Q4 2021 Consolidated Communications Holdings Inc Earnings Call
[music].
Good morning, My name is shantou and I'll be your conference operator today at this time I would like to welcome everyone to the consolidated Communications fourth quarter earnings Conference call. Please be advised that today's conference is being recorded all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer.
Session. If he would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question. Please press star one again thank you.
I will now turn the call over to Jennifer <unk> Senior Vice President of Investor Relations and corporate Communications, Jennifer you May begin your conference.
Okay.
Thank you good morning, and welcome to consolidated Communications' fourth quarter 2021 earnings call.
Our earnings release financial statements and presentation are posted on the 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 forward looking statements about expected future events and financial results that involve risks and uncertainties that may cause actual results to differ materially from those expressed today.
A discussion of factors that may affect future results is contained in consolidated's filings with the SEC, including our 10-K report, which will we intend to file on Friday Tomorrow.
In addition, during this call we will refer to certain non-GAAP financial measures, which are defined and reconciled in our earnings presentation and press release tables.
On the call today are Bob you Dahl, President and Chief Executive Officer, and Steve Childers, Our Chief Financial Officer.
Following the prepared remarks, we will open the call up for questions.
I will now turn the call over to Bob Udell.
Yeah.
Thank you Jennifer and good morning, everyone on today's call I will provide my thoughts on our fourth quarter results and update on several operational initiatives and recap our long term strategic priorities Steve.
Steve will then provide details on our financial results. The recent Kansas asset sale agreement and he'll provide an outlook for 2022.
Before I get into the fourth quarter, let me remind you of how far we've come these past 18 months.
Incredibly excited with the progress we are making a year and a half ago, we initiated a new growth plan for consolidated by entering into a strategic partnership that enabled the most ambitious fiber expansion in our 127 year history.
As part of this growth plan, we secured a total capital infusion of 425 million.
This investment served as a catalyst for us to complete a global refinancing of our external debt and allowed us to strengthen our balance sheet by extending maturities and increasing liquidity.
This partnership structure also enables us to immediately invest and execute as a fiber one broadband company.
The fourth quarter was a critical inflection point for consolidated as we completed you're one of our five year fiber expansion expansion plans are.
Our first year priority was to create the network build engine and scale, while also redefining the customer experience and I'm extremely pleased with what we that we deliver just that.
First we exceeded our target by upgrading 330000, passing with fiber services and gate plus capable speeds and we began to scale our customer acquisition engine, creating the foundation for significant adds in 2022.
We launched our new stadium fiber brand with a fresh and easy to use web interface and we're building the customer acquisition engine to align with the construction pace. We also implemented net promoter score or NPS measurement.
Third we closed on the second stage of the search like investment, which provided additional capital to support our growth plans. Each of these accomplishments provide the runway for accelerated momentum in the current year and beyond we are on track with our build plan. We've learned a great deal over the past year and we are building the path for a return to growth.
This team is energized motivated and we're very excited.
Now speaking of the excitement have you seen our fiber our new stadium fiber brand.
In November we launched stadium fiber the brand representing our new fiber based broadband offering in an entirely transformed customer experience.
ADM is designed to make broadband easy as outlined on slide five of our investor presentation. It means simple plans transparent pricing and a stellar experience from end to end.
We are offering superior gig symmetrical speeds premium whole home mesh Wi Fi capabilities, no data caps no contracts and all at an extremely competitive price point.
We have the ability to install fiber services within three days of order and we have a dedicated premium customer support channel. All of this is to create the best customer experience, which we measure by NPS, a widely used customer satisfaction and loyalty benchmark for performance and productivity.
<unk> has been very well received as measured by our industry, leading NPS numbers and the very positive customer feedback we've received so far.
In mid November we did launch the fitting them brand in selected markets in northern New England and it is coming soon to other regions. This year, our new online ordering experience has grown our digital channel.
Now producing nearly half of our new <unk> orders as you can imagine the excitement of consolidated is incredibly high as we positioned iridium to grow and accelerate in 2022.
As a result fourth quarter brought our strongest quarter of fiber net adds with 4500, new fiber subscribers and 15500 fiber net additions in the first year of our build plan.
Expanding the stadium experience and our customer acquisition engine to the rest of our markets will certainly have a positive impact on our fiber penetration. This year our growth machine is beginning to scale and is accelerating.
