solidated munications (CNSL) - 2024 Q2 - Quarterly Results

Second Quarter 2024 Financial Results Consolidated Communications reports Q2 2024 financial results, detailing revenue, net loss, adjusted EBITDA, and debt structure Second Quarter 2024 Results Summary Consolidated Communications reported Q2 2024 results with $268.7 million total revenue, a $66.7 million net loss, and $84.2 million adjusted EBITDA, alongside cost control progress Q2 2024 Financial Summary | Metric | Amount (Millions USD) | | :-------------------------------- | :-------------------- | | Revenue: | | | Total Revenue | $268.7 | | Consumer Total Revenue | $112.7 | | Consumer Fiber Broadband Revenue | $45.4 | | Consumer Broadband Revenue | $81.4 | | Commercial Data Services Revenue | $54.6 | | Carrier Data Transport Revenue | $30.3 | | Profitability: | | | Net Loss | ($66.7) | | Adjusted EBITDA | $84.2 | | Operating Metrics: | | | Consumer Broadband Net Adds | 3,670 | | Capital Expenditures: | | | Total Committed Capital Expenditures | $102.7 | - Combined service and product costs, and selling, general, and administrative expenses, decreased by $3.2 million year-over-year, primarily due to lower video programming costs and reduced contract labor, partially offset by increased professional fees for system enhancements and strategic initiatives[1] Financial Highlights and Debt Structure The company's Q2 2024 net loss significantly narrowed year-over-year, despite increased net interest expense, with a predominantly fixed-rate debt structure Financial Performance and Debt Overview | Metric | Q2 2024 (Millions USD) | Q2 2023 (Millions USD) | Change (Millions USD) | | :--------------------------------- | :--------------------- | :--------------------- | :-------------------- | | Net Interest Expense | $44.1 | $36.9 | +$7.2 | | Net Loss | ($66.7) | ($119.0) | +$52.3 | | Net Loss Per Share | ($0.58) | ($1.05) | +$0.47 | | Adjusted Diluted Net Loss Per Share | ($0.37) | ($0.28) | ($0.09) | | Debt Structure (As of June 30, 2024): | | | | | Fixed-Rate Debt Percentage | 72% | | | | Weighted Average Cost of Debt | 7.18% | | | - Net interest expense increased by $7.2 million year-over-year, primarily due to higher term loan interest rates, interest on revolving credit facility borrowings, and lower interest income from reduced cash holdings[2] - Net loss for Q2 2023 included a $77.8 million impairment loss related to Washington assets[3] Corporate Developments The company outlines its capital structure, liquidity, the completed sale of Washington assets, and the pending all-cash acquisition Capital Structure and Liquidity As of June 30, 2024, the company maintained approximately $5 million in cash and short-term investments, $75 million in available revolving credit, and $80 million in undrawn term loan capacity for liquidity Liquidity Position | Metric | Amount (Millions USD) | | :------------------------------------ | :-------------------- | | Cash and Short-Term Investments | ~$5 | | Revolving Credit Facility Available Borrowing Capacity | $75 | | Term Loan Undrawn Capacity | $80 | Washington Asset Sale Consolidated Communications completed the sale of its Washington assets on May 1, 2024 - The company completed the sale of its Washington assets on May 1, 2024[5] Pending Transaction The company agreed to an all-cash acquisition by affiliates of Searchlight Capital Partners and BCI for an enterprise value of approximately $3.1 billion, including assumed debt, with shareholder approval and an expected close in late Q4 2024 or early Q1 2025 - Consolidated has agreed to an all-cash acquisition by affiliates of Searchlight Capital Partners, L.P. and British Columbia Investment Management Corporation for an enterprise value of approximately $3.1 billion, including assumed debt[6] - Approximately 75% of disinterested shareholders voted to approve the merger agreement and pending transaction at a special meeting on January 31, 2024[6] - The transaction is expected to close in late Q4 2024 or early Q1 2025, making Consolidated a private