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Consolidated Communications Holdings, Inc. (CNSL) Q2 2019 Earnings Call Transcript

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Consolidated Communications Holdings, Inc.  (NASDAQ: CNSL)
Q2 2019 Earnings Call
Aug. 01, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the Consolidated Communications Holdings, Inc., Second Quarter 2019 Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the call over to your host, Ms. Lisa Hood, Treasurer and Vice President of Investor Relations. Please go ahead.

Lisa Hood -- Vice President, Treasurer & Investor Relations

Thank you and good morning, everyone. We appreciate you joining us today for Consolidated Communications' Second Quarter 2019 Earnings Call. On the call with me today, our Bob Udell, President and Chief Executive Officer; and Steve Childers, Chief Financial Officer. After our prepared remarks, we will open the call for questions.

Please review the safe harbor provisions in our press release and in our SEC filings. Today's discussions include statements about expected future events and financial results that are forward looking and subject to risk 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 discussions 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 includes reconciliations of these measures to their nearest gap equivalent.

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

Bob Udell -- President and Chief Executive Officerr

Thanks, Lisa. Good morning and thank you for joining Consolidated Communication Second Quarter earnings call. Before we review operating financial results of the quarter, I will remind everyone that with the start of the third quarter of 2019, we are now operating under our new capital allocation plan. We paid our final dividend payment on May 1st and are now positioned to utilize over $27 million per quarter in free cash flow to deliver.

Now I'll discuss our second quarter results. Beginning with our commercial and carrier channels, we experienced both year over year and quarter over quarter growth in data and transport revenues. The growth rate was just over 1% for the recent quarter and we anticipate finishing the full year with a 2% increase in data and transport. In our commercial market voice and data applications often include multi product solutions. Our advanced commercial product suite, including ethernet and cloud-based services, along with our consultative sales approach, allows us to compete and win new customers. We continue to see opportunity within the financial and healthcare industries.

Recently, we were chosen by two different local banks, one in Illinois and one in Maine, to provide their network. voice, Wi-Fi and data security solutions across all of their locations. While these services are essential to financial institutions, most small and mid-market customers also don't wish to build out and support these services on their own. The same trend is proving to be true of small to medium sized healthcare providers throughout our footprint. In our SMB customer group, we have added sales resources in our acquisition retention channels to promote our BusinessOne product bundle. BusinessOne gives small businesses options and flexibility for their voice and data services at competitive pricing. We have seen early success as we acquire new business customers and focus on reducing churn.

Our carrier channel continues to experience strong results in 2019. As in the prior quarter, we see continued demand for wire for wholesale, local and regional ethernet, as well as dedicated Internet access services as a result of our larger scale. We continue to leverage our 37,000 mile fiber network for other carriers who need connectivity to end users in our markets. Total tower connections under contract increased by 167 or 5%, as compared to the second quarter of 2018, reaching a new record high of 3,790 tower connections. This is the second sequential quarter with a 5% increase in new tower sales. Our carrier team has also contracted bandwidth upgrades for 125 existing tower connections. As a result, second quarter sales and total billed revenue exceeded full sales quota and revenue forecasts, both year-to-date and year-over-year.

Our team won a healthcare IP network in Oklahoma consisting of a long-term contract for eight locations with a total contract value of $1.8 million. We also secured a contract to provide connectivity to a carrier, serving 32 northern New England locations for a national retailer. We continue to see the benefits of our regional fiber network enabling other carriers, who have national accounts to utilize our network as proven by these examples.

In addition to our carrier channel having a great quarter, I'm really excited to update you on our consumer channel highlights. We are encouraged by the positive signs we are seeing in the consumer business, including the performance in legacy markets and ongoing improvements in northern New England. Data units have grown for two consecutive quarters and broadband revenue is up more than 2% from last year.

This week, we launched a next-generation video product in northern New England. Packaged as part of a new triple-play bundle, CCI TV will improve broadband attachment rates and reduce customer churn. This is cool stuff. The cloud-based service delivers 200 channels of local and national content and includes high-demand features such as replay and rewind TV. It's a cloud-based DVR for viewing content anywhere at any time, and has voice-activated remote controls as an option. CCI TV in northern New England is a first step in transforming our consumer go-to-market strategy by delivering video service without the requirement for a set-top box and dedicated installation, It's the right product at the right time in northern New England and builds upon our work to grow revenue and improve the customer experience. The reengineering of our service delivery process has resulted in significant improvements in installation intervals, on-time arrivals and call center wait times.