Now as we look back on our first plan year, we've created a well oiled machine, which builds fiber to scale. We knew we needed to stay ahead of the supply chain, but found that access to advanced CPE was more difficult to secure than we anticipated. We now have ample CPE to support our customer acquisition plan. You know you only have one chance.
To launch a new brand and we were committed to ensuring all aspects of the fiber product and customer experience. Our optimal we intentionally launched five video later in the year than planned for this reason to ensure the best customer experience, which we view as a key differentiator we've improved our processes and are aligning our build plan with our go to market strategy.
<unk>.
We continue to provide transparency on our fiber cohort penetration targets, which are outlined on slide six we expect to achieve 14% cohort penetration within 12 months of being ready for sale, 24% within 24 months and 33% after 36 months in the life of an individual cohort.
As we approach the one year anniversary of our Q1 2021 cohorts, we're exceeding the 14% year one target penetration as we have discussed in the past we believe our long term penetration capability is closer to the 40% range, which we can achieve where we can achieve duopoly parity over a five year horizon.
The opportunity for <unk> is significant and we're just getting started now.
Now looking at 2022.
We are laser focused on ramping our customer acquisition initiatives as we extend the <unk> brand to additional markets and ramp up the sales teams in areas, where we are expanding our fiber reach we have significantly enhanced our digital sales engine, adding operational efficiencies to our customer installation process.
Our strategy is to win subscribers at the neighborhood level and provide a frictionless digital order experience.
We continue to connect with our customers at local and community pop up events.
Our new digital customer experience provides intuitive self serve options, which make it easy for customers to do business with us. These tools also significantly enhance the customer experience throughout the service delivery process and let me tell you. This is a powerful combination of using a targeted neighborhoods sales channel couple.
With our best in class digital customer experience, which is key to the value proposition of our new fiber services.
Our <unk> online experience launched in mid November and just over a month, we drove significant order activity to the web. We expect this trend to continue as more customers utilize self service tools, lowering our overall costs and improving efficiency and customer communications.
Our fiber build plan is outlined on slide four and it shows the progression as we upgrade $1 6 million locations, where 70% of our total passing by 2025.
Were making fantastic process progress in the fourth quarter, we brought fiber gig plus capable services to more than 111500 locations.
For the full year, we upgraded 330700 fiber passing and doubled our fiber coverage to 22% of our addressable markets.
By the end of 2021, we have built a machine that is fully capable of upgrading more than 100000 locations per quarter, bringing economic employment and quality of life benefits to the residents and businesses and the communities we serve and.
In 2022, our target is even bigger we plan to upgrade 400000 locations, which when complete will bring 1 million total pass things are nearly 40% of our addressable market.
Being fiber.
Fiber by the end of the year of 2022.
We are well positioned to capitalize on government programs and public private partnerships within our footprint and are actively pursuing all broadband infrastructure grant opportunities that makes sense for us just this week the NTIA awarded $18 3 million to the connect domain authority supporting our build of 22000 fiber locations within.
Our footprint.
We are the primary build partner in this grant and are excited to bring video to even more locations in rural Maine.
Maine and other agencies recognize that our incumbent advantages and build a track record to make us a quality partner and we expect to continue to do so where it makes sense for us.
This fiber expansion is our path forward for growth and represents the foundation of our transfer transformation. It also provides opportunities for commercial and carrier channels to use the same assets for multiple revenue opportunities, which I will discuss next.
Before I do let me remind you of our commercial and carrier strategy. We are focused on leveraging our core fiber network to offer the most reliable network solutions and unique fiber routes our network architecture and core upgrades enabled 10 gig and eventually 100 gig services to the edge.
Future proofing, our product portfolio.
Steve will provide more details in his remarks on trends and results for these channels and discuss the impact of the carrier contract renewals, but within our carrier channel. We have a long track record of delivering industry, leading high bandwidth solutions to national wireless providers and Hyperscale.
We deliver innovative bandwidth solutions to carriers, who choose consolidated over and over again based on the earned trust and reputation we have built over decades of meeting their needs, we see emerging <unk> network opportunities across our regions and with all major carriers as well as some hyperscale.
Our carrier team is proactively managing contract renewals, which is resulting in some near term price compression, but in exchange for incremental long term contract value.
Within the commercial channel, we're leading with fiber based solutions, coupled with our cloud services in order to secure and retain long term relationships with businesses in our markets. We do this by leveraging three sales channels direct.