company with its common stock no longer publicly traded[6] Company Overview and Non-GAAP Financial Measures This section provides an overview of Consolidated Communications and explains the use and limitations of non-GAAP financial measures About Consolidated Communications Consolidated Communications Holdings, Inc. is a top-ten U.S. fiber provider with over 63,000 miles of fiber network, offering high-speed internet, data, phone, security, cloud, and wholesale carrier solutions - Consolidated Communications Holdings, Inc. (Nasdaq: CNSL) is a top-ten U.S. fiber provider with over 63,000 miles of fiber route network[8] - The company provides high-speed internet, data, phone, security, cloud, and wholesale carrier solutions for consumers, businesses, and wireless and wireline carriers[8] Use of Non-GAAP Financial Measures The company uses non-GAAP financial measures like EBITDA, Adjusted EBITDA, Adjusted Diluted Net Income (Loss) Per Share, and Normalized Revenue, which are not GAAP alternatives but aid in assessing funding capacity and industry comparisons - Non-GAAP financial measures disclosed in this press release include EBITDA, Adjusted EBITDA, Adjusted Diluted Net Income (Loss) Per Share, and Normalized Revenue[9] - Management believes Adjusted EBITDA is useful for evaluating the company's ability to fund estimated cash uses, including debt interest, and is widely used by investors, securities analysts, and other relevant parties in the industry[11] - A limitation of Adjusted EBITDA is that it does not represent residual cash flow available for discretionary expenditures, as items like debt repayments and interest payments are not deducted[12] Forward-Looking Statements and Risks This section outlines the company's forward-looking statements and the various risks that could cause actual results to differ materially from expectations Forward-Looking Statements Disclaimer This press release contains forward-looking statements regarding current expectations, plans, strategies, and the privatization transaction timeline, subject to risks and uncertainties that could cause actual results to differ materially, with no obligation to publicly update or revise them - Certain statements in this press release, including those related to current expectations, plans, strategies, and the timeline for completing the privatization transaction with Searchlight Capital Partners and BCI, are forward-looking statements[13] - Numerous risks, uncertainties, and conditions exist that could cause the company's actual results to differ materially from those expressed or implied in these forward-looking statements[13] - The company undertakes no intention or obligation to publicly update or revise any forward-looking statements, except as required by federal securities laws or SEC rules and regulations[15] Key Risks Key risks include intense market competition, rapid technological change, declining profitability from product mix shifts, network outages, cybersecurity attacks, high capital expenditure needs, ability to obtain rights-of-way and third-party support, rising video content costs, labor relations, talent retention, acquisition risks, financial market volatility, and risks related to the pending transaction - Key risks include intense competition, adapting to rapid technological changes, potential declines in operating profitability from product mix shifts, network disruptions, cyberattacks, significant capital expenditure requirements, obtaining network rights-of-way, securing third-party support, rising video content costs, attracting and retaining key personnel, and acquisition-related risks[13] - Risks related to the pending transaction include: failure to complete the transaction timely or at all; failure to satisfy or waive closing conditions, including regulatory approvals; events leading to merger agreement termination, potentially requiring a termination fee; impacts of the transaction's announcement or pendency on attracting and retaining key personnel, maintaining business relationships, or