These and other service improvements were accomplished while generating over $5 million in additional annualized savings. These steps were critical to taking advantage of the increase in speed capabilities that are happening across our network. We continue to execute our playbook and drive consumer broadband revenue growth and faster speeds. The addition of CCI TV to the product portfolio in northern New England enhances our ability to expand our broadband connectivity and grow wallet share by appealing to a larger base of customers with a superior television service.

Finally, we invested $66 million in capital expenditures during the second quarter. In addition to normal increases associated with the seasonal construction period, the quarter includes roughly $10 million in non-recurring capital expenditures, with the majority associated with restoring costs for Hurricane Michael in our Florida property and wrapping up integration related projects. We are still projecting our full year capital expenditures to be within our guidance of $210 million to $220 million.

I will now turn the call over to Steve for the Financial Review.

Steve Childers -- Chief Financial Officer

Thanks, Bob, and good morning to everyone. Today, I'll discuss our second quarter financial results as compared to the second quarter last year, and I will also provide updated guidance for the full year of 2019. Operating revenues for the second quarter were $333.5 million. After normalizing for the 2018 sale of our Virginia ILEC properties, revenue declined 4.4% percent for the quarter.

Now, I'll discuss each of our customer channels. In the quarter total commercial and carrier revenue declined $4.1 million. Data and transport revenue totaled $88.5 million and grew 1.1% for the quarter. Revenue from voice services declined $4.2 million or 8.2%, driven by the continued decrease in traditional access lines and associated services. Additionally, in other revenue, which is primarily equipment and structured cabling, was in line with our normalized run rate of around $13 million per quarter. In the second quarter, we did not recognize any revenue from any large projects as we did in Q1 '19 and Q4 '18.

Consumer revenue was down $6.6 million or 4.8%. Voice revenues accounted for $6.4 million decline, Video revenues decline $1.7 million and this trend is consistent with our pre-CCI TV strategy. For the quarter, consumer broadband revenue grew $1.5 million or 2.4%. We continue to execute on our strategy of driving revenue growth with faster network speeds as the speed upgrades are positively impacting ARPU and increasing sales and reducing churn. Subsidy revenues were down $2.8 million, driven by the final impact -- driven by the impact of the final CAF II step down in transitional support that occurred in August of 2018. We expect subsidy revenue of approximately $18 million per quarter for the remainder of 2019. Network access revenues decline $3.1 million or 8.4%.

Before leaving the revenue's discussion, I would like to comment on recent speculation about the impact of transition from CAF II to the Rural Digital Opportunity Fund. The SEC is scheduled to vote on the notice of proposed rule-making today and will be seeking comments on their initial design. First, we do plan to be an active participant in the auction process and we are confident our fiber rich network will give us a competitive advantage over those who don't have the infrastructure in these world markets. This auction process allows us to be selective in relation to the census blocks, We will consider versus the CAF II process that required a bid on the entire state. We will be evaluating the funding within our existing service area as well as agile exchanges where we have fiber network.

Second, the FCC asks numerous important questions, particularly related to the transitional funding. The CAF II order talks about us receiving a seventh year of transitional funding through 2021, based on other carriers acceptance of funding and the FCC seeks comment on how it should do so. The overall original Rural Digital Opportunity Fund is larger than CAF II, with funding estimated to be $20.4 billion over a 10-year period. We are excited about the opportunities for Consolidated as the objectives of this fund are consistent with our commitment to drive rural broadband growth.

Now, turning to operating expenses. Operating expenses exclusive of depreciation and amortization were $221.9 million compared to $233.1 million for the second quarter of last year, an $11.1 million or 4.8% improvement. Cost of services and products declined $7.6 million driven by network cost optimization in lower salaries and benefits as a result of reductions in headcount, associated with various cost savings initiatives. SG&A costs improve $3.5 million during the quarter as we continue to realize headcount synergy and operational efficiencies. Offsetting the expense reductions were a few one-time items. We increased our accrual for a multi-year settlement of a Pennsylvania gross receipt tax audit by $656,000 and we also increased our bad debt reserve associated with a Windstream bankruptcy by $450,000 and we believe our total overall reserve of $800,000 is adequate.