Sales general inside sales and an agent channel we call partner one.
We continue to see great sales activity for our pro connect unified Communications voice solution. This demand is coming from a variety of industries, including retail banking and government, we see good opportunity to grow our pro connect cloud voice within the SMB channel where businesses don't want to maintain an on premise system and realize that many.
And our commercial grade hosted voice solution.
SD Wan growth continues as customers need better routing platforms and built in redundancy and network intelligence are best in class solution through Velo cloud is driving this growth and the more diversified workforce brought on by pandemic is fueling internet bandwidth growth as well and a transition transition to services like SD Wan or.
Our commercial go to market strategy Leverages, our extensive fiber network and our solutions based sales approach, allowing us to become a trusted adviser to our customers, while providing simple solutions to complex problems new fiber passing is provide opportunities to like more buildings and pursue near net fiber expansion.
Our security and cloud Wi Fi, our leading cloud solutions, which provides significant benefits to customers freeing up resources and reducing their capital outlay nine.
90% of our new sales activity is on our network, which correlates to higher margins increased opportunity to upsell and a greater ability to ensure the best customer experience.
We're maintaining flexibility in our Capex plan for success based commercial and carrier build which also extend our network.
Now I'll turn the call over to Steve who will provide more insights on our fourth quarter and full year 'twenty one financials.
Thanks, Bob and good morning to everyone as Bob noted 2021 wasn't important leap forward in our transformation to our fiber <unk> strategy today, I am going to walk you through our fourth quarter financial and operational highlights and bridge 2021 results to our 2022 guidance. So let's start with the financial overview.
Which you can find on slide seven of our presentation.
Operating revenue for the fourth quarter totaled $318 5 million down two 3% compared to a year ago. Adjusted EBITDA was $126 2 million for a 39, 6% adjusted EBITDA margin for the quarter Capex for the quarter was $176 $3 million and $515 8 million.
The year this is higher than our Q3 revised guidance and reflects our intentional decision to stay ahead of potential supply chain issues by strategically securing fiber build materials and broadband CPE to ensure seamless execution on the ramp of our 2020 to build and sales plan let.
Let me remind you of our fiber to the Prem investment thesis and our commitment to a fiber one star.
A strategy that will future proof our business, we're leveraging a number of meaningful fiber to development advantages, including our incumbent position. We know these markets very well and we have a fiber rich carrier class network that we can cost effectively extend we own or have long term leases on the local and long haul networks and have existing conduit.
<unk> for Barrick facilities, and pro access where we have aerial fiber.
In northern New England, approximately 80% of our fiber as Ariel and in close proximity to our existing fiber backbone facilities.
And we have a very experienced teams, including our external and external resources, we can flex to ensure we complete the bills on time.
With this plan, we have a tremendous cost advantage, specifically in new England, where we are upgrading over 1 million passengers alone alone over our five year plan, we have the greatest opportunity to drive significant returns in New Hampshire, Maine, and Vermont, where more than 90% of our markets have a single or no competitor. We also have a very.
<unk> cost to upgrade the majority of the network to gig plus enabled speeds and we are very confident we can acquire a significant market share as outlined on slide six our cost per passing is still on the range of 550 to $600 and the average cost of connect or success based capex is still approximately $700.
Now I'll review revenue by customer channel.
Turning to our consumer channel total revenue was $121 9 million down two 7% compared to a year ago.
The key drivers for consumer revenue in the quarter are as follows first the launch of our new <unk> brand in November is the starting point of our new customer experience and helped drive a 14% increase in fiber net adds as compared to the third quarter.
Second we experienced our normal seasonality in northern New England, which impacted copper broadband and voice services. We continue to see voice erosion rates improve and as we are focused on stabilizing voice declines in the quarter. We estimate the seasonality was $1 $7 million in consumer revenue.
Third as we have mentioned on prior calls with respect to video as we continue to sunset, our linear video services and transition solely to streaming partnerships. As a result, we will see continued revenue declines, which actually mitigates the negative margins on those products.
Overall consumer broadband in the fourth quarter was $67 million up approximately one 1% year over year.
Broadband growth stemmed from speed and fiber upgrades combined with <unk> gains on new fiber services consumer broadband <unk> was $57 $57 60.
More than $3 or 6% from a year ago.
