Q2 2020 Consolidated Communications Holdings Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to consolidated Communications second quarter 20 cents <unk> results conference call.
At this time, all participants are in listen only mode.
Yes presentation, followed by a question and answer session I.
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Be advised of today's conference call is being recorded.
I would now like to had the conference over to your speaker today Ms. Jennifer salty. Thank you. Please go ahead.
Thank you and good morning, I would like to welcome everyone to consolidated Communications second quarter 2020 earnings call.
On the call today, our Bob you, Dol, President and Chief Executive Officer, and speed Childers, Our Chief Financial Officer.
Bob's comments today, we'll highlight our strategic initiatives and our operational results as well that's how we're managing our business through the coal that nice intend on it.
Steve will provide details on our second quarter financial performance.
Following the prepared remarks, well open the call up for questions.
Before we proceed I wouldn't mind you our earnings release financial statement and earnings presentation are all posted on our Investor Relations section of our web site at consolidated Dotcom.
Please review the Safe Harbor provisions on slide two of our presentation. Today's discussion includes statements about expected future events and financial results that are forward looking and subject to certain risks and uncertainties.
Discussion of factors that May read may affect future results is contained in consolidated filings with the FCC.
Today's discussion will also include certain non-GAAP financial measures. Our earnings release includes reconciliations of these measures the nearest GAAP equivalents.
We'll now turn the call over to Bob you don't.
Thank you Jennifer and good morning, everyone.
We continue to operate effectively during this unprecedented in uncertain time I'm very pleased with the solid stable results. We delivered in both the second quarter and the first half of the year, we're successfully executing on our financial priorities as we delivered stable adjusted EBITDA and strengthen the balance sheet.
We accomplished both again this quarter despite the challenging environment. The company strong performance of the reflection of our team's hard work and dedication to serving our residential business and carrier customers.
I'm proud of our progress and I'm confident that consolidated is well positioned to continue this momentum through the second half of the year.
And the recent quarter, we grew broadband and data transport revenue and reduced operating expenses, which allowed us to achieve stable revenue and generate increased adjusted EBITDA I continue to be inspired by the consolidated teams resilience and I'm proud of their ability to adapt and respond as a critical infrastructure provider, we play a fundamental rolling keep.
Being consumers and businesses connected each and every day.
We continue to see increased traffic across our core backbone and I'm pleased to report our network is performing very well and it is and is designed to handle the increased usage. This is the result of our network architecture and our careful planning buyer networking.
And numerous safety majors, we implemented to ensure business continuity are working in neighbouring teams to focus on supporting our customers the safety and wellness of our employees and customers is our number one priority.
We've demonstrated that our business is quite resilient, we've adjusted our operations in our closely monitoring monitoring any business impacts at this time I'm pleased to report there are no major disruptions or impacts as result of cobot 19.
I'll provide more color on each of the customer channels as I discuss second quarter results, let me start by sharing some highlights.
Starting with date and transport where revenue grew 1.2% we demonstrated our consistent track record of revenue growth.
Our carrier channel remains strong with continued 10 gig densification, including fiber in wave upgrades driving most of the activity, we're making it easy for our wholesale customers to increase capacity with efficient expedited order process, where needed. Our sales team is doing an excellent job of maintaining strong relationships and collaborating.
Mostly with carriers as we identify transport solutions that offer diversity and maximize utilization for peak performance.
Our tower connections under contract increased 3% year over year totaling 3900 connections.
Vertical we continue to actively support is higher education. We recently won the Texas, saying, an M. University RFP for a 200 gig fiber connection to support their requirements and augment a statewide network between college station and Dallas through our relationships with this higher education institution, we have created a robust sell piece.
Selling and scalable solution to meet their data and security and reliability needs.
Beyond higher education, or Hyperscale relationships and successful track record with a leading Internet technology company has allowed us to win a fiber build contract connecting datacenters and adding significant metro fiber to our assets.
As we build out carrier grade capacity, our fiber network investments allowed us to increase on net buildings by 15% from a year ago totaling approximately 12900.
The vast majority of our new sales across all customer groups are on net which correlates to higher margins increased opportunity to add products and a greater ability to ensure the best customer experience ultimately attributing to customer retention.
