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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 June 30, 2024

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

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-51446

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, Mattoon, Illinois				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 X

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 July 30, 2024, the registrant had 118,477,091 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	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	41

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	43

Item 5.	Other Information	43

Item 6.	Exhibits	44

SIGNATURES		45

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)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Net revenues	$	268,709	$	275,162	$	543,384	$	551,288

Operating expense:
Cost of services and products (exclusive of depreciation and amortization)		114,006		126,967		227,465		258,905
Selling, general and administrative expenses		93,288		83,565		177,243		164,849
Transaction costs		3,175		—		6,100		—
Loss on impairment of assets held for sale		—		77,755		—		77,755
Loss on disposal of assets		—		2,384		—		5,688
Depreciation and amortization		79,809		79,538		160,442		157,237
Loss from operations		(21,569)		(95,047)		(27,866)		(113,146)

Other income (expense):
Interest expense, net of interest income		(44,132)		(36,903)		(86,583)		(70,763)
Other, net		292		5,410		1,885		8,168
Loss before income taxes		(65,409)		(126,540)		(112,564)		(175,741)

Income tax benefit		(10,581)		(18,448)		(22,353)		(30,688)

Net loss		(54,828)		(108,092)		(90,211)		(145,053)
Less: dividends on Series A preferred stock		11,692		10,704		23,379		21,291
Less: net income attributable to noncontrolling interest		145		161		258		304
Net loss attributable to common shareholders	$	(66,665)	$	(118,957)	$	(113,848)	$	(166,648)

Net loss per basic and diluted common shares attributable to common shareholders	$	(0.58)	$	(1.05)	$	(1.00)	$	(1.47)

See accompanying notes

Table of Contents

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited; Amounts in thousands)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Net loss	$	(54,828)	$	(108,092)	$	(90,211)	$	(145,053)
Pension and post-retirement obligations:
Amortization of actuarial loss (gain) and prior service cost (credit) to earnings, net of tax		(456)		(999)		(911)		(1,998)
Derivative instruments designated as cash flow hedges:
Change in fair value of derivatives, net of tax		395		3,089		8,335		3,055
Reclassification of realized gain to earnings, net of tax		(1,291)		(2,387)		(2,595)		(4,366)
Comprehensive loss		(56,180)		(108,389)		(85,382)		(148,362)
Less: comprehensive income attributable to noncontrolling interest		145		161		258		304
Total comprehensive loss attributable to common shareholders	$	(56,325)	$	(108,550)	$	(85,640)	$	(148,666)

See accompanying notes

Table of Contents

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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


	June 30,		December 31,
	2024		2023
ASSETS
Current assets:
Cash and cash equivalents	$	5,327	$	4,765
Accounts receivable, net of allowance for credit losses		127,359		121,194
Income tax receivable		3,470		2,880
Prepaid expenses and other current assets		57,321		56,843
Assets held for sale		—		70,473
Total current assets		193,477		256,155

Property, plant and equipment, net		2,494,789		2,449,009
Investments		8,628		8,887
Goodwill		814,624		814,624
Customer relationships, net		10,470		18,616
Other intangible assets		10,557		10,557
Other assets		77,771		70,578
Total assets	$	3,610,316	$	3,628,426

LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	39,820	$	60,073
Advance billings and customer deposits		48,539		44,478
Accrued compensation		56,243		58,151
Accrued interest		19,931		18,694
Accrued expense		83,645		114,022
Current portion of long-term debt and finance lease obligations		20,601		18,425
Liabilities held for sale		—		3,402
Total current liabilities		268,779		317,245

Long-term debt and finance lease obligations		2,268,663		2,134,916
Deferred income taxes		189,987		210,648
Pension and other post-retirement obligations		135,488		137,616
Other long-term liabilities		49,350		48,637
Total liabilities		2,912,267		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 June 30, 2024 and December 31, 2023; liquidation preference of $544,335 and $520,957 as of June 30, 2024 and December 31, 2023, respectively		395,969		372,590

Shareholders’ equity:
Common stock, par value $0.01 per share; 150,000,000 shares authorized, 118,477,091 and 116,172,568 shares outstanding as of June 30, 2024 and December 31, 2023, respectively		1,185		1,162
Additional paid-in capital		662,422		681,757
Retained earnings (accumulated deficit)		(352,849)		(262,380)
Accumulated other comprehensive loss, net		(17,043)		(21,872)
Noncontrolling interest		8,365		8,107
Total shareholders’ equity		302,080		406,774
Total liabilities, mezzanine equity and shareholders’ equity	$	3,610,316	$	3,628,426

See accompanying notes

Table of Contents

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 loss	—		—	—		—		—		—		(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
Shares issued under employee plan, net of forfeitures	—		—	(39)		—		—		—		—		—		—
Dividends on Series A preferred stock accrued	—		10,704	—		—		(10,704)		—		—		—		(10,704)
Non-cash, share-based compensation	—		—	—		—		2,388		—		—		—		2,388
Other comprehensive loss	—		—	—		—		—		—		(297)		—		(297)
Net income (loss)	—		—	—		—		—		(108,253)		—		161		(108,092)
Balance at June 30, 2023	477	$	349,971	116,610	$	1,167	$	701,287	$	(157,223)	$	(3,919)	$	7,955	$	549,267

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 income	—		—	—		—		—		—		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
Shares issued under employee plan, net of forfeitures	—		—	84		1		(1)		—		—		—		—
Accrued Series A preferred stock liquidation preference as paid-in-kind dividends	—		11,692	—		—		(11,692)		—		—		—		(11,692)
Non-cash, share-based compensation	—		—	—		—		3,030		—		—		—		3,030
Purchase and retirement of common stock	—		—	(36)		—		(156)		—		—		—		(156)
Other comprehensive loss	—		—	—		—		—		—		(1,352)		—		(1,352)
Net income (loss)	—		—	—		—		—		(54,973)		—		145		(54,828)
Balance at June 30, 2024	434	$	395,969	118,477	$	1,185	$	662,422	$	(352,849)	$	(17,043)	$	8,365	$	302,080

See accompanying notes

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CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; Amounts in thousands)


	Six Months Ended June 30,
	2024		2023
Cash flows from operating activities:
Net loss	$	(90,211)	$	(145,053)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		160,442		157,237
Deferred income tax expense (benefit)		(22,371)		(31,259)
Pension and post-retirement contributions in excess of expense		(3,279)		(5,537)
Stock-based compensation expense		4,711		3,187
Amortization of deferred financing costs and discounts		3,942		3,721
Loss on impairment of assets held for sale		—		77,755
Loss on disposal of assets		—		5,688
Other, net		(113)		(2,861)
Changes in operating assets and liabilities:
Accounts receivable, net		(6,232)		10,874
Income tax receivable		(590)		(5,141)
Prepaid expenses and other assets		(6,580)		(3,930)
Accounts payable		(22,215)		2,748
Accrued expenses and other liabilities		(20,036)		(110)
Net cash provided by (used in) operating activities		(2,532)		67,319

Cash flows from investing activities:
Purchases of property, plant and equipment, net		(183,577)		(280,860)
Proceeds from sale and maturity of investments		714		91,623
Proceeds from sale of assets		232		6,801
Proceeds from business dispositions		67,458		—
Net cash used in investing activities		(115,173)		(182,436)

Cash flows from financing activities:
Proceeds from issuance of long-term debt		130,000		—
Payment of finance lease obligations		(10,154)		(7,121)
Payment of financing costs		(934)		—
Share repurchases for minimum tax withholding		(645)		(1,036)
Net cash provided by (used in) financing activities		118,267		(8,157)
Change in cash and cash equivalents		562		(123,274)
Cash and cash equivalents at beginning of period		4,765		325,852
Cash and cash equivalents at end of period	$	5,327	$	202,578

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 service area in over 20 states.

