Consolidated Communications Holdings Inc (CNSL) 2017 Q4 法說會逐字稿

Good morning.

My name is Julie, and I will be your conference operator today.

At this time, I'd like to welcome everyone to the Consolidated Communications Holdings, Inc.

Fourth Quarter 2017 Results Conference Call.

(Operator Instructions) Please be aware that this call is being recorded.

Thank you.

Lisa Hood, Treasurer and Vice President of Investor Relations, you may begin.

Thank you, and good morning, everyone.

We appreciate you joining us today for our fourth quarter earnings call.

On the call with me today are Bob Udell, President and Chief Executive Officer; and Steve Childers, Chief Financial Officer.

After our prepared remarks, we will open the call up for questions.

Please review the safe harbor provisions in our press release and in our SEC filings.

Today's discussion includes statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties.

A discussion of factors that may affect future results is contained in Consolidated filings with the SEC, which are available on our website.

today's discussion will include certain non-GAAP financial measures.

Our earnings release has been posted on the Investor Relations section of our website at consolidated.com.

It does include reconciliations of these measures to their nearest GAAP equivalent.

And with that, I will turn the call over to Bob Udell.

Thank you, Lisa, and good morning, everyone.

We have a lot of exciting news to share with you today.

Effective February 20, we have launched our rebranding and we are now Consolidated Communications across all of our markets.

I'm very proud and pleased with the progress we've made throughout 2017 as we executed on key priorities and made significant advances with our broadband and business growth strategy.

We're off to a great start on closing, integrating and operating FairPoint, which most of you know, was a transformational transaction that doubled the size of the company.

Through our due diligence and work earlier in the year, we were well positioned to immediately begin integration, focus on alignment of the organization and execute on fast start customer and network initiatives.

We are recognizing the immediate financial, operational and capital structure benefits of the merger as well as increased scale becoming a top 10 fiber provider in the U.S.

We made great progress with our fast start initiatives, which have already improved the business, including redeployment of staff and augmenting technology, allowing us to improve call center answer times by over [40%].

We refocused policies and call handling procedures to dramatically improve handle times.

And we enhanced the customer installation experience by deploying new WiFi signal quality testers.

Just last week, we announced our plans to increase broadband speeds to over 500,000 residents and small businesses across our northern New England service area.

We have aggressive plans to expand our fiber network to achieve higher speed, resulting in increased broadband and network reliability.

In fact, nearly 84% of these locations will see their top speed capability nearly triple.

As a result of our investment in the fiber network, 100,000 customers will be able to get speeds of 1 gig.

The majority will qualify for speeds between 20 and 100 meg.

Even better, we are able to complete these speed upgrades and support our current commercial and carrier success-based projects while keeping our capital intensity to approximately 17% of our operating revenue.

This is mostly due to the quality of the fiber network we acquired with the FairPoint transaction.

In addition to upgrading broadband speeds and overall investments in the network, we're expanding and enhancing our commercial products and services.

You may know, we recently announced the expansion of enterprise business services across northern New England, including premise hardware virtualization, which is a cloud-based routing solution that provides scalability and built-in geographic diversity and a denial of service mitigation product that solves data security and business continuity challenges for our customers.

We are also launching our suite of cloud services, MPLS and SDWAN in northern New England during the second quarter of 2018.

We're very excited about the many benefits we'll offer businesses with these solutions and how this fits with our consultative sales approach, focused on solving business problems for our customers.

We have made great progress on our fast-start initiatives and integration.

We remain focused on achieving our synergy target of $55 million within 2 years of closing, while improving the customer experience and gaining operational efficiency.

As of the end of fourth quarter, we have recognized over $30 million in cumulative run rate synergies, which is ahead of our original plan.

We have a disciplined and proven approach to integration.

We recently completed 2 major milestones.

First, we successfully integrated the FairPoint -- or converted FairPoint to our ERP and financial reporting system effective January 1. We are now operating on a single, fully-integrated platform for finance, supply chain and human resource functions.

Second, we are pleased to have just launched the Consolidated Communications brand across all former FairPoint markets in the 17 states.

This rebranding signifies a new day and a fresh start.

We are committed to making this transition a seamless experience for our customers, and we are already in the early stages of rolling out new and enhanced services to residential and business customers.

I want to thank our employees who have come together as one strong team.

We share an unwavering commitment to provide reliable services and a better customer experience.

I'm impressed by our employees' dedication to constant improvement and the combined skills and expertise of our newly combined team.

Now let me turn to the 3 customer channels.

