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Edited Transcript of CBB earnings conference call or presentation 8-Aug-19 1:00pm GMT

Q2 2019 Cincinnati Bell Inc Earnings Call

CINCINNATI Aug 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Cincinnati Bell Inc earnings conference call or presentation Thursday, August 8, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew R. Kaiser

Cincinnati Bell Inc. - CFO

* Joshua T. Duckworth

Cincinnati Bell Inc. - VP of Treasury, Corporate Finance & IR

* Leigh R. Fox

Cincinnati Bell Inc. - President, CEO & Director

* Thomas E. Simpson

Cincinnati Bell Inc. - COO

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Conference Call Participants

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* Batya Levi

UBS Investment Bank, Research Division - Executive Director and Research Analyst

* David William Barden

BofA Merrill Lynch, Research Division - MD

* Sergey Dluzhevskiy

GAMCO Investors, Inc. - Associate Portfolio Manager

* Simon William Flannery

Morgan Stanley, Research Division - MD

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Presentation

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Operator [1]

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Good day, everyone, and welcome to Cincinnati Bell's Second Quarter 2019 Earnings Release. Today's conference is being recorded.

At this time, I would like to turn the conference over to Josh Duckworth, Vice President of Corporate Finance, Investor Relations and Treasury. Please go ahead, sir.

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Joshua T. Duckworth, Cincinnati Bell Inc. - VP of Treasury, Corporate Finance & IR [2]

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Thank you, and good morning. I would like to welcome everyone to Cincinnati Bell Second Quarter 2019 Earnings Call. Joining me on the call today is our President and Chief Executive Officer, Leigh Fox; and our Chief Financial Officer, Andy Kaiser, who will recap this quarter's highlights and provide detail on our second quarter financial performance. Following the prepared remarks, Tom Simpson, our Chief Operating Officer will join Leigh and Andy during the question-and-answer portion of the call.

Remarks made on today's call that are not historical facts are considered forward-looking statements and are made pursuant to the safe harbor provision presented on Slide 2. Please see today's press release and the company's recent SEC filings available on our website for a description of the potential risks and uncertainties that may cause actual results or outcomes to differ materially from those indicated or suggested by any such forward-looking statements. The presentation also contains certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are also available on our website.

With that, I'm pleased to introduce Cincinnati Bell's President and Chief Executive Officer, Leigh Fox.

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Leigh R. Fox, Cincinnati Bell Inc. - President, CEO & Director [3]

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Thank you, Josh. Good morning, everyone, and thank you for joining us today. Our strong second quarter performance demonstrates the success of our fiber investments and strength of our IT Services business. This quarters adjusted EBITDA increased 6% sequentially, further validating our capital allocation strategy that is focused on investment on the long-term growth and sustainability for the company. Our entertainment communications business has been an early adopter of the fiber is the future strategy both in Cincinnati and in Hawaii. We have created a combined fiber network, which spans approximately 17,000 fiber route miles, deploying a superior fiber-to-the-premise product, which produces higher bandwidth and faster Internet speeds, than the cable competition to 60% of Greater Cincinnati and 50% on the island of Oahu in Hawaii. It has been one year since we acquired Hawaiian Telecom and we have made considerable progress optimizing operations and harmonizing marketing and sales. We are confident, the organization is now structured to begin to increase Internet market share and capitalize on the robust demand for IT services within its business market.

I'm also pleased to report that recently passed state legislation reduces regulatory involvement within our business in Hawaii. This legislation increases our operating flexibility, minimizing the need to engage the PUC on certain business matters. And more closely aligns regulatory involvement with what we experienced here in Ohio. I would like to personally thank the members of our Hawaiian team and the Hawaii PUC who worked together to get these changes passed. I am very proud of our Hawaii team through their efforts and dedication, combined with the realization of merger synergies, we are confident adjusted EBITDA growth will approach 10% this year.

In Cincinnati, the focus also remains on increasing Internet penetration, now at 44% within our fiber-to-premise footprint. We continue to deploy fiber to the premise to newly constructed neighborhoods as well as existing structures in which projected returns match historical trend as demand for faster Internet speeds continue to accelerate. As evidenced, more than 45% of our consumer internet customers subscribe to 200-megabit currently compared to 3 years ago when it was less than 1%. In addition, the Cincinnati team continues identify and implement cost out initiatives to address pressure from ongoing legacy decline. The impact of our efforts to contain costs and the recent price increases implemented in the second quarter resulted in 4% sequential adjusted EBITDA growth in Cincinnati and 3% year-over-year.

