Cincinnati Bell Inc.
Q3 2018 Earnings Call Transcript

Published: 8 Nov 2018

[Operator:]

Good day, and welcome to the CBB's Third Quarter 2018 Earnings Release Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Josh Duckworth. Please go ahead.

[Josh Duckworth:]

Thank you, and good morning, everyone. Welcome to Cincinnati Bell's third quarter 2018 earnings call. With me on the call today is our President and Chief Executive Officer, Leigh Fox; and our Chief Financial Officer, Andy Kaiser. Leigh's comments today will recap our highlights and provide an update on the merger with Hawaiian Telecom. Andy will then provide additional detail on our segment results and financial position. Following the prepared remarks, Tom Simpson, our Chief Operating Officer will join Leigh and Andy for the question-and-answer portion of the call. Before we start, let me remind you that our press release and presentation slides for today’s call are posted on our Investor Relations website. Today’s call is being recorded if you would like to listen to it at a future time. As a reminder, third quarter results include three month of Hawaiian Telecoms financial performance as the merger closed on July 2, 2018. In addition in the first quarter of 2018, Cincinnati Bell changed its segment reporting to align with our long-term strategy of building two distinct complementary lines of business. The entertainment and communication segment is now reported in the following three categories to highlight the success of our fiber investments; Consumer/SMB Fiber also referred to as Fioptics in the Cincinnati market, Enterprise Fiber and Legacy. To reflect this strength in our recurring strategic IT services within the IT services and hardware segment, revenue is reported in the following practices; communications, cloud, consulting and infrastructure solutions which was previously referred to as telecom and hardware sales. Also, as a reminder, the new revenue accounting standard was effective January 01, 2018 and as a result, infrastructure solution sales are now reported net of cost-of-goods sold with prior periods also being restated for comparability. Presented on Slide 2 is our Safe Harbor statement. In our remarks this morning, we will be discussing forward-looking information. Due to various risks and uncertainties, actual results or outcomes may differ materially from those indicated or suggested by any such forward-looking statements. More information on potential risks and uncertainties is available in the Company’s recent filings with the SEC, including Cincinnati Bell's Annual Form 10-K report, Quarterly Form 10-Q reports, and Form 8-K reports. Noted on Slide 3, the earnings release and presentation issued this morning 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.

[Leigh Fox:]

Thank you, Josh. Good morning, everyone. Thanks for joining us today. Our strong third quarter performance demonstrates the success of expanding our high-quality metro fiber assets to meet the accelerating needs for an increase and lift and support the growing demand for IoT ecosystems. It also illustrates our ability to capitalize on Cincinnati Bell's 140 plus year history as a communications provider to advance our next-generation service-based IT products. As illustrated on Slide 5, consolidated revenue for the third quarter was $387 million generating strong adjusted EBITDA of $105 million which includes a result of the merger with Hawaiian Telecom that close on July 2. Hawaiian Telecom's third quarter revenue totaling $87 million was consistent with the prior quarter. Adjusted EBITDA increased 4% compared to the prior quarter totaling $23 million. Our IT services and hardware segment results were also impacted. Revenue increased $54 million compared to the prior year and adjusted EBITDA was up $7 million including contribution from the acquisition of OnX. Our long-standing reputation as a trusted IT services provider with an understanding of network configuration is serving us well across our expanded North American footprint, I'm excited to announce, Gartner recently recognized CVTS as a notable UCAAS provider when determining the 2018 magic quadrant for unified communication as a service worldwide. This recognition is expected to generate additional opportunities for this business and further demonstrates our commitment to delivering agile, scalable and cost effective solutions for our customers. Moving to our entertainment communication business, the company's early decision to accelerate our regional fiber business has created unique network capable of continually producing higher bandwidth and faster Internet speeds in our competition. And both Cincinnati and Hawaii demand for high-speed Internet solution continues to accelerate. As evidenced, Internet penetration rates in Cincinnati neighborhoods with fiber the premise total 43% as compared to 29% where fiber to node has been deployed. Similar stations were also occurring in Hawaii with Internet penetration rates reaching 30% in fiber to the premise addresses relative to 20% where fiber only reaches the node. In Cincinnati fiber the premise has been deployed to 459,000 homes and businesses more than 55% of Cincinnati’s total addressable market. Similarly in Hawaii, fiber the premise is available to approximately 33% of homes and businesses throughout the state with the majority of the fiber investment currently concentrated on Hawaii. That said, I am pleased to announce we were awarded $80 million of additional capital funding in Hawaii to be received over the next 10 years. These funds provide us the opportunity to continue to expand our fiber footprint to the neighbor island and cash our additional Internet market share. Moving to Slide 6, integration efforts in Hawaii are well underway and on track with expectations and our immediate efforts remain focused on increasing internet penetration. To accomplish this, we are focused on improving overall customer experience by optimizing operational models which communize the construction of fiber with sales efforts and installation lead times. In addition, we are enhancing our contact center to streamline customer service interactions. Hawaii’s operational and financial performance had improved and we are encouraged by the recent quarterly results. The combination with Hawaiian Telecom positions us to capitalize on a growing demand for fiber by adding the operational scale and expanding our fiber sensor footprint. We remain confident in our ability to replicate our fiber success in Hawaii and are excited about the opportunities across our IT services in the Hawaii market. I will now turn the call over to Andy who will walk you through our quarterly financial performance and outlook for the year.