At the end of the second quarter, we have exceeded our two-year fair point synergy target of $75 million by roughly $5 million. As the two-year window for integration expense add back under our credit agreement is now closed, this is the last time we will report against acquisition synergies. But, as with prior acquisitions, we will continue to identify specific cost improvement initiatives and savings opportunities. Net interest expense for the quarter was $34.7 million compared to $32.8 million for the same period last year. The change was primarily due to LIBOR increases and at June 30, our weighted average cost of debt was approximately 5.6%. Cash distributions from the Company's wireless partnerships were $10.6 million in the second quarter, compared to $11.2 million for the prior year. Adjusted EBITDA was $131.4 million compared to $135.8 million in the second quarter last year, primarily due to the clients and revenue, but offset by the expense savings as previously discussed. Adjusted diluted net loss per share was $0.03 compared to a negative $0.10 for the prior year.

In the second quarter, capex totaled $66.4 million as a result of the $10 million spent on non-recurring projects, as Bob discussed earlier. Total liquidity, including cash on hand and availability under our revolver was approximately $79 million. For the second quarter, our total net leverage ratio was 4.41 times. As in the second quarter, we did make our final dividend payment on May 1st and we also had our semi-annual bond interest payment on April 1st. With the dividend payment now behind us, we are focused on executing our new capital allocation policy, which is committed to deleveraging, improving our balance sheet and cost of capital.

As we said on our Q1 call, all the 2019 dividend savings or the full $55 million will be repurposed to paying down debt. With a debt pay down, we will opportunistically target taking out the highest cost of debt with the shortest maturity. With this strategy we are confident, we will improve our capital structure as we accelerate deleveraging for our goal of refining -- of getting the debt leverage below four times no later than mid-2021 in advance of refinancing our unsecured debt. As part of the new capital allocation policy, we are enhancing guidance to include adjusted EBITDA, which we are expecting will be in the range of $520 million to $525 million for full year 2019. Cash interest costs are still expected to be in the range of $130 million to $135 million. Guidance for capital expenditures is unchanged and is expected to be in the range of $210 million to $220 million. And we expect cash income taxes to be less than $3 million.

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

Bob Udell -- President and Chief Executive Officerr

Thank you, Steve. In closing, we are confident in our business and the value we bring to our customers as well as the competitive position we have in the regions we serve. As we look to the future, we are clearly focused on our new capital allocation plan and delivering results as we work to further expand broadband services and improve the customer experience.

With that, Christina we'll now take questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Frank Louthan from Raymond James.

Frank Louthan -- Raymond James -- Analyst

Great. Thank you. So just a quick question on two things. One, are there any other properties, you sold over game property last year or any other properties you might consider rationalizing as you're especially -- as you're looking to deliver over the next few years? Are you fairly comfortable with of some of the more disparate footprint that you have?

And then, secondly, I wanted to get an idea of sort of the makeup of your plants in the ILEC. What percentage is on fiber and on coax and on copper? If you can give us that breakdown, and if you have an idea of how much of the copper has over 100 megs or another metric like that, I just want to get a sense for the full company and what the makeup of the plant is. Thanks.

Steve Childers -- Chief Financial Officer

Frank. This is Steve. I'll take the first part of your question and Bob can address the second part. So with respect to your question about potential asset sales in the quarter, we did -- we actually did have a one transaction of about $13 million in cash proceeds, where we sold some polls to utility company in northern New England.

There's still the afternoon closing, literally the last day of the quarter, but we're continuing to sort of evaluate that type of transaction, really looking not only to monetize some of the pole assets, if you will, but also looking to improve operations in support of those poles [Phonetic]. So your question, your broader question and other assets in the portfolio. Yeah, we are looking at -- we have inquiries on some of our properties, really some of the legacy FairPoint properties. Just to remind you, in the past we have sold our equipment business, and it was part of the Enventis acquisition. We have sold our Iowa ILEC. We have sold our Virginia ILEC. So we are willing to consider valuation based -- consideration based on valuation, so we'll continue to talk about those over time.

Bob Udell -- President and Chief Executive Officerr

And related to the plant, it's a changing mix, because we're constantly making update investments. If you look across -- and the way we look at it is accessible speed. We can compete effectively with a 25-meg and up product, and we can see 22% penetrations, but it's a constant upgrade effort to keep raising that available speed based on what we see is utilization within our network and from our customers.

