10-Q 1 cnsl-20240331x10q.htm 10-Q
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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, 2024

or

[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-51446

Graphic

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

02-0636095

(State or other jurisdiction

(IRS Employer

of incorporation or organization)

Identification No.)

2116 South 17th Street, MattoonIllinois

61938-5973

(Address of principal executive offices)

(Zip Code)

  (217) 235-3311   

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock - $0.01 par value

CNSL

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No ____

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes X No ____

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,”  “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer     Accelerated filer

Non-accelerated filer___ Smaller reporting company ____ Emerging growth company ____

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ____

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No X

On April 30, 2024, the registrant had 118,429,666 shares of Common Stock outstanding.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; Amounts in thousands except per share amounts)

Three Months Ended

March 31,

    

2024

    

2023

 

Net revenues

$

274,675

$

276,126

Operating expense:

Cost of services and products (exclusive of depreciation and amortization)

 

113,459

 

131,938

Selling, general and administrative expenses

 

83,955

 

81,284

Transaction costs

 

2,925

 

Loss on disposal of assets

 

 

3,304

Depreciation and amortization

 

80,633

 

77,699

Loss from operations

 

(6,297)

 

(18,099)

Other income (expense):

Interest expense, net of interest income

 

(42,451)

 

(33,860)

Other, net

 

1,593

 

2,758

Loss before income taxes

 

(47,155)

 

(49,201)

Income tax benefit

 

(11,772)

 

(12,240)

Net loss

 

(35,383)

 

(36,961)

Less: dividends on Series A preferred stock

11,687

10,587

Less: net income attributable to noncontrolling interest

 

113

 

143

Net loss attributable to common shareholders

$

(47,183)

$

(47,691)

Net loss per basic and diluted common shares attributable to common shareholders

$

(0.41)

$

(0.42)

See accompanying notes

1

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited; Amounts in thousands)

Three Months Ended

 

March 31,

 

    

2024

    

2023

 

Net loss

$

(35,383)

$

(36,961)

Pension and post-retirement obligations:

Amortization of actuarial loss (gain) and prior service cost (credit) to earnings, net of tax

 

(455)

 

(999)

Derivative instruments designated as cash flow hedges:

Change in fair value of derivatives, net of tax

 

7,940

 

(34)

Reclassification of realized gain to earnings, net of tax

 

(1,304)

 

(1,979)

Comprehensive loss

 

(29,202)

 

(39,973)

Less: comprehensive income attributable to noncontrolling interest

 

113

 

143

Total comprehensive loss attributable to common shareholders

$

(29,315)

$

(40,116)

See accompanying notes

2

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; Amounts in thousands except share and per share amounts)

March 31,

December 31,

 

    

2024

    

2023

 

ASSETS

Current assets:

Cash and cash equivalents

$

7,363

$

4,765

Accounts receivable, net of allowance for credit losses

 

109,353

 

121,194

Income tax receivable

 

3,070

 

2,880

Prepaid expenses and other current assets

 

62,738

 

56,843

Assets held for sale

 

70,971

 

70,473

Total current assets

 

253,495

 

256,155

Property, plant and equipment, net

 

2,461,004

 

2,449,009

Investments

 

8,648

 

8,887

Goodwill

 

814,624

 

814,624

Customer relationships, net

 

14,543

 

18,616

Other intangible assets

 

10,557

 

10,557

Other assets

 

79,371

 

70,578

Total assets

$

3,642,242

$

3,628,426

LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

20,529

$

60,073

Advance billings and customer deposits

 

48,579

 

44,478

Accrued compensation

 

47,901

 

58,151

Accrued interest

36,275

18,694

Accrued expense

 

96,750

 

114,022

Current portion of long-term debt and finance lease obligations

 

19,234

 

18,425

Liabilities held for sale

 

3,147

 

3,402

Total current liabilities

 

272,415

 

317,245

Long-term debt and finance lease obligations

 

