Company Quick10K Filing
Consolidated Communications Holdings
Price4.76 EPS-0
Shares72 P/E-12
MCap343 P/FCF1
Net Debt2,292 EBIT-34
TEV2,635 TEV/EBIT-78
TTM 2019-09-30, in MM, except price, ratios
10-Q 2021-03-31 Filed 2021-04-30
10-K 2020-12-31 Filed 2021-02-26
10-Q 2020-09-30 Filed 2020-10-30
10-Q 2020-06-30 Filed 2020-07-31
10-Q 2020-03-31 Filed 2020-05-01
10-K 2019-12-31 Filed 2020-02-28
10-Q 2019-09-30 Filed 2019-11-01
10-Q 2019-06-30 Filed 2019-08-02
10-Q 2019-03-31 Filed 2019-04-26
10-K 2018-12-31 Filed 2019-02-26
10-Q 2018-09-30 Filed 2018-11-02
10-Q 2018-06-30 Filed 2018-08-03
10-Q 2018-03-31 Filed 2018-05-07
10-K 2017-12-31 Filed 2018-03-01
10-Q 2017-09-30 Filed 2017-11-06
10-Q 2017-06-30 Filed 2017-08-04
10-Q 2017-03-31 Filed 2017-05-05
10-K 2016-12-31 Filed 2017-03-01
10-Q 2016-09-30 Filed 2016-11-04
10-Q 2016-06-30 Filed 2016-08-05
10-Q 2016-03-31 Filed 2016-05-06
10-K 2015-12-31 Filed 2016-02-29
10-Q 2015-09-30 Filed 2015-11-06
10-Q 2015-06-30 Filed 2015-08-07
10-Q 2015-03-31 Filed 2015-05-07
10-K 2014-12-31 Filed 2015-03-02
10-Q 2014-09-30 Filed 2014-11-10
10-Q 2014-06-30 Filed 2014-08-01
10-Q 2014-03-31 Filed 2014-05-02
10-K 2013-12-31 Filed 2014-03-05
10-Q 2013-09-30 Filed 2013-11-07
10-Q 2013-06-30 Filed 2013-08-08
10-K 2012-12-31 Filed 2013-03-12
10-Q 2012-09-30 Filed 2012-11-02
10-Q 2012-06-30 Filed 2012-08-06
10-Q 2012-03-31 Filed 2012-05-04
10-K 2011-12-31 Filed 2012-03-05
10-Q 2011-09-30 Filed 2011-11-03
10-Q 2011-06-30 Filed 2011-08-04
10-Q 2011-03-31 Filed 2011-05-06
10-K 2010-12-31 Filed 2011-03-04
10-Q 2010-09-30 Filed 2010-11-05
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-07
10-K 2009-12-31 Filed 2010-03-08
8-K 2021-02-01 Enter Agreement, Exhibits
8-K 2021-01-15 Enter Agreement, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2021-01-06 Regulation FD, Exhibits
8-K 2020-12-28 Officers
8-K 2020-12-07 Regulation FD, Exhibits
8-K 2020-10-29
8-K 2020-10-25
8-K 2020-10-05
8-K 2020-10-02
8-K 2020-09-18
8-K 2020-09-18
8-K 2020-09-14
8-K 2020-09-13
8-K 2020-07-30
8-K 2020-04-30
8-K 2020-04-27
8-K 2020-04-08
8-K 2020-02-25
8-K 2020-02-20
8-K 2019-10-31
8-K 2019-09-03
8-K 2019-08-01
8-K 2019-04-29
8-K 2019-04-25
8-K 2019-02-21
8-K 2018-12-31
8-K 2018-11-01
8-K 2018-08-02
8-K 2018-05-03
8-K 2018-04-30
8-K 2018-03-01

CNSL 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 6. Exhibits
EX-31.1 cnsl-20210331xex31d1.htm
EX-31.2 cnsl-20210331xex31d2.htm
EX-32.1 cnsl-20210331xex32d1.htm

Consolidated Communications Holdings Earnings 2021-03-31

Balance SheetIncome StatementCash Flow
3.83.02.31.50.80.02012201420172020
Assets, Equity
0.70.50.40.20.1-0.12012201420172020
Rev, G Profit, Net Income
0.90.50.1-0.2-0.6-1.02012201420172020
Ops, Inv, Fin

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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, 2021

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

(I.R.S. Employer

of incorporation or organization)

Identification No.)