First, within commercial and carrier, data and transport revenues are up 1.4% on a year-over-year basis, Within the commercial channel, we have had some nice sales wins during the past quarter, including a new 20-site MPLS network in Minnesota, data center sales in Kansas and northern New England and sales of our Cloud Secure and cloud disaster recovery services.

These sales all represent sizable monthly recurring revenues and are all primarily new products for the former FairPoint markets where we see solid sales opportunities.

In addition to the new product launches, we are adding resources to support our small-medium business customers.

We see great opportunity to provide more value to SMB customers who will benefit directly from the speed increases and ultimately drive increased ARPU, reduced churn and win-back of market share.

We have integrated our carrier sales teams and are excited about the depth of experience and strong business relationships within this combined team.

An example of a recent win was a contract signed in January to install carrier services to 68 new towers in Maine, which were previously served by incumbent cable provider.

This same carrier ordered upgrades to 114 towers in Minnesota and Illinois, showing the benefits of our scale.

Including the January sale, our total number of connected towers under contract had increased to over 2,700.

Turning to our consumer channel.

We've already discussed our plans to upgrade 0.5 million addresses.

Our legacy Consolidated network enables us, by example, to deliver speeds of 50 meg or higher to 89% of broadband-capable homes.

These higher speed services drive higher consumer value.

And over the past year, we have increased our legacy consolidated consumer ARPU by 7%.

We expect to see similar impacts in the former FairPoint market as we implement our fiber network improvements.

As such, increasing broadband speeds will continue to be a top priority.

Turning to our consumer video offering.

We are focused on delivering a more profitable TV product and expanding our over-the-top content offerings.

In December, we became the first provider to strike an agreement to offer fuboTV, a leading live sports streaming TV service, bringing a very robust content lineup to the Consolidated customers.

Also in the fourth quarter, we launched HBO NOW, giving our customers access to one of the most in-demand standalone streaming services.

And finally, yesterday, we announced a new partnership with DIRECTV NOW.

Let me tell you what this means.

We can now offer streaming video service, including breaking news, sports and live events to all Consolidated residential customers throughout our entire service area.

This partnership is an extension of our digital entertainment and broadband strategies, allowing us to deemphasize and move customers away from capital-intensive linear TV.

Approximately 75% of our total revenue is still from business and broadband services.

We are intensely focused on increasing our strategic broadband and business revenue to offset legacy declines.

And we continue to target network investments, which deliver high-bandwidth services over our fiber infrastructure.

Now I will turn the call over to Steve for the financial review.

Steve?

Thanks, Bob, and good morning to everyone.

This morning, I will review our fourth quarter financial results compared to the pro forma results for the same quarter last year as if we had closed in the FairPoint acquisition January 1, 2017.

I'll also provide financial guidance for full year 2018.

Operating revenues for the fourth quarter were $356.4 million, down 4.8% compared to adjusted revenue of $374.5 million a year ago after excluding $5.4 million of revenue associated with the 2016 divestiture of our noncore, low-margin equipment sales and IT services business.

As expected, erosion of voice and access revenues make up the vast majority of the year-over-year decline.

In the fourth quarter, commercial and carrier revenue decreased $2.5 million to $152 million.

We did show nice growth in data and transport, as the revenue increased $1.2 million or 1.4%.

Legacy CCI data and transport revenue grew 4.1%, while FairPoint decreased 2.5%.

The FairPoint decline is largely attributable to continued price compression associated with large carrier contracts and churn in the SMB space.

These are areas our fast-start initiatives will begin to address.

In addition, our expanded cloud and MPLS services generated year-over-year revenue growth of 20.4%, and we plan to launch this product suite in the FairPoint market in 2008.

Voice revenue was down $3.5 million or 5.9%, while other revenue was flat.

Overall, we are seeing growth within our commercial data and transport revenues, which is offset by carrier revenue declines.

We have laid the foundation during 2017, positioning us to launch new products in FairPoint northern New England markets.

And by applying Consolidated playbook, we do expect to see stabilization in the former FairPoint markets in 2018.

Consumer revenue was down $7.3 million for the quarter.

Voice revenues were down $5.9 million, with the majority of the decline coming from FairPoint.

In the aggregate, consumer broadband increased slightly in the fourth quarter.

Some of the broadband growth realized earlier during 2017 is being offset in the fourth quarter due to seasonality in the northern New England markets.

We estimate the impact of seasonality contributed approximately $2.2 million to the overall decline in Q4 consumer revenue, with $1.2 million impacting broadband and $1 million going against voice revenues.

Additionally, beginning this quarter, we have split out video consumer revenues from broadband in order to isolate the declining revenue trend in video.

We expect this trend to continue as we encourage our customers to transition from linear video products to over-the-top streaming video content, which complements our broadband strategies.