2,234,667

 

2,134,916

Deferred income taxes

 

201,047

 

210,648

Pension and other post-retirement obligations

 

136,460

 

137,616

Other long-term liabilities

 

46,298

 

48,637

Total liabilities

 

2,890,887

 

2,849,062

Commitments and contingencies (Note 15)

Series A preferred stock, par value $0.01 per share; 10,000,000 shares authorized, 434,266 shares outstanding as of March 31, 2024 and December 31, 2023; liquidation preference of $532,643 and $520,957 as of March 31, 2024 and December 31, 2023, respectively

384,277

372,590

Shareholders’ equity:

Common stock, par value $0.01 per share; 150,000,000 shares authorized, 118,429,666 and 116,172,568 shares outstanding as of March 31, 2024 and December 31, 2023, respectively

 

1,184

 

1,162

Additional paid-in capital

 

671,241

 

681,757

Retained earnings (accumulated deficit)

 

(297,876)

 

(262,380)

Accumulated other comprehensive loss, net

 

(15,691)

 

(21,872)

Noncontrolling interest

 

8,220

 

8,107

Total shareholders’ equity

 

367,078

 

406,774

Total liabilities, mezzanine equity and shareholders’ equity

$

3,642,242

    

$

3,628,426

See accompanying notes

3

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY

(Unaudited; Amounts in thousands)

Mezzanine Equity

Shareholders' Equity

Accumulated

 

Additional 

Retained 

Other 

Non-

Preferred Stock

Common Stock

Paid-in 

Earnings

Comprehensive

controlling 

 

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

(Deficit)

  

Loss, net

  

Interest

  

Total

 

Balance at December 31, 2022

 

456

$

328,680

115,167

$

1,152

$

720,442

$

(11,866)

$

(610)

$

7,651

$

716,769

Shares issued under employee plan, net of forfeitures

 

1,738

17

 

(17)

 

 

 

Series A preferred stock issued

21

Dividends on Series A preferred stock accrued

 

10,587

(10,587)

 

(10,587)

Non-cash, share-based compensation

 

 

 

 

799

 

 

 

799

Purchase and retirement of common stock

 

(256)

 

(2)

 

(1,034)

 

 

 

(1,036)

Other comprehensive income

 

 

 

 

 

 

(3,012)

 

(3,012)

Net income (loss)

 

 

 

 

 

(37,104)

 

143

 

(36,961)

Balance at March 31, 2023

 

477

$

339,267

116,649

$

1,167

$

709,603

$

(48,970)

$

(3,622)

$

7,794

$

665,972

Balance at December 31, 2023

 

434

$

372,590

116,172

$

1,162

$

681,757

$

(262,380)

$

(21,872)

$

8,107

$

406,774

Shares issued under employee plan, net of forfeitures

 

2,368

23

 

(23)

 

 

 

Accrued Series A preferred stock liquidation preference as paid-in-kind dividends

 

11,687

(11,687)

 

(11,687)

Non-cash, share-based compensation

 

 

 

 

1,681

 

 

 

1,681

Purchase and retirement of common stock

 

(111)

 

(1)

 

(487)

 

 

 

(488)

Other comprehensive loss

 

 

 

 

 

 

6,181

 

6,181

Net income (loss)

 

 

 

 

 

(35,496)

 

113

 

(35,383)

Balance at March 31, 2024

 

434

$

384,277

118,429

$

1,184

$

671,241

$

(297,876)

$

(15,691)

$

8,220

$

367,078

See accompanying notes

4

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; Amounts in thousands)

Three Months Ended March 31,

 

    

2024

    

2023

 

Cash flows from operating activities:

Net loss

$

(35,383)

$

(36,961)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

 

80,633

 

77,699

Deferred income tax expense (benefit)

 

(11,791)

 

5,604

Pension and post-retirement contributions in excess of expense

(1,702)

(2,861)

Stock-based compensation expense

 