Within our commercial channel, we're seeing demand for bandwidth upgrades and unified communications collaboration solutions as well as datacenter services RST when sales pipeline is higher than it has ever been and is driving metro E and cloud voice sales Voip revenue increased 12%.
We've been helping customers like a county courthouse that leveraged our cloud based collaboration solution across 40 county facilities all on net.
Broken ex robust voice solution replaced an outdated co manager in this situation, giving the customer advanced features and collaboration tools as well as easier remote work arrangements.
Customers are seeing the many benefits of SD when including a Pennsylvania based health organization, which recently upgraded 11 sites this customer move needed more visibility into their locations, especially as they ramped up use of tele medicine, RSU and solution along with an LTE E fail over gave the customer and affordable and.
Flexible backup option and ultimately more control over their network. Despite concerns about revenue pressures. We are finding the vast majority of our SD Wan upgrade to result in increased customer revenue.
Route diversity and fiber connectivity between multistate sites was the key priority for a main based financial institution. We won this business based on competitive pricing a cost effective fiber build and nimbleness to add a second 10 gig connection with complete diversity.
Our commercial sales team has modified and refined good sales approach using a hybrid of virtual tools to meet customers, where it makes the most sense. This quick pivot has been key in our main in our ability to maintain our data and transport revenue growth.
Within the consumer channel, we're very proud to achieve achieved the fifth consecutive quarter of broadband revenue growth our strategy of leading with broadband services and continuous speed improvements is working.
We continue to see higher consumer broadband order activity up nearly 50% from first quarter and 75% year over year, our past investments allow us to efficiently and expeditiously complete more customer upgrades without requiring a technician visit.
CCTV our streaming video service is fully launched in northern New England and recently expanded the service in Texas.
We continue to see the majority of subscribers, bringing their own device the EDI self install.
Product further reduces overall capital intensity compared to traditional video we will further expand CCTV in legacy markets. This year, and we just announced a small business offering in northern New England.
As you can see on slide 10 of our presentation, our extensive fiber regional fiber networks connect essentially 100% of our consumer customer base to the network through either fiber to the note or fiber to the home.
This fiber density and close proximity to customers gives us options to meet the demands for increased bandwidth. We are deploying new technologies in fiber to the note areas that allow us to deliver speeds up to 500 make per second.
Our fiber density positions us well to partner with communities to deploy last mile fiber in rural areas that would otherwise be difficult to justify financially. We previously completed two community builds one in Chesterfield, New Hampshire, and one in Brooklyn, Maine, and we currently have five builds underway in new Hampshire, all slated for completion in early 2020.
One.
We've accomplished a lot in this quarter and through a combination of efforts, including public private partnerships and innovative new technologies. We are building a more competitive consumer broadband business and we know there's more work to do.
We are taking additional steps to ensure we are the best position to capitalize on future opportunities in the market.
I will now turn the call over to Steve will provide more details on our financial results for the second quarter Steve.
Good morning, as our earnings release outlines we delivered another strong quarter financial results. We continue to monitor key metrics in the business and for each customer channel and our.
And so far we have not seen any material impacts to our financials. Our cash flows as a result of current conditions economic conditions caused by the pandemic slide three of our earnings presentation summarizes the company's second quarter results.
Operating revenue for the second quarter totaled 325.2 million, while down 2.5% compared to Q2 19 does represent a 200 basis points improvement over the comparable comparable period, one year ago as a result of improving revenue trends and ongoing cost structure improvement second quarter adjusted EBIT.
<unk> of 133.1 million was up $1.7 million from a year ago.
Commercial and carrier revenue totaled $145.8 million in the second quarter data and transport revenue grew 1.2% and totaled 89.6 million.
Commercial voice service revenue declined $1.4 million or 2.9%, which is a 2% sequential improvement.
Other revenue declined 3 million, primarily due to lower equipment sales, we have seen a slowdown equipment sales and we could see additional delays and customer decision, making over the last half of the year due to the current economic conditions. However, the impact of these low margin revenues will be nominal.
We are continuing to closely monitor our small our small business, our SMB customers and in the current environment, we could see a slowdown in sales and could see some much higher customer churn over the last half of the year.
Our carrier sales team continues to see strong demand for wireless backhaul to support capacity upgrades and Fiveg rollouts with national and regional carriers capacity upgrades and expedite nearly doubled in the recent quarter general generating higher new incremental revenue run rate with wireless providers.
