Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 000-51446 | --- | --- | |------------------------------------------------------------------------------|------------------------------------------------- ...

Financial Data and Key Metrics Changes - Operating revenues for Q1 2020 totaled $325.7 million, down 3.8% compared to Q1 2019 [33] - Adjusted EBITDA was $131.6 million, an increase of $1.3 million from the previous year [33] - Adjusted net income per share improved to $0.23 compared to a net loss of $0.03 a year ago [48] - Net debt leverage decreased to 4.23 times from 4.33 times at the end of the previous year [50] Business Line Data and Key Metrics Changes - Total commercial and carrier revenue was $147 million, with data and transport revenue growing 1.6% to $89.6 million [34] - Voice services revenue declined by $2.3 million, or 4.9% [34] - Consumer revenue totaled $126.4 million, down $3.3 million or 2.6% year-over-year, but consumer broadband revenue grew 1.6% [38] - Video revenue decreased by 8%, consistent with the strategy to transition to broadband streaming services [39] Market Data and Key Metrics Changes - The company experienced a 20% increase in call volumes across all customer groups and a 40% increase in bandwidth upgrades due to remote work and learning [12][19] - Approximately 51,000 SMB accounts were monitored, with 255 requesting temporary service holds [55] - The company noted a 20% increase in data traffic utilization and a 10% increase in voice traffic [19] Company Strategy and Development Direction - The company remains focused on producing stable earnings and growing free cash flow, leveraging fiber assets across carrier, commercial, and consumer groups [22] - The capital allocation plan emphasizes disciplined cash management and improving the balance sheet [23] - The company is evaluating its portfolio of assets for potential monetization opportunities [23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to manage through the COVID-19 pandemic and highlighted the importance of broadband connectivity [9][20] - The company is closely monitoring early indicators of potential business impacts related to COVID-19, with a focus on maintaining network reliability [17][19] - Management withdrew 2020 guidance due to uncertainties surrounding the economic downturn [32] Other Important Information - The company implemented measures to ensure business continuity during the pandemic, including remote work for 90% of office employees [11] - Capital expenditures for Q1 2020 were $42.4 million, supporting broadband network infrastructure expansion [48] - The company is optimistic about expanding broadband capabilities in rural markets with support from the Rural Development Opportunity Fund [41] Q&A Session Summary Question: What is the percentage of revenue in the SMB channel and areas lacking visibility? - Management indicated that SMB accounts represent about 7% to 8% of total revenue, with 255 accounts requesting temporary holds [55][57] Question: How to balance debt pay down versus building liquidity? - Management emphasized a focus on preserving cash liquidity while remaining committed to the leverage target of four times [59][61] Question: Ongoing portfolio review and potential asset sales? - Management confirmed that ongoing discussions regarding asset sales continue, unaffected by the COVID-19 situation [63] Question: Impact of RDOF and current connectivity providers? - Management stated that the company is well positioned for RDOF opportunities, leveraging existing fiber infrastructure [67] Question: Wireless backhaul and stimulus impact? - Management noted an uptick in wireless backhaul demand and ongoing discussions regarding infrastructure stimulus [71][74]

Q1 2020 Earnings April 30, 2020 tions ted " 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 statemen ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission file number 000-51446 CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. Registrant's telephone number, including area ...

Financial Data and Key Metrics Changes - Operating revenue for Q4 2019 totaled $331 million, with adjusted EBITDA of $130.9 million, resulting in EBITDA margins of 39.5% for the quarter and 39.2% for the full year [19][20]. - Adjusted net income per share improved to $0.01 compared to a net loss of $0.09 per share a year ago, reflecting consistent operating results and a decline in depreciation expense [25]. - The net leverage ratio was 4.33 times at the end of Q4 2019, with a target of 4 times by the end of 2020 [27]. Business Line Data and Key Metrics Changes - Commercial and carrier revenue totaled $148.9 million in Q4, with data and transport revenue growing 2% to approximately $90 million [20]. - Consumer channel revenue decreased by $4.3 million or 3.2% year-over-year, although consumer broadband revenue grew 1.4% in Q4, marking the third consecutive quarter of broadband growth [20][16]. - Consumer ARPU increased by 4% or just over $3 per unit, driven by broadband upgrades [21]. Market Data and Key Metrics Changes - The company connected 1,800 new buildings to its network in 2019, an increase of 18% [12]. - Total tower connections under contract increased by 4.5% year-over-year, reaching approximately 3,900 [11]. - The company completed a fiber overbuild in Chesterfield, New Hampshire, activating customers and seeing average fees grow by more than four times [16]. Company Strategy and Development Direction - The company is focused on producing stable earnings and growing free cash flow, leveraging fiber networks to offset declines in legacy services [7][8]. - A capital allocation plan was executed, with over $27 million in senior unsecured notes retired in Q4 and $55 million since the plan's announcement [9][26]. - The company is reviewing its portfolio for investment or monetization opportunities, including divestitures of non-strategic assets [10]. Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about expanding broadband capabilities in rural markets, supported by the Rural Digital Opportunity Fund [22]. - The company is focused on enhancing cloud and security services and launching new premium data services in 2020 [14]. - Management highlighted the importance of continuous improvement and operational execution to achieve financial targets [30]. Other Important Information - Capital expenditures for Q4 2019 were $47.9 million, with a full-year total of $232.2 million [25][26]. - The company expects adjusted EBITDA for 2020 to be flat to 2019 results, in the range of $520 million to $525 million [28]. Q&A Session Summary Question: Comments on Verizon's dividend and its impact - Management noted that Q4 distributions were lighter than expected due to accelerated capex and new lease accounting rules affecting Verizon's full-year distributions [32][33]. Question: Focus on asset sales and negotiations - Management confirmed ongoing discussions about optimizing assets, including potential divestitures, to maximize shareholder value [34][35]. Question: Consumer connections and ARPU growth - Management acknowledged customer losses in less competitive areas but emphasized that ARPU growth from speed upgrades is outweighing these losses [37][38]. Question: EBITDA guidance and cost efficiency projects - Management discussed ongoing cost efficiency projects and their impact on EBITDA, indicating a disciplined approach to project implementation [39][40]. Question: Key performance indicators and broadband subscriber growth - Management highlighted improvements in churn rates and ARPU as a result of speed upgrades, positively impacting voice and data revenue [45]. Question: Comparison to Cincinnati Bell's fiber initiatives - Management indicated that the company has been deploying fiber in various regions, positioning itself similarly to Cincinnati Bell's investments [46][47]. Question: Capital structure and refinancing plans - Management is exploring all options for capital structure optimization, including potential refinancing, while focusing on executing business plans [49][50]. Question: Pension contributions for 2020 - Management confirmed that pension contributions are included in the free cash flow guidance, estimating around $34 million to $35 million for 2020 [52].

Fourth Quarter Earnings February 20, 2020 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 ...

[PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents unaudited condensed consolidated financial statements and detailed notes on accounting policies, revenue, investments, debt, leases, equity, and pension plans [Condensed Consolidated Statements of Operations](index=3&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) The company reported a net income of $0.389 million for the quarter ended September 30, 2019, a significant improvement from a net loss of $14.815 million in the prior year | Metric (in thousands) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | |:----------------------|:------------|:------------|:------------|:------------| | Net revenues | $333,326 | $348,064 | $1,005,507 | $1,054,324 | | Income from operations| $23,542 | $748 | $54,562 | $15,414 | | Net income (loss) | $389 | $(14,815) | $(14,109) | $(36,573) | | EPS (basic & diluted) | $0.00 | $(0.21) | $(0.21) | $(0.53) | | Dividends per share | $0.00 | $0.39 | $0.39 | $1.16 | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=4&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME%20(LOSS)) Total comprehensive loss attributable to common shareholders for the quarter ended September 30, 2019, was $(1.529) million, compared to a comprehensive income of $0.185 million in the prior year | Metric (in thousands) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | |:----------------------|:------------|:------------|:------------|:------------| | Net income (loss) | $389 | $(14,815) | $(14,109) | $(36,573) | | Change in fair value of derivatives, net of tax | $(2,110) | $4,975 | $(20,945) | $13,596 | | Total comprehensive income (loss) attributable to common shareholders | $(1,529) | $185 | $(34,187) | $(9,928) | [Condensed Consolidated Balance Sheets](index=5&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) As of September 30, 2019, total assets were $3.443 billion, a decrease from $3.535 billion at December 31, 2018 | Metric (in thousands) | Sep 30, 2019 | Dec 31, 2018 | |:----------------------|:-------------|:-------------| | Total current assets | $185,449 | $198,143 | | Property, plant and equipment, net | $1,861,033 | $1,927,126 | | Goodwill | $1,035,274 | $1,035,274 | | Total assets | $3,443,301 | $3,535,261 | | Total current liabilities | $258,381 | $283,614 | | Long-term debt and finance lease obligations | $2,285,177 | $2,303,585 | | Total liabilities | $3,083,597 | $3,119,607 | | Total shareholders' equity | $359,704 | $415,654 | [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=6&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CHANGES%20IN%20SHAREHOLDERS'%20EQUITY) Shareholders' equity decreased from $415.654 million at December 31, 2018, to $359.704 million at September 30, 2019, primarily due to cash dividends and other comprehensive loss | Metric (in thousands) | Dec 31, 2018 | Sep 30, 2019 | |:----------------------|:-------------|:-------------| | Balance at period start | $415,654 | $415,654 | | Cash dividends on common stock | $(27,356) | $(27,356) | | Shares issued under employee plan, net of forfeitures | $9 | $9 | | Non-cash, share-based compensation | $1,498 | $1,498 | | Other comprehensive income (loss) | $(6,446) | $(6,446) | | Net income (loss) | $(7,265) | $(7,265) | | Balance at period end | $359,704 | $359,704 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) Net cash provided by operating activities decreased by $15.4 million to $248.6 million for the nine months ended September 30, 2019, compared to the same period in 2018 | Metric (in thousands) | 9M 2019 | 9M 2018 | |:----------------------|:------------|:------------| | Net cash provided by operating activities | $248,637 | $264,036 | | Net cash used in investing activities | $(170,121) | $(163,893) | | Net cash used in financing activities | $(81,937) | $(111,974) | | Change in cash and cash equivalents | $(3,421) | $(11,831) | | Cash and cash equivalents at end of period | $6,178 | $3,826 | [1. Summary of Significant Accounting Policies](index=8&type=section&id=1.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) The company provides communication solutions across a 23-state service area, leveraging an advanced fiber network, and has adopted several new accounting standards - The Company provides communication solutions to consumer, commercial, and carrier customers across a 23-state service area, leveraging an advanced fiber network spanning over **37,000 fiber route miles**[22](index=22&type=chunk)[23](index=23&type=chunk) - Effective January 1, 2019, the Company adopted ASU 2016-02 (Leases), recognizing approximately **$30.9 million** in right-of-use assets and lease liabilities for historical operating leases[29](index=29&type=chunk)[31](index=31&type=chunk) - The Company monitors its goodwill for impairment annually, with a carrying value of **$1,035.3 million** as of September 30, 2019, and is assessing potential impairment due to historically low common stock trading prices[26](index=26&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk) [2. Revenue](index=10&type=section&id=2.%20REVENUE) Revenue is disaggregated by customer type and service category, showing growth in commercial and carrier data and transport services, offset by declines in voice services and subsidies | Revenue Category (in thousands) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | |:--------------------------------|:------------|:------------|:------------|:------------| | Commercial and carrier: Data and transport services | $88,756 | $87,633 | $265,420 | $261,261 | | Commercial and carrier: Voice services | $46,606 | $50,091 | $141,812 | $153,574 | | Consumer: Broadband (VoIP and Data) | $65,456 | $63,865 | $192,609 | $189,521 | | Consumer: Video services | $20,463 | $21,790 | $61,540 | $66,689 | | Consumer: Voice services | $45,487 | $50,757 | $136,601 | $154,435 | | Subsidies | $18,025 | $19,189 | $54,318 | $65,423 | | Network access | $34,211 | $38,147 | $105,000 | $115,200 | | Other products and services | $2,494 | $2,686 | $7,813 | $8,215 | | Contract Balances (in thousands) | Sep 30, 2019 | Dec 31, 2018 | |:---------------------------------|:-------------|:-------------| | Accounts receivable, net | $125,908 | $143,077 | | Contract assets | $17,578 | $9,912 | | Contract liabilities | $52,709 | $54,584 | [3. Earnings (Loss) Per Share](index=13&type=section&id=3.%20EARNINGS%20(LOSS)%20PER%20SHARE) Basic and diluted EPS are computed using the two-class method, with the company reporting $0.00 and $(0.21) EPS for the quarter and nine months ended September 30, 2019, respectively | Metric (in thousands, except per share) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | |:----------------------------------------|:------------|:------------|:------------|:------------| | Net income (loss) attributable to common shareholders, after earnings allocated to participating securities | $252 | $(15,135) | $(14,857) | $(37,518) | | Weighted-average number of common shares outstanding | 70,813 | 70,598 | 70,813 | 70,598 | | Net income (loss) per common share - basic and diluted | $0.00 | $(0.21) | $(0.21) | $(0.53) | - Diluted EPS for Q3 2019 and 9M 2019 excludes **1.3 million** and **1.1 million** potential common shares, respectively, due to their anti-dilutive effect[62](index=62&type=chunk) [4. Investments](index=14&type=section&id=4.%20INVESTMENTS) The company's investments primarily consist of minority interests in cellular limited partnerships and an investment in CoBank, totaling $112.377 million as of September 30, 2019 | Investment Category (in thousands) | Sep 30, 2019 | Dec 31, 2018 | |:-----------------------------------|:-------------|:-------------| | Cash surrender value of life insurance policies | $2,474 | $2,371 | | Investments at cost (Mobilnet South, Pittsburgh SMSA, CoBank, Other) | $53,658 | $53,769 | | Equity method investments (RSA 17, RSA 6(I), RSA 6(II)) | $56,295 | $54,733 | | Totals | $112,377 | $110,853 | | Cash Distributions (in thousands) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | |:----------------------------------|:------------|:------------|:------------|:------------| | From cost method partnerships | $6,100 | $3,100 | $14,400 | $12,200 | | From equity method partnerships | $4,800 | $5,000 | $14,400 | $16,600 | [5. Fair Value Measurements](index=15&type=section&id=5.%20FAIR%20VALUE%20MEASUREMENTS) The company measures its interest rate swap agreements at fair value on a recurring basis, categorized as Level 2, resulting in a total net liability of $(31.822) million as of September 30, 2019 | Interest Rate Swaps (in thousands) | Sep 30, 2019 | Dec 31, 2018 | |:-----------------------------------|:-------------|:-------------| | Current interest rate swap liabilities | $(3,352) | $2,465 (assets) | | Long-term interest rate swap liabilities | $(28,470) | $1,524 (assets) & $(6,647) (liabilities) | | Total Fair Values | $(31,822) | $(2,658) | | Long-term Debt (in thousands) | Sep 30, 2019 (Carrying Value) | Sep 30, 2019 (Fair Value) | Dec 31, 2018 (Carrying Value) | Dec 31, 2018 (Fair Value) | |:--------------------------------|:------------------------------|:--------------------------|:------------------------------|:--------------------------| | Long-term debt, excluding finance leases | $2,298,319 | $2,176,254 | $2,315,077 | $2,155,127 | [6. Long-Term Debt](index=16&type=section&id=6.%20LONG-TERM%20DEBT) The company's long-term debt, primarily consisting of term loans and Senior Notes, decreased to $2.271 billion as of September 30, 2019, and the company remained in compliance with all debt covenants | Long-term Debt (in thousands) | Sep 30, 2019 | Dec 31, 2018 | |:------------------------------|:-------------|:-------------| | Term loans, net of discounts | $1,783,345 | $1,796,068 | | Revolving loan | $45,000 | $22,000 | | 6.50% Senior notes due 2022, net of discount | $469,974 | $497,009 | | Total long-term debt | $2,270,901 | $2,285,341 | - The company repurchased **$27.7 million** of 6.50% Senior Notes due 2022 during the nine months ended September 30, 2019, resulting in a gain on extinguishment of debt of **$1.4 million**[88](index=88&type=chunk) - As of September 30, 2019, the total net leverage ratio was **4.45:1.00** and the interest coverage ratio was **3.69:1.00**, both in compliance with Credit Agreement covenants[85](index=85&type=chunk) [7. Derivative Financial Instruments](index=18&type=section&id=7.