused on executing their current plan but is open to evaluating M&A opportunities with their partner Searchlight [78]

Consolidated Communications Holdings, Inc. (NASDAQ:CNSL) Q1 2021 Earnings Conference Call April 29, 2021 10:00 AM ET Company Participants Jennifer Spaude - SVP, Corporate Communications & IR Robert Udell - President, CEO & Director Steven Childers - CFO & Treasurer Conference Call Participants Gregory Williams - Cowen and Company Eric Luebchow - Wells Fargo Securities Michael Rollins - Citigroup Rob Williams - Octagon Credit Investment Operator Good morning. My name is Tamika, and I will be your conference ...

Q1 2021 Earnings April 29, 2021 tions NASDAQ: CNSL | www.consolidated.com 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 communication 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 ref ...

PART I. FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2021 [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Consolidated Communications Holdings, Inc. and its subsidiaries for the quarter ended March 31, 2021, including statements of operations, comprehensive income (loss), balance sheets, changes in shareholders' equity, and cash flows, along with accompanying notes detailing significant accounting policies, revenue recognition, earnings per share, investments, debt, and other financial disclosures [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This statement presents the company's net revenues, operating income, interest expense, and net income or loss for the reported quarters Condensed Consolidated Statements of Operations (in millions) | Metric | Quarter Ended March 31, 2021 | Quarter Ended March 31, 2020 | | :-------------------- | :--------------------------- | :--------------------------- | | Net revenues | $324.8 | $325.7 | | Income from operations | $38.3 | $37.4 | | Interest expense, net | $(48.4) | $(32.1) | | Loss on extinguishment of debt | $(12.0) | $0.2 | | Change in fair value of contingent payment rights | $(57.6) | — | | Net income (loss) | $(62.1) | $15.6 | | Net income (loss) attributable to common shareholders | $(62.1) | $15.5 | | Net income (loss) per basic and diluted common shares | $(0.80) | $0.22 | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This statement presents the company's net income or loss and other comprehensive income or loss components for the reported quarters Condensed Consolidated Statements of Comprehensive Income (Loss) (in millions) | Metric | Quarter Ended March 31, 2021 | Quarter Ended March 31, 2020 | | :-------------------- | :--------------------------- | :--------------------------- | | Net income (loss) | $(62.1) | $15.6 | | Pension and post-retirement obligations (net of tax) | $0.2 | $0.3 | | Derivative instruments (net of tax) | $3.7 | $(10.3) | | Comprehensive income (loss) | $(58.2) | $5.6 | | Total comprehensive income (loss) attributable to common shareholders | $(58.2) | $5.5 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement presents the company's assets, liabilities, and shareholders' equity at the end of the reported periods Condensed Consolidated Balance Sheets (in millions) | Metric | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Cash and cash equivalents | $325.1 | $155.6 | | Total current assets | $500.5 | $340.7 | | Total assets | $3,673.8 | $3,507.3 | | Total current liabilities | $274.7 | $270.5 | | Long-term debt and finance lease obligations | $2,105.8 | $1,932.7 | | Total liabilities | $3,341.3 | $3,118.1 | | Total shareholders' equity | $332.5 | $389.2 | [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) This statement details the changes in common stock, additional paid-in capital, accumulated deficit, and other comprehensive loss for the reported period Condensed Consolidated Statements of Changes in Shareholders' Equity (in millions) | Metric | Balance at Dec 31, 2020 | Net Income (Loss) | Other Comprehensive Income (Loss) | Balance at Mar 31, 2021 | | :-------------------- | :---------------------- | :---------------- | :-------------------------------- | :---------------------- | | Common Stock | $0.8 | — | — | $0.8 | | Additional Paid-in Capital | $525.7 | — | — | $527.1 | | Accumulated Deficit | $(34.5) | $(62.1) | — | $(96.6) | | Accumulated Other Comprehensive Loss, net | $(109.4) | — | $3.9 | $(105.5) | | Noncontrolling Interest | $6.7 | $0.0 | — | $6.7 | | Total Shareholders' Equity | $389.2 | $(62.1) | $3.9 | $332.5 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement presents the company's cash flows from operating, investing, and financing activities for the reported quarters Condensed Consolidated Statements of Cash Flows (in millions) | Cash Flow Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $98.5 | $85.0 | | Net cash used in investing activities | $(74.7) | $(39.8) | | Net cash provided by (used in) financing activities | $145.8 | $(43.5) | | Change in cash and cash equivalents | $169.6 | $1.7 | | Cash and cash equivalents at end of period | $325.1 | $14.1 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section details significant accounting policies, revenue recognition, earnings per share, investments, debt, and other financial disclosures [1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=10&type=section&id=1.