Good day, ladies and gentlemen, and welcome to the Consolidated Communications Holdings First Quarter 2019 Results Conference Call. At this time all participants are on a listen-only mode. Later, we’ll conduct a question and answer session and instructions will be given at that time. [Operator Instructions].

As a reminder, this conference is being recorded. I would now like to introduce your host for today's call, Ms. Lisa Hood. Ma’am you may begin..

Thank you, and good morning, everyone. We appreciate you joining us today for Consolidated Communications' first quarter earnings call. On the call with me today are Bob Udell, President and Chief Executive Officer; and Steve Childers, Chief Financial Officer. After our prepared remarks, we will open the call for questions.

Please review the safe harbor provisions in our press release and in our SEC filings. Today's discussion includes statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties.

A discussion of factors that may affect future results is contained in Consolidated's filings with the SEC, which are available on our website. Today's discussion will include certain non-GAAP financial measures. Our earnings release has been posted on the Investor Relations section of our website at consolidated.com.

It includes reconciliations of these measures to their nearest GAAP equivalent. With that, I will turn the call over to Bob Udell..

Good morning, and thank you for joining Consolidated Communications' first quarter earnings call. Before we review operating and financial results of the quarter, I would like to discuss our new capital allocation plan. This is a significant change for our company and an important step in building our future.

And after careful consideration our Board of Directors has elected to eliminate our long-standing practice of paying a dividend to shareholders in order to focus on deleveraging.

Our industry continues to transition and we believe this change in capital allocation will create long-term value for our shareholders by reducing debt, creating additional financial flexibility and improving our future cost of capital. To be clear, this isn’t a change driven by diminish view of our business.

It is driven by our view that the long-term interest of shareholders is best served proactively improving our balance sheet through accelerated delevering. Now let me provide specific details on our capital allocation plan and leverage targets.

While our leverage ratio was 4.38 at the end of first quarter, our near-term leverage target is to be below four times in advanced of our plan refinancing build later in mid 2021, and the longer-term target is 3.5 or less. As we achieve our leverage targets, we will accelerate investment in our network.

We have identified a number of attractive opportunities to deploy capital to expand and intensity our fiber network in support of growing strategic fiber and data revenues. In summary, with the new capital location plan, the primary focus will be on strengthening the balance sheet.

This when combined with the disciplined investment in high return fiber projects supplemented by opportunistic sales of non-core assets will drive value. Now let’s turn to a discussion of first quarter results.

First, within our commercial and carrier channels we are opt to a strong start in 2019 and I’m happy to report we continue to show growth in our data and transport revenues growing more than 2% year-over-year.

Our consultative sales approach with leading data and cloud solutions continues to provide value to existing and new customers resulting in a 7% increase in the Ethernet revenues. Again this pass quarter we have expanded our commercial product portfolio launching next-generation Cloud Secure and enhancing our DDoS Mitigation Solution.

These advanced solutions provide customers greater bandwidth throughput and new tools to address the most sophisticated security threats with innovative technology. Additionally, we launched our virtual intelligent agent and interactive voice response application providing industry-leading call center tools.

Let me share a few commercial sales that highlight our consultative sales approach. Our California sales team has recently provided this on 12 RFPs. Of those 12 we won 10 with total contract value of $3.07 million. This is significant as it demonstrates our ability to win substantially more than our fair share when you can competition we bid against.

This high success rate is attributed to the fact that all 10 sales were for fiber connectivity using our on-net facilities giving us an advantage over any competition. In our Illinois market we secured a contract for data services which included MPLS, ProConnect, DDoS and SD-WAN from all these location bank.

I’ll highlight the sales as it begin with the simple conversation about their business, which turned into a consultative sales opportunity underscoring our strategy of utilizing our full portfolio of services and adding value to our customers businesses.

And I’m pleased to highlight continued momentum within the commercial sales channel in Northern New England during this past quarter.

