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spk05: Ladies and gentlemen, good morning. My name is Abby 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 and 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 the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. And I will now turn the call over to Philip Krantz, Senior Director of Investor Relations. Philip, you may begin your conference.
spk10: Good morning, and thank you for joining Consolidated Communications' fourth quarter 2022 earnings call. Our earnings release, financial statements, and presentation are 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 this call, we will 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 Fred Grafham, our Chief Financial Officer. Following their prepared remarks, we will open the call up for questions. I will now turn the call over to Bob Udell.
spk02: Thank you, Philip, and good morning, everyone. Before I provide an update on the fourth quarter, I'll start on slide four and discuss our journey from a copper-based telecom to a leading fiber broadband provider. In early 2021, after solidifying our capital structure, we started the most aggressive fiber expansion plan in our company's 128-year history. Over the last two years, we've made remarkable progress on this growth plan. Our mission is to turn technology into solutions, connecting people, and enriching how they work and live. Our service commitment has never been stronger as we deliver world-class fiber broadband to the communities that need it the most, unserved and underserved alike. Our commitment is born out of a belief that access to education, healthcare, employment, entertainment, and the larger world is what creates vibrant communities and a better quality of life. During 2022, we achieved several key milestones that demonstrate progress on our ongoing transformation and puts us on a path to return to revenue growth. Our total consumer broadband connections grew in 2022, fueled by the addition of more than 40,000 fiber subscribers during the year. The increase in fiber net adds of more than 2.5 times drove our 2021 cohort penetration rate of just over 15%, which exceeded our one-year target. On the heels of another strong build year in 2022, we surpassed 1 million total gigabit fiber allocations at year end and now have extended fiber to nearly 40% of our addressable market. This is nearly a four times increase from the start of our plan in 2021, an important inflection point. Also, we've bolstered our liquidity and aligned our business with over $600 million of aggregate divestitures during the year. We'll prudently redeploy these funds to support our continued fiber expansion plan. Longer term, we're looking to 2024 for another inflection point with year-over-year revenue and EBITDA growth. Specifically, we are targeting our compound annual growth rate in the mid-teens for EBITDA beginning in 2024 and meaningful margin expansion as our fiber business becomes the majority of our overall broadband revenue. To this end, we believe our EBITDA margins have upsized to the mid to high 40% levels over the long term. We are committed to our plan of reaching over 70% fiber coverage across our markets. Through continued execution of our transformation, I am confident that we will generate significant shareholder value as we increase penetration in our fiber markets and grow fiber broadband revenue within consumer and commercial data transport. I am incredibly excited to enter 2023 with a newly aligned leadership team that supports our evolving company and growth strategy. This includes the addition of three highly talented industry executives who collectively have decades of telecom experience at major service providers, as well as substantial experience driving fiber penetration and a demonstrated track record of delivering growth. To drive our customer acquisition strategy across our consumer broadband business, we most recently brought on Gaurav Junija as President of Consumer. Gaurav brings a proven track record in the telecom industry with experience and success gaining significant market penetration and growing consumer fiber revenue, and I'm really excited to have him on our team. Gaurav most recently led Metronet's go-to-market strategy and his work scaling new fiber services and establishing the infrastructure to accelerate performance will be pillars of his work with us growing Fidium and driving penetration across our expanded fiber base. In early January, Dan Stoll joined the company as president of our commercial carrier business. He will oversee our commercial and carrier go-to-market strategy, and is eager to help us capitalize on our broadband fiber investments and continue to grow commercial and carrier data services. Dan has more than 20 years of experience in the telecommunications and fiber network infrastructure industry. Most recently, he served in key senior leadership roles at Zayo. In December, Fred Grafham joined us as Chief Financial Officer. His experience spans 30 years and includes financial management, operational leadership, and expertise within the technology and