Now turning to the IT services and hardware business. Despite churning out the remainder of certain cloud services from GE in April. Adjusted EBITDA increased an impressive 28% sequentially. Demand for products and services with our communications practice continues to be robust with strategic revenue growing 29% compared to the second quarter of 2018. Year-to-date, we have added new contracts with a combined $600,000 of monthly recurring revenue for UCaaS, SD-WAN and our NaaS solution. In addition to the communications practice, we are also encouraged by the new opportunities within our Cloud practice. Excluding the impact of in-sourcing initiatives from GE, Cloud revenue was up 33% year-to-date compared to a year ago. The Cloud practice has 50 plus highly skilled software engineers with certifications across each of the public cloud providers. In an effort to establish relationships and prove ourselves as a trusted provider, we have successfully completed one-time public cloud [amortization] totaling $4 million during the first half of 2019. The team has also been successful in adding approximately $300,000 of new monthly recurring revenue. It's important to note that of the one-time implementations and new monthly recurring revenue, 85% were won by traditional OnX locations, highlighting our enhanced geographic scale and ability to compete effectively across our North American platform.

I will now turn the call over to Andy, who will summarize our consolidated and segment results for the second quarter.

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Andrew R. Kaiser, Cincinnati Bell Inc. - CFO [4]

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Thanks, Leigh. Moving on to consolidated performance for the quarter on Slide 5. Revenue totaling $384 million generated adjusted EBITDA of $103 million, which is up 6% compared to the prior quarter. Hawaiian Telecom contributed revenue of $88 million and adjusted EBITDA of $25 million, an increase of 4% sequentially.

Our Entertainment and Communications quarterly segment results are highlighted on Slide 6. Revenue for the quarter totaled $251 million, which was consistent with the prior quarter. Revenue for the Cincinnati market totaled $172 million, with Hawaii contributing $79 million. In both markets, fiber-to-the-premise data and enterprise fiber growth continue to be mitigated by video cord cutting and ongoing legacy declines. Adjusted EBITDA was $93 million, up 3% sequentially due to cost containment efforts and price increases in Cincinnati as well as the realization of synergies in Hawaii.

The quarterly metrics update for our Consumer/SMB Fiber suite of products is included on Slide 7. Cincinnati Fioptics Internet subscribers, which includes a combination of fiber-to-the-premise and fiber-to-the-node customers totaled 245,000 at the end of the quarter, up 4% from a year ago as the declining relevancy of the fiber-to-the-node product was more than offset by the addition of 18,000 new fiber-to-the-premise Internet customers. We increased our fiber-to-the-premise Internet subscriber base by 3,200 during the quarter, which is seasonally impacted by local university schedule.

Fioptics Internet ARPU totaled $53, an increase of 4% compared to a year ago with overall churn declining 20 basis points. We ended the period with 138,000 video subscribers in Cincinnati, a decrease of 5% from the prior year, primarily due to customer preference for over the top streaming video service. Video ARPU increased 7% from the prior year, totaling $97 with churn improving more than 40 basis points. Hawaiian Telecom increased its Consumer/SMB Fiber-to-the-premise Internet subscriber base by 1,000 during the quarter, while video subscribers decreased by 900. Consumer/SMB Fiber Internet ARPU was $39 with video ARPU totaling $78.

Turning to our IT Services and Hardware segment results for the quarter on Slide 8. Revenue was up an impressive $12 million year-over-year due to solid sales performance across all of our practices. Adjusted EBITDA increased by $3 million compared to the prior year after excluding the impact from GE's decision to in-source certain cloud service. Revenue from these services totaled $1 million in the second quarter of 2019 compared to revenue of $7 million and adjusted EBITDA of $5 million in the second quarter of 2018. Now that the migration is complete, we have determined that full-year adjusted EBITDA will be negatively impacted by $16 million in 2019 as compared to the prior year.

An update on the Communications Practice is on Slide 9. We continue to be impressed by the increasing demand for our strategic products and the year-over-year growth within our Communications Practice. During the quarter we added 10,200 Hosted UCaaS seats, which now totals approximately 255,000. We also increased our NaaS sites by 440, with SD-WAN locations increasing by 740.

