Consolidated Communications Holdings' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Consolidated Communications Holdings, Inc. (CNSL)

Q2 2012 Earnings Call

August 2, 2012 11:00 AM ET

Executives

Matt Smith – Director, IR

Bob Currey – President and CEO

Steve Childers – SVP and CFO

Analysts

Frank Louthan – Raymond James

Barry Sine – Drexel Hamilton

Jennifer Fritzsche – Wells Fargo

Steve Blinn – Morgan Stanley

Donna Jaegers – DA Davidson

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Consolidated Communications Second Quarter 2012 Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Matt Smith. You may begin.

Matt Smith

Thank you, Mamie, and good morning everyone. We appreciate you joining us today for our second quarter 2012 earnings call. At the conclusion of the prepared remarks, we will open the call up for questions. Joining me on the call today are Bob Currey, President and Chief Executive Officer; and Steve Childers, Chief Financial Officer. Also available during the question-and-answer session is Bob Udell, our Chief Operating Officer.

Please review the Safe Harbor provisions in our press release in our SEC filings for information about forward-looking statements and related risk factors. This call may contain forward-looking statements within the meaning of the federal securities laws. Such forward-looking statements reflect, among other things, management’s current expectations, plans and strategies, and anticipated financial results, all of which are subject to known and unknown risks, uncertainties, and factors that may cause the actual results to differ materially from those expressed or implied by these forward-looking statements.

In addition today’s discussion will include certain non-GAAP financial measures. Our earnings release for this quarter’s results, which has been posted to the Investor Relations section of our website, contains reconciliations of these measures to their nearest GAAP equivalent. On July 2, we closed on the acquisition of SureWest Communications, and will report complete pro forma results on the third quarter call on early November.

I will now turn the call over to Bob, who will provide an overview of our second quarter results and an update to our integration progress. Steve Childers will then provide a more detailed review of the financials as well as updates to our 2012 guidance. Bob?

Bob Currey

Thank you, Matt and good morning everyone. I appreciate you joining us today. I’m very pleased with our performance this quarter. We remained focused on delivering excellent results while working rapidly to close on the SureWest transition, which happened in less than five months from the announcement.

Financial results were solid with revenue at $93 million, adjusted EBITDA at $44.8 million and the dividend payout ratio was 59.6%. We have continued to make improvements to the top line trends and the SureWest Acquisition provide additional diversification and growth opportunities.

Second quarter revenue on a pro forma basis was $157.8 million, which represented growth of 2.7% over the second quarter of 2011. We continue transitioning away from traditional regulated revenues while maintaining our consisting cash flows. And indicator of this progress is the continued growth in our business and broadband areas, which on a pro form basis including SureWest were 73% of the second quarter revenue. We also had a good solid quarter operationally.

Our broadband net adds were in – what is historically a seasonally soft quarter were solid and what is seasonally a soft quarter for the industry.

We added 2000 net new broadband subscribers with 1500 of those coming from high-speed Internet and 500 from our digital video. This broadband growth surpassed our ILEC access line losses by over 800 subscribers. The ILEC access line performance was also very strong this quarter with the last 12 months losses improving to 3.2%. These results reflect our continued success in our bundling strategy, led with our triple play offer, which continues to prove to be a differentiator in our retention efforts.

In our carrier sales channel data growth continues to drive increased capacity needs, especially from the wireless carriers. We’re well positioned to continue to benefit from this acceleration in wireless data conception both inside and outside our footprint.

In the second quarter, we added just over 400 new circuits to the wireless towers we served, bringing the total wireless backhaul annual revenue under contract to $9.7 million. Our CLEC business in the Pittsburgh area also had another solid quarter. We continue to extend the network off the fiber-ring into select commercial buildings were playbacks are attractive. We’ve had success in commercial customer growth with this strategy and see continuing demand.

And finally before I turn the call over to Steve, let me provide an update on SureWest. We’re very pleased with how things are progressing. We announced the functional organization structure in advance of the closing and retained two key executives in Scott Barber and Ed Butler.

Scott is leading the network and field operations teams for the new combined company and Ed has the responsibility for all of commercial sales. Both have played key roles and helping make the SureWest employee transition goes smoothly and ensure we’re delivering best practices, efficiencies and excellent customer service. The addition of the SureWest employees strengthens our bench and I would like to personally welcome all of the SureWest employees to the team. And I look forward to achieving great things together.

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