For the quarter, video revenues declined $1.6 million as compared to the same quarter of 2016.

Subsidies and access revenue were down $7.9 million.

The 2017 step down in CAF II transition funding accounted for $2.1 million of the decline, while the remainder came from ongoing declines in network access.

Operating expenses, exclusive of depreciation, amortization, postretirement benefit, pension expenses, were $240.4 million compared to $250.4 million for the same quarter last year.

Again after adjusting for $5.7 million associated with the divestiture of the equipment business, the remaining year-over-year decline of $10 million is primarily the result of cost savings from realizing corporate network and operational efficiencies associated with the FairPoint merger.

Net interest expense for the quarter was $29.9 million compared to $29.3 million pro forma interest expense for the fourth quarter of '16.

Other income net was $8.4 million as compared to $9.8 million in the prior year.

Cash distributions from our Verizon wireless partnerships in the quarter were $8 million as compared to $8.9 million a year ago.

For the first quarter of 2018, we do expect to receive cash distributions of $9.5 million when we receive $5.6 million for the first quarter of 2017.

Our first quarter distribution does include a prior year true-up of $2.4 million associated with the accounting for prepaid data roaming within Verizon.

We continue to expect our wireless distributions to be in the range between $30 million to $32 million per year.

In the quarter, we recorded $112.9 million noncash tax benefit due to the Tax Cuts and Jobs Act of 2017, which was enacted December 22, 2017.

The tax benefit reflects the impact of the remeasurement of our deferred tax assets and liabilities to the lower corporate rate at which they are expected to reverse.

In addition to reducing the federal tax rate to 21%, the tax reform legislation allows for 100% immediate expensing of capital assets for the next 5 years.

Net-net, the tax reform will extend the time period before we expect to be a federal cash taxpayer from 2 to 3 years to 4 to 5 years.

Adjusted EBITDA was $133.2 million in the fourth quarter compared to $138.3 million a year ago.

The year-over-year decline is due to the loss of high margin, voice and regulated revenues, and lower wireless distributions, which we partially offset with the growth in business and broadband revenues.

In the fourth quarter, CapEx was $61.9 million or 17.4% of revenue.

We see opportunities with success-based and network growth projects to leverage investment in broadband, business and carrier customer channels across all of our markets.

From liquidity standpoint, we ended the quarter with approximately $15.7 million of cash on hand and $88 million available under our revolver.

For the fourth quarter, our total net leverage ratio on a pro forma basis was 4.34x.

After adjusting for a full synergy target, the net leverage ratio would've approximated 4x.

We have an attractive capital structure, with a low cost of debt and no maturities until 2022.

In response to the recent movement in interest rates, we recently executed an additional floating to fixed rate interest swap, increasing our percentage of fixed debt to 75% from 50%.

Given effect of this additional hedge, our average cost of debt is now 5.22% on a pretax basis.

The additional hedges enhanced the certainty of future cash flow and the stability of our dividend.

Cash available to pay dividends was $42.5 million, resulting in a strong dividend payout ratio of 64.6% for the quarter.

The FairPoint acquisition significantly improved our dividend coverage as this transaction gives us access to FairPoint's already strong cash flow, the benefit of synergies, significantly improved financing terms and the tax shield of their NOLs.

Our Board of Directors declared the 51st consecutive quarterly dividend of approximately $0.39 per common share, payable on May 1 to shareholders of record on April 15.

Now let me provide an overview of our 2018 guidance.

We expect cash interest cost to be in the range of $123 million to $128 million.

Our estimates for 2018 are based on our current capital structure, our portfolio of interest rate swaps and the forward-looking LIBOR curves.

Cash interest income taxes are expected to be $1 million to $3 million, as we will pay some state and local taxes.

But for federal cash taxes, we will be shielded by current NOLs as well as the benefit of tax reform.

Finally, we expect capital expenditures to be in the range of $235 million to $245 million.

During 2018, we will focus investments on our fast-start initiatives in FairPoint markets as well as success-based to support fiber expansion and broadband speed upgrades across all of our markets.

We expect our capital intensity to be approximately 17% of revenues.

With that, I'll now turn the call back over to Bob for closing remarks.

Thank you, Steve.

In summary, I'm confident in our ability to execute on our strategy and to effectively integrate the FairPoint operations, realizing the many benefits as a combined company.

There have been no surprises and we are even more excited about the business combination, which strengthens our cash flows, provides for increased capital flexibility and significantly expands our fiber footprint.

We expect a seamless integration and are already delivering an improved experience for customers.

We intend to fully leverage our increased scale, resources and expanded fiber network to continue to bring great benefits to our customers.