overall operating performance; management distraction; transaction costs; significant stock price decline if the transaction fails; and shareholder litigation risks[13][15] Financial Statements This section presents the company's condensed consolidated balance sheets, statements of operations, cash flows, and revenue breakdowns Condensed Consolidated Balance Sheets As of June 30, 2024, total assets were $3.61 billion, slightly below $3.628 billion at year-end 2023, with total liabilities increasing to $2.912 billion and shareholders' equity decreasing to $302 million Consolidated Balance Sheet Summary | Metric | June 30, 2024 (Thousands USD) | December 31, 2023 (Thousands USD) | | :------------------------------------ | :---------------------------- | :---------------------------- | | Assets: | | | | Cash and Cash Equivalents | $5,327 | $4,765 | | Assets Held for Sale | — | $70,473 | | Total Current Assets | $193,477 | $256,155 | | Property, Plant and Equipment, Net | $2,494,789 | $2,449,009 | | Goodwill | $814,624 | $814,624 | | Total Assets | $3,610,316 | $3,628,426 | | Liabilities and Shareholders' Equity: | | | | Total Current Liabilities | $268,779 | $317,245 | | Long-Term Debt and Finance Lease Obligations | $2,268,663 | $2,134,916 | | Total Liabilities | $2,912,267 | $2,849,062 | | Total Shareholders' Equity | $302,080 | $406,774 | | Total Liabilities, Mezzanine Equity and Shareholders' Equity | $3,610,316 | $3,628,426 | Condensed Consolidated Statements of Operations In Q2 2024, net revenue was $268.7 million, a slight year-over-year decrease, while operating loss and net loss significantly narrowed, primarily due to the absence of asset impairment losses present in the prior year Consolidated Statements of Operations | Metric | Q2 2024 (Thousands USD) | Q2 2023 (Thousands USD) | H1 2024 (Thousands USD) | H1 2023 (Thousands USD) | | :--------------------------------------- | :---------------------- | :---------------------- | :-------------------- | :-------------------- | | Net Revenue | $268,709 | $275,162 | $543,384 | $551,288 | | Operating Loss | ($21,569) | ($95,047) | ($27,866) | ($113,146) | | Net Loss | ($54,828) | ($108,092) | ($90,211) | ($145,053) | | Net Loss Attributable to Common Stockholders | ($66,665) | ($118,957) | ($113,848) | ($166,648) | | Basic and Diluted Net Loss Per Share | ($0.58) | ($1.05) | ($1.00) | ($1.47) | - In Q2 2024, combined service and product costs, and selling, general, and administrative expenses, decreased by $3.2 million year-over-year, primarily due to lower video programming costs, reduced contract labor, and salary declines from cost-saving initiatives[1] - Operating loss and net loss for Q2 2023 included a $77.755 million impairment loss on assets held for sale, with no such loss in Q2 2024[20] Condensed Consolidated Statements of Cash Flows In Q2 2024, operating activities resulted in an $8.202 million cash outflow, compared to a $12.233 million inflow in the prior year, with investing activities outflowing $17.931 million and financing activities inflowed $24.097 million, leading to a net decrease of $2.036 million in cash and cash equivalents Consolidated Statements of Cash Flows | Metric | Q2 2024 (Thousands USD) | Q2 2023 (Thousands USD) | H1 2024 (Thousands USD) | H1 2023 (Thousands USD) | | :--------------------------------- | :---------------------- | :---------------------- | :-------------------- | :-------------------- | | Net Cash from Operating Activities | ($8,202) | $12,233 | ($2,532) | $67,319 | | Net Cash from Investing Activities | ($17,931) | ($53,525) | ($115,173) | ($182,436) | | Net Cash from Financing Activities | $24,097 | ($4,007) | $118,267 | ($8,157) | | Net Change in Cash and Cash Equivalents | ($2,036) | ($45,299) | $562 | ($123,274) | | Cash and Cash Equivalents at End of Period | $5,327 | $202,578 | $5,327 | $202,578 | - In Q2 2024, cash outflow from investing activities primarily included $85.545 million for property, plant, and equipment purchases, partially offset by $67.458 million in proceeds from