2116 South 17th Street, MattoonIllinois

61938

(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

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, 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 26, 2021, the registrant had 79,983,431 shares of Common Stock outstanding.

Table of Contents

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

1

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

38

Item 4.

Controls and Procedures

39

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

40

Item 6.

Exhibits

41

SIGNATURES

42

Table of Contents

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)

Quarter Ended

March 31,

    

2021

    

2020

    

 

Net revenues

$

324,766

$

325,662

Operating expense:

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

 

143,979

 

137,755

Selling, general and administrative expenses

 

66,850

 

67,817

Depreciation and amortization

 

75,611

 

82,738

Income from operations

 

38,326

 

37,352

Other income (expense):

Interest expense, net of interest income

 

(48,415)

 

(32,095)

Gain (loss) on extinguishment of debt

 

(11,980)

 

234

Investment income

 

9,556

 

10,579

Change in fair value of contingent payment rights

(57,588)

Other, net

 

2,718

 

4,594

Income (loss) before income taxes

 

(67,383)

 

20,664

Income tax expense (benefit)

 

(5,300)

 

5,041

Net income (loss)

 

(62,083)

 

15,623

Less: net income attributable to noncontrolling interest

 

16

 

76

Net income (loss) attributable to common shareholders

$

(62,099)

$

15,547

Net income (loss) per basic and diluted common shares attributable to common shareholders

$

(0.80)

$

0.22

See accompanying notes.

1

Table of Contents

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited; Amounts in thousands)

Quarter Ended

March 31,

    

2021

    

2020

    

 

Net income (loss)

$

(62,083)

$

15,623

Pension and post-retirement obligations:

Amortization of actuarial losses and prior service cost to earnings, net of tax

 

162

 

336

Derivative instruments designated as cash flow hedges:

Change in fair value of derivatives, net of tax

 

313

 

(11,944)

Reclassification of realized loss to earnings, net of tax

 

3,436

 

1,608

Comprehensive income (loss)

 

(58,172)

 

5,623

Less: comprehensive income attributable to noncontrolling interest

 

16

 

76

Total comprehensive income (loss) attributable to common shareholders

$

(58,188)

$

5,547

See accompanying notes.

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CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

March 31,

December 31,

   

2021

   

2020

 

ASSETS

Current assets:

Cash and cash equivalents

$

325,142

$

155,561

Accounts receivable, net of allowance for credit losses

 

125,677

 

137,646

Income tax receivable

 

1,072

 

1,072

Prepaid expenses and other current assets

 

48,574

 

46,382

Total current assets

 

500,465

 

340,661

Property, plant and equipment, net

 

1,772,678

 

1,760,152

Investments

 

110,801

 

111,665

Goodwill

 

1,035,274

 

1,035,274

Customer relationships, net

 

103,522

 

113,418

Other intangible assets

 

10,590

 

10,557

Other assets

 

140,490

 

135,573

Total assets

$

3,673,820

$

3,507,300

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

27,174

$

25,283

Advance billings and customer deposits

 

49,144

 

49,544

Accrued compensation

 

64,971

 

74,957

Accrued interest

41,439

21,194

Accrued expense

 

86,978

 

81,931

Current portion of long-term debt and finance lease obligations

 

5,018

 

17,561

Total current liabilities

 

274,724

 

270,470

Long-term debt and finance lease obligations

 

2,105,779

 

1,932,666

Deferred income taxes

 

167,096

 

171,021

Pension and other post-retirement obligations

 

291,273

 

300,373

Convertible security interest

241,027

238,701

Contingent payment rights

180,829

123,241

Other long-term liabilities

 

80,586

 

81,600

Total liabilities

 

3,341,314

 

3,118,072

Commitments and contingencies (Note 13)

Shareholders’ equity:

Common stock, par value $0.01 per share; 100,000,000 shares authorized, 79,983,431 and 79,227,607 shares outstanding as of March 31, 2021 and December 31, 2020, respectively

 

800

 

792

Additional paid-in capital

 

527,115

 

525,673

Accumulated deficit

 

(96,613)

 

(34,514)

Accumulated other comprehensive loss, net

 

(105,507)

 

(109,418)

Noncontrolling interest

 

6,711

 

6,695

Total shareholders’ equity

 

332,506

 

389,228

Total liabilities and shareholders’ equity

$

3,673,820

    

$

3,507,300

See accompanying notes.