Now turning to commercial and carrier revenue totaled $143 3 million down $6 4 million or four 3% in the quarter. We continued to proactively manage certain tower contracts, which we will discuss in some detail. We also experienced a higher rate of voice erosion due to access line declines in the migration of.
Customers to Voip solutions.
Data and transport revenue totaled $90 1 million in the recent quarter and was down two 9% year over year that data and transport revenue that normally grown at a rate of one 5% to 2% we're going to break this down for Q4 results in a little more detail.
While we currently report carrier and commercial on a combined basis in general the revenue split between the channels is two thirds commercial and one third carrier commercial data and transport grew approximately 1.8% year over year. We aim to continue to drive this growth in 2022 with expanded near net opportunities from our fiber.
Can.
Carrier data and transport revenue was down over $3 7 million in the quarter. The drivers for this decline were in the fourth quarter of 2020, we recognized $2 $2 million in revenue from a nonrecurring business development project and we did not have a comparable project in Q4 'twenty one SEC.
Second with respect to our fiber to the tower revenue base, we proactively renegotiated certain near term contracts that resulted resulting in approximately $800 million of revenue decline in the quarter due to contract pricing and some tower churn.
These contract renewals renewals will be even more impactful in 2022 and beyond we estimate the full year impact revenue impact to be in the range of $10 million to $12 million per year, and we believe our carrier team has done a great job of extending terms minimizing price reductions, while preserving long term contract value and the opportunity to.
When additional power business for example in one of the recently completed negotiations has an estimated contract value of over $60 million for the seven year contract and serves approximately 600 of our 3700 plus towers.
Network access revenue totaled $27 8 million down three points.
$3 $5 million year over year special and switched access declines were partially offset by higher Universal Service fund revenue.
And other products and services, we recognized $5 7 million in nonrecurring revenue associated with public private partnership network build.
While there is little margin on these construction activities. These opportunities allow us to cost effectively build networks and partnerships with these entities to deliver enhanced and increased broadband services in rural markets with little to no competition.
Operating expenses were $209 million, an improvement of $15 2 million or six 8% from a year ago. The primary drivers were lower labor cost offset slightly by increased marketing expense.
[laughter] excuse me in the fourth quarter 2020.
We recognized $7 6 million of transaction costs related to searchlight capital partners investment.
With a second closing on a search like investment on December seven 2021, we recognized a noncash gain of $13 1 million related to the decrease in fair value of the contingent payment right to circulate and now all contingent payment obligations have been converted to common equity.
Net interest expense for the fourth quarter was $38 2 million.
A decrease of $10 2 million from a year ago with the repricing of the term loan term loan b and the bond offering in the first half of 2021, we improved our weighted average cost of debt by 150 basis points to five 6%.
Additionally, we had lower noncash interest in the search like note of approximately $2 8 million as the note converted to perpetual preferred stock in conjunction with the second closing.
As you can see from our capital structure on slide 13, we have no debt maturities until 2027, our net debt leverage was 378 times.
At December 31 up slightly from the end of the third quarter, our leverage will increase approximately a full turn in 2022 as well as our build plan continues to accelerate.
We have the roll off of the Caf two.
We expect 2022 to be the high point of leverage in our longer term goal of being below three times remains unchanged.
We ended the year with over $460 million in liquidity, which provides us with ample flexibility to execute on our build plan and return to growth.
In December we did close in the second source like investment for $75 $75 million. They now hold 35% of our common equity and $395 million of perpetual preferred stock plus the accrued pik.
We have approximately 114 totaled 114 million total outstanding common shares.
Cash distributions from the company's wireless partnerships were $9 9 million in fourth quarter compared to $9 5 million a year ago.
These distributions totaled $43 million in 2021 up slightly from $41 $5 million in 2020.
Today, we announced an agreement to sell our Kansas City asset this divestiture aligns with our ongoing market portfolio review as part of our capital allocation plan. The Kansas City market is our most competitive market, where we have a hybrid DOCSIS and fiber network. We did not have any fiber upgrades planned in the market, which had approximately 50 million.
In 2021, the sales price is subject to certain adjustments and at this time, we estimate estimate net proceeds will be approximately $90 million at closing that.
The sale is expected to close in the second half of 2022 and is subject to closing conditions and customary regulatory approvals.
In addition on February one we closed on the sale of the Ohio assets, which generated $26 million in proceeds.