Our [Indiscernible] vertical which target large municipal and educational entity secured just under 64,000 of monthly recurring revenue from new and renewal contracts representing over $2.7 million in total contract value.

As we continue to demonstrate steady growth in data and transport revenues, I’m also today announcing the expansion of our network in Des Moines Iowa. This expansion provides another 1200 businesses with access to our expensive national fiber network along with our portfolio of enhanced services.

We are preselling into the market and enjoying early success. This is a multiyear commercial built as we increase our investment in vibrant growing communities. Are carrier channel had a strong start to 2019 as well.

We’ve seen continued demand for wholesale, local and regional Ethernet and dedicated Internet access services as a result of our larger scale. We continue to leverage our 37,000 mile fiber network for other carriers who need connectivity to end-users in our markets.

This contributed over one-third of the new monthly recurring carrier revenue for first quarter. Total tower connections under contract increased by 157 or 5% as compared to the first quarter of 2018, reaching a new record high of 3,744 tower connections.

We’re encouraged as we continue to see steady sales in our carrier funnel as we head into the second quarter. In regards to consumer, we are executing our strategy of leading with broadband service and increasing speeds. We’re bundling video where it is most profitable and can be used to increase broadband speed and data ARPU.

Extending this playbook in our Northern New England market drives our top two priorities of one, improving service delivery times and two, driving revenue growth with faster broadband speeds. We made significant progress in Maine, Hampshire and Vermont where service levels are now in line with the other markets.

We begin in February and by mid-March had fully resumed all customer acquisition and retention activities. Inbound contacts in our call centers are increasing and our installation volume is also increasing, and our back office is ready for this load.

We are seeing increased adoption of faster broadband speeds and growth as for network upgrades and marketing plans in all regions take effect. In Maine our investment along with CAF-II funds have extended more than 500 fiber miles to enable broadband speeds up to a 100 meg [ph] to more than 21,000 residences in rural Maine.

Additionally, we’ve launched 1 gig Internet speed in upstate New York in conjunction with grants from the state. We’ve recently announced community partnerships to upgrade broadband infrastructure with a mix of public and private funds in Brooklyn Maine and Chesterfield New Hampshire adding 3000 network speed upgrade opportunities.

As predicted during our prior earnings call we showed positive growth in total data and Internet connections for the quarter as we continue to win in our legacy markets and began as a full manager for extensive fiber network in Northern New England.

Now with our Clearfield that execute on our strategy in all markets we expect to see continued progress on these priorities. Now, I’ll turn the call over to Steve for the financial review.

Steve?.

Thank, Bob. Good morning to everyone. Today, I will review your first quarter financial results as compared with the same quarter of last year and provide updated guidance for full-year 2019.

Operating revenues for the first quarter were $338.6 million after normalizing for the 2018 sale of the Virginia properties and the one-time local switching support settlement we received in the first quarter of 2018, revenue decline 3.4% year-over-year. Now, I’ll discuss each of the customer channels.

In the quarter total commercial carrier revenue grew $1.3 million. We continue to realize strong momentum in data and transport revenues which increased $2.1 million or 2.4%. Data and transport revenue growth has been trending above 2% for the past four quarters.

This is driven by commercial team success and linking our traditional data products with advanced services such as SD-WAN and cloud combined with diverse wireless sales within our carrier channel. Other commercial revenue increased $3.3 million primarily due to equipment sale.

Consumer revenue was down $8.3 million or 6% for the quarter, voice revenues accounted for $6.2 million of decline.

As expected video revenues declined $2.1 million and this trend is consistent with our strategy to encourage our customers to transition from linear video products to over-the-top streaming content with higher broadband speed and higher data ARPUs.

For the quarter overall consumer broadband revenue was flat, but after normalizing for the divestiture, the Virginia property total broadband revenue grew [Indiscernible] or $384,000. This was driven by strong increases in legacy broadband partially offset by decreases related to Hurricane Michael in Florida.