So across the combined property, we can get 20-meg to 76% of our customer base. We can get 50-meg to roughly 40%, and we're growing our 1-gig that's in the 10% range on an incremental basis each quarter as we connect and shorten more loop lengths. So that's roughly the way we look at it, and we see ample opportunity with the 550,000 upgrades that we did last year, to continue to build penetration sufficient enough to launch the video product to over 1 million targeted subs in northern New England, starting this month in Portland and feel confident in our ability to keep upgrading the network within the capital envelope that we allocate currently within our capital structure.

Frank Louthan -- Raymond James -- Analyst

Okay, great. Thank you. And, Steve, back on the asset rationalization, is there a number, is there a -- you have an amount of assets that potentially could fall into that bucket that you could sell, or just kind of stay tuned?

Steve Childers -- Chief Financial Officer

I would stay tuned. It's all situational based on valuations.

Frank Louthan -- Raymond James -- Analyst

Okay. All right, great. Thank you very much.

Operator

Our next question comes from the line of Davis Hebert from Wells Fargo.

Davis Hebert -- Wells Fargo -- Analyst

Good morning, everyone. Thanks for taking the questions. First, I wanted to ask about, follow up on the FairPoint footprint. How would you say that new customer acquisition is going now that we're a few months -- I guess six months or more into your recent 500,000 home upgrade?

Bob Udell -- President and Chief Executive Officerr

To put it bluntly, really well, the gating factors were not only the network upgrades, but then the benefits brought by the contract renegotiations last August in northern New England, and that opened up process reengineering across the installation pipeline, if you will, and it's been incredibly positive. The techs now are actually interested in the door hangers and helping to [Indecipherable] the service by letting the neighbors know when we do installs that the service is available.

We're getting much smarter on how we market. We did a lot of blitz marketing initially with the 500,000 upgrades to build volume and now we're getting very neighborhood-specific and doing both digital and across between direct mail, and so the marketing efficiency for acquisitions is getting more effective. So I would say that while we have a boost always this time of year from seasonality, we're well above what we had hoped we could see once we turned all those process improvements on, and we're seeing the momentum continue here into the third quarter.

Davis Hebert -- Wells Fargo -- Analyst

Great. Thanks for that. And then on the CCI TV initiative, as you went through a new customer acquisition, is this something that customers were demanding? Just wondering a thought process in pursuing that initiative and what would be the advantage of having a proprietary platform versus partnering with one of these virtual providers that have become a growth engine like a YouTube TV, for example?

Bob Udell -- President and Chief Executive Officerr

Well, we need it to be inclusive of local content, and we know in each of our markets what the content packages are that interest them. We've done that focus group work. So this is really a platform that helps us evolve out of the set-top box deployment costs and into a more simple install. And the bottom line for us is we want to be in the triple-play business, but it just hasn't been attractive, as the content costs have risen, and part of that extends to what the payback then is on that set-top box.

But we always have seen a pull-through for broadband, and so the motivation is to have a complete triple-play that's easier for the customer to digest -- install, digest and operate. It gives them the flexibility to still have lean-back TV, and it is not our own proprietary program. It's based on a MobiTV Android platform that is more of an open architecture, but we're using our own content and operating it in our environment and positioning it as a triple-play so that those that want to digest TV in the more traditional linear way can embrace it and not be scared off by what is necessary to get Netflix or some of the other over-the-top items across your smart TV.

So this is really well-positioned to take folks from a linear TV environment, give them the same look and feel, same kind of remote controls, ease of install, and then migrate them to a lower capital-intensive installation process. And I will add that this is new to the northern New England market, because we haven't had a video product there previously, so it's another upward pressure, positive pressure, on net broadband growth in our environment, which we think helps as we look forward to building more penetration in that under-penetrated area, where we have great fiber assets.

Davis Hebert -- Wells Fargo -- Analyst

And, Bob, just to follow up on that, where would you say your penetration is currently in the FairPoint footprint?