This transaction did not materially impact our passing that it was not in the fiber expansion plan. We will continue to review our portfolio of assets for investment or monetization as we look to exceed our target of 70% one gig plus coverage within our five year build plan.
Now as we look to 2022 outlook and guidance I'll start by <unk> or 'twenty, one resolves to R 22 guidance.
First as previously discussed effective January one 2022 or $48 million in annual Caf II funding transitions to $6 million under the rural development opportunity fund. The net 42 million subsidy client will reduce revenue and EBIT by $10 5 million per quarter.
Second we also had the impact of the asset sales, we just discussed firstly, Ohio transaction, which closed February one full year revenue was $9 million in EBIT margins would be approximately 45% to 50%.
We're also on that.
With respect to the Kansas City asset sale.
Guidance purposes, we're planning that that closes on September 32022, and we're estimating fourth quarter impact would be $3 million to $4 million and adjusted either again the opinion at the time of the close.
So factoring in migration from Caf II as well as the asset sales. We just discussed pro forma EBIT for 2020 to 21 would have been approximately $450 million.
Additionally, as mentioned earlier, the recent and ongoing contract renewals with major wireless backhaul partners will impact 'twenty to 2022 by an estimated loss of $10 million to $12 million in revenue and EBITDA, we expect to be able to partially offset this with new tower business and business development opportunities for IRR, you are dark dark fiber cells.
We also expect to make a strong investment in our sales and marketing engine to drive new customer acquisition growth of approximately $15 million. Finally, we plan to upgrade 400000 locations to one gig plus fiber services and we expect fiber net adds to be net positive for 2022.
With that background, our 2022 guidance as outlined on slide 12 is as follows adjusted EBITDA is expected to be in the range of 404, a $410 million to $425 million capital expenditures are expected to be in the range of $475 million to $495 million cash interest expense is expected to be in there.
A range of $123 million to $127 million.
Cash income taxes are expected to be in the range of $2 million to $4 million and we do not expect to be a federal cash taxpayer until 2026.
In summary, our 2022 EBIT guide reflects our strategic investments and an inflection point as we facilitate a return to total company revenue growth as we work to generate significant margin expansion over the life of the build plan connecting millions of homes gigabit Internet and becoming a fiber first company is a marathon not a sprint and.
We are in the early stages of our journey.
With that I'll now turn the call back over to Bob.
Okay. Thanks, Steve as we look forward to 2022 and beyond we are focused on four key strategic priorities outlined on slide nine we will continue to track our record of disciplined execution and these priorities will enable future growth and create shareholder value. It begins with our <unk>.
Our consumer fiber expansion plan were in the second year of our five year plan and expect to reach nearly 40% of our market by year end as we build fiber to $1 6 million locations or 70% of our footprint by 2025 will launch video fiber in the rest of our fiber markets scale, the customer acquisition engine to accelerate broadband.
<unk>, we're targeting positive fiber net adds in 2022.
Second we will continue to drive commercial and carrier data transport growth.
We are leveraging our unique fiber assets to like more buildings and target. The vast majority of our new sales on network will expand our business opportunities and deliver an improved experience with a simplified suite of products supported by our fiber broadband network connectivity. The third pillar is enhancing the customer experience everything we do.
<unk> is focused on improving the customer experience and retention of customers. This means delivering a simplified experience across all customer channels. We are investing in digital tools, which make it easier to do business with us.
Finally, we will maintain a disciplined capital allocation plan with a clear focus on prioritizing the best return on capital. This includes strategic investments for future growth and a strategic review of assets with steps to divest of non strategic.
Markets, all of which further strengthened our capital structure.
Our path forward is all about executing on fiber expansion plans and growing strategic revenue. Our focus is on driving additional customer growth by offsetting best in class broadband services and a differentiated customer experience, we have a large opportunity in numerous competitive advantages as we become the broadband leader in any market we serve.
We couldnt accomplish any of this without engaged and tenacious employees I want to express my gratitude to our consolidated team for their dedication and resiliency their excitement is evident in our very fast and productive start to the year.
Actually we're pleased to welcome Marissa solar to our board of Directors Senior Vice President of Global brand and consumer marketing for the National Football League. She brings great experience to an already strong and diversified board of directors.