Subsidy revenues were down $7.1 million during the quarter of which $4 million was attributed to the LSS settlement that received in the first quarter of 2018 with the remainder due to the impact for the final CAF-II step down in transitional support. Network access revenues declined $3.1 million or 7.9% for the quarter.

Operating expenses, exclusive of depreciation and amortization were $222.7 million compared to $238.9 million for the first quarter of last year, a $16.2 million or 6.8% improvement.

Cost of services and products decreased $7 million driven by network cost optimization as well as lower salaries and benefits associated with headcount reductions from our cost savings initiatives.

Pension costs also decrease as a result of the freezing of certain benefit plans in connection with the new collective bargaining agreements ratified in 2018. These savings were offset by $2.4 million increase in costs associated with higher equipment sales.

SG&A cost improved $11.6 million during the quarter as we continue to realize headcount synergy and operational efficiencies. To-date, we have realized $72 billion of our targeted synergy achievement, we said, $75 million which will be achieved by the end of the second quarter.

Net interest expense for the quarter was $34.3 million compared to $32.7 million for the same period last year. The change was primarily due to LIBOR increases. As of March 31st our weighted cost of debt was approximately 5.6%.

Cash distribution from the company's wireless partnerships were $7.3 million in the first quarter compared to $9.5 million a year ago. The prior year distribution including the true-up of $2.4 million associated with the partnership’s accounting for prepaid data roaming.

Adjusted EBITDA was $130.3 million compared to $135.4 million in the first quarter last year. The year-over-year decline is primarily due to one-time benefit from the $4 million in LSS settlement and the $2.2 million reduced distribution from wireless partnerships as previously discussed.

In the first quarter, CapEx totaled $53.4 million with the capital intensity rate of approximately 16%. Total liquidity including cash on hand and availability under our revolver was approximately $85 million. For the first quarter, our total net leverage ratio was 4.38 times.

As we implement our new capital allocation plan we will improve our capital structure as we accelerate deleveraging total goal, total net leverage of less than four times no later than mid 2021. Due to the change in dividend practice we are modifying guidance for cash interest.

Cash interest costs are now expected to be in the range of $130 million to $135 million down to previous guidance of $135 to $140 million. The reduction is primarily associated with our plans to use substantially all the 2019 dividend savings to pay down debt.

Capital expenditures are still expected to be in the range of $210 million to $220 million and we still expect cash income taxes to be less than $3 million. With that, I’ll now turn the call back over to Bob for closing remarks..

Thanks Steve. In closing, well, this change in capital allocation was not taken lightly. It is the right step for Consolidated Communications. I’m confident in our business has demonstrated by strong first quarter results. We've made significant progress with our most recent integration and are optimistic about our long-term future.

With that, thanks for taking time to join our call today. And we’ll now take questions.

Operator?.

Thank you. [Operator Instructions] Our first question comes from Davis Hebert from Wells Fargo Securities. Your line is open..

Hi, everyone. Thanks for taking my questions. I know the dividend elimination was difficult decision. So I just want to ask about what the decision making was that went into that.

What -- if anything changed between February and where you sit today?.

Yes, Davis, thanks for the question. We are – nothing has really changed. What we’re informed by is, over five or six quarters of continued pressure across the sector.

And if you think about it, it was very careful consideration looking at the financing markets, the sector and we believe the prudent course of action is to focus on achieving our near-term leverage targets weighing advance of any financing opportunity that may occur.

And so by using substantial [ph] or keep free cash flow that comes from dividend reallocation towards debt reduction, we feel like it puts us in that position as well as allowing us to continue investing in the business at a level of 16% of revenue against our CapEx.

So, as we achieve our leverage targets we made even put more into those projects that were very well-prepared and our team is very energize to pursue..

Okay. That’s helpful. Thank you. And then on the leverage reduction you mentioned below four times by mid-2021. Do you anticipate that leverage reduction to be fairly linear? Or will there be a faster pace of leverage reduction next year versus this year.