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CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited; Amounts in thousands)

Accumulated

 

    

    

    

Additional 

Retained 

    

Other 

    

Non-

    

 

Common Stock

Paid-in 

Earnings

Comprehensive

controlling 

 

Shares

Amount

Capital

(Deficit)

Loss, net

Interest

Total

 

Balance at December 31, 2019

 

71,961

$

720

$

492,246

$

(71,217)

$

(80,868)

$

6,370

$

347,251

Shares issued under employee plan, net of forfeitures

 

1,081

 

11

 

(11)

 

 

 

Non-cash, share-based compensation

 

 

 

890

 

 

 

890

Other comprehensive income (loss)

 

 

 

 

 

(10,000)

 

(10,000)

Cumulative adjustment: adoption of ASU 2016-13

(105)

(105)

Net income (loss)

 

 

 

 

15,547

 

76

 

15,623

Balance at March 31, 2020

 

73,042

$

731

$

493,125

$

(55,775)

$

(90,868)

$

6,446

$

353,659

Balance at December 31, 2020

 

79,228

$

792

$

525,673

$

(34,514)

$

(109,418)

$

6,695

$

389,228

Shares issued under employee plan, net of forfeitures

 

755

8

 

(8)

 

 

 

Non-cash, share-based compensation

 

 

 

1,450

 

 

 

1,450

Other comprehensive income (loss)

 

 

 

 

 

3,911

 

3,911

Net income (loss)

 

 

 

 

(62,099)

 

16

 

(62,083)

Balance at March 31, 2021

 

79,983

$

800

$

527,115

$

(96,613)

$

(105,507)

$

6,711

$

332,506

See accompanying notes.

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CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; Amounts in thousands)

Three Months Ended March 31,

    

2021

    

2020

 

Cash flows from operating activities:

Net income (loss)

$

(62,083)

$

15,623

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

 

75,611

 

82,738

Cash distributions from wireless partnerships in excess of (less than) current earnings

 

11

 

(307)

Pension and post-retirement contributions in excess of expense

(8,770)

(8,571)

Stock-based compensation expense

 

1,450

 

890

Amortization of deferred financing costs and discounts

 

4,283

 

1,196

Loss (gain) on extinguishment of debt

 

11,980

 

(234)

Loss on change in fair value of contingent payment rights

57,588

Other, net

 

7,507

 

(4,138)

Changes in operating assets and liabilities:

Accounts receivable, net

 

11,969

 

1,204

Income tax receivable

 

(5,305)

 

5,024

Prepaid expenses and other assets

 

(3,992)

 

(1,826)

Accounts payable

 

1,891

 

(11,034)

Accrued expenses and other liabilities

 

6,350

 

4,425

Net cash provided by operating activities

98,490

84,990

Cash flows from investing activities:

Purchases of property, plant and equipment, net

 

(75,960)

 

(42,389)

Proceeds from sale of assets

 

24

 

2,187

Proceeds from sale of investments

1,198

426

Net cash used in investing activities

 

(74,738)

 

(39,776)

Cash flows from financing activities:

Proceeds from bond offering

 

400,000

 

Proceeds from issuance of long-term debt

 

150,000

 

10,000

Payment of finance lease obligations

 

(1,598)

 

(2,674)

Payment on long-term debt

 

(397,000)

 

(46,588)

Retirement of senior notes

(4,208)

Payment of financing costs

 

(5,573)

 

Net cash provided by (used in) financing activities

 

145,829

 

(43,470)

Change in cash and cash equivalents

 

169,581

 

1,744

Cash and cash equivalents at beginning of period

 

155,561

 

12,395

Cash and cash equivalents at end of period

$

325,142

$

14,139

See accompanying notes.

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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 23-state service area.

Leveraging our advanced fiber network spanning approximately 47,400 fiber route miles, we offer residential high-speed Internet, video, phone and home security services as well as multi-service residential and small business bundles.  Our 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.  As of March 31, 2021, we had approximately 768,000 voice connections, 794,000 data connections and 74,000 video connections.

In the opinion of management, the accompanying unaudited condensed consolidated balance sheets and related condensed consolidated statements of operations, comprehensive income (loss), 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 2020 Annual Report on Form 10-K filed with the SEC.

