Morning, everybody, and thank you for joining us for our streaming and connectivity conference. My name is Caleb Stein. I cover communication, communications infrastructure and telecom services here at the bank with Eric Luebchow. We're pleased today to be joined by Bob Udell, President and CEO of Consolidated Communications. Bob, thanks for joining us this morning. Yeah. Thanks, Caleb. Good to see you. Let's jump into it here, Bob. You're a little over one year into your five-year build plan to connect about 70% of your properties with fiber, or about 1.6 million homes. Can you talk a little bit about how that's gone to date, what you're expecting for the balance of 2022 into 2023, and then maybe going forward from there? Yeah. Hey, good morning. Great to be with you, Caleb. You know, the build is going very well. We've completed over 300,000 in 2021, you know, additional upgraded passings, from the 275 that we started with, and we're on track to do 400,000 locations in 2022. It's exciting because we've got the resources to support the build. Our costs, you know, per passing are in line with our plan. So far this year, we've been able to work more than a quarter ahead of our build schedule that's allowing us to advance some government-supported builds into 2022. Those are nice because they come with some capital offset, and that's always good to help the plan. Yeah. We'll definitely get into that a bit a little bit later. I think, you know, one of the things that surprised us in the early stages of these fiber to home builds broadly and with Consolidated specifically, is just the number of net new subscribers who are coming on board in the early stages. You know, I think more intuitively, we had thought that maybe you'd have some low-hanging fruit with copper upgrades, and that would drive the bulk share early on. I think instead what we've seen is just the number of net new subscribers to the telcos have really been the big mix of customers you're attracting. Is there something competitively driving that? Is it more nuanced, or is it more a product of kind of where the early builds are coming from? Yeah. I think in our case, you know, we're seeing the same thing, you know, of as you mentioned, the majority of the customers coming are net new. You know, as high as 80% when we first started and it's tempered when we do public-private partnership builds. The majority of our adds are really new subscribers. The two points that really contribute to that is a large part of our build is in Northern New England states where we had lower tier, you know, DSL speeds for broadband and lower penetration as a result. You know, point two is our Fidium Fiber product is a symmetrical fiber broadband product coupled with an entirely new customer experience, whole home mesh Wi-Fi. We have the best product with the best people providing the best service experience. That hasn't been the case, you know, for the legacy business in Northern New England. It's an internet offer made easy, and we're getting rave reviews that's demonstrated by our NPS scores, you know, being 50+. I guess that said, I mean, compelling offer. Do you think some of that mix shift is going to shift back toward copper upgrades over the future? How should we as investors think about, you know, kind of that pacing of customers coming on board at Consolidated? Yeah. With 70% of the build being in Northern New England where penetrations are lower, you know, I expect it to be in the 75%-80% range for the foreseeable future. I mean, generally, we have one cable competitor in the fiber to the home areas. You know, specifically in our markets, which are rural and suburban, you know, we're in smaller cities and towns than you find in larger companies. When you look at our addressable market, you know, I think the duopoly parity is what we would expect, and our network and our product is gonna be superior to what our cable TV competitors can offer in those markets. Maybe digging in there a little bit more. You know, duopoly market, you generally have one cable competitor. Can you walk us through kind of who you're seeing across your footprint, if you have broad percentages that you can speak to, and then maybe what your go-to-market strategy is that you're seeing so much success from? Yeah. In most of our markets. Well, if you look across the whole footprint that we serve, roughly 88% of our addressable market has cable competition, and it's split evenly between Charter and Comcast, with about a fifth of it, maybe a little bit less, being a mix of other providers. It could be American Broadband. It could be Mediacom, Suddenlink, or LPs. We really don't have one cable competitor that overlays us, you know, more than about 35%-37% of our service area, when you boil it all down. We're seeing rational, you know, competition, like we have through history. There's no major significant response. I think what our success is going to and continues to be built on is a local approach and really getting involved with the community as we're doing the build, making sure we do it in a respectful way, and involving the local employees, and building, you know, from the culture inside out and excitement around bringing this service to market. That takes time, but doing it right results in, you know, unprecedented low churn, and we feel really good about that. Okay. From a pricing perspective, I think you said that there hasn't been an outside response here from cable to date. Kind of how are you entering the markets here? From our perspective and work that we've done has kind of shown that