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spk06: 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.
spk01: 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.
spk09: 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?
spk11: Thanks, Bob, and good morning to everyone. Let me start with the major event of the quarter, which was the September 13th closing on the sale of our five wireless limited partnerships interest to Verizon. The sale generated $490 million in gross cash proceeds, which will be used to support our fiber broadband expansion and growth plan. We expect the federal taxable gain will be fully shielded by our net operating losses, and we also estimate incremental state cash taxes will be between $10 to $13 million. The wireless cash distributions from these investments are paid one quarter in arrears. We received 5.5 million in the third quarter, which was lower than what we had expected, lower than historical run rates. The primary reason for the lower than expected distributions was that Verizon significantly accelerated their capital spend on 5G overbill to access the C-band frequency in a couple of our partnerships in the second quarter. We currently estimate that our Q4 distributions will be approximately 4 to 6 million. Our distributions will be based on Verizon's Q3 performance and our prorated share based on the time of ownership in the quarter. We estimate our full year 2022 wireless cash distributions to be between $30 and $32 million. There will be no distributions in 2023. I'll now provide an overview of our third quarter results. Total operating revenue for the third quarter was $296.6 million, and adjusted EBITDA was $97.2 million. representing a 32.8% adjusted EBITDA margin for the quarter. As we consider this level of EBITDA margin, it is important to note that we are making significant investments in our operating expenses to support our fiber transformation and growth plan. We are encouraged by the early results from this investment in the business as evidenced by our consumer fiber revenue growth and strong take rate for our fiber product offering, as indicated by strong net fiber ads. Looking over the long term, upon the execution of our growth plan and our return to revenue growth, we believe we will see significant margin expansion and our EBITDA margins have upside to the mid to high 40% levels. As a reminder, effective January 1st of this year, our annual $48 million in CAF II funding transitioned to an annual $6 million under the Rural Digital Opportunity Fund. The subsidy reduction impacts our 2022 quarterly revenue in EBITDA by approximately $10.5 million. In addition to the subsidy reset, adjusted EBITDA in the quarter was impacted by the following items on a year-over-year basis. $5.6 million lower wireless cash distributions as previously discussed. Approximately $7.8 million higher voice erosion across all customer channels. approximately $3 million for inflationary impacts from energy and fuel costs, and $2.5 million for normalization of New Hampshire property tax rebates, which we received last year. Committed capital expenditures totaled $139.9 million in the third quarter and are $476.8 million year-to-date. As Bob mentioned, we are making excellent progress on our fiber build plan and are on pace to meet our upgrade target of 400,000 fiber passings in 2022. As we have discussed, we have significant cost-to-build advantages, especially in our northern New England markets where 70% of our 1.6 million upgrades are targeted. We have been leveraging the northern New England footprint, which has a lower cost to pass. As we discussed in the Q2 call, we are seeing some inflationary pressures in the form of equipment surcharges and increased contract labor. We estimate our average cost per passing to now be in the $600 to $650 range. This is still significantly below our peer group due to our close fiber network proximity to end customers in our markets. Now, our revenue by customer channel. Turning to our consumer channel, total revenue was $119.6 million, down 4.6% compared to a year ago. Normalizing for the impact of The sale of our Ohio assets, revenue declined 3.4% year-over-year. Overall, consumer broadband revenue was $69.6 million, up 1.5%. Consumer FiberNet ads were up three times from a year ago based on the excitement around the Fidium brand, our superior product and the enhanced customer experience compared to any other product in the market. Consumer fiber revenue was $21.6 million, up $6.1 million or 40% year-over-year, and we have added over 12,000 consumer fiber gig-plus connections during the quarter. For the second consecutive quarter, we delivered total company consumer net positive broadband ads. Consumer fiber revenue, ARPU, was $65.61 cents. in the quarter, up 66% sequentially driven by speed mix as customers continue to take higher speeds of our fiber services. The fiber speed mix of Gig Plus is up 17 percentage points on a year-over-year basis. Approximately 80% of our customers are new to CCI, and over 70% of our new fiber subscribers are taking one gig or higher product. Consumer voice revenue was down 4.1 million, primarily due to the continued erosion of access lines and associated services. Video revenue declined 2.6 million, or 16.2% year-over-year, as we continue to de-emphasize our linear video. We are accelerating our efforts to transition customers to streaming and over-the-top video services. That will drive higher-speed broadband adoption. This is also driving a reduction in video programming costs to $2.4 million year-over-year, improving margins and free cash flow. Commercial revenue was $102.2 million, down $4 million, or 3.8%. Data services revenue was $56.8 million in the third quarter, down 1.3% year-over-year, primarily driven by the loss of a large