Consolidated sees revenue slump, investor pushback on pending acquisition

Consolidated Communications in the third quarter generated a total revenue of $283.7 million, a 4.4% drop from the same period last year. Notably, the operator experienced a net loss of $69.2 million in the third quarter of 2023 compared to net income of $282.3 million in the same quarter of last year.

Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), a measure of operational performance, sat at $80.2 million.

The company's financial structure included a net debt leverage ratio of 6.15x for the 12 months ending September 30. This means that the company's total debt is 6.15 times its EBITDA over the last year, a ratio typically used to evaluate a company's ability to manage its debt in relation to its earnings.

Revenue included $115.2 million from overall consumer revenue and $34.0 million from consumer fiber revenue. The company gained 9,392 new subscribers for ts broadband services, resulting in a total of $75.1 million in consumer broadband revenue.

In Q3, Consolidated made committed capital expenditures of $111.3 million, which was primarily used to expand its fiber infrastructure.

The company’s operating expenses in the quarter increased by $15.2 million compared to the previous year, primarily due to higher severance costs related to its “business simplification,” along with increased professional fees for customer service and process improvement initiatives. Although, Consolidated said the jump in capex was “partially offset” by the impact of divesting its Kansas City operations last year.

In August, Consolidated entered another agreement to sell off its Washington state assets to Palisade Infrastructure for $73 million.

Stockholder says no to PE deal

Consolidated in its earnings statement also acknowledged a pending transaction in which it will be acquired by Searchlight Capital Partners, L.P. and British Columbia Investment Management Corporation. The all-cash transaction is valued at around $3.1 billion, including debt.

Upon completion, Consolidated will become a private company, with the transaction expected to close in the first quarter of 2025. 

Consolidated in Q2 reached nearly 1.12 million total fiber passings, covering 43% of its overall footprint with fiber. By the end of 2023, it’s said it plans to run fiber to 225,000 passings. It’s unclear how the private equity acquisition will impact Consolidated’s year-end passings target. But CEO Bob Udell suggested last month the operator’s multi-year fiber deployment may take longer to complete.

“While we are pleased with how we have managed the business despite these headwinds, several factors recently necessitated that we delay our estimated fiber build completion beyond 2026,” Udell said in a statement.

Last week, Wildcat Capital Management, which owns approximately three million shares of Consolidated, issued an open letter to Consolidated's board of directors opposing the private equity deal.

Wildcat, the operator's fifth-largest independent stockholder, said in its letter that it believes the takeover offer “severely undervalues” Consolidated's equity.

“Based on its own analysis, Wildcat believes [Consolidated] merits an enterprise value of approximately $4 billion, representing nearly a 30% premium to the $3.1 billion enterprise value implied by the proposed transaction at $4.70 per share,” Wildcat said in a statement.

“Wildcat continues to believe in the strategic value of the assets assembled by [Consolidated] and the Company's strong potential as a standalone entity, and called for [Consolidated] to terminate the agreement if a higher price cannot be negotiated.”

Wildcat intends to vote its shares against the proposed transaction and has encouraged other stockholders to do the same.