if you average out the pricing over a three-year term, so trying to negate the puts and takes of promotional pricing, the telcos tend to be undercutting cable on price by, you know, 20% to upwards of 30% over that time, after, you know, promotional rates roll off and all this. What are you seeing in your markets and are there little niches where the cable companies are responding? If so, where are they coming at? Yeah. We've not seen an aggressive response. You know, there's certain promos, but they're typically in the lower speed tiers. Sweet spot for cable seems to be in the 400 meg-600 meg, and we're driving people to a 1 gig service. Our pricing for Fidium, you know, is simple, transparent, and competitive at $70 for a gig in year one, and it's a notable discount to cable. And a symmetrical product, you know, with best-in-class WiFi coverage and a great service experience. We think that's, you know, part of what's winning subscribers. We're driving them to 1 gig. You know, 60%-65% of our new adds are in the 1 gig range based on the price positioning. Even, you know, looking at the competitive offer from cable at 1 gig, we think we're well-positioned and really have only seen some competitive offers in the low-dollar range for, you know, much slower speeds. Interesting. Then how do you think about pricing going forward? You know, I can appreciate there are some nuances, you know, inflation reaching 40-year highs and all of this kind of underpinning what your strategy might look like. How do you think about Consolidated's ability to manage pricing going forward? Yeah, I think there's upward flexibility. You know, we're seeing some first year pricing in sample markets begin to roll off to the $95 you know post first year pricing. We think that sticks when it's compared to competitive 1 gig offerings. We're not seeing a ton of downgrades as a result. Early indications are there's room. Once people are on the service, it's very sticky because the WiFi experience is excellent. The Plume-enabled app that gives you total control over access to your network and parental management in an easy-to-use GUI interface. I mean, all that just makes it I think harder to change once you've got the service. It seems like there's room from a pricing perspective to make it feel essential so that, you know, we can handle the step up as the promo year rolls off. Okay. Got it. I think you mentioned earlier just about the pacing and timing. You know, you're running about one quarter hot on what your expected trajectory was going to be. Can you talk a little bit about what your targets are and if there's an opportunity to exceed that? Perhaps the overarching build, 1.6 million passings, maybe this is a good time to dovetail in some federal stimulus conversation of how you guys view that and perhaps tangential markets, new markets that you might be looking at as a result of that. Well, the build rate gives us a lot of flexibility. I mean, the point of working ahead is to manage the supply chain and position us well for public-private partnership opportunities. If we can move faster than others, it helps us in the RFP response process, as well as, you know, cost per passing. And so, you know, that's point one. The second in terms of build rate, you know, we use good weather to our advantage. We've had better weather than anticipated in the Northern New England markets, which has allowed us to work some ahead. Work is done in layers, you know, with the distribution network, and so there's underground work and things that require more pre-work, permitting and things like that. We have to work, you know, three to six months ahead, when you're planning for weather. We're doing some pre-work for 2023. We can manage the rate of the build, based on where we see the opportunity. We're just in a perfect position to ensure that we can meet, you know, our 1.6 million build by the end of 2025. Okay. Maybe talk a little bit about the federal stimulus funding. I know that there's a notice of funding opportunity that really seemed to lean toward preferring fiber services as opposed to fixed wireless or for other applications. Based on your review of that proposed funding opportunity and any work that Consolidated has done, how do you think about that opportunity going forward, perhaps over and above the $1.6 that you've outlined? Yeah, we're well positioned to participate in government support programs in our states and have, you know, a great track record here. It's part of our plan. You know, we've received roughly $67 million in broadband grant funding up until 2022. We've been working on, you know, available state programs prior to this. We've been awarded $20 million in funding so far this year and have line of sight, and it keeps growing to over $50 million in the next year. We're integrating it into part of our plan, and it will, you know, I think enable us to go above the $1.6 million. But at this stage, you know, I can't really speculate how much. My focus is on making sure we deliver on that plan at the best cost per passing, and we're doing that with government offset in areas that we might not have otherwise built to. Some of those areas take a little longer to build at times. You know, integrating them has been part of our priority so that we can maximize our position to acquire more of those funds than someone else might. All right. You touched on supply chain, and you know, it's been topic du jour for over a year now. Sure. Maybe can you just talk about, how you're managing your way through that process. If there's a competitor of yours