Cincinnati Bell Inc.
Q4 2014 Earnings Call Transcript

Published: 19 Feb 2015

[Operator:]

Good day, and welcome to the Fourth Quarter 2014 Cincinnati Bell Earnings Release Call. Today's conference is being recorded. At this time, I'll like to turn the conference over to Mr. Josh Duckworth, Vice President of Investor Relations. Please go ahead, sir.

[Joshua T. Duckworth:]

Thank you, and good morning. I'd like to welcome everyone to Cincinnati Bell's fourth quarter earnings call. With me on the call today is our Chief Executive Officer, Ted Torbeck; and our Chief Financial Officer, Leigh Fox. Ted's comments will summarize our 2014 accomplishments and our strategic objectives for 2015. Leigh will provide an update on our fourth quarter and full year financial results in addition to our 2015 financial guidance. Following Leigh's discussion, we will conduct a question-and-answer session. Before we proceed, let me remind you that our earnings release and financial statements are posted on our Investor Relations website. In addition, you'll also find presentation slides for today's call, which we hope you will find helpful in your analysis. Today's call is being recorded if you would like to listen to it at a future time. Now, I'd like to draw your attention to our Safe Harbor statement presented on slide three. 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. This 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 am pleased to introduce Cincinnati Bell's Chief Executive Officer, Ted Torbeck.

[Theodore H. Torbeck:]

Thanks, Josh, and good morning, everyone. Thank you for joining us this morning. My comments today will provide a recap of our recent accomplishments and summarize our 2015 outlook. 2014 was truly a turning point for Cincinnati Bell. As highlighted on slide six, the company grew Wireline revenue on a full-year basis for the first time since 2007. We sold our wireless spectrum and have begun turning down those operations. And we also sold a significant tranche of our investment in CyrusOne, using the proceeds to repay over $300 million of debt. And we initiated the process to accelerate our fiber investments. All this was accomplished while still generating positive free cash flow and achieving our full-year financial guidance. The charts on slide seven further highlight the progress we are making on our transformational initiatives. Strategic revenue for the year totaled $436 million, and has increased more than 15% annually, since 2012. In what is now considered our core business, increasing demand for strategic products has resulted in revenue growth, each of the past three years. More importantly, revenue from fiber-based products and IT solutions accounted for almost 50% of our recurring revenue base in 2014. This is a mark we expect to eclipse this year. On slide eight, we provide an update on the wind down of our wireless operations. In 2013, after becoming CEO of Cincinnati Bell, I communicated the need to sell our Wireless business. These decisions are always difficult, but I firmly believe that we needed to gracefully exit a business where we would always be limited by scale and thus struggle to provide the best product to our customers. In the third quarter of 2014, we closed the agreement to sell our wireless spectrum licenses to Verizon for a $194 million of cash. In the next few months, we will close our wireless operations and transfer $25 million of capital lease obligations and other assets to Verizon. I would like to commend our wireless team for their efforts this year, and their commitment to Cincinnati Bell's customers in such a challenging environment. During this tough period, we transitioned approximately 75% of our wireless subscribers to other carriers, while still generating wireless adjusted EBITDA of $44 million, and free cash flow of approximately $35 million. Now, turning to our CyrusOne investment on slide nine. In the second quarter of this year, we sold $16 million CyrusOne partnership units for $356 million, using the proceeds to repay debt. At the time of the sale, it's critical to show the investment community that we could play the role of both successful business operators and thoughtful investors. This was a well-timed and well-executed transaction, which not only increased our net cash flow by $15 million annually, but it also increased CyrusOne's public float and alleviated much of the perceived overhang from our significant ownership. Subsequent to the sale, the share value of CyrusOne has increased by approximately 25%, and is traded as high as $30. As of the end of the year, our 44% ownership interest was valued at $785 million. In addition, we continue to maintain a $740 million tax NOL to shelter any future gains. Looking ahead, we will continue evaluating opportunities to monetize this investment. We are encouraged by CyrusOne's consistently strong financial performance and their announcement yesterday to increase their dividend by 50%, which puts the dividend yield well in line with their peers. As we've stated in the past