Overview

Consolidated is a broadband and business communications provider offering a wide range of communication solutions to consumer, commercial and carrier customers across a service area in over 20 states. The company operates an advanced fiber network spanning nearly 66,000 fiber route miles across many rural areas and metro communities. Consolidated offers residential high-speed Internet, phone and home security services as well as multi-service residential and small business bundles. Its business product suite includes data and Internet solutions, voice, data center services, security services, managed and IT services, and an expanded suite of cloud services. Consolidated also provides wholesale solutions to wireless and wireline carriers and other service providers.

The majority of Consolidated’s consolidated operating revenues come from monthly subscriptions to its broadband, data and transport services. As consumer demand for bandwidth continues to increase, the company’s focus is on expanding its fiber broadband services and upgrading data speeds to offer a highly competitive fiber product. Consolidated’s strategic investment with Searchlight Capital Partners L.P. and the refinancing of its capital structure in 2020 provided additional capital that has enabled the company to accelerate its fiber expansion plans.

As part of its multi-year fiber expansion plan, Consolidated plans to upgrade approximately 1.6 million passings to fiber across select service areas to enable multi-Gig capable services to these homes and small businesses, including more than 1 million passings within its northern New England service areas. The company’s fiber build plan includes the upgrade of approximately 150,000 homes and small businesses in 2024. Consolidated’s Fidium Fiber product, with symmetrical speeds up to 2 Gbps and no data caps, reinforces its broadband-first strategy.

Consolidated’s operating revenues continue to be impacted by the industry-wide trend of declines in voice services, access lines and related network access revenue. The company has been able to mitigate some of these losses through alternative product offerings, such as its VoIP service. As part of its plan to simplify its product offerings and focus on its fiber-first strategy, Consolidated has discontinued video services in all markets.

In July 2023, Consolidated initiated a business simplification and cost savings initiative plan intended to further align the company as a fiber-first provider, improve operating efficiencies, lower its cost structure and improve the overall customer experience. This initiative included a reduction in workforce, consolidation and elimination of certain facilities and review of product offerings.

Recent Developments

Merger Agreement On October 15, 2023, Consolidated entered into a merger agreement with Condor Holdings LLC, an affiliate of Searchlight Capital Partners L.P. Under the agreement, Condor Merger Sub Inc., a wholly owned subsidiary of Condor Holdings, will merge with and into Consolidated, with Consolidated continuing as the surviving corporation and a wholly owned subsidiary of Searchlight. The merger is expected to close in late fourth quarter 2024 or early first quarter 2025, subject to various regulatory approvals and other customary closing conditions.

Divestiture On July 10, 2023, Consolidated entered into an agreement to sell its business located in the Washington market for gross cash proceeds of approximately $73.0 million. The sale closed on May 1, 2024.

Results of Operations

The following tables summarize Consolidated’s financial results and key operating metrics as of and for the three and nine months ended September 30, 2024 and 2023:

