Q3 2019 Earnings Call
Good morning, ladies and gentlemen, and welcome to the consolidated Communications Holdings Conference call. At this time all participants are in listen only mode. Later, we'll conduct a question answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press Star then zero on your touch.
Don't telephone as a reminder, this conference is being recorded I would now like to turn the conference over to your host Ms. Jennifer Saudi Please go ahead.
Thank you and good morning, everyone. We appreciate you joining today are consolidated communications third quarter 2019 earnings call.
On the call with me today, our body Jones, our President and Chief Executive Officer, and Steve Childers, Our Chief Financial Officer.
After our prepared remarks, well open the call up for questions.
Please review the Safe Harbor provisions in our press release and in our you see filing today's discussion includes statements about expected future events and financial results that are forward looking and subject to risks and uncertainties I.
My discussion of factors that may affect future results is contained in consolidated filings with the ASCII C, which are available on our website.
Today's discussion will include certain non-GAAP financial measures earnings release husband posted on the Investor Relations section of our website consolidated Dot Com includes reconciliations of these measures to the nearest GAAP equivalent I will now turn the call over to bottomed out.
Good morning, everyone and thank you for joining US today. Thank you Jennifer Jennifers volumes back as or Investor Relations Lee Lisa just taking on a new opportunity and we wish for the very best kind of new adventure.
We are executing on our capital allocation plan, which is focused on de leveraging and creating long term value for shareholders. This plan is about reducing debt, creating additional financial flexibility and improving or future cost of capital.
Third quarter, we reduced our debt by 26 million, we're making progress strengthening our balance sheet.
Now, let me update you on the business and the progress we are making starting with consumer.
I'm pleased with the performance in this channel broadband revenue grew more than 2% year over year end quarter over quarter total consumer revenue increased almost 2 million from the prior quarter with strong broadband revenue growth.
Our consumer results continue to improve as we lead with broadband services and drive ARPU increases with bandwidth upgrades.
In the last two years, we have increased available speech to more than 750000 connections primarily rural customer locations, increasing speed is a key driver for growth.
Third quarter, we agreed speeds to one gig for 62000 and user locations in northern New England.
Capacity upgrades required for carrier growth and able to be speed upgrades for consumer and commercial customers.
A good example over three customer channels, leveraging our common fiber assets.
Last week, we began turning out subscribers and Chesterfield, New Hampshire, any first of its kind partnership leveraging the initial bonds to fund construction of a fiber to the home network. This is a great example of an effective public private partnership.
We have five additional opportunities in the pipeline totaling nearly 10000, passings all of which would begin construction in 2020.
This is a unique model that is perfectly suited to leverage our capabilities as an incumbent provider in rural markets.
Through a combination of efforts, including public private partnerships innovative fixed wireless new technologies and targeted investments we are optimistic on the consumer broadband business.
Last quarter, we announced the launch of CCR TV, a cloud based video service in Portland, Maine is very early in the launch phase, but so far nearly half of the subscribers are adding a data service and more than 70000, Oh, I'm, sorry, 70% of the customers are bringing their own devices.
This metric will evolve overtime and reinforced the broadband live and low capacity to the low capital intensity, we expect with this product.
Planned to launch do you see I TV in a triple play offer in New Hampshire, and Vermont by the end of the year.
We're very pleased with the progress made this year in our consumer channel, while we anticipate new England seasonal spends in the fourth quarter, we are positioned to enter 2020.
Solid run rate.
Within our commercial him.
And carrier channels, we experience both year over year in quarter over quarter growth in data and transport revenues. The growth rate was just over 1% year over year and we're on track to realize nearly 2% increase and data and transport and full year 2019.
And our commercial channel, we are focused on driving a better customer experience to our solutions based sales approach and expand portfolio expanded portfolio of advanced services.
We've had success upgrading multi site customers to consolidate its competitive SD Lan solutions. This is a natural evolution building on our customers trust in us as a reliable high performance when provides.
A recent win involved a seven site customer who added SQM, bringing increased diversity in bandwidth.
Who their network the majority of their sites are on our fiber footprint with SD when our customers get even more uptime speed and visibility into their network applications and their critical business traffic is prioritized over other network usage.
We're also gaining momentum within our small business or SMB team after adding additional sales resources to support acquisition and retention numbers.