Recent Developments

Searchlight Investment

On September 13, 2020, we entered into an investment agreement (the “Investment Agreement”) with an affiliate of Searchlight Capital Partners, L.P. (“Searchlight”).  In connection with the Investment Agreement, affiliates of Searchlight have committed to invest up to an aggregate of $425.0 million in the Company and, assuming satisfaction of certain conditions set forth in the Investment Agreement will hold a combination of perpetual Series A preferred stock and up to approximately 35% of the Company’s outstanding common stock. For a more complete discussion of the transaction, refer to Note 4.

COVID-19

We are closely monitoring the impact on our business of the current outbreak of a novel strain of coronavirus (“COVID-19”) and its variants.  We are taking precautions to ensure the safety of our employees, customers and business partners, while assuring business continuity and reliable service and support to our customers.  While we have not seen a significant adverse impact to our financial results from COVID-19 to date, if the pandemic continues to cause significant negative impacts to economic conditions, our results of operations, financial condition and liquidity could be materially and adversely impacted.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted by the U.S. government as an emergency economic stimulus package that includes spending and tax breaks to strengthen the US economy and fund a nationwide effort to curtail the economic effects of COVID-19.  The CARES Act included, among

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other things, the deferral of certain employer payroll tax payments and certain income tax law changes.  In 2020, we deferred the payment of approximately $12.0 million for the employer portion of Social Security taxes otherwise due in 2020 will be deferred with 50% due by December 31, 2021 and the remaining 50% by December 31, 2022.  On March 11, 2021, the American Rescue Plan Act of 2021 was enacted and provides further economic relief to address the continued economic impact of COVID-19.  These Acts are not expected to have a material impact on our consolidated financial statements and we will continue to monitor the impact of any effects from these Acts and other future legislation.

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 quarters ended March 31, 2021 and 2020:

Quarter Ended

March 31,

 

(In thousands)

    

2021

    

2020

    

 

Balance at beginning of year

$

9,136

$

4,549

Cumulative adjustment upon adoption of ASU 2016-13

144

Provision charged to expense

 

2,246

2,083

Write-offs, less recoveries

 

(1,760)

(1,814)

Balance at end of year

$

9,622

$

4,962

Recent Accounting Pronouncements

Effective January 1, 2021, we adopted ASU No. 2020-06 (“ASU 2020-06”), Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 simplifies guidance on accounting for convertible instruments and contracts in an entity’s own equity including calculating diluted earnings per share. The adoption of this guidance did not have an impact on our condensed consolidated financial statements and related disclosures.

Effective January 1, 2021, we adopted ASU No. 2019-12 (“ASU 2019-12”), Income Taxes.  ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions and adding certain requirements to the general framework in ASC 740, Income Taxes. The new guidance will be applied prospectively. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements and related disclosures.

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-04 (“ASU 2020-04”), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In January 2021, the FASB issued ASU No. 2021-01 (“ASU 2021-01”), Reference Rate Reform (Topic 848): Scope. ASU 2021-01 clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU 2020-04 and ASU 2021-01 are both elective and are effective upon issuance through December 31, 2022. We are currently evaluating the impact these updates will have on our condensed consolidated financial statements and related disclosures.

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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.

Disaggregation of Revenue

The following table summarizes revenue from contracts with customers for the quarters ended March 31, 2021 and 2020:

Quarter Ended

March 31,

(In thousands)

    

2021

    

2020

    

 

Operating Revenues

Commercial and carrier:

 

 

Data and transport services (includes VoIP)

$

90,348

$

89,572

Voice services

 

44,279

 

45,720

Other

9,719

11,712

144,346

147,004

Consumer:

Broadband (VoIP and Data)

65,755

64,076

Video services

16,781

19,131

Voice services

40,420

43,176

122,956

126,383

Subsidies

17,339

18,454

Network access

31,603

31,465

Other products and services

8,522

2,356

Total operating revenues

$

324,766

$

325,662

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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)

    

2021

    

2020

 

Accounts receivable, net

$

125,677

$

122,340

Contract assets

 

21,016

 

19,704

Contract liabilities

 

55,646

 

52,905

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.  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 quarters ended March 31, 2021 and 2020, the Company recognized expense of $2.6 million and $2.1 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 quarters ended March 31, 2021 and 2020, the Company recognized previously deferred revenues of $116.2 million and $111.2 million, respectively.