%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) The company uses interest rate swap agreements to manage interest rate exposure, resulting in a net liability of $(31.822) million as of September 30, 2019, with an unrealized loss in AOCI | Interest Rate Swaps (in thousands) | Notional Amount | Fair Value (Sep 30, 2019) | |:-----------------------------------|:----------------|:--------------------------| | Fixed to 1-month floating LIBOR (with floor) | $705,000 | $(3,352) | | Fixed to 1-month floating LIBOR (with floor) | $500,000 | $(21,302) | | Forward starting fixed to 1-month floating LIBOR (with floor) | $705,000 | $(7,168) | | Total Fair Values | | $(31,822) | - As of September 30, 2019, the total pre-tax unrealized loss related to interest rate swap agreements included in AOCI was **$(26.7) million**, with an expected recognition of approximately **$6.5 million** loss in earnings over the next twelve months[97](index=97&type=chunk) [8. Leases](index=19&type=section&id=8.%20LEASES) Following ASU 2016-02 adoption, the company recognizes right-of-use assets and lease liabilities, with total lease cost for the nine months ended September 30, 2019, reaching $18.719 million | Lease Components (in thousands) | Sep 30, 2019 | |:--------------------------------|:-------------| | Operating lease right-of-use assets | $27,586 | | Current lease liabilities (operating) | $(6,454) | | Noncurrent lease liabilities (operating) | $(21,276) | | Finance lease right-of-use assets, net | $21,826 | | Current lease liabilities (finance) | $(9,519) | | Noncurrent lease liabilities (finance) | $(14,276) | | Lease Expense (in thousands) | Q3 2019 | 9M 2019 | |:-----------------------------|:------------|:------------| | Finance lease cost: Amortization of right-of-use assets | $2,533 | $9,563 | | Finance lease cost: Interest on lease liabilities | $541 | $1,601 | | Operating lease cost | $1,236 | $5,661 | | Variable lease cost | $518 | $1,894 | | Total lease cost | $4,828 | $18,719 | - The company recognized **$0.6 million** in revenue and a **$0.4 million** gain from a sales-type lease arrangement for dark fiber during the nine months ended September 30, 2019[106](index=106&type=chunk) [9. Equity](index=21&type=section&id=9.%20EQUITY) The Board of Directors eliminated quarterly dividend payments starting in Q2 2019 to focus on deleveraging, while accumulated other comprehensive loss increased to $(73.004) million due to derivative instruments - The Board of Directors eliminated quarterly dividend payments on common stock beginning in the **second quarter of 2019** to focus on deleveraging and creating long-term shareholder value[109](index=109&type=chunk) | Share-Based Compensation (in thousands) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | |:----------------------------------------|:------------|:------------|:------------|:------------| | Restricted stock | $1,094 | $979 | $3,077 | $2,393 | | Performance shares | $834 | $559 | $2,163 | $1,361 | | Total | $1,928 | $1,538 | $5,240 | $3,754 | | Accumulated Other Comprehensive Loss (in thousands) | Dec 31, 2018 | Sep 30, 2019 | |:----------------------------------------------------|:-------------|:-------------| | Pension and Post-Retirement Obligations | $(55,514) | $(53,268) | | Derivative Instruments | $2,302 | $(19,736) | | Total Balance | $(53,212) | $(73,004) | [10. Pension Plan and Other Post-Retirement Benefits](index=23&type=section&id=10.%20PENSION%20PLAN%20AND%20OTHER%20POST-RETIREMENT%20BENEFITS) The company's defined benefit pension and non-qualified supplemental retirement plans are frozen, with net periodic pension cost showing a benefit of $(0.809) million and post-retirement benefit cost increasing to $4.535 million for the nine months ended September 30, 2019 - All defined benefit pension plans are frozen to new entrants and benefit accruals as of **April 1, 2019**[118](index=118&type=chunk) | Net Periodic Pension Cost (in thousands) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | |:-----------------------------------------|:------------|:------------|:------------|:------------| | Service cost | $14 | $1,412 | $37 | $4,482 | | Interest cost | $7,520 | $7,223 | $22,842 | $21,509 | | Expected return on plan assets | $(8,604) | $(9,639) | $(25,947) | $(28,943) | | Net periodic pension (benefit) cost | $(278) | $582 | $(809) | $1,503 | | Net Periodic Post-retirement Benefit Cost (in thousands) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | |:---------------------------------------------------------|:------------|:------------|:------------|:------------| | Service cost | $484 | $31 | $717 | $285 | | Interest cost | $884 | $996 | $3,173 | $3,053 | | Net periodic post-retirement benefit cost | $779 | $896 | $4,535 | $2,818 | [11. Income Taxes](index=25&type=section&id=11.%20INCOME%20TAXES) The effective tax rate for the quarter ended September 30, 2019, was 75.6%, significantly higher than the prior year, primarily due to a state examination settlement and other adjustments | Effective Tax Rate | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | |:-------------------|:--------|:--------|:--------|:--------| | Effective tax rate | 75.6% | 37.8% | 28.8% | 32.1% | - Unrecognized tax benefits were **$4.9 million** as of September 30, 2019, with a net amount of **$4.7 million** that would impact the effective tax rate if recognized[128](index=128&type=chunk) - The increase in Q3 2019 effective tax rate was influenced by a **$0.6 million** increase in state expense due to a settled state examination and prior year adjustments related to the Tax Cuts and Jobs Act of 2017 and the FairPoint acquisition[131](index=131&type=chunk) [12. Commitments and Contingencies](index=26&type=section&id=12.%20COMMITMENTS%20AND%20CONTINGENCIES) The company is involved in various legal and regulatory proceedings, including disputes over Local Switching Support, access charges, and Pennsylvania Gross Receipts Tax, with some matters settled favorably and others ongoing - The FCC approved the company's petition regarding Local Switching Support (LSS) in **April 2018**, leading to **$5.4 million** in subsidies revenue recognized during the nine months ended September 30, 2018, and an ongoing ICC Eligible Recovery support of approximately **$3.4 million** for 2019[133](index=133&type=chunk)[218](index=218&type=chunk)[275](index=275&type=chunk) - The U.S. District Court granted summary judgments in favor of the company's LEC entities against Sprint, Verizon, and Level 3 regarding switched access charges. A settlement was reached with Level 3 in **September 2018**, and appeals by Verizon and Sprint remain pending[138](index=138&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk) - For the Pennsylvania Gross Receipts Tax, the company has reserved **$3.8 million** for CCES and **$1.8 million** for CCPA for potential additional tax liabilities, with a settlement expected for tax years **2008-2013** in **November 2019**[143](index=143&type=chunk)[144](index=144&type=chunk) [13. Condensed Consolidating Financial Information](index=28&type=section&id=13.%20CONDENSED%20CONSOLIDATING%20FINANCIAL%20INFORMATION) This section provides condensed consolidating financial statements for the Parent company, Subsidiary Issuer, guarantor subsidiaries, and non-guarantor subsidiaries, reflecting intercompany eliminations due to Senior Notes guarantees - Consolidated Communications, Inc. is the primary obligor under the Senior Notes, with the company and substantially all subsidiaries providing full, unconditional, and joint and several guarantees[146](index=146&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.](index=35&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, highlighting key trends, strategic initiatives, and the impact of regulatory changes [Overview](index=35&type=section&id=Overview) Consolidated Communications is a broadband and business communications provider operating across 23 states with a 37,000-mile fiber network, focusing on expanding broadband and commercial services while adapting to industry-wide declines in voice services - Consolidated Communications operates an advanced fiber network spanning approximately **37,000 fiber route miles** across a 23-state service area, providing communication solutions to consumer, commercial, and carrier customers[166](index=166&type=chunk) - The company's strategy focuses on expanding broadband and commercial product suites, including new services like BusinessOne, SD-WAN, and MPLS, and enhancing managed and cloud services[167](index=167&type=chunk)[169](index=169&type=chunk) - Residential services prioritize high-speed internet, with speeds up to **1 Gbps** in select markets, and the company launched CCiTV, a cloud-enabled video service, to adapt to changing consumer viewing habits and reduce operating costs[170](index=170&type=chunk)[171](index=171&type=chunk) - Total video connections decreased by **10%** and total voice connections decreased by **7%** as of September 30, 2019, compared to the same period in 2018, reflecting industry-wide trends and competition[171](index=171&type=chunk)[172](index=172&type=chunk) [Results of Operations](index=37&type=section&id=Results%20of%20Operations) Total operating revenues decreased by 4% for the quarter and 5% for the nine months ended September 30, 2019, primarily due to declines in voice services and subsidies, partially offset by growth in commercial and carrier data and transport services | Metric (in millions) | Q3 2019 | Q3 2018 | % Change (Q3) | 9M 2019 | 9M 2018 | % Change (9M) | |:---------------------|:--------|:--------|:--------------|:--------|:--------|:--------------| | Total operating revenues | $333.4 | $348.1 | (4)% | $1,005.5| $1,054.3| (5)% | | Commercial and carrier: Data and transport services | $88.7 | $87.7 | 1% | $265.4 | $261.3 | 2% | | Commercial and carrier: Voice services | $46.6 | $50.1 | (7)% | $141.8 | $153.6 | (8)% | | Consumer: Broadband (Data and VoIP) | $65.5 | $63.9 | 3% | $192.7 | $189.5 | 2% | | Consumer: Video services | $20.5 | $21.8 | (6)% | $61.5 | $66.7 | (8)% | | Consumer: Voice services | $45.5 | $50.7 | (10)% | $136.6 | $154.4 | (12)% | | Subsidies | $18.1 | $19.2 | (6)% | $54.3 | $65.4 | (17)% | | Network access | $34.2 | $38.1 | (10)% | $105.0 | $115.2 | (9)% | | Total operating expenses | $309.8 | $347.4 | (11)% | $950.9 | $1,038.9| (8)% | | Income from operations | $23.6 | $0.7 | 3,271% | $54.6 | $15.4 | 255% | - Cost of services and products decreased by **$18.5 million (4%)** for the nine months ended September 30, 2019, due to reduced employee salaries and benefits, lower pension costs, and decreased access expense, partially offset by rising video programming costs[199](index=199&type=chunk) - Selling, general and administrative costs decreased by **$30.4 million (12%)** for the nine months ended September 30, 2019, driven by operating synergies from the FairPoint integration, reduced headcount, lower incentive compensation, and property tax abatements[200](index=200&type=chunk) - Depreciation and amortization expense decreased by **$39.1 million (12%)** for the nine months ended September 30, 2019, as outside plant and network cable assets became fully depreciated or amortized, partially offset by capital expenditures for network enhancements and increased amortization for customer relationships[201](index=201&type=chunk) [Regulatory Matters](index=42&type=section&id=Regulatory%20Matters) The telecommunications industry is subject to extensive federal and state regulation, impacting revenue from USF, CAF, and intercarrier compensation, with the company accepting CAF Phase II funding and adapting to new FCC rules for Business Data Services - The FCC's 2011 Order and subsequent CAF Phase II funding have significantly impacted support revenue, shifting from voice to broadband services. The company accepted CAF Phase II funding in most operating states, with annual funding of **$48.1 million** through **2020**[209](index=209&type=chunk)[212](index=212&type=chunk)[272](index=272&type=chunk) - The company is committed to statewide broadband build-out requirements under CAF Phase II, aiming to serve approximately **124,500 locations** with **10 Mbps downstream** and **1 Mbps upstream** speeds by **December 31, 2020**, and has met interim milestones[213](index=213&type=chunk) - New FCC rules for Business Data Services (BDS) allow for price flexibility and de-tariffing of competitive services, with the company electing a similar regulatory framework for its rate of return companies starting **July 2019**[219](index=219&type=chunk)[220](index=220&type=chunk) - Regulatory commitments from the FairPoint acquisition require significant capital investments in network improvements and data speed upgrades in northern New England, New York, and Illinois markets through **2020**, all of which are currently on track[227](index=227&type=chunk) [Non-Operating Items](index=45&type=section&id=Non-Operating%20Items) Interest expense increased due to higher variable rates, a gain on extinguishment of debt was recognized, and pension and post-retirement expenses rose, while income taxes increased significantly for the quarter due to a state examination settlement - Interest expense, net, increased by **$4.3 million** for the nine months ended September 30, 2019, primarily due to an increase in variable interest rates[229](index=229&type=chunk) - A gain on extinguishment of debt of **$1.4 million** was recognized for the nine months ended September 30, 2019, resulting from the repurchase of **$27.7 million** of Senior Notes[230](index=230&type=chunk) - Pension and post-retirement expense increased by **$3.4 million** for the nine months ended September 30, 2019, mainly due to a new post-retirement medical benefit[231](index=231&type=chunk) - Income taxes increased by **$11.5 million** for the nine months ended September 30, 2019, with the effective tax rate at **28.8%**, influenced by a **$0.6 million** state examination settlement and prior year adjustments[233](index=233&type=chunk) [Non-GAAP Measures](index=46&type=section&id=Non-GAAP%20Measures) The company uses non-GAAP measures like EBITDA and Adjusted EBITDA to evaluate operating performance and trends, with Adjusted EBITDA for the nine months ended September 30, 2019, decreasing by 3% to $392.7 million - EBITDA is defined as net earnings before interest expense, income taxes, and depreciation and amortization. Adjusted EBITDA further adjusts EBITDA for items such as equity earnings, investment distributions, gain on debt extinguishment, and non-cash stock-based compensation[234](index=234&type=chunk)[236](index=236&type=chunk)[237](index=237&type=chunk) | Metric (in thousands) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 | |:----------------------|:------------|:------------|:------------|:------------| | Net income (loss) | $389 | $(14,815) | $(14,109) | $(36,573) | | EBITDA | $128,891 | $118,835 | $373,037 | $374,015 | | Adjusted EBITDA | $130,973 | $133,702 | $392,655 | $404,929 | [Liquidity and Capital Resources](index=48&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is primarily funded by cash flows from operations, which decreased by $15.4 million for the nine months ended September 30, 2019, with capital expenditures of $184.3 million and a focus on deleveraging through dividend elimination | Cash Flows (in thousands) | 9M 2019 | 9M 2018 | |:--------------------------|:------------|:------------| | Operating activities | $248,637 | $264,036 | | Investing activities | $(170,121) | $(163,893) | | Financing activities | $(81,937) | $(111,974) | | Change in cash and cash equivalents | $(3,421) | $(11,831) | - Capital expenditures were **$184.3 million** for the nine months ended September 30, 2019, with an additional **$36.0 million to $41.0 million** planned for the remainder of 2019, primarily for success-based capital projects[242](index=242&type=chunk) - The company eliminated quarterly dividend payments starting in **Q2 2019** to focus on deleveraging and creating long-term value for stockholders[258](index=258&type=chunk)[259](index=259&type=chunk) - Working capital deficit decreased by **$12.5 million** as of September 30, 2019, primarily due to dividend elimination and decreased accrued compensation, partially offset by new lease liabilities and increased accrued interest[261](index=261&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=53&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 through interest rate swap agreements, with a 1.00% change in rates impacting annual interest expense by approximately $6.1 million - The company's primary market risk is interest rate fluctuations on variable rate debt, managed through interest rate swap agreements that convert floating-rate debt to a fixed-rate basis[278](index=278&type=chunk) - As of September 30, 2019, a **1.00%** change in market interest rates would increase or decrease annual interest expense by approximately **$6.1 million**, with most variable rate debt subject to a **1.00% LIBOR floor**[278](index=278&type=chunk) - The fair value of interest rate swap agreements was a net liability of **$31.8 million**, with total pre-tax deferred losses of **$26.7 million** in accumulated other comprehensive loss as of September 30, 2019[278](index=278&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=53&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2019, with no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were **effective** as of September 30, 2019[279](index=279&type=chunk)[281](index=281&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2019[282](index=282&type=chunk) [PART II. OTHER INFORMATION](index=55&type=section&id=PART%20II.%20OTHER%20INFORMATION) [ITEM 1. LEGAL PROCEEDINGS](index=55&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is involved in various legal and regulatory proceedings common to its industry, but management does not anticipate any material adverse impact on its business or financial condition - The company is involved in various legal and regulatory proceedings, but does not expect a **material adverse impact** on its business, results of operations, financial condition, or cash flows[285](index=285&type=chunk) [ITEM 6. EXHIBITS](index=56&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer, and financial information formatted in Inline XBRL - Exhibits include certifications from the CEO and CFO (**31.1, 31.2, 32.1**) and financial information in Inline XBRL format (**101, 104**)[287](index=287&type=chunk) [SIGNATURES](index=57&type=section&id=SIGNATURES) The report is duly signed on behalf of Consolidated Communications Holdings, Inc. by its Chief Executive Officer and Chief Financial Officer as of November 1, 2019 - The report was signed by C. Robert Udell Jr., Chief Executive Officer, and Steven L. Childers, Chief Financial Officer and Chief Accounting Officer, on **November 1, 2019**[290](index=290&type=chunk)

Consolidated Communications Holdings, Inc. (NASDAQ:CNSL) Q3 2019 Earnings Conference Call October 31, 2019 10:00 AM ET Company Participants Jennifer Spaude - VP of Corporate Communications Robert Udell - President, Chief Executive Officer and Director Steven Childers - Chief Financial Officer Conference Call Participants Jonathan Charbonneau - Cowen & Company. Adam Ilkowitz - Citigroup Michael McCormack - Guggenheim Partners Jennifer Fritzsche - Wells Fargo Securities, LLC Davis Hebert - Wells Fargo Securit ...