I wonder if you could kind of frame that for us?.

Yes. I’ll start and then Steve can finish it. What we’re doing is finishing up the integration of the FairPoint assets. And so that has a little a tail of continued investment through the first and second quarter. But beyond that I think you can do the math pretty straightforward for 2019 and our efforts to get the leverage down.

Steve, do you want?.

Yes. So, Davis, this is Steve. I would say, it’s expected to be fairly linear. I mean, number one, we just comment upon us to execute against the business plan. And then part of it with 2019 all the dividend savings as Bob said, will be going for debt reduction.

We expect a lot of majority of that to go against debt reduction in 2020, but we will continue to evaluate high return project. Again, I think, the target of getting below four times as you know our bonds are due in October of 22. We want take care of any kind of bond refinancing well before those will to go current mid 2021.

So we will be for somewhere between at the end of 2020 and 2021..

Thank you. And then last question, as you think about applying debt free cash flow to reducing debt directly, would you anticipate repaying your credit facility.

Would that be the first priority or would you consider repurchasing bonds at a discount today?.

I think the answer is we would attack the highest cost of capital. And so we would be open to open-market repurchases on the bonds as well as evaluating the term down..

Okay. Thank you, guys..

Our next question comes from Jon Charbonneau from Cowen & Company. Your line is open..

Great. Thanks for taking the questions. You noted that you plan accelerating your fiber investment strategy and you achieve your leverage target.

To what degree are you seeing fiber opportunities today that you're not able to invest in given your balance sheet? And then I guess along the same lines how much has demand changed for you guys over the past six to 12 months? Thank you..

When you reference demand you’re talking about customer, commercial, carrier demand?.

Yes..

Okay. Let me start with, we remain really excited about the business. The question about what’s change since past quarter? Nothing, with regards to this team’s motivation and hunger to continue to serve those three customer groups.

With regards to fiber projects we have an excellent diversity of three or five regions which we service to the three customer groups with common asset. And we have substantial number of projects that we have access to. And so, it’s really not a matter of our returning projects down at this state.

We’re just pursuing the highest return projects and there is sufficient projects for us to invest more capital, but at the stage we’re at right now we feel the capital allocation is right and we’re able to address the top priority projects on a buy market basis.

And we do have some expansion opportunities as we get deeper in the existing markets that we can pivot to and a lot of that work has already been done. But I wouldn’t say their projects that we feel we can address.

They are just not projects that make sense right now with the stage we’re at in our integration and focus on getting deeper in existing market.

So, it’s kind of a sweet spot we think where we are right now, but we also feel like as we get deeper penetrations we can expand our fiber footprint and get the excellent returns we’ve seen and as we’ve done that for example in the Des Moines announcement that I made today..

Great. Thank you..

Our next question comes from Mike McCormack from Guggenheim Partners. Your line is open. Q - Mike McCormack Hey, guys. Thanks.

Just looking at the math and it looks like at least to my model, if I eliminate the dividend you can get to four times roughly little below that, but just on the dividend cut, the loan and additional cash, is there any operational change that you’re seeing that could drive better EBITDA over the next couple of years? And then also I guess associated with that, the discussion with – we had discussed with banks that gives you confidence the 40 [ph] is the sort of right lever or just below 40? And then I guess lastly on cable competition, what you guys seeing out there for consumer broadband.

It seems like the cable companies really wrapped up gigabit [ph] offering cross much wider footprint, any change that can better landscape? Thanks..

Yes. I’ll take the business question and the cable competition question, but Steve, why don’t you comment on the rate of deleveraging..

Yes. So, Mike, I think the math that you’re calculating on particular like you’re just using what we have for LTM EBITDA in the earnings release. I think the math you see it works out.

I think we’re being conservative on the number assuming that we’re flat to again maybe down a little bit, but we’d again to your question, we are still looking for opportunities to improve the overall cash flow from the business -- from an operating perspective.