In closing I'm very proud of our many accomplishments in 2021 and incredibly optimistic about the opportunities that lie ahead for consolidated I firmly believe that our strategic priorities, coupled with our extensive fiber assets and our talented team will drive significant growth and long term shareholder value.
Operator, we will now take questions at this time.
Chantelle.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad well pause for just a moment to compile the Q&A roster.
Our first question comes from the line of Gregory Williams with Cowen Your line is open.
Great. Thanks, guys. This is James on for Greg. Thanks for taking the question two if I may.
First on government funding can you just provide an update on the <unk> and the level of mutual participate in the case that maybe it gets to a competitive bidding process, which may require additional capital and then the second question just on the margin trajectory throughout 2022, and if you could help frame that up for us I assume that <unk> 22 would be the bottom there, but any color there would be helpful.
Thanks.
Yeah, I'll take the first on the infrastructure.
The opportunity for government funds.
We're going to assess.
Q is really good for US right now and we're organized around each of the states and how they work with.
Secretary Rimando NTIA office in Allen.
Davidson, who is leading that charge. So we're very familiar with the NTIA rules were very familiar with each of our states and what their plans are and so.
Because of the proximity of our network and.
The <unk>.
Fact that we've got construction activities nearby we think we've got a cost advantage over most everyone and will flex up.
And rearrange our planned priorities as.
Possible in order to maximize our take.
So I think what you're seeing and one of the first MTI grants and us getting our.
Better than fair share of.
The main program as a signal of other things yet to come so we're going to get every every extension of the capital we spend on those.
More rural locations and complement our build plan.
To the best of our ability Steve.
Steve you want to take the second part of that question, yes. Thanks, Bob.
The question I do agree with the conduct that the probably Q1 'twenty to be the low point from an EBITDA margin standpoint, I think the way we did the bridge, it's pretty easy to calculate.
Kind of walk down to EBITDA and the overall margin impact, but I would.
I guess I would remind you that the Caf II, obviously is January <unk>.
Hitting spread the full year impact on our commercial or on the tower piece of this but then like relative to our fiber ramp and the penetration red rates the net.
The net take on that that'll be increasing ramping over the over the course of the year. So I think your comments on.
Q1, being the lowest point of margins, even though they'll be down for the full year relative to the Caf II adjustment.
Got it alright that makes sense thanks, guys.
Your next.
Next question comes from the line of Michael Rollins with Citi. Your line is open.
Thanks, and good morning.
Forgive me if you mentioned a couple of these comments during the prepared session.
Our prepared comments, but first can you just unpack the full year EBITDA contribution of what.
Kansas City assets would be and then what the contribution is to the guidance. We're in that that you're taking out of the guidance reflect the timing of the scale.
And then just more broadly if you were to start with the 2021 EBITDA and I know you gave 70 items in your prepared remarks, but if you could just give us that full bridge to start with 'twenty, one EBITDA and how you get to the 20 <unk> EBITDA at the midpoint would be great.
Hey, Mike I think the.
I think we really provided a pretty comprehensive bridge there to get to the guidance number so I'm, probably not going to provide much detail other than if you want a factor and maybe other things that we didn't necessarily call out, which we think are immaterial to the guide or maybe maybe a slightly higher rate of erosion on voice or access.
Lines, and maybe a little bit.
On the wireless.
Side. This year, we had 40 43 million $41 million last year and cash distributions were in our budget, we're probably somewhere between 39 and 41. So I think again I think with a comprehensive bridge, we just provided.
And those additional comments I mean, I think thats.
Good enough for today and then the.
I guess the contribution on Kansas City, we did give a Q4 number assuming that closed at 930 of being between $3 million to $4 million for the quarter. So you can annualize that.
And what's changed.
Or did anything change as you look at what the expectations are the marketing investments that you are now planning for 2022.
Maybe the pressures on the backhaul side, what were the changes or surprises to you. When you started this budgeting process and came out with the.
What you think the outlook is for 'twenty two.
Yeah, I wouldn't I wouldn't say, they're they're a major surprises I think its learning.
The opportunity for.
Lending are our build plan, we made obvious when we went from $1 one to $1 6 million come.
Coming out of 22, or 20, I'm, sorry, 2020, and so as we as we ramp the build plan in and and ramp the engine for.
For construction I think the pleasant surprises, we can build a pretty good clip.
So that's that's one.
The other is as we were working through the digital platform and getting.