customer combined with some delayed decision-making by customers and prospects. Despite these challenges, our team is seeing an increase in larger sales, including multi-site product solutions, utilizing our advanced services portfolios and products, and we are encouraged by the new sales trajectory. Additionally, the commercial team will benefit from increased market opportunities with our fiber expansion and new products for the SMB market, including FIDIUM at work. We expect a return to data services growth in 2023. Voice services were down $3 million in the recent quarter, primarily driven by access lines to clients, lower long distance, and the migration of our customers to VoIP solutions, which we include in data revenue. Carrier revenue was $38 million, essentially flat from a year ago. Data and transport service revenue was $33.9 million, up 1%. As discussed on prior calls, our fiber-to-the-tower business is under pricing pressure due to contracting renewal negotiations with the major wireless providers. Our Q3 revenue benefited by the delayed timing of new pricing on our wireless backhaul contracts. As a result of the ongoing negotiations, our carrier team is pursuing new capacity upgrades for our wireless and wholesale customers, and we have the opportunity to add new towers and pursue other business with the major carriers. As discussed on previous calls, with respect to the fiber to the tower contracts, For full year 2022, including the effective churn and pricing step-downs, we had expected to see revenue reductions in the range of $10 to $12 million. In our original view, we assumed these would be spread rateably over the year. Based primarily on the timing of finalizing some of these contracts, through Q3, we have recognized approximately $3 million to date, and we expect to recognize another $3 or $4 million in Q4. For 2022, the total impact is now estimated at to be between 6 to 7 million. We still expect the run rate impact for 23 to be in the range of 10 to 12 million. Wireless tower sites under contract now total almost 4,200, up 12% year over year. Our team continues to leverage our core network upgrades to provide a path to 10 gig backhaul capabilities at the tower site for carriers. Network access revenues total 27.3 million, down $2.6 million year-over-year, primarily due to declines in special access circuit revenue as carriers move from TDM to Ethernet-based transport solutions. Cost of services and products expense declined $1.3 million due to savings from video programming costs offset by slightly higher utility and fuel expense. On a year-to-date basis, declines in video programming costs have outpaced the decline in revenue improving EBITDA by over $2 million. Selling general administrative expenses increased $8.7 million, primarily due to higher marketing costs related to our customer fiber product expansion, coupled with a non-recurrence of certain property tax rebates in the third quarter of 2021. Net interest expense was $32.1 million, a decrease of $11.1 million compared to a year ago, primarily as a result of not cash interest of $10.9 million, on the Searchlight Note, which was converted to perpetual preferred stock last December. The pending sale of our Kansas City assets, which we announced in March, is expected to close by year-end following routine regulatory approvals. It is currently under review with the FCC Team Telecom. During the quarter, we recognized a $5.2 million non-cash impairment charge associated with an increase in the carrying value of the assets held for sale and increases in our estimated closing cost. We estimate this asset has annual revenue of approximately $45 million and adjusted EBITDA of approximately $12 to $14 million for 2022. This asset cell is estimated to generate gross proceeds of approximately $90 million. In the third quarter, we realized a gain on the cash proceeds from the sale of certain non-strategic communication towers and related equipment, totaling $19.2 million. To date, in 2022, we have announced over $600 million in aggregate cash proceeds from the divestitures of certain non-core assets. We continue to review all markets in our portfolio for investment or monetization. We believe we have the ability to source additional capital through potential asset divestitures. Our criteria in this review includes evaluating the economics of the fiber build opportunities, market-level competition, and potential valuations. Moving to our debt, approximately 77% of our total debt is fixed. Recall that we have a $500 million interest rate hedge against a $1 billion term loan and $1.1 billion of senior notes with fixed coupons. Notwithstanding the heightened interest rate environment, our overall cost of debt is 6.2%, up nominally from 5.86% in the prior quarter. Our net debt leverage was 3.82 times at September 30th, and our liquidity is $686 million, with cash on hand of $462 million and available revolver capacity of $224 million. Additionally, on slide 13, we provided a pro forma view of our liquidity of over $770 million, which includes the effect of the Kansas City asset sale. Given our strong liquidity, coupled with no debt maturities until 2021, 2027, we are well-positioned to continue executing our fiber expansion plan. Today, we are reaffirming our 2022 guidance, which is outlined on slide 14. We will provide 2023 guidance on our Q4 call in February. As we consider 2023, we've outlined the impact of investitures in the fiber-to-the-tower contract negotiations. However, we expect growth in consumer broadband on the hills of the positive momentum of our Fiber Gig Plus product offering. We believe this will contribute to an inflection point in our overall revenues, and we expect to see sequential revenue growth in the second half of the year. I'll now turn the call back over to Bob.