Leveraging our advanced fiber network spanning approximately 63,000 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-

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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 in late fourth quarter 2024 or early first quarter 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. The waiting period under the HSR Act expired on May 9, 2024 at 11:59 p.m. This satisfied the closing condition related to the U.S. antitrust clearance of the transaction. We are awaiting the other 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.

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The following table summarizes the activity in ACL for the six months ended June 30, 2024 and 2023:


	Six Months Ended
	June 30,
(In thousands)	2024		2023
Balance at beginning of year	$	13,469	$	11,470
Provision charged to expense		4,129		4,140
Write-offs, less recoveries		(3,903)		(3,190)
Balance at end of year	$	13,695	$	12,420

Accounts Receivable - Other

We may be awarded grants from federal and state governments to assist in the deployment of broadband in order to support access to high-speed broadband services in underserved or unserved areas. The awards may include a number of regulatory requirements including the completion of construction by certain dates. Funding from the grants may be received in advance, upon completion of the project or when certain milestones are achieved. The grants are accounted for as a contribution in aid of construction given the nature of the arrangement and are recorded as a reduction to property, plant and equipment as the projects are completed. At June 30, 2024 and December 31, 2023, AR included amounts due to the Company of $17.4 million and $7.0 million, respectively, related to grant funding or other special construction projects.

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 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.

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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 three and six months ended June 30, 2024 and 2023:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2024		2023		2024		2023
Operating Revenues
Consumer:
Broadband (Data and VoIP)	$	81,405	$	71,339	$	161,287	$	139,300
Voice services		27,965		31,352		56,301		63,615
Video services		3,312		9,362		9,938		18,956
		112,682		112,053		227,526		221,871
Commercial:
Data services (includes VoIP)		54,571		53,230		109,252		106,364
Voice services		30,509		32,236		61,220		64,867
Other		8,295		10,378		17,259		20,134
		93,375		95,844		187,731		191,365
Carrier:
Data and transport services		30,263		31,224		61,311		64,147
Voice services		3,610		4,263		7,404		8,630
Other		284		313		519		663
		34,157		35,800		69,234		73,440
Subsidies		6,373		7,072		13,179		14,108
Network access		21,143		22,747		43,611		47,191
Other products and services		979		1,646		2,103		3,313
Total operating revenues	$	268,709	$	275,162	$	543,384	$	551,288

Contract Assets and Liabilities

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


	June 30,
(In thousands)	2024		2023
Accounts receivable, net	$	127,359	$	100,827
Contract assets		46,152		30,071
Contract liabilities		61,543		56,963

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 months ended June 30, 2024 and 2023, the Company recognized expense of $4.2 million and $3.2 million, respectively,

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related to deferred contract acquisition costs. During the six months ended June 30, 2024 and 2023, the Company recognized expense of $8.2 million and $6.7 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 June 30, 2024 and 2023, the Company recognized previously deferred revenues of $115.3 million and $100.8 million, respectively. For the six months ended June 30, 2024 and 2023, the Company recognized previously deferred revenues of $228.9 million and $221.5 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

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 June 30, 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:

The performance obligation is part of a contract that has an original expected duration of one year or less.

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.

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands, except per share amounts)	2024		2023		2024		2023
Net loss	$	(54,828)	$	(108,092)	$	(90,211)	$	(145,053)
Less: dividends on Series A preferred stock		11,692		10,704		23,379		21,291
Less: net income attributable to noncontrolling interest		145		161		258		304
Loss attributable to common shareholders	$	(66,665)	$	(118,957)	$	(113,848)	$	(166,648)

Weighted-average number of common shares outstanding		114,255		113,050		114,195		112,995

Net loss per common share attributable to common shareholders - basic and diluted	$	(0.58)	$	(1.05)	$	(1.00)	$	(1.47)

Diluted EPS attributable to common shareholders for the three months ended June 30, 2024 and 2023 excludes 4.2 million and 3.6 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. For the six months ended June 30, 2024 and 2023, diluted EPS attributable to common shareholders excludes 3.4 million and 3.0 million potential common shares, respectively.

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 June 30, 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.

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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.

The major classes of assets and liabilities sold consisted of the following:


(In thousands)
Current assets	$	1,177
Property, plant and equipment		31,062
Goodwill		114,946
Other long-term assets		1,640
Impairment to net realizable value		(77,755)
Total assets	$	71,070

Current liabilities	$	1,730
Other long-term liabilities		1,120
Total liabilities	$	2,850

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 and six months ended June 30, 2023. During the three and six months ended June 30, 2024, we recognized an additional loss on the sale of $0.5 million, which is included in selling, general and administrative expense in the condensed consolidated statement of operations as a result of changes in estimated working capital adjustments and selling costs.

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 six months ended June 30, 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.

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6. INVESTMENTS

Our investments are as follows:


	June 30,		December 31,
(In thousands)	2024		2023
Long-term investments:
Cash surrender value of life insurance policies	$	3,187	$	2,860
CoBank, ACB Stock		5,168		5,755
Other		273		272
	$	8,628	$	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 June 30, 2024 and December 31, 2023 were as follows:

As of June 30, 2024

Quoted Prices

Significant

In Active

Other

Significant

Markets for

Observable

Unobservable

Identical Assets

Inputs

(In thousands)

Total

(Level 1)

(Level 2)

(Level 3)

Long-term interest rate swap assets

5,353

—

5,353

—

As of December 31, 2023

Quoted Prices

Significant

In Active

Other

Significant

Markets for

Observable

Unobservable

Identical Assets

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 June 30, 2024 and December 31, 2023.