Your question on the talking to banks about refinancing and whether 40 is the right number. I think the bar for leverage continues to sort of be reset over time. So we think, the feedback that we’ve had talking to our advisors basically with the 40 is definitely the target. I think less is better as we get ready for refinancing.

And again, I think we looked at where we’re at relative to how we define our peer group and we still like getting a four times as is a good first step relative to refinancing we will definitely be shooting for lower leverage, hopefully by the time we get there..

As far as the outlook on the business we’re not going to guide on EBITDA at this stage, but what I can say is the achievement of the synergies and the continued efficiency gains that we’re realizing not only produce cost savings but our ability to hit install targets on a consistent basis across all markets.

So for example, Northern New England we’re within 10 days now on our new installs which is very competitive position and more important we’re hitting our appointment targets or expectation as we set with customers 89% of the time now. And we want to be at 95. So we’re not satisfied yet.

But we're definitely above far our competitors in terms of service delivery and managing customer expectations and that's something we've been known for in the past.

So, I think I address the outlook on – yes, on – do I miss your consumer question? Q - Mike McCormack Just – again, just sort of give me a sense for what the appetite is for consumers with these new higher cable offering speeds and whether or not that’s having a more of a detrimental impact from a competitive standpoint?.

Yes. All bandwidth isn't created equal and so we've had no trouble creating demand in our markets. It seems that when you get to 100 meg and even 50 meg in many markets, our customers are very satisfied.

That doesn't mean a gig doesn't give us marketing advantage and we enjoy that, but I will tell you that meeting service commitments is been a paramount in keeping our reputation positive and being competitive.

Secondly, is consistency of bandwidth availability, we don't suffer the busy hour challenge that that our cable competitors sometimes do even when they offer gig and making the Wi-Fi work inside a structure is something that we're very good at and that continues to position us well.

And we've shown that we can create demand and now that we've got the throughput capabilities here later we're building that demand again and the pipeline's filling and the return to positive net ads is demonstrative of that. Q - Mike McCormack Great. Thanks guys..

Our next question comes from Frank Louthan from Raymond James. Your line is open..

Hi, Frank..

Great, great. Thank you. Is the Des Moines Network in the current CapEx that's why I've got a couple questions that there's one. And then secondly, Steve you mentioned being able to sell some non-core assets to further delivering.

Can you quantify that? And what are those types of assets? How easy are they to sell?.

Yes. So Frank on – we’ll take that non-core assets first. So, no, we can't throw – we can't throw a number out on what the total opportunity is. But we have demonstrated in the past that we've sold our equipment business back in 2016. We've sold our Iowa ILEC. We sold our Virginia operations.

Those were all kind of non-core remote businesses that we probably weren't going to invest in overtime. We have several properties, the smaller legacy FairPoint markets. We get offers on different part, different pieces of that business all the time, and we would entertain offers of reasonable value on this.

Seems like a lot of people try to bargain shop some on those smaller properties, but we're not interesting and selling anything at a distressed kind of value or anything like that. So it's got to be worth our time from an integration standpoint.

But I think you could talk probably two or three opportunities that would be like we sold [Indiscernible] Virginia for 20 million bucks a piece, there's probably a couple of those that are out there and then again there are sometimes get offers for other pieces of our business select routes of our network or whatever that again for the right value we would probably entertain them..

Well, I mean how much higher than your current value do you consider to not be depressed? I mean, what would you take?.

I think it’s going to be really close to our trading multiple or above. We're getting offers that are -- and some of these were maybe half of what we're trading at or whatever. So, I mean it's situational. That’s really hard to kind of answer on how non-core is it or is the opportunity to invest.

I mean, we're -- I think the point I'm trying to make is some of these whether they're small, whether they're at our current trading value or above you're doing a certain amount of bringing that we should be integrating, right. So, we're just trying to make it worthwhile for the business going forward..

Got it.

And on the Des Moines Network?.