telecom industries at both public and private companies, including Level 3 and Comcast. He's already had an influence on our planning process, our priorities, and his passion around unit economics is contagious. He looks forward to meeting with the members of this investment community throughout the year. We have also realigned various leadership functions. John Runny, who previously served as our CIO, became our chief technology officer. He will lead the combined areas of network planning, business intelligence, and IT, and will leverage his past experience leading these areas. Gabe Wagner continues as our executive vice president of operations and now has responsibilities for all aspects of our fiber deployments, allowing for all areas associated with fiber construction to be integrated into one team. Collectively, this new team streamlines functions providing added efficiencies with a focus on increasing market penetration through the ramp of additional sales channels. I am more confident and energized than ever before in our ability to carry out and achieve our growth plans. We remain extremely bullish on fiber and will leverage our fiber investments to grow across all areas of our business. Fiber is a superior product offering symmetrical speed not available from cable or fixed wireless. Fiber provides decades of runway to meet customers' evolving broadband needs as demand for data continues to rise. Put quite simply, fiber is best suited to serve our communities today and for years to come. Importantly and central to our investment thesis is that we enjoy several distinct structural advantages as we continue on our transformation. This includes our incumbent position. We know our fiber expansion markets very well given our long operating history and our historical deployment of fiber hubs deep into these communities. We have a fiber-rich carrier class network that we can cost-effectively extend, including existing conduit capacity for buried facilities and pole access where we have aerial plants. These network advantages provide us with favorable unit costs and with significant return economics as we execute on our plant. Now, let's turn to slide 10, where I'll update you on our fiber build plan. In the fourth quarter, we upgraded 60,700 locations and completed more than 400,000 upgrades in 2022. Our total fiber passings now extend to just over 1 million locations. We're 38% of our overall service area, up from 10% in 2020. By reaching this critical milestone, we've seen an inflection point in consumer broadband, such that we are now generating positive broadband ads on the strength of our fiber business. This also was a catalyst for achieving consumer broadband revenue growth in both Q4 and for all of 2022. Looking forward to the next few years, we plan to build fiber to more than 70% of our passings by mid-2026. While this is roughly two quarters later than we previously predicted, it's consistent with our plan to maximize public-private partnerships as we execute on our builds. Once complete, this will mark a seven-times increase in fiber passings from 2020. As a result, for 2023, we are targeting at minimum 225,000 new fiber locations. I'll note our 2023 build target is a moderated level versus the prior two years as we focus on driving penetration within our existing base of fiber passing, and we benefit from broadband revenue growth as a result of reaching the previously mentioned critical fiber coverage level of nearly 40%. and also actively pursue any grant or infrastructure funding opportunities that align with our build plan so that we can maximize the economies of our builds for complete areas. The governmental funding opportunities, which we will continue to sync with our build plan, help to offset rural high-cost passings and extend our reach to entire communities, allowing a return consistent with our model. As we've noted in the past, this is an important aspect of our expansion strategy. In fact, in 2019, we've been awarded approximately $150 million of broadband partnership and grant funding to support projects across just a few of our states. I am happy to report a recent award from the New Hampshire Office of Broadband Initiatives of roughly $40 million to support our build of approximately 25,000 locations across rural New Hampshire. When combined with our own investment of capital, the entire project will provide reliable fiber internet services to more than 57,000 homes across the state. Another recent award includes $16.7 million as part of the State of Maine Connected Ready grants that will support our fiber bill at more than 18,000 locations within our footprint. These awards reflect the recognition of Consolidated as a quality partner through its incumbent advantages with a stellar track record of building fiber. We are really excited to bring FidiumFibre's super-fast symmetrical internet service to additional communities in both Maine and New Hampshire, and this is just the beginning. We are tracking roughly 100 million additional broadband government partnership opportunities across our markets and feel well-positioned to provide partnering