PART I. FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the three and six months ended June 30, 2019 Condensed Consolidated Statements of Operations (Unaudited, in thousands) | | Quarter Ended June 30, 2019 | Quarter Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | **Net revenues** | $333,532 | $350,221 | $672,181 | $706,260 | | **Income from operations** | $14,300 | $5,427 | $31,020 | $14,666 | | **Net loss** | $(7,312) | $(10,560) | $(14,498) | $(21,758) | | **Net loss per share (basic and diluted)** | $(0.10) | $(0.15) | $(0.21) | $(0.32) | Condensed Consolidated Balance Sheets (Unaudited, in thousands) | | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | **Total current assets** | $200,596 | $198,143 | | **Total assets** | $3,485,710 | $3,535,261 | | **Total current liabilities** | $264,111 | $283,614 | | **Total liabilities** | $3,126,537 | $3,119,607 | | **Total shareholders' equity** | $359,173 | $415,654 | Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands) | | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $163,262 | $194,371 | | **Net cash used in investing activities** | $(105,686) | $(123,164) | | **Net cash used in financing activities** | $(56,725) | $(76,222) | | **Change in cash and cash equivalents** | $851 | $(5,015) | [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This subsection details disclosures for financial statements, covering accounting standards, revenue, debt, equity, and contingencies - Effective January 1, 2019, the company adopted the new lease standard (ASU 2016-02), resulting in the recognition of right-of-use assets and lease liabilities of **approximately $30.9 million** for historical operating leases[32](index=32&type=chunk) Disaggregation of Revenue (in thousands) | Revenue Category | Q2 2019 | Q2 2018 | | :--- | :--- | :--- | | **Commercial and carrier** | $149,064 | $153,162 | | **Consumer** | $129,644 | $136,226 | | **Subsidies** | $18,134 | $20,979 | | **Network access** | $34,198 | $37,338 | | **Total operating revenues** | $333,532 | $350,221 | - As of June 30, 2019, total long-term debt was **approximately $2.3 billion** The company was in compliance with all covenants under its Credit Agreement and the indenture governing its Senior Notes[76](index=76&type=chunk)[84](index=84&type=chunk)[89](index=89&type=chunk) - On April 25, 2019, the company announced the elimination of quarterly dividends on its stock, beginning in the second quarter of 2019, to prioritize deleveraging[111](index=111&type=chunk) - The company is involved in legal proceedings concerning access charges with Sprint and Verizon and a Gross Receipts Tax dispute in Pennsylvania Management does not expect these matters to have a material adverse impact on financial results[137](index=137&type=chunk)[145](index=145&type=chunk)[148](index=148&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=53&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes financial condition and operational results, covering performance, trends, regulatory impacts, liquidity, and capital resources [Results of Operations](index=57&type=section&id=MD%26A_Results_of_Operations) This subsection analyzes operating results, showing a 5% decrease in total operating revenues offset by lower expenses, leading to increased income from operations Operating Revenues Comparison (in millions) | Revenue Category | Q2 2019 | Q2 2018 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Commercial and carrier | $149.1 | $153.2 | $(4.1) | (3)% | | Consumer | $129.6 | $136.2 | $(6.6) | (5)% | | Subsidies | $18.1 | $20.9 | $(2.8) | (13)% | | Network access | $34.2 | $37.4 | $(3.2) | (9)% | | **Total operating revenues** | **$333.5** | **$350.2** | **$(16.7)** | **(5)%** | - Commercial data and transport revenues grew by **$1.0 million (1%)** in Q2 2019 YoY, driven by Metro Ethernet and VoIP services, while commercial voice services revenue fell by **$4.3 million (8%)** due to a **7% decline** in access lines[188](index=188&type=chunk)[190](index=190&type=chunk) - Consumer revenues saw a **$1.6 million (3%)** increase in broadband due to price increases, but this was offset by a **$1.8 million (8%)** decrease in video and a **$6.4 million (12%)** decrease in voice services, reflecting connection losses[193](index=193&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk) - Operating expenses declined primarily due to cost-saving initiatives reducing employee-related costs, lower pension costs from frozen benefit plans, and a decrease in video programming costs corresponding to subscriber losses[201](index=201&type=chunk)[202](index=202&type=chunk) [Regulatory Matters](index=64&type=section&id=MD%26A_Regulatory_Matters) This subsection details the impact of federal and state regulations on revenues, including CAF Phase II funding, ICC reform, and FairPoint acquisition commitments - The company accepted CAF Phase II funding, replacing previous support with **$48.1 million annually** through 2020 This funding is tied to a commitment to serve approximately **124,500 locations** with broadband speeds of at least **10 Mbps downstream / 1 Mbps upstream** by the end of 2020[215](index=215&type=chunk)[216](index=216&type=chunk) - As part of the FairPoint acquisition, the company has regulatory commitments to make specific capital investments in Maine, New Hampshire, and Vermont through 2020, totaling a percentage of state revenues or fixed dollar amounts annually[231](index=231&type=chunk) - The FCC's reform of intercarrier compensation (ICC) continues to reduce network access revenue, with an anticipated decline of **approximately $1.1 million for the full year 2019**[211](index=211&type=chunk)[278](index=278&type=chunk) [Liquidity and Capital Resources](index=74&type=section&id=MD%26A_Liquidity_and_Capital_Resources) This subsection outlines the company's liquidity, cash flow, and capital structure, highlighting dividend elimination for deleveraging and sufficient resources for future obligations Summary of Cash Flows (in thousands) | | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | **Operating activities** | $163,262 | $194,371 | | **Investing activities** | $(105,686) | $(123,164) | | **Financing activities** | $(56,725) | $(76,222) | - Capital expenditures for the remainder of 2019 are projected to be between **$90.0 million and $100.0 million**, with a focus on success-based projects for consumer and commercial initiatives[247](index=247&type=chunk) - The company eliminated its quarterly dividend payments beginning in Q2 2019 to focus on deleveraging and create long-term shareholder value This action freed up **approximately $27.6 million per quarter**[263](index=263&type=chunk)[266](index=266&type=chunk) - Management believes that cash flows from operations, existing cash, and available borrowings under the revolving credit facility will be sufficient to fund anticipated uses of cash for at least the next twelve months[268](index=268&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=83&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section addresses the company's market risk exposure, primarily from interest rate fluctuations on variable-rate debt, and mitigation strategies - The company's primary market risk exposure is from interest rate fluctuations on its variable-rate debt obligations[284](index=284&type=chunk) - Based on outstanding variable-rate debt as of June 30, 2019, a **1.00% change** in market interest rates would result in an **approximate $6.8 million change** in annual interest expense[285](index=285&type=chunk) - As of June 30, 2019, the fair value of the company's interest rate swap agreements was a **net liability of $29.4 million**[286](index=286&type=chunk) [Controls and Procedures](index=83&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of disclosure controls and procedures, with no material changes in internal control over financial reporting - Management, including the CEO and CFO, evaluated and concluded that the company's disclosure controls and procedures were effective as of June 30, 2019[287](index=287&type=chunk) - There were no changes in internal control over financial reporting during the quarter ended June 30, 2019, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[289](index=289&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=86&type=section&id=Item%201.%20Legal%20Proceedings) This section confirms the company's involvement in routine litigation, with management not expecting a material adverse impact on financial results - The company is involved in routine litigation and regulatory issues common to the telecommunications industry[292](index=292&type=chunk) - Management does not expect the outcome of any of these legal matters to have a material adverse impact on the company's business, results of operations, financial condition, or cash flows[292](index=292&type=chunk) [Exhibits](index=87&type=section&id=Item%206.%20Exhibits) This section lists concurrently filed exhibits, including CEO/CFO certifications and financial statements in Inline XBRL format - The report includes certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[294](index=294&type=chunk) - Financial information is provided in Inline eXtensible Business Reporting Language (XBRL) format as an exhibit[294](index=294&type=chunk) SIGNATURES The report was duly signed on August 2, 2019, by C. Robert Udell Jr., Chief Executive Officer, and Steven L. Childers, Chief Financial Officer[298](index=298&type=chunk)