business dispositions[22] - Cash inflow from financing activities primarily resulted from $30 million in long-term debt issuances[22] Consolidated Revenue by Category Total operating revenue in Q2 2024 was $268.7 million, with consumer broadband (data and VoIP) revenue growing 14.1% to $81.405 million, while commercial and carrier revenues slightly declined, and video services revenue significantly decreased Consolidated Revenue by Category (Year-over-Year) | Category | Q2 2024 (Thousands USD) | Q2 2023 (Thousands USD) | Y-o-Y Change (%) | | :-------------------------- | :---------------------- | :---------------------- | :--------------- | | Consumer: | | | | | Broadband (Data and VoIP) | $81,405 | $71,339 | +14.1% | | Voice Services | $27,965 | $31,352 | -10.8% | | Video Services | $3,312 | $9,362 | -64.6% | | Commercial: | | | | | Data Services (including VoIP) | $54,571 | $53,230 | +2.5% | | Voice Services | $30,509 | $32,236 | -5.3% | | Carrier: | | | | | Data and Transport Services | $30,263 | $31,224 | -3.1% | | Total Operating Revenue | $268,709 | $275,162 | -2.3% | Consolidated Revenue by Category (Quarter-over-Quarter) | Category | Q2 2024 (Thousands USD) | Q1 2024 (Thousands USD) | Q-o-Q Change (%) | | :-------------------------- | :---------------------- | :---------------------- | :--------------- | | Consumer: | | | | | Broadband (Data and VoIP) | $81,405 | $79,882 | +1.9% | | Voice Services | $27,965 | $28,336 | -1.3% | | Video Services | $3,312 | $6,626 | -50.0% | | Commercial: | | | | | Data Services (including VoIP) | $54,571 | $54,681 | -0.2% | | Voice Services | $30,509 | $30,711 | -0.7% | | Carrier: | | | | | Data and Transport Services | $30,263 | $31,048 | -2.6% | | Total Operating Revenue | $268,709 | $274,675 | -2.2% | Reconciliation of Historical Revenue to Normalized Revenue The company adjusted historical revenue to exclude the impact of divested operations, particularly the Washington business sale completed on May 1, 2024, providing normalized revenue data of $267.16 million for Q2 2024 and $270.11 million for Q2 2023 Q2 2024 Revenue Reconciliation | Category | Q2 2024 Historical Revenue (Thousands USD) | Adjustments (Thousands USD) | Q2 2024 Normalized Revenue (Thousands USD) | | :-------------------------- | :--------------------------------- | :-------------------------- | :--------------------------------- | | Consumer Broadband (Data and VoIP) | $81,405 | ($659) | $80,746 | | Consumer Voice Services | $27,965 | ($228) | $27,737 | | Commercial Data Services (including VoIP) | $54,571 | ($165) | $54,406 | | Carrier Data and Transport Services | $30,263 | ($6) | $30,257 | | Total Operating Revenue | $268,709 | ($1,550) | $267,159 | Q2 2023 Revenue Reconciliation | Category | Q2 2023 Historical Revenue (Thousands USD) | Adjustments (Thousands USD) | Q2 2023 Normalized Revenue (Thousands USD) | | :-------------------------- | :--------------------------------- | :-------------------------- | :--------------------------------- | | Consumer Broadband (Data and VoIP) | $71,339 | ($2,065) | $69,274 | | Consumer Voice Services | $31,352 | ($769) | $30,583 | | Commercial Data Services (including VoIP) | $53,230 | ($434) | $52,796 | | Carrier Data and Transport Services | $31,224 | ($20) | $31,204 | | Total Operating Revenue | $275,162 | ($5,056) | $270,106 | - These adjustments reflect the removal of operating revenue from divested operations, as the company completed the sale of its Washington business on May 1, 2024[27][28] Reconciliation of Net Loss to Adjusted EBITDA In Q2 2024, the company's net loss was $54.828 million, with EBITDA reaching $58.532 million after standard adjustments, and Adjusted EBITDA increasing significantly year-over-year to $84.24 million after further specific adjustments Net Loss to Adjusted EBITDA Reconciliation | Metric | Q2 2024 (Thousands USD) | Q2 2023 (Thousands USD) | H1 2024 (Thousands USD) | H1 2023 (Thousands USD) | | :-------------------------- | :---------------------- | :---------------------- | :-------------------- | :-------------------- | | Net