We are excited about what's to come.

We're committed to also delivering value to our shareholders through our long-standing dividend.

And we're focused on the long-term, building an even stronger and more competitive company as we invest for the future and grow our strategic revenues.

Thanks for taking the time to join our call today, and we'll now take questions.

Julie?

(Operator Instructions) Your first question comes from the line of Frank Louthan with Raymond James.

Just a follow-up on your last point there about the dividend.

Talk to us a little bit how you view the dividend.

And it sounds -- doesn't that sound like you're considering a sort of modification like some of your peers have.

And why do you think your position is different from theirs, and how do you view that?

And I want to get a little more clarity on the DIRECTV NOW application.

Are you pushing that through your set top box apps?

Or are you adding -- you're going to have a Roku or Fire Stick promotion?

And how extensively can you push that out into the FairPoint territories?

Thanks, Frank.

First, regarding the dividend.

Let me be clear.

We have never been in a better position from a dividend payout ratio, while also giving great flexibility for significant investment in expanding our fiber network.

So you look at 17% of operating revenues going back into CapEx, the success-based projects, especially in commercial and carrier, that has additional, even residential MDU opportunities, we're in excellent position.

So the return on capital commitment we've made to our shareholders is incredibly important to us, and we see no reason to change that strategy.

Related to DIRECTV, it will be a Roku-like device that we use through a promo, and there will be no set top box.

And that's the key advantage of filling out our over-the-top TV offering.

It positions us well to reallocate that CapEx and continue to expand speeds and focus on making technology easy for our customers to use versus a set top box installation complicated process.

Is there a cut off?

Is there a certain type -- level of speed customer that you're not necessarily providing this to?

Or is this going to be pushed out to all customers?

And any update -- any information on the economics to you guys from that relationship would be helpful.

Yes.

I can't go into the economics of it.

Let us get a little more experienced with it first.

But other than the obvious economics of the set top box offset and the more efficient self-install that comes with it.

But the bottom line is it's available to all of our broadband customers.

The key is, we have focused on expanding speeds through our history.

And so our footprint in the Consolidated legacy areas, which is a great example of what we're pursuing with the upgrades we just announced in the FairPoint areas, with an almost 90%, 50 meg accessible footprint.

We have no areas where we won't offer the DIRECTV NOW.

Your next question comes from the line of Jon Charbonneau from Cowen and Company.

Your data and transport business grew 1.4% year-over-year versus I believe flat growth last quarter.

Can you talk a little bit more about what the big drivers were of the improvement, and how do you recommend we think about growth within that segment over, call it, the next couple of quarters?

Yes.

Thanks, Jon.

The main drivers in data and transport are a couple of things: One, certainly, the Metro Ethernet focus, and that being our lead product in our consultative sales strategy.

And with higher cloud adoption, we've seen continued momentum in Metro Ethernet.

And so when you look at overall growth, I think the real pressure on data and transport, because we've realized twice that growth in historical years for Consolidated, has been some pressure on wireless backhaul and price compression around those contracts, which we've leveraged into renegotiating additional sites like we've announced recently or even on this call.

So if you break it down into year-over-year Metro Ethernet's been almost a 7% increase.

Cloud has been a 10% increase year-to-date, and I'd say, those are the major drivers.

Your next question comes from the line of [John Kim] from (inaudible).

I was wondering, given the amount of progress you've made already on the synergy target, is there an opportunity this year to potentially increase the target synergy amount from $55 million?

[John], that's a natural question.

And so I did anticipate -- that's an obvious place to go.

But it's too early.

Right now, what we're really focused on is those projects that both deliver synergies and a better experience for customers.

And so with our continued reinvestment in marketing, sales resources, I think it's too early to call a win or an overachievement, but we're going to deliver one, if it all possible.

Your next question comes from the line of Michael Rollins from Citi.

Curious, in 2018, what would you expect the dividend payout to be percentage-wise of the definition or churn that you call cash flow available to pay dividend as your CAPD?

Yes.

I think, Mike, the way to think about it is, and we give you a lot of ways to triangulate towards that from CapEx and taxes, interests.

The way to think about it is we're targeting the mid-60s.

And I used to be comfortable with a 70%, if I saw an investment that made sense, from a capital perspective.

But with this larger scale, there's no reason we shouldn't be able to remain in the mid-60s and still invest in every good capital return project that we identify.

And secondly, (inaudible) to the synergies, are there opportunities for further cost-cutting in 2018 to streamline the operations, whether it's in your heritage portfolio or the FairPoint portfolio?

Let me make sure I understand your question.

Is there synergy upside, or natural -- or you're referring to the business at large, continued efficiency that come from scale?

