Matt Smith - Treasurer & VP, Finance and IR Bob Udell - President, CEO & Director Steve Childers - CFO.

Barry Sine - Drexel Hamilton.

Welcome to today's Second Quarter 2015 Results Conference Call. [Operator Instructions]. I would like to introduce your host for today's conference, Mr. Matt Smith. Sir, you may begin..

Thank you, Nikita and good morning, everyone. We appreciate you joining us today for our second quarter earnings call. At the end of the prepared remarks, we will open the call up for questions. Joining me on the call today are Bob Udell, President and Chief Executive Officer; and Steve Childers, Chief Financial Officer.

Please review the Safe Harbor provisions in our press release and in our SEC filings for information about forward-looking statements and related risk factors. This call may contain forward-looking statements within the meaning of the federal securities laws.

Such forward-looking statements reflect among other things management's current expectations, plans and strategies and anticipated financial results, all of which are subject to known and unknown risks, uncertainties and factors that may cause the actual results to differ materially from those expressed or implied by these forward-looking statements.

In addition, today's discussion will include certain non-GAAP financial measures. Our earnings release for this quarter's results which has been posted to the investor relations section of our website, contains reconciliations of these measures to their nearest GAAP equivalent.

I will now turn the call over to Bob to provide an overview of our second quarter results. Steve Childers will then provide a more detailed review of the financials and discuss our 2015 guidance.

Bob?.

Thanks, Matt. And good morning, everyone. I appreciate you joining us today for our second quarter earnings call. I am pleased with our results as we continued to build upon the integration of Enventis and achieve some impressive wins in commercial and carrier sales.

Overall, revenue was $201 million and represented an increase both sequentially and year-over-year. Adjusted EBITDA was $80.3 million and the dividend payout ratio was 76.7%. Our strategic areas of commercial and carrier and consumer broadband all showed solid growth in the quarter.

In all, our business and broadband revenues represented 80% of our total top line. And more specifically, commercial and carrier revenues were $74.1 million and reflected a 2.6% increase year-over-year. Our continued fiber-based growth investments provide opportunities across our customer groups.

During the quarter, we expanded our fiber network by adding 224 route miles of fiber and 36 new on-net buildings. We had another strong quarter of wireless backhaul sales, with 45 new towers signed, bringing the total under contract to 1,124.

On the consumer side, we continue to increase broadband speed offerings, where 50% of our marketable homes can now receive 100 megabytes or more and we can deliver 1 gig to portions of all of our major markets. Consumers taking 20 megabytes or more have increased from 9% last year in the second quarter to 22% this year.

Overall, we added more than 2300 net data subscribers in the quarter. These statistics reflect our strong competitive position. Approximately two-thirds of our capital investments are success-based growth projects and sales initiatives in the first half of this year have produced some of the highest demand we have experienced.

These include wins for wireless backhaul projects and in the vertical markets specific to healthcare and education. We were recently awarded large ethernet-over-fiber deals to a multi-facility healthcare system in Illinois and a large school district in California.

We were also pleased to win a major contract to serve a retirement community in the Kansas City area with voice, video and data. These successes reflect our continued focus on making disciplined investments with good returns and all of our fiber-based investments position us well for the future. Now, let me touch on Connect America Fund.

The due date for our decision and notification to the FCC is August 27. We're working through a couple of final data points to complete our market-by-market review of the funding versus field costs as well as getting clarification from the FCC. And we will provide our decision to the FCC by the due date.

We view the transition as similar to what we've experienced in the past and very manageable. Finally, let me discuss the Enventis integration. We're nine months into the integration efforts and I could not be more pleased with how well it has gone.

The Enventis markets are very strong and have provided many opportunities beyond what we initially projected. We're a full quarter ahead of our initial synergy plans and have identified additional efficiencies that will allow us to exceed our original two-year, $14 million target by approximately $3 million or over 20%.

A portion of this achievement will occur in the third and fourth quarters of this year -- and include, of course, some nonrecurring costs tied to those expense reductions. Looking forward, I am confident we have the right strategy, the right people and the right products and services to deliver long-term, sustainable value to our shareholders.

With that, I will turn the call over to Steve for the financial review.

Steve?.

Thanks, Bob and good morning to everyone. This morning, in addition to discussing our second quarter performance and updating 2015 guidance, I wanted to start with an overview of the bond refinancing we completed during the quarter.

The successful redemption of the remaining principal amount of our 10 7/8% senior unsecured notes due 2020 was a major highlight for the quarter. As a reminder, in the fourth quarter of last year we repurchased $72.8 million of these notes, leaving a principal balance of $227.2 million outstanding.

On June 8, we closed on a $300 million add-on to our 6.5% unsecured notes due 2022 and used the proceeds to pay off outstanding amount of the 10 7/8% notes, fund the make-whole costs to redeem the note and pay down a portion of our revolver.

While we slightly increased our leverage to pay for the make-whole costs, all-in we will save over $6 million in annualized cash interest costs going forward. And we extended maturity by two years. We're very pleased with the outcome of this transaction and I am extremely happy to not have to talk about the high-coupon notes any longer.

Now let's review second quarter financials and compare them to pro forma results for the same quarter last year. Operating revenues were $201 million compared to $200.8 million last year. Equipment sales and service increased by $1.9 million and other revenues declined by $1.6 million.

Growth in strategic revenues which represent our commercial carrier and consumer broadband customer channels, were offset by declines in voice services and network access. As we have said before, equipment sales are lumpy and will be typically higher in the second and third quarters of the year.

Total operating expenses, exclusive of depreciation and amortization, were $129.7 million compared to $125.8 million for the same quarter last year. The increase was primarily driven by higher equipment costs due to the increased sales, higher video programming expenses and additional sales resources.