	As of June 30, 2024				As of December 31, 2023
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, excluding finance leases	$	2,273,727	$	2,055,134	$	2,142,858	$	1,903,831

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Investments

Our investments as of June 30, 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:


	June 30,		December 31,
(In thousands)	2024		2023
Senior secured credit facility:
Term loans, net of discounts of $6,148 and $7,017 at June 30, 2024 and December 31, 2023, respectively	$	993,727	$	992,858
Revolving loans		130,000		—
6.50% Senior notes due 2028		750,000		750,000
5.00% Senior notes due 2028		400,000		400,000
Finance leases		42,155		39,240
		2,315,882		2,182,098
Less: current portion of long-term debt and finance leases		(20,601)		(18,425)
Less: deferred debt issuance costs		(26,618)		(28,757)
Total long-term debt	$	2,268,663	$	2,134,916

Credit Agreement

On October 2, 2020, the Company, through certain of its wholly-owned subsidiaries, entered into a Credit Agreement with various financial institutions (as amended, the “Credit Agreement”) to replace the Company’s previous credit agreement in its entirety. The Credit Agreement consisted of term loans in an original aggregate amount of $1,250.0 million (the “Term Loans”) and a revolving loan facility of $250.0 million. The Credit Agreement also includes an incremental loan facility which provides the ability to borrow, subject to certain terms and conditions, incremental loans in an aggregate amount of up to the greater of (a) $300.0 million plus (b) an amount which would not cause its senior secured leverage ratio not to exceed 3.70:1.00 (the “Incremental Facility”). Borrowings under the Credit Agreement are secured by substantially all of the assets of the Company and its subsidiaries, subject to certain exceptions.

The Term Loans have a maturity date of October 2, 2027 and bear interest at a rate of 3.50% plus Secured Overnight Financing Rate (“SOFR”) (subject to a 0.75% SOFR floor) plus a SOFR adjustment. As part of the replacement to SOFR-benchmark rates in 2023, borrowings will include an adjustment of 0.11%, 0.26% and 0.43% for borrowings of one, three and six month loans, respectively. On March 18, 2021, the Company repaid $397.0 million of the then outstanding Term Loans with the net proceeds received from the issuance of $400.0 million aggregate principal amount of 5.00% senior secured notes due 2028 (the “5.00% Senior Notes”), as described below. The repayment of the Term Loans was applied to the remaining principal payments in direct order of maturity, thereby eliminating the required quarterly principal payments through the remaining term of the loan.

The revolving credit facility has a maturity date of October 2, 2027 (subject to springing maturity on April 2, 2027 if the Term Loans, as of April 1, 2027, are scheduled to mature earlier than March 31, 2028) and an applicable margin (at our election) of 4.00% for SOFR-based borrowings or 3.00% for alternate base rate borrowings, with a 0.25% reduction in each case if the consolidated first lien leverage ratio, as defined in the Credit Agreement, does not exceed 3.20 to 1.00. As of June 30, 2024, borrowings of $130.0 million were outstanding under our revolving credit facility. At December 31,

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2023, there were no borrowings outstanding under the revolving credit facility. Stand-by letters of credit of $44.8 million were outstanding under our revolving credit facility as of June 30, 2024. The stand-by letters of credit are renewable annually and reduce the borrowing availability under the revolving credit facility. As of June 30, 2024, $75.2 million was available for borrowing under the revolving credit facility, subject to certain covenants.

As allowed for under the credit agreement under permitted indebtedness, on March 29, 2024 and June 24, 2024, the Company entered into term sheets to facilitate loans of up to an aggregate amount of $140.0 million, contingent upon satisfaction of certain conditions including a successful fund raising by the lender.

The weighted-average interest rate on outstanding borrowings under our credit facility was 9.00% and 8.96% as of June 30, 2024 and December 31, 2023, respectively. Interest is payable at least quarterly.

Credit Agreement Covenant Compliance

The Credit Agreement contains various provisions and covenants, including, among other items, restrictions on the ability to pay dividends, incur additional indebtedness, and issue certain capital stock. We have agreed to maintain certain financial ratios, including a maximum consolidated first lien leverage ratio, as defined in the Credit Agreement. Among other things, it will be an event of default, with respect to the revolving credit facility only, if our consolidated first lien leverage ratio is greater than 7.75:1.00 as of the end of any fiscal quarter, if on such date the testing threshold is met. The testing threshold is met if the aggregate amount of our borrowings outstanding under the revolving credit facility exceeds 35%. As of June 30, 2024, the testing threshold was met and our consolidated first lien leverage ratio under the Credit Agreement was below 7.75:1.00. As of June 30, 2024, we were in compliance with the Credit Agreement covenants.

On October 15, 2023, the Company entered into Amendment No. 5 to the Credit Agreement (the “Fifth Amendment”) to, among other things, increase the maximum consolidated first lien leverage ratio (the “Step-Up”) permitted under the Credit Agreement to (i) 7.75 to 1.00, from October 15, 2023 to and including December 31, 2024, (ii) 7.50 to 1.00, from and including January 1, 2025 to and including March 31, 2025, (iii) 7.25 to 1.00, from and including April 1, 2025 to and including June 30, 2025, (iv) 7.00 to 1.00, from and including July 1, 2025 to and including September 30, 2025, (v) 6.75 to 1.00 from and including October 1, 2025 to and including December 31, 2025, (vi) 6.50 to 1.00, from and including January 1, 2026 to and including March 31, 2026, (vii) 6.25 to 1.00, from and including April 1, 2026 to and including June 30, 2026, (viii) 6.00 to 1.00, from and including July 1, 2026 to and including September 30, 2026, and (ix) 5.85 to 1.00 from and including October 1, 2026 and thereafter (the “Step-Up Period”). While the Step-Up is in effect, the Company will be subject to additional restrictions on its ability to make certain investments and restricted payments (the “Restrictions”). The Step-Up Period and the Restrictions will end and the maximum Consolidated First Lien Leverage Ratio will revert to the levels set forth in the Credit Agreement on the earlier of (a) the Company’s election and (b) August 1, 2025, to the extent $300.0 million in cash proceeds have not been received by the Company from equity contributed to its capital by such date. If the proposed Merger is not completed by August 1, 2025, the increase in the maximum consolidated first lien leverage ratio as permitted in the Fifth Amendment to the Credit Agreement to provide interim financial covenant relief will end and the maximum consolidated first lien leverage ratio will revert to 5.85 to 1.00.

Searchlight Term Loan

On March 21, 2024, the Company, through certain of its wholly-owned subsidiaries, and Searchlight, as lender entered into a Term Loan Agreement (the “Loan Agreement”), which consists of delayed draw term loans in the aggregate amount of $80.0 million (the “Loan”). The Loan Agreement provides us with the ability to borrow on the Loan in the event either (a) the aggregate amount of available loans to be drawn under the revolving credit facility is less than $25.0 million or (b) drawing under the revolving credit facility would trigger the financial maintenance covenant thereunder and we would not be in compliance with such covenant on a pro forma basis, in each case subject to the satisfaction of certain other customary conditions.

