Consolidated Communications Holdings, Inc.

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 first 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 the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one once again. Thank you. And I will now turn the call over to Philip Kranz, Senior Director of Investor Relations. Philip, you may begin your conference.

Good morning, and thank you for joining the Consolidated Communications first quarter 2023 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 risk 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's 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 for questions. Before I turn the call over to Bob, I'll note on April 13th, we announced the receipt of a take private proposal from Searchlight Capital and British Columbia Investment Management. Since the announcement, the board has established a special committee consisting of independent directors of the board to review and consider the proposal as well as any other alternative proposals or other strategic alternatives that may be available to the company. Given that the process is ongoing, we will not be able to take any questions related to this matter during our Q&A session. I will now turn the call over to Bob.

Thank you, Philip, and good morning, everyone. First, let me say there is a lot of enthusiasm and excitement across our organization. A key initiative for us was starting the year with a leadership team realignment. We added key leaders to our consumer business and commercial and carrier businesses and brought on a new CFO in addition to making other strategic changes. The depth of go-to-market experience with these new leaders is incredible, and I am quite pleased with the immediate contributions of our collective team. More importantly, we are seeing strong early momentum and are building the foundation for growth in the future. q1 highlights include a new quarterly record of consumer fiber broadband net ads of over twelve thousand three hundred on the growing strength of fideon fiber second is the positive total consumer broadband net ads of over twenty four hundred this means that just in the first quarter we are well above our full year 2022 consumer broadband net ads offsetting dsl losses third consumer fiber broadband revenue grew 56%, which contributed to consumer broadband revenue growth of over 6%. Consumer broadband fiber ARPU is up 5.7%, and fiber churn improved to an industry-leading 1%. We are seeing favorable trends for FITIUM fiber. Notably, we experienced the highest months of consumer fiber net ads in our history at approximately 5,200 in March and approaching 6,000 in April. These levels are well beyond our historical net adds in an average month and position us for even higher fiber net add activity in our second and third quarters. Lastly, we are well positioned to meet growing demand for installations and to efficiently conduct future fiber builds given our inventory position. Let's turn to slide four, which highlights our journey from a copper-based telecom to a leading fiber broadband provider. We continue to make great progress on our multi-year plan to bring fiber to more than 70% of our footprint. And through our actions during 2023, we are solidifying the foundation for a return to growth in 2024. Our fiber network is projected to reach roughly half of our addressable locations by the end of this year, and we are targeting a compound annual EBITDA growth rate in the mid-teens for 2024 through 2026. We are also looking for our EBITDA margins to approach mid to high 40% levels over the long term as we drive highly profitable fiber penetration across our three revenue groups, consumer, commercial, and carrier, while leveraging our existing cost structure. On slide five, I'll summarize the key aspects of our fiber investment thesis. We couldn't be more excited with the long-term growth opportunity that fiber provides us. With symmetrical speeds that are upgradable to beyond our current 10-gig capability, It's a superior product to cable and fixed wireless. Fiber's future-proof technology is essential, particularly as data demand continues to grow. To this end, a recent McKinsey report projects data traffic to expand by 20% annually in the next five years. And they further cite that fiber is arguably the only fixed broadband technology currently capable of delivering the speed and capacity expected by governments, businesses, and consumers. We also enjoy several distinct structural advantages, including our incumbent position. We have been serving many of our communities for decades, and we know our fiber expansion markets very well. We have a fiber-rich carry class network that we can cost-effectively extend, including existing conduit capacity for buried facilities and pole access where we have aerial plant. These network advantages provide us with favorable unit costs, including an industry-leading cost to pass, offering us strong return on investment opportunities as we execute on our plan. Looking now at slide 8, I'll update you on our fiber bill. In the first quarter, we upgraded nearly 54,000 locations. With our supply chain and labor in good shape, we are on track to upgrade at least 225,000 fiber locations during 2023. Our total fiber passings now extend to just over 1 million locations, or 40% of our overall service area, up from 10% in 2020. Now, as we discussed in the last quarter, we've reached an important inflection point with our fiber coverage such that we are able to generate increasingly positive overall consumer net broadband ads. As a result, we are now consistently growing our overall consumer broadband revenue. This is a key catalyst for us as we move closer to overall revenue growth. Looking out to 2026, we expect that more than 70% of our passings will be fiber by the middle of the year, representing an increase of more than seven times our fiber coverage in 2020. We fuel our bills with increased