As presented on Slide 10, capital expenditures in the first 6 months of the year were $111 million, including $36 million for Hawaiian Telecom. During the first half of 2019, we invested $17 million in construction costs to expand our Fioptics fiber-to-the-premise footprint in Cincinnati. Similarly, we invested $4 million in construction cost to expand our Consumer/SMB Fiber-to-the-premise footprint in Hawaii. Year-to-date Fioptics and Consumer/SMB Fiber installation costs were $26 million in Cincinnati and $8 million in Hawaii. We continue to expect the company's full-year capital spend to be $215 million to $235 million.

As outlined on Slide 11, free cash flow for the first half of 2019 was $18 million, as we remain on target to generate positive free cash flow for the full year. Our leverage remains consistent at 4.7x, ending the quarter with net debt of $1.9 billion. Liquidity continues to be strong at $163 million and we maintain a gross NOL carry-forward of approximately $760 million. We are confident that our strong capital structure and liquidity appropriately allow us to execute on our strategic objectives.

As noted on Slide 12, our solid results from the first half of 2019 have positioned us to achieve our full year financial guidance, which we communicated previously.

I will now turn the call back to Leigh for closing remarks.

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Leigh R. Fox, Cincinnati Bell Inc. - President, CEO & Director [5]

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Thanks, Andy. In closing, I'm excited about the progress achieved towards growing our 2 distinct yet complementary lines of business. Our disciplined capital allocation approach and business strategy has differentiated Cincinnati Bell's result from its traditional peer group.

Looking ahead at the second half of 2019, we recognize the unprecedented challenges and constraints facing our sector. That said we remain confident that our results will continue to prove that our assets, our balance sheet, our strategy, and our continued investments will define us as a company that is significantly better positioned to compete. As Andy mentioned, we are confident in our 2019 guidance and we'll continue executing on our strategy of building our [bus] fiber network and growing our [margin] recurring IT services revenue, while continuing to explore options to create additional shareholder and stakeholder value.

I will now turn the call over to the operator and open it up for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from Simon Flannery from Morgan Stanley.

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Simon William Flannery, Morgan Stanley, Research Division - MD [2]

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So on the balance sheet there's been some dislocations over the credit markets, do you think you can take advantage of that and consider using some of your liquidity to buy back some debt in the open market? And then as we think about the capital spending intensity, how should we think about the pacing of that over the medium term? And I think when Fioptics was originally conceived the thought was that it was more of a several year project and then it would start to phase down, but what's the right way to think about it today?

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Leigh R. Fox, Cincinnati Bell Inc. - President, CEO & Director [3]

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Thanks, Simon. I'll answer the latter question, I'll let Andy address the debt question. So on the capital side, in the short to mid-term until things in the capital markets improve, I think you should consider us at pace right now. Look, the way I view it, we are building a business that both here and in Hawaii that has the ability to achieve 45% to 50% market share, where we build fiber. That's a business and I think in any column environment people would you be pushing us to go faster, but it's just not that environment right now. And so we're being very cognizant of that and respectful of it and what it means for the cost of debt. So you know we're using our own cash flow, we're going to -- we got a nice pace going. We've begun to engineer out a territory here in Cincinnati that should add some incremental homes, with some good economics along with that and some improved economics as things are getting more and more expensive here in Cincinnati. So I just -- I would consider the pace sort of steady in the short to mid-term.

And Andy will answer the debt portion.

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Andrew R. Kaiser, Cincinnati Bell Inc. - CFO [4]

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Sure, Simon. So I'm assuming you're talking about our 2024 and 2025 notes given that our term loan is essentially fixed at sub 6%. So the 2024 and 2025 to your point represent an opportunity to buy at the market and as we have maintained on every call and we maintained throughout the year, we're always going to look at the best use of our capital dollars and so we continue to look at where they trade, does it make sense to move some of our spend towards debt, will continue to look at that. But given that we still have significant opportunity to invest in fiber both in Cincinnati as well as in Hawaii, we tend to believe in the longer-term investment and returns that come with investing in the company in the network rather than buying back debt.

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Operator [5]

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And we'll take our next question from Sergey Dluzhevskiy with GAMCO Investors.