who quoted it, you know, the pivot from just in time to just in case, from an inventory perspective. Have you done similar, and how well-positioned are you? What kind of line of sight do you have into your fiber build plan? Yeah, we've done very well with supply chain in support of our build plan. We've proactively secured the inventory support, you know, 2022 and the start of 2023. We've shared our five-year build plan with supply partners, and they've been very supportive, including setting up production just for our needs to commit to our fiber and material supply requirements. Initially, we had some challenge getting multi-gig CPE linked to our brand launch, but now have a very good plan and commitment in place for that. We've been able to overcome all the obstacles and challenge associated with obtaining the fiber build materials. I think you know, we continue to feel highly confident we can meet or exceed our 400,000 upgrade target for this year and the full five-year plan of the $1.6 billion, you know, by the end of 2025. From a labor perspective, I know that's kind of a big component into either underwriting some of these fiber builds. How do you manage the labor aspect of that? Do you source it all in-house? Do you supplement with contractors? Has any of that changed since you underwrote a lot of these, you know, fiber builds over a year ago? Yeah. The labor, we've been also in a good position to you know really build a relationship with our employee base that's set the stage for flexible resources so we could flex up and down, you know, based on the opportunity, and available, you know, build and return on investment. You know, at this point being about 18 months into the build, we're fortunate that we have a new four year labor agreement with our employees that gives us predictability for them and us on you know people development and compensation, all those things. We've got a host of contractors that we've either helped get established or have helped grow into you know our build, supporting our build needs. We're in, I think, an excellent position, especially in otherworldly one, but across all of our properties with deep long-term relationships that really position us well from a predictability of access to resource as well as management of cost. Within the underwriting of the fiber build plan, is there an inflation sensitivity built into that over the longer term? I know you spoke to costs being within the range of what you'd expected. Is there a point at which you might start growing a little more concerned if inflation reaches different markers? Yeah. I think we all have to watch inflation pressures. I can't say that any of us predicted what we're seeing right now, when we built this plan in 2019 or 2020. What I can say is, you know, the real signal, the only real signal we've seen of impact, and it's not significant, at this stage, is rising fuel prices, and we're seeing that on our own fleet. You know, so from a percentage of increase, it's startling, but in the whole scheme of our plan, it's not, you know, a significant element. As that filters through the economy, I think we'll have to watch for fuel surcharges and things like that. Overall, that's just on our watch list but isn't that significant at this stage in the overall cost model. Okay. That's fair. You know, we spend the bulk of our time talking about fiber to the home build and strategy that you've embarked on, and I think for good reason. There's a large piece of your business that isn't involved with the fiber to the home build. Maybe you can take a couple minutes to just give us an overview of your commercial carrier business and some trends you're seeing in those segments. Yeah. You know, it's interesting when people talk about the fiber to the prem build and we mix home and prem because it also includes commercial opportunity. We've always looked at it as an opportunity to leverage common assets across three revenue streams. You know, looking at commercial and carrier, this is one of our historical areas of strength. We've consistently been able to grow commercial data and transport, you know, 1.2%, even in tougher times. In recession periods have typically been, you know, some of our strongest periods for this business. I expect this to increase over time as we expand our internet market opportunity with the fiber to the prem fiber build. Our teams are constantly looking at build plans, what new businesses it enables, what Metro Ethernet, you know, product offering we can take. You know, while our carrier team has been working diligently on major tower contracts and negotiating those, and with some associated re-rates that we've talked about, we're getting extended terms and opportunities for new sites. We're constantly sharing our fiber maps and locations in an effort to, you know, attract small cell and new business opportunity. Overall, we're seeing good demand for what we call Metro Ethernet. Remember, although it's Metro Ethernet, it's essentially in suburban and rural areas where, you know, that kind of service isn't really available from anyone else. Our simple cloud portfolio, including UCaaS, helps the commercial business, you know, maintain lower churn and sell a solution, when, you know, some of our competitors in those markets, if they exist, can really only offer bandwidth. I think we're well positioned for that to continue to be a stable source of predictable revenue. I think on the fourth quarter, you spoke to some carrier renegotiation contracts that are coming up this year, perhaps next year. Can you just kind of