This past quarter, we launched Microsoft productivity suite as well, it's easy to use website, an email management services. These services provide everything our customers need to stay connected and be productive wherever they are and whatever device. They choose to use their a nice complement to our business one bought bundle our.
Our care channel has achieved strong consistent results in 2019.
Total tower connections under contract increased by 129 or 4% compared to the third quarter of 2018.
Reaching more than 3800 total tower connections.
Revenue within our care channel continues to be a solid mix of wireline and wireless transport services, driven by Ethernet and dedicated Internet. Our team is doing an excellent job of negotiating long term care contracts that continue to drive Ethernet sales and offset Tdm special access services.
Our network investments made for carrier services are also benefiting consumer and commercial customers.
Now turning our attention to cost savings opportunities operating expenses were down more than 20 million in third quarter year over year, we continued identifying to implement initiatives to transform the business and stabilized free cash flow.
As an example of cost savings initiatives.
An example of cost savings a cost savings initiative is the continued automation and consolidation of our customer care functions. We have developed robust self serve options and portals for our customers are choosing to do business with us via these tools. These changes are helping a streamline and align the customer experience and realized.
Cost savings.
We'll now turn the call over to Steve will provide more details on our financial results for the third quarter as well as an update on our full year 2019 guidance, Steve. Thanks, Bob Good morning, everyone. We're pleased to achieve another quarter of stable and consistent adjusted EBITDA and revenue first starting with our consolidated performance.
Operating revenue for the third quarter totaled 333.3 million and generated adjusted EBIT of 131 million, which is essentially flat the second quarter now I'll discuss each of our customer channels, starting with consumer for the quarter voice video and data revenue off improved on a sequential basis year over.
A year total consumer was down 5 million or 3.7% voice revenue was down.
5.3 million in video consistent with our strategy the transition away from low margin IP TV linear video to more broadband centric services declined 1.3 million.
However, consumer broadband revenue did grow 1.6 million or 2.5% in the third quarter data ARPU is the key catalyst as we balance rate increases with organic ARPU improvement in all of our markets.
We continue to realize positive momentum by leading with data specifically, our newly updated areas, where we are now marketing to more than 750000 locations.
And as Bob mentioned, we are excited about the partnership opportunities and new technologies to continue to upgrade and expand broadband services.
Now turning to our commercial and carrier channel revenue for the quarter was 147.2 million down 2.9%.
Data and transport revenue grew 1.3 million to 88.8 million for the year for the quarter.
We're services revenue declined 3.5 million or 7% driven by legacy others like legacy declines and traditional access lines and associated revenue services. Other revenue declined 2.1 million.
Network access revenues declined 3.9 million or approximately 10%.
Subsidy revenues were down 1.2 million driven by the impact of the final Caf two step down in term transitional support that occurred in August 2018.
We now expect our subsidy revenue run rate to be approximately 18 million per quarter.
We do plan to be active participants in the Fccs Rural digital opportunity fund, which will bring urban speeds to rural America. We are confident our fiber rich network will give us competitive advantage over those who don't have infrastructure and the rural markets. We will evaluate the funding within our service area as well.
Wallace edge out locations, where we have fiber network. We are excited about the potential opportunities for consolidated as you objectives of this fund align with our commitment to expand and improve rural broadband.
Looking at operating expenses exclusive of depreciation and amortization were 216.7 million, which improved 9% or down 21.5 million from the third quarter last year.
Cost of services and products declined 6.3 million driven by network cost optimization, and lower salaries and benefits as result of reductions associated with the realized fairpoint synergies and ongoing cost savings initiatives.
Yes, you they cost will reduce 15.2 million in the recent quarter, primarily due to integration and restructuring charges in the third quarter last year combined with run rate operational synergies and ongoing cost structure efficiencies.
Net interest expense for the quarter was 34.3 million compared to 33.5 million for the same period last year, our weighted average cost of debt was approximately 5.7% in September thirtyth.
Cash distributions from the company's wireless partnerships were 10.9 million in the third quarter compared to 8.1 million the same quarter last year.
Adjusted net income per share was six cents compared to net loss of nine cents per share a year ago. The improvement reflects 16.1 million decline depreciation expense as well as ongoing focus on cost structure and operating efficiencies.