[Andy Kaiser:]

Thanks Leigh. Starting with our entertainment and communications quarterly segment performance on Slide 7, revenue totaled $253 million generating adjusted EBITDA of $91 million. During the quarter, Hawaii Telecom contributed $80 million of revenue and $23 million of adjusted EBITDA for the entertainment and communications segment results. Cincinnati revenue of $173 million decreased 1% compared to a year ago as we shift focus to growing our Internet subscriber base with less of an emphasis on video as illustrated in our metrics on Slide 8. In Cincinnati, we increased our total internet subscriber count by 2,800 year-over-year as growth in Fioptics more than offset DSL declines. During the quarter, we added 1,300 Fioptics Internet subscribers with penetration rate holding at 40% due to declining relevancy of our fiber to the node offering. ARPU for the quarter increased 2% from a year ago to $51. Video subscribers decreased 1% from the prior year in Cincinnati as customer preference shifts towards over the top programming and we increase focus on growing our Internet subscriber base. Video ARPU was $94 during the quarter up 8% year-over-year. In Hawaii both Internet and video subscribers increased year-over-year and remain consistent with the previous quarter as we worked toward achieving consumer SMB Fiber Internet penetration rates on par with Cincinnati. At the end of the third quarter consumer SMB fiber internet penetration rate in Hawaii was 27% with an ARPU of $34. Video penetration was 21% with an ARPU of $81. Turning to IT services and hardware on Slide 9 revenue was up $54 million compared to last year primarily due to contribution from the OnX acquisition. Compared to second quarter of this year revenue increased 3% excluding the $10 million contribution from Hawaii Telecom. Billable resources were up 8% sequentially generating higher consulting revenue. Adjusted EBITDA totaled $17 million for the quarter up $7 million from a year ago. As noted on Slide 10 a robust demand for UCAAS, SD-WAN and NaaS continues to drive significant recurring revenue. During the quarter we increased NaaS and SD-WAN location by 41% and 57% respectively. We also added 6,900 hosted you UCAAS profiles during the quarter raising the total to 223,000 further illustrating our success in cross-selling these products throughout North America. As outlined on slide 11 free cash flow for the first nine months of 2018 total $27 million and we remain on track to generate positive free cash flow for the year. We ended the quarter with net debt of $1.9 billion resulting in net leverage of 4.6 times consistent with the prior quarter. With both transactions closed we remain confident that our current capital structure supports our long-term growth strategy. As presented on Slide 12 capital expenditures were $70 million in the third quarter and $141 million year-to-date including $21 million for Hawaii Telecom. Capital investments for Fioptics Suite of products in Cincinnati totaled $29 million in the third quarter including construction cost of $10 million. Year-to-date we had a 26,400 Fioptics addresses our Fioptics suite of products which includes a combination of fiber to the premise and node is now available to approximately 600,000 homes and businesses were 73% of Greater Cincinnati. We now anticipate passing more than 40,000 new addresses during 2018 up from the originally communicated 35,000. Hawaii consumer SMB fiber which also includes the combination of fiber to the premise or fiber to the node is available to 65% of the resident on Hawaii. Statewide in Hawaii 237,000 addresses or 48% of the homes and businesses have been passed with a fiber product including Hawaii Telecom we are forecasting capital expenditures to be at the lower end of our $230 million to $255 million estimate for the year. Our capital allocation strategy has remained consistent and we are confident that efficiently expanding our fiber network in Cincinnati and Hawaii are key to maximizing shareholder value. Turning to Slide 13 we are reaffirming our revised 2018 financial guidance provided during our second quarter earnings call which takes into account the merger with Hawaii Telecom that closed on July 2. I will now turn the call back to Leigh for some closing comments.