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

Accounting Standards Codification (“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, 2021.  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 and the contingent payment right (“CPR”) issued to Searchlight on October 2, 2020, as described in Note 4, are considered participating securities because holders are entitled to receive non-forfeitable dividends, if declared, during the vesting term.  

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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.

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

Quarter Ended

March 31,

(In thousands, except per share amounts)

    

2021

    

2020

    

 

Net income (loss)

$

(62,083)

$

15,623

Less: net income attributable to noncontrolling interest

 

16

 

76

Income (loss) attributable to common shareholders before allocation of earnings to participating securities

 

(62,099)

 

15,547

Less: earnings allocated to participating securities

 

 

247

Net income (loss) attributable to common shareholders, after earnings allocated to participating securities

$

(62,099)

$

15,300

Weighted-average number of common shares outstanding

 

78,029

 

71,153

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

$

(0.80)

$

0.22

Diluted EPS attributable to common shareholders for the quarter ended March 31, 2021 excludes 19.4 million potential common shares related to our share-based compensation plan and the CPR, because the inclusion of the potential common shares would have an antidilutive effect.  Diluted EPS attributable to common shareholders for the quarter ended March 31, 2020 excludes 1.1 million potential common shares that could be issued under our share-based compensation plan.

4.  SEARCHLIGHT INVESTMENT

In connection with the Investment Agreement entered into on September 13, 2020, affiliates of Searchlight have committed to invest up to an aggregate of $425.0 million in the Company. The investment commitment is 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 the CPR that is 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”).  

In the second stage of the transaction, Searchlight will invest an additional $75.0 million and will be issued the Note, which will be 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. The Note may be issued to Searchlight prior to the closing of the second stage of the transaction upon the occurrence of certain events. In addition, following shareholder approval and the receipt of applicable regulatory approvals, the CPR will be convertible into an additional 15,115,899 shares, or an additional 10.1%, of the Company’s common stock.  Upon completion of both stages, the common stock and CPR issued to Searchlight will represent approximately 35% of the Company’s common stock on an as-converted basis.  The closing of the second stage of the transaction is subject to the receipt of Federal Communications Commission (“FCC”) and Hart Scott Rodino approvals and the satisfaction of certain

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other customary closing conditions. We have received approval under the Hart-Scott-Rodino Act and on April 26, 2021, the Company’s shareholders approved the issuance to Searchlight of the additional shares of common stock equal to 20% or more of the Company’s outstanding common stock.  We expect the closing of the second stage to be completed in the third quarter of 2021.

The total expected proceeds from the Investment Agreement were allocated among each of the individual components of the investment and recorded at their estimated fair values as of October 2, 2020. The proceeds were first allocated to the CPRs at their full estimated fair values including a discount for lack of marketability and then allocated to the issuance of the common stock with the remaining proceeds allocated to the Note.  The estimated fair value of the components of the Investment Agreement at October 2, 2020 were as follows:

(In thousands)

    

 

Assets Received:

Cash proceeds

$

350,000

Receivable from Searchlight, net of discount of $612

74,388

Less: Issuance costs

(14,474)

Total consideration

$

409,914

Assets Exchanged:

6,352,842 shares of common stock, par value $0.01 per share, net of issuance costs of $1,473

$

26,779

CPR for 16.9% additional shares of common stock

79,469

CPR for 10.1% additional shares of common stock

67,221

Convertible security interest issued as unsecured subordinated note right, net of discount of $146,018 and issuance costs of $13,001

236,445

$

409,914

At March 31, 2021 and December 31, 2020, the net present value of the receivable for the additional investment of $75.0 million expected to be received from Searchlight upon the closing of the second stage of the transaction was $74.9 million and $74.7 million, respectively, and is included within other assets in the consolidated balance sheets.

The CPRs are reported at their estimated fair value within long-term liabilities in the consolidated balance sheets. Subsequent changes in fair value are reflected in earnings within other income and expense in the condensed consolidated statements of operations. As of March 31, 2021 and December 31, 2020, the estimated fair value of the CPRs was $180.8 million and $123.2 million, respectively, and during the quarter ended March 31, 2021, we recognized a loss of $57.6 million on the increase in the fair value of the CPRs.