1,681

 

799

Amortization of deferred financing costs and discounts

 

1,957

 

1,847

Loss on disposal of assets

3,304

Other, net

 

(1,283)

 

(418)

Changes in operating assets and liabilities:

Accounts receivable, net

 

11,696

 

10,110

Income tax receivable

 

(190)

 

(17,835)

Prepaid expenses and other assets

 

(8,811)

 

(6,691)

Accounts payable

 

(25,976)

 

11,976

Accrued expenses and other liabilities

 

(5,161)

 

8,513

Net cash provided by operating activities

5,670

55,086

Cash flows from investing activities:

Purchases of property, plant and equipment, net

 

(98,032)

 

(130,826)

Proceeds from sale and maturity of investments

714

1,623

Proceeds from sale of assets

 

76

 

292

Net cash used in investing activities

 

(97,242)

 

(128,911)

Cash flows from financing activities:

Proceeds from issuance of long-term debt

 

100,000

 

Payment of finance lease obligations

 

(4,837)

 

(3,114)

Payment of financing costs

 

(504)

 

Share repurchases for minimum tax withholding

 

(489)

 

(1,036)

Net cash provided by (used in) financing activities

 

94,170

 

(4,150)

Change in cash and cash equivalents

 

2,598

 

(77,975)

Cash and cash equivalents at beginning of period

 

4,765

 

325,852

Cash and cash equivalents at end of period

$

7,363

$

247,877

See accompanying notes

5

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business and Basis of Accounting

Consolidated Communications Holdings, Inc. (the “Company,” “we,” “our” or “us”) is a holding company with operating subsidiaries (collectively “Consolidated”) that provide communication solutions to consumer, commercial and carrier customers across a service area in over 20 states.

Leveraging our advanced fiber network spanning approximately 61,000 fiber route miles, we offer residential high-speed Internet, video, phone and home security services as well as a comprehensive business product suite including: data and Internet solutions, voice, data center services, security services, managed and IT services, and an expanded suite of cloud services.  

In the opinion of management, the accompanying unaudited condensed consolidated balance sheets and related condensed consolidated statements of operations, comprehensive income (loss), mezzanine equity and shareholders’ equity and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States (“US GAAP” or “GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).  Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such SEC rules and regulations and accounting principles applicable for interim periods.  Events subsequent to the balance sheet date have been evaluated for inclusion in the accompanying condensed consolidated financial statements through the date of issuance.  Management believes that the disclosures made are adequate to make the information presented not misleading.  Interim results are not necessarily indicative of results for a full year.  The information presented in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and the accompanying notes to the financial statements (“Notes”) thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC.

Recent Developments

Merger Agreement

On October 15, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Condor Holdings LLC, a Delaware limited liability company (“Parent”) affiliated with certain funds managed by affiliates of Searchlight Capital Partners, L.P. (“Searchlight”), and Condor Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which, subject to the terms and conditions thereof, Merger Sub will merge with and into the Company (the “Merger”) with the Company continuing as the surviving corporation and a wholly owned subsidiary of an affiliate of Searchlight. British Columbia Investment Management Corporation (“BCI”) and certain affiliates of Searchlight have committed to provide equity financing to Parent to fund the transactions contemplated by the Merger Agreement. Searchlight is currently the beneficial owner of approximately 33% of the Company’s outstanding shares of common stock and is the holder of 100% of the Company’s outstanding Series A perpetual preferred stock. Refer to Note 4 for a more complete discussion of the strategic investment with Searchlight. Subject to the terms and conditions set forth in the Merger Agreement, upon the consummation of the Merger, each share of the Company’s common stock, par value $0.01 per share (other than shares of the Company’s common stock (i) held directly or indirectly by Parent, Merger Sub or any subsidiary of the Company, (ii) held by the Company as treasury shares or (iii) held by any person who properly exercises appraisal rights under Delaware law) will be converted into the right to receive an amount in cash equal to $4.70 per share, without interest (the “Merger Consideration”), subject to any withholding of taxes required by applicable law. In addition, pursuant to the Merger Agreement, upon the consummation of the Merger, (i) Company restricted share awards (“Company RSAs”) held by non-employee directors or by certain affiliates of Searchlight will vest and be canceled in exchange for the Merger Consideration and (ii) all other Company RSAs will be converted into restricted cash awards based on the Merger Consideration and subject to the same terms and conditions, including time-