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Sergey Dluzhevskiy, GAMCO Investors, Inc. - Associate Portfolio Manager [6]

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First question kind of, bigger question on shareholder value. You mentioned that you're looking at exploring additional options for -- to create shareholder value longer term, but I think kind of a bigger question is I mean if you look at the stock, the stock has been down significantly over the past year since acquisition of Hawaiian Telecom, and good to argue whether it's fair or unfair, but the decline has been dramatic. So as you look where you are with Hawaiian integration and at your current asset portfolio, could you share your thoughts on what you think the market is getting wrong about the company and more important -- more importantly what key steps you guys are taking to meaningfully enhance shareholder value going forward? What steps do thing from organic perspective or inorganic perspective, could put the company on a path of sustainable long-term shareholder value creation?

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Leigh R. Fox, Cincinnati Bell Inc. - President, CEO & Director [7]

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Yes, absolutely. So look at the last year and to say that the last year has to do with Hawaii solely is a bit of a stretch. If you look at the entire sector, the sector melted down when you have what people compare us as peers announcing bankruptcy, cutting dividends, getting into capital issues. It's going to affect us as a smaller player in the market. That said, I think we're very different. I mean we've invested in fiber and invested in the future in ways that others haven't. I just think people need to see that to fruition. I think there is a lot of perceived risk in the sector and until you can show steady numbers in an environment like this, I think it's going to affect you.

And if you look at our numbers, I don't know that there are many others that can say that word grow in this sector. Obviously, we've invested a lot for that, but we -- you know I think our assets are better than anyone else in the sector. Hawaii [will] at 10% this year and we've been told -- I've gotten the comments that it's -- well that's just synergies and I think with Morgan Stanley that did analysis, that had us in the 70s just on trend lines, so we'll be in the high 90s. That's not just synergies, especially when you're going to see I think roughly 10% revenue growth.

So look, we know how to run these businesses. We know how to invest in them, but in this environment I think people just -- you have to prove it. And I think it was your boss that told me one time, it is hard to prove cynical -- things to cynical New Yorkers. Well, I think it's just time, right, you've got -- you've got to show the result. And I think we are showing the results. So -- and we'll continue to show results and do what we said we're going to do. I mean our guidance, I'm very comfortable with our guidance. I think the midpoint is [405] very comfortable with our guidance and on EBITDA and we'll talk about next year, when next year comes and I don't think we'll have any surprises. We'll just keep doing what we say we do, invest steadily, be responsible with the balance sheet, be responsible with the company, but you have to invest for the future. If you don't, you end up in the same place that our quote, unquote peers are.

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Sergey Dluzhevskiy, GAMCO Investors, Inc. - Associate Portfolio Manager [8]

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Okay. I guess related question, somewhat related question about capital allocation and taken into consideration your capital investment plans and obviously your strategy, but also considering where the stock is trading now and assuming that you view CBB as good value, what are your thoughts on opportunistic stock buybacks? And at what point do things they could become viable tool?

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Leigh R. Fox, Cincinnati Bell Inc. - President, CEO & Director [9]

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I think the challenge is if you look, as Andy mentioned on our debt and our equity, I think both are actually good value right now, a very good value. The issue there is shifting capital, right and what does it do and is it a short-term versus the long term. I think personally on the equity side, shifting a decent amount of money over to buy back shares, it's possible it will have a short-term impact, but given the macro issues in the sector is that going to sustain itself long term. And then what does that do to -- you shifting money away from growing your business and making sure that you have longevity in the business.

The bottom line is the whole industry needed to replatform and we were one of the -- I think not even a handful, we were one of very few companies that realized the replatforming and have seriously replatformed and continue to replatform. I think the focus needs to be on that, I think if you shy away from that and you knee jerk and react to things, you're going to cause issues in the mid to long term. And look as you mentioned earlier, the market doesn't get it right now obviously -- that's not across the board. I think there is a reason why you see private money coming into the sector versus public money, more long-term weighted money getting excited about what happens around fiber versus the short term. Wall Street sees a lot of inherent risk in the sector and given the backdrop, I understand but we are not that.

And as I mentioned earlier, we have to continue to actually execute to show it and we will. I think this quarter was an example, we're off to a strong start in the third quarter, you can pretty -- like I said earlier, I'm betting on our numbers this year and then will have a conversation about next year and there aren't any other companies in the sector that are saying the word grow that I'm aware of. And we're seeing it in every one of our subsidiaries. So I think it will just take time, but I think that's the right use of capital right now.