I guess, either.

So in addition to (inaudible), separate from synergy [home] that you said, are there additional opportunity to cut cost in the either side of the business, the heritage or the FairPoint operation?

Yes.

I think we're always looking at cost efficiency opportunities.

And that -- those real scale efficiencies typically come after our 2-year integration period.

So again, I hate to sound like I'm repeating myself, but I really think our synergy guidance is good for now.

We've accelerated some things because we saw the window of opportunity to do so.

We'll continue to do that, but I'm hedging a bit, because I continue to invest back in the business in order to stimulate revenue through marketing and sales resources.

So it's a little too early to target or be specific on any wins around synergy acceleration.

Your next question comes from the line of Amy Ecker from HPS Partners.

The pro forma adjusted EBITDA number given, what does that include for realized synergies?

This is Steve.

So thanks for the question.

On the realized synergy, Bob mentioned that we have -- ending the year, we are on track for cumulative run rate synergies of $30 million.

And I guess I can't -- I don't know the exact number that we would say would be realized, but I'd probably say maybe 1/3 of that is already factored in, maybe a little bit more.

Because remember, we got -- as you think about -- as the way we think about the whole $55 million, we probably got 20-plus percent of that at closing with getting to one management team, shutting certain facilities or may duplicate position.

Then everything else since then has been sort of incremental, either based on integration or just aligning the organization.

So I'd give you a conservative estimate that maybe 1/3 of it's being factored in give or take a little bit.

Okay.

So about $10 million is included in the $536 million?

Is that about, right?

Yes.

Yes.

And then the changes that you're making in the FairPoint footprint, the announcements that you made on speeds earlier, when do you expect those to be completed?

This is Bob Udell.

Thanks for the question.

Most of the speed -- actually, most -- I'd say 95% will be completed by August.

And they'll be rolling out improvements, actually are beginning this quarter, but will really pick up steam in the middle part of second quarter, with most of them being completed by the end of third.

Your next question comes from the line of David Tawil from Maglan.

I wanted to ask -- thank you for the guidance for '18 on some of the cost and expenses.

When we think about projecting revenue and EBITDA for '18, can you talk about, not in terms of specific numbers, but can you talk about how we should think about a bunch of the moving parts?

How much opportunity is there in the FairPoint assets to go ahead and increase revenue?

What lines in particular?

How should we think about the bump in the Verizon wireless coming in the first quarter?

A couple of the other kind of little things here and there that will help us kind of guide to what the expectations are for the top line.

Yes, Dave.

This is Steve, I'll try and Bob can jump in, if needed.

So the way I would think about it is we are -- the guidance that we've given on cash interest CapEx, cash taxes, that's consistent with our philosophy and guidance as we went public in 2005.

But I guess the things that I would also call you out, we are not giving specific revenue guidance or adjusted EBITDA guidance.

But what I think you can infer is that we basically gave the ranges for CapEx.

We called out that we expect our capital intensity number to be around 17%.

So I think you could kind of back into the number there.

Bob mentioned that our targeted payout ratio is to be 65% on an annualized basis.

So I think you can kind of back into the number that way.

But the way I would think about it, if you look at -- for revenue specifically, if you look at 2016 to '17 on a pro forma basis, we're down roughly 4%.

And again, where we're at right now, Consolidated maybe has a little -- is a little bit stronger on the commercial carrier side, has stronger consumer broadband on the FairPoint side.

I think there's a lot of opportunity with the new sales team, new sales leadership and new products that we're rolling out.

So I think I would kind of start with the 4% number.

And Bob mentioned, it's going to take us a while to get all the fast start network extensions out in the markets to really take advantage of.

But I would start at 4% and kind of work your way down on what you think incremental improvement would be or if you look through the revenue tables we have there, I would expect to see growth on the data and transport line, commercial and carrier.

That's where we're investing in the business, both from a sales resource, customer service standpoint, a network standpoint.

We -- with the FairPoint transaction, we did pick up an -- more voice revenue, which we have to kind of work our way through.

But there's also -- with the fast-start initiatives, we also think there's quite a bit of upside in the broadband speed.

So I think look for growth in commercial data and transport, consumer broadband, and kind of look at video sort of being the same sort of run rate that we've had, more -- intentionally migrating customers from linear video over -- to our over-the-top, helping to get faster broadband speeds for those customers and extending the relationship that way.

Voice is going to continue, hopefully, to erode.

Hopefully, we can slow that down a little bit.

But that's the way I would think about it.

The subsidies are kind of set based on the normal stepdowns.

We have, I think, one more CAF II stepdown in 2018, network access will kind of erode at the same pace, hopefully, a little bit slower.