6

and performance-based vesting conditions, as the corresponding Company RSA (except that the relative total shareholder return modifier shall be deemed to be achieved at the target level).

The Merger Agreement has, unanimously by the directors present, been approved by the board of directors of the Company (the “Board”), acting upon the unanimous recommendation of a special committee consisting of only independent and disinterested directors of the Company (the “Special Committee”). On January 31, 2024, the Company held a virtual special meeting of stockholders (the “Special Meeting”) to consider three proposals with respect to the Merger Agreement. The first proposal, to adopt the Merger Agreement, was approved by (i) holders of a majority of the voting power represented by the issued and outstanding shares of our common stock that were entitled to vote thereon and (ii) holders of a majority of the voting power represented by the issued and outstanding shares of our common stock that were entitled to vote thereon and held by Unaffiliated Stockholders (as defined in the Merger Agreement). The second proposal, to approve by advisory (non-binding) vote the compensation that may be paid or become payable to the named executive officers of the Company in connection with the consummation of the Merger, was approved by the requisite vote of the Company’s stockholders. The third proposal, to approve any adjournment of the Special Meeting, if necessary, to solicit additional proxies if there were insufficient votes in favor of the Merger Agreement proposal, was also approved by the requisite vote of the Company’s stockholders. Because the Merger Agreement proposal was approved by the requisite vote, no adjournment to solicit additional proxies was necessary.

The proposed transaction constitutes a “going-private transaction” under the rules of the SEC and is expected to close by the first quarter of 2025. The closing of the Merger is subject to various conditions, including (i) the expiration or termination of the applicable waiting periods (and any extensions thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”); (ii) the receipt of certain required consents or approvals from (a) the Federal Communications Commission, (b) the Committee on Foreign Investment in the United States, (c) state public utility commissions and (d) local regulators in connection with the provision of telecommunications and media services; (iii) the absence of any order, injunction or decree restraining, enjoining or otherwise prohibiting or making illegal the consummation of the Merger or the other transactions contemplated by the Merger Agreement; and (iv) the accuracy of the representations and warranties contained in the Merger Agreement, subject to customary materiality qualifications, as of the date of the Merger Agreement and the date of closing, and performance in all material respects of the covenants and agreements contained in the Merger Agreement. The transaction is not subject to a financing condition. We are awaiting required regulatory approvals in order to execute the Merger. Following the closing of the transaction, shares of our common stock will no longer be traded or listed on any public securities exchange.

Accounts Receivable and Allowance for Credit Losses

Accounts receivable (“AR”) consists primarily of amounts due to the Company from normal business activities. We maintain an allowance for credit losses (“ACL”) based on our historical loss experience, current conditions and forecasted changes including but not limited to changes related to the economy, our industry and business. Uncollectible accounts are written-off (removed from AR and charged against the ACL) when internal collection efforts have been unsuccessful.  Subsequently, if payment is received from the customer, the recovery is credited to the ACL.

The following table summarizes the activity in ACL for the three months ended March 31, 2024 and 2023:

Three Months Ended

March 31,

(In thousands)

    

2024

    

2023

    

Balance at beginning of year

$

13,469

$

11,470

Provision charged to expense

 

2,033

2,040

Write-offs, less recoveries

 

(1,783)

(1,523)

Balance at end of year

$

13,719

$

11,987

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued the Accounting Standards Update No. 2023-07 (“ASU 2023-07”), Improvements to Reportable Segment Disclosures. ASU 2023-07 improves reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The new guidance is

7

effective on retrospective basis for financial statements issued for annual periods beginning after December 15, 2023 with early adoption permitted. We are currently evaluating the impact this update will have on our related disclosures.

