Consolidated Communications Holdings, Inc. (CNSL)
Q2 2008 Earnings Call
August 7, 2008 11:00 am ET
Matt Smith – Director of Investor Relations
Robert Currey – President, Chief Executive Officer
Steve Childers – Chief Financial Officer
Patrick Rien – Lehman Brothers
Frank Louthan – Raymond James
Michael Nelson – Stanford Group
Gray Powell – Wachovia
Chris Larson – Credit Suisse
Previous Statements by CNSL
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I'm Matt Smith, Director of Investor Relations, and with us on the call today are Bob Currey, President and Chief Executive Officer and Steve Childers, Chief Financial Officer.
After the prepared remarks we'll conduct a question and answer session. I will now review the Safe Harbor provisions of this call and then turn it over to Bob. This call may contain forward-looking statements within the meaning of the Federal Securities laws. Such forward-looking statements reflect among other things managements current expectation, 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. Please see our public filings with the Securities and Exchange Commission for more information about forward-looking statements and related risk factors.
In addition, during this call, we will discuss certain non-GAAP financial measures. Our earnings release for this quarter's results which has been posted to the investor relations section of our web site contains reconciliations of these measures to their nearest GAAP equivalent. I will now turn the call over to Bob who will provide an overview of our financial and operating results. Steve Childers will then provide a more detailed review of the second quarter financials.
Our results for the second quarter were very strong. Revenue, adjusted EBITDA and cash available for dividends were all solid, and our Pennsylvania integration continues to be ahead of schedule. As anticipated, the cable competitors launched voice services in our Texas markets during the quarter. We have taken the necessary steps to be well positioned to compete with our Triple Play bundle, industry leading DSL penetration and our consumer VOIP offering.
Now let me review some of the details for the quarter. Revenue and adjusted EBITDA were $106.4 million and $48.3 million respectively. The dividend payout ratio improved to 68.4%. As for our metrics, we celebrated a key milestone this quarter by breaking 100,000 mark for broadband connections. We continue to deliver solid broadband growth with DSL and IP TV increasing by a combined 3.4% over last quarter.
Considering that the second quarter is historically a seasonal challenge, we are pleased to report DSL net adds were comparable with the second quarter performance over the last two years, rising by approximately 2,300 subs or 2.7% sequentially, while IP TV showed good growth at approximately 1,100 or 8.3% sequentially.
Both our DVR and Pennsylvania IP TV launches in late April have shown positive traction and we like the prospects for these products going forward. Our take rate on DVR and HD across all markets is up to 6% and 13% respectively. Our VOIP offering is proving to be a substantial growth opportunity and a desirable alternative from a technology and value perspective for some of our customers.
We added nearly 1,200 lines in the quarter which is split between new customers and existing customers. While this does in some cases cannibalize access lines, we are saving a customer by offering this alternative and it is another way that we successfully compete head to head with the cable providers.
Finally, regarding access lines; as we announced on our last call, Sunlake launched its voice service in our Texas markets early in the second quarter and Comcast followed later in the quarter. As expected, this caused a spike in our access line loss for the quarter. In our estimate, this means cable providers and their voice services are now virtually 100% launched in all three of our states. We have been preparing for this challenge for years and with our full product suite, we are uniquely positioned to compete and win.
In our Pennsylvania operations we have seen [inaudible] line loss trends stabilize at an annualized 6.5% for the second quarter compared to 10% last year at this time. For the [C-lack] suite we grew access line equivalents by approximately 900 in the quarter, giving us an increase of over 5% year to date.
Now in terms of the Pennsylvania integration, we continue to be very pleased with our progress and are confident in our synergies and overall plan. We have been able to utilize same playbook and leverage the experience game from integrating the Texas properties which was a much larger transaction that tripled the size of our company. As we mentioned on our last call, we have already completed the integration of our financial systems, carrier access billing system and move the I-link billing system in house from a third party which enables our internal technical staff to fully support the systems. We have successfully completed 20 bill cycles between the I-link and access billing systems.
So in summary, we're confident we will exceed our original projections of $7 million and have already taken action to realize approximately $5.5 million in annualized savings.