communities the best fiber broadband service at the best value. We are confident in our plan and bullish on fiber, which is our future. We are proceeding with a prudent build pace in 2023, and we have proven that we can ramp and build quickly as circumstances warrant. Over the last two years, we have averaged just over 90,000 upgrades per quarter, and we remain ready to quickly ramp fiber expansion as planned at all. Our cumulative 2021 cohort fiber penetration at the 12-month mark is 15.1%, which is above our target of 14%. We've achieved this largely through penetration of the single-family home or SFU channel and passings that are ready for sale. We have a comprehensive strategy to increase penetration across all cohorts. First, we've doubled our door-to-door sales team headcount since the end of the year. Second, we introduced the Fidium Fiber brand in November of 2021. Based on this timing, several of our communities where we constructed fiber prior to that date didn't have a chance to experience the game-changing customer experience that we are offering with Fidium. We're doubling back or rerouting these areas, highlighting the FIDIUM value proposition, driving additional penetration. Third, we've expanded our alternative channels recently, adding several new consumer sales partners to augment digital door-to-door and call center sales efforts across select markets. And fourth, we recently launched FIDIUM at Work, a simple, highly competitive fiber broadband service with the AppTune at Work Wi-Fi app to support small businesses. Vidium at Work leverages a digital online sales channel to offer plans including two gigs over a 10-gig capable network targeting the small business or home office customer at a highly competitive price. Now, let's turn to slide 13, where I will cover the momentum we're experiencing in the consumer fiber business, which is contributing to overall consumer broadband growth. This is a key catalyst for us as we progress towards year-over-year growth in revenue and EBITDA in 2024. 10,600 FIDIUM fiber subscribers, an increase of more than two times the prior year. Fiber broadband revenue normalized for Kansas was $23.7 million, up 51% year-over-year, and 12% increase from the third quarter. The positive traction we are generating in fiber contributed to overall consumer broadband revenue growth of 5% in the fourth quarter and 3% for the full year of 2022. Fiber subscriber trends remain consistent, with over 70% choosing a 1-gig service, while the vast majority are new subscribers. Our shift to fiber from copper is evident, as fiber now makes up a full third of our consumer broadband connections, which is up from 22% a year ago. Looking at ARPU, fiber ARPU exceeds copper by over $13, or 25%. This is a healthy spread, and it provides us with ample upside to continue to drive meaningful revenue and EBITDA as our mix shifts to fiber. In the fourth quarter, consumer fiber broadband ARPU was up 4.5% year-over-year, driven by the increase in speed mix. Now, I'd like to turn to slide 14, where I will outline the tremendous opportunity that lies ahead for us within consumer broadband as we provide our communities with a superior fiber broadband product and continue our positive momentum. We completed 2022 with roughly 123,000 consumer fiber broadband customers or penetration of 12% on our fiber passings of 1 million. As we look to 2026, we believe we can grow our fiber customer base to over 500,000, the equivalent of 25% penetration on our targeted fiber passings of 2 million. Under this scenario, our fiber broadband revenue would approximate $450 million in 2026, up from $80 million in 2022, an increase of more than five times. Further, with fiber projected to represent over 80% of our consumer broadband revenues, we expect considerable margin expansion as we leverage our revenue growth with improved efficiencies that come from fiber. Let's turn to our commercial and carrier channels where we experience data transport growth in both the fourth quarter and the full year normalized for Kansas. An advantage in our commercial go-to-market strategy is our ability to differentiate with high-quality and scalable fiber-based network connectivity. This is supported by our cloud service toolkit, including UCaaS, ProConnect Voice, SD-WAN, and data security enabling solutions, which meet our customers' needs and help to reduce churn. In Carrier, we benefited from capacity upgrades in the fiber-to-the-tower business and a favorable delay in tower negotiations which has largely offset expected market rate adjustments during 2022. New fiber passing within our consumer routes provide opportunities for us to leverage the same fiber to grow both carrier and commercial data and transport services. We increased our lit buildings by 7% in the fourth quarter after normalizing for Kansas, which correlates to higher margins, increased opportunity to upsell, a greater ability to ensure the best customer experience, and more opportunities for Fidium at work. I will now turn the call over to Fred, who will provide more insight on our fourth quarter financial results. Fred?