Financial Data ​,​,Three Months Ended September 30,,,,,,Nine Months Ended September 30,,,,,, (In millions except for percentages),,2024,,,2023,,,$ Change,,,% Change,,2024,,,2023,,,$ Change,,,% Change,, Operating Revenues,,,,,,,,,,,,,,,,,,,,,,,,,,, Consumer:,,,,,,,,,,,,,,,,,,,,,,,,,,, Broadband (Data and VoIP),,$,82.4,,$,75.1,,$,7.3,,,10%,,$,243.7,,$,214.4,,$,29.3,,,14%,, Voice services,,27.9,,31.6,,(3.7),,(12),,,,84.2,,,95.2,,(11.0),,(12),, Video services,,—,,8.5,,(8.5),,(100),,,,9.9,,27.5,,(17.6),,(64),, ,,110.3,,115.2,,(4.9),,(4),,,,337.8,,,337.1,,0.7,,0,, Commercial:,,,,,,,,,,,,,,,,,,,,,,,,,,, Data services (includes VoIP),,54.6,,53.8,,0.8,,1,,,,163.9,,,160.2,,3.7,,2,, Voice services,31.5,31.8,,(0.3),,(1),,,,92.7,,96.7,,(4.0),,(4),, Other,9.4,9.3,,0.1,,1,,,,26.7,,29.4,,(2.7),,(9),, ,,95.5,,94.9,,0.6,,1,,,,283.3,,,286.3,,(3.0),,(1),, Carrier:,,,,,,,,,,,,,,,,,,,,,,,,,,, Data and transport services,,30.4,,31.4,,(1.0),,(3),,,,91.7,,95.5,,(3.8),,(4),, Voice services,,3.4,,4.1,,(0.7),,(17),,,,10.8,,12.7,,(1.9),,(15),, Other,0.3,0.3,,—,,—,,,,0.8,,1.0,,(0.2),,(20),, ,,34.1,,35.8,,(1.7),,(5),,,,103.3,,,109.2,,(5.9),,(5),, ,,,,,,,,,,,,,,,,,,,,,,,,,, Subsidies,,5.9,,6.9,,(1.0),,(14),,,,19.1,,,21.0,,(1.9),,(9),, Network access,,22.0,,20.8,,1.2,,6,,,,65.6,,,68.0,,(2.4),,(4),, Other products and services,3.3,10.0,,(6.7),,(67),,,,5.4,,13.3,,(7.9),,(59),, Total operating revenues,,271.1,,283.6,,(12.5),,(4),,,,814.5,,,834.9,,(20.4),,(2),, ,,,,,,,,,,,,,,,,,,,,,,,,,, Operating Expenses,,,,,,,,,,,,,,,,,,,,,,,,,,, Cost of services and products (exclusive of depreciation and amortization),,113.2,,132.4,,(19.2),,(15),,,,340.7,,,391.3,,(50.6),,(13),, Selling, general and administrative costs,,98.6,,95.7,,2.9,,3,,,,275.9,,,259.6,,16.3,,6,, Transaction costs,,0.6,,1.1,,(0.5),,(45),,,,6.7,,,2.0,,4.7,,235,, Loss on impairment of assets held for sale,,—,,—,,—,,—,,,,—,,,77.8,,(77.8),,(100),, Loss on disposal of assets,,—,,6.7,,(6.7),,(100),,,,—,,,12.4,,(12.4),,(100),, Depreciation and amortization,,76.7,,79.6,,(2.9),,(4),,,,237.1,,,236.8,,0.3,,0,, Total operating expenses,,289.1,,315.5,,(26.4),,(8),,,,860.4,,,979.9,,(119.5),,(12),, Loss from operations,,(18.0),,(31.9),,(13.9),,(44),,,,,(45.9),,,,(145.0),,(99.1),,(68),, Interest expense, net,,(44.9),,(39.6),,5.3,,13,,,,,(131.5),,,,(110.4),,21.1,,19,, Other income, net,,0.1,,3.5,,(3.4),,(97),,,,2.0,,11.7,,(9.7),,(83),, Income tax benefit,,,(13.8),,(10.2),,3.6,,35,,,,,(36.2),,,,(40.9),,(4.7),,(11),, Net loss,,(49.0),,(57.8),,(8.8),,(15),,,,,(139.2),,,,(202.8),,(63.6),,(31),, Dividends on Series A preferred stock,,12.3,,11.3,,1.0,,9,,,,35.7,,,32.6,,3.1,,10,, Net income attributable to noncontrolling interest,,0.1,,0.1,,—,,—,,,,0.3,,0.4,,(0.1),,(25),, Loss attributable to common shareholders,$,(61.4),$,(69.2),$,(7.8),,(11),,,$,(175.2),$,(235.8),$,(60.6),,(26),, ,,,,,,,,,,,,,,,,,,,,,,,,,, Adjusted EBITDA (1),$,86.5,$,80.2,$,6.3,,8%,,$,259.1,$,232.5,$,26.6,,11%,,

(1) A non-GAAP measure. See the “Non-GAAP Measures” section below for additional information and reconciliation to the most directly comparable GAAP measure.