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines the company's business operations, basis of accounting, recent developments including the Searchlight Investment and COVID-19 impact, policies for accounts receivable and credit losses, and recent accounting pronouncements adopted or under evaluation - Consolidated Communications Holdings, Inc. provides communication solutions to consumer, commercial, and carrier customers across a 23-state service area, leveraging an advanced fiber network spanning approximately **47,400 fiber route miles**[24](index=24&type=chunk)[25](index=25&type=chunk) - Searchlight Capital Partners, L.P. committed to invest up to **$425.0 million**, with **$350.0 million** already invested, in exchange for common stock and contingent payment rights (CPRs), aiming for approximately **35% ownership** on an as-converted basis upon completion of both stages[27](index=27&type=chunk)[53](index=53&type=chunk)[54](index=54&type=chunk) - The company is monitoring the impact of COVID-19, which has not significantly adversely affected financial results to date, but could if economic conditions worsen. The CARES Act and American Rescue Plan Act are not expected to have a material impact on financial statements[28](index=28&type=chunk)[29](index=29&type=chunk)[31](index=31&type=chunk) Allowance for Credit Losses (ACL) Activity (in millions) | Metric | Quarter Ended March 31, 2021 | Quarter Ended March 31, 2020 | | :----- | :--------------------------- | :--------------------------- | | Balance at beginning of year | $9.1 | $4.5 | | Provision charged to expense | $2.2 | $2.1 | | Write-offs, less recoveries | $(1.8) | $(1.8) | | Balance at end of year | $9.6 | $5.0 | - The company adopted ASU No. 2020-06 (Convertible Instruments) and ASU No. 2019-12 (Income Taxes) effective January 1, 2021, with no material impact on financial statements. ASU No. 2020-04 and ASU No. 2021-01 (Reference Rate Reform) are being evaluated[33](index=33&type=chunk)[34](index=34&type=chunk)[35](index=35&type=chunk) [2. REVENUE](index=14&type=section&id=2.%20REVENUE) This section details the company's revenue recognition policies, including how transaction prices are determined and allocated to performance obligations. It also provides a disaggregation of revenue by customer type (commercial and carrier, consumer) and service category, along with information on contract assets and liabilities - Revenue is recognized when performance obligations are satisfied by transferring control of goods or services to the customer, with transaction prices generally reflecting market rates and including nonrefundable upfront fees[39](index=39&type=chunk)[40](index=40&type=chunk) Operating Revenues (in millions) | Category | Quarter Ended March 31, 2021 | Quarter Ended March 31, 2020 | | :------- | :--------------------------- | :--------------------------- | | Commercial and carrier | $144.3 | $147.0 | | Consumer | $123.0 | $126.4 | | Subsidies | $17.3 | $18.5 | | Network access | $31.6 | $31.5 | | Other products and services | $8.5 | $2.4 | | **Total operating revenues** | **$324.8** | **$325.7** | Contract Assets and Liabilities (in millions) | Metric | March 31, 2021 | March 31, 2020 | | :----- | :------------- | :------------- | | Accounts receivable, net | $125.7 | $122.3 | | Contract assets | $21.0 | $19.7 | | Contract liabilities | $55.6 | $52.9 | - Deferred contract acquisition costs (primarily sales commissions) of **$2.6 million** and **$2.1 million** were recognized as expense for the quarters ended March 31, 2021 and 2020, respectively[44](index=44&type=chunk) - Previously deferred revenues of **$116.2 million** and **$111.2 million** were recognized during the quarters ended March 31, 2021 and 2020, respectively, related to advanced payments and upfront fees[45](index=45&type=chunk) [3. EARNINGS (LOSS) PER SHARE](index=15&type=section&id=3.%20EARNINGS%20(LOSS)%20PER%20SHARE) This section details the computation of basic and diluted earnings (loss) per common share using the two-class method, considering participating securities like restricted stock awards and contingent payment rights. It also explains the exclusion of anti-dilutive securities from diluted EPS calculations EPS Computation | Metric | Quarter Ended March 31, 2021 | Quarter Ended March 31, 2020 | | :----- | :--------------------------- | :--------------------------- | | Net income (loss) attributable to common shareholders, after earnings allocated to participating securities (in millions) | $(62.1) | $15.3 | | Weighted-average number of common shares outstanding (in thousands) | 78,029 | 71,153 | | Net income (loss) per common share - basic and diluted | $(0.80) | $0.22 | - Diluted EPS for Q1 2021 excludes **19.4 million** potential common shares (share-based compensation and CPR) due to their anti-dilutive effect, compared to **1.1 million** potential shares excluded in Q1 2020[52](index=52&type=chunk) [4. SEARCHLIGHT INVESTMENT](index=17&type=section&id=4.