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Sergey Dluzhevskiy, GAMCO Investors, Inc. - Associate Portfolio Manager [10]

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All right. Another question on IT Services. So in the past you guys have talked about kind of $100 million in EBITDA goal for the IT Services business being an important target and I'm paraphrasing, of course, but I think basically your thoughts that it may help the market to focus more on the segment, its growth opportunity, its ability to be a stronger sustainable business. So my question is, do you still view this goal as realistic over medium term? And at high level, what is the path to that $100 million in EBITDA and how quickly do you think you can get there?

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Leigh R. Fox, Cincinnati Bell Inc. - President, CEO & Director [11]

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Yes, that's a great question, I do still believe that. I think that's kind -- as you approach that marker, I think people begin to pay more attention. I mean if you think about it if we wouldn't have had that like $20 million blip with GE this year, it'd be a $70 million to $75 million business instead it will be a $50 million to $55 million business with growing at 20% a year. So it's got organic growth. We've proven out the expansion model, it is working. We've got good products and services, we got a great team, they're doing a fantastic job and right now it's just let them do what they do. They're doing fantastic job growing that business and we'll continue to grow it. And I think once it gets -- once we get another year or 2 under our belt, I think it will look much, much different and there are opportunities that continue, I'll tell you across the board, whether it's CBTS or E&C, we feel like we have way more tailwind than we have headwind right now, which is a lot to say in this industry, right? So that's what we're going to focus on. And I think you can get there organically.

I'm not interested in doing inorganic stuff right now, just because of the backdrop of the sector and the capital markets and how our sector is viewed, but we've got to get ourselves out of the sector and I said it many times, I feel like we're in a very nice house in a bad neighborhood, lately it felt like we're a very nice house in a war zone, but we're still very nice house and we've got to execute and more people realize that. And that's what we'll do. So just got to let them what they do and I think we'll naturally get there.

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Sergey Dluzhevskiy, GAMCO Investors, Inc. - Associate Portfolio Manager [12]

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And my last question is on 5G. So we are seeing wireless operators getting closer to 5G with various tests and launches and we are hearing about gigabit speeds in test environments on almost empty networks for now. So T-Mobile Sprint, merger successful closes we will have a strong spectrum position and using it to compete in residential broadband space. So could you update us on your thoughts on how 5G is shaping up versus your expectations? How it impacts as a company? And to what degree do you see this as an opportunity versus a risk for Cincinnati Bell?

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Leigh R. Fox, Cincinnati Bell Inc. - President, CEO & Director [13]

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Yes, obviously we pay a lot of attention to what's happening in that industry. We have very good relationships with all the carriers. All the carriers obviously have -- each carrier has a different strategy and so we try to stay close to them and what they're doing. With respect to an impact, I think time will tell. I think the hype cycle around broadband displacement has died down for very good reasons. I mean you used the word, just in that sense although, I think we're hearing a lot of -- all those and buts and so as the hype cycle kind of tied down. I think it will be a good experience, good mobile experience, but you know -- as we talk to technologists, there is one common thing that we hear, whether you're in wireline, whether you're in cable, whether you're in wireless, everything migrates to fiber-to-the-prem period, that's where everything is heading. And if that is the case, which we believe it is and others due to others, that are much smarter than I am, we are at a very good position.

So look -- we'll keep our eye on it and we'll obviously, if we see impacts coming, we'll let the market know and I think we've been very responsible about making sure that we are transparent about everything we do and we will, but right now we are not seeing an impact, we're seeing a lot of good conversations with carriers on the wholesale side, both here in Cincinnati and in Hawaii. And we'll keep you apprised when we actually or if we actually do see anything. But right now, it seems more positive than negative.

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Operator [14]

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Next, we will go to Batya Levi from UBS.

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Batya Levi, UBS Investment Bank, Research Division - Executive Director and Research Analyst [15]

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In E&C a lot of focus on top line improvement, with legacy maybe down to just a quarter of the mix now. Can we expect the strategic piece to take that to growth on a sustainable basis and when do you think we can get there? And the second question, [intercom] margins have started to improve, any structural differences why it can't get to Cincinnati levels of 40%? And maybe lastly, as you talk about the dislocation in private versus public money, how would you think about some of your assets strategically?