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2019 [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements and related notes for the quarter ended March 31, 2019, detailing financial performance, position, and cash flows [Condensed Consolidated Statements of Operations](index=4&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) This table summarizes the company's revenues, operating income, and net loss for the first quarter of 2019 and 2018 | Metric (in thousands, except per share) | Q1 2019 | Q1 2018 | Change ($) | Change (%) | | :-------------------------------------- | :----------- | :----------- | :----------- | :----------- | | Net revenues | $338,649 | $356,039 | $(17,390) | (4.9%) | | Income from operations | $16,720 | $9,239 | $7,481 | 81.0% | | Net loss | $(7,186) | $(11,198) | $4,012 | 35.8% | | Net loss attributable to common shareholders | $(7,265) | $(11,298) | $4,033 | 35.7% | | Net loss per basic and diluted common shares | $(0.11) | $(0.16) | $0.05 | 31.3% | | Dividends declared per common share | $0.39 | $0.39 | $0.00 | 0.0% | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME%20(LOSS)) This table presents the net loss and comprehensive loss for the first quarter of 2019 and 2018, including other comprehensive income items | Metric (in thousands) | Q1 2019 | Q1 2018 | | :-------------------- | :----------- | :----------- | | Net loss | $(7,186) | $(11,198) | | Comprehensive loss | $(13,632) | $(5,274) | | Total comprehensive loss attributable to common shareholders | $(13,711) | $(5,374) | [Condensed Consolidated Balance Sheets](index=6&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) This table provides a snapshot of the company's assets, liabilities, and shareholders' equity as of March 31, 2019, and December 31, 2018 | Metric (in thousands) | March 31, 2019 | December 31, 2018 | | :-------------------- | :------------- | :---------------- | | Total current assets | $195,878 | $198,143 | | Total assets | $3,524,045 | $3,535,261 | | Total current liabilities | $285,028 | $283,614 | | Total liabilities | $3,147,881 | $3,119,607 | | Total shareholders' equity | $376,164 | $415,654 | [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=7&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CHANGES%20IN%20SHAREHOLDERS'%20EQUITY) This table outlines changes in the company's shareholders' equity components from December 31, 2018, to March 31, 2019 | Metric (in thousands) | Balance at Dec 31, 2018 | Balance at Mar 31, 2019 | | :-------------------- | :---------------------- | :---------------------- | | Common Stock | $712 | $721 | | Additional Paid-in Capital | $513,070 | $487,203 | | Accumulated Deficit | $(50,834) | $(58,099) | | Accumulated Other Comprehensive Loss, net | $(53,212) | $(59,658) | | Noncontrolling interest | $5,918 | $5,997 | | Total Shareholders' Equity | $415,654 | $376,164 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) This table details the cash flows from operating, investing, and financing activities for the first quarter of 2019 and 2018 | Cash Flow Activity (in thousands) | Q1 2019 | Q1 2018 | | :-------------------------------- | :----------- | :----------- | | Net cash provided by operating activities | $74,997 | $90,842 | | Net cash used in investing activities | $(52,200) | $(60,431) |\ | Net cash used in financing activities | $(25,672) | $(34,928) |\ | Change in cash and cash equivalents | $(2,875) | $(4,517) |\ | Cash and cash equivalents at end of period | $6,724 | $11,140 | [1. Summary of Significant Accounting Policies](index=9&type=section&id=1.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines the company's business operations and the adoption of new accounting standards, including ASU 2016-02 on leases - The Company provides communication solutions across a 23-state service area, utilizing an advanced fiber network of over **37,000 fiber route miles**[26](index=26&type=chunk)[27](index=27&type=chunk) - On July 31, 2018, the Company sold Peoples Mutual Telephone Company and Peoples Mutual Long Distance Company for approximately **$21.0 million** in cash proceeds[29](index=29&type=chunk) - Effective January 1, 2019, the Company adopted ASU 2016-02 (Leases), recognizing approximately **$30.9 million** in right-of-use assets and lease liabilities for historical operating leases, with no material impact on financial statements or debt-covenant compliance[30](index=30&type=chunk)[33](index=33&type=chunk) - The Company adopted ASU 2018-07, ASU 2018-02 with no material impact, and ASU 2017-12, which resulted in a cumulative adjustment of **$0.6 million**, net of tax, from AOCI to retained earnings[34](index=34&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk) [2. Revenue](index=13&type=section&id=2.%20REVENUE) This section details the company's operating revenues by segment and service type, along with contract balances for the periods presented Operating Revenues (in thousands) | Operating Revenues (in thousands) | Q1 2019 | Q1 2018 | Change ($) | Change (%) | | :-------------------------------- | :----------- | :----------- | :----------- | :----------- | | Commercial and carrier: | | | | | | Data and transport services | $88,126 | $86,025 | $2,101 | 2.4% | | Voice services | $48,070 | $52,161 | $(4,091) | (7.8%) | | Other | $15,176 | $11,863 | $3,313 | 27.9% | | **Total Commercial and carrier** | **$151,372** | **$150,049** | **$1,323** | **0.9%** | | Consumer: | | | | | | Broadband (VoIP and Data) | $63,085 | $63,111 | $(26) | (0.0%) | | Video services | $20,736 | $22,834 | $(2,098) | (9.2%) | | Voice services | $45,879 | $52,062 | $(6,183) | (11.9%) | | **Total Consumer** | **$129,700** | **$138,007** | **$(8,307)** | **(6.0%)** | | Subsidies | $18,159 | $25,255 | $(7,096) | (28.1%) | | Network access | $36,591 | $39,715 | $(3,124) | (7.9%) | | Other products and services | $2,827 | $3,013 | $(186) | (6.2%) | | **Total operating revenues** | **$338,649** | **$356,039** | **$(17,390)**| **(4.9%)** | Contract Balances (in thousands) | Contract Balances (in thousands) | March 31, 2019 | December 31, 2018 | | :------------------------------- | :------------- | :---------------- | | Accounts receivable, net | $132,326 | $134,496 | | Contract assets | $13,897 | $4,527 | | Contract liabilities | $55,212 | $47,269 | - Deferred contract acquisition costs recognized as expense were **$1.2 million** in Q1 2019, up from **$0.4 million** in Q1 2018[52](index=52&type=chunk) - Deferred and recognized revenues from contract liabilities were **$94.0 million** in Q1 2019, compared to **$87.3 million** in Q1 2018[53](index=53&type=chunk) [3. Earnings (Loss) Per Share](index=16&type=section&id=3.%20EARNINGS%20(LOSS)%20PER%20SHARE) This section presents the calculation of basic and diluted net loss per common share for the first quarter of 2019 and 2018 Earnings (Loss) Per Share (in thousands, except per share) | Metric (in thousands, except per share) | Q1 2019 | Q1 2018 | | :-------------------------------------- | :----------- | :----------- | | Net loss attributable to common shareholders, after earnings allocated to participating securities | $(7,722) | $(11,519) | | Weighted-average number of common shares outstanding | 70,813 | 70,598 | | Net loss per common share attributable to common shareholders - basic and diluted | $(0.11) | $(0.16) | - Diluted EPS for Q1 2019 and Q1 2018 excluded **0.7 million** and **0.3 million** potential common shares, respectively, due to their anti-dilutive effect[60](index=60&type=chunk) [4. Investments](index=17&type=section&id=4.%20INVESTMENTS) This section details the company's investment portfolio, including cash surrender value of life insurance policies and equity method investments Investment Type (in thousands) | Investment Type (in thousands) | March 31, 2019 | December 31, 2018 | | :----------------------------- | :------------- | :---------------- | | Cash surrender value of life insurance policies | $2,579 | $2,371 | | Investments at cost (e.g., GTE Mobilnet, Pittsburgh SMSA, CoBank) | $53,608 | $53,749 | | Equity method investments (e.g., GTE Mobilnet Texas, Pennsylvania RSA) | $55,851 | $54,733 | | **Totals** | **$112,038** | **$110,853** | - Cash distributions from cost-method partnerships totaled **$3.3 million** in Q1 2019, up from **$3.0 million** in Q1 2018[64](index=64&type=chunk) - Cash distributions from equity-method partnerships totaled **$4.0 million** in Q1 2019, down from **$6.5 million** in Q1 2018[66](index=66&type=chunk) [5. Fair Value Measurements](index=17&type=section&id=5.%20FAIR%20VALUE%20MEASUREMENTS) This section provides fair value measurements for derivative instruments and other financial instruments, categorizing inputs by level Derivative Instruments (in thousands) | Derivative Instruments (in thousands) | March 31, 2019 | December 31, 2018 | | :------------------------------------ | :------------- | :---------------- | | Current interest rate swap assets | $1,352 | $2,465 | | Long-term interest rate swap assets | $4 | $1,524 | | Long-term interest rate swap liabilities | $(13,714) | $(6,647) | | **Total** | **$(12,358)** | **$(2,658)** | Other Financial Instruments (in thousands) | Other Financial Instruments (in thousands) | Carrying Value (Mar 31, 2019) | Fair Value (Mar 31, 2019) | Carrying Value (Dec 31, 2018) | Fair Value (Dec 31, 2018) | | :----------------------------------------- | :---------------------------- | :------------------------ | :---------------------------- | :------------------------ | | Investments, equity basis | $55,851 | n/a | $54,733 | n/a | | Investments, at cost | $53,608 | n/a | $53,749 | n/a | | Long-term debt, excluding finance leases | $2,321,010 | $2,182,193 | $2,315,077 | $2,155,127 | - The fair value of interest rate swaps is determined using **Level 2 inputs** (observable market data)[69](index=69&type=chunk) - It is impracticable to determine the fair value of cost and equity method investments[72](index=72&type=chunk) [6. Long-Term Debt](index=20&type=section&id=6.%20LONG-TERM%20DEBT) This section details the company's long-term debt, including senior secured credit facilities and senior notes, and compliance with debt covenants Long-Term Debt (in thousands) | Long-Term Debt (in thousands) | March 31, 2019 | December 31, 2018 | | :---------------------------- | :------------- | :---------------- | | Senior secured credit facility: | | | | Term loans, net | $1,791,825 | $1,796,068 | | Revolving loan | $32,000 | $22,000 | | 6.50% Senior notes due 2022, net | $497,185 | $497,009 | | **Total long-term debt** | **$2,291,966** | **$2,285,341** | - The Credit Agreement includes a **$110.0 million** revolving credit facility, a **$900.0 million** Initial Term Loan, and a **$935.0 million** Incremental Term Loan, all secured by substantially all Company assets[76](index=76&type=chunk) - As of March 31, 2019, **$32.0 million** was outstanding under the revolving credit facility, with **$61.8 million** available for borrowing[79](index=79&type=chunk) - The weighted-average interest rate on outstanding borrowings under the credit facility was **5.53%** as of March 31, 2019[81](index=81&type=chunk) - The Company was in compliance with all Credit Agreement covenants as of March 31, 2019, with a total net leverage ratio of **4.43:1.00** (covenant limit 5.10:1.00) and an interest coverage ratio of **3.85:1.00** (covenant limit 2.25:1.00)[82](index=82&type=chunk)[84](index=84&type=chunk) - The Senior Notes mature on October 1, 2022, and the Company was in compliance with all related covenants as of March 31, 2019, with a total net leverage ratio of **4.49:1.00** (covenant limit 4.75:1.00)[86](index=86&type=chunk)[90](index=90&type=chunk) [7. Derivative Financial Instruments](index=24&type=section&id=7.