%20SEARCHLIGHT%20INVESTMENT) This section provides details on the strategic investment by Searchlight Capital Partners, L.P., outlining the two-stage investment structure, the allocation of proceeds, and the accounting treatment of the contingent payment rights (CPRs) and the unsecured subordinated note - Searchlight committed to invest up to **$425.0 million** in two stages. The first stage (October 2, 2020) involved a **$350.0 million** investment for common stock and CPRs, plus the right to an unsecured subordinated note[53](index=53&type=chunk) - The second stage involves an additional **$75.0 million** investment and the issuance of the Note, convertible into perpetual preferred stock. Upon completion, Searchlight's common stock and CPRs will represent approximately **35%** of the company's common stock on an as-converted basis[54](index=54&type=chunk) - Shareholders approved the issuance of additional common stock to Searchlight on April 26, 2021, with the second stage expected to close in Q3 2021[56](index=56&type=chunk) Estimated Fair Value of Investment Components at October 2, 2020 (in millions) | Component | Amount | | :-------- | :----- | | Cash proceeds | $350.0 | | Receivable from Searchlight, net | $74.4 | | Less: Issuance costs | $(14.5) | | **Total consideration** | **$409.9** | | Common stock, net of issuance costs | $26.8 | | CPR for 16.9% additional shares | $79.5 | | CPR for 10.1% additional shares | $67.2 | | Convertible security interest (Note right), net | $236.4 | | **Total Assets Exchanged** | **$409.9** | - The estimated fair value of the CPRs increased from **$123.2 million** at December 31, 2020, to **$180.8 million** at March 31, 2021, resulting in a **$57.6 million loss** recognized in Q1 2021[58](index=58&type=chunk) - The unsecured subordinated Note bears **9.0% interest** per annum, payable semi-annually, with a paid-in-kind (PIK) option for five years. The company intends to exercise the PIK option through at least 2022[59](index=59&type=chunk) [5. INVESTMENTS](index=20&type=section&id=5.%20INVESTMENTS) This section details the company's investments, categorized by accounting method (cost and equity method), primarily in cellular service limited partnerships and CoBank. It outlines the nature of these investments and the income/distributions received Investments (in millions) | Investment Type | March 31, 2021 | December 31, 2020 | | :-------------- | :------------- | :---------------- | | Cash surrender value of life insurance policies | $2.7 | $2.5 | | Investments at cost (Mobilnet South, Pittsburgh SMSA, CoBank, Other) | $54.6 | $53.6 | | Equity method investments (RSA 17, RSA 6(I), RSA 6(II)) | $55.6 | $55.6 | | **Totals** | **$110.8** | **$111.7** | - Cash distributions from cost-method partnerships (Mobilnet South, Pittsburgh SMSA) totaled **$4.3 million** in Q1 2021, down from **$5.3 million** in Q1 2020[62](index=62&type=chunk) - Cash distributions from equity-method partnerships (RSA 17, RSA 6(I), RSA 6(II)) totaled **$5.1 million** in Q1 2021, up from **$4.8 million** in Q1 2020[64](index=64&type=chunk) [6. FAIR VALUE MEASUREMENTS](index=20&type=section&id=6.%20FAIR%20VALUE%20MEASUREMENTS) This section describes the fair value measurements for the company's financial instruments, particularly interest rate swap agreements and contingent payment obligations, categorizing them within the fair value hierarchy (Level 2). It also provides carrying and fair values for long-term debt - Interest rate swap agreements are measured at fair value on a recurring basis using valuation models based on observable market data (Level 2)[66](index=66&type=chunk)[67](index=67&type=chunk) Interest Rate Swap Liabilities (in millions) | Metric | March 31, 2021 | December 31, 2020 | | :----- | :------------- | :---------------- | | Current interest rate swap liabilities | $(3.6) | $(6.3) | | Long-term interest rate swap liabilities | $(20.3) | $(23.0) | | **Total** | **$(23.9)** | **$(29.3)** | - Contingent payment obligations (CPRs) are measured at estimated fair value on a recurring basis using a market approach with observable market values and a marketability discount (Level 2). The fair value increased from **$123.2 million** (Dec 31, 2020) to **$180.8 million** (Mar 31, 2021)[68](index=68&type=chunk) Long-term Debt Fair Value (in millions) | Metric | March 31, 2021 Carrying Value | March 31, 2021 Fair Value | December 31, 2020 Carrying Value | December 31, 2020 Fair Value | | :----- | :---------------------------- | :------------------------ | :------------------------------- | :--------------------------- | | Long-term debt, excluding finance leases | $2,137.3 | $2,205.3 | $1,978.7 | $2,039.8 | [7. LONG-TERM DEBT](index=24&type=section&id=7.%20LONG-TERM%20DEBT) This section details the company's long-term debt structure, including its senior secured credit facility and senior notes. It covers the terms, recent amendments, refinancing activities, and compliance with debt covenants Long-term Debt (in millions) | Debt Type | March 31, 2021 | December 31, 2020 | | :-------- | :------------- | :---------------- | | Term loans, net of discounts | $987.3 | $1,228.7 | | 6.50% Senior notes due 2028 | $750.0 | $750.0 | | 5.00% Senior notes due 2028 | $400.0 | — | | Finance leases | $16.7 | $17.5 | | Less: current portion | $(5.0) | $(17.6) | | Less: deferred debt issuance costs | $(43.2) | $(45.9) | | **Total long-term debt** | **$2,105.8** | **$1,932.7** | - On January 15, 2021, the company borrowed an additional **$150.0 million** in incremental term loans. On March 18, 2021, **$397.0 million** of outstanding term loans were repaid using proceeds from new 5.00% Senior