But again, net-net, there are a lot of moving parts in it, but I would start at 4%, assuming there's going to be some improvement in the number.

Look at it that way.

And then just one question on the bottom line.

It seems like companies has -- fair amount of cash on hand has access to fair amount of liquidity, should be generating some pretty good net free cash flow over the next 12 months.

And vis-à-vis, the company's capital structure -- has the company thought about best use of those liquidity options, vis-à-vis the debt of the company?

I mean, it's currently trading mid- to high-80s, and maybe there's an opportunity to go ahead and retire some debt at a discount at this point?

Yes, David.

Thanks for the question.

We have constant dialogue with the board around capital allocation.

And the way to think about cash, at least that we do, is if you have debt that doesn't expire until 2022 and you're buying it back, you're saying you don't need to access that cash at any point in the future between now and the refinance.

And we made -- continue to look at acquisition tuck-in targets.

We want to keep our options open for expanding and growing the business.

So I hear you, and we continue to think about those options.

But we think and still see the best return being organic expansion of fiber and expanding what we do well, making sense out of technology for our customers.

Understood.

Listen, if you guys think that the growth CapEx or the growth acquisition is a better spend of -- and return on capital, I'm all for it.

I just wanted to make sure that those thoughts were being passed around.

You're next question comes from the line of Scott Goldman from Jefferies.

I actually had a few if I could, hopefully, on the smaller side.

But can you just give us a sense for what we're seeing around customer growth add and customer churn in FairPoint territory since you've closed the deal?

Presumably, that should -- those metrics should improve with the rebranding and the investments in speeds.

But just wondering what you've seen in the first 5, 6 months, or what has been since closing?

And second, maybe talk a little bit about some of the impacts we've seen in the past have been around carrier price compression that have eaten at the commercial and carrier side.

How far along you think we are in that process?

Have we seen any of that abating?

And then lastly, if you could just talk a little bit about what your customer pricing strategy may be, now that we're in 2018?

Any planned price increases or changes in the pricing structure?

Okay, I'm going to take the -- thanks for the question.

I'm going to take consumer pieces together on data adds and the pricing strategy, and then I'll get to the carrier piece.

With regards to, I think, FairPoint, notwithstanding the seasonality things that we talked about, when you look at the decrease in data of DSL customers quarter-over-quarter, we feel like that our strategy is starting to impact that, and we've at least reduced that decline by about 25%.

And so the real -- year-over-year.

The real impact is going to be with the speed upgrades, and that gets to the pricing strategy.

We are using a proven bundle strategy that we have that really leverages both the speed, and then our unified portal platform for unified login for our customers.

And that platform draws the customer into using more services, including over-the-top content through unified authentication and puts us in a better service position with the customer.

And our install is typically done such that we make sure that there's WiFi coverage in the structure.

So that's been our niche.

And the final comment around the consumer strategy is all bandwidth isn't created equal.

One of the things that we've had great experience with is in prioritizing the traffic and making sure that when customers are doing something that require real-time connectivity, that, that's prioritized higher.

Not all of our competitors do that, and that helps us compete with speeds sometimes that are advertised lower than what the competition advertises.

The average utilizations in the -- still in the 10 meg range and hasn't been growing much faster over the last year.

So we're in a position with that product, and we price competitively with some typical offers like gift cards and things like that, where it's required.

On the commercial side -- or the carrier side, I'm sorry, yes, we continue to work through that squeeze from a price compression perspective, but are doing so in a way that allows us to acquire new sites.

We announced a number of new sites.

Actually, 68 newly signed in January, in addition to the 50 plus that we have in the pipeline from fourth quarter.

And so we're seeing that pick back up.

We did write-down another contract in fourth quarter, about $1.4 million, and it's just in that period between retroactive or impacting the existing rates and bandwidth while we have a lag to the additional towers -- new towers that we're adding.

So I think we're -- in terms of how far through that price compression impact, I think we're in the seventh or eighth inning.

We have some things still to work through in 2018, but I believe we've got enough momentum and new opportunity to offset that.

So I would see it being likely relatively flat in terms of impact.

Your next question comes from the line of [Robert Strougo] from [Maris Investments].

Our stock is taking credit hit, and our return is close to 13%, although thank God, you've been so good on this conference call that the stock is up over $1 right now.

When I look at opportunities, stock yielding 13%, the thought is why shouldn't the board try to buy some of that stock back to reassure investors that you do have a viable plan for the future?

Especially with what's going on in the market there, hysteria around the whole sides.

It's a 13% yield.

What's your thoughts on that?