%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) This section describes the company's use of interest rate swap agreements to manage exposure to interest rate fluctuations on its floating-rate debt - The Company uses interest rate swap agreements to convert floating-rate debt to a fixed-rate basis, reducing exposure to interest rate fluctuations[91](index=91&type=chunk) Interest Rate Swaps (in thousands) | Interest Rate Swaps (in thousands) | Notional Amount | Fair Value (Mar 31, 2019) | | :--------------------------------- | :-------------- | :------------------------ | | Fixed to 1-month floating LIBOR (with floor) | $650,000 | $1,352 | | Forward starting fixed to 1-month floating LIBOR (with floor) | $705,000 | $4 | | Fixed to 1-month floating LIBOR (with floor) | $500,000 | $(10,719) | | Forward starting fixed to 1-month floating LIBOR (with floor) | $705,000 | $(2,995) | | **Total Fair Values** | | **$(12,358)** | - As of March 31, 2019, total pre-tax unrealized losses related to interest rate swap agreements included in AOCI was **$(7.0) million**, with an expected gain of approximately **$0.1 million** to be recognized in earnings over the next twelve months[97](index=97&type=chunk) [8. Leases](index=26&type=section&id=8.%20LEASES) This section details the company's lease accounting under the new standard, including right-of-use assets, lease liabilities, and lease expenses - Upon adoption of the new lease standard, the Company recognized operating lease right-of-use assets of **$29.2 million** and corresponding liabilities of **$29.2 million** as of March 31, 2019[104](index=104&type=chunk) Lease Components (in thousands) | Lease Components (in thousands) | March 31, 2019 | | :------------------------------ | :------------- | | Operating lease right-of-use assets | $29,201 | | Current lease liabilities (Operating) | $(6,236) | | Noncurrent lease liabilities (Operating) | $(23,016) | | Finance lease right-of-use assets, net | $24,751 | | Current lease liabilities (Finance) | $(10,993) | | Noncurrent lease liabilities (Finance) | $(16,133) | | Weighted-average remaining lease term (Operating) | 5.5 years | | Weighted-average remaining lease term (Finance) | 4.2 years | | Weighted-average discount rate (Operating) | 7.20% | | Weighted-average discount rate (Finance) | 7.03% | Lease Expense (in thousands) | Lease Expense (in thousands) | Q1 2019 | | :--------------------------- | :------ | | Finance lease cost: | | | Amortization of right-of-use assets | $3,533 | | Interest on lease liabilities | $528 | | Operating lease cost | $2,230 | | Variable lease cost | $781 | | **Total lease cost** | **$7,072**| Lease Liabilities Maturities (in thousands) | Lease Liabilities Maturities (in thousands) | Operating Leases | Finance Leases | | :---------------------------------------- | :--------------- | :------------- | | 2019 | $6,275 | $9,873 | | 2020 | $7,519 | $8,414 | | 2021 | $4,987 | $3,582 | | 2022 | $4,284 | $2,591 | | 2023 | $2,643 | $1,489 | | Thereafter | $6,585 | $6,405 | | **Total lease payments** | **$32,293** | **$32,354** | [9. Equity](index=29&type=section&id=9.%20EQUITY) This section covers dividend declarations, the elimination of future dividends, share-based compensation, and changes in accumulated other comprehensive loss - On February 18, 2019, the Board declared a quarterly dividend of approximately **$0.38738 per share**, payable on May 1, 2019[110](index=110&type=chunk) - On April 25, 2019, the Company announced the elimination of quarterly dividend payments starting in Q2 2019 to focus on deleveraging and fiber investment[111](index=111&type=chunk)[112](index=112&type=chunk) Share-Based Compensation (in thousands) | Share-Based Compensation (in thousands) | Q1 2019 | Q1 2018 | | :-------------------------------------- | :------ | :------ | | Restricted stock | $927 | $435 | | Performance shares | $571 | $243 | | **Total** | **$1,498**| **$678** | - As of March 31, 2019, total unrecognized compensation cost for non-vested RSAs and PSAs was **$16.9 million**, to be recognized over approximately **1.8 years**[115](index=115&type=chunk) Accumulated Other Comprehensive Loss (in thousands) | Accumulated Other Comprehensive Loss (in thousands) | December 31, 2018 | March 31, 2019 | | :-------------------------------------------------- | :---------------- | :------------- | | Pension and Post-Retirement Obligations | $(55,514) | $(54,488) | | Derivative Instruments | $2,302 | $(5,170) | | **Total** | **$(53,212)** | **$(59,658)** | [10. Pension Plan and Other Post-Retirement Benefits](index=31&type=section&id=10.%20PENSION%20PLAN%20AND%20OTHER%20POST-RETIREMENT%20BENEFITS) This section details the company's pension and post-retirement benefit plans, including the freezing of defined benefit plans and net periodic benefit costs - All defined benefit pension plans were frozen to current employees as of April 1, 2019, meaning no additional monthly pension benefits will accrue[118](index=118&type=chunk) Net Periodic Pension Cost (in thousands) | Net Periodic Pension Cost (in thousands) | Q1 2019 | Q1 2018 | | :------------------------------------- | :------ | :------ | | Service cost | $11 | $1,535 | | Interest cost | $7,661 | $7,139 | | Expected return on plan assets | $(8,671)| $(9,667)|\ | Net amortization loss | $703 | $1,472 | | Net prior service cost (credit) amortization | $30 | $(61) |\ | **Net periodic pension (benefit) cost**| **$(266)**| **$418** | Net Periodic Post-retirement Benefit Cost (in thousands) | Net Periodic Post-retirement Benefit Cost (in thousands) | Q1 2019 | Q1 2018 | | :------------------------------------------------------- | :------ | :------ | | Service cost | $117 | $127 | | Interest cost | $1,144 | $1,029 | | Expected return on plan assets | $(43) | $(36) | | Net amortization gain | $(108) | $(21) | | Net prior service cost (credit) amortization | $768 | $(138) | | **Net periodic post-retirement benefit cost** | **$1,878**| **$961** | - The Company expects to contribute approximately **$26.3 million** to Pension Plans and **$9.5 million** to Post-retirement Plans in 2019, having contributed **$5.7 million** and **$1.9 million**, respectively, as of March 31, 2019[128](index=128&type=chunk) [11. Income Taxes](index=34&type=section&id=11.%20INCOME%20TAXES) This section discusses unrecognized tax benefits and the effective tax rate for the first quarter of 2019 and 2018 - Unrecognized tax benefits were **$4.9 million** as of March 31, 2019, with a net impact of **$4.7 million** to the effective tax rate if recognized[129](index=129&type=chunk) - The effective tax rate was **30.4%** for Q1 2019, compared to **27.5%** for Q1 2018, primarily due to permanent income tax differences and allocable income variations for state tax filings[132](index=132&type=chunk) [12. Commitments and Contingencies](index=34&type=section&id=12.%20COMMITMENTS%20AND%20CONTINGENCIES) This section outlines the company's various commitments and contingencies, including regulatory support, legal disputes, and potential tax liabilities - In Q1 2018, the Company recognized **$4.9 million** in subsidies revenue and an **$8.4 million** contingent asset related to a favorable FCC order regarding Local Switching Support (LSS) for FairPoint's rate of return ILECs[136](index=136&type=chunk)[217](index=217&type=chunk) - Ongoing ICC Eligible Recovery support for 2018 increased by approximately **$3.6 million** and is expected to decline by **5%** per year through 2021[136](index=136&type=chunk)[217](index=217&type=chunk) - The Company settled a dispute with Level 3 Communications, LLC regarding access charges, resulting in a judgment of **$0.7 million** for legacy Consolidated LEC entities and over **$1.2 million** for FairPoint LEC entities, with no material impact on financial statements[142](index=142&type=chunk) - The Company has reserved **$3.3 million** for CCES and **$1.5 million** for CCPA, including interest, for potential additional Pennsylvania Gross Receipts Tax liabilities for tax years 2008-2018, with appeals pending[146](index=146&type=chunk) [13. Subsequent Events](index=38&type=section&id=13.%20SUBSEQUENT%20EVENTS) This section reports the company's announcement to eliminate quarterly dividend payments starting in the second quarter of 2019 - On April 25, 2019, the Company announced the elimination of quarterly dividend payments on its stock beginning in the second quarter of 2019[149](index=149&type=chunk) [14. Condensed Consolidating Financial Information](index=38&type=section&id=14.%20CONDENSED%20CONSOLIDATING%20FINANCIAL%20INFORMATION) This section clarifies the primary obligor and guarantors for the Senior Notes, which are jointly and severally guaranteed by the company and its subsidiaries - Consolidated Communications, Inc. is the primary obligor under the Senior Notes, which are jointly and severally guaranteed by the Company and substantially all of its **100%** direct or indirect wholly-owned subsidiaries[150](index=150&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=44&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's analysis of the company's financial condition, operational results, and liquidity for the quarter ended March 31, 2019 [Overview](index=44&type=section&id=Overview) This section provides a general description of the company's business, its advanced fiber network, and strategic focus areas - Consolidated is a broadband and business communications provider operating an advanced fiber network spanning approximately **37,000 fiber route miles** across **23 states**[171](index=171&type=chunk) - Commercial and carrier services are key growth areas, with new business services like BusinessOne, SD-WAN, and MPLS launched in northern New England markets in 2018[172](index=172&type=chunk)[174](index=174&type=chunk) - The Company focuses on enhancing broadband services, offering speeds up to **1 Gbps** in select markets, and upgraded broadband speeds to over **500,000 homes** and small businesses in northern New England in 2018[175](index=175&type=chunk) - Video connections decreased **9%** and voice connections decreased **7%** as of March 31, 2019, reflecting industry trends of declining voice services and increasing demand for streaming content[176](index=176&type=chunk)[177](index=177&type=chunk) [Recent Developments](index=46&type=section&id=Recent%20Developments) This section highlights significant events, including the sale of Peoples Mutual Telephone Company and Peoples Mutual Long Distance Company - On July 31, 2018, the Company completed the sale of Peoples Mutual Telephone Company and Peoples Mutual Long Distance Company for approximately **$21.0 million** in cash proceeds[179](index=179&type=chunk) [Results of Operations](index=48&type=section&id=Results%20of%20Operations) This section analyzes the company's operating revenues, expenses, and key operating statistics for the first quarter of 2019 compared to 2018 Metric (in millions, except for percentages) | Metric (in