Notes, resulting in a **$12.0 million loss** on extinguishment of debt[77](index=77&type=chunk)[78](index=78&type=chunk) - As of March 31, 2021, the company was in compliance with its Credit Agreement covenants, with a consolidated first lien leverage ratio of **3.90:1.00** (below the **5.85:1.00** maximum)[83](index=83&type=chunk) - On April 5, 2021, a second amendment to the Credit Agreement refinanced **$999.9 million** of Term Loans, reducing the interest rate to **3.50% plus LIBOR** (**0.75% floor**). A loss on extinguishment of debt of **$3.0 million to $6.0 million** is expected in Q2 2021[84](index=84&type=chunk) - The company issued **$400.0 million** aggregate principal amount of 5.00% Senior Notes due 2028 on March 18, 2021, with proceeds used to repay Term Loans[86](index=86&type=chunk) [8. DERIVATIVE FINANCIAL INSTRUMENTS](index=28&type=section&id=8.%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) This section describes the company's use of interest rate swap agreements to manage exposure to interest rate fluctuations, converting floating-rate debt to fixed-rate. It details the accounting treatment for these derivatives, their fair values, and the impact on accumulated other comprehensive income (loss) - The company uses interest rate swaps to convert floating-rate debt to fixed-rate, reducing the impact of interest rate changes on future cash interest payments[92](index=92&type=chunk) Outstanding Interest Rate Swaps (in millions) | Notional Amount | March 31, 2021 Fair Value | December 31, 2020 Fair Value | | :-------------- | :------------------------ | :--------------------------- | | $705.0 | $(3.6) | $(6.3) | | $500.0 | $(20.3) | $(23.0) | | **Total Fair Values** | **$(23.9)** | **$(29.3)** | - As of March 31, 2021, the total pre-tax unrealized loss related to interest rate swaps in AOCI was **$(20.2) million**, with an expected **$11.0 million loss** to be recognized in earnings within the next twelve months[99](index=99&type=chunk) Cash Flow Hedge Transactions (in millions) | Metric | Quarter Ended March 31, 2021 | Quarter Ended March 31, 2020 | | :----- | :--------------------------- | :--------------------------- | | Unrealized gain (loss) recognized in AOCI, pretax | $0.4 | $(16.2) | | Deferred loss reclassified from AOCI to interest expense | $(4.6) | $(2.2) | [9. LEASES](index=30&type=section&id=9.%20LEASES) This section briefly discusses the company's lease arrangements, distinguishing between operating leases (where the company is a lessor for network assets) and sales-type leases (such as indefeasible right of use arrangements for dark fiber) - The company acts as a lessor for network assets (tower space, colocation, conduit, dark fiber) under operating lease classifications, with lease income not being material[100](index=100&type=chunk) - No sales-type lease arrangements (e.g., IRU for dark fiber) were entered into during the quarters ended March 31, 2021 and 2020[100](index=100&type=chunk) [10. EQUITY](index=30&type=section&id=10.%20EQUITY) This section covers the company's equity-related activities, including share-based compensation plans and changes in accumulated other comprehensive loss. It details the types of awards granted, compensation costs recognized, and the impact of pension and derivative reclassifications - Shareholders approved an amendment to the Long-Term Incentive Plan on April 26, 2021, increasing authorized shares by **5,400,000** to approximately **10,050,000**[101](index=101&type=chunk) Share-Based Compensation Costs (in millions) | Award Type | Quarter Ended March 31, 2021 | Quarter Ended March 31, 2020 | | :--------- | :--------------------------- | :--------------------------- | | Restricted stock | $0.8 | $0.8 | | Performance shares | $0.7 | $0.0 | | **Total** | **$1.5** | **$0.9** | - Total unrecognized compensation cost for non-vested RSAs and PSAs was **$9.8 million** as of March 31, 2021, to be recognized over a weighted-average period of approximately **1.6 years**[105](index=105&type=chunk) Changes in Accumulated Other Comprehensive Loss (in millions) | Component | Balance at Dec 31, 2020 | Net Current Period Other Comprehensive Income (Loss) | Balance at Mar 31, 2021 | | :-------- | :---------------------- | :--------------------------------------------------- | :---------------------- | | Pension and Post-Retirement Obligations | $(90.9) | $0.2 | $(90.7) | | Derivative Instruments | $(18.5) | $3.7 | $(14.8) | | **Total** | **$(109.4)** | **$3.9** | **$(105.5)** | [11. PENSION PLAN AND OTHER POST-RETIREMENT BENEFITS](index=32&type=section&id=11.