spk11: Thanks, Bob, and good morning to everyone. I'll start by saying I am excited to have JOIN consolidated at such a unique point in our history, and I am grateful for the opportunity to work with this management and board as we transform the company and realize the benefits of our ongoing fiber expansion through accelerated revenue and EBITDA growth. I'll now provide an overview of our fourth quarter results. This year, we simplified the company with over $600 million of asset divestitures, which has significantly bolstered our liquidity in support of our fiber expansion plans. Most recently, we closed on the Kansas divestiture on November 30th for approximately $82 million in gross proceeds. To help provide some context on our results, in certain parts of our discussion today, I will provide normalized results to exclude the impact of Ohio and Kansas divestitures from the appropriate periods. When doing so, I will refer to this as normalized. Total operating revenue for the fourth quarter was $296 million and adjusted EBITDA was $101.7 million. Normalized revenues in Q4 was $288.3 million, a decline of $15.8 million or 5.2% versus the prior year. Approximately 64% of the decline was driven by lower other products and services revenues of $5.7 million due largely to reduced recognition of public private partnership construction projects and lower subsidy revenue of $4.3 million. The lower subsidy revenue reflects the CAF II step-down and transition to RDoF, which was partly offset by the recognition of Texas high-cost fund settlements related to prior years. The remaining decline was primarily due to lower voice and video services revenue. Importantly, we experienced healthy revenue growth across the strategic areas of our business, including consumer broadband and commercial and carrier data transport, which partly offset these declines. In 2024, we expect these areas of our business to drive improved revenue and EBITDA as we leverage our fiber infrastructure investments. The decline reported adjusted EBITDA of $24.5 million was impacted by the factors mentioned above, in addition to lower wireless partnership distributions of $5.7 million. The fourth quarter marks the last quarter for these distributions, given the sale of our five wireless limited partnership interests to Verizon, which closed in September 2022. Now I'll review revenue by customer channel. Turning to our consumer channel, normalized total revenue was $112 million, down 2.8% compared to a year ago. Normalized consumer broadband revenue was $67.9 million, up 5.3%, driven by strong consumer fiber revenue growth of 51%. Consumer fiber net ads were up more than two times from a year ago, as video and fiber continues to gain momentum. For the full year, we delivered consumer positive broadband net ads of 724, a significant turnaround from nearly 60,800 net consumer broadband losses in 2021. With fiber coverage of almost 40%, we are well-positioned to continue generating positive net ads moving forward. Consumer fiber R2 was $67.14 in the fourth quarter of sequentially and year-over-year driven by speed mix as customers continue to take higher speeds of our fiber services. The fiber speed mix of GigPlus is up 15 percentage points on a year-over-year basis. Consumer voice revenue normalized with $34 million, down $4.6 million, or 11.8%, primarily due to continued erosion of access lines and associated services. Video revenue normalized was $10.2 million, a decline of $2.1 million, or 17% year-over-year, as we continue to de-emphasize our linear video. With the Kansas divestiture, we've reduced our video revenues by nearly 18%. Further, we are accelerating our efforts to transition customers to streaming over-the-top video services to drive higher-speed broadband adoption. The transition from video is also driving a reduction in video programming costs, thus improving margins and free cash flow. Commercial revenue normalized was $97.7 million, down $2.1 million, or 2.1%. Data services revenue normalized was $53.7 million in the fourth quarter, up 1.3% year-over-year, primarily driven by direct internet access growth. Looking ahead, our fiber expansion provides opportunities for commercial data growth with new products such as our recent launch of Fidium at Work. Voice services revenue normalized was $33.9 million, down $1.8 million, or 5.1% in the recent quarter, primarily driven by a decline in traditional voice services led by long-distance and associated voice services. Carrier revenue normalized with $37.6 million, up $.7 million, or 1.9% versus the prior year. Data and transport services revenue normalized with $33.6 million, up $1.2 million, or 3.7% from a year ago. Our Q4 carrier transport revenue benefited from capacity upgrades in the fiber-to-the-tower business and a favorable delay in tower negotiations, which have largely offset expected market rate adjustments. As previously discussed, our fiber-to-the-tower business is under pricing pressures due to contract renewal negotiations with the major wireless providers. Specifically, for the full year 2022, including the effect of churn and pricing step-downs, we had expected to see revenue reductions in the range of $6 to $7 million. Based primarily on the timing of finalizing some of the contracts during 2022, we ultimately recognize approximately $4 million of lower revenue. With that said, for 2023, we expect to see an impact in the $14 million range, an increase of approximately $10 million versus the impact experienced in 2022. We believe there remains meaningful upside in our carrier business, and our