Can you divide -- divest of some of your assets to capture some of that value in the stock?

Yes.

From a personal perspective, that's something that you can look back in insider buying and that's been happening with our board and a couple of our management team.

So we obviously believe that to [create return].

In terms of use of corporate capital, I think I've answered that question.

We believe that strengthening the long term of the business versus short term, jocking of the capital structure, is what fits our strategy and the long-term shareholder return.

(Operator Instructions) Our next question comes from the line of Davis Hebert from Wells Fargo Securities.

I wanted to ask about the performance of your broadband customer base in the quarter.

It's certainly better than your peers.

But just wanted to ask about how the performance was in the legacy FairPoint footprint versus the legacy Consolidated footprint?

Yes.

I thought I mentioned that earlier, and if I didn't, here, let me get very specific.

FairPoint was down on legacy FairPoint in terms of broadband connections, and that's largely due to 2 things: One, there hasn't been much proactive marketing, in even the areas where speeds are high.

There's seasonality impact of kind of a snowbird effect, and we've made some improvements for the future on helping those customers suspend versus disconnect, which affects that seasonality.

And finally, I think the speed upgrades are an indication that we've got some work to do there.

And so 500,000 passings, we're going to more than triple speeds for 80 -- over 80% of those customers is an indication that we're going to have more opportunity for improving that same time in '18.

Okay, that's helpful.

And it might be helpful if you could break out your current market share in the FairPoint footprint and how that compares to where your target might be, whether that's a penetration rate or something to that degree?

Yes, let me give you an example of the legacy Consolidated areas.

Where we have 100 meg or higher, we're in the 35% penetration range.

Across all of FairPoint, we see a little over 15% penetration.

So we see excellent opportunity for penetration improvements just by that comparison.

Okay.

And could you help us with -- I mean, you're upgrading your speeds currently.

What would you say the lag time would be between the actual speed upgrade and where your market can actually start seeing some broadband customer growth?

Well, let me break it down to just an example.

Where we do a node upgrade, we're canvassing that neighborhood like the old days when cable TV rolled out.

We're going door-to-door and doing community promotions.

So I think that the way to look at it is the lag time between when it's upgraded and we're bringing customers, installing customers, is very low.

I mean, it's days and maybe a couple of weeks.

In terms of the revenue impact, it's been 30 days later.

So I would see a progressive impact throughout the year with more of it coming in the summer months as we make progress.

Would it be fair to say you would expect broadband customer growth through -- for the full year '18 versus '17?

Yes.

I'm not certain that I can see that.

I think it's -- I think you're going to see a lift in ARPU, and certainly, revenue.

And at least, a slow in the decline.

Because remember, we know we bought a declining consumer base that we're mitigating the decline on.

But in terms of the broadband-only line, I think we'll see improvement there.

And I think towards the end of the year, once we've realized the benefit across the whole footprint, then we'll have a better feel for are we going to see net adds across the northern New England and FairPoint legacy markets.

But we're certainly putting ourselves in a good position to realize that.

Okay, very helpful.

And just one last balance sheet question.

I know someone earlier asked about potential bond buybacks.

But is there anything else you guys are looking at that could somehow accelerate the pace of deleveraging?

I don't know if it's asset sales, maybe some noncore markets, anything to that degree that could give debtholders a little bit more comfort here?

Well, I think the place to start is you look at the robustness of the assets.

And now that we're over the transaction fees associated with the field, I see us in a much better position to continue, through synergies and improvements in the business, to realize better leverage ratio.

That's certainly our focus.

Yes, and Dave, I would just pile on to that.

I mean, again, I'm just going back to what I said in the prepared remarks.

I mean, compared to other people in the peer group, I mean, we have a very attractive capital structure.

There's no maturities for 2022.

We did significantly increase our -- minimizing the floating rate risk that we were attacking with the additional hedges.

I think we have a very attractive cost of capital.

So I hope people take comfort that this is a different quality of asset, operating team and opportunity relative to maybe some of the people in the peer group that we're being benchmarked to.

Your next question comes from the line of Jenna Fritzsche from Wells Fargo.

I wanted to ask the inevitable M&A question.

I know you certainly have your plate full right now, just given on the heels of just acquiring a large asset.

But if I look back to Metro Connect and listening to some of the fiber conference where we were in Miami, there were some assets there which claims to be for sale.

And we've seen some trade in the high-teens.

Are you shocked by some of the multiples being paid right now?

Or is that something you're looking at everything where your head's down and we won't look at it for 2 years as has been your history?

Thanks, Jennifer, for the question.

First of all -- first off, maximizing the value of the FairPoint fiber assets is job 1, and leveraging the fiber we have across the rest of our markets is near equal with that.

