Good morning. My name is Shauntel, and I will 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 speaker's remarks, there will be a question-and-answer session. Thank you. I will now turn the call over to Jennifer Spaude, Senior Vice President of Investor Relations, and Corporate Communications, Jennifer, you may begin your conference..

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 website at consolidated.com. Please review the safe harbor provisions on Slide 2 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 filings with the SEC, including our 10-K report, which 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 Udell, 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..

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 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, and I'm 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 first broadband company. The fourth quarter was a critical inflection point for Consolidated as we completed year one of our five-year fiber expansion -- expansion plan.

Our first-year priority was to create the network build engine in scale while also redefining the customer experience, and I'm extremely pleased with what we -- that we delivered just that. First, we exceeded our target by upgrading 330,000 passing’s with fiber services and Gig + capable speeds.

And we began to scale our customer acquisition engine, creating the foundation for significant ads in 2022. Second, we launched our new Fidium 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 measurements.

Third, we closed on the second stage of the Searchlight investment, which provided additional capital to support our growth plan. Each of these accomplishments provides 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 Fidium fiber brand? In November, we launched Fidium fiber, the brand representing our new fiber-based broadband offering, and an entirely transformed customer experience. Fidium is designed to make broadband easy, as outlined on Slide 5 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.

Phytium has been very well received, as measured by our industry-leading NPS numbers and the very positive customer feedback we received so far. In mid-November, we did launch the Phytium brand in select 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.

It is now producing nearly half of our new Phytium orders. As you can imagine, the excitement I consolidate is incredibly high as we position Phytium to grow and accelerate in 2022.

As a result, Fourth Quarter brought our strongest quarter of fiber net adds with 4,500 new fiber subscribers and 15,500 fiber net additions in the first year of our build plan. Expanding the Phytium experience and our customer acquisition engine to the rest of our markets will certainly have a positive impact on our fiber penetrations 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 the access to advanced CPE was more difficult to secure than we anticipated.

We now have ample CPE to support our customer acquisition plan. 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 are optimal.

We intentionally launched Fidium 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 the processes and are aligning our build plan with our go-to-market strategy.

We continue to provide transparency on our fiber cohort penetration targets which are outlined on Slide 6. 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 Fidium is significant, and we're just getting started. Now, looking at 2022, we are laser-focused on ramping our customer acquisition initiatives as we extend the Fidium 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.

Let me tell you, this is a powerful combination of using a targeted neighborhood sales channel coupled with a best-in-class digital customer experience, which is key to the value proposition of our new fiber services. A video online experiences a long to mid-November, and in just over a month, we drove significant order activity to the web.

We expect this trend to continue as more customers utilized self-service tools, lowering our overall cost and improving efficiency and customer communications. Our fiber build plan is outlined on Slide 4 and it shows the progression as we upgrade $1.6 million locations, or 70% of our total passings by 2025. We're making fantastic process progress.

In the fourth quarter, we brought fiber Gig + capable service to more than 111,500 locations. For the full year, we upgraded 330,700 fiber passings and doubled our fiber coverage to 22% of our addressable markets by the end of 2021.

We're building machine that is fully capable of upgrading more than 100,000 locations per quarter bringing economic, employment and quality of life benefits to the residents and businesses in the communities we serve. In 2022, our target is even bigger.

We plan to upgrade 400,000 locations, which when complete will bring 1 million total passings or nearly 40% of our addressable market being fiber by the end of the year 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 main authority supporting our build of 22,000 fiber locations within our footprint. We are the primary bill partner in this grant and are excited to bring Phytium to even more locations and rural Maine.

ConnectMaine and other agencies recognize that our incumbent advantages and built track record 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 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're 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 hyper - scalers.

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 5G network opportunities across our regions and with all major carriers as well as some hyperscalers.

Our carrier team is proactively managing contract renewals, which is resulting in some near-term price compression that 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 channel, inside sales, and agent channel we call partner one.