We we've invested 64.6 million in capital expenditures during the third quarter, the higher capex level is driven by consumer and broadband growth seasonal construction and additional hurricane restoration costs, which we expect to be completed in the fourth quarter.
Combining are consistent EBITDA performance and the cash impact of Reashure insurance recovery proceeds to higher capital expenditures will not impact our ability to achieve our state and leveraged goals.
Total liquidity, including cash on hand, and availability under the revolver was approximately 71 million.
Our net leverage ratio was 4.39 times at the end of the third quarter, we are executing our new capital allocation policy, which is focused on continuing to demonstrate progress on de leveraging while improving the balance sheet.
Total debt declined by 26 million during the quarter boosted by the retirement of 23.1 million in our senior unsecured notes at par value. The third quarter was our first full quarter without the dividend payment consistent with Q3, we will re purpose the Q4 dividend savings to pay down debt.
Continue to prioritize being opportunistic with open market purchases of our bonds.
With this strategy, we are confident we will improve our capital strategy strategy as we.
Capital structure, as we accelerate de leveraging toward our goal of achieving total net leverage of less than four times no later than mid 2021, and advancing our refinancing of our unsecured debt.
We are intensely focused on achieving our full year financial guidance today, we are affirming guidance for adjusted EBITDA, which is expected to be in a range of 525 25.
Hundred 25 million cash interest cost in the range of 130 235 million and cash income taxes are expected to be less than 3 million.
We are updating our capital expenditure guidance, which is now expected to be in the range of 220 to 225 million to account for the full year projected capital expenditures of 11.8 million associated with the hurricane restoration as well as additional success based capex with that I'll now turn the call.
Call back over to bought for closing remarks. Thank you Steve in closing this is our first completed quarters since implementing our capital allocation plan and we are on track with our target debt reduction. We also have delivered another stable quarter of EBITDA and revenue results expenses or reduce and we're focused on continued.
Cost saving cost savings initiatives.
We are strengthening our balance sheet and I'm confident in our business and our ability to create long term value.
That will now take questions operator.
Ladies and gentlemen, if you have a question at this time. Please press Star then that number one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the Q. Please press the pound.
Your first question comes from the light up John Charbonneau with Cowen and company. Your line is open.
Great. Thanks for taking the questions trick for data and transport revenue do you still expect to hit the 2% type growth for the year because that would imply a notable uptick in the fourth quarter and then longer term as the 2% type growth still how how we should be thinking about that business. Thank you.
Hey, Thanks, John for the question, we are optimistic on the on the third fourth quarter, we've got some.
Very strong carrier.
Tower.
Mike line that we accelerated into.
The.
Third quarter saw what we sell in third quarter and we also some very large sales and our gold.
Which is in platinum categories, which are above 2000 per month that are in Q. So it's going to it's going be a matter of closing those deals and.
Deal to close the getting them installed and we also saw some very nice growth in our core products Metro E. 4% in increase over 4% increase year over year and and hosted voice is up so we're still fairly optimistic about the installs that we've accelerated into.
Third quarter or we could get the construction work done and in the NRC use and the monthly recurring billing that comes with that.
But I think it will be slightly less than than 2%.
And then just longer term and then a longer term, it's a 2% growth type of is that how we should we thinking about that business going forward.
Hey, John This is Steve absolutely I think for our internally. Our objective is 2% should be the minimum going forward, that's where we're investing make our fiber investments that we're investing basing ourselves.
Resources at so we have some work to do but.
That needs to be kind of the threshold going forward.
Bottom of the base there.
Thank you.
Your next question comes from the line of Michael Rollins with Citi. Your line is open.
Hi, Good morning. This is Adam Elkowitz on for Mike two questions. If I could one on the consumer broadband revenue can you sort of disaggregate price versus customers are you gaining DSL customers given the expansion of the broadband footprint. If you could help us understand that and then on the us.
In a sequentially it came down fairly significantly little bit more than 10%, perhaps can you.
Mentioned, if there's anything in the SGN a expense line this quarter that was a benefit or that may reverse in future quarters. Thank you.
I'll take the first part of that Adam and and steel will take the second really.
There is there's two components as you said on the consumer revenue.
I've had the legacy consolidated markets in the aggregate continue to perform quite well.
And the speed upgrades there.
Really helped lead.
Both price.
ARPU increases as well as continued additions of subscribers and so.