Upgrades were completed in days and not months, which is a key differentiator and demonstration of our value in partnership with the wireless providers.
There are no material impacts that we are seeing with a carrier channel unrelated Nicole that 19.
Overall commercial on carrier channels remains strong and have a solid pot pipeline.
Now turning to our consumer channel, where revenue totaled 127.9 million revenue was down just 1.3% or 1.7 million in the second quarter. The second quarter decline is essentially half of Q1.
Consumer broadband revenue grew for the fifth consecutive quarter and was up more than 2% in the second quarter consumer ARPU increased 5.7% year over year totaling approximately $75.
Our strategy of leading with broadband specifically in our newly upgraded areas is working and driving higher retention and higher ARPU.
Consumer voice revenue was down approximately 5% or 2.1 million year over year.
The decline in consumer voice was reduced by more than one half from a year ago and improved slightly sequentially. We attribute this to a more robust and competitive broadband offerings, which contributes to higher voice retention.
Our video revenue declined 5.5% improvement a 2.3% from a year ago, and as Bob mentioned or gaining strong limit momentum with our CCBI TV streaming services as we transition our video strategy.
The 1.1 million video revenue decline was more than offset by reductions in video programming expense and lower capex.
Network access revenues declined 3.7 million largely due to special access declines while subsidy revenue was down slightly remained at our expected 18 million per quarter run rate.
With respect to the upcoming art off auction, we do plan to participate and have completed our short form filings. We are evaluating the funding opportunities and potential returns on invested capital and will be selective as we look to enable.
To access underserved areas, we see good opportunities to bring high speed broadband services to rural areas that are economically very difficult to serve today.
Now turning to operating expenses, excluding depreciation and amortization operating expenses totaled 204.3 million improvement of $17.6 million or an 8% decline from the prior year.
We continue to identify and implement initiatives to transform the business and optimize free cash flow, which increased 30 point 39.4 million in the recent quarter and is up 89.3 million year to date.
Cost of services and products declined 4.2 million driven by lower CPE sales video programming expense in salaries and benefits associated with ongoing cost savings initiatives.
Our cost of goods and service expense will fluctuate with revenue, especially on equipment sales and liddy linear video content cost.
SNA cost will reduce 13.4 million in the recent quarter, primarily due to operational synergies and ongoing efficiencies.
With respect to bad debt, we continue to monitor monitor customer payment activity closely and at this time, we have not seen a material difference in our accounts receivable aging or daily cash receipt trend.
Net interest net interest expense for the quarter was 31.5 million down 3.3 million from the same period last year, our weighted average cost of debt was approximately 5.3% at the end of the quarter.
Cash distributions from the company's wireless partnerships were 9.6 million in the second quarter compared to 10.6 million a year ago and are in line with our anticipated distribution levels.
Historically, our cash distributions have been in the range of 35% to $37 million a year based on a visit visibility that we at this time, we expect cash district cash distributions to be in line with this direct historical run rates.
Adjusted net income per share. It was 19 cents compared to net loss of 10 cents per patient per share a year ago. The improvement reflects the consistency of our operating results and a decline in depreciation expense.
We invested approximately 54 million and capital expenditures during the second quarter and 96 million in the first half the year, which supported success based projects in broadband network infrastructure expansion.
Total liquidity, including cash on hand, and availability under our revolver was approximately 37.3 million in response to the economic and path of Kogan 19, we have been and we'll be focused on maximizing liquidity.
Consistent with our capital allocation plan. We are we are focused on our de lever first strategy with all cash flow committed debt reduction or building cash liquidity.
Since late in the first quarter, we have placed a higher priority and paying down the revolver and preserving cash.
Then in pursuing open market purchases of our bonds. Since December 31st we have reduced our total debt by 56 million increase cash on hand by 33 million.
Our net debt leverage ratios 4.4, 0.4, 0.14 times the in the second quarter down from 4.33 times at the end of the year. We will continues commit on free cash flow to improving the balance sheet with the goal of getting our net leverage target of less than 4.4 times by the into the year.
Our business is strong and stable and we have demonstrated our ability to manage cost and make notable progress toward our capital allocation plan.