We continue to see great sales activity for our ProConnect 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 ProConnect cloud voice within the SMB channel, where businesses don't want to maintain an on-premise system, and realize the many benefits of a commercial grade posted voice solution. SD-WAN growth continues as customers need better routing platforms and built-in redundancy and network intelligence.

Our best-in-class solution through below cloud is driving this growth, and the more diversified workforce brought on by pandemic is fueling internet bandwidth, growth as well, and a transition to services like SD-WAN.

Our commercial go-to-market strategy leverages are extensive fiber network and our solutions-based sales approach, allowing us to become a trusted advisor to our customers while providing simple solutions to complex problems. New fiber passing’s provide opportunities to like more buildings and pursue near net fiber expansion.

Our security and cloud Wi-Fi are leading cloud solutions which provides significant benefits to customers bringing up IT resources and reducing their capital outlay. 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 up. I'm now turning the call over to Steve, who will provide more insights on our fourth quarter and full-year '21 financials.

Steve?.

adjusted EBITDA is expected to remain in the range of $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 the 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 EBITDA guide reflects our strategic investment and influction 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 to good gigabit internet and becoming a fiber first company is a marathon, not a sprint, and we're 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 9. 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 consumer fiber expansion plan.

We're 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. We'll launch Fidium fiber in the rest of our fiber markets, scale the customer acquisition engine to accelerate broadband growth.

We're targeting positive fiber net adds in 2022. Second, we will continue to drive commercial and carrier data transport growth. We're leveraging our unique fiber assets to light more buildings and target the vast majority of our new sales on network.

We 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 is focused on improving the customer experience and retention of customers.

This means delivering a simplified experience across all customer channels. We're investing in digital tools which make it easier to do business with us. Finally, will maintain a discipline 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 and numerous competitive advantages as we become the broadband leader in any market we serve. We couldn't 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 for the year. Additionally, we're pleased to welcome Marissa Solis to our Board of Directors, Senior Vice President of Global Brand and Consumer Marketing for the National Football League.

She brings a 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. Shauntel..

We'll 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..

Thanks, guys. This is James on for Greg. Thanks for taking the question. If I may, first, on government funding; can you just provide an update on the IJA and the level in which you'll 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, if you could help frame that up for us. I'm assuming that 1Q '22 would be the bottom there, but any color there would be helpful. Thanks..

I'll take the first on the infrastructure opportunity for government funds. We're going to assess -- the Q is really good for us right now, and we're organized around each of the states and how they work with Secretary Raimondo's NTIA office and Alan, and David, who's leading that charge.

We're very familiar with the NTIA rules, we're very familiar with each of our states and what their plans are.

Because of the proximity of our network and the fact that we've got construction activities nearby, we think we've got a cost advantage over most everyone, and we will flex up and rearrange our plan priorities as possible in order to maximize our take.

So, I think what you've seen in one of the first NTIA grants and us getting a better than fair share of the Maine program, is a signal of other things yet to come. So, we're going to get every extension of the capital we spend on those more rural locations and complement our build plan to the best of our ability.

Steve, you want take the second part of that question?.

Yes. Thanks a lot. For the question, I do agree with the conduit that the -- probably one of '22 be the low point from an EBITDA margin standpoint, I think the way we did the bridge, it's pretty easy to calculate the walk down to EBITDA and the overall margin impact.

But I would -- I guess I would remind you that the CAF-2 obviously it's January first, the full -- we expect the full-year impact on commercial or on a tower piece of this. But relative to our fiber ramp and the penetration read rates, the net takes on that. That'll be increasing ramping over the course of the year.

I think your comments on Q1 being the lowest point of margins even though they will be down for the full year relatively to the capital adjustments..

Got it. All right, that make sense. Thank guys..

Your 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 -- your prepared comments.

But first, can you just unpack the full-year EBITDA contribution of what the Kansas City assets would be, and then what the contribution is to the guidance or the amount that you're taking out of the guidance is reflect through timing of the sale? And then just more broadly, if you were to start with the 2021 EBITDA, I know you gave some of these items in your prepared remarks, but if you could just give us that full bridge, so start with '21 EBITDA and how you get to the '22 EBITDA at the midpoint would be great..

