I would like to welcome everyone to the Consolidated Communications Second 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 speaker’s remarks, there will be a question-and-answer session. Thank you.

I'd now like to turn the call over to Jennifer Spaude, Senior Vice President of Investor Relations and Corporate Communications. Jennifer, you may begin your conference..

Thank you and good morning. I'd like to welcome everyone to Consolidated Communications second quarter 2021 earnings call. On the call today are Bob Udell, President and Chief Executive Officer and Steve Childers, our Chief Financial Officer. Bob's comments today will highlight our strategic initiatives and progress with our fiber build plan.

Steve will provide details on our second quarter financial performance and an update on the Searchlight investment. Following their prepared remarks, we will open the call up for questions..

Thank you, Jennifer. And good morning, everyone. We've had a highly productive second quarter delivering stable revenue, strong broadband growth and exceeded our very aggressive build plans.

In the quarter we upgraded 76,000 gig capable fiber passings, and for the year, we have completed 122,000 fiber upgrades, which is a great start to our five year 1.6 million location build plan. The first half of the year demonstrates our team strong execution on our fiber first strategy.

I'm proud of what the team has accomplished in just six months and the transformation that is taking place. With that we are on track to achieve our target and upgrade over 300,000 locations in 2021. Our build plan is outlined on slide six of our investor presentation.

The recent upgrades were primarily in northern New England, California, Texas and Minnesota markets. Crews constructed almost 1400 miles of new fiber in the second quarter, which is double the miles constructed in first quarter.

We are placing 288 fiber count or larger cables to meet the high capacity needs of our consumer, commercial and carrier customers for years to come. Our near net regional fiber networks allow for very attractive average cost per passing.

Our cost per passing is approximately 465 year to date, which includes edge access equipment, labor and fiber components. This is well within our expectations. Our go to market strategy has been meticulously planned out. We're offering simple packages with highly competitive pricing and an optimized customer experience.

Our gig capable symmetrical product offering with no data caps will be a key differentiator compared to cable. We are installing fiber services within three days and on time for our customers for their appointments, and we have significantly improved our contact center performance and productivity.

Our premium tech support which comes with all fiber connections ensures the best possible experience..

Thank you, Bob. And good morning, everyone. It was another exciting quarter for our team as we made great progress in our transformational fiber first build strategy. Today I will provide an update on second quarter results, reiterate our full year 2021 guidance and remind you the strength of our balance sheet.

Our second quarter highlights can be found starting on slide four of the presentation. Operating revenue for the quarter was $320.4 million down just 1.5% compared to a year ago.

Adjusted EBITDA was $126.7 million, which is in line with our guidance which factors in the startup investments into the sales and support functions with the fiber build plan..

Thanks, Steve. Well, it's early on in our five year growth plan, I'm very pleased with the team's ability to exceed our fiber upgrade targets and to be on track with a very aggressive first year build plan.

I am confident in our ability to deliver a differentiated superior fiber product with an excellent customer experience and with improved digital capabilities. Furthermore, I am very confident in the fiber construction machine we are developing as we continue to scale.

The investments we are making today is creating a new trajectory and path forward for the growth of Consolidated Communications. We have a clear plan for growth and the expertise to execute on the strategy as demonstrated by our first half of the year results. Our balance sheet is strong.

And we have the support from an experienced strategic partner in Searchlight. We're on a path return to total company top line growth in 2023. In closing, I want to thank our consolidated team who's working hard to deliver on this bold plan.

Our path forward is all about building long term sustainability and value for our investors, our customers and our employees. I couldn't be more excited for what our future holds. Adam, we'll now take questions. Thanks..

And your first question comes from the line of Greg Williams with Cowen..

Great, thanks for taking my questions. I have three questions if I may. The first one is on the wireless gas distribution, sounds like $12.7 million is coming in a little higher than expected and trends.

And where do you see that shaking after the end of the year? I assume it comes down in the second half, as you typically guided around $37 million to 39 million for the year and just seeing if that still holds. Second question is some bottlenecks and inflation.

Bob, you mentioned that you're plans don't see any bottlenecks now, and in fact, your orders for 2022 are ready to go. But maybe on the inflation side, I think last quarter, you mentioned, resin was creeping up a bit for the conduits.

Are you seeing anything there that caused more scrutiny? And then the last question is just on cables response to your fiber builds, you mentioned some good penetration levels, and what's cable doing in response to your fiber deployment in their footprint? Thanks..