%20PENSION%20PLAN%20AND%20OTHER%20POST-RETIREMENT%20BENEFITS) This section details the company's defined benefit pension plans and other post-retirement benefit obligations, including their frozen status, components of net periodic costs, and expected contributions for 2021 - The company sponsors qualified defined benefit pension plans and non-qualified supplemental retirement plans, all of which are frozen to new entrants and no longer accrue additional monthly benefits[110](index=110&type=chunk)[111](index=111&type=chunk) Net Periodic Pension Cost (in millions) | Component | Quarter Ended March 31, 2021 | Quarter Ended March 31, 2020 | | :-------- | :--------------------------- | :--------------------------- | | Interest cost | $5.7 | $6.5 | | Expected return on plan assets | $(9.3) | $(8.6) | | Net amortization loss | $0.6 | $0.3 | | Net prior service cost amortization | $0.0 | $0.0 | | **Net periodic pension benefit** | **$(3.0)** | **$(1.8)** | - The company sponsors Post-retirement Plans for healthcare and life insurance benefits, with certain plans frozen to new participants. Most healthcare plans are unfunded[114](index=114&type=chunk) Net Periodic Post-retirement Cost (in millions) | Component | Quarter Ended March 31, 2021 | Quarter Ended March 31, 2020 | | :-------- | :--------------------------- | :--------------------------- | | Service cost | $0.2 | $0.3 | | Interest cost | $0.7 | $0.9 | | Expected return on plan assets | $(0.1) | $(0.0) | | Net amortization gain | $(0.1) | $(0.3) | | Net prior service cost (credit) amortization | $(0.2) | $0.4 | | **Net periodic post-retirement cost** | **$0.5** | **$1.2** | - Expected contributions for 2021 are **$20.7 million** for Pension Plans and **$8.8 million** for Post-retirement Plans. As of March 31, 2021, **$4.2 million** and **$2.0 million**, respectively, have been contributed[116](index=116&type=chunk) [12. INCOME TAXES](index=34&type=section&id=12.%20INCOME%20TAXES) This section provides information on the company's income tax positions, including unrecognized tax benefits, interest and penalties, periods subject to examination, and the effective tax rate for the reported quarters - Unrecognized tax benefits were **$4.9 million** as of March 31, 2021, with a net impact of **$4.7 million** to the effective tax rate if recognized[117](index=117&type=chunk) - The effective tax rate was **7.9%** for Q1 2021, significantly lower than **24.4%** for Q1 2020, primarily due to permanent income tax differences related to the Searchlight transaction and other factors[120](index=120&type=chunk) - Excluding these adjustments, the effective tax rate would have been approximately **26.0%** for Q1 2021 and **24.4%** for Q1 2020[123](index=123&type=chunk) [13. COMMITMENTS AND CONTINGENCIES](index=36&type=section&id=13.%20COMMITMENTS%20AND%20CONTINGENCIES) This section addresses the company's commitments and contingencies, primarily focusing on ongoing litigation and regulatory proceedings, specifically regarding Pennsylvania Gross Receipts Tax assessments - The company is involved in appeals regarding Pennsylvania Gross Receipts Tax assessments totaling approximately **$6.1 million** and **$7.4 million** for its CCES and CCPA subsidiaries, respectively, for tax years 2008-2016[124](index=124&type=chunk) - A settlement for 2008-2013 tax years (excluding 2010 CCPA appeals) resulted in a **$2.1 million payment** to the DOR. The company has reserved **$1.5 million** and **$0.7 million** for potential additional tax liabilities for remaining disputed claims[125](index=125&type=chunk) - The company does not believe the outcome of these legal matters will have a material adverse impact on its business, results of operations, financial condition, or cash flows[126](index=126&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations for the quarter ended March 31, 2021. It covers an overview of the business, recent developments, detailed analysis of operating revenues and expenses, regulatory matters, non-operating items, non-GAAP measures, and a comprehensive discussion of liquidity and capital resources [Overview](index=37&type=section&id=Overview) Consolidated Communications is a broadband and business communications provider operating across 23 states with an advanced fiber network. The company focuses on expanding its broadband and commercial product suite, enhancing data speeds, and accelerating fiber expansion plans, supported by a strategic investment from Searchlight Capital Partners - The company generates most operating revenues from monthly subscriptions to broadband, data, and transport services for business and residential customers, with commercial and carrier services being key growth areas[131](index=131&type=chunk) - A strategic investment with Searchlight Capital Partners and capital structure refinancing provides additional capital to accelerate fiber expansion, aiming to upgrade approximately **1.6 million passings** over five years, including **300,000** in 2021[135](index=135&type=chunk) - As of March 31, 2021, **59%** of homes on the legacy network had broadband speeds of up to **100 Mbps or greater**. The company upgraded **45,800 passings** in Q1 2021[134](index=134&type=chunk)[135](index=135&type=chunk) - Total video connections decreased **10%** and total voice connections decreased **6%** as of March 31, 2021, compared to 2020, due to changing consumer habits and competition from alternative technologies[136](index=136&type=chunk)[137](index=137&type=chunk) [Recent Developments](index=41&type=section&id=Recent%20Developments) This section highlights key recent developments, including the strategic investment from Searchlight Capital Partners, the refinancing of long-term debt, and the ongoing impact and management of the COVID-19 pandemic - Searchlight Capital Partners invested **$350.0 million** in the first stage of a **$425.0 million** commitment, receiving common stock and contingent payment rights. The second stage, involving an additional **$75.0 million**, is expected to