Bob Udell -- President and Chief Executive Officerr

It's in the low teens, in the 12%, 13% range. There are some areas where we've been operating in a rural area with a 25-meg or higher product where we're in the 22%, 23%, 24% penetration, but, quite frankly, it's really only in the last year where we've paid a ton of attention to this consumer opportunity and fixed all the things that were roadblocks to penetration improvement, including process and enrolled the employee base, and so we're now finally seeing the benefits of all that hard work.

Davis Hebert -- Wells Fargo -- Analyst

Great. Thank you. And then one last question for me. As you focus on your balance sheet over the next couple of years, can you talk about a couple ways you can accelerate that leverage reduction? Is it bond repurchases in the open market at a discount, or could you look at the wireless partnerships as a way to sell maybe a higher-valuation asset? Just your thought process of what might the hurdles be for something like that. Thank you.

Steve Childers -- Chief Financial Officer

Thanks, Davis. On the question on the accelerated deleveraging, I mean, number one, it is incumbent upon us to execute against our business plan and hit our EBITDA guidance for this year and going into 2020. But I think your question about the bond repurchases, yes, we will be -- the $55 million in dividend savings for the last half of the year will be going directly against that reduction. We'll prioritize that for the best use of cash, highest return of going against the senior notes and our open market purchases. So, again, that depends on market dynamics and availability, but we'll see what we can get done there.

To your question with respect to the wireless, that's probably a pretty long putt for us considering -- I appreciate the question on the valuation potential of it. If you think about the $35 million, $37 million a year in cash flow we get with no operating expense going against it, we have an extremely low historical tax base in that asset. It's probably -- if somebody wants to talk about it, we'd be happy to talk to them, but we really enjoy the cash flow that we have today to help us invest in the business and accelerate our deleveraging.

Bob Udell -- President and Chief Executive Officerr

And the insights it gives us for what the plans are around 5G expansion and investment in the markets in which we've had great interest in obtaining the back-haul opportunities.

Davis Hebert -- Wells Fargo -- Analyst

Great. Thank you very much.

Operator

Our next question comes from the line of Glenn Charbonnier from Cowen and Company.

Jon Charbonneau -- Cowen and Company -- Analyst

Great. Thanks for taking the questions. Within the consumer business, you saw a solid year over year broadband growth of over 2%. Is this level of growth sustainable in the second half of this year? And then video and voice revenues are pretty consistent year over year declines versus last quarter. Any reason to believe there would be improvement over the next few quarters? Thank you.

Bob Udell -- President and Chief Executive Officerr

Yes, Jon, thanks for the question. We typically see some seasonality in Q4 on northern New England's overall consumer revenue, so I would think that this is a bit of a high watermark for the year, but I do believe and we're seeing the run rate potential that it will be better than past year-over-year comparisons. So we feel like we're in a good position, as I've stated in answers to the previous questions, with both the network upgrades, the process, and now launching the video product.

The second part of your question, related to video declines, that's pretty consistent with what we've expected from a budgetary perspective. You have to realize that we look at it from a cash flow viewpoint, and we're balancing where we need the video product in order to get deeper broadband penetrations with the capex it takes to support that product. And so you'll see us, through 2020, migrate our legacy properties to this new video platform over time, but just looking back three years and the change of our video strategy, the capital avoidance and the reallocation of that capex for long-term return has proven to be beneficial to our management of cash and our capital intensity.

Jon Charbonneau -- Cowen and Company -- Analyst

Great, thank you.

Operator

Our next question comes from the line of Jason Kim from Goldman Sachs.

Ashley Kannason -- Goldman Sachs -- Analyst

Hi, this is Ashley Kannason [Phonetic] on for Jason Kim. Thanks for taking my questions. For my first one, it looks like you bought back about $5 million of unsecured bonds during the quarter, and I know on the call and as previously you said you're targeting bonds as a priority for debt reduction. I was just wondering how we should think about you guys potentially tapping more into your revolver to fund bond purchases if you thought the prices were attractive.

Bob Udell -- President and Chief Executive Officerr

TThat's a good question, Ashley. I think we will be -- obviously, we are going to manage liquidity as we build cash post-dividend, and we have integration behind us, the spike in capex for Q2, so we're looking to build cash. We will be balanced going into the revolver, so I think as we build cash, we'll probably be in a position where I think we'd be comfortable using up to half of the revolver, if we needed to, to be in there, but again, hopefully we'll be building cash and we won't have to tap it. I'm not going to give you guidance on the $55 million that we're targeting for debt repayment, how much of that is going to go against debt, but we are going to do as much as we can.