In December 2023, the FASB issued the Accounting Standards Update No. 2023-09 (“ASU 2023-09”), Improvements to Income Tax Disclosures. Amendments in ASU 2023-09 require additional income tax disclosures primarily related to the rate reconciliation and income taxes paid. The new guidance is effective for financial statements issued for annual periods beginning after December 15, 2024 with early adoption permitted and can be applied on either a prospective or retrospective basis. We are currently evaluating the impact this update will have on our income tax disclosures.

2.  REVENUE

Nature of Contracts with Customers

Our revenue contracts with customers may include a promise or promises to deliver goods such as equipment and/or services such as broadband, video or voice services.  Promised goods and services are considered distinct as the customer can benefit from the goods or services either on their own or together with other resources that are readily available to the customer and the Company’s promise to transfer a good or service to the customer is separately identifiable from other promises in the contract.  The Company accounts for goods and services as separate performance obligations.  Each service is considered a single performance obligation as it is providing a series of distinct services that are substantially the same and have the same pattern of transfer.

The transaction price is determined at contract inception and reflects the amount of consideration to which we expect to be entitled in exchange for transferring a good or service to the customer.  This amount is generally equal to the market price of the goods and/or services promised in the contract and may include promotional discounts.  The transaction price excludes amounts collected on behalf of third parties such as sales taxes and regulatory fees. Conversely, nonrefundable upfront fees, such as service activation and set-up fees, are included in the transaction price.  In determining the transaction price, we consider our enforceable rights and obligations within the contract. We do not consider the possibility of a contract being cancelled, renewed or modified.

The transaction price is allocated to each performance obligation based on the standalone selling price of the good or service, net of the related discount, as applicable.

Revenue is recognized when or as performance obligations are satisfied by transferring control of the good or service to the customer.

8

Disaggregation of Revenue

The following table summarizes revenue from contracts with customers for the three months ended March 31, 2024 and 2023:

Three Months Ended

March 31,

(In thousands)

    

2024

    

2023

 

Operating Revenues

Consumer:

 

 

Broadband (Data and VoIP)

$

79,882

$

67,961

Voice services

 

28,336

 

32,263

Video services

6,626

9,594

114,844

109,818

Commercial:

 

 

Data services (includes VoIP)

54,681

53,134

Voice services

 

30,711

 

32,631

Other

8,964

9,756

94,356

95,521

Carrier:

Data and transport services

31,048

32,923

Voice services

3,794

4,367

Other

235

350

35,077

37,640

Subsidies

6,806

7,036

Network access

22,468

24,444

Other products and services

1,124

1,667

Total operating revenues

$

274,675

$

276,126

Contract Assets and Liabilities

The following table provides information about receivables, contract assets and contract liabilities from our revenue contracts with customers:

March 31,

(In thousands)

    

2024

    

2023

Accounts receivable, net

$

109,353

$

108,471

Contract assets

 

42,315

 

26,556

Contract liabilities

 

61,325

 

57,787

Contract assets include costs that are incremental to the acquisition of a contract.  Incremental costs are those that result directly from obtaining a contract or costs that would not have been incurred if the contract had not been obtained, which primarily relate to sales commissions and certain contract fulfillment costs. These costs are deferred and amortized over the expected customer life. We determined that the expected customer life is the expected period of benefit as the commission on the renewal contract is not commensurate with the commission on the initial contract. During the three-month periods ended March 31, 2024 and 2023, the Company recognized expense of $4.0 million and $3.5 million, respectively, related to deferred contract acquisition costs.