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Leigh R. Fox, Cincinnati Bell Inc. - President, CEO & Director [16]

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We'll sort of go in reverse. So I'll answer the strategic asset question, then I'll hand it off to folks. On the strategic asset, look we've got very good assets period and we've done a great job as team as -- I think invested in the right ways, we've invested responsibly, we've -- if you think we've been investing like this for over 10 years. We've -- I think done the right things and so I think the results show that, I think they will continue to show that and I think it will continue to show that we have superior assets and we've developed not just to me, not just one good company, but 2 really good companies and they both are very complementary to one another.

And so I think there is an attraction there. Wall Street is not seeing it right now and the public markets aren't seen it. But as you're aware, and I'm aware, yes markets aren't always efficient in the short term, right. And we realize that and so you just have to be patient and not do anything in a knee jerk fashion and just keep doing what you feel is right for the company mid and long term. As long as you're seeing the results that we're seeing obviously and we are and so we'll continue to execute. But I think we have great asset bucket and I think we'll continue to focus on developing great assets.

Tom, you want to answer the structural Hawaii question?

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Thomas E. Simpson, Cincinnati Bell Inc. - COO [17]

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Yes. From Hawaii standpoint, when you look at the team integration and focus on the service delivery and the sales, ultimately analyzing the undersold inventory that we have in Oahu and the other islands, I believe we can absolutely get up to historical Cincinnati levels in both ARPUs and in penetration. Team is doing an immense job, they are continuing to prove every month and you see that even year-over-year in fiber-to-the-prem we have growth. So I'm very confident that being sustainable.

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Leigh R. Fox, Cincinnati Bell Inc. - President, CEO & Director [18]

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Yes, I mean the team, Batya, team has been really focused on getting the operations aligned, really working with Hawaiian team to make sure that we educate each other and we start to you know mix the teams together, making sure that everyone is talking, making sure that operationally we're set for success. And even with that environment they've increased penetration by 2% in the year in the fiber-to-the-prem. So it's beginning, it doesn't happen overnight, because you do want to make sure that you're doing the right responsible things for the operations in the consumer and all your customers, but it's begun and we're pretty confident.

Andy you want to answer the legacy part?

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Andrew R. Kaiser, Cincinnati Bell Inc. - CFO [19]

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So as you know, the investment that we've made over, now call it roughly the past 10 years in fiber and what you're referring to as strategic has been key to us offsetting ongoing legacy decline. As Leigh mentioned, when we look into the future, we see growth, modest growth but growth across all of our business units and that's coming from the investment in Fioptics and in fiber. We still have a bit of legacy obviously to deal with. In Cincinnati it is probably 35% of our revenue is still legacy related, in Hawaii a bit more, more 50% to 60%. And so we'll continue to see the legacy offset against our strategic growth, but we will continue to offset a large portion of that legacy growth into the future and that's again where we're able to see modest growth in 2020 and beyond.

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Leigh R. Fox, Cincinnati Bell Inc. - President, CEO & Director [20]

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And only thing I'd add to that Batya is when you grow the way that we've grown and you expand your assets we've expanded, good things tend to happen, good things that you expect or predict. I mean, you think about where we come from and where we are today, we are a completely different company. We have a reach across North America, we have good networks in 2 locations, we are investing in those networks, we're doing the right things for our customers, we're doing the right things for the businesses, and that creates a virtuous cycle. And we are starting to see the benefit of that and that expansion in ways that we're not going to talk about right now, but -- as I mentioned earlier, I'll just phrase it as we see a lot more tailwinds than we see headwinds in the business right now. So good things are happening and we're very comfortable.

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Operator [21]

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And we'll take our last question from David Barden from Bank of America.

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David William Barden, BofA Merrill Lynch, Research Division - MD [22]

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So obviously the highlight in the quarter was the sequential EBITDA growth and I think you guys framed that as a function of price hikes and cost reductions. So can we talk a little bit about that and kind of how that looks in the second half? From a price hike standpoint, could you talk about kind of what and when the price hikes phased in and could we see that rolling into the third quarter to create a little bit of incremental tailwind? Second, has there been any kind of churn fallout from that price hike platform that would impact metrics in the second half? And then I guess the third piece would be on the kind of cost controls that were implemented, where they related to GE and they are over or is there some more kind of structural program in place that will continue through the second half?