Ashley Kannason -- Goldman Sachs -- Analyst

Great. And then you guys have done a great job realizing and exceeding your merger synergy target. How should we think about your ability to continue to right size the cost structure heading into 2020? And do you see, like what type of opportunities do you see to attract more costs out of the fair point side of the business?

Bob Udell -- President and Chief Executive Officerr

I can't say it's always unique to the FairPoint side, but I feel really confident in both this management team and our ability to look at automation opportunities and refinements in business process to continuing the cost efficiency effort. It's no secret that we continue to find efficiency opportunities as we bring companies together post-integration, and it's no different here. We're implementing some artificial intelligence components into our call centers, that's not yet realized. The actual efficiencies that we're going to gain there, but a few of the initiatives have already paid for the investment and so the potential I think is even greater. And so, along those lines, we're going to continue to invest in ways that allow customers to self-serve. This industry is historically behind what the hotels, the travel industry has done on airplanes, and it's not that complicated to make it more effective for those that want to interface with us from an online or a portal perspective, and we're seeing tools available to make that more a reality and more efficient to implement.

And along the back-office front, we're finding technology that allows us to isolate and build data repositories that are unique to local geographies, but still have that access by the service order and the service delivery processes, with tools that weren't available when we did integrations five or 10 years ago. So I feel real confident in our ability to continue to pursue EBITDA margins and cost reductions that balance the revenue in order to produce a predictable EBITDA for this business, and that is demonstrated by our giving EBITDA guidance now going forward.

Ashley Kannason -- Goldman Sachs -- Analyst

Great. And just one last quick question. That EBITDA guidance you gave, is it the same wireless distributions that you guided for in the beginning of the year? I think it was $32 million to $34 million that you previously have stated, or is it something different there?

Steve Childers -- Chief Financial Officer

Hey Ashley, this is Steve. We would -- we probably think there is an upside to the $32 million to $34 million, and so are our guidance and I think core business was based on $500 million to $525 million. We feel even more bullish about the guidance with what our view for wireless is in the last half of the year. So again, if you want to raise that a little bit, we'd be OK with that.

Ashley Kannason -- Goldman Sachs -- Analyst

Got it. Great. Thank you for answering my questions.

Operator

Our next question comes from the line of Roy Song from ArrowMark Partners

Roy Song -- ArrowMark Partners -- Analyst

Hey, guys, thanks for taking my questions. On the back of the last question, I just want to get some better clarity on the synergies going forward, specifically how much cost savings you're expecting from headcount reductions and any other cost reductions that would be potentially quantified or realized immediately.

Bob Udell -- President and Chief Executive Officerr

Yeah, I appreciate the question, but I'm sure you can imagine giving that level of detail is not reasonable to do. We're managing to a 38%, 39% EBITDA margin and we feel like we've got access to all the right levers to do that. Some is going to be natural reduction in headcount because of changes in business focus or process changes that result in some organization restructures, but the bottom line is some of that cost goes back into sales and generating more broadband expansion in commercial and carrier. And so it's a balancing of what we see as the opportunities to accelerate efficiency gains, what it brings with it in terms of customer benefit, and we've got 10, 20 of those projects going all the time.

What I can say is we're in customer efficiency and business refinement mode. We're not in integration mode anymore, and so some of the integration resources that we'd typically be using for due diligence and things like that are being spun off, and so as we have finalized our integration efforts, that cost has been processed out of the business because we don't see M&A and new acquisitions of the scale of FairPoint in the next two or three year horizon.

Roy Song -- ArrowMark Partners -- Analyst

Okay, that's helpful, thank you. And then my second question is on the debt reductions. So if I'm doing the math, just very high level, back of the envelope, you're basically taking no leverage by cutting almost half a term. So that would imply about another $200 million, $225 million of debt paydown. Could you just maybe help me maybe bridge that a little better in terms of how much of that debt pay down is going to be coming from your free cash flow or any other sources that you might be thinking of?