In the event the Loan is ever drawn, we intend to apply the proceeds from the Loan to directly or indirectly fund capital expenditures for our fiber broadband expansion plan. The Loan Agreement is unsecured and the Loan will mature on April 2, 2027. Drawn amounts on the Loan bear interest at a rate per annum equal to an applicable rate ranging from 12.0% per annum, which applies prior to the date that is 18 months after the initial borrowing date (unless the Merger Agreement is

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terminated pursuant to the Company’s breach thereof), to the amount required for Searchlight to realize a multiple on invested capital of 1.75x on the Loan, which applies on and after the earlier of (i) the date that the Merger Agreement is terminated pursuant to the Company’s breach thereof and (ii) the date that is 18 months after the initial borrowing date.

The Loan Agreement contains various affirmative, negative, and financial covenants consistent with the Company’s existing credit agreement. The Loan Agreement requires, in the event the Merger Agreement is terminated and any amounts in respect of the Loan remain outstanding, for the Company to maintain a maximum consolidated first lien leverage ratio. The Loan Agreement also contains customary events of default, including, but not limited to, nonpayment, material inaccuracy of representations and warranties, violations of covenants, nonpayment of other material debts, certain bankruptcy and liquidations, certain material judgments, and certain events related to the Employee Retirement Income Security Act of 1974, as amended.

Senior Notes

On October 2, 2020, we completed an offering of $750.0 million aggregate principal amount of 6.50% unsubordinated secured notes due 2028 (the “6.50% Senior Notes”). The 6.50% Senior Notes were priced at par and bear interest at a rate of 6.50%, payable semi-annually on April 1 and October 1 of each year. The 6.50% Senior Notes mature on October 1, 2028.

On March 18, 2021, we issued $400.0 million aggregate principal amount 5.00% Senior Notes, together with the 6.50% Senior Notes (the “Senior Notes”). The 5.00% Senior Notes were priced at par and bear interest at a rate of 5.00% per year, payable semi-annually on April 1 and October 1 of each year, beginning on October 1, 2021. The 5.00% Senior Notes mature on October 1, 2028. The net proceeds from the issuance of the 5.00% Senior Notes were used to repay $397.0 million of the Term Loans outstanding under the Credit Agreement.

The Senior Notes are unsubordinated secured obligations of the Company, secured by a first priority lien on the collateral that secures the Company’s obligations under the Credit Agreement. The Senior Notes are fully and unconditionally guaranteed on a first priority secured basis by the Company and the majority of our wholly-owned subsidiaries. The offerings of the Senior Notes have not been registered under the Securities Act of 1933, as amended or any state securities laws.

Senior Notes Covenant Compliance

Subject to certain exceptions and qualifications, the indentures governing the Senior Notes contain customary covenants that, among other things, limits the Company and its restricted subsidiaries’ ability to: incur additional debt or issue certain preferred stock; pay dividends or make other distributions on capital stock or prepay subordinated indebtedness; purchase or redeem any equity interests; make investments; create liens; sell assets; enter into agreements that restrict dividends or other payments by restricted subsidiaries; consolidate, merge or transfer all or substantially all of its assets; engage in transactions with its affiliates; or enter into any sale and leaseback transactions. The indentures also contain customary events of default. As of June 30, 2024, the Company was in compliance with all terms, conditions and covenants under the indentures governing the Senior Notes.

9. DERIVATIVE FINANCIAL INSTRUMENTS

We use derivative financial instruments to manage our exposure to the risks associated with fluctuations in interest rates. Our interest rate swap agreements effectively convert a portion of our floating-rate debt to a fixed-rate basis, thereby reducing the impact of interest rate changes on future cash interest payments. Derivative financial instruments are recorded at fair value in our condensed consolidated balance sheets. We may designate certain of our interest rate swaps as cash flow hedges of our expected future interest payments. For derivative instruments designated as a cash flow hedge, the change in the fair value is recognized as a component of accumulated other comprehensive income (loss) (“AOCI”) and is recognized as an adjustment to earnings over the period in which the hedged item impacts earnings. When an interest rate swap agreement terminates, any resulting gain or loss is recognized over the shorter of the remaining original term of the hedging instrument or the remaining life of the underlying debt obligation. If a derivative instrument is de-designated,

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the remaining gain or loss in AOCI on the date of de-designation is amortized to earnings over the remaining term of the hedging instrument. For derivative financial instruments that are not designated as a hedge, including those that have been de-designated, changes in fair value are recognized on a current basis in earnings. Cash flows from hedging activities are classified under the same category as the cash flows from the hedged items in our condensed consolidated statements of cash flows.

The following interest rate swaps were outstanding as of June 30, 2024:


	Notional
(In thousands)	Amount		2024 Balance Sheet Location	Fair Value
Cash Flow Hedges:
Fixed to 1-month floating SOFR	$	500,000	Other long-term assets	$	5,353

Our fixed to 1-month floating SOFR interest rate swap agreements, which became effective July 31, 2023, have a fixed rate of 3.941% and mature on September 30, 2026.

The following interest rate swaps were outstanding as of December 31, 2023:


	Notional
(In thousands)	Amount		2023 Balance Sheet Location	Fair Value
Cash Flow Hedges:
Fixed to 1-month floating SOFR	$	500,000	Other long-term liabilities	$	(2,421)

The counterparties to our various swaps are highly rated financial institutions. None of the swap agreements provide for either us or the counterparties to post collateral nor do the agreements include any covenants related to the financial condition of Consolidated or the counterparties. The swaps of any counterparty that is a lender, as defined in our credit facility, are secured along with the other creditors under the credit facility. Each of the swap agreements provides that in the event of a bankruptcy filing by either Consolidated or the counterparty, any amounts owed between the two parties would be offset in order to determine the net amount due between parties.

As of June 30, 2024 and December 31, 2023, the total pre-tax unrealized gain (loss) related to our interest rate swap agreements included in AOCI was $5.4 million and $(2.4) million, respectively. From the balance in AOCI as of June 30, 2024, we expect to recognize a gain of approximately $4.7 million in earnings in the next twelve months.

Information regarding our cash flow hedge transactions is as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2024		2023		2024		2023
Unrealized gain recognized in AOCI, pretax	$	535	$	4,180	$	11,290	$	4,133
Deferred gain reclassified from AOCI to interest expense	$	1,749	$	3,231	$	3,516	$	5,909

10. LEASES

Lessor

We have various arrangements for use of our network assets for which we are the lessor, including tower space, certain colocation, conduit and dark fiber arrangements. These leases meet the criteria for operating lease classification. Lease income associated with these types of leases is not material. Occasionally, we enter into arrangements where the term may be for a major part of the asset’s remaining economic life such as in indefeasible right of use (“IRU”) arrangements for dark fiber or conduit, which meet the criteria for sales-type lease classification. During the three and six months ended June 30, 2024 and 2023, we did not enter into any such arrangements.

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11. MEZZANINE EQUITY

Series A Preferred Stock

The Company is authorized to issue up to 10,000,000 shares of Preferred Stock with a par value of $0.01 per share. The designated Series A Preferred Stock ranks senior to the Company’s common stock with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company and redemption rights. The following is a summary of certain provisions under the Certificate of Designations of the Series A Perpetual Preferred Stock (“Certificate of Designations”).