Yes. That’s within our current budget.

We have historically allocated beyond just the normal sales success based CapEx, a high portion of our capital investment which has kept us above some of our peers and what we spend and it gives us some room to allocate to projects like Des Moines, the north of Houston Metro market like Connor [ph] Willis extension we’ve talked about in the past, the Northern Kansas City extension.

And so, it's my effort to share the extension and you can see it in our buildings, with buildings count and our fiber miles that we add per quarter in the metrics that we’re continuing to expand our footprint not only getting more dense in the markets in which we already operate, but given new our sales team new fields to pile..

Okay. Got it. And then what is your expectation for the CAF-II reauction that might be next year, but maybe 2021.

Would you try and bid to keep that what you're getting? And maybe remind us what’s you're getting on an annual basis from CAF-II and then you got you’re sure your appetite for continuing to bid and be involved in those properties?.

Well, Steve, let’s look for the current CAF-II run rate. Let me comment on the CAF-III and we're active as you know in those discussions and we're looking with our network extension efforts on where we can have new coverage areas both with our fixed wireless extensions as well as fiber extensions.

And it's always a macro look at where does it give us access to new carrier opportunities. Where does it allow us to enhance current broadband speeds? And so yes, we're going to look at however CAF-III gets defined how we leverage that to our benefit.

And we also expect there’ll be some extension from a CAF-II perspective because I don't see the FCC ready to enter into the rule definition for CAF-III yet.

And in terms of current run rate, Steve?.

Yes. I’m sorry, I’m still looking for that. It looks like we're probably for like first quarter total subsidies were about $18 million, right, probably two or three million of that in state funding. So maybe to back up though just to remind people that for when we elect to take CAF-III funding, we took a legacy Consolidated.

We took all of the FairPoint’s elected they took all their properties except for Kansas and….

Virginia I think..

Maybe two of them..

All right. Great. And then, just one other question related to the dividend change. I'm not sure if anyone on the board is now there to comment. But just curious on the logic of taking the dividend roughly down to zero.

I can understand the logic for eliminating it over time, but putting income and funds and so forth and position to be force to sell when a more a slower ramp down could have been put in place.

What was sort of the logic there as that alienates a lot of investors and makes it hard for them to look at the name?.

Yes.

I appreciate the question, but I can tell you the member of the board we consider all alternatives and it's very thoughtful for while maintaining a partial dividend or even considering a step down may seem appealing the long-term positioning of the company was and is the priority and instead of taking half majors we came at the conclusion at best use of cash in the highest return to both the company and shareholders was to get the balance sheet in the current environment better position for refinancing and to continue our investment in strengthening our footprint and in the markets that we serve.

So it's really that simple..

Okay. And just one last question on that, Steve you mentioned you use substantially all the dividend to delever. What does that mean? Is that like 50%, 60% or 99% or are we going to CapEx projects get chased and not see all the delivering.

What can investors count on about using this cash going towards delivering?.

Yes. Let me start. Going back to what I just said, the balance sheet is the first priority and making the dividend change protects our ability to continue invest in the business and continue to pursue the transition.

And if you step back and look, it's an industry that's really in transition right now and the capital structure with the dividend didn't feel to the board like the best use of capital.

And so we're going to focus first on the debt reduction and as we hit our leverage targets potentially then in this time is then statement increase our CapEx allocation..

All right. Great. Thank you very much..

Our next question comes from Marc Berkowitz from Aviva Investors. Your line is open..

Hi, guys.

How are you?.

Hi, Marc..

Hey, Bob, I heard you mentioned 16% of revenues is kind of a targeted CapEx amount. I'm just curious if you could kind of explain that there that seems a little elevated relative to what you historically done prior to the acquisition.

And can you kind of bucket the use of CapEx dollars between fiber maintenance, plant expansion, et cetera?.