Key Operating Statistics ​,​,As of September 30,,,,,, ​,,2024,,2023,,Change,,% Change,, Consumer customers,494 660,498 198,(3 538),,(1)%, ,,,,,,,,,, Fiber Gig+ capable,249 656,175 748,73 908,,42,, DSL/Copper,149 864,210 473,(60 609),,(29),, Consumer data connections,399 520,386 221,13 299,,3,, ,,,,,,,,,, Consumer voice connections,203 231,249 081,(45 850),,(18),, Video connections,—,26 158,(26 158),,(100),,

Operating Revenues

Consumer Broadband Services Broadband services revenues, which include data and VoIP, increased due to price increases and growth in fiber Internet services as fiber data connections continue to increase and offset the decline in copper data connections. Total consumer data connections increased 3% as of September 30, 2024 compared to the same period in 2023.

Voice Services Voice services revenues decreased due to a decline in access lines as customers choose alternative technologies.

Video Services Video services have been discontinued in all markets as of the end of July 2024 as part of Consolidated’s plan to simplify its product offerings and focus on its fiber-first strategy.

Commercial Data Services Data services revenues increased due to continued growth in dedicated Internet access and fiber Internet services, partially offset by declines in Metro Ethernet and VoIP phone services.

Voice Services Voice services revenues decreased due to a decline in access lines as commercial customers choose alternative technologies.

Other Other services revenues decreased primarily due to a decline in custom construction and structured cabling revenues, as well as a decrease in pole license attachment fees and video services.

Carrier Data and Transport Services Data and transport services revenues decreased due to a decrease in Ethernet services as a result of customer churn, as well as declines in colocation and cellular backhaul revenue.

Voice Services Voice services revenues decreased primarily as a result of customer churn for business data services.

Subsidies Subsidies revenues decreased primarily due to changes in state subsidies support and the sale of the Washington operations.

Network Access Services Network access services revenues increased due to price increases, partially offset by declines in special access revenues and end user access revenue.

Other Products and Services Other products and services revenues decreased primarily due to a decline in revenue from public-private partnership construction projects and directory advertising revenue.

Operating Expenses

Cost of Services and Products Cost of services and products decreased primarily due to declines in video programming costs, access expenses, contract labor costs, employee labor costs, and contributions to the State and Federal Universal Service Fund.

Selling, General and Administrative Costs Selling, general and administrative costs increased primarily due to higher professional fees, partially offset by a decline in severance costs.

Transaction Costs Transaction costs consist primarily of legal and other professional fees incurred in connection with the merger agreement with Searchlight.

Depreciation and Amortization Depreciation and amortization expense decreased primarily due to certain assets becoming fully depreciated, as well as a decline in amortization expense for customer relationships.

Non-GAAP Measures

Consolidated uses EBITDA and Adjusted EBITDA as non-GAAP measures to evaluate operating performance and facilitate comparison of historical results. Adjusted EBITDA is comprised of EBITDA, adjusted for certain items as permitted or required under the company’s credit facility.

Liquidity and Capital Resources

Consolidated’s operating requirements have historically been funded from cash flows generated from its business and borrowings under its credit facilities. The company expects that future operating requirements will continue to be funded from cash flows from operating activities, existing cash and cash equivalents, proceeds from sales of non-strategic assets, and borrowings under its revolving credit facility or other funding arrangements.

Consolidated’s net working capital deficit increased as of September 30, 2024 compared to December 31, 2023, primarily due to the use of proceeds from the sale of the Washington operations to fund capital expenditures, an increase in accrued interest, and an increase in accounts payable, partially offset by an increase in cash and cash equivalents from borrowings under the Broadband Loan Agreements.

Consolidated believes that cash flows from operating activities, together with its existing cash and borrowings available under its financing arrangements, will be sufficient for at least the next twelve months to fund its current anticipated uses of cash. The company’s ability to fund expected uses of cash in the future will depend on the results of future operations, performance, cash flow and potential additional divestitures of non-core assets.