Hey -- hey, Mike. I think that -- 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 to factor in maybe other things that we didn't necessarily call out which we think are immaterial to the guide are maybe a slightly higher rate of erosion on voice or access lines, and maybe a little bit weak on the wireless side.

This year, we had $43 million -- $41 million last year and cash distributions worth in our budget were probably somewhere between $39 million and $41 million. So, I think, again -- I think with a comprehensive bridge we just provided in those additional comments, I think that's good enough for today.

And then the contribution on Kansas City, we did give a Q4 number assuming a close at 930 of being between $3 to $4 million for the quarter. So, you can annualize that..

And what changed or did anything change? As you look at what the expectations are, the marketing investments that you're now planning for 2022, maybe the pressures on the back haul side, what were the changes or surprises to you when you started this budgeting process and came out with the outlook gauge for '22?.

I wouldn't say they're major surprises, I think it's learning. The opportunity for extending our build plan we made obvious when we went from $1.1 to $1.6 million coming out '22 -- I'm sorry, 2020. And so, as we ramp the build plan and ramp the engine for construction, I think the pleasant surprise is we can build a pretty good clip. And so that's one.

The other is, as we were working through the digital platform and getting the benefits -- getting the platform put in place that we could get the benefit of the lower cost long-term, there was more to the automated provisioning process and integration with the CPE that probably was a minor surprise, and we were going through a transition from Wi - Fi 5 gear to Wi - Fi 6 and hadn't stocked up on the old gear and get delayed on the new gear with the intention of not wanting to have older inventory.

And so, integrating that with our digital engine, that was probably a bit of a surprise that delayed our brand launch by a couple of months, but again, not hugely material to our overall plan..

I think it's just a natural evolution of our pivot from having 10% to 11% coverage of fiber already direct, all the way direct-to-consumer customer to going to 40%. During that pivot point, we're going to accelerate marketing activity more densely into 2022 and that might have been spread a little more in '21 than as concentrate in '22 as it is now.

Turning it represents our confidence in the plan..

Finally, is there an update on to how you're thinking about the assets that you hold in California and whether you're considering monetization of those markets as well?.

Yes, I'm not going to comment on specific activity. I would tell you that that's a predominantly fiber asset, that fits our overall architecture and strategy. We'll finish changing out some of the electronics that were older vintage by the end of this year and lighting up more of the fiber core network that we have access to them.

I would say assets that we would consider rationalizing are probably smaller or not as significant as the geographical hub is as Roseville in the Sacramento -- greater Sacramento areas..

That's helpful. Thanks for taking my questions..

Yeah. Thanks, Mike..

. Your 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 you're seeing in labor cost? And then you mentioned that you expect 2022 to be the high point in terms of leverage, and given that you're still investing heavily into Cyber and capex should still be high in order to push the leverage number lower, that would have to come from EBITDA growth.

So, you're not giving 2023 guidance today, but directionally am I interpreting your comments correctly, that the inflection point in EBITDA should occur sometime later this year in 2023, so that you're growing EBITDA and lowering your leverage profile? And if so, what gives you the confidence in that inflection point?.

You want me to start, Steve, or you want to -- why don't you take the last part first, then I'll --.

Yeah. Jason, I think you're exactly right, and I think we still are coming -- and as Bob said, again, going back or maybe even going back to Mike's question, for 20 -- for '22 this time last year, we thought we'd be a little bit ahead -- further ahead on the fiber to the home Steve and Bob talked about, the delay in brand launch.

We're still 125%, or whatever the biggest number you can have there, confident in our fiber-to-the-prim strategy. We're just really getting the sales machine built on that.

So, in our mind models today and last this -- last year, we had '21 guidance, we have a pretty strong path forward for growing the trajectory on revenue and also seeing significant margin expansion. So, you're absolutely right. We're not -- our models do not have EBITDA flat line through '21 or '22 through '25.

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 spend primarily on the supply side chain. We think -- we gave a slightly less than $500 capex guide for 2022.