[Leigh Fox:]

Thanks Andy. Last 18 months have been transformational for Cincinnati Bell. I am very proud of the progress we've made towards improving our growth profile by building two distinct scalable lines of business. In our entertainment communication segment densest fiber will be the key market differentiator in our industry. And the merger with Hawaii Telecom is a great fit. With approximately 16,000 fiber route miles within just two markets we have locked in the fiber density value for our shareholders as demand for faster data speed and broadband continues to accelerate. In our IT services segment the recent Gartner recognition is a notable UCAAS provider has quickly demonstrated our ability to effectively transition a traditional hardware reseller to a service oriented IT solutions' provider across a diversified North American customer base. We are pleased with the continued momentum and our new scale footprint and we'll continue to focus heavily on growing our high margin services revenue. As always we will continue to invest where we are winning and remain confident to move ahead. We will maintain a disciplined approach to capital allocation in order to deliver long-term value to our shareholders and customers. I will now turn the call over the operator and open up for Q&A.

[Operator:]

[Operator Instructions] And we’ll take our first question from Batya Levi with UBS. Please go ahead.

[Batya Levi:]

Can you talk a little bit about broadband footprints and maybe just focusing on the Cincinnati Bell portion, that's continued to slow. Do you think this is sort of the new baseline run rate given competitive dynamics or is there room for improvement going forward? And maybe second question on Hawaii. As you look to expand the fiber footprint, can you talk about how we should think about CapEx going forward and maybe what's driving the low end of guidance for this year? Thank you.

[Leigh Fox:]

I'll answer the first part and then I'll hand it over to Andy to answer the second part on Hawaiian CapEx. So Cincinnati on the broad end footprint - I just want to remind everyone we stated in prior calls, we have begun to focus on the right kind of subs, not just chasing the sub what we call internally vanity metrics. We're trying to really focus on the right type scenario. And I think you see that in a combination of the sub adds and ARPU. We continue to have strong ARPU and we're driving towards the right type of subs. I think the combination of that - and we are seeing increased return in our VDSL areas. And what that shows us is that VDSL is quickly become part of the legacy environment and the speeds that are available with VDSL aren't good enough for our customers. And all that said where we have fiber footprint, which is approximately 55% of our footprint, Cincinnati. We're still seeing very strong adds and great momentum. And so for us it's making sure that we build in the right ways for the right people and then we - when we're tracking subs, we attract the right subs in the most efficient way as possible. And what that leads to in our mind is a very virtuous cycle that leads to stronger cash flows, lower CapEx. And I think that's part of what you'll hear from Andy on the CapEx side. We spend less CapEx because we're more efficient in driving over right amount subs or right type of subs, which leaves us with stronger cash flows. So with that, I'll hand it over to Andy for the second part.

[Andy Kaiser:]

Thanks, Leigh. Hey, Batya. So regarding the fiber footprint in Hawaii, I think - part of your question the other was why are we guiding towards the lower end of CapEx for 2018. So, first I'll start with Hawaii. We mentioned in the past, 65% of Oahu is covered with fiber. However, like in Cincinnati we still have significant opportunity continue to grow that footprint not only on Oahu but also on the neighborhood as well. Leigh mentioned at the front end of the call, the cap 2 funding that we secured. So obviously that helps us with the ongoing build in Hawaii in the neighbor islands. As it relates to why we're at the low end of CapEx, Leigh just mentioned this, we're becoming a lot more efficient as we continue to focus more on HSI install and on self installs. We're able to free up incremental capital. And as an example, that's quite the fact that we are trending towards the capital guidance. We had at the front end of the year indicated probably 35,000 doors that we're going to open up. We now will be opening probably $40,000 plus, still coming in at the low end. So it's really all about the efficiency by which we are now deploying capital.