The benefits.
Getting the platform put in place. So we can get the benefit of the lower cost long term.
There was there was more to the automated automated provisioning process and integration with the CPE that probably was.
The minor surprise and.
And we were going through a transition from Wi Fi five geared to Wi Fi six.
And hadn't stocked up on the old gear and got delayed on the new gear.
With the intention of not wanting to have that.
Older inventory and so it didn't integrating that with our digital engine that was probably a bit of a surprise that delayed our brand launch.
A couple of months, but again not not hugely material to our overall plan. So I think it's just a natural.
Evolution of our pivot from having 10 or 11%.
Coverage of fiber already direct all the way direct to the consumer customer to going to 40% where in that pivot point, where we're going to accelerate marketing activity.
More densely into 2022.
And that might have been spread a little more in 'twenty one.
Then then as contrary in 'twenty two as it is now.
So I think it represents our confidence in the plan.
And finally is there an update on how you're thinking about the assets that you hold in California, and whether youre, considering monetization of those markets as well.
Yes, im not going to come.
Comment on specific activity and I would tell you that that is a predominantly fiber asset.
That.
<unk> fits.
Our overall architecture and strategy.
<unk> finished changing out some of the electronics that we're.
Older vintage.
By the end of this year and lighting up more of the fiber core network that we have access to their so.
I would say assets that we would consider rationalizing our.
Alright.
Our.
Probably smaller or not as.
As significant as a geographical hub is.
Roseville in the Sacramento Greater Sacramento areas.
That's helpful. Thanks for taking my questions.
Yes, Thanks, Mike.
Again, if you would like to ask a question Press Star then the number one on your telephone keypad.
Next question comes from the line of Jason Kim with Goldman Sachs. Your line is open.
Great. Thanks, very much on the build plan anything you can share with us in terms of what youre seeing in labor cost.
And then you mentioned that you expect 2020 to be the high point in terms of leverage.
And given that Youre still investing heavily into fiber and capex should still be high in order to push the leverage number lower that would have to come from EBITDA growth.
I know, you're not giving 2023 guidance today, but directionally.
Interpreting your comments correctly that the inflection point in EBIT should occur.
Later, this year and 2023, so that youre growing EBITDA and lowering your leverage profile.
If so what gives you the confidence in the inflection point.
Yes.
To start Steve do you want to why don't you take the last part first and then ill.
Yes, so Jason I think I think youre exactly right and I think we still are.
As Bob said going back or maybe even going back to Mike's question for 'twenty, one 'twenty two.
Last year, we thought we'd be a little bit ahead. Further ahead on the fiber to the home steel and Bob kind of talked about the delay in brand launch we are still 125% or whatever the biggest number you can either confident in our fiber to the prem straw.
Strategy. We're just we're just really getting the sales machine built on that so in our models today and last this last year, we gave 'twenty one guidance, we have a pretty strong.
<unk> forward for growing the trajectory on revenue and also.
Seeing significant margin expansion, so youre absolutely right. We're not in our models do not have EBIT flat line through 'twenty, one 'twenty two through 'twenty five we're showing some.
Pretty significant EBITDA growth margin expansion throughout and we also again from a cash flow perspective, we talked about the acceleration of Capex spent primarily on the supply side chain. We think we know again, we gave a slightly less than $500 catheter Eric guide for 2020.
Two but we're also hoping that will.
That we're ahead of the inventory supply challenges for right now so again, it's incumbent upon us to execute the opportunity that we have the liquidity position that we have to show that to be able to really hit the inflection point on EBIT growth that you mentioned.
US manage the leverage number.
Yes and to add.
Add to that what gives what gives me and our team great confidence is we'll go net broadband unit positive.
In other words, our our fiber adds will outpace our our DSL copper losses.
20% of R. R.
Ads.
On fiber or transitions or.
Converting DSL too.
To fiber, but roughly 80% or net new ads and so we we will outpace that decline and go net broadband positive in the second half of this year and from there follows the the revenue and the EBITDA growth and.
And so we're very excited very confident as we rollout the brand experience and the digital channel and scale the direct sales engine.
Coincident with the opening of new homes passed for sale.
That ramp as is.
It is a really good steep one and our net adds will be well in excess of three times last year's.
Total fiber net adds.
Related to the cost issue.
On.
Labor, we're in a good position so far we're watching carefully.