Yes. I'll do my best on the last point. It will be more general turns. But on the first point it's really not elevated. I mean we've been in the 15%, 16% range for some time and it's been as high as almost 18% during the integration activities.

And so in this environment we're continuing to refine our network architecture, increase speeds across our footprint and certainly tap some of the increased build-out opportunity. It feels like the right range for right now, but it's really a function of balancing the capital structure.

If I thought that CapEx and in revenue elasticity was serviced appropriately by 14% or 15% next year then that's where our CapEx target will be. We're going to start with making sure our balance sheet is in the right position for refinancing and then really balance that with appropriate investment to keep the broadband revenues turning.

In terms of maintenance investment in – and it's really in terms of like the old copper plant things like that. We don't spend much more than a couple million bucks. Anyplace where there is copper maintenance necessary, we're replacing it with fiber.

So, when you look at our distribution of capital it's really 60%, at worst case maybe 50% driven by actual sales and/or upgrades of customers. And then you're into the normal activity that's associated with keeping rev levels consistent, so if you want to call that maintenance, I can understand the vernacular terminology we may need to sort out.

But on a $210 million, $220 million capital budget we’re literally putting 100 million plus against upgrades or and ensuring that our revenues are long-term sustainable as well as growing broadband revenues..

Got it. Thanks. It's a kind of a balance sheet cash flow question for you guys. It looks like there was about a $9 million swing in to the negative in terms of working capital and specifically that looks like it was a $14 million negative variance on the accrued compensation line.

I’m curious if you can explain that and if that expected to reverse over the balance of the year?.

Hey Marc, this is Steve. Let me find my working capital deal.

So on the first part I think there are a couple things that change in working capital on accrued compensation we actually -- bonuses were paid for in Q1 and then we also had changes in the work in the new lease accounting that went up, were part of what yet to put on the balance sheet for on the operating lease as part of that.

I think about six or seven million that went into other asset or other current liabilities. And then also the time -- our working capital does skew core record or basement timing of our semiannual bond interest payments. So we can we can break that out a little bit more for if we need to..

Okay.

So just to understand then focus mostly on accrued competition that seems like the most the area of variability in working capital; was that with Q1 payments made this year not last year? Is that what explains the difference?.

It was higher….

It looks like last year it was a $4 million so as this year was a $10 million use?.

We paid a higher bonus in 2019 for 2018 than we did the prior year..

Okay. All right. Thank you..

Our next question comes from Michael Rollins from Citi. Your line is open..

Hi, Michael..

Hi. Good morning.

First, if you were to take the portfolio of operations that you had and look at it by the market, are there certain meaningfully sized market that are growing revenue or has a monthly different level of revenue change versus the numbers that we get to see in the Consolidated’s financial statements?.

It varies, but that's the benefit of our portfolio of markets is and I said this before, California, Northern New England right now is turning, but California, the Central North and even Illinois on a relative basis because of the growth in Champaign. We've just been extremely pleased with that acquisition.

They've been the bigger contributors in the last year. But prior years it's been Texas and the economic growth there. And so it really follows when we make Network extensions and where the sales team is most productive and at sometimes is somewhat affected by regional economic factors or trends.

But we can drive growth in any of the markets depending on what the regional economic activity is..

The second question is if you wanted to get full fiber capabilities to 70%, 80% or 90% of your footprint.

How should investors think about the long-term capital requirement to get to that end point?.

Yes. I think that's what we're in the process of doing. And so, you're seeing us in the 15%, 16% range sometimes eking up a little bit positioning to continue the extension. And in some cases -- in every case actually we're doing it by shortening the fiber loop links. We're doing it by replacing high maintenance copper last mile areas with fiber.

And so you're seeing that run rating and we'll try and get more specific in upcoming quarters as to the progress we're making, because we know we have to rethink our approach to guidance in this situation.

But bottom line is that's the path we’re on and yet in order to keep on that path we have make sure that we're well positioned to attack the capital markets over the next two years as we have to redress our financing..

Thank you..