Fairpoint markets legacy Fairpoint markets are where we've had to.
A significant.
Speed upgrade opportunity and so when you look across the aggregate, it's really 50 50.
The price increase opportunity coming from speed upgrades as well as those speed upgrades, enabling us to grow up penetration.
Hey, Adam this is Steve on the.
If you are I think your question was on sequentially on on SJ caught the way I would look at that is Q3 compared to even second quarter of this year third quarter last year, we like the window for adding Fairpoint integration costs back ended June 30 go. So we were a sequential basis, we kind of accelerated some things into.
Second quarter. So thats one thing we should see is less sort of integration and severance, although we still incurred some severance expense in Q3, you're also seeing the benefit of actions taking.
As we continue to consolidate work groups, particularly on the customer.
Service side and then we also had some.
Tax refunds in the queue in Q3 basins and things we have going on.
At the state level. So we're we're going to be continue to focus on that going forward.
I think can maybe you can you quantify perhaps the level of the benefit from the state tax refunds I mean, I understand the integration expenses, which we usually try to.
Trader of high impact, though I don't I don't want us number specifically, but I'd say, it's probably half million dollars to maybe maybe maybe as much of maybe as much as 800000.
Thank you.
Add on to the ongoing refinement opportunity within the business. This is this is something that has been typical of every acquisition, we've done and it's even with the size of the Fairpoint integration, even more of an opportunity we were seeing constant business process refinement.
Especially across the service delivery channels and so as we continue to find automation benefits.
Those are expediting installs shortening.
Book to build revenue cycles, and and allowing us to consolidate or or centralize more work functions and get the benefit of.
Of even virtually links centers to cover.
More flexibility and scheduling and time zones.
So it's a constant refinery process, primarily driven by.
Looking at each customer group and the can the continued refinement and automation of the service delivery efforts.
Thank you very much.
Your next question comes from the line of Mike Mccormack with Guggenheim Your line is it.
Hey, guys. Thanks.
Just a quick comment.
Mpls exposure.
And then obviously on the when side, which is probably replacing it what you're seeing from a pricing perspective.
And I guess, some the consumer business before you guys sitting out there as far as the data connections go with respect to seasonality. Thanks.
Yes. Thanks, Thanks for the question, let's let's start as you did with the commercial side.
For for.
The academic view of SD Lan.
It's logical to conclude that it replaces mpls overtime, but that's okay, that's going to be an incredibly long lifecycle, we're actually seeing sq land as a 10% ARPU.
When it comes to.
Commercial customer growth opportunity for us and the multi site example, I gave.
In our prepared remarks is a perfect case study, we're seeing many of our multi location customers add SD Lan in their remote sites some of which are in our our footprints and many are to get that kind of activity.
And control of of their their critical applications extended in a way that they couldn't previously and so it's an enhancement for US right now and it's using more transport pads.
Allowing us to extend metro Ethernet, even at smaller bandwidth levels than what customers may have bought in a dedicated basis previously. So so today, we haven't seen that as any inclination of a.
Have a revenue right now.
So.
I think that addresses your SD Lan Ole from a pricing perspective.
I don't see SD Lan.
As a.
Price compression opportunity, it's actually been enhancement as I mentioned on the on an ARPU basis, allowing us to link more sites together for our Multilocation customers no no moving to the consumer we do expect some seasonality.
As Weve typically seen in northern New England.
Although we have a an automated suspend process now that roughly 30% of of the customers typically we've typically seen in volume and begin to suspend in the heaviest month of October are using that process that allows them to suspend first of all fee versus disconnecting.
Service and it takes the the discussion out of our call center and puts it in their hands for control of when they re install it without having to wait in Q4.
Scheduled install so it's it's actually something we anticipate.
And we don't expect it to be as dramatic maybe as what we've seen in the past, but but.
This cycle will will be the indicator on.
How much the automated suspend process has has affected that.
Great. Thanks, guys.
Your next question comes from the line of Jennifer Fritzsche with Wells Fargo. Your line is open.
Great. Thank you feel if I may I wanted to ask any updated thoughts on the role of development opportunity Conner, our das as I think it's Steven called how how you're thinking about that and then secondly, I wanted the and the competitive sorry, if you mentioned that competitive environment in the.
Pierpoint territory are you seeing charter respond.
The breadth of way as you roll out your faster speed offering. Thank you.