These increases were partially offset by the synergy expense savings tied to our integration with Enventis. Net interest expense was $20.4 million, down $1.5 million from the second quarter last year.

The improvement was attributable to the previously-mentioned repurchase and redemption of our 10 7/8% senior notes which we replaced at a lower interest rate. Other income net was flat at $9 million. Cash distributions from our Verizon Wireless partnerships in the quarter were $7.1 million compared to $8.7 million for the second quarter of 2014.

The reduction was primarily the result of increased penetration of wireless customers utilizing the Edge financing program for handsets and tablets. With that said, we do expect our distributions to increase in the second half of the year, as the cash inflows from the Edge program begin to catch up.

Weighing all these factors and adjusting for certain items, as outlined in the table on our press release, including the $41.2 million loss from the debt extinguishment, adjusted net income was $11.9 million and adjusted net income per share was $0.24, an increase compared to $10.4 million and $0.21 per share for the same period last year.

Adjusted EBITDA was $80.3 million in the quarter compared to $84.2 million for the second quarter last year. Capital expenditures for the quarter were $33 million, including $1.6 million in integration CapEx. From a liquidity standpoint, we ended the quarter with approximately $6.9 million in cash and $51 million available under our revolver.

For the quarter, our total net leverage ratio as calculated in our earnings release was 4.4 times. Cash available to pay dividends was $25.5 million, resulting in a dividend payout ratio of 76.7%. Now let me provide an update to our 2015 guidance.

Based on the strong demand in fiber-based growth opportunities that Bob discussed, we're increasing our capital expenditure guidance to a range of $128 million to $132 million from previous guidance of $122 million up to $129 million.

There is no change to the $5.2 million of integration CapEx from the Enventis acquisition that has been included in our guidance. Guidance for both cash interest and cash taxes are improving, primarily due to the bond refinancing.

Cash interest costs are now expected to be in the range of $76.5 million to $77.5 million, down from $78 million to $81 million. And cash income taxes are now expected to be in the range of $2 million to $3 million, down from previous guidance of $4 million to $8 million.

All in, comparing the midpoint of the ranges, these changes improve our cash flow guidance for the year by $1.5 million. With respect to our dividend, our Board of Directors has declared the next quarterly dividend of approximately $0.39 per common share, payable on November 2, 2015, to shareholders of record on October 15, 2015.

This will represent our 41st consecutive quarterly dividend. With that, I will now turn the call back over to Bob for closing remarks..

So in summary, we're executing on our key priorities. Throughout the first half of the year, we returned nearly $40 million to our shareholders through the dividend and invested capital of $65 million into the business for long-term sustainable growth.

The business is well-positioned to continue its diversification and value creation for our customers, shareholders and employees. With that, I would like to open it up for questions.

Operator?.

[Operator Instructions]. Your first question comes from the line of Barry Sine with Drexel Hamilton..

A couple questions, if you don't mind. You mentioned leverage ended the quarter at 4.4 times. Could you just update us on what your comfort level is? I know the Enventis transaction is still relatively recent. Are you looking to get that down? And then I am just wondering what that implies in terms of your appetite for the next acquisition..

Yes, so with respect to leverage, given the bond refinancing and funding the make-whole provision of taking out the 10 7/8% bond, our leverage did slightly increase from 4.2 to 4.4. We remain comfortable at that level. We obviously would like to be on a glide path. I think the target is still to get under 4 times over time.

But I guess I would remind you that with the bond refinancing, we did improve our cash interest savings by $6 million a year. We're continuing to look at our tax structure -- I mean, looking at our operating expense structure; and with our flexible CapEx member, we think we have all kinds of opportunities to look at leverage if we need to.

Again, I think as we look at acquisitions in the future -- Bob might want to jump on this one as well -- we will continue to look at kind of the mix consideration. Hopefully our stock remains strong. We can use that as currency to help us soften the leverage and payout equations as we look at future acquisitions..

Okay, next question, you mentioned some of where your CapEx has gone in the quarter. I think, if I wrote the numbers down correctly, 224 additional route miles of fiber and 36 more buildings connected.

Is that in any particular market or markets? Or is that spread broadly across all your markets?.

It is, candidly very spread broadly across our markets -- a little bit more tilted to some opportunities that we've seen in Sacramento in California and in Minnesota. But I'd have to say the benefit of our capital strategy is we've got a robust infrastructure.

And it allows us to extend our networks in communities where we have a good core foundation and capture new buildings and capture new success-based opportunities. And we've had a good increase in second quarter -- and look at some going into the end of the year -- that we can certainly leverage and allows us to provide good returns long-term.

Remember, I will remind you -- our disciplined capital investment structure -- as we look for a minimum of 25% IRR and a 36-month payback. And so the average is typically better on those investments..

My last question is around the size of the enterprise sales force. I don't know if you care to share what the size of the sales force is today.

On a pro forma basis, how has that changed over the last year or so? And are you still actively hiring to add more folks or are you pretty comfortable with the headcount size of the sales force?.

As you look at our sales force a year ago, we were roughly in the 80 range on the commercial and carrier side in total and we're in the 120 range now. So we've had a substantial step-up in adding some teams to where we see the best return on opportunity. And those things take time to return.

But we're very comfortable and excited with productivity of those teams. We're building this for long-term, sustainable returns. And the capital investment in the second quarter aligns with that. So hopefully -- I think that addresses your question..

At this time I'm showing no further questions. I would like to turn the call back over to Bob Udell for closing remarks..

Thank you again for joining us today and for your continued interest and support of Consolidated Communications. We're excited about the prospects for future and look forward to having you join us again next quarter. Thank you and have a great day..

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Have a good day..