So we're going to continue to focus on that.

But 2 things.

One, we're always interested opportunistically in tuck-in assets.

It's a build versus buy decision.

If we can buy an asset that gives us faster return than building it, we'll certainly consider that and pursue that.

With regards to the multiples, it's amazing to me that private market multiples being paid for companies, when comparably, cash flow net positive companies are trading at public arena at a comparably lower multiple.

So I think that makes the rush to a fiber asset bidding process less attractive, and we're going to have to let that bubble pass.

But there are some assets where people look at what the likely outcome is of the deal, and we can -- and that's our preferred buyer.

It's happened in the past, and I think there's opportunities for that to happen again.

Great.

And if I may, one more.

I just wanted to ask carrier backlogs has been a focus of conversation for a lot of companies.

Can you quantify the remaining life of your contract you're seeing there and just maybe activity you're seeing from the carriers themselves?

Yes.

I -- let me talk about the activity we're seeing.

I think we went through a period of time when there was a lot of RFI activity, carriers looking at different type of scenarios for small cell.

That has passed.

And in the fourth quarter, we've seen more of those contracts being left.

And so we're in the stage now where I see momentum building.

And as a market, we've had to adjust to the pricing, the price compression that came with -- really because of the catalyst of unlimited wireless bundles.

And so now the market's adjusting to that, we feel -- and we've adjusted to it, we feel very well positioned with our scale to capture that opportunity.

And so when you look at what exposure remaining for us, while there's a few contracts we have yet to work through in '18, we think there's equal enough opportunity to offset any impact we might feel on the carrier side.

However, there may be a few months lag between, like we saw in fourth quarter, a contract rewrite and the install of the new sites.

So we'll continue to try and mitigate that and work through that in 2018.

But is it fair to say the sense of urgency you're seeing from carriers to deploy fiber, because you have all 4 wireless carriers now spending is being seen, is that a fair statement?

Which I assume is good for companies like you.

Yes.

Yes, I think that's a fair statement.

Again, I'll comment on fourth quarter.

We've seen the activity pick up and contracts being let, and we are in discussions and competitive negotiations in a number of cities now where I think the contracts are actually going to get let and signed.

So I feel like the activity is definitely exponentially more right now versus the inquiry mode without corresponding deals that we saw through early last year.

Our next question comes from the line of Arun Seshadri from Crédit Suisse.

I want to ask you some questions that you may or may not want to answer, but I'll ask it anyway.

Just wanted to get a sense, if you look at broadly pro forma revenue for '17, you've done significantly better in Q3 and Q4 in sort of reducing that year-over-year pro forma decline.

Just wanted to get a sense for broadly speaking, I mean, I guess, your expectation would be to do better than the full year pro forma '17 impact.

And then is there any way you could kind of, at a very high-level, look at -- share with us, if you haven't already -- if you have already, I'm sorry I missed it -- just between the FairPoint properties and the legacy CNSL properties, what those numbers would have been.

And high-level, sort of would it be fair to expect some level of improvement for the full year more akin to what we've seen in the last couple of quarters?

Yes, this is Steve, and maybe you missed the earlier conversation we were talking about revenue, so I'm not -- I won't repeat all that and happy to talk to you offline about it so we don't have to drag everybody else through it.

But basically, if you look at 2017 to 2016, we're down 4%.

And we -- when we -- to your point, we do you expect to see improvement in that.

And I think if you -- right now, if you look at -- if we -- we're not necessarily giving FairPoint or Consolidated information, but FairPoint was basically losing 4%, 5% a year prior to the acquisition.

I think because of the seasonality, maybe that broadened out a little bit in Q4.

But again, we would expect, with all the fast-start initiatives we talked about throughout the call and the Q&A, we would expect to see that contribute or improve in 2018.

And also on the Consolidated side, we were probably a little bit higher than we would've expected to be going in this year.

A lot of it was the price compression that Bob was talking about earlier, we feel like we've -- getting closer to being behind us.

And we've also made some changes in our sales leadership where I think we're going to be a lot more focused, we're going to be a lot more responsive on CapEx to support fiber build for carrier and commercial (inaudible).

I guess, I would -- we could go through it more in detail on a call or whatever, but we'd start at 4% as kind of the baseline (inaudible) improvement off of that.

There are no further questions at this time.

I turn the call back over to Mr. Udell.

Well, thank you.

Thanks for your interest in our (inaudible) and I appreciate you all joining us.

We're very excited about the beginning of 2018 and the long-term value we're building for our customers, our employees and our shareholders.

Appreciate you all joining us.

Have a great day.

This concludes today's conference call.

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