fill us in where you're in on that? I think they hadn't hit as expected in the first quarter. Just to kind of give us a sense of where that is and where you think that goes over time. Yeah. This, those rewrites are, of course, based on the timing of when the existing sites fall under the new contract. As of first quarter, we saw minimal impact, but we still expect the impact, you know, to be in the 10-12 range. Might be a little shy of that now, but we expect that to be the case for 2022. You spoke to kind of longer-term growth on those channels exceeding the one to two points year-over-year that you've seen historically. Where do you sense that can ultimately grow on a year-over-year basis? Yeah. I really think it can be in excess of 3%. You know, we're seeing the COVID effects on sales resources start to subside now and people getting out and so the funnel's looking stronger. You know, I'm not ready to call victory on a return to full productivity, but we're finding new ways to sell. That's attractive. You know, I'm cautiously optimistic. You see in our CPE sales that the healthcare areas have freed up and we're starting to move, you know, in healthcare and education verticals a little more. You know, I'm optimistic that the signs are showing you know return to commercial activity that should drive that channel in addition to the fiber deployment that we have that you know gives us more network access. Yeah. I was gonna speak to kind of the higher level of the equipment sales in the first quarter. I think the highest level since that we've seen since 2019. But should we view that as a leading indicator? I know you kind of teased some of the verticals, but is that more broad-based or are there specific silos that are really driving that that we should look for an outsized growth going forward? Yeah. I think healthcare is probably the most active that we see. There's some activity across the board that gives us you know optimism based on you know what we see in the funnel. You know I would have to say healthcare and maybe you know related like network or business activity is really driving you know some of the things that I see in the pipeline right now. Okay. If we could take a step back and think more strategically, I know you've noticed and highlighted a couple assets divestitures, your Ohio market, your Kansas City geography. As you look through your portfolio geographies, how do you think about monetizing assets that maybe aren't on your roadmap for fiber overlay going forward? You know, we continue to review markets in our portfolio for investment or monetization. We're working investment plans and strategies for them until they're monetized if we go down that path. We believe we have the opportunity to raise, you know, substantial funds and additional liquidity through asset divestitures that are, you know, either in dialogue or consideration. Our criteria for reviewing them is looking at the fiber build opportunity. How fast we think we can get to it, how stable the asset is, and most of them, you know, in very small rural markets that even at our size, we won't get to, you know, near term. You know, what the competition looks like and what the potential is for, you know, a good valuation. I think we're in a good spot to, you know, complete some of that work and dialogue that's going on with folks that have interest. Have those conversations changed at all in recent weeks or months? I think, you know, the current volatility is certainly weighing on people's minds, but has the number of conversations you've had or, you know, the people you've talked to change at all over that time? Yeah, I wouldn't get into specifics around any conversation, but I would say the interest remains consistent and it's just, you know, a natural process that you go through. You know, you could maybe be a better judge of what the investment infrastructure investment markets are looking at. You know, my take is there's a lot of money looking for homes still and these returns are very attractive. It's a matter of focus and timing. Sure. Consolidated is unique in the wireless partnerships that you participate in. How do you view that over time? Is that a core piece of your business? Maybe give us a rundown of proceeds you receive, how your participation works, and how you think about that longer term. Yeah. Our five limited partnerships with Verizon have been consistently generating cash of around $40 million a year net of any CapEx. We've got no, you know, I wanna be clear, we've got no incremental CapEx or operating expense that go against these cash flows. They have been, you know, quite strategic to us, you know, especially considering the market state, the overlay, like, Pittsburgh and suburban Houston, suburban areas of both cities. Based on the unique investment and consistency of the cash flows, we feel like they give us a ton of strategic optionality, including potentially monetizing the assets. Yeah, it gives us good options. Okay. Now I think on the first quarter and something that, you know, conversations with investors that they've really struggled with is kind of financial profile of Consolidated, really inflecting toward revenue and EBITDA growth over time. Can you kind of review for us a little bit about what you guys disclose, when you have visibility to those things and you know, what the puts and takes are to achieving that? Yeah. Let me try and unpack that. I mean, first of all, from a funding perspective, we've got a lot of flexibility. You know, we control the pace of the build and the timing of our CapEx