We're also hoping that we're ahead of the inventory supply challenges for right now. 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 get the influxion point on EBITDA growth that you mentioned, help us manage the leverage number..

To add to that, what gives me and our team great confidence is, we'll go net broadband unit positive. In other words, our fiber adds will outpace our DSL copper losses, 20% of our adds on fiber are transitions or converting DSL to fiber, but roughly 80% are net new adds.

So, we will outpace that decline and go net broadband positive in the second half of this year, and from there follows the revenue and the EBITDA growth.

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 is a really good steep one and our net ads will be well in excess, so three times last year's total fiber net adds.

Now 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 and moving some existing and seeing them with additional hands. So, we're managing 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 resources and long-term contracts that we've established with 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 highlighted that cash position of over $200 million on the undrawn revolver, which is another $250 million at the end of the fourth quarter, and then there's more assets of proceeds coming in, so how are you thinking about the liquidity profile based on the capex spending you have over the next few years?.

I feel good about the plan and the additional cash coming from the asset sales as being more cushion. So, we are fully focused on executing this plan and feel like we've got the capital structure to do it..

Thanks for your thoughts..

Your next question comes from Ana Goshko with Bank of America. Your line is open..

Hi. Thank you very much. Just a few follow-ups on the prior comments. If we do a backup envelope on your guidance, it looks like EBITDA less capex less cash interest is about $200 million of use -- of cash.

Then if we do a cash walk for the year, you've got about a $110 million to $120 million of the proceeds coming in from the asset sales to help fund that. But the big fund that we don't have is the potential working capital use. I know there can be a lot of moving parts there, especially with supply chain and inventories.

What should we expect for cash used fair with regard to being able to do a cash walk for the year?.

Steve?.

We typically don't provide that. I mean, we've given you the help, the numbers you need for maybe material items and the cash flow item. I mean, admittedly with the number that you -- where you did the math, depending on the timing of the asset sales, we could be in the revolver.

We will probably have a significantly lower cash balance, but we're not going to guide or give a working capital number..

Okay. Actually, you touched on another one of my questions. When you gave the look on the leverage being about turn higher. I think you did a low five on a growth basis.

Is that only based on the EBITDA change for the year? Or is there any kind of assumption that you may be drawing on the revolver?.

It includes all. It includes EBITDA as well as, with what we think will be in, if we are in the revolver based on the timing of the asset sales..

Okay. So, something potential. And again, also just following up on the last question.

If we look into 2023, hopefully in inflection EBITDA, but you're still going to basically have the same pace of capex because of your build plans, so do you feel that you are fully funded with the revolver capacity and your existing cash resources?.

I think that's a great question, and that's the thing that internally, Bob and I and the management team, and what Searchlight are really focused on, the long-term balance sheet to execute on the plan. So, number 1, I think it all comes back to the earlier question about what's the inflection point on EBITDA and the performance of the business.

If we hit our internal plans for the EBITDA growth, the ramp on the fiber to the sales plan, we -- commercial and carrier teams continue to perform the way that they have, with maybe some slight growth uptick. I think it will be tight, but again, I think we have an extremely supportive Board, we have an extremely supportive investment partner.

So, we're totally confident that we have the ability to execute on the plan..

Okay. If I could speak one more, and thanks for the bridge on the EBITDA for the year.

But I was wondering with the assets you're divesting, is there any element of like stranded costs or dis-synergies that you'll be holding initially, but might be able to work down over time?.

There certainly is, we're also kind of -- in Kansas City particularly, there's also a little bit of a TSA support after the transaction and also part of that is we're in growth mode. If we're successful in divesting that, again, it's hard to give you a number. We probably wouldn't give you a number on what that strain in costs can be.

But I think to your point, those are our 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 managed down, or reinvested back on the growth side of the business versus supporting Kansas City or Ohio or whatever assets could get divested over time..

Okay. Well, that's helpful. Thank you so much..

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

Thank you, Shauntel. Well, thank you all for joining the call today. We're very excited about our growth plan, very excited about 2022, and we appreciate you turning 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..