Dividends

Dividends on each share of Series A Preferred Stock accrue daily on the liquidation preference at a rate of 9.0% per annum and will be payable semi-annually in arrears on January 1 and July 1 of each year. Subsequent to a waiver issued by Searchlight in November 2022 as described below, dividends are payable until October 2, 2027 at our election, either in cash or in-kind through an accrual of unpaid dividends, which are automatically added to the liquidation preference; and after October 2, 2027, solely in cash. The liquidation preference at the time of issuance is $1,000 per share, as adjusted to include any paid-in-kind dividends. In the event that the Company’s Board of Directors fails to declare and pay dividends in cash after October 2, 2027, among other conditions, the dividend rate applicable to each subsequent dividend period will increase to 11.0%.

On November 22, 2022, in connection with entering into the Third Amendment to the Credit Agreement, Searchlight waived for two years, until October 2, 2027, the obligation under the Certificate of Designations to begin paying in cash after October 2, 2025 rather than being permitted to accrue dividends on the Series A Preferred Stock. Any dividend not declared and fully paid in cash during the waiver period or otherwise, will continue to accrue in accordance with the Certificate of Designations and be reflected as additional per share liquidation preference.

Redemption

Upon a fundamental change such as a change of control, liquidation, dissolution or winding up event, holders of the Series A Preferred Stock will have the right to require the Company to repurchase all or any part of the outstanding Series A Preferred Stock for cash at a price equal the liquidation preference and accrued and unpaid dividends through and including the fundamental change date.

The Company may, at its option redeem all or any part of the outstanding shares of Series A Preferred Stock at a purchase price per share in cash equal to the sum of the liquidation preference and accrued and unpaid dividends. A premium may also be payable in connection with any such redemption.

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Voting Rights

Holders of Series A Preferred Stock are entitled to one vote per share on matters specifically related to the Series A Preferred Stock. The holders do not otherwise have any voting rights. If preferred dividends have not been paid in cash in full for two dividend periods after October 2, 2027, whether or not consecutive, then the holders of the Series A Preferred Stock, voting together as a single class, will be entitled to elect two additional directors to the board of directors.

In accordance with ASC 480, Distinguishing Liabilities from Equity, the Series A Preferred Stock is classified as mezzanine equity in the consolidated balance sheets due to a deemed liquidation feature, which gives holders the right to require the Company to redeem all or any part of the holders’ Series A Preferred Stock for cash in the event of a fundamental change or change in control. We have not adjusted the carrying value of the Series A Preferred Stock to its liquidation value since the securities are not currently redeemable nor is it probable that they will become redeemable. Subsequent adjustments to increase the carrying value to the liquidation value will be made only if and when it becomes probable that such a deemed liquidation event will occur.

On December 7, 2021, upon the completion of the Searchlight investment as described in Note 4, we issued 434,266 shares of Series A Preferred Stock with a carrying value of $285.9 million. As of December 31, 2023, the liquidation preference of the Series A Preferred Stock was $521.0 million, which included accrued and unpaid dividends of $22.4 million. On January 2, 2024, the Company paid dividends in-kind of $22.5 million. As of June 30, 2024, the liquidation preference of the Series A Preferred Stock was $544.3 million, which includes accrued and unpaid dividends of $23.3 million. Searchlight is the sole holder of all of the issued and outstanding shares of the Company’s Series A Preferred Stock. The Company intends to exercise the paid-in-kind dividend option on the Series A Preferred Stock through at least 2025.

12. SHAREHOLDERS’ EQUITY

Share-Based Compensation

Our Board of Directors (or its Compensation Committee) may grant share-based awards from our shareholder approved Consolidated Communications Holdings, Inc. Long-Term Incentive Plan, as amended and/or restated (the “Plan”). The Plan permits the issuance of awards in the form of stock options, stock appreciation rights, stock grants, and stock unit grants to eligible directors and employees at the discretion of the Compensation Committee of the Board of Directors. On February 26, 2023, our Board of Directors adopted, and on May 1, 2023, the shareholders approved an amendment to the Plan to increase by 5,280,000 shares the number of shares of our common stock authorized for issuance under the Plan. With the amendment, approximately 15,330,000 shares of our common stock are authorized for issuance under the Plan, provided that in any calendar year an eligible employee may be granted no more than 300,000 stock options or 300,000 stock appreciation rights, and a non-employee director may be granted no more than 25,000 stock options or 25,000 stock appreciation rights. In addition, stock awards and stock unit awards granted to an employee in any calendar year may not cover shares having a fair market value on the date of grant that exceeds $6,000,000 ($500,000 in the case of a non-employee director). Unless terminated sooner, the Plan will continue in effect until April 30, 2028.

The following table summarizes total compensation costs recognized for share-based payments during the three and six months ended June 30, 2024 and 2023:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2024		2023		2024		2023
Restricted stock	$	1,852	$	1,240	$	2,791	$	2,163
Performance shares		1,178		1,148		1,920		1,024
Total	$	3,030	$	2,388	$	4,711	$	3,187

Share-based compensation expense is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

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As of June 30, 2024, total unrecognized compensation cost related to non-vested Restricted Stock Awards (“RSAs”) and Performance Share Awards (“PSAs”) was $18.1 million and will be recognized over a weighted-average period of approximately 1.7 years.

The following table summarizes the RSA and PSA activity for the six-month period ended June 30, 2024:


	RSAs			PSAs
		Weighted			Weighted
		Average Grant			Average Grant
	Shares	Date Fair Value		Shares	Date Fair Value
Non-vested shares outstanding - December 31, 2023	1,491,997	$	3.78	690,822	$	7.28
Shares granted	2,072,248	$	4.31	548,075	$	3.17
Shares vested	(75,943)	$	4.03	(384,208)	$	7.66
Shares forfeited, cancelled or retired	(48,084)	$	3.83	(120,236)	$	5.86
Non-vested shares outstanding - June 30, 2024	3,440,218	$	4.09	734,453	$	4.24

At June 30, 2024, we had 2.3 million PSAs outstanding for which performance condition achievement has not yet been determined, with a weighted average grant date fair value of $3.89. The PSAs are earned upon the achievement of predetermined goals over the performance periods, which range from one to three years. Depending on performance, a number of shares equal to 0% to 150% of the target PSAs outstanding as of June 30, 2024 may be issued as restricted stock once the performance periods are completed.