Yeah I'll take the second part of that first then come back to our adopt.
The.
The.
Proof.
In terms of competitive responses really in in the uptick leasing and revenue in excess success rate, we're seeing on installs this quarter.
And last quarter and the pipeline still still looks good.
We think we've we've we're in the right niche we think we have a better service delivery process and we're giving the technicians more tools.
We're seeing charter.
Aggressive as as always on on pricing.
No specific response, because our marketing effort.
And and focus.
On expansion has been a very surgical neighborhood by neighborhood approach and and so we can be that targeted.
Charters typically followed a national pricing approach and we compete with them and many of our markets and and see the success, we're having right now in northern New England result of the process improvement the focus on on the upgraded areas.
And and our ability to hit appointments install employments. When we said we're going to to be there for our customers. So I wouldn't say, we're seeing anything different in this market than what we've experienced and other markets.
Now back to the World digital opportunities on we're very excited about this this is what we view to be the the next wave of of digital and Internet.
Revolution to some degree in connecting the rest of America. So.
Infrastructure in rural markets is something that we're good at and we believe we've got a competitive advantage.
And and we're very active with the FCC and through our national associations in.
Giving input to the auction process and so we think.
It's going to be appropriately.
Sensitive to making sure that not only do end users get access to broadband service and the maximum bandwidth possible with a minimum of 25 in three but the weightings also address latency and and put us in a best in a very good position to extend.
And our fiber networks through fixed wireless or.
For estriol means whatever fits the situation best and we've got experience with with all those and user types of technologies. So we're staying close to it.
Watching carefully how the of the comment period plays out and preparing for a good a good order in January that that outlines the process for the auction.
Great. Thank you.
Your next question comes from the line of Davis Herbert with Wells Fargo. Your line is open.
Good morning, everyone few questions here.
The first two our follow ups to prior questions on the pricing increases I just wonder it is that something that was done in.
One big price increase across your footprint or is it more surgical as you suggested as you upgrade speeds and people take higher speeds.
Yeah the price.
Increases associated with consumer.
Match, our philosophy on a on a region by region basis, So I guess surgicals, probably close to the right term we we.
Work very hard to only provide.
Pricing increases with something that we deliver back to our customers. So in this case.
The dominant reason for price increases across the broadband customers would have been a speed to increase either at their.
Wish for matched with a automatic upgrade to an area that we had.
Enabled faster speeds, and we move them automatically as as a way to retain them with a slight dollar.
Five dollar 50 increase.
Okay. That's helpful and then on on the SGN, a just a follow up there.
The run rate of 70 million I know, Steve you said there might be some state.
Tax.
A little bit of Lumpiness, but should we expect that run rate to continue into 2020.
On a quarterly basis.
I think it should be close.
Davis I mean, as we said, where there's probably some onetime items going both ways in there, but again, we're looking at.
Continuing to get better efficiencies throughout the markets.
Particularly in the back office functions, so I think.
I think thats, probably a good number to start one.
Okay. That's helpful and then on the debt reduction this quarter that was definitely nice to see and it wasn't it was close to your historical quarterly dividend payout. So just curious is that something we should expect going forward and is the preference to silt still buying back bonds in the open market or are you opened to repurchasing seems to report.
I think some loans as well.
Well I. So number one I think there I think the goal is to your point the dividends probably right around 20, 727, and a half million a quarter savings we.
Our targeting kind of having that level of reduction based on a kind of spike in Capex. We had in Q3, we didn't quite hit that number, but thats sort of that thats, where our target.
Is on a quarterly basis, and we'll do more if we if we can I think that as we're evaluating whether its open market repurchases for the bonds or term herbs term debt are paying us paying down the revolver I think right now we're looking at.
The highest return best use of cash and where the bonds are currently trading I.
I think thats, where we would go but I mean, our focus is on maximizing every dollar for accelerating de leveraging if we if we can so right now that the bias is probably towards towards and they'll just based on where the training I totally understand the bank debts also trading the discount right now so.
Yes, Okay and then last question you mentioned Capex, a little bit higher on the guidance I know the the storm issues, maybe playing a role there should we expect in 2020 I know you haven't given guidance, but should we expect that maybe a slight rolled back.
Capex for next year.
Yes, if you look this years.
Guidance puts us in a 20 million.