Cobot 19 continues to be prevalent and economic visibility is taking shape. We are not restating. Our 2020 guidance at this time with that I'll now turn the call back over to bump for closing remarks.
Thank you Steve in closing I want to reiterate how pleased I am with results and our teams nimbleness and adapting during these challenging times our efforts have enabled us to mitigate the impact of the pandemic on our business to continue serving our customers and deliver solid and consistent results in the second quarter in first half of the year.
We remain laser focused on our strategic initiatives because we believe the continued execution on our plan will differentiate us within our industry and generate recognition for the fiber rich assets we built.
As a result, our company as well position to capitalize on future opportunities and accelerate our growth trajectory.
Our strategic imperatives, which are outlined on slide 10 continue to be our roadmap for success and we are making notable progress with each one we are producing stable earnings and growing our free cash flow, we are leveraging our fiber assets across three customer groups and demonstrating revenue growth in broadband and data transport and we are executing.
We'll allocation plan, demonstrating disciplined cash management and improving the balance sheet not only are we building better broadband networks. We are building stronger communities as evident with our recent support the food banks in the communities, we serve and our employees ongoing volunteer efforts.
We have a strong stable business and outstanding group of employees and continue to operate without material impacts related to these.
Challenging times.
Operator, we'll now turn to questions at this time.
Michelle.
Hello, Michelle.
Yeah.
Please standby, where we get our operator.
Ladies and gentlemen at this time, if you wish to ask a question. Please press Star then one on your Touchtone telephone. If your question has been answered I wish to remove yourself in the queue. Please press the pound key.
It looks like our first first question comes from a line of grade Williams with Cowen. Please go ahead.
Great. Thanks for taking my question actually that the leg give me a little bit time together my thoughts I. Appreciate it has so can you talk a little bit more about the small and medium business segment that you caution maybe a slowdown in possibly higher churn seems like your commercial business is doing very well, but the SMB I could could see some weakness.
And the second question somewhat related you posted very solid EBITDA, but you're not reinstating your guidance what are the uncertainties that is at the SMB segments or are there other cope with 19, uncertainties that you wanted flag that.
You know keeps that.
Guidance on the sidelines. Thanks, yes, yes. Thanks, Thanks, Greg and appreciate your patience I've not experience that kind of delay before.
First let me start with the second question, Steve will take the rest.
It's a.
Interesting time with Kobe cases, increasing and it just seems like the prudent thing to do to to keep watching these these revenue trajectory and and cash remittance and all those things that we're watching on a recurring basis. So let me Steve talk more specifically about the SMB.
Yeah, Greg This is Steve so relative to the SMB and what we talked last time on the call. It that is about seven or 8% of our total revenue we are watching it very closely.
We have no again, fortunately through the second quarter and even as we speak today, we haven't seen any material impacts to the business as or as a result of cold and 90, but we really do remain cautious vinyl thing very many companies are reinstating guidance at this time.
With respect to the SMB, we are we could see again, we're operating 23 different state everybody every operating.
Platform that we have some a little bit different position relative to reopening of the economy.
Restaurants hotels, whatever open it up so I think we are just being cautious again were worth relative to the SMB group I think we've added Fortunately or the course of the year. We've added resource into that group to have more contact with the SMB group, but we do expect to see maybe a little slow down in this in the sale.
Sales.
Yes on SMB as they come back.
As it as economy Reopens and then we again, we could see a little bit of higher churn, but we haven't seen that yet we really haven't seen an increase in our a our aging as I mentioned on the call I think we're in abundance of caution relative to what we could see SMB, maybe some delays on the equipment sales, which we again in the commercial group, which we would expect not today.
I have a material impact in the business I think we're just being cautious on what we don't know about the economic recovery.
Great. Thanks can I sneak in another question.
You know you've been talking about selling noncore assets for quite awhile.
In this environment is that on pause or.
The liquidity back in the markets. It do you see activity and potential to sell noncore assets in the near term.
Yes, I think.
Greg This is Bob I think that that's always something that's been in on our radar and I wouldn't call any of our assets really noncore because we we are intentional about expanding broadband and all of our operating areas, but what I would say is.
When there is someone nearby or or.
Interested more responsive to that and so we're doing what we always have done.
Looking at those opportunities responding to them when they arise and.
We are really always in discussions was with someone.