Accumulated Other Comprehensive Loss

The following table summarizes the changes in accumulated other comprehensive loss, net of tax, by component for the six-month period ended June 30, 2024:


	Pension and
	Post-Retirement		Derivative
(In thousands)	Obligations		Instruments		Total
Balance at December 31, 2023	$	(20,084)	$	(1,788)	$	(21,872)
Other comprehensive gain (loss) before reclassifications		—		8,335		8,335
Amounts reclassified from accumulated other comprehensive loss		(911)		(2,595)		(3,506)
Net current period other comprehensive income		(911)		5,740		4,829
Balance at June 30, 2024	$	(20,995)	$	3,952	$	(17,043)

The following table summarizes reclassifications from accumulated other comprehensive loss for the three and six months ended June 30, 2024 and 2023:


	Three Months Ended June 30,				Six Months Ended June 30,				Affected Line Item in the
(In thousands)	2024		2023		2024		2023		Statement of Operations
Amortization of pension and post-retirement items:
Prior service credit	$	131	$	133	$	261	$	265	(a)
Actuarial gain		487		1,223		974		2,446	(a)
		618		1,356		1,235		2,711	Total before tax
		(162)		(357)		(324)		(713)	Tax expense
	$	456	$	999	$	911	$	1,998	Net of tax

Gain on cash flow hedges:
Interest rate derivatives	$	1,748	$	3,231	$	3,515	$	5,909	Interest expense
		(457)		(844)		(920)		(1,543)	Tax expense
	$	1,291	$	2,387	$	2,595	$	4,366	Net of tax

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(a)

These items are included in the components of net periodic benefit cost for our pension and other post-retirement benefit plans. See Note 13 for further discussion regarding our pension and other post-retirement benefit plans.

13. PENSION PLAN AND OTHER POST-RETIREMENT BENEFITS

Defined Benefit Plans

We sponsor qualified defined benefit pension plans that are non-contributory covering substantially all of our hourly employees under collective bargaining agreements who fulfill minimum age and service requirements and certain salaried employees. The defined benefit pension plans are closed to all new entrants. All of our defined benefit pension plans are now frozen to all current employees, and no additional monthly pension benefits will accrue under those plans.

We also maintain non-qualified supplemental retirement plans (the “Supplemental Plans” and, together with the defined benefit pension plans, the “Pension Plans”). The Supplemental Plans provide supplemental retirement benefits to certain former employees by providing for incremental pension payments to partially offset the reduction of the amount that would have been payable under the qualified defined benefit pension plans if it were not for limitations imposed by federal income tax regulations. The Supplemental Plans are closed to all new entrants. These plans are unfunded and have no assets. The benefits paid under the Supplemental Plans are paid from the general operating funds of the Company.

The following table summarizes the components of net periodic pension cost (benefit) for our Pension Plans for the three and six months ended June 30, 2024 and 2023:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2024		2023		2024		2023
Interest cost	$	6,671	$	7,357	$	13,342	$	14,713
Expected return on plan assets		(6,660)		(7,850)		(13,320)		(15,700)
Net amortization loss		210		72		420		144
Net prior service cost amortization		30		30		61		61
Net periodic pension cost (benefit)	$	251	$	(391)	$	503	$	(782)

The components of net periodic pension cost (benefit) other than the service cost component are included in other, net within other income (expense) in the condensed consolidated statements of operations.

Post-retirement Benefit Obligations

We sponsor various healthcare and life insurance plans (“Post-retirement Plans”) that provide post-retirement medical and life insurance benefits to certain groups of retired employees. Certain plans are frozen so that no person is eligible to become a new participant. Retirees share in the cost of healthcare benefits, making contributions that are adjusted periodically—either based upon collective bargaining agreements or because total costs of the program have changed. Covered expenses for retiree health benefits are paid as they are incurred. Post-retirement life insurance benefits are fully insured. A majority of the healthcare plans are unfunded and have no assets, and benefits are paid from the general operating funds of the Company. However, a certain healthcare plan is funded by assets that are separately designated within the Pension Plans for the sole purpose of providing payments of retiree medical benefits for this specific plan.

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The following table summarizes the components of the net periodic benefit for our Post-retirement Plans for the three and six months ended June 30, 2024 and 2023:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2024		2023		2024		2023
Service cost	$	21	$	19	$	42	$	38
Interest cost		693		750		1,386		1,500
Expected return on plan assets		(45)		(47)		(91)		(94)
Net amortization gain		(697)		(1,295)		(1,394)		(2,590)
Net prior service credit amortization		(161)		(163)		(322)		(326)
Net periodic post-retirement benefit	$	(189)	$	(736)	$	(379)	$	(1,472)

The components of net periodic post-retirement benefit cost other than the service cost component are included in other, net within other income (expense) in the condensed consolidated statements of operations.

Contributions

We elected to participate in the American Rescue Plan Act of 2021 (“ARPA”) beginning with the 2021 plan year. ARPA, which was signed into law in March 2021, included changes to the employer funding requirements and is designed to reduce the amounts of required contributions to provide funding relief for employers. During 2021 and the six months ended June 30, 2022, we elected to fund our pension contributions at the pre-ARPA levels, which has created a pre-funded balance. We intend to use our current pre-funded balance to satisfy the minimum contribution requirements until the balance is exhausted, which is expected to occur in late 2024. We expect to contribute approximately $0.2 million to our Pension Plans and $5.7 million to our Post-retirement Plans in 2024. As of June 30, 2024, we have contributed $3.3 million of the annual contribution to the Post-retirement Plans.

14. INCOME TAXES

Our unrecognized tax benefits as of June 30, 2024 and December 31, 2023 were $4.9 million. The net amount of unrecognized tax benefits that, if recognized, would result in an impact to the effective tax rate is $4.7 million as of June 30, 2024 and December 31, 2023. We do not expect any material change in our unrecognized tax benefits during the remainder of 2024.

Our practice is to recognize interest and penalties related to income tax matters in interest expense and selling, general and administrative expenses, respectively. As of June 30, 2024, we did not have a material liability for interest or penalties and had no material interest or penalty expense.

The periods subject to examination for our federal return are years 2020 through 2022. The periods subject to examination for our state returns are years 2019 through 2022. In addition, prior tax years may be subject to examination by federal or state taxing authorities if the Company’s net operating loss carryovers from those prior years are utilized in the future. We are currently under examination by certain state taxing authorities. We do not expect any settlement or payment that may result from the examination to have a material effect on our results or cash flows.

Our effective tax rate was 16.2% and 14.6% for the three months ended June 30, 2024 and 2023, respectively and 19.9% and 17.5% for the six months ended June 30, 2024 and 2023, respectively. On July 10, 2023, we entered into a definitive agreement to sell our Washington operations and the transaction closed on May 1, 2024. As a result, we recorded an increase of $6.1 million and $14.3 million to our current tax expense for the three and six months ended June 30, 2024 and 2023, respectively, related to the write-down of noncash goodwill that is not deductible for tax purposes. The Company does not consider this sales transaction and related goodwill adjustment unusual or infrequent and therefore the corresponding tax impact is recorded through continuing operations. Exclusive of this divestiture related adjustment, our effective tax rate for the three months ended June 30, 2024 and 2023 would have been approximately 25.5% and 25.7%, respectively, and approximately 25.3% and 25.5% for the six months ended June 30, 2024 and 2023, respectively. In addition, the effective tax rate differed from the federal and state statutory rates due to various permanent income tax differences.