close in Q3 2021 after shareholder approval[140](index=140&type=chunk)[141](index=141&type=chunk) - The company completed a refinancing of its long-term debt in October 2020, issuing **$2,250.0 million** in new secured debt. In Q1 2021, an additional **$150.0 million** in term loans were issued, and **$400.0 million** in 5.00% Senior Notes were issued to repay **$397.0 million** of Term Loans[142](index=142&type=chunk) - The COVID-19 pandemic has increased demand for bandwidth upgrades. While no significant adverse financial impact has been seen to date, future economic conditions could materially affect operations. The CARES Act and American Rescue Plan Act are not expected to have a material impact[144](index=144&type=chunk)[145](index=145&type=chunk)[146](index=146&type=chunk) [Results of Operations](index=43&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's financial performance for the quarter, covering operating revenues by segment (commercial and carrier, consumer), operating expenses, non-operating items, and the impact of regulatory matters Operating Revenues (in millions) | Category | Q1 2021 | Q1 2020 | $ Change | % Change | | :------- | :------ | :------ | :------- | :------- | | Commercial and carrier | $144.3 | $147.0 | $(2.7) | (2)% | | Consumer | $123.0 | $126.4 | $(3.4) | (3)% | | Subsidies | $17.4 | $18.4 | $(1.0) | (5)% | | Network access | $31.6 | $31.5 | $0.1 | 0% | | Other products and services | $8.5 | $2.4 | $6.1 | 254% | | **Total operating revenues** | **$324.8** | **$325.7** | **$(0.9)** | **(0)%** | Operating Expenses (in millions) | Category | Q1 2021 | Q1 2020 | $ Change | % Change | | :------- | :------ | :------ | :------- | :------- | | Cost of services and products | $144.0 | $137.8 | $6.2 | 4% | | Selling, general and administrative costs | $66.9 | $67.8 | $(0.9) | (1)% | | Depreciation and amortization | $75.6 | $82.7 | $(7.1) | (9)% | | **Total operating expenses** | **$286.5** | **$288.3** | **$(1.8)** | **(1)%** | Key Operating Statistics (as of March 31) | Metric | 2021 | 2020 | Change | % Change | | :----- | :-------- | :-------- | :-------- | :------- | | Consumer customers | 545,061 | 574,597 | (29,536) | (5)% | | Voice connections | 768,083 | 820,620 | (52,537) | (6)% | | Data connections | 794,224 | 786,125 | 8,099 | 1% | | Video connections | 73,986 | 82,633 | (8,647) | (10)% | | Total connections | 1,636,293 | 1,689,378 | (53,085) | (3)% | [Operating Revenues](index=44&type=section&id=Operating%20Revenues) Operating revenues saw a slight decrease overall, driven by declines in commercial and consumer voice and video services, and subsidies, partially offset by growth in commercial data and transport services, consumer broadband, and other products and services, particularly from Public Private Partnership construction projects - Commercial and carrier data and transport services revenues increased by **$0.7 million (1%)** due to growth in Metro Ethernet and VoIP services[149](index=149&type=chunk)[156](index=156&type=chunk) - Commercial voice services revenues decreased by **$1.4 million (3%)** due to a **7% decline** in access lines as customers shift to alternative technologies[149](index=149&type=chunk)[157](index=157&type=chunk) - Consumer broadband services revenues increased by **$1.7 million (3%)** despite decreases in data and VoIP connections, driven by price increases and expansion of CCiTV[149](index=149&type=chunk)[163](index=163&type=chunk) - Consumer video services revenues decreased by **$2.3 million (12%)** due to an **11% decrease** in connections as consumers opt for over-the-top streaming services[149](index=149&type=chunk)[165](index=165&type=chunk) - Other products and services revenues increased significantly by **$6.1 million (254%)** primarily due to revenue recognition from Public Private Partnership construction projects[149](index=149&type=chunk)[172](index=172&type=chunk) [Operating Expenses](index=48&type=section&id=Operating%20Expenses) Operating expenses decreased slightly overall, with a rise in cost of services and products due to fiber costs and USF contributions, offset by declines in selling, general and administrative costs from headcount reductions, and lower depreciation and amortization due to fully depreciated assets and asset sales - Cost of services and products increased by **$6.2 million (4%)** due to higher access expense for Public Private Partnership agreements, increased Federal Universal Service Fund contributions, and video programming costs, partially offset by lower employee labor costs[149](index=149&type=chunk)[173](index=173&type=chunk) - Selling, general and administrative costs decreased by **$0.9 million (1%)** primarily due to a reduction in employee salaries and benefits from headcount reductions, despite increased advertising and customer acquisition costs[149](index=149&type=chunk)[174](index=174&type=chunk) - Depreciation and amortization expense decreased by **$7.1 million (9%)** as certain acquired assets became fully depreciated/amortized and due to the sale of utility poles, partially offset by ongoing capital expenditures for network expansion[149](index=149&type=chunk)[175](index=175&type=chunk) [Regulatory Matters](index=48&type=section&id=Regulatory%20Matters) This section discusses the impact of federal and