Our next question comes from Brian Lee [ph] from Private Management Group. Your line is open..

Hi. Thanks for taking my questions.

Just a quick on the non-core assets sales, would you consider the Verizon Wireless partnerships as non-core?.

This is Steve. That's a great question. They are part of our – we are not operating as we’ve talked about in the past. We are limited partners. Basically, we're cashing the check under distributions. So they are, I guess they are non-core from an operating standpoint but they obviously generate significant amounts of cash for us.

We have again, I think we talked about this in the past on these calls, that we have – I think these were required from our predecessor companies during various acquisitions. We have very low historical carryover tax basis in those.

So as we’ve -- again I think there's a limited market for the buyers that it's really kind of hard to think about selling those on a meaningful tax adjusted basis and really making a significant debt and leverage, but I think in this environment anything are not open for consideration..

Just to be clear I just wanted to make sure that those are perpetual cash flows that are debt-free?.

Correct. It’s part of the differentiation in investment in us is you -- we get -- that's part of our Wireless hedge in addition to the tower and backhaul and expansion efforts in our markets..

Great. Thank you..

And our next question comes from Jennifer Fritzsche from Wells Fargo. Your line is open..

Great. Thank you for taking the question. I wanted to focus on I think Bob you said that you'd won 10 of 12 RFPs.

Can you talk about what areas and the amount of competition in there? We've seen some other, I’ll call them fiber over builders come in and some of these are private equity backed that it came through acquisition, but they’ve been now gotten more capital to build out in fiber areas specifically in the Midwest? Are you seeing any competitors here and how -- can you describe the win rate? Or what was the differentiation to get you 10 of the 12? And then a second bigger picture question.

Well, 5G seems to me more hype than reality at this point. It does feel like the long pole in the TelNet fiber and in rural America or more rural areas fiber is more difficult to deploy.

Are you getting any kind of big picture conversations about the role you all can play with some of these wireless operators as they evolve into the 5G landscape?.

Yes. Thanks Jennifer for the questions.

With regards to the commercial opportunities in California in particular, we see different competitors by customers size, and when you look at it on a by market basis especially in light of the more suburban and rural areas that we served we’re not seeing more than and at most two competitors at any one customer deal point.

And so, on an RFP you might have a meaning [ph] trying to get an opportunity. You might have – there you might have one of the incumbent if it’s a competitive area for us, AT&T Verizon. But in all cases its one it blows down to what’s really viable. There's at most 100 facilities base provider where we’re really investing in sales and in our solution.

While you win is that the consultative sales approach as [Indiscernible] as it sounds our folks are speed in the application of the cloud services and our bandwidth with QOS prioritizing voice traffic even at a small business loan which the cable guys don't do as well as we do we make sense out of how to use that technology for customers.

And even in the small business space SMB product, our business one solution has been really doing well. And as we beat up that sales team we’re seeing increased success rates.

So, it’s really the diversity that we play both from a market perspective and customer size and customizing our building block solutions to solve business problems for those target customers. As far as the 5G that is an opportunity for us.

We’re pushing our way in these discussions all crossed the four major carriers management teams to position ourselves as the best provider for the markets in which we have facilities or adjacent markets where we can expand facilities. So we do think that the concept of 5G is driving more interest.

AT&T’s first net deployment is driving more site deployment, all this is pushing network more dense, more deeply into the current market filling in voice which is good for us and extending footprint in the more rural areas.

And so we’re going to continue to be active in that space and position ourselves to be the best choice for solving those distribution coverage area needs across the 23 state markets we serve..

Great. Thank you..

I’m showing no further questions at this time. I would like to turn the call over to Bob Udell for closing comments..

Thank you, operator and thanks for the questions today. I’m optimistic about our business and confident in our new capital allocation plan as we focus on the near term deleveraging and increase fiber deployment at our network. Appreciate your continued support of our company and appreciate you join us today..

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may disconnect and have a wonderful day..