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15. COMMITMENTS AND CONTINGENCIES

Litigation, Regulatory Proceedings and Other Contingencies

Gross Receipts Tax

Two of our subsidiaries, Consolidated Communications of Pennsylvania Company LLC (“CCPA”) and Consolidated Communications Enterprise Services, Inc. (“CCES”), have, at various times, received Assessment Notices and/or Audit Assessment Notices from the Commonwealth of Pennsylvania Department of Revenue (“DOR”) increasing the amounts owed for the Pennsylvania Gross Receipts Tax, and have had audits performed for the tax years 2008 through 2018 (CCPA and CCES) and 2019 through 2020 (CCPA). We filed Petitions for Reassessment with the DOR’s Board of Appeals contesting these audit assessments. These cases remain pending and are in various stages of appeal. In May 2017, we entered into an agreement to guarantee any potential liabilities to the DOR up to $5.0 million.

Tax liabilities calculated by the DOR for CCPA and CCES for tax years 2010 (CCPA) and 2014 through 2023 (CCPA and CCES) are approximately $5.3 million and $2.6 million, respectively. Based on the initial settlement offers for the tax years 2008 through 2013, which were subsequently settled in 2019 for $2.1 million, including interest, and the Company’s best estimate of the potential additional tax liabilities for the remaining unsettled tax years 2010 (CCPA) and 2014 through 2023 (CCPA and CCES), we have reserved $1.0 million and $2.7 million, including interest, for our CCPA and CCES subsidiaries, respectively. We expect the filings for the tax years 2014 through 2023 to be settled at a later date similar to the initial settlement. While we continue to believe a settlement of all remaining disputed claims is possible, we cannot anticipate at this time what the ultimate resolution of these cases will be, nor can we evaluate the likelihood of a favorable or unfavorable outcome or the potential losses (or gains) should such an outcome occur.

From time to time we may be involved in litigation that we believe is of the type common to companies in our industry, including regulatory issues. While the outcome of these claims cannot be predicted with certainty, we do not believe that the outcome of any of these legal matters will have a material adverse impact on our financial statements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Certain statements in this Quarterly Report on Form 10-Q, including those relating to the take private transaction, the impact on future revenue sources, pending and future regulatory orders, continued expansion of the telecommunications network and expected changes in the sources of our revenue and cost structure resulting from our entrance into new markets, are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect, among other things, our current expectations, plans, strategies and anticipated financial results. Moreover, forward-looking statements necessarily involve assumptions on our part. These forward-looking statements generally are identified by the words “believe,” “expect,” “anticipate,” “estimate,” “project,” “intend,” “plan,” “should,” “may,” “will,” “would,” “will be,” “will continue” or similar expressions. There are a number of risks, uncertainties, conditions and other important factors that may cause the actual results of Consolidated Communications Holdings, Inc. and its subsidiaries (“Consolidated,” the “Company,” “we” or “our”) to differ materially from those expressed or implied by these forward-looking statements including: (1) significant competition in all parts of our business and among our customer channels; (2) our ability to adapt to rapid technological changes; (3) shifts in our product mix that may result in a decline in operating profitability; (4) public health threats, including the novel coronavirus (“COVID-19”) pandemic; (5) continued receipt of support from various funds established under federal and state laws; (6) disruptions in our networks and infrastructure and any related service delays or disruptions could cause us to lose customers and incur additional expenses; (7) cyber-attacks may lead to unauthorized access to confidential customer, personnel and business information that could adversely affect our business; (8) our ability to fund capital expenditures required for our operations; (9) our ability to obtain and maintain necessary rights-of-way for our networks; (10) our ability to obtain necessary hardware, software and operational support from third-party vendors; (11) the impact of rising video content costs; (12) our ability to enter into new collective bargaining agreements or renew existing agreements; (13) our ability to attract and/or retain certain key management and other personnel in the future; (14) risks associated with acquisitions and the realization of anticipated benefits from such acquisitions; (15) increasing attention to, and evolving expectations for, environmental, social and governance initiatives; (16) the impact of unfavorable changes in financial markets on our pension plan investments; (17) weak economic conditions; (18) the risk that the proposed Merger (as defined herein) may not be completed in a timely manner or at all; (19) the possibility that any or all of the various conditions to the consummation of the proposed Merger may not be satisfied or waived, including the failure to receive any required regulatory approvals from any applicable governmental entities (or any conditions, limitations or restrictions placed on such approvals); (20) the occurrence of any event, change or other circumstance that could give rise to the termination of the definitive transaction agreement relating to the proposed Merger, including in circumstances that would require the Company to pay a termination fee; (21) the effect of the announcement or pendency of the proposed Merger on the Company’s ability to attract, motivate or retain key executives and employees, its ability to maintain relationships with its customers, suppliers and other business counterparties, or its operating results and business generally; (22) risks related to the proposed Merger transaction diverting management’s attention from the Company’s ongoing business operations; (23) the amount of costs, fees and expenses related to the proposed merger transaction; (24) the risk that the Company’s stock price may decline significantly if the proposed Merger is not consummated; (25) the risk of stockholder litigation in connection with the proposed Merger, including resulting expense or delay; and (26) the other risk factors described in Part I, Item 1A of Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”), as updated by our other filings with the Securities and Exchange Commission (the “SEC”). Many of these circumstances are beyond our ability to control or predict. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements that appear throughout this report. Furthermore, undue reliance should not be placed on forward-looking statements, which are based on the information currently available to us and speak only as of the date they are made. Except as required under federal securities laws or the rules and regulations of the SEC, we disclaim any intention or obligation to update or revise publicly any forward-looking statements. Management’s Discussion and Analysis (“MD&A”) should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes to the financial statements (“Notes”) as of and for the three and six months ended June 30, 2024 included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

Throughout this MD&A, we refer to certain measures that are not measures of financial performance in accordance with accounting principles generally accepted in the United States (“US GAAP” or “GAAP”). We believe the use of these non-GAAP measures on a consolidated basis provides the reader with additional information that is useful in understanding

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our operating results and trends. These measures should be viewed in addition to, rather than as a substitute for, those measures prepared in accordance with GAAP. See the “Non-GAAP Measures” section below for a more detailed discussion on the use and calculation of these measures.

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. We operate an advanced fiber network spanning over 63,000 fiber route miles across many rural areas and metro communities. 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. We provide wholesale solutions to wireless and wireline carriers and other service providers including data, voice, network connections and custom fiber builds and last mile connections.