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Leigh R. Fox, Cincinnati Bell Inc. - President, CEO & Director [23]

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Thanks, David. I'll let Andy get into more of the specifics on timing of price hikes. But I would say that a better way to think about it, we're actually doing less from a pricing hike standpoint than we have done historically. So I'll start there, right. So what you're seeing isn't just price hikes. And on the cost side, it was not related to specifically to GE or any other thing. We are confident -- we have a sort of a constant program of managing costs. As you can imagine in the industry -- in the business we're in, it's just what you do and it's something that you do every day, every month and every quarter. And so you should see a benefit going forward and as I would expect and I think you've seen it from us in the past very consistently. So I don't think the price hikes or you know the price increase drove some sort of incremental boost for a quarter. As I mentioned, I mean first half to second half, I'm very confident in our guidance. So you just do the math and you're going to see a raise in the second half.

So I just think we're doing a lot of good things. And we have been doing a lot of good things. I would say the thing that to look at expectation. Some of the things that Wall Street gets wrong is some of the quarterly seasonality that we naturally see as a business. When we talk to folks, folks tend to just kind of take a number and straight line it and that's not how things come into the business. So as things ebb and flow from first quarter to second quarter to third quarter, typically our best quarter is the fourth quarter of every year and typically depending on hardware, first quarter is lower, it can be lowered depending on how hardware shifts from the end of the year to beginning of the year, if it doesn't, doesn't. Second quarter is traditionally, I think fairly low because it moves out of universities and so you have to build these trends in. So I think the way I think about the business, we continue to do all the right things you see quarterly seasonality, but we're trending kind of slightly up into the right.

Andy, you want to go into specifics around planning?

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Andrew R. Kaiser, Cincinnati Bell Inc. - CFO [24]

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Sure. So David, I'll first I'll talk about I think your question around sequential EBITDA growth. Lee, I think mentioned, most of the things that I would have highlighted, but we continually take cost out of the business. We've had VSPs the past several years, we'll continue to have them. So to a lease point, it's not a one-time quarterly or even annual event. It continues obviously throughout the year and into subsequent years. So we've got of individuals that signed up for VSP this year that have been staged, coming out throughout the year. We'll continue to do that in 2020 and beyond, where we see appropriate and as we continue to migrate from legacy to fiber.

As it relates to the price increase. Cincinnati was timing was roughly it would have hit most folks in the April kind of bill cycle. And in Hawaii that's being kind of phased in as we speak and really thing we're doing there is just more closely aligning with spectrum in the Hawaiian market. I think historically Hawaii has been significantly under, despite the superior asset. So again these aren't things that are one-time that we would anticipate headwinds down downstream. We feel that current quarter and on a go-forward basis, these represent tailwinds.

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David William Barden, BofA Merrill Lynch, Research Division - MD [25]

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And just as a follow-up really quick Andy, any churn kind of ramifications from April launch of the of the price hikes?

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Andrew R. Kaiser, Cincinnati Bell Inc. - CFO [26]

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No. And I think Leigh touched on this, but look we closely manage our base. Obviously it's a critical asset and this year we have really taken a look at what we need to do to manage as effectively as we can to ensure that we don't lose subscribers that we've invested a lot to bring on board. So we analyze from a customer lifetime value perspective as we approach certain milestones in the subscriber life and it's really paying dividends. So we have not seen any type of other spike in churn as a result of the price increase.

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Leigh R. Fox, Cincinnati Bell Inc. - President, CEO & Director [27]

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Yes, David, I think you see it numbers to. If you look at churn on the fiber side year-over-year, you will see improvements in churn I think across the board. I think and I want to say relatively flat even in the legacy side. So we're -- as Andy mentioned and I think we've mentioned this in the past, we are cash flow focused. And so part of the cash flow is -- churn is a big part of that, if you can keep a customer, keep them happy, and not have to roll a truck to new customer and not have to spend that CapEx that flows to cash flow, creates a virtuous cycle that you can take that cash and invest in the network. So that's what we're focused on and it seems to be working really well.

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Operator [28]

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And there are no further questions at this time. I would like to turn the conference back over to Chief Executive Officer, Leigh Fox for any closing remarks.

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Leigh R. Fox, Cincinnati Bell Inc. - President, CEO & Director [29]

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Thanks again everyone for joining us today. We look forward to speaking everyone next quarter and we appreciate your continued support in Cincinnati Bell. Thanks a lot.

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Operator [30]

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Once again that concludes today's conference. Appreciate you participation, you may now disconnect.