state telecommunications regulations on the company's operations, including universal service reform, intercarrier compensation, and responses to the COVID-19 pandemic. It highlights changes in FCC funding, RDOF participation, and state-level subsidy adjustments - The company's annual support through the FCC's Connect America Fund (CAF) Phase II funding is **$48.1 million** through 2021, with milestones met for 2017-2020[181](index=181&type=chunk) - Consolidated won **246 census block groups** in seven states under the Rural Digital Opportunity Fund (RDOF) auction, securing **$5.9 million annually** over 10 years to provide **1 Gbps downstream** and **500 Mbps upstream** speeds to approximately **27,000 locations**[184](index=184&type=chunk) - The Texas Universal Service Fund (TUSF) announced a **64% funding shortfall reduction** starting January 15, 2021, potentially reducing support by **$4.0 million annually**, which the company is challenging legally[187](index=187&type=chunk) - The company received up to **$3.5 million** in New Hampshire CARES Act funding to build high-speed Internet networks in three towns[188](index=188&type=chunk) - The company supported the FCC's 'Keep America Connected' pledge during COVID-19, and most state moratoriums on disconnections have expired, though some extend into Q3 2021[189](index=189&type=chunk) [Non-Operating Items](index=54&type=section&id=Non-Operating%20Items) This section details changes in non-operating financial items, including a significant increase in interest expense due to new debt and the Searchlight Note, a loss on debt extinguishment, a loss from the change in fair value of contingent payment rights, and a decrease in other income - Interest expense, net, increased by **$16.3 million (51%)** in Q1 2021, primarily due to **$10.2 million** in interest expense on the Searchlight Note and increased interest on senior notes from debt refinancing[149](index=149&type=chunk)[192](index=192&type=chunk) - A **$12.0 million loss** on extinguishment of debt was recognized in Q1 2021 due to the repayment of **$397.0 million** of term loans, compared to a **$0.2 million gain** in Q1 2020 from repurchasing senior notes[149](index=149&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk) - A **$57.6 million loss** was recognized in Q1 2021 due to the increase in the fair value of contingent payment rights issued to Searchlight[149](index=149&type=chunk)[195](index=195&type=chunk) - Other income decreased by **$2.9 million (19%)**, driven by a **$1.0 million decrease** in investment income and a **$3.7 million gain** on spectrum license sale in Q1 2020 not recurring, partially offset by a **$1.9 million decrease** in pension and post-retirement expense[149](index=149&type=chunk)[196](index=196&type=chunk) - Income tax expense decreased by **$10.4 million**, with the effective tax rate falling to **7.9%** in Q1 2021 from **24.4%** in Q1 2020, mainly due to permanent income tax differences from the Searchlight transaction[149](index=149&type=chunk)[197](index=197&type=chunk) [Non-GAAP Measures](index=54&type=section&id=Non-GAAP%20Measures) This section defines and reconciles non-GAAP financial measures, specifically EBITDA and Adjusted EBITDA, to their most directly comparable GAAP measures. These metrics are used to evaluate operating performance and liquidity within the telecommunications industry - EBITDA is defined as net earnings before interest expense, income taxes, and depreciation and amortization. Adjusted EBITDA further adjusts EBITDA for certain items as permitted or required under the credit facility[200](index=200&type=chunk) Reconciliation of Net Income (Loss) to Adjusted EBITDA (in millions) | Metric | Quarter Ended March 31, 2021 | Quarter Ended March 31, 2020 | | :----- | :--------------------------- | :--------------------------- | | Net income (loss) | $(62.1) | $15.6 | | Interest expense, net | $48.4 | $32.1 | | Income tax expense (benefit) | $(5.3) | $5.0 | | Depreciation and amortization | $75.6 | $82.7 | | **EBITDA** | **$56.6** | **$135.5** | | Adjustments to EBITDA (Other, Investment distributions, Gain (loss) on extinguishment of debt, Change in fair value of contingent payment rights, Non-cash, stock-based compensation) | $70.0 | $(3.9) | | **Adjusted EBITDA** | **$126.6** | **$131.6** | [Liquidity and Capital Resources](index=56&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's financial liquidity and capital resources, including historical funding sources, expected future funding, cash flow analysis, details of long-term debt and refinancing, and an assessment of cash resource sufficiency for future operations and fiber network expansion - Operating requirements are funded by cash flows from operations, existing cash, and revolving credit facility borrowings. A substantial portion of cash flow will fund capital expenditures for fiber network expansion and growth[203](index=203&type=chunk) Summary of Cash Flows (in millions) | Cash Flow Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :----------------- | :-------------------------------- | :-------------------------------- | | Operating activities | $98.5 | $85.0 | | Investing activities | $(74.7) | $(39.8) | | Financing activities | $145.8 | $(43.5) | | Change in cash and cash equivalents | $169.6 | $1.7 | - Net cash provided by operating activities increased by **$13.5 million** to **$98.5 million** in Q1 2021, primarily due to changes in working capital and timing of expenditures[206](index=206&type=chunk) - Net cash used in investing activities was **$74.7 million** in Q1 2021, mainly for capital expenditures of **$76.0 million** (up from **$42.4 million** in Q1 2020). Expected capital expenditures for 2021 are **$400.0 million to $420.0 million** for fiber network expansion[207](index=207&type=chunk) - Net cash provided by financing activities was **$145.8 million** in Q1 2021, compared to **$43.5 million used** in Q1 2020, reflecting proceeds from bond offerings and long-term debt issuance, partially offset by debt payments[22](index=22&type=chunk)[204](index=204&type=chunk)[208](index=208&type=chunk) - The company's net working capital improved by **$155.6 million** as of March 31, 2021, to **$225.7 million**, primarily due to a **$169.6 million increase** in cash and cash equivalents and a decline in current portion of long-term debt[228](index=228&type=chunk) - Significant uses of funds for the remainder of 2021 include **$101.0-$106.0 million** for interest payments and **$324.0-$344.0 million** for capital expenditures[231](index=231&type=chunk) - The company believes current cash flows, existing cash, and available revolving credit will be sufficient for at least the next twelve months, but future funding depends on economic conditions and operational results[232](index=232&type=chunk) - Expected contributions for 2021 are **$20.7 million** for Pension Plans and **$8.8 million** for Post-retirement Plans[240](index=240&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=66&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risk, primarily from interest rate fluctuations on its debt obligations. It outlines the use of derivative financial instruments (interest rate swaps) to manage this risk and quantifies the potential impact of interest rate changes - The company's primary market risk is from interest rate fluctuations on variable rate debt, managed using interest rate swaps to convert a portion of floating-rate debt to fixed-rate[244](index=244&type=chunk) - As of March 31, 2021, most variable rate debt had a **1.00% LIBOR floor**, which was reduced to **0.75%** on April 5, 2021. A **1.00% increase** in market interest rates would increase annual interest expense by approximately **$1.2 million**[245](index=245&type=chunk) - A **1.00% decrease** in current interest rates would not impact annual interest expense due to the **0.75% LIBOR floor**[245](index=245&type=chunk) - The fair value of interest rate swap agreements was a net liability of **$23.9 million** as of March 31, 2021, with total pre-tax deferred losses of **$20.2 million** in accumulated other comprehensive loss[247](index=247&type=chunk) [Item 4. Controls and Procedures](index=68&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as of March 31, 2021, and states that there have been no material changes in internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2021, providing reasonable assurance of achieving control objectives[248](index=248&type=chunk) - No material changes in internal controls over financial reporting occurred during the quarter ended March 31, 2021[249](index=249&type=chunk) PART II. OTHER INFORMATION This part provides disclosures on legal proceedings and a list of exhibits filed with the Form 10-Q [Item 1. Legal Proceedings](index=69&type=section&id=Item%201.%20Legal%20Proceedings) This section states that the company is involved in various legal proceedings common to its industry, including regulatory issues. While outcomes are uncertain, the company does not anticipate any material adverse impact on its business, results of operations, financial condition, or cash flows - The company is involved in litigation and regulatory issues typical for its industry[252](index=252&type=chunk) - Management does not believe the outcome of these legal matters will have a material adverse impact on the company's business, financial condition, or cash flows[252](index=252&type=chunk) [Item 6. Exhibits](index=70&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including various agreements related to debt, security, and pledges, as well as certifications from the Chief Executive Officer and Chief Financial Officer, and financial information in Inline XBRL format - Exhibits include joinder agreements, supplemental indentures, purchase agreements, and certifications (302 and 906) from the CEO and CFO[254](index=254&type=chunk)[255](index=255&type=chunk)[256](index=256&type=chunk)[257](index=257&type=chunk)[258](index=258&type=chunk)[259](index=259&type=chunk)[260](index=260&type=chunk)[261](index=261&type=chunk)[262](index=262&type=chunk) - Financial information from the 10-Q is provided in Inline XBRL format (Exhibit 101 and 104)[263](index=263&type=chunk)[264](index=264&type=chunk) SIGNATURES This section contains the official signatures of the company's Chief Executive Officer and Chief Financial Officer, certifying the report's submission - The report was signed on April 30, 2021, by C. Robert Udell Jr., Chief Executive Officer, and Steven L. Childers, Chief Financial Officer and Chief Accounting Officer[268](index=268&type=chunk)