spk09: Thank you, Steve. In closing, I'll reiterate Consolidated's fiber transformation is well underway. We're executing well on our consumer fiber expansion plan, having achieved another record quarter of fiber subscribers and net positive broadband connections. We're enhancing the customer experience across all channels, and we're excited to launch Vidium at Work early next year. We're disciplined and focused on ensuring we have a capital structure to support our growth plan. We've simplified our strategy and significantly improved our liquidity. We are well positioned to continue executing on our plan bringing the fantastic benefits of vidium fiber broadband to more communities, creating long-term value for our shareholders. Operator, we will now take questions at this time.
spk06: At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. And your first question is from the line of Greg Williams with Cowan. Please go ahead.
spk02: Great, thanks for taking my questions. Just wanted to talk about the cost to build that sounds like you're increasing it a little bit to $600 to $650. What are the components of this rising cost? I assume it's mostly labor. I know earlier in the year, Bobby spoke about the cost of resin going up, et cetera. I'm just wondering if we can parse that out. Second question is a little more philosophical. What is the IRR or returns on your fiber builds today with these rising costs? And what I'm thinking about is if it's in the low to mid-teens for a return and the way your bonds are trading, if they get to the low to mid-teens, do you think about buying back your debt in any public markets as we think about shareholder value, et cetera? I'm just wondering if that has backed into your calculus. Thanks.
spk09: Yeah, thanks, Greg. And I'll take the cost to pass first. First of all, I would say I want to remind you that the proximity we have of our network, fiber deep, is going to position us versus our competitors and others in the industry even to have a very competitive low cost to pass. And that includes the percent of aerial plants. So, yes, while we see some increase in the cost, It is primarily labor and some of the subcontractors, you know, from a labor and specialty equipment getting diamond bit blades for depth correctional boring in some rock areas. And so while it's a bump, I don't think it's significant, comparatively speaking, and we don't think it gives us, you know, in the whole scheme of our returns at this stage a significant impact. Go ahead, Steve.
spk11: Yeah, hey, Greg, I'll take the second part of your question. On kind of the IRRs Bob was talking about, I think we're, you know, as the unit economics as we rolled out the fiber plan, you know, we were expecting kind of a, you know, high teen, low 20% IRRs. Again, for your question, with the cost of passing going up modestly, which is still a really strong competitive advantage compared to anybody else that we're competing for capital for or equity holdings for. That's one thing. But then your question, the gesture of your question for trading IRR on the build versus potentially buying back bonds, believe me, we know where our bonds are trading at. And again, maybe in a different environment, we might be thinking about that. But we're so committed to driving long-term shareholder value and significant cash flows with the opportunity that we have on the build plan that we're fully committed to investing every dollar free cash flow we have into the build plan over time. That's where we think, you know, five years from now, that's where we're going to get the most value from versus buying back bonds today at a discount.
spk07: Got to make sense. Thank you. Next question.
spk06: Your next question is from the line of Michael Rollins with Citi. Please go ahead.
spk03: Hi, good morning. Hi, good morning. Just two questions. You know, first, I was curious, you know, Looking at some of the KPIs, the DSL losses were a little higher. Are you seeing that as a function of just migration to your fiber service, or is there some kind of change in just the competitive climate for your copper subscriptions? And then secondly, you mentioned, oh, go ahead, I'm sorry. No, go ahead. I was just going to say for the second question, I was just curious if you could size in some way the potential to further optimize your footprint per the comments during the prepared commentary. Thanks.
spk09: Yeah, let me take the first question, and then I may ask you to clarify the second. With regards to DSL losses, it's really two things. We lose DSL to our focus on converting them and transitioning them. as we do fiber upgrades. And we're putting a lot more attention on the DSL customer base going forward. We've been studying that. And so we're getting more aggressive and letting them know our build schedule as we map that out more concretely for future years. And so we think we're going to have some greater impact on that going forward. But third quarter is typically a higher move season. And while it's somewhat muted, That is where we see more DSL churn because of the speed competitive nature where we have a good footprint of 100 meg. Still in the lower speed areas, we're more at risk, and that's why we're working more aggressively to get those areas passed and let them know that we're coming in the near-term future. But in the move season, that takes a little bit more of a tick. The second question, looking at the – I think you're referring to divestitures. Is that right?