[Operator:]

And we'll take our next question from David Barden with Bank of America Merrill Lynch. Please go ahead.

[Unidentified Analyst:]

Just following up on Batya's question, and it's Josh in for Dave. Is the reason of fiber to the node subs going down as fiber to the prem subs going up, is that just a shift between the two? And then second, on the competition in the market, can you just kind of give a quick update there? And with that, what is your view on potential competitiveness of fixed wireless product in Cincinnati? I don't think any of the wireless guys are doing anything there yet, but do you see that as a real threat? Thanks.

[Leigh Fox:]

So I'll answer that on the competitive piece. VDSL, I guess your question is what's driving the decline of VDSL. Honestly it's just lower speeds, when your competitions baseline is 200 megs and they're offering up to 300 megs, 350 megs, a 30 meg product is really just not going to cut it. And so that's why I mentioned earlier on the call that that's really - VDSL is honestly in our minds sort of the shift to be more of a legacy product. Honestly it's got very good at targeting not only DSL but also VDSL in our market, where I think they're struggling to compete with fiber to prem, they know that they can compete with obviously a DSL product but not a VDSL product. So that's really what the main driver. Competition offers a baseline product that's much higher than both VDSL and the DSL product. And so you're seeing higher turn and shift to on our side to where the adds are coming are all fiber to the prem, which is the superior product that we offer. So on the competition the competitive environment hasn't really changed in fact it's gotten slightly better. I mean it's been fairly consistent but you're seeing price increases by the competition. So I would say - increasing in competitiveness but as we mentioned in the past, it's always been a competitive environment. We're constantly fighting for subs with the competition but this hasn't changed in five years. So we see nothing that has changed since the last call that would lead me to believe anything there's been a major shift. And honestly it's been more positive than not because of some of the price movement on the competition side. And then on fixed wireless, I'm going to give you a brief answer then I'm going to hand it over to Tom, to give his opinion. As it stands today as you mentioned, no wireless carriers has announced that they're coming into the market. In fact the one carrier that's been pretty aggressive on announcement doesn't currently own spectrum in Ohio. We're obviously analyzing the impact of fixed wireless. Personally we believe it's a nice mobile augmentation but it's not a replacement product. And with that I'll hand it over to Tom.

[Tom Simpson:]

Yes, we’re pleased spot on that, that the two points - major fixed wireless providers doesn't currently have the spectrum available in Hawaii is the true statement. There are spectrum of blocks up for auction that we're watching. As far as the threat, it's really the viability than the highest dense fleet areas. We're talking north of 60 or 70 homes per mile, and look at that that's really more of a wholesale opportunity as Leigh mentioned there's some mobility augmentation. As well as from a threat standpoint I see that as a bit of a potential revenue shift from retail to wholesale, which is really going to lower our cost basis for support.

[Operator:]

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

[Sergey Dluzhevskiy:]

Could you talk maybe a little bit about the integration process - you diced it in opening remarks. But what that sounds that early learning's from operations in Hawaii and maybe competitive environment since you're going up against charter high in both markets?

[Leigh Fox:]

Honestly it's going very well. I think some of the comments that I heard early on, some analyst report I think one of the issues that I think which is hard to model, I did want to comment such one was revenues down in Hawaii but EBITDA is up. Honestly if you adjust your models for us taking gross hardware revenue to net revenue, revenues were actually on and EBITDA was up. So things are going very well. And going as expected or better. On the integration side same trends. We've made great progress with the integration, they're going as expected both financially and operationally. So, I think if you adjust financially Wall Street models or the growth in the net shift, I think we're probably right on revenue and slightly up on EBITDA. So Tom you want to comment on anything?

[Tom Simpson:]

No that’s exactly right. There is unearth opportunities in the enterprise market or IT services or hardware as well as the focus on integration has really been in back office and customer care permissions.