The Note bears interest at 9.0% per annum from the date of the closing of the first stage of the transaction and is payable semi-annually in arrears.  Upon conversion of the Note, dividends on the preferred stock will accrue daily on the liquidation preference at a rate of 9.0% per annum, payable semi-annually in arrears.  The Note and preferred stock include a paid-in-kind (“PIK”) option for a five-year period beginning as of October 2, 2020.  The Company intends to exercise the PIK interest option on the Note through at least 2022. The term of the Note is 10 years and is due on October 1, 2029.  At March 31, 2021, the net carrying value of the Note was $241.0 million, net of unamortized discount and issuance costs of $143.5 million and $10.9 million, respectively.  At December 31, 2020, the net carrying value of the Note was $238.7 million, net of unamortized discount and issuance costs of $144.8 million and $12.0 million, respectively. The unamortized discount and issuance costs are being amortized over the contractual term of the Note using the effective interest method.

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5.  INVESTMENTS

Our investments are as follows:

March 31,

December 31,

(In thousands)

    

2021

    

2020

 

Cash surrender value of life insurance policies

$

2,699

$

2,536

Investments at cost:

GTE Mobilnet of South Texas Limited Partnership (2.34% interest)

 

21,450

 

21,450

Pittsburgh SMSA Limited Partnership (3.60% interest)

 

22,950

 

22,950

CoBank, ACB Stock

 

7,867

 

8,882

Other

 

273

 

273

Equity method investments:

GTE Mobilnet of Texas RSA #17 Limited Partnership (20.51% interest)

 

19,932

 

20,299

Pennsylvania RSA 6(I) Limited Partnership (16.67% interest)

 

7,398

 

7,482

Pennsylvania RSA 6(II) Limited Partnership (23.67% interest)

 

28,232

 

27,793

Totals

$

110,801

$

111,665

Investments at Cost

We own 2.34%of GTE Mobilnet of South Texas Limited Partnership (the “Mobilnet South Partnership”). The principal activity of the Mobilnet South Partnership is providing cellular service in the Houston, Galveston and Beaumont, Texas metropolitan areas. We also own 3.60% of Pittsburgh SMSA Limited Partnership, which provides cellular service in and around the Pittsburgh metropolitan area.  Because of our limited influence over these partnerships, we account for these investments at our initial cost less any impairment because fair value is not readily available for these investments.  No indictors of impairment existed for any of the investments during the quarters ended March 31, 2021 or 2020.  For these investments, we adjust the carrying value for any purchases or sales of our ownership interests, if any. We record distributions received from these investments as investment income in non-operating income (expense).  For the quarters ended March 31, 2021 and 2020, we received cash distributions from these partnerships totaling $4.3 million and $5.3 million, respectively.

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.

Equity Method

We own 20.51%of GTE Mobilnet of Texas RSA #17 Limited Partnership (“RSA #17”), 16.67% of Pennsylvania RSA 6(I) Limited Partnership (“RSA 6(I)”) and 23.67% of Pennsylvania RSA 6(II) Limited Partnership (“RSA 6(II)”).  RSA #17 provides cellular service to a limited rural area in Texas.  RSA 6(I) and RSA 6(II) provide cellular service in and around our Pennsylvania service territory.  Because we have significant influence over the operating and financial policies of these three entities, we account for the investments using the equity method. Income is recognized as investment income in non-operating income (expense) on our proportionate share of earnings and cash distributions are recorded as a reduction in our investment.  For the quarters ended March 31, 2021 and 2020, we received cash distributions from these partnerships totaling $5.1 million and $4.8 million, respectively.

6.  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

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of the fair value hierarchy as the valuation inputs are based on quoted prices and observable market data of similar instruments.  See Note 8 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, 2021 and December 31, 2020 were as follows:

As of March 31, 2021

 

    

    

Quoted Prices

    

Significant

    

 

In Active

Other

Significant

 

Markets for

Observable

Unobservable

 

Identical Assets

Inputs

Inputs

 

(In thousands)

Total

(Level 1)

(Level 2)

(Level 3)

 

Current interest rate swap liabilities

$

(3,612)

 

$

$

(3,612)

 

$

Long-term interest rate swap liabilities

(20,321)

 

(20,321)

 

Total

$

(23,933)

$

$

(23,933)

$