When we flex up for public private partnerships.
Access to resources in and moving some existing and seeding them with additional hands and so we're managing it very tightly but.
I think there will be some price increases over time, but for right now in this budget year, we feel pretty confident on our position with the resources and long term contracts that we've established.
With the providers.
And contractors that.
We have a long term relationship with.
So so far so good.
That's great just one last question for me you have highlighted that cash position of over $200 million and the Undrawn revolver, let's just another 250 million.
1 million at the end of the fourth.
<unk> fourth quarter, and then Theres more asset sale proceeds coming in so how are you thinking about the liquidity profile based on the Capex spending you have over the next few years.
Yes, I feel good about the plan and the additional cash coming from the asset sales as being more cushion.
So we.
We are fully focused on executing on its plan and feel like we've got the capital structure to do it.
Thanks for your thoughts.
Okay.
Okay.
Your next question comes from.
Ana <unk> with Bank of America. Your line is open.
Hi, Thank you very much.
So just a few follow ups on the prior.
Comments, though.
Yes, if we do a back of envelope on your guidance. So it looks like EBITDA less capex.
Cash interest is about $200 million of youth.
That's cash and then if we do a cash walk for the year, you've got about $110 million to $120 million of the proceeds coming in.
From the asset sales to help on that but the big nut. We don't have is the potential working capital use and I know there can be a lot of moving parts, there, especially with supply.
Supply chain and inventory so what should we expect or prefer cash use there with regard to being able to do a cash walk for the year.
Steve.
Oh Wow.
Typically don't provide that.
Given you that helped the numbers you need for the material items in the cash flow item.
With that number.
What you did the math.
Depending on the timing of the asset sales, we could be in there.
And their revolver.
We'll probably have a significantly lower cash balance.
We're not going to guide or give a working capital number.
Okay and actually so you touched on another one of my question. So.
When you gave that.
Look on the leverage being about a turn higher so I think I will take you into the low fives on a gross basis.
Is that only based on the EBITDA change for the year or is there any kind of assumption that you may be drawn on the revolver.
It includes all that includes EBITDA guide as well as with what we think will be.
If we are in the revolver based on the timing of the asset sales. Okay. So some potential okay, and then and again.
Also just kind of following up on the last question.
If we look into 2023.
Hopefully an inflection EBITDA, but youre still going to basically have the same pace of capex because because of your build plan.
You feel that youre fully funded with with the revolver capacity.
Your existing cash resources.
I think that's a great question and that's the thing that we're internally, Bob and I and the management team and what search slide are really focused on the long term balance sheet to execute on the plan. So so number one.
I think it all comes back to the earlier question about what's the inflection point on EBITDA in the performance of the business.
Yes.
If we hit our internal plans for the.
The EBITDA growth the ramp of the fiber to the sales plan.
We.
Will and carrier teams continue to perform.
That they have with maybe with maybe some slight growth uptick I think.
Yes.
I think I think it will be tight but again I think we have an extremely supportive board we haven't extremely.
Supportive investment partner. So we are totally confident that we have the ability to execute on our plan.
Okay, and then I can sneak one more in just thanks for the bridge on the EBITDA for the year.
But I was wondering with the assets Youre divesting is there any element of like stranded costs or dis synergies that you'll be kind of holding initially but might be able to work down over time.
There is certainly is but we're also kind of.
Kansas City, particularly there is also a little bit of a TSA support after the after the transaction and also.
Part of that as we're in growth mode. If we're successful in divesting that.
Again, it's hard to give you a number and we probably we probably wouldn't give you a number on what that stranded costs could be but I think to your point, though there are cost today.
I don't call them stranded necessarily because they're supporting their like corporate functions that are supporting more than one organization or one state operation, but they either could be over time manage down or reinvested back on the growth side of the business versus supporting Kansas city, or Ohio, or whatever whatever assets get divested.
Time.
Okay, well that's helpful. Thank you so much.
Again, if you would like to ask a question Press Star then number one on your telephone keypad.
Okay.
There are no further questions at this time I'd like to turn the call back over to Mr. Bob <unk>.
Thank you chantelle. Thank.
Thank you all for joining the call today, we're very excited about our growth plan very excited about 2022 and and we appreciate you tuning in tuning in and look forward to updating you on our next call have a great day.
This concludes today's conference call you may now disconnect.
Okay.
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