Thanks, Greg.

Hey, Steve, you want to start with the wireless And then I'll pick the other two?.

Yes, sure. Greg, the question on wireless. I appreciate the question. So yes, previously, we have always said we'd be in a range of 37 to 39, for full year. And to your point, you're exactly right, we are running ahead of where we thought we would be for the first half of the year. And so if we would hit what's in our internal models, we would be at 41.

So we're cautiously optimistic that we're going to exceed that $39 million that we've been talking about. But again, that assumes we kind of hit our internal numbers for Q – here for Q3, and Q4.

And I will remind you, we don't, as a limited partner, we don't have a lot of visibility to what's coming down the Pike from Verizon, so we wish them the best and, putting up good numbers the rest of the rest of the year. And I will remind you that we did have $41 million in cash distributions at the end of - for 2020.

But we're, we're little bit cautious as we don't necessarily have the control of the checkbook there..

Yes. With regards to the second part of your question, bottlenecks or inflation, we really don't see any bottlenecks. At this stage, on the fiber construction side. We're actually seeing improved delivery on commit dates. And we feel pretty good about even the start of 2022 from a terminal and in miscellaneous equipment perspective.

On the CPU side, we're a little more cautious from a chip perspective. We're all trying in this industry make the transition from Wi-Fi 5 to Wi-Fi 6.

And so seeing that product delivery, slip a little bit is causing us to work even closer with those vendors that we have that integrate with our digital infrastructure for service delivery, and create some additional options. So we've got good flexibility with the inventory we have on Wi-Fi 5 or access to Wi-Fi 5.

But we're being a little bit cautious on the move to Wi-Fi 6. As far as pricing, haven't seen anything from an installation perspective. We've got some long term contracts. We made some volume commitments last fall. And so we feel like we're in pretty good shape to hedge at least for the next couple of years from an installation perspective.

And with response - with respect to your cable responds to fiber build, I think we're so small still, that we don't get a ton of attention. We're seeing some natural speed upgrades by cable in some of our markets. But it's a natural pattern that we've - we ourselves have deployed and with the one gig symmetrical product, it is hard to compete with.

We feel very confident in that product. The simple service experience for how it's ordered. And, so I don't think anyone can really match us and the reliability of what we're deploying in our, fairly suburban and rural markets, compared to it being more distant cable markets from a plant perspective. So I feel good about our product..

Okay. Thank you..

And your next question comes from line up Eric Luebchow with Wells Fargo..

Great. Thanks for taking the questions. Just two for me.

So first, on the fiber build, obviously, good penetration level so far, maybe you can talk about the activity? Are they mostly net new customers to Consolidated? Or are you seeing more of the early gross as coming from existing customers that may be upgrading from DSL or fiber to the node where the sales process might be a little easier? And then secondly, I'm curious your aspiration to get to total company top line growth by 2023.

I think we can get our arms around the consumer broadband business the opportunity there, maybe you can talk about the commercial and carrier segment, at what point, do you think somebody growth areas, Ethernet, SD WAN that you talked about could offset some of the legacy declines and products like voice? Thank you..

Great, thanks for the question. Let me start first with, the activity on the fiber builds, from a passing perspective. We're really benefiting from probably 60% being new ads. And that is growing, because where we're upgrading, we're, hitting some of the areas where, I think competitive activity on the cable side has outpaced our DSL, loop shortening.

And, that's why we've made the transition, as we have, and obviously started that process about a year ago in planning, and are now executing on it. So it's going from 59%, 60%, gross new ads, to higher as the quarters progress. And we feel good about that.

In terms of the top line growth, I would tell you, that commercial and carrier continues to benefit from transport and data growth, that is not necessarily consistent across the industry, and we've been able to do that, because we continue to have a pretty strong network product that we extend for customers, between the $500 a month range and higher, as soon as they go for a dedicated Ethernet product, we're doing almost all of that with fiber versus a bundle copper solution.

And so, so that's allowed us to have consistent growth and high reliability in that bucket.

And so when we do our planning, and look at all the regions in which we're deploying fiber, from FTTP perspective, we feel pretty confident that we'll be in a good position to see those lines crossed from a revenue decline on voice offset with a growing fiber based broadband growth curve.

Steve, anything to add?.