Steve Childers -- Chief Financial Officer

Well, I think -- the $200 million, I'm not sure what time period you're looking at, but, again, our target is to be at 4 times no later than mid-2021 to facilitate the refinancing. So the first $55 million goes directly toward debt repayment, I think largely going into 2020. Again, we haven't -- we're not giving guidance or anything for 2020, but to hit the leverage targets, a lot of that has to go against debt repayment in 2020. So I think if we -- we are going to stabilize EBITDA going into 2020 and '21, so I think you kind of -- I think what most models have us out there doing is going down 4% or 5% a year. We are going to flatten that number out, so I'd like to have you take that into consideration in your calculus. And then you can assume that most of the debt savings, $110 million that we're saving with the dividend, a large portion of that, even in '20, will be going to debt repayment.

And then to the earlier questions that we had on asset sales, if there's anything that makes sense relative to valuation that's not a distraction to our business and focus on current execution, that could help accelerate the numbers.

Roy Song -- ArrowMark Partners -- Analyst

Okay. So, yes. So you're right. The $200 million that I had was the span of two years up to 2021, that you guys said will reach that level, so I guess I'm just confirming here that $200 million debt reduction in aggregate will largely all come from your free cash flow, is that right?

Steve Childers -- Chief Financial Officer

That's correct.

Bob Udell -- President and Chief Executive Officerr

That's certainly the intent, correct.

Roy Song -- ArrowMark Partners -- Analyst

Okay. That's all. Thank you very much.

Operator

Our next question comes from the line of Mike McCormack from Guggenheim Partners..

Mike McCormack -- Guggenheim Partners. -- Analyst

Hey, guys, thanks. Maybe just a quick comment on the competitive landscape. I guess first on the consumer SMB side. Any differences between those two segments? Anything new going on? And then secondly, with respect to the enterprise market, anything that you can comment on pricing there would be great? Thanks.

Bob Udell -- President and Chief Executive Officerr

Hey Mike, thanks for the question. We're really seeing the same competitive dynamic we've seen for the last few years, after we got through some carrier price compression that really came along in the late '17 time frame or maybe early '17 time frame. And so on the commercial side, I would say that it's interesting if you look across the industry. People are making decisions, it seems, a little bit slower, even though consumer spending is up and consumer confidence is up, driving that spending.

We attribute that to a couple things. One, the solutions with cloud applications are providing better retention, but they're taking longer cycle times to sell, because you're really having to deal with not only a CIO or an IT lead, but also the process owners inside your target business. And so that's turning up the heat or turning up the wick, if you will, on our verticals, which we're doing very well with, and we're expanding them across the multiple regions, where we have strength in one region, taking it to others. So I don't see the price pressure there, and I also don't see our competitors beating us on many deals in the commercial space. I just see longer lead times. So hopefully that's responsive to your question.

Mike McCormack -- Guggenheim Partners. -- Analyst

Yeah, that's great. Thank you.

Operator

Our next question comes from the line of Eric Bourassa from Jefferies.

Todd Morgan -- Jefferies LLC -- Analyst

Hi, good morning. This is Todd Morgan. Two questions. I guess on comments you've made in the call here. You talked about the tower opportunity, and I was hoping you could speak a little bit further about that? Specifically, it's the growth opportunity you see there really coming from sort of true new tower builds and how much of the 5G future do you really need to see to really drive that, or where is that kind of continued growth coming from?

And I guess, secondly, the capex in the quarter you commented or at least year-to-date is a little bit higher because of the non-recurring expenses, and yet full year capex guide is the same. Are there sort of reduced spending plans elsewhere, or is that just simply within the range that you've provided? Thank you.

Bob Udell -- President and Chief Executive Officerr

Let me start with the capex question, Todd, first. I really don't see reduced spending as well. Let me say this way. You know, we have some CAF projects, Connect America Fund projects, that we're wrapping up for the year, but, really, the spike is really built around the seasonal access to frozen ground that kind of breaks free once you get into April and May, and so there's pent-up ability to cut loose and to get things done in our Central and North markets as well as the northern New England, and the projects that we had in queue has caused the second quarter to be probably the highest of the year.

We feel that there's a lot of the equipment now that's purchased, so the labor is what continues to follow through the third quarter, so it'll be obviously less, and then things really curtain in the fourth quarter just by nature of those contractors that we have in leave in the northern markets, and the things that we continue to finish up are those that are really customer-facing or revenue projects that are driven by customer expectations and needs. So I think it's a normal course that we'll be better in guiding in the future, but the one-times are really what spiked it higher than what we've seen in past second quarters. Your other question, remind me, Todd?