penetrations, public-private partnerships, and have continued flexibility with our capital structure and our portfolio of assets. First and foremost, we're focused on driving penetration across our existing base of over 1 million fiber passings, which of course will boost our revenue and cash flow, providing support to fund additional fiber builds. Second is the continued pursuit of grant or infrastructure funding opportunities that align with our plan. When synchronized appropriately with our fiber builds, these governmental funding opportunities help to offset rural high-cost passings, allowing us to maximize the economies of our builds for complete areas. This is a key component as we continue our expansion. Now, we've been awarded over $150 million of broadband partnership and grant funding opportunities since 2019 across our markets. We've earned a very positive reputation with our previous public-private partnership wins, which in turn leads to new opportunities in neighboring communities. At the end of first quarter, we were tracking nearly $140 million of additional broadband government partnership opportunities, which is up by $40 million from the prior quarter. This does not include any potential opportunities as part of the $42 billion BEAD program. As many of you are aware, BEAD opportunities are expected to come to market over the next 12 months. In summary, we are doing well on the continued execution of our fiber bill. We will continue to be nimble in order to flex the bill as opportunities and plans evolve. Let me now highlight our fiber cohort penetrations, which are improving. Our Q1 2021 cohort is nearly 30% at the two-year mark, which is above our target of 24%. We are very pleased with the performance of this cohort, which includes particularly strong results from some areas where we had public-private partnerships. Moving to our Q1 2022 cohort, penetration is 14.7% at the one-year mark, which is above our target of 14%. During our Q4 call, we outlined a comprehensive strategy to increase penetration across all of our cohorts, and I am ecstatic with the results that we are seeing from these initiatives. Put quite simply, we're doing exactly what we said we would do. Our record Q1 23 consumer broadband FibreNet ads for March were 5,200, and this momentum continues in April where we are approaching 6,000 FibreNet ads. To put this into perspective, our prior monthly record was $4,300. Key factors for this upward trajectory include our re-rally efforts with Fidium Fiber and its superior value proposition. Also, continued growth in our consumer sales partners and our door-to-door headcounts, which are now up 4x since year end. We continue to see more upside with sales channel optimization along with improvements being made on our e-commerce and call center tactics. Importantly, our install capabilities are keeping pace with our growing sales activity. And as I mentioned, we have CPE in stock ready to deploy for our current installs. Looking ahead, we'll continue executing on all of these key initiatives to keep momentum going and to further build upon our first quarter 2023 results. Now, let's turn to slide 11, where I provide additional perspective on the progress we're making in the consumer fiber business. which is contributing to overall consumer broadband revenue growth. Growing this area of our business is a key factor for us as we lay the foundation for overall revenue growth in 2024. In Q1, we added 12,300 FIDIUM Fiber subscribers, an increase of 60% versus the prior year. Fiber broadband revenue was $26.1 million, up 56% year-over-year, and a 10% increase from the fourth quarter. These positive results in our fiber business contributed to overall consumer broadband revenue growth of 6% in first quarter. Fiber subscriber trends remain consistent, with over 70% choosing our one gig or higher service, while the vast majority are new subscribers. Our transformation to fiber from copper continues to grow, with fiber now making up 37% of our consumer broadband connections, which is up from 25% just a year ago. Looking at ARPU, fiber ARPU exceeds copper by over $14 or 27%. This is a meaningful difference and provides us with ample upside to continue driving significant revenue in EBITDA as our mix shifts increasingly to fiber. In the first quarter, consumer fiber broadband ARPU was up 5.7% year-over-year, driven by the increase in speed mix as subscribers are favoring our 1-gig product offering. Additionally, we are also seeing an uptick in interest for our two gig product. Let's turn to our commercial and carrier channels. With nearly 58,000 fiber route miles and over 14,500 on-net buildings, we believe we are the leading fiber-based provider in the markets we serve. We offer fiber broadband connectivity and cloud-based services to deliver differentiated solutions targeting customers ranging from small businesses to large enterprises and carriers. Our go-to-market strategy includes direct and inside sales, as well as the agent or partner channel. Under new leadership, we are focused on simplifying our offerings, enhancing our coverage, and improving our speed to market to capture more businesses both on-net and near-net. Within commercial data services, we saw year-over-year growth in dedicated internet access, SD-WAN, and cloud voice. We are making investments to increase our core network capacity, which benefits all three customer revenue channels. We have enabled 400 gig in transport services in our core networks and enabled 100 gig into our metro networks, capable of delivering 10 gig of connectivity to any customer's address served by our fiber network. The bottom line is new fiber passings 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 on-net buildings by 3.5% in the first 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 additional connections. I will now turn the call over to Fred, who will provide more insights on our first quarter financial results. Fred?