carrier team is pursuing new revenue opportunities through capacity upgrades for our wireless and wholesale customers as well as adding new towers. Wireless tower connections under contract total approximately 4,100, up 9% versus last 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 normalized totaled $26 million, down $1.2 million, or 4.3%, primarily due to declines in special access circuit revenue as carriers moved from TDM to Ethernet-based transport solutions. Cost of services and products expense declined $4.2 million, largely due to savings from lower video programming costs, including the impact of the sale of our Kansas operations, and a decline in IRU fiber costs related to additional PPP initiatives in the prior year. partially offset by higher utility and fuel expense. Selling general and administrative expenses increased $8.9 million, primarily due to marketing and advertising expenses related to the expansion of the company's consumer fiber product, higher professional fees for customer service and process improvements initiatives, as well as severance costs. Net insurance expense was $33.2 million, a decrease of $4.9 million compared to a year ago. The decrease was primarily a result of non-cash interest of $7.3 million in 2021 on the searchlight note, which was converted to perpetual preferred stock in connection with the second stage closing of its investment in December 2021, partially offsetting the decrease with higher interest on the term line. Committed capital expenditures totaled $124.3 million in the fourth quarter and were $601.1 million for the full year. We had strong execution of our fiber build, upgrading nearly 403,000 passings, which exceeded our target for 2022. Included in our CapEx spend in the fourth quarter was the acceleration of certain pre-committed inventory purchases, which will have a beneficial impact for us in 2023. In addition, as previously discussed, during 2022, we experienced some inflationary pressures in the form of equipment surcharges and increased contractor labor. A significant portion of our build activity in 2023 will continue to be in our northern New England markets, where we are ultimately targeting 70% of our fiber upgrades. We have significant cost-to-build advantages in NNA, which results in a favorable cost-to-pass. We continue to estimate our average cost-for-passing to be approximately $650 in 2023 for passing build. This remains significantly below our peer group. Looking to 2023, we are in good shape with our supply chain, having thoughtfully purchased inventory to support our build, as well as CPE to support continued growth in our fiber business. Our average direct cost to connect is in the $750 to $800 range. This is up in part due to some inflationary pressures combined with our use of Wi-Fi extenders to improve the customer service experience. Even with the slightly elevated cost to connect, the unit economics of the fiber business remains strong. On a strategic front, we will continue to review all markets in our portfolio for investment or monetization. We do any such asset divestitures as further funding to execute on our fiber expansion plan. Our criteria in this market by market review includes evaluating the economics of the fiber build, market level competition, and potential valuations. Moving to our capital structure, approximately 77% of our total debt is fixed. Recall that we have $500 million interest rate hedge against our $1 billion term loan through July 2023. Further, our $1.1 billion of senior notes have fixed coupons. Notwithstanding the heightened interest rate environment, our overall average cost of debt is 6.48%, up nominally from 6.2% in the prior quarter. Our net debt leverage was 4.18 times at December 31st. As of December 31st, the company maintained liquidity with cash and short-term investments of approximately $414 million and $225 million of available borrowing capacity on our revolving credit facility, subject to certain covenant ratios. As announced in late November, we extended the maturity of our $250 million revolving credit facility from 2025 to 2027, subject to a spring in maturity, and enhanced our financial flexibility. With ample liquidity, we are well positioned to continue executing on our growth plans with no debt maturities until 2027. Today, we are providing 2023 guidance, which is outlined on slide 18. It is as follows. Adjusted EBITDA is expected to be in the range of $310 to $330 million. Capital expenditures are expected to be in the range of $425 to $445 million. Our capital allocations are approximately 42% supporting the fiber build, 40% supporting success-based opportunities, and 18% for maintenance and digital transformation initiatives. Cash interest expense is expected to be in the range of $145 to $155 million. Cash income taxes are expected to be below $10 million. Given our NOLs, we do not expect to be a meaningful federal cash taxpayer until 2026. Now let me provide an EBITDA bridge from 2022 to 2023. Reported EBITDA for 2022 was approximately $414 million. The lower level of projected EBITDA in our guidance versus 2022 includes approximately $15 million resulting from 2022 asset sales, including Kansas and our wireless partnerships. An expected $20 million reduction in legacy voice, the fiber to the tower contract pricing step downs of approximately $10 million in the carrier business, as well as increased marketing and sales expenses. Again, I am excited for the future of Consolidated, and I look forward to getting to know each of you in the upcoming weeks. Now I'll turn the call back to Bob.