Contract liabilities include deferred revenues related to advanced payments for services and nonrefundable, upfront service activation and set-up fees, which are generally deferred and amortized over the expected customer life as the option to renew without paying an upfront fee provides the customer with a material right.  During the three months ended March 31, 2024 and 2023, the Company recognized previously deferred revenues of $113.6 million and $110.7 million, respectively.

9

A receivable is recognized in the period the Company provides goods or services when the Company’s right to consideration is unconditional.  Payment terms on invoiced amounts are generally 30 to 60 days.

Performance Obligations

ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), requires that the Company disclose the aggregate amount of the transaction price that is allocated to remaining performance obligations that are unsatisfied as of March 31, 2024.  The guidance provides certain practical expedients that limit this requirement.  The service revenue contracts of the Company meet the following practical expedients provided by ASC 606:

1.The performance obligation is part of a contract that has an original expected duration of one year or less.
2.Revenue is recognized from the satisfaction of the performance obligations in the amount billable to the customer in accordance with ASC 606-10-55-18.

The Company has elected these practical expedients.  Performance obligations related to our service revenue contracts are generally satisfied over time. For services transferred over time, revenue is recognized based on amounts invoiced to the customer as the Company has concluded that the invoice amount directly corresponds with the value of services provided to the customer.  Management considers this a faithful depiction of the transfer of control as services are substantially the same and have the same pattern of transfer over the life of the contract.  As such, revenue related to unsatisfied performance obligations that will be billed in future periods has not been disclosed.

3.  EARNINGS (LOSS) PER SHARE

Basic and diluted earnings (loss) per common share (“EPS”) are computed using the two-class method, which is an earnings allocation method that determines EPS for each class of common stock and participating securities considering dividends declared and participation rights in undistributed earnings.  Common stock related to certain of the Company’s restricted stock awards are considered participating securities because holders are entitled to receive non-forfeitable dividends, if declared, during the vesting term.  

The potentially dilutive impact of the Company’s restricted stock awards is determined using the treasury stock method.  Under the treasury stock method, if the average market price during the period exceeds the exercise price, these instruments are treated as if they had been exercised with the proceeds of exercise used to repurchase common stock at the average market price during the period.  Any incremental difference between the assumed number of shares issued and repurchased is included in the diluted share computation.

Diluted EPS includes securities that could potentially dilute basic EPS during a reporting period.  Dilutive securities are not included in the computation of loss per share when a company reports a net loss from continuing operations as the impact would be anti-dilutive.

10

The computation of basic and diluted EPS attributable to common shareholders computed using the two-class method is as follows:

Three Months Ended

March 31,

(In thousands, except per share amounts)

2024

2023

Net loss

$

(35,383)

$

(36,961)

Less: dividends on Series A preferred stock

11,687

10,587

Less: net income attributable to noncontrolling interest

 

113

 

143

Loss attributable to common shareholders before allocation of earnings to participating securities

 

(47,183)

 

(47,691)

Less: earnings allocated to participating securities

 

 

Loss attributable to common shareholders, after earnings allocated to participating securities

$

(47,183)

$

(47,691)

Weighted-average number of common shares outstanding

114,134

112,939

Net loss per common share attributable to common shareholders - basic and diluted

$

(0.41)

$

(0.42)

Diluted EPS attributable to common shareholders for the three months ended March 31, 2024 and 2023 excludes 2.6 million and 2.5 million potential common shares related to our share-based compensation plan, respectively, because the inclusion of the potential common shares would have an antidilutive effect.

4.  SEARCHLIGHT INVESTMENT

In connection with the Investment Agreement entered into on September 13, 2020, affiliates of Searchlight committed to invest up to an aggregate of $425.0 million in the Company. The investment commitment was structured in two stages.  In the first stage of the transaction, which was completed on October 2, 2020, Searchlight invested $350.0 million in the Company in exchange for 6,352,842 shares, or approximately 8%, of the Company’s common stock and was issued a CPR that was convertible, upon the receipt of certain regulatory and shareholder approvals, into an additional 17,870,012 shares, or 16.9%, of the Company’s common stock.  In addition, Searchlight received the right to an unsecured subordinated note with an aggregate principal amount of approximately $395.5 million (the “Note”), which was convertible into shares of a new series of perpetual preferred stock of the Company with an aggregate liquidation preference equal to the principal amount of the Note plus accrued interest as of the date of conversion.