investments. We're spooling up to make sure we can capitalize on infrastructure opportunities as well as hit our build targets for current year and next year. At the same time, you know, we're pursuing and evaluating mobile asset sales that we've just discussed. You add that to the grant funding opportunity, the margin improvement that we're seeing when we convert to fiber. I mean, you're looking at a 35% margin profile approaching 40s and 50% as this plan matures. You know, we've got lots of financial levers to pull, and we're focused on executing on this 20-quarter plan, for the value creation that we know it provides. As we think about it, I guess from a Consolidated, if you will, you know, you have the growth from the fiber strategy that you're deploying, both consumer and commercial aspects of it and carrier. At what point do you foresee that growth offsetting the declines in your legacy services that are gonna continue to churn? Yeah. We think on a quarterly basis we should see revenue inflection in 2023. That's exciting. You know, there's some quarters where we feel like we get close to it. Yet, you know, you got voice and access to offset. We're very carefully, you know, focusing on the build areas where we think we can get the best return and yet know that we've got long-term benefits from all the fiber we're deploying. You know, we're excited to see units turn positive in Northern New England on the consumer broadband or the fiber to the premise broadband side. We'll see that go the full company by the end of this year, and revenue follows. Okay. Got it. That's helpful. You know, I hate to be overly tedious, but should we think about that as a full year 2023 over 2022 growth rate, or will the inflection point be in a quarter and that's kind of what we're keeping an eye out for? Yeah. The inflection point will be in a quarter in 2023. Okay. I guess how should we think about your current liquidity and your plans to fund this fiber build? I know you have a strategic financial partner in Searchlight Capital Partners. How should we think about the build CapEx requirement and your cash flow pacing over the length of this fiber build? Yeah, it goes back to, you know, our ability to control the pace of the build and the timing of those investments. Mitigating, you know, the build season and weather and when you can get things done. You know, that gives us a ton of flexibility. We've got in-house enough inventory to keep us, you know, building through 2022 and the first part of 2023. We've got public-private partnerships in queue. You know, I feel very good from a build engine perspective. I'm excited about the ramp we're seeing in the go-to-market customer acquisition front. It's balancing those, you know, with liquidity and events that allow us to accelerate or, you know, mitigate the plan through the five-year period. You know, we've got a ton of flexibility. We could build 450 or 500 if we thought that was in the best interest. You know, we've got flexibility to move the build cycle based on what we think is the liquidity envelope or the opportunity from a funding and return perspective. I guess that's an interesting point, that if you have the capability to build 450 or 500, I guess what are the moving parts that why you wouldn't expedite that and achieve your ultimate terminal passings sooner? Yeah, I think it's moderating the build and the customer value return. That's you know, we've got a very good digital engine that's over 50% of our new orders. We've got you know, great installation capacity and access to materials. It's you know, generating that awareness on a market by market basis as we do the passings and getting the community involvement. It's the whole cycle of the customer acquisition engine and the build engine being synchronized, and that's you know, what 2022 is all about. That's helpful. I guess lastly for me here, and then we can wrap. You know, how do you think about capital allocation priorities over the long term? I can appreciate now it's all really reinvestment into getting this fiber build over the finish line. You know, as soon as that's complete, assuming that you're able to achieve your penetration targets to the terminal penetration rate and/or above, you're gonna be generating cash. How do you think about the stack of capital allocation priorities, and where do you think you can manage this business from a leverage perspective as well? Yeah. From a capital allocation perspective, you know, the core network and the distribution, the core network's largely in place, but the distribution is really focused on the fiber to the premise. When you look at capital, you know, we've got the most significant percentage allocated to the fiber build. You know, the required maintenance, road moves, stuff like that is the second that you have to do as a utility or an ILEC that comes with the price of being, you know, in a position to control your access to rights-of-way. Capital allocation is really built around that. It shifts from the build, you know, over the next few years to connecting customers. You know, we'll see the CapEx taper, but shift in allocation to more connections. Really that's how we prioritize, you know, capital allocation, is funding the build first and then the connections to the customers, on a ratable basis as the customer acquisition engine continues to scale. All right. Well, with that, I think we're out of time. Bob, thanks for joining us today and shedding some light on Consolidated's strategy. We appreciate your time. Yeah, Caleb. Thanks for the questions. Have a great day.