spk02: Thank you, Fred. Before opening for questions, let me highlight on slide 16 our key strategic priorities in 2023. Our transformation to a fiber-first broadband company is progressing well. We've reached several important milestones over the past two years, and we intend to reach several more as we execute on our growth plan in this year. Accordingly, our first priority is increasing fiber penetration across what we call our three Cs, consumer, commercial, and carrier channels. On a normalized basis, we grew strategic revenue across our three Cs in 2022. With over 1 million fiber passings, we now have a solid fiber infrastructure and expanding sales channels that we will leverage across our business to generate additional material growth. Our second priority is to deliver an improved customer experience through higher NPS scores, which will result in increased customer retention and referrals. With an industry-leading NPS score with Fitium Fiber, we know how to deliver an exceptional customer experience. Success with this priority means we reduce churn and turn our customers into promoters of our company, making our job a little bit easier. Our third priority for the year is to drive operational efficiencies, improving unit costs across our business by reducing costs associated with repeatable activities as we optimize processes and productivity. And as Consolidate transforms into a fiber-first broadband company, we remain committed to sustainability and our ESG priorities. As we build fiber, we are building a more sustainable network. We continue to make good progress with our ESG goals, and we're excited to share an update with you when we release our annual ESG report in the coming months. With new go-to-market key leaders on board, driving additional sales channels, and market penetration supported by an exceptional Bidium customer experience and a strong liquidity position, we've entered 2023 with tons of energy and excitement and look forward to reaching additional milestones as we execute on our fiber transformation. Operator? We will now take questions at this time.
spk05: Thank you. And I would like to remind everyone in order to ask a question, press star and then the number 1 on your telephone keypad.
spk04: And we will pause for just a moment to compile the Q&A roster.
spk05: And we will take our first question from Greg Williams with Cowan. Your line is open.
spk01: Great. Thanks for the call and taking my questions. The first one's just on the subscriber cadence. It looks like you lost 184 subs. I think that excludes Kansas. Just want to make sure and help us with the cadence and how you think about getting back to positive net ads. And just unpacking that, I think you said that a vast majority of your fiber ads are new. So that implies most of your copper is going somewhere else. Are they going to cable or is fixed wireless encroaching in your territory? Second question is just on CapEx and the fiber to the home pullback. It sounds like CapEx is coming in lighter than the 500 million range we were sort of expecting. And it sounds like it's a function of the fiber to the home pullback. from your original plan. Is that essentially the decision of why you pulled back to save on CapEx? Is this like a financial decision or is it more of an operational decision? Like a couple of days ago, your peers were saying they wanted to synchronize their installs and distributions with their aggressive builds and just trying to figure out if this was more of a done for financial reasons rather than operational. Thanks.
spk03: Yeah. Thanks, Greg, and appreciate the question. Let me start with that point first on the CapEx. And so when you look at our plan, the overall objective has been to get to 70% fiber coverage, and we're going to exceed that. If you do the math with the sale of Kansas City normalized out, we know that we're going to be greater than 70%. We just don't know how far. And so we feel like we've made excellent progress on the build-out. And we can see in some markets that our trajectory is good towards the second year, and others we're not quite satisfied. And so we're still, having started really robust with the digital channel, we're still building out the post-build rally plan for the re-rally areas, the second and third wave, if you will. And we don't have the synchronized customer acquisition engine to go back into the even pre-fidiot locations, as well as those approaching the post-one-year, second-year phase of you know, the next growth. So we're not far off, but we just can see that we need to strengthen and build up that channel. And, you know, thus you see grabbing, you know, one of the premier executives we think that can help lead that from a go-to-market strategy. So then going back to the net positive for the year, yeah, we were slightly under positive in the fourth quarter. We got hit pretty hard with weather. In northern New England, we've seen that subside in first quarter, and so we're very confident in being significantly positive in the 2023 year and look at fourth quarter as really nearly flat and totally positive for the year.
spk09: Yeah, and just to add your question about whether that is adjusted for Kansas, yes, the Kansas sale is not reflected in those numbers. So that is a true net ad number for the quarter, excluding the impact of the sale of Kansas.
spk11: Got it. And anything on fixed wireless?