Loss | ($54,828) | ($108,092) | ($90,211) | ($145,053) | | EBITDA | $58,532 | ($10,099) | $134,461 | $52,259 | | Adjusted EBITDA | $84,240 | $76,938 | $172,639 | $152,288 | - Adjustments to Adjusted EBITDA include other net (comprising non-controlling interest income, acquisition and non-recurring related costs, and miscellaneous), pension/OPEB benefits, loss on asset dispositions, impairment loss, and non-cash compensation[30] - EBITDA and Adjusted EBITDA for Q2 2023 included a $77.755 million asset impairment loss[30] Reconciliation of Loss Attributable to Common Shareholders to Adjusted Loss and Calculation of Adjusted Diluted Net Loss Per Common Share In Q2 2024, net loss attributable to common stockholders was $66.665 million; after various adjustments, adjusted net loss was $41.721 million, resulting in an adjusted diluted net loss per common share of $0.37 Adjusted Net Loss and Diluted Net Loss Per Share | Metric | Q2 2024 (Thousands USD) | Q2 2023 (Thousands USD) | H1 2024 (Thousands USD) | H1 2023 (Thousands USD) | | :----------------------------------------------------------------- | :---------------------- | :---------------------- | :-------------------- | :-------------------- | | Net Loss Attributable to Common Stockholders | ($66,665) | ($118,957) | ($113,848) | ($166,648) | | Adjusted Net Loss | ($41,721) | ($31,853) | ($72,785) | ($63,616) | | Adjusted Diluted Net Loss Per Common Share | ($0.37) | ($0.28) | ($0.64) | ($0.56) | | Weighted Average Common Shares Outstanding | 114,255 | 113,050 | 114,195 | 112,995 | - Adjustments include preferred stock dividends, transaction and severance costs (tax-effected), impairment loss on assets held for sale, loss on asset dispositions (tax-effected), non-cash interest expense on swaps (tax-effected), tax impact of non-deductible goodwill, and non-cash stock compensation (tax-effected)[32] - Calculations assume an effective tax rate of 26.15% for Q2 and H1 2024, and 26.13% for Q2 and H1 2023[32] Operating Metrics This section presents key operational metrics, including fiber coverage, broadband connections, ARPU, and churn rates Key Operating Metrics As of Q2 2024, fiber Gig+ passings grew to 1,273,926, representing 49% of total; total consumer broadband connections slightly decreased, but fiber Gig+ connections significantly increased, with stable fiber ARPU and rising DSL/copper ARPU, alongside slightly increased fiber churn and high DSL/copper churn Key Operating Metrics Summary | Metric | Q2 2024 | Q2 2023 | Y-o-Y Change | | :--------------------------------- | :------------- | :------------- | :----------- | | Passings: | | | | | Fiber Gig+ Passings | 1,273,926 | 1,119,956 | +13.7% | | Fiber Gig+ Coverage as % of Total Passings | 49% | 43% | +6% points | | Consumer Broadband Connections: | | | | | Fiber Gig+ Connections | 231,187 | 153,860 | +50.2% | | DSL/Copper Connections | 163,199 | 222,969 | -26.8% | | Total Consumer Broadband Connections | 394,386 | 376,829 | +4.7% | | Consumer Broadband Net Adds: | | | | | Total Consumer Broadband Net Adds | 3,670 | 6,967 | -47.3% | | Consumer Broadband Penetration: | | | | | Fiber Gig+ Penetration | 18.1% | 13.7% | +4.4% points | | DSL/Copper Penetration | 12.3% | 14.8% | -2.5% points | | Consumer Average Revenue Per User (ARPU): | | | | | Fiber Gig+ ARPU | $67.95 | $68.29 | -0.5% | | DSL/Copper ARPU | $60.88 | $55.88 | +8.9% | | Churn Rate: | | | | | Fiber Consumer Broadband Churn Rate | 1.4% | 1.3% | +0.1% points | | DSL/Copper Consumer Broadband Churn Rate | 2.4% | 1.7% | +0.7% points | | Fiber Route Miles | 63,343 | 58,836 | +7.6% | | On-Net Buildings | 15,381 | 14,735 | +4.4% | - In Q2 2024, 32,961 new fiber passings were added, bringing total fiber passings to 1,273,926, representing 49% of the company's service area[35] - The sale of the Washington business resulted in a reduction of approximately 37,679 DSL/copper passings, 6,026 fiber passings, 8,272 DSL/copper broadband connections, 569 fiber broadband connections, and 4,674 consumer voice connections[35]