[Leigh Fox:]

Yes, on the competitive side the composition on the consumer front is very similar. I think except for the kind of slight shift in emphasis between MDU and [SFU] it’s a very similar environment so I think we’re very well-positioned to compete. And as Tom just mentioned on the business side we see a lot of opportunity on the business front in fact more than we had originally thought going into the deal.

[Andy Kaiser:]

When you look at the - there was nine consecutive quarters of decline from an EBITDA perspective. We were able to in Q2 come in quarter-over-quarter in line and then of course this quarter we’ve improved by 5 million. So all of the activity underway you're obviously seeing come through the financials.

[Leigh Fox:]

That's Andy’s subtle way of saying that doom and gloom that was predicted by everyone is not happening. We've been able to stabilize and shift the business and the way that we hope we could.

[Sergey Dluzhevskiy:]

And a couple questions on the IT services side. So just a clarification I believe you mentioned that about 10 million of IT services revenues was a contribution from Hawaii is that right?

[Leigh Fox:]

Yes.

[Sergey Dluzhevskiy:]

And what was the EBITDA contribution from Hawaii to that segment?

[Leigh Fox:]

I mean its minimal take 10 million, to 10%, I mean it’s very minimal.

[Sergey Dluzhevskiy:]

And I guess from a bigger picture perspective for IT services. If you look at the business mix and the gross rates various product lines that you have how should you think about gross rates was it division in general over the next few years and what products and services within this segment shows the most promise in your opinion and will contribute to a longer-term growth?

[Leigh Fox:]

Yes, great question. So I would say that kind of answering backwards, the area that we are seeing the most promise today obviously communication as a service. We mentioned the Gartner - we’re seeing a lot of success in growing our communications practice. We’re seeing success in the cloud front on consulting. We’re seeing success on people front as we’ve transitioned to do more development little mix of more development with kind of backlog. The infrastructure practice the traditional bar as you think about it is probably the one practice that I don't see as any growth in. I think you're going to see probably just a steady decline over time in that practice. That said, I think the complexities around the business will be the fact that we still have some legacy customers and some legacy products even within those practices that we’re migrating through. And then we got a few customers that are still going to be headwinds, one that’s obviously well noted large customer at bars in the paper lot that we support may have great relationship with but as our customer struggle, I think we'll see an impact from that. So that hasn’t all flush through the business yet. I wouldn’t see it flushing through the business for another 18 months 12 to 18 months. So, as you kind of transition through all that as we build and grow a new business through North American and part globally, we’re also transitioning some of the legacy stuff and some of the customer issues we’re having. So it’s going to be an interesting transition, but the good news is its growing and we’re seeing a ton of moment. So we see a lot of just long-term it's just going to be it maybe a little messy in the short-term because of some of those factors.

[Operator:]

And we'll take our next question from Arun Seshadri with Credit Suisse. Please go ahead.

[Arun Seshadri:]

First on IT services and hardware, just wanted to get a sense for what margins do you think you can get to from an aspirational standpoint and maybe you can start there?

[Leigh Fox:]

As the company shifts into a larger services base and we’re pretty good services mix today. One of the issues that you're seeing with high-growth specially high growth in services, it compresses margin because as you're selling you’re adding cost to deliver and as you’re selling the way that we’re selling your adding a decent amount of cost to deliver. So you're going to seeing compression in margin versus the aspiration view for a little while. I would say aspirationally given the mix as the mix shift, I would say that there is the potential of getting into the high teens to maybe low 20s aspirationally but Andy what are your thoughts on that.

[Andy Kaiser:]

Well so obviously we’re talking EBITDA margin which is what I'm assuming you're referring to. We probably are looking in the low teens, aspirationally and to Leigh point there's just and I’ll put specific numbers to it, there's a whole lot of growth happening in communications and we anticipate continued growth there which will help expand margins as we move up the stack. But given the legacy decline and other pressures that Leigh mentioned, we’re probably looking in the low teens.

[Leigh Fox:]

Now Arun now you've seen the difference between the finances, finance guidance last half empty in the CEO’s last half full view of aspiration. So but I would say - look its good - you can read targets from those two views. There is a lot of moving parts and there's a lot of tailwinds to that business and we’re really encouraged by it but we’re monitoring even closer so there is definitely a shift going on. So a lot of positive things.