spk03: In terms of fixed wireless and cable, we're seeing primarily a single competitor in 90% of our operating areas, and one competitor or less. On the fixed wireless side, it's still around the edges. You're going to see that, I think, as an interim solution, but there's nothing that beats the symmetrical fiber product and the nature of a 10-gig capacity at the side of the house. So I think it's going to be out there, but it's not going to be a significant impact.
spk07: Got it. Thank you. Thank you.
spk05: And as a reminder, it is star one if you would like to ask a question. And we will take our next question from Michael Rollins with Citi. Your line is open.
spk06: Thanks and good morning. I have two questions. Hey, thanks for taking the questions. Two if I could. First, on the EBITDA guidance for 2023, can you share a bit more of the bridge of what's causing the EBITDA to come down? in 23 relative to what the right organic number is in 2022 and then maybe help us think a little bit more about that inflection going forward that you're describing and then the second question is just on the CapEx side so and thank you for breaking up some of the categories on the guidance slide curious if you could help us um think about what the remaining CapEx looks like through 2026 when you're expecting to be largely done with your builds, where CapEx could fall to in 2027, you know, in thinking about, you know, how much of this is related to the build. And then can you, I think you gave it earlier, but just remind us what the total amount of public funds you currently have access to that can potentially offset some of that CapEx. Thanks.
spk07: Okay.
spk03: Let me start with the first question, and Fred will take most of this, but let me give you the context. This is our inflection year. We've crested the net positive, and that's the focus is broadband net ads and predominantly shifting the mix to fiber. We're one-third fiber broadband and two-thirds copper. We started at 10% addressable network. We're at 38% as we wrap up 2022, and we'll be approaching 50% at the end of 2023. If you look through history, it's about that ratio that is required to start the transition from copper to totally fiber and a new network platform, and that sets up for revenue positive and then EBITDA positive. I'll let Fred take the bridge on the EBITDA.
spk09: Yeah, we haven't provided normalized numbers for 2022. I will say that the major components of the year-over-year reduction is about $50 million for the asset sales that we had during the year, including the wireless partnerships, the Kansas sale. And we did have a handful of tower sales that are also reflected in that number. That's the biggest piece of the reduction year over year. We noted another $20 million of legacy phone, largely phone revenue that is part of that reduction year over year. We are also, as we talked about, I talked about in my script, the carrier business is seeing some pressure, about $10 million we expect year over year. And then finally, we are investing more in marketing next year. And I think that's a good thing. We want to drive the fiber business And so while we're not disclosing that number, that's also an element of the year-over-year change.
spk03: And so I'd add, you know, before we get into the capital piece, that I've got three new team members. And so we are going to do some marketing tests, some regional diversity in strategy focused on maximizing our penetrations. and build out a re-rally team that will allow us to be more aggressive in some of the base after the first wave from a construction perspective. So we're being aggressive to ensure that this is the turn year that we get the most out of as we exit 2023. Now going to capital, I'll comment on the public-private partnership opportunities. We have roughly 150 million of opportunity that we've either already captured or are in the funnel, I'm sorry, are in agreement and in the construction pipeline right now. Some of that, most recently one, will possibly impact fourth quarter and give us upside on build, and most of it will end up in 2024. It's what gives me great confidence that we'll be well above the 70% of addressable market as we exit 2025 or even mid-2026. When you look at the overall cost per passing, that positively impacts that, and it allows us to build out complete markets, which improve the marketing efficiency.
spk09: Predicting 2027 is a bit of a challenge. I will point to two things. One, historically, the company has run at the $70 million-ish level of maintenance capital, historically. So predicting 2027 total capital is really going to be driven by your assumptions on success-based. And so you can project out what we've given you. Cohort penetration has actually given you a lot of data with respect to where we think we're going to be in 2026. on customers, that sort of drives a level of net ad activity. So I would use your assumptions on your capital per success-based acquisition to project out what you think the 2027 success-based numbers are, but the company historically from a maintenance or obligatory perspective has been in the $70 million range. You may want to put some assumptions with respect to some inflationary pressures, but that's how I would think about it.