We generate the majority of our consolidated operating revenues primarily from monthly subscriptions to our broadband, data and transport services (collectively “broadband services”) marketed to residential and business customers. As consumer demands for bandwidth continue to increase, our focus is on expanding our fiber broadband services and upgrading data speeds in order to offer a highly competitive fiber product. Our investment in more competitive broadband speeds is critical to our long-term success. Our strategic investment with Searchlight Capital Partners L.P. (“Searchlight”) combined with the refinancing of our capital structure in 2020 provided us with additional capital that has enabled us to accelerate our fiber expansion plans and provided significant benefits to our consumer, commercial and carrier customers. With this strategic investment, we enhanced our fiber infrastructure and accelerated our investments in high-growth and competitive areas. By leveraging our existing dense core fiber network and an accelerated build plan, we expect to be able to significantly increase data speeds, expand our multi-Gig coverage and strategically extend our network across our strong existing commercial and carrier footprint to attract more on-net and near-net opportunities. As part of our multi-year fiber expansion plan, we plan 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 our northern New England service areas. The ultimate total passings will be dependent upon, amongst other things, our ability to secure Public Private Partnership grant arrangements and other broadband infrastructure funding opportunities.

In 2024, we plan to continue to execute on our multi-year fiber growth plan and transformation from a copper-based telecommunications provider to a fiber broadband provider. Our fiber build plan includes the upgrade of approximately 150,000 homes and small businesses in 2024. During the three and six months ended June 30, 2024, we upgraded approximately 33,000 and 43,700 passings, respectively and added approximately 17,800 and 36,600 consumer fiber Gig-capable subscribers, respectively. During the year ended December 31, 2023, we upgraded approximately 227,500 passings. As of June 30, 2024, approximately 49% of our passings were at least 1 Gig capable, as compared to 22% at December 31, 2021.

Fidium Fiber, our Gigabit consumer fiber internet product with an all-new customer experience reinforces our broadband-first strategy. Our Fidium plans offer symmetrical speeds from 50 Mbps to 2 Gbps over the latest WiFi 6 technology with no data caps. We expect to continue to expand the availability of Fidium Fiber further into communities within our markets. In February 2023, we launched Fidium@Work and expanded our Fidium Fiber service to small businesses everywhere Fidium internet is available. Fidium@Work is ideal for small businesses that have outgrown residential or traditional internet service, but do not require an enterprise solution.

As we continue to increase broadband speeds, we believe that we will also be able to simultaneously enhance our commercial product offerings to meet the needs of our business customers. By leveraging our advanced fiber network, we can tailor our services for business customers by developing solutions to fit their specific needs. We offer fiber broadband connectivity and cloud-based services to deliver differentiated solutions targeting customers ranging from small businesses to large enterprises and carriers. We are focused on driving fiber connectivity, achieving data services growth and standardizing our commercial product portfolio, which increases efficiency and enables greater scalability and reliability for businesses.

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Operating revenues continue to be impacted by the industry-wide trend of declines in voice services, access lines and related network access revenue. Many customers are choosing to subscribe to alternative communication services, and competition for these subscribers continues to increase. Total voice connections decreased 14% as of June 30, 2024 compared to the same period in 2023. We have been able to mitigate some of the access line losses through alternative product offerings, such as our VoIP service.

As part of our plan to simplify our product offerings and focus on our fiber-first strategy, video services have been discontinued in all markets as of the end of July 2024 as a result of our scheduled decommissioning by state and the transition of customers to streaming services offered through our streaming partnerships. We believe that this may amplify the demand for our competitive multi-gig broadband speeds to facilitate streaming content.

In July 2023, we initiated a business simplification and cost savings initiative plan intended to further align our company as a fiber-first provider, improve operating efficiencies, lower our cost structure and ultimately improve the overall customer experience. This initiative included a reduction in workforce, consolidation and elimination of certain facilities and review of our product offerings. In 2024, we expect to continue to seek to improve operating efficiency through technology, better practices and procedures and through cost containment measures.

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, 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. 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- 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).

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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.

Additional information about the Merger Agreement and the Merger is set forth in the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on December 18, 2023, as supplemented.

Divestiture

On July 10, 2023, we entered into a definitive agreement to sell our business located in the Washington market (“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. At December 31, 2023, the assets and liabilities to be sold were classified as assets held for sale in the condensed consolidated balance sheet. During the three months ended June 30, 2023, in connection with the expected sale, the carrying value of the net assets to be sold were reduced to their estimated fair value of approximately $65.7 million, which was determined based on the estimated selling price less costs to sell. As a result, we recognized an impairment loss of $77.8 million during the three and six months ended June 30, 2023. The sale of the Washington operations closed on May 1, 2024. For the three months ended June 30, 2024 and 2023, operating revenues for the Washington operations were $1.6 million or 0.6% and $5.1 million or 1.8% of total consolidated operating revenues, respectively. For the six months ended June 30, 2024 and 2023, operating revenues for the Washington operations were $6.3 million or 1.2% and $10.1 million or 1.8% of total consolidated operating revenues, respectively.

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Results of Operations

The following tables reflect our financial results on a consolidated basis and key operating metrics as of and for the three and six months ended June 30, 2024 and 2023.

Financial Data


	Three Months Ended June 30,								Six Months Ended June 30,
(In millions, except for percentages)	2024		2023		$ Change		% Change		2024		2023		$ Change		% Change
Operating Revenues
Consumer:
Broadband (Data and VoIP)	$	81.4	$	71.3	$	10.1	14	%	$	161.3	$	139.3	$	22.0	16	%
Voice services		28.0		31.3		(3.3)	(11)			56.3		63.6		(7.3)	(11)
Video services		3.3		9.4		(6.1)	(65)			9.9		19.0		(9.1)	(48)
		112.7		112.0		0.7	1			227.5		221.9		5.6	3
Commercial:
Data services (includes VoIP)		54.6		53.3		1.3	2			109.3		106.4		2.9	3
Voice services		30.5		32.3		(1.8)	(6)			61.2		64.9		(3.7)	(6)
Other		8.3		10.3		(2.0)	(19)			17.3		20.1		(2.8)	(14)
		93.4		95.9		(2.5)	(3)			187.8		191.4		(3.6)	(2)
Carrier:
Data and transport services		30.2		31.2		(1.0)	(3)			61.3		64.1		(2.8)	(4)
Voice services		3.6		4.2		(0.6)	(14)			7.4		8.6		(1.2)	(14)
Other		0.3		0.4		(0.1)	(25)			0.5		0.7		(0.2)	(29)
		34.1		35.8		(1.7)	(5)			69.2		73.4		(4.2)	(6)

Subsidies		6.4		7.1		(0.7)	(10)			13.2		14.1		(0.9)	(6)
Network access		21.1		22.8		(1.7)	(7)			43.6		47.2		(3.6)	(8)
Other products and services		1.0		1.6		(0.6)	(38)			2.1		3.3		(1.2)	(36)
Total operating revenues		268.7		275.2		(6.5)	(2)			543.4		551.3		(7.9)	(1)

Consolidated Communications Holdings, Inc. 10-Q