On July 15, 2021, the Company received all required state public utility commission regulatory approvals necessary for the conversion of the CPR into 16.9% additional shares of the Company’s common stock. As a result, the CPR was converted into 17,870,012 shares of common stock, which were issued to Searchlight on July 16, 2021.

In the second stage of the transaction, which was completed on December 7, 2021 following the receipt of Federal Communications Commission (“FCC”) and certain regulatory approvals and the satisfaction of certain other customary closing conditions, Searchlight invested an additional $75.0 million and was issued the Note. On December 7, 2021, Searchlight elected to convert the Note into 434,266 shares of Series A Perpetual Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”). In addition, the CPR converted into an additional 15,115,899 shares, or an additional 10.1%, of the Company’s common stock.  As of March 31, 2024 and December 31, 2023, the total shares of common stock issued to Searchlight represent approximately 33% and 34% of the Company’s outstanding common stock, respectively.

On December 7, 2021, Searchlight exercised its option to convert the Note and the net carrying value of the Note of $285.9 million, net of unamortized discount and issuance costs of $139.7 million and $8.7 million, respectively, was converted into 434,266 shares of Series A Preferred Stock at an initial liquidation preference of $1,000 per share.  Dividends on the Series A Preferred Stock accrue daily on the liquidation preference at a rate of 9.0% per annum, payable semi-annually in arrears. The liquidation preference per share is adjusted to include any paid-in-kind dividends. See Note 11 for more information on the terms of the Series A Preferred Stock.

11

With the strategic investment from Searchlight, we have enhanced our fiber infrastructure and accelerated the investment in our network, which will include the upgrade of approximately 1.6 million passings across select service areas to enable multi-Gig capable services to these homes and small businesses. Our fiber build plan includes the upgrade of approximately 150,000 homes and small businesses in 2024.

5.  DIVESTITURES

Washington Operations

On July 10, 2023, we entered into a definitive agreement to sell all of the issued and outstanding stock of our business located in Washington, Consolidated Communications of Comerco Company (“CCCC”), which directly owns all of the issued and outstanding shares of Consolidated Communications of Washington Company (“CCWC” and together with CCCC”, the “Washington operations”), for gross cash proceeds of approximately $73.0 million, subject to customary working capital adjustments and other post-closing purchase price adjustments. The sale closed on May 1, 2024. The sale of the Washington operations aligns with our ongoing strategic asset review and focus on our fiber expansion plans in our core broadband regions.

At March 31, 2024 and December 31, 2023, the major classes of assets and liabilities to be sold were classified as held for sale in the condensed consolidated balance sheets and consisted of the following:

March 31,

December 31,

(In thousands)

    

2024

    

2023

Current assets

$

1,292

$

1,208

Property, plant and equipment

30,839

30,581

Goodwill

114,946

114,946

Other long-term assets

1,649

1,493

Impairment to net realizable value

(77,755)

(77,755)

Total assets

$

70,971

$

70,473

Current liabilities

$

2,007

$

2,196

Other long-term liabilities

1,140

1,206

Total liabilities

$

3,147

$

3,402

During the three months ended June 30, 2023, the carrying value of the net assets to be sold were reduced to their estimated fair value, which was determined based on the estimated selling price less costs to sell and were classified as Level 2 within the fair value hierarchy. As a result, we recognized an impairment loss of $77.8 million during the three months ended June 30, 2023.  