millions, except for percentages) | Q1 2019 | Q1 2018 | $ Change | % Change | | :------------------------------------------- | :------ | :------ | :------- | :------- | | Operating Revenues | $338.6 | $356.0 | $(17.4) | (5)% | | Cost of services and products | $148.3 | $152.9 | $(4.6) | (3)% | | Selling, general and administrative costs | $74.4 | $86.0 | $(11.6) | (13)% | | Depreciation and amortization | $99.2 | $107.9 | $(8.7) | (8)% | | Total operating expenses | $321.9 | $346.8 | $(24.9) | (7)% | | Income from operations | $16.7 | $9.2 | $7.5 | 82% | | Net loss | $(7.2) | $(11.2) | $4.0 | 36% | | Net loss attributable to common shareholders | $(7.3) | $(11.3) | $4.0 | 35% | | Adjusted EBITDA | $130.3 | $135.4 | $(5.1) | (4)% | Key Operating Statistics | Key Operating Statistics | March 31, 2019 | March 31, 2018 | Change | % Change | | :----------------------- | :------------- | :------------- | :------- | :------- | | Consumer customers | 616,091 | 661,758 | (45,667) | (7)% | | Voice connections | 887,357 | 955,419 | (68,062) | (7)% | | Data connections | 780,720 | 785,230 | (4,510) | (1)% | | Video connections | 91,269 | 100,570 | (9,301) | (9)% | | Total connections | 1,759,346 | 1,841,219 | (81,873) | (4)% | - Commercial and carrier data and transport services revenue increased by **$2.1 million** (2%) due to growth in Metro Ethernet and VoIP services[188](index=188&type=chunk) - Consumer video services revenue decreased by **$2.1 million** (9%) due to a **10%** decrease in connections as customers shift to over-the-top streaming services[195](index=195&type=chunk) - Subsidies revenue decreased by **$7.2 million** (28%) primarily due to a **$4.9 million** settlement for frozen LSS recognized in Q1 2018 and scheduled reductions in CAF Phase II funding[197](index=197&type=chunk) - Selling, general and administrative costs decreased by **$11.6 million** (13%) due to headcount reduction, lower incentive compensation, operating synergies from the FairPoint integration, and property tax abatements[202](index=202&type=chunk) [Regulatory Matters](index=52&type=section&id=Regulatory%20Matters) This section discusses the impact of FCC orders on support revenue, CAF Phase II funding obligations, and regulatory commitments from the FairPoint acquisition - The FCC's 2011 Order significantly impacted support revenue from USF, CAF, and intercarrier compensation (ICC), redirecting support from voice to broadband services[211](index=211&type=chunk) - The Company accepted CAF Phase II funding in August 2015, which replaced **$36.6 million** in CAF Phase I funding with **$13.9 million** annually through 2020 (adjusted to **$48.1 million** after acquisitions and divestitures)[213](index=213&type=chunk)[214](index=214&type=chunk) - The Company is obligated to serve approximately **124,500 locations** with **10 Mbps down/1 Mbps up** broadband by December 31, 2020, and met interim milestones for 2017 and 2018[215](index=215&type=chunk) - The FCC approved the Company's petition regarding Local Switching Support (LSS) in April 2018, resulting in **$4.9 million** subsidies revenue and an **$8.4 million** contingent asset in Q1 2018[217](index=217&type=chunk) - New FCC rules for Business Data Services (BDS) went into effect August 1, 2017, allowing price flexibility for competitive services and requiring de-tariffing within three years[218](index=218&type=chunk)[221](index=221&type=chunk) - As part of the FairPoint acquisition, the Company has regulatory commitments to invest in network improvements and service quality in northern New England, New York, and Illinois through 2020, all of which were met for 2017 and 2018[228](index=228&type=chunk) [Non-Operating Items](index=59&type=section&id=Non-Operating%20Items) This section analyzes changes in non-operating items, including interest expense, other income, and the income tax benefit for the first quarter - Interest expense, net, increased by **$1.5 million** in Q1 2019 compared to Q1 2018, primarily due to higher variable interest rates, partially offset by a loss recognized on interest rate swap agreements in the prior year[230](index=230&type=chunk) - Other income decreased by **$0.9 million**, driven by a **$1.8 million** increase in pension and post-retirement expense, partially offset by an **$0.8 million** increase in investment income from wireless partnerships[231](index=231&type=chunk) - The income tax benefit decreased by **$1.1 million**, with the effective tax rate increasing to **30.4%** in Q1 2019 from **27.5%** in Q1 2018[232](index=232&type=chunk) [Non-GAAP Measures](index=59&type=section&id=Non-GAAP%20Measures) This section defines and reconciles non-GAAP financial measures like EBITDA and Adjusted EBITDA, used to evaluate operating performance - The Company uses non-GAAP measures like EBITDA and Adjusted EBITDA to evaluate operating performance and trends, defining EBITDA as net earnings before interest, taxes, depreciation, and amortization[236](index=236&type=chunk) Non-GAAP Metric (in thousands) | Non-GAAP Metric (in thousands) | Q1 2019 | Q1 2018 | | :----------------------------- | :----------- | :----------- | | Net loss | $(7,186) | $(11,198) | | Interest expense, net | $34,283 | $32,716 | | Income tax benefit | $(3,145) | $(4,248) | | Depreciation and amortization | $99,243 | $107,899 | | **EBITDA** | **$123,195** | **$125,169** | | Other, net | $(1,672) | $99 | | Investment distributions | $7,290 | $9,470 | | Non-cash, stock-based compensation | $1,498 | $678 | | **Adjusted EBITDA** | **$130,311** | **$135,416** | [Liquidity and Capital Resources](index=61&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's funding sources, cash flow activities, capital expenditures, debt covenant compliance, and pension funding - Operating requirements are funded by cash flows from operations, existing cash, and revolving credit facilities, with future cash primarily funding capital expenditures, debt reduction, and business investments[239](index=239&type=chunk) Cash Flow Summary (in thousands) | Cash Flow Summary (in thousands) | Q1 2019 | Q1 2018 | | :------------------------------- | :----------- | :----------- | | Operating activities | $74,997 | $90,842 | | Investing activities | $(52,200) | $(60,431) |\ | Financing activities | $(25,672) | $(34,928) |\ | Decrease in cash and cash equivalents | $(2,875) | $(4,517) | - Capital expenditures were **$53.4 million** in Q1 2019, with an additional **$157.0 million** to **$167.0 million** expected for the remainder of 2019, **63%** of which is for success-based projects[243](index=243&type=chunk) - As of March 31, 2019, the total net leverage ratio under the Credit Agreement was **4.43:1.00**, and the interest coverage ratio was **3.85:1.00**, both in compliance with covenants[253](index=253&type=chunk) - The Company paid **$27.6 million** in dividends in Q1 2019. On April 25, 2019, the Company announced the elimination of quarterly dividends to focus on deleveraging and fiber investment[261](index=261&type=chunk)[262](index=262&type=chunk) - The Company expects to contribute approximately **$26.3 million** to Pension Plans and **$9.5 million** to Post-retirement Plans in 2019[277](index=277&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=72&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 - The Company uses interest rate swaps to convert floating-rate debt to a fixed-rate basis, reducing the impact of interest rate changes on future cash interest payments[285](index=285&type=chunk) - As of March 31, 2019, a **1.00%** change in market interest rates would increase or decrease annual interest expense by approximately **$6.7 million**, considering most variable rate debt is subject to a **1.00% LIBOR floor**[286](index=286&type=chunk) - The fair value of interest rate swap agreements amounted to a net liability of **$12.4 million** as of March 31, 2019, with total pre-tax deferred losses of **$7.0 million** included in accumulated other comprehensive loss[287](index=287&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=72&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section details the Company's disclosure controls and procedures, confirming their effectiveness as of March 31, 2019, based on management's evaluation - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of March 31, 2019[288](index=288&type=chunk) - There have been no changes in internal controls over financial reporting during Q1 2019 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[290](index=290&type=chunk) [PART II. OTHER INFORMATION](index=74&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information, including legal proceedings, risk factors, and a list of exhibits filed with the quarterly report [ITEM 1. LEGAL PROCEEDINGS](index=74&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section states that the Company is involved in various litigation and regulatory issues common to its industry - The Company does not believe that the outcome of any current legal matters will have a material adverse impact on its business, results of operations, financial condition, or cash flows[293](index=293&type=chunk) [ITEM 1A. RISK FACTORS](index=74&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section updates the risk factors from the Company's 2018 Annual Report on Form 10-K, specifically highlighting the potential negative effects of discontinuing dividend payments on common stock holders - The decision to eliminate quarterly dividends starting in Q2 2019 could negatively affect common stock holders, potentially leading to decreased liquidity, a decline in market price, and adverse impacts on the Company's ability to raise equity capital[295](index=295&type=chunk) - A significant and sustained reduction in stock price and market capitalization, along with changes in estimated future cash flows, could trigger goodwill and other intangible asset impairment tests, potentially resulting in a significant charge to earnings[295](index=295&type=chunk) [ITEM 6. EXHIBITS](index=75&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including forms of stock grant certificates, certifications from the CEO and CFO, and XBRL formatted financial information - Exhibits include forms of Restricted Stock Grant Certificate and Performance Stock Grant Certificate, CEO and CFO certifications under Sarbanes-Oxley Act, and XBRL formatted financial statements[297](index=297&type=chunk) [SIGNATURES](index=76&type=section&id=SIGNATURES) This section confirms the official signing of the report by the Chief Executive Officer and Chief Financial Officer - The report was signed on April 26, 2019, by C. Robert Udell Jr., Chief Executive Officer, and Steven L. Childers, Chief Financial Officer[301](index=301&type=chunk)