spk03: Yeah. So, you know, you mentioned earlier in the discussion that, you know, that you're continuing to consider optimization. And I was just curious if there's a way to size that, you know, whether it's in the footprint size or the dollar potential or the EBITDA, you know, potential, just some way of thinking about what the total – potential of that opportunity looks like.
spk09: Yeah, got it. And so as we said in the past, there's roughly, we think, 200 million of assets over time that we would still consider as a divestiture opportunity. Having said that, you know, we're in conversations, you know, always with some parties that have interest and yet nothing active to the point where we could announce it. And so we're going to continue to work through those things that we've announced and optimize the ones that we haven't with the public-private partnership opportunities we have. Having the regional diversity that we have, we have a number of bites at the apple on all the state programs that are at different stages of evolution. Some we wish would move faster than others. So I think we've got upside to increase their value. Over time and in the meantime, we talk to folks that have interest and explore opportunities, but nothing to announce or add at this time.
spk07: Thanks for the questions. Thanks. Thanks.
spk06: Your next question is from the line of Jason Kim with Goldman Sachs. Please go ahead.
spk05: Great. Thank you very much. A couple of questions from me. I know it's still early, but any thoughts on how next year's CapEx may look like? And your net leverage ratio declined this quarter given the asset sale proceeds. And, you know, looking ahead, how should we think about the peak net leverage for the company as you complete your Fiverr investments?
spk11: Hey, Jason, this is Steve. So thanks for the question. I think in CapEx, I mean, as you said, we are not giving guidance today. But I think you probably think that we're still going to be in the $500 million range. plus range. We're still, you know, still the kind of current pace of the build is, you know, under consideration. And that's, you know, really what we're focused on. So I think with your point on kind of combine this, your questions, but, you know, today with the benefit that we had from the Verizon asset sale and the $490 million in proceeds in the bank today that obviously did really impact leverage the positive side for right now. But we are, I mean, to your point, we will, you know, based on the size of the CapEx envelope versus kind of the lag on the sales penetration and ramp up, you know, we will probably have a negative cash burn rate for this year in 23. So I think, and said differently, if it hadn't been for the Verizon sale, as we had mentioned early in the year, we would probably be kind of like approaching five times or maybe like five and a half times For kind of peak leverage for the bill that's still kind of where we're kind of where we're thinking at subject to how we perform on the business. You know how we how we can you know grow even a faster going into 2324 and as Bob mentioned about the opportunity for additional subsidies grants up offset additional cost to build costs going forward.
spk05: Great that's helpful. And then as for the broadband stimulus funding, what do you expect consolidated share of the cost to be on a per-home basis, you know, to the extent to which you win this funding?
spk09: Yeah, I'm not going to disclose the specific offset on a cost per pass, because it varies, you know, from project to project. But what I can say is when we look at it, you know, our model – it conservatively on the high side can withstand higher than what our average cost for passing is now. And so what we're going to do is build, use the public-private partnership, you know, the BEAD, the ARPA, the NTIA grants, and some state capital project grants that we've been involved with, and in some cases one already, to supplement our cost for passing so that we stay in the in the 600 to, you know, 5 to 700 range, really. And so that's why we look at the projects. It extends our opportunity to build further into the rural areas. And we can usually do it at a lower cost if we time our projects correctly. And so that's what you'll see us do is, you know, as this process unfolds, and it's a bit unpredictable. We're in one now where we're, you know, delayed seven, eight months because of NTIA administrative processing. And that ends up longer if you get pushed into winter construction months. So we're really going to keep flexibility, and we're in a perfect cash position to do that so we can optimize every dollar we can get access to across our markets. And so we feel really well positioned to maximize those opportunities.
spk06: Understood. Thanks very much. At this time, I would like to remind everyone, in order to ask a question, simply press star, then the number one on your telephone keypad. Our next question is from the line of Steven Sikora with Aetna. Please go ahead.
spk10: Hey, Steven. Hey, guys. Got a couple questions here. So the first one, a follow-up on the DSL question. Are you seeing any impact at all from either cable getting more aggressive trying to win those copper subs, fixed wireless competition, or just general economic weakness hurting those specific customers? And then second, If I look back at the 2Q presentation, you guys outlined a 400K fiber home pace in 22 and 23, 300 in 2024, and 250K in 2025. In the 3Q presentation, it's 1 billion passings from 2023 to 2025, and it looks like you'll beat that original 400K guidance in 2022. So is that an indication, along with your current build pace, that you might accelerate builds versus your original plans? And if so, what kind of variables go into that decision? Thanks.