Capex reduction largely with the integration activities and.
And some of the the practice for broadband.
Growth core network growth behind us and so.
Happy are still of integration and the storm.
Recovery, which has been.
Uh huh.
Over a year cycle it feels like.
In the infrastructure.
Replacement in Florida as result of Hurricane Michael.
Costing somewhere near 11 million, a little bit over 11 million actually by the end of this year.
We'd expect that not to be re occurring so we definitely expect to step down in capex and we'll give that guidance in the next call for.
20 point.
Okay, great. Thanks all.
Your next question comes from the line of Jason Kim with Goldman Sachs. Your line is open.
Great. Thank you any updates on noncore asset sales to help you television goal at in terms of bond buyback.
The pace picked up nicely this quarter.
With the elimination of the dividend your revolver balance was up modestly versus second quarter as well to $45 million is the current revolver balance a level that you're comfortable with as you look to direct free cash flow to add to bond buybacks.
Steve Steve will address the bond buyback piece, but.
I will tell you just to reiterate we're committed to allocating the dividend to.
Leverage reduction and as Steve mentioned, we expect to continue to do that.
I think the revolvers up slightly.
As a result of some of the.
Lingering hurricane replacement activity.
Rebuild activity.
But we're also seeing insurance proceeds lag.
That recovery and and we're feeling good about that progress of Steve.
You want to talk about the.
Bond repurchase.
Anything else that.
Well I think the first question was on asset sales. So I think the I think that we are we've talked about asset sales in the past we are continuing to evaluate we are getting some inquiries on different market different opportunities. We are evaluating those on a kind of evaluation basis, what it would mean for leverage what we could do with the proceeds.
We're I want to be clear, we're not doing anything on.
Kind of a distressed basis, we are looking for valuation to accelerate de leveraging our investment in the business nothing to talk about today, but that is that is under consideration I guess your I mean two to your question.
Same one Davis asked we are focused on targeting.
The dividend savings on quarterly basis to debt reduction, we obviously, we would like to see the revolver be less that we're using that to short term.
We'd like to take that to zero. If we could are also kind of using that in the short term to help on some of the bond repurchases as much says it's kind of elevated in Q3 because of the.
Timing in the hurricane relative to insurance recoveries that we are got that we're going to be very disciplined on how we balanced liquidity relative to the opportunity to do I'll open market repurchases.
Thank you.
Your next question comes from the line of might slow with Baird. Your line is open.
Good morning, guys. Just continue on that same line, Steve how much do you expect those insurance proceeds to be.
So the way the way to think about that the.
We're it's kind of hard I'm not sure going to give you a number but so the way that works well in the refund we would expect the off the even though it's not direct capital offset from an accounting perspective, we would expect the refunds in total too.
Be close to what the capex, but to be honest can be very direct about the on the refunds are basically are the recoveries are basically offsetting expense first and then it goes to offsetting the loss on property that we're having to write off so I think in total were looking at a claim of.
$10 million to $15 million coming back and I think we received like seven and a half through Q3.
Through Q3.
Got you know that's helpful.
On the use of free cash flow are there any covenant limitations on how you apply that could you use every dollar other than the term loan required amortization could you use every dollar to buyback bonds as anything restrict that.
There there's a there's there's no language in the restricted payments basket to prevent us from doing exactly what you so well that's metric and then.
Thinking about your wireless partnerships to the question of noncore asset sales or the wireless partnerships something that could be a target for there and are there any restrictions from Verizon or otherwise on who you could sell those wireless partnerships to.
Well I'm not so we'd be open to direction on that or feedback, but the way. We the way we think about it as they are putting off $35 million to $37 million a year in annualized free cash flow. We have no operating expense going against that we have no capital requirements. We are limited partners are.
Our share our cash flow shares are basically are based on our percentage ownership the cash flow of each one of those partnerships. So.
We have these we acquired the properties.
As we go in a couple of acquisition. So we have carry over.
Tax basis from the predecessor company, which based on when the investments were made we have a very very low tax basis in these so.
Again, the way, we think about it if somebody came not done or door that would give us a tax adjusted multiple for we would certainly consider it but we're in the short term, we're not we're not really seeing that.
We don't expect that to happen.
So again, we're going we're going to leverage the 35 to 37 million Bucks a year on operating the business investing.
Fiber network or paying down debt.
