Consolidated Communications Holdings, Inc.

Good morning. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Consolidated Communications Third 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. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I will now turn the call over to Jennifer Spouty, Senior Vice President of Investor Relations and Corporate Communications. Jennifer, you may begin your conference.

Good morning, and thank you for joining the Consolidated Communications Third Quarter 2022 Earnings Call. Our earnings release, financial statements, and presentation are all posted on the Investor Relations section of our website at ir.consolidated.com. Please review the safe harbor provisions on slide two of the 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. In addition, during the call today, we'll refer to certain non-GAAP financial measures, which are defined and reconciled in our earnings presentation and press release. With me today are Bob Udell, President and Chief Executive Officer, and Steve Childers, our Chief Financial Officer. Following their prepared remarks, we'll open the call up for questions. I'll now turn the call over to Bob Udell.

Thank you, Jennifer, and good morning, everyone. During the third quarter, we continued making significant progress on our transformation to becoming a fiber-first broadband company. We now have approximately 950,000 fiber passings across our service area, up from roughly 500,000 a year ago. We added 12,100 fiber subscribers and grew our fiber customer base to 116,000, up 42% versus the prior year. Importantly, we're seeing very strong adoption of our Fidium fiber 1G product. Before I go into more detail about the third quarter, let me spend some time outlining the strong fiber market dynamics highlighted on slide four. Fiber broadband is a resilient and scalable product with decades' worth of runway. It offers faster symmetrical speeds with the lowest latency. Fiber broadband also ranks very high for customer satisfaction when compared to alternative offerings. We see frequent proof points on data consumption growth, which we expect will continue. For example, the growth in the average number of connected devices in American homes is expected to rise by 60% between 2020 and 2025. Over-the-top streaming viewing hours on connected devices increased by 59% over the past two years. Plus, we all know about the growth in video conferencing and its importance to our everyday work lives since COVID. And given the critical importance of being connected, we expect that fiber broadband will be resilient during challenging economic times. Fiber is a future-proof technology, considering fiber networks are upgradable, scalable, and able to deliver much higher broadband speeds in the future. Our fiber-to-the-home network is 10 gig today, scalable to 50 gig in the near future, while our core network is built for 100 gig and upgradable to 400 gig with available technology. The fiber upgrades that we are making today provide us with years of long-term free cash flow upon the completion of the build and subsequent return to more normalized capital expenditures. Finally, we are keenly aware that fiber-oriented companies have historically exhibited strong value multiples. Put simply, we believe that the transformation of Consolidated from a copper telco to a pure-play fiber company garners significant shareholder value for our stakeholders as we execute on our plan and deliver growth. On slide five, you'll see why we are confident. Consolidated will win with fiber. First, our incumbent position provides us with distinct structural advantages as we execute on the fiber build plan. We have existing conduit capacity for buried facilities and pole access where we have aerial plant. In northern New England, approximately 80% of our network is aerial and is in close proximity to our existing fiber backbone facilities. And as a reminder, northern New England represents 70% of our build plan. Second, we operate in a favorable competitive footprint. In fact, 90% of the markets that we serve have just one or less wireline cable competitors. Also, the fixed wireless competition in our markets is limited due to the terrain in certain regions. Our Fidium fiber product is providing our communities with a superior technology that isn't available from other service providers who are generally focused on more populated cities. We are proud of our mission and will be playing a big role in bridging the digital divide across the communities we serve. Third, we're already seeing validation for our product in the markets that we've entered. This is evidenced through our industry-leading net promoter scores greater than 50. This is well above the competition, and our one-year cumulative 2021 cohort penetration is exceeding our target. Fourth, we're well positioned for broadband stimulus at the federal and state levels through public-private partnership opportunities, particularly with our symmetrical fiber product offering. We'll cover this in greater detail when we discuss the build plan. Turning to third quarter results, record consumer fiber ads contributed to a second consecutive quarter of net positive broadband connections. offsetting DSL declines. Our strong bill pace through September has us on track to complete 400,000 fiber location upgrades during 2022. Notably, we are on track to have nearly 1 million fiber addressable locations by year end, bringing our mix of fiber passings to 37%, up nearly fourfold since 2020. To simplify our business and support the transition to a fiber broadband company, we announced over $600 million in aggregate divestitures over the past year. These