To see if they can bring.
Faster speeds on a on a more rapid basis to those communities then.
And then we'll do a deal.
So there's nothing new to say until there is no that's about all have.
Okay. Thanks, guys.
Thank you and again, ladies and gentlemen, if you wish to ask a question at this time. Please press Star then one our next question comes from the line of Davis Hebert with Wells Fargo. Please go ahead.
Good morning, Thanks for taking the questions.
One thing we've seen with cover 90, I think as the elevated activity on broadband and you put out a really good net addition number this quarter.
Are you seeing a decent backlog or pipeline that gives you more visibility on on sustainable broadband growth for the rest of the year.
Yes, I would say.
The way, we think about that.
Is the.
Looking at year over year, Theres definitely a stronger pipeline I remind you we have some seasonality in third quarter, that's natural with the northern New England property or I guess, it's really in fourth quarter.
And the third and fourth and and well we think that might.
Maybe a bit muted this year.
And the growth may slow down we think theres.
Good logic to expect year over year improvement.
Okay.
Helpful. Thank you and then there was a pretty decent step down and SGN a cost.
For the quarter and I think.
Steve you alluded to cost controls.
Is that sustainable level of a best DNA, we should expect going forward.
So hey, David Thanks, Thanks for the thanks for the question I think it is I think we I mean, there's with year over year. There were a few things going on second quarter of last year as we've rounded out the integration or at least a two year window in the credit agreement for integration related spend expenses to get synergies from for a point so.
We were still again, we were in the final stages of even that even though that work is really never done we really were accelerating some things in Q2 last year to try and maximize synergies in a two year window. So coming forward I think we're benefiting from everything we did relative to the integration. We also did some pretty heavy lifting cost structure in Q.
Three Q4 last year.
Across the organization. So I mean, I do think we have sort of a new benchmark on as you know going going forward I mean may fluctuate as we.
The reverse of the Kogut or the impact equivalent expenses, we probably had a little less advertising in Q2.
And whats travel expenses everybody's working at home.
You mean, we will as we get back into the market, we'll probably see a little bit of an increase there I think we've got we established we haven't repeatable cost structure going forward.
Okay. That's helpful.
Added the fiber to the home route miles to your tier fiber count and I Wonder if you could give us an update of.
The percentage of homes passed with fiber to the home is there any any update there.
I think the way to think about it is worth we're always matching the competitive situation with with our speed upgrades to the to the best of our ability and and so.
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We have really 100% of our network either fed by fiber to the home or fiber to the node.
In the fiber to the note areas.
Were.
Max on the average 22000 to 2500 feet from the customer and we're getting 500 Meg with some of the newer technologies, we are deploying and so our cost for incremental upgrade is really low and it's a progressive thing that we're doing to match the competition.
And our sweet spot seems to be about 100, Meg right now, but we're continuing to expand the.
Amount of one gig Passings, we have and.
And that's about as specific as I can get right now.
Okay. That's helpful and my last question is yes, I respect that and being Conservative you don't want to give guidance, but seems like things are on track to date.
And how do you think about your deleveraging plan and a recapitalization of.
Of your of your debt over the next 12 to 18 months. Thank you.
Davis I'll, just Steve I'll take that one I mean, we have shipped since we made to change capital allocation policy and committed off free cash flow going towards Delevering.
Into Q1 last year, we've shown every quarter.
Decent price not sanctions a decent I should say really nice progress towards our de leveraging our goal is still to get to four times by the ended the year and we want to do that.
Global refinance soon as we can respond talked about the network.
We see a lot of growth potential in them.
Opportunity across our footprint and we're ready to we're ready to again thats been our that's been our story since we changed cap allocation policy right to care for the refine and then pivot to investment that still are still are thinking and again.
The pace that we're going out right now again, we're not reinstating guidance, but every dollar free cash flow will continue to go towards debt reduction to get us towards that four times as fast as well.
Great. Thank you.
Thank you and again, ladies and gentlemen, if you have a question at this time. Please press Star then one.
And Im showing no further questions and I would like to turn the conference back over to Bob you know for any further remarks. Thank.
Thank you well. Thank you all for joining the call today. We appreciate your support of consolidated communications and we look forward to updating you next quarter.
Have a great day and please stay safe.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect everyone have a great day.
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