[Arun Seshadri:]

Just wanted to get a sense for how low as you go through the transition modeling standpoint how low should we expect the EBITDA margins to go I guess that’s the bottom of the - top of the investment cycle?

[Leigh Fox:]

I mean why don't you take this one, I don’t know that they’re going to get much lower but from a transition standpoint.

[Andy Kaiser:]

Again we’re talking across - Arun are you talking across the consolidated business or…

[Arun Seshadri:]

Just IT services.

[Andy Kaiser:]

Okay. I don’t think we'll see any real significant compression with Leigh's comments regarding a large customer of ours, there could be a margin impact but again I don't anticipate that it’s a sustained margin impact. I really think that we settle in at the low teen over the course of the next couple of years. But they are likely to be a dip in 2019 just depending upon the pace with which we see on the large customer that Leigh was referencing.

[Leigh Fox:]

There are a lot unknown with that customer right now and we’re monitoring it very closely. We have a really good relationship with them, they’re positive and negative but we’re monitoring the negative very closely as you could imagine.

[Arun Seshadri:]

And then just a broader question debt related, how comfortable are you with your leverage where it stands today in the mid to high 4s and just a sense for like do you have any plans or any sort of focus on trying to inorganically reduce leverage in the near-term? Thanks.

[Leigh Fox:]

Yes, it’s a great question. I think because of where we sit in the industry we sit in. We’re I think somewhat fundamentally disadvantaged from a growth standpoint because if you look at what fiber providers invest and their levers come to pure play guys. On the positive side of our business the growing side of our business where we’re investing in fiber, we see similar growth rates, but those growth rates are obviously compressed by kind of the nature of our business and the legacy compression that you see from that part of the legacy shrinkage on an annual basis versus what we’re growing in fiber. So the disadvantage is really, we could be growing much faster and we have different arguments internally should we be growing much faster because we’re winning. We’re investing it to the prem we’re winning, but honestly the thing that holds us back is leverage and the fact that in our industry the leverage profile is a big deal and that debt in the balance sheet is a big deal, and the management of that had a major impact on our equity. And so we're very conscious of that and so we're constantly looking at ways of managing the balance sheet, managing debt down from organic standpoint. And as we mentioned in the call earlier, this whole cycle of brining in the right type of customers, not chasing vanity metrics because if you think about I can look at Tom and others and see as they go after sub, what that does is I could have really good sub metrics, right. And you would be all very impressed with my sub numbers. But then what you see underneath that is a decreased EBITDA, an increased capital, and our decreased cash. And partly because we've grabbed the wrong subs, right. Some of the subs may never pay us, some of those subs come in at a lower ARPU because we've had to grab them at a lower ARPU. And every one of those subs have a lower return. And you spend money going after all those subs. So part of what you're hearing us say is, we're trying to get incredibly efficient about who we add, how we add them, in order to drive the right amount of capital, the right amount of cash so that we can manage both growth and investment in fiber in the future while we're managing the balance sheet. And honestly that's a very delicate balance. And so there are opportunities but that's what we're balancing right now. And again a large part of it have to do is we understand the nature of where we sit in our sector in the ecosystem and the fact that that is important and it's a major impacting factor to equity.

[Operator:]

And we'll take our next question from Simon Flannery with Morgan Stanley. Please go ahead.

[Unidentified Analyst:]

Hi, it's Spencer for Simon, thanks for taking the question. Just a couple of quick ones. Can you give us a related backlog on synergies and any change from your original targets in terms of magnitude or time to achieve? And then what's the outlook for integration restructuring spends for next year, would that be flat or down versus 2018? Thanks.

[Leigh Fox:]

So on your first question, as you recall we identified $10.8 million with the HCOM merger, and we identified $10 million with the OnX acquisition. And we're well on our way, we actually are absolutely on track to achieve and actually I would say overachieve. So on the $10.8 million, we're more than halfway there with the remainder absolutely identified. And as I mentioned certainly, the opportunity to over achieve in that regard. OnX, the same holds true there, significantly more than half way there. By the end of 2019, fully achieve the $10 million that we have laid out. And again - and I think Leigh mentioned just a moment ago, we always have and always will closely watch the structure of both the businesses that we run and we are continually looking to be as efficient as we can. So we'll continue to drive that out. So sometimes we talk in terms of synergies but really ongoing activity will allow us to be more efficient in 2019 and beyond.