important milestones not only mark continued progress in our transformation to becoming a fiber-first broadband company, but also position us for a return to long-term revenue and EBITDA growth. Now let's turn to slide eight, where I'll update you on our fiber build plan. In the third quarter, we upgraded 116,000 locations, bringing our total fiber passings to 948,000 locations, or 34% of our overall service area. Looking forward to the next three years, We plan to build fiber to an additional 1 million locations, which will transform the company to more than 70% fiber passings by 2025. To put this into perspective, this will be a seven times increase from 2020. We're tracking roughly 170 million in broadband government partnership opportunities throughout our service area. We're actively pursuing all grant or infrastructure funding opportunities that align with our build plan and that help to offset rural high-cost passings, allowing a return consistent with our model. We are confident in our plan to achieve approximately 2 million fiber locations as we exit 2025. We've proven that we can ramp the bill quickly as we've averaged just over 110,000 upgrades per quarter over the past year. Our cumulative 2021 cohort fiber penetration at the 12 month mark is 15.9%, which is above our target of 14%. We achieved this largely through penetration of the single family home or SFU channel on passings that are ready for sale. The remaining population of fiber passings consisting of large multi-dwelling units, or MDUs, and multi-tenant units, or MTUs, and it is approximately 15% to 18% of our total fiber passings. As a reminder, our cohort penetration target for year two is 24%, and year three is 33%. Thermal penetration will be closer to the 40% range over a five-year horizon where we have duopoly parity. The MDU and the small business channels provide upside for us as we launch FIDIUM at work and deploy our MDU team during the 2023 year to further penetrate these customer groups. Our pre-2021 existing fiber-based penetrations have improved 160 basis points since the end of 2020, which, while positive, we feel there's additional opportunity to grow as our FIDIUM fiber brand grows and gains momentum. Let's turn to slide 10, where I will provide some commentary on the Fiverr growth that we've experienced and our ARPU opportunity, which are catalysts for a return to overall revenue and even to growth in the future. In the recent quarter, we added a record 12,100 Fidium Fiverr subscribers at three times the increase from a year ago and a 26% sequential increase from our second quarter ads. We also achieved total consumer positive broadband ads for the quarter. Importantly, Fiverr customer gains outpaced DSL losses for the second consecutive quarter. Over 70% are choosing our one gig service, and the vast majority are new subscribers. Our shift to fiber from copper continues to trend well, as fiber now makes up 30% of our consumer broadband connections, which is up from 21% a year ago. Adding to this, fiber ARPU exceeds copper ARPU by nearly $12, providing us with ample upside. Our gig plan, which has been the favored choice amongst new subscribers, starts at $70 per month and moves up to $95 per month on the one-year anniversary. Additionally, I'll add that there are long-term cost efficiencies associated with our transformation to fiber as we benefit from process automation initiatives and derive savings from the more resilient characteristics fiber has on operations and maintenance. For example, over 50% of the orders for vidium fiber are coming from the web. This is up considerably from a year ago. Now let's turn to our commercial data and carrier channels. In the third quarter, we saw a nominal decline in commercial data services revenue driven by a large customer churn. We are also experiencing some commercial price compression. However, we believe the decline in commercial data services revenue is temporary, and we believe we have opportunities to continue growing data services. In fact, within commercial, we grew our strategic revenues in the areas of SD-WAN, CloudSecure, and ProConnect by over 13% in third quarter year-over-year. We're excited to launch Fidium at Work in January, offering a simple, highly competitive fiber broadband service to small businesses and an awesome app for easy management. Fidium at Work will leverage a digital online sales channel and offer plans including two gigs over our XGS PON network, targeting the small business customer at a highly competitive price. Carrier data and transport revenue increased 1% driven by a delay in tower negotiations combined with capacity upgrades in the fiber to the tower business, which have largely offset expected market rate adjustments. New fiber passings within our unique routes provide opportunities for us to leverage the same fiber to grow both carrier and commercial data transport services. We increased our lit buildings by 7.5% in the third quarter, which correlates to higher margins, increased opportunity to upsell, and a greater ability to ensure the best customer experience. I'd like to also highlight our commitment to sustainability and our ESG priorities. As a leading fiber broadband provider, our role within our communities has never been more important. Our community values inspire us to be good neighbors and to deliver the most reliable services through a great customer experience. to connect people in all that we do. Our work with all areas of ESG continues and guides us as we conduct business and help our communities to thrive. I will now turn the call over to Steve, who will provide more insight on our third quarter financial results. Steve?