Todd Morgan -- Jefferies LLC -- Analyst

Yes. If you could speak a little bit more about the tower opportunity, I mean, obviously good momentum here. Where does where does how do you. What were the drivers you need to see the kind of see that continue? Thanks.

Bob Udell -- President and Chief Executive Officerr

Well, we're already seeing the drivers. I mean, AT&T's Smart net is driving both the competitive response and their own buildouts, which -- whether we're in discussions with them or a sub for others who are getting that opportunity in various markets, that provides some leading indicators of 5G opportunities or expansion opportunities. You also have across the other towers with the 5G spectrum and the equipment standardization that's occurring, 5G spectrum opportunities, the more dense markets being built out first, but there's a constant identification effort across the rural areas, and we see this -- for our suburban and rural markets that we serve, we see this as a great opportunity.

In fact, we're using it where we can to extend our broadband footprint and trying to create an opportunity where we can help accelerate 5G deployment for carriers interested in allowing us to offset some of their build needs, because we truly believe that having the fiber network in a market like we do, in which a rural provider can serve commercial, carrier and consumer customers, puts you in the best long-term, sustainable position, and we're doing everything within our power and we're finding success in making our network attractive for wireless extensions, and we see this as early first, second inning of opportunities.

Todd Morgan -- Jefferies LLC -- Analyst

That's helpful then. Thank you.

Operator

Our next question comes from the line of Jennifer Fritzsche from Wells Fargo.

Jennifer Fritzsche -- Wells Fargo -- Analyst

Great. Thank you. Just following up on that last question, we just got off the Verizon call. You know, they continue to talk about fiber and using seen some of the fiber to replace some of the backhaul. Just to confirm you're not -- I would think that's happening in more urban markets. Would you say Verizon continues to be a growing partner or is it fair to say you're not seeing that type of activity?

Bob Udell -- President and Chief Executive Officerr

Yeah. That's always a push-pull discussion that occurs, Jennifer, with the -- with a number of carriers and even large institutional customers, where they have fiber for other reasons. They're going to look to exploit that and that isn't the case in most of the markets we serve. So we're in a good position to continue to expand our relationship with Verizon and what, we think, considered a good quality provider. In fact, that won some towers back from from competitors based on our service response and reputation. So, yeah, I wouldn't say we we don't hear about it because we do, but even those dark fiber initial request that we've gotten in the past have turned into managed service opportunities for us because we can build it fast and have a good quality reputation.

Jennifer Fritzsche -- Wells Fargo -- Analyst

Great. Bob and then can I ask just also one, it's still early with [Indecipherable] and stuff, but are you having conversations with, like what I'll call other emerging wireless entities that could present yet another opportunity?

Bob Udell -- President and Chief Executive Officerr

We're all over, every every angle of the TMo-Sprint merger and positioning ourselves to be a network provider for whoever wants to expand in our suburban and rural markets. So we're very eager to see activity take place there, and we're excited about how the deal is finally getting solidified and see little overlap in our Sprint and TMo relationship that provides any risk and really believe there's upside to investment in rural America that will come from this. So we're excited.

Jennifer Fritzsche -- Wells Fargo -- Analyst

Thank you.

Operator

There is no question at this time. I'll now turn the call over back to Mr. Bob Udell.

Bob Udell -- President and Chief Executive Officerr

We appreciate your questions today. And I sincerely appreciate your continued support of our Company. Appreciate you joining our call and we look forward to updating you on third quarter next time.

Operator

[Operator Closing Remarks].

Duration: 50 minutes

Call participants:

Lisa Hood -- Vice President, Treasurer & Investor Relations

Bob Udell -- President and Chief Executive Officerr

Steve Childers -- Chief Financial Officer

Frank Louthan -- Raymond James -- Analyst

Davis Hebert -- Wells Fargo -- Analyst

Jon Charbonneau -- Cowen and Company -- Analyst

Ashley Kannason -- Goldman Sachs -- Analyst

Roy Song -- ArrowMark Partners -- Analyst

Mike McCormack -- Guggenheim Partners. -- Analyst

Todd Morgan -- Jefferies LLC -- Analyst

Jennifer Fritzsche -- Wells Fargo -- Analyst

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