And just to stay hypothetical with with that concept or really any asset sale concept can you use. Another covenant question can you use the proceeds for whether it be that asset or a different asset could you use the proceeds to retire the bonds or would that would that have to be offered to the loans first.
Yes, that's a great question and and.
One I'm, probably probably shouldn't really I think there could be I think I probably to talk to our administrative agent on that on the credit agreement, but there are like asset sale basket.
Under the credit agreement that you have if you are inside the basket you have more optionality that you're above the basket limitation on asset sales. So I mean, I think I think it kind of depends.
Before I get to Europe to your point.
We prefer when there.
Even though we're focused on de leveraging we like the optionality of being able to invest in that business. If we can't but if we're paying down bank that we're paying down bonds that both trading a discount to book going out with some de leveraging so if we raise some capital through asset sales. It's a good thing no matter how you look.
That's great. Thanks, Dave.
Your next question comes from the line of Aronson, starting with credit Suisse. Your line is open.
Yes, hi, thanks for taking my questions. Most have been asked and answered quickly on a on your on your term loans sort of both term loans itself I just wanted to see if you'd had started to have conversations with banks in terms of potentially refinancing that.
And do you have any sort of potential to do some creative structures around the around the horizon sort of partnership that that could theoretically help you get a better rate.
At a rate on a refinancing I think there's always optionality and always strategy, but nothing more ready to talk about today.
Got it fair enough I'll follow up offline. Thank you. Thank you.
Your next question comes from the lineup Ron Tanski Leo will you be ask your line is open.
Hey, guys.
I wanted to follow up on me.
On the opportunity fund.
Are there.
Is there a chance that you have certain areas that you would not be looking for funds than that you might for go.
Providing service to those areas and use that as as a.
As a possible way of saving costs.
And not having to provide in high cost areas.
Yes, I think there's always that chance I mean, right now we're going into it would be in the interest and understanding.
What what we think the minimum.
Breakpoint is for return and if the auction where to go beneath that then we want to being in a position to walk away from all the costs associated with it.
With that particular census block, so there's always that chance and and if we do walk away, it's going to be because we believe we can.
Shake the cost and the care of last resort obligations that come with that both from a capital avoidance perspective, and and from an operating expense perspective. So it it does present that opportunity, but we're starting out with the intention of having a threshold.
For each census block in which we have interest or we currently operate.
Got it thank you.
Your last question comes from the line of Jennifer Fritzsche with Wells Fargo. Your line is open.
Great. Thank you sorry, I just wanted to revisit.
Fiber to the power there's been some I'll call. It chit chat that T mobile has been slowing in some markets.
More in the traditional power space and wondering if you're seeing that has there been any sort of pregnant highs from either sprint or T mobile or both.
Until we get some resolution on the merger.
Hi, I can't say that we've noticed that some.
And then I have to be careful because of the end da's, we have with with all of our carriers were going to be respectful of and.
What I would say is we're seeing consistent higher demand.
Than what we saw a year ago and and so the backlog is good and it's coming from all.
All four carriers.
A little bit less maybe from from sprint at this.
Point in time.
But that's that's not atypical.
Based on the the coverage that we already have.
For sprint with our existing run rates and existing markets. So I can't say.
Definitely definitively if theres anything.
Unique or.
Or obvious with regards to T mobile.
And then patents I could just perhaps a little on variety than horizon has kind of had a model also working with regional partners to build more fiber in certain areas. They are building and fiber themselves 60 market.
Are you seeing them come into your market more at the partnership relationship or not yet that's how it that.
Were seeing those some of those opportunities those are.
At least in our markets more speculative at this stage versus.
And we see them as opportunities versus as very good versus being very aggressive build out. It seems those interest that Verizon has had isn't there non core.
And.
NFL larger markets and and so where we have facilities on the fringe of those markets, we tend to benefit, but we're not in NFL market oriented business were predominantly in suburban and rural and so I think those opportunities come from come to us.
Later.
And.
I wouldn't see this being any different.
In terms of the way that strategy typically plays out.
Perfect. Thank you very much.
There are no further questions at this time I will now turn the call back over to Mr., Bobby though.
Well again, we thank you for your interest in our company for the questions and your continued support.
We look forward to chatting with you on the next earnings call have a great day.
This concludes today's teleconference. You may now disconnect.