Yes, well, I agree with what everything that you said, I guess, the reminder to Eric, and everybody else on the call. Part of the calculus and saying we're going to return to growth is we're obviously very focused and very excited about the FTT plan, everything that you said on commercial and carrier.

So I think, we're, we've demonstrated that we have best in class teams in that area, I think we're one of the few putting on consistent growth on the commercial or on the enterprise side.

And then I would just remind you that we do have the reset from CAF II start off funding January 1 of 22, so I think everybody has built into their models right now. But that is being taken into consideration in the top line growth number for 2022.

I think you'll start seeing some sequential growth in 2022 to do the planning and consistency on the commercial carrier teams..

Okay, thanks for taking the question..

And your next question comes from the line of Ana Goshko with Bank of America..

Hi, thanks very much. So just to follow up on the prior question and comment, so in the - with the growth ads that you're getting on the fibre to the home.

To clarify, are those actually competitive wins from cable? And if so, on what basis, is it the superiority of the product? Or are you being promotional as well?.

We're absolutely being aggressive with marketing. And, as demonstrated by our in marketing spend, we're trying new things, and cycling quickly through programs that work. And so I would say they're competitive wins from cable, where we have a duopoly and they're based on, our local activity in the market.

We start with a, softening of the market with construction, kind of like the air attack, if you will, set up a website, very tightly managed for soliciting interest, do some PR, then we do direct mail, and then direct sales comes in.

And so that equation is really helping us drive both electronic and which is really low cost, customer onboarding and marketing and onboarding. And in the direct sales, spreads word of mouth, as well as in itself produces sales.

And so that that kind of air attack and ground troops coming in with door to door is really an equation that works quite well..

Okay, and then I was referring to promotional pricing.

I'm just how aggressive are you being promotional?.

I'm sorry..

Pricing. Yes..

Yes. I would tell you on commercial, we really lean on our relationship with the customer. And so we take the first the, the customer's input on what they're doing with broadband and then focus on providing them a solution.

And we have our building blocks from a product perspective, whether it's DDoS, or cloud secure, that allows us to interesting for them. And it allows us to use the new technology to solve a problem for them. And so we're definitely competitive on price, and the fiber, has high reliability.

And so the maintenance behind it after its installed isn't high.

And I think that equation with, our aggressive - work with the customer to understand what their use of broadband looks like, allows us quickly to assess how we solve the problem for them with a competitive price, but we're definitely competitive, I wouldn't say we're under pricing competition..

Okay. And then, Okay, thanks.

And then secondly, just a follow up on the topic of some of the post-pandemic impacts we're seeing on pricing and prices and inflation and the labor market, had you have adequate labor now or other unfilled positions in your company that potentially could be a hindrance to either the rollout or kind of other parts of your operations?.

We have sufficient resources to meet our plan. And we continue to iterate on other areas that we might expand to. So we don't see labor, or inflation challenge right now. But, we watch the economy in the world around us. I can't see inflation or labor challenges hurting us any worse than any other competitor.

In fact, I think we're better positioned, because of our culture. And we've had a sticky culture, our tenure and retention of employees is outstanding. And we have provided, a new opportunity for employees to renew their excitement around bringing a wonderful service to the communities that we serve in suburban and rural areas.

So there's a lot of energy in the company right now. We have a lot of good candidates for positions that might become open. And so I don't see any labor shortage that's impacting us and in the foreseeable future. But we're always looking for good people. And so far, I have a good pipeline for them..

Okay, thanks. And then final question. I know you've got a lot on your plate right now.

But, it looks like there are other local markets potentially available around the country, are you open to any kind of acquisitions or tuck-ins, or M&A at this point?.

I would tell you that, never saying ever, but we're really focused on executing our plan that's in front of us now. And we think there's more value in our organic build, then trying to chase the price up on additional M&A activity. But we've got some great partners in Searchlight, they're really good at assessing those opportunities.

And, and so I'm really fortunate to have them as a specifically, my lead contact there, as a partner that allows us to, see and evaluate opportunities that come across their radar..

Okay, so never say never. Okay, thank you..

And there are no further questions at this time. I would like to turn the call back over to Mr. Bob Udell..

Thank you, Adam. And thank you all for joining the call today. We appreciate you tuning in and look forward to updating you on our third quarter results. Have a great day..

This concludes today's conference call. You may now disconnect..