[Unidentified Analyst:]

And then on integration spend going forward.

[Leigh Fox:]

Absolutely, integration spend, it will be very light if any. Most of the integration spend, the immediate integration spend - most of the integration spend becomes heavy in the initial integration then tails off and it's pretty much tailed off. So you shouldn't see like huge amount.

[Tom Simpson:]

You'll see some flow through the year but it won't be anywhere near what you've seen this year.

[Unidentified Analyst:]

And then on CVTS, are you guys expecting typical seasonality in the fourth quarter is a little bit better revenue than you'd see in 3Q?

[Leigh Fox:]

Yes, right now absolutely, but obviously a lot of that is driven by one-time sales. And those one-time sales are harder to predict. But yes, I mean as we sit here today I see nothing that anyone put in front of me that would change my view on that. But again it's all based on end of the year - kind of end of budget fees and purchases by our customers.

[Operator:]

And our last question today is from Jennifer Fritzsche with Wells Fargo. Please go ahead.

[Jennifer Fritzsche:]

I wanted to ask - you touched on this but IT services you mentioned thinking the most efficient way for the capital structure. The stock seems under pressure. Do you feel like there is this misunderstanding you clearly have a strong track record of buying assets, and then selling them and making something out of them, is the classic example. How early are you in thinking about this? I mean, since this is still fairly new to you, are we way early even thinking about this or are there incoming inquires of interest? I guess I'm just trying to explore that point a little bit more. Thank you.

[Leigh Fox:]

Yes, I think it's misunderstood. I think - what I've sort of seen is the fortunate, the unfortunate part of dealing in the public market is you're guilty until proven innocent on almost everything. And so I think we do have a track record, I think we're proving it now. That is one asset that I think we're absolutely proving it on and to your point on timing, everything - what it comes down to is the right time to maximize value from the Management standpoint. And for me that asset has got a lot of tailwind behind it. We're seeing a lot of success. So I wouldn't say we're early on in our thinking. I mean it's quite obvious what we're thinking with that asset. I mean, we've split it from organizational standpoint and a financial reporting standpoint. So it's pretty obvious where our heads are at. I don't know that it'd happen next month or - but within a 24 month period maybe right. But it really comes down to when you look at the mix of that business, we feel like comparatively when you look at different companies of the same ilk that are out in the public market, we have a better mix of services. It is a very impressive company and what we're trying to do is basically put the pieces together to make sure that everyone sees that. And when we feel like everyone sees that, then I think it is the time. And the answer to your question on inbound calls, yes I mean I get calls all the time. So yes there are calls, there's interest and we get calls. We get calls on our assets all the time. I mean it's no different across the Board so. So yes, I would say we're early on but it's pretty obvious of what we're doing and we just want to do the right thing for that asset and the shareholders.

[Jennifer Fritzsche:]

And Leigh if I may and maybe this is one for Andy. But if that did get accomplished and if - I guess how would you prioritize your wish-list with potential capital? You'll first de-lever or find more assets, build out more or it's just say fiber centric?

[Andy Kaiser:]

I think it's fiber centric in debt, right. I think you use proceeds to pay down debt and then you continue with your fiber centric build. I mean I think if you pay down debt with that, it gives you a little room to maybe accelerate some of your fiber builds. Not kind of out of control because operationally it's inefficient to go too fast with fiber builds. But I think it allows you to maybe increase the speed with your building fiber a little bit. And then you've got a healthier balance sheet and you get closer and closer to being more of a pure fiber centric company over time and I think that that would be the idea.

[Operator:]

And with no further questions, I'd like to turn the call back over to Leigh Fox, for any additional or closing remarks.

[Leigh Fox:]

In closing, Cincinnati Bell has a proven track record for successfully executing its strategy and I'm confident the team will continue to capitalize on the significant opportunities for the future in each of our two businesses. Thank you for participating today and the continued interest in Cincinnati Bell and have a great day.

[Operator:]

And this concludes today's call. Thank you for your participation. You may now disconnect.