spk09: Yeah, thanks, Stephen. That's a lot packed in there. So let me start with the DSL piece. We really see DSL losses from three major places and two that are the largest. One is moves and then replacement losses. with a more competitive offer that would be coming from cable, and in some very limited cases, maybe fixed wireless. We're not seeing a lot on the economic front, which, you know, we watch closely. And as we look at that base, it's driving some of the priority in where we build. And so, you know, I think it's, for us, it's probably more cable competition not a lot of aggressive promos necessarily across the DSL base that we have because it's more distributed and rural. But I would say that that's probably still the larger factor. And then on the economic side, I can't see that right yet being a factor. I do think there'll be some headwinds from an economic perspective, but we also believe broadband is a very resilient product in tougher economic times because everyone needs connectivity, especially in the more distributed work environment we live in. So if I had to prioritize, I'd say that there is pressure from cable in that space. Regarding the 400,000 this year and the 1 million over the next few years, I think we're intentional in saying we've got flexibility. And so we're going to use, as I mentioned earlier, these public-private partnerships to help us prioritize getting every dollar possible because it just extends our reach. And we're best positioned to win those from a cost-for-passing perspective when it's a competitive RFP process. And so the timing of those can drive, for example, four times, five times the number of passings that you're being funded for in order to optimize when the crews are in place and to build the complete market at one time. And so we think with the economy slowing down, tougher access to capital for some, being in the liquidity position that we're in gives us the best flexibility to pace the build where we think we can get the best return and not only penetrate the market faster as we ramp our, continue to ramp our sales acquisition strategy, but also, you know, do it in a way we can maximize supplementary funds to build more rural passings.
spk07: Great. Thank you.
spk06: Your next question is from the line of Ana Gosko with the Bank of America. Please go ahead.
spk09: Hey, Ana. Good morning.
spk04: Hi, thanks very much. I wanted to ask you on the commercial side. So you referenced the large customer churn. I just wondered about the circumstances of that. Was that a competitive loss? And if so, what were the factors do you think that drove that? And I think you also mentioned delayed decision making on the part of some other customers. Is that economy based or what's that based on?
spk09: No, and let me take the first part of that. Large customer churn was a unique situation that really occurred based on that customer's consortium that they led and we were an underlying supplier for. And so for confidentiality reasons, I won't go into details because they got other things going on. But it was, you know, a contract that we thought we'd get renewals for and it wasn't possible. So it's a really unique situation. On the delayed decision-making, I would say that's more of a general market cautiousness that we're seeing grow, and I think it may have something to do with election season. It also may have, we believe, a factor associated with the belief that a recession is is coming and higher interest rates for folks that use leveraged capital to make equipment purchases that align with network grooming and builds that we support. So the pipeline remains solid. It's just things have gotten a little more pushed. And so we're being cautious but yet optimistic that both we'll be able to offset the large customer that that churned and see growth in commercial data. We've typically been a leader in this space in our ability to acquire more than our fair share, and I expect with more fiber that we've deployed, we're going to have more opportunity.
spk04: So what was the revenue or EBITDA impact of that customer? Is it material to the overall results?
spk08: It's not material to overall results.
spk04: Okay. And then secondly, I know there's... quite a bit of discussion on cost to pass. On cost to connect, the variable cost, the success-based cost that you incur when you're adding the fiber subs, how has that been trending?
spk09: Yeah, it's actually been trending close to flat, if maybe not a little bit down, and I think that might be temporary, but we've been able to improve our drop, the connection between the the pedestal or the pole to the customer. We've been able to improve that process and reduce costs substantially. We've been experimenting with different approaches to it, and we'll continue to work on that. We paid some expedite charges to get Wi-Fi 6 out and test our mesh Wi-Fi experience, which has had a positive impact on NPS scores. So we're going to continue to see that oscillate for inflationary reasons as well as our refinement and process. you know, going forward other than maybe long-term to track with, you know, industry technology costs. But the technology is actually going to get cheaper as we continue to buy more volume. And I think that may be countered by, you know, inflation with some labor cost increases.
spk04: Okay. So just as a reminder, what is that per growth add now?
spk07: It's roughly 700.
spk04: Got it. Okay. Okay. Well, great. Thank you very much.
spk07: Thank you, Anna. Next question operator.
spk06: Once again, if you would like to ask a question, simply press star, then the number one on your telephone keypad. And there are no further questions at this time. I would like to turn the call back over to Bob Udell for any closing remarks.
spk09: Thanks, Dennis. And thank you all for joining the call today. We appreciate you tuning in. and your support for our long-term vision and our evolution to becoming a fiber-focused broadband company.
spk07: Look forward to updating you on our next call. Have a great day.
spk06: This concludes today's conference call. You may now disconnect.
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