spk06: Thanks for all that detail. And just on that success-based piece, how much of that is related to the consumer and fiber piece versus the enterprise and wholesale piece that might not be tied directly to a gross ad number or net ad number that you're reporting?
spk09: Yeah, I would say it's... 70-30, I believe, is where we landed for this year. So 70% success base related to the fiber business, 30% related to the carrier and commercial business.
spk03: And we're incredibly disciplined on the commercial and carrier side on the success base. That's why you've seen us be pretty consistent with the data transport growth there, and we're feeling even more excited about some networks
spk07: near-net opportunities that our builds have provided for small business and commercial. Thank you. Thanks, Mike.
spk05: As a reminder, it is Star 1 if you would like to ask a question. And we will take our next question from Rob Williams with Octagon Credit Investors. Your line is open.
spk08: Hi. Thanks for taking the question. I just want to get some color on how you guys think about the penetration rates as we move into that two-year cohort. You have some 2020 bills that you completed, and you have your 24% target on those. Can you just give us a little bit of color how those are tracking versus kind of the 15% at the one-year mark?
spk07: Yeah. If you look at the
spk03: base fiber, you know, we're in the 20% range, and most of that's going to be, you know, two to two and a half, three year, with a few exceptions. And so we think there's great upside to get that to the mid-30s, and giving it the full rally plan attention, now that we have the FIDIUM brand out there and the customer experience that goes with it and the Wi-Fi gear. It's just a resource allocation after the big push on build and new market launches. And so we felt good about the first year penetrations, but those are some of the areas where we're going back and re-rallying with the new brand. And then also in the first year builds where we've had more weather challenges with sales and feet on the street. You know, we've got a hard press in those markets early this year as the weather continues to free up.
spk08: Thanks, Bob. That's helpful. And then just, you know, you have year-over-year kind of inflection for financial results in 2024, but I think last call, or you might have been called before, you talked about kind of second half of 23 showing potentially sequential growth, maybe not year-over-year. Is that still the expectation kind of in light of the lighter guidance on the EBITDA side?
spk09: Yeah, we have said that before. The trick for us is we're taking a hard look at the carrier business and the timing of the renegotiation of the contracts, which is actually a positive thing for us the longer that delays, presents a little bit of a challenge on predicting the sequential revenue growth for 2022. So we believe strongly that we'll see growth in 2024. Predicting when the turn happens, given some of the nuances of the carrier business, we decided not to reiterate that.
spk03: And frankly, I've got three new team members, and we're doing a lot of work with the go-to-market strategy. And so while internally we're absolutely focused on the turn and seeing that sequentially, we're trying to maximize the wireless backhaul opportunities, as Fred mentioned, and doing a lot of work on the backhaul the go-to-market strategy on the consumer side and this new small biz offering and fitting that works. So I'm pretty optimistic and feel great about the ramp through 2023, but the offset on the carrier contracts and wireless backhaul, it's just a little bit less predictable.
spk08: Got it. And then just kind of follow up on that, if I may. thinking about how far through you guys are on the fiber to the tower kind of renegotiations and any expected additional pricing pressure from that front? Or do you feel like you're in a good spot now kind of going through the base and getting that behind you as this run rates into the numbers?
spk03: Yeah, I am quite confident that we'll get that behind us in 2023. And it's opening a door for more towers. And so what we're essentially doing, and the reason it's less predictable, is we're trading some write-downs for new opportunity, and I feel good about that. The partnership tone is good. The relationships are solid. We're changing some partnerships in different markets based on access to capital for those partners, and so I think we're in a good spot. It's just in the mid-negotiation stage, and so a little bit less predictable as to when we finish it up.
spk07: Perfect. Thanks for taking all my questions.
spk04: As a reminder, it is star one if you would like to ask a question.
spk05: Ladies and gentlemen, that is all the time we have for questions today. I will now like to turn the call back over to Bob Udell for additional or closing remarks.
spk03: Thank you. And thank you all for joining the call today. We're very excited about our energy and the team dynamic we've developed with the restructuring of our team. And I'm very appreciative of your interest in Consolidated. So thanks for tuning in, and we look forward to updating you on our next call. Have a great day.
spk05: Ladies and gentlemen, this concludes today's conference call, and we thank you for your participation. You may now disconnect.
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