Kansas City Operations

On March 2, 2022, we entered into a definitive agreement to sell substantially all the assets of our business located in the Kansas City market (the “Kansas City operations”). The Kansas City operations provide data, voice and video services to customers within the Kansas City metropolitan area and surrounding counties. The sale closed on November 30, 2022 for gross cash proceeds of $82.1 million, subject to the finalization of certain working capital and other post-closing purchase price adjustments. During the three months ended March 31, 2023, we recognized an additional loss on sale of $2.1 million as a result of expected purchase price adjustments and changes in working capital. The loss on the sale of the Kansas City Operations is included in loss on disposal of assets in the condensed consolidated statement of operations.

   

12

6.  INVESTMENTS

Our investments are as follows:

March 31,

December 31,

(In thousands)

    

2024

    

2023

 

 

Long-term investments:

Cash surrender value of life insurance policies

$

3,208

$

2,860

CoBank, ACB Stock

 

5,168

 

5,755

Other

 

272

 

272

$

8,648

$

8,887

Long-Term Investments

CoBank, ACB (“CoBank”) is a cooperative bank owned by its customers. On an annual basis, CoBank distributes patronage in the form of cash and stock in the cooperative based on the Company’s outstanding loan balance with CoBank, which has traditionally been a significant lender in the Company’s credit facility.  The investment in CoBank represents the accumulation of the equity patronage paid by CoBank to the Company.

7.  FAIR VALUE MEASUREMENTS

Our derivative instruments related to interest rate swap agreements are required to be measured at fair value on a recurring basis.  The fair values of the interest rate swaps are determined using valuation models and are categorized within Level 2 of the fair value hierarchy as the valuation inputs are based on quoted prices and observable market data of similar instruments.  See Note 9 for further discussion regarding our interest rate swap agreements.

Our interest rate swap agreements measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023 were as follows:

As of March 31, 2024

 

    

    

Quoted Prices

    

Significant

    

 

In Active

Other

Significant

 

Markets for

Observable

Unobservable

 

Identical Assets

Inputs

Inputs

 

(In thousands)

Total

(Level 1)

(Level 2)

(Level 3)

 

Long-term interest rate swap assets

$

6,567

 

$

$

6,567

 

$

As of December 31, 2023

 

    

    

Quoted Prices

    

Significant

    

 

In Active

Other

Significant

 

Markets for

Observable

Unobservable

 

Identical Assets

Inputs

Inputs

 

(In thousands)

Total

(Level 1)

(Level 2)

(Level 3)

 

Long-term interest rate swap liabilities

$

(2,421)

 

$

$

(2,421)

 

$

We have not elected the fair value option for any of our other assets or liabilities.  The carrying value of other financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short maturities.  The following table presents the other financial instruments that are not carried at fair value but which require fair value disclosure as of March 31, 2024 and December 31, 2023.

As of March 31, 2024

As of December 31, 2023

 

(In thousands)

    

Carrying Value

    

Fair Value

    

Carrying Value

    

Fair Value

  

Long-term debt, excluding finance leases

$

2,243,290

$

2,034,117

$

2,142,858

$

1,903,831

13

Investments

Our investments as of March 31, 2024 and December 31, 2023 accounted for at cost consisted primarily of our investment in CoBank. It is impracticable to determine the fair value of this investment.

Long-term Debt

The fair value of our senior notes was based on quoted market prices, and the fair value of borrowings under our credit facility was determined using current market rates for similar types of borrowing arrangements. We have categorized the long-term debt as Level 2 within the fair value hierarchy.

8. LONG-TERM DEBT

Long-term debt, presented net of unamortized discounts, consisted of the following:

March 31,

December 31,

(In thousands)

    

2024

    

2023

 

 

Senior secured credit facility:

Term loans, net of discounts of $6,585 and $7,017 at March 31, 2024 and December 31, 2023, respectively

$

993,290

$

992,858

Revolving loans

100,000

6.50% Senior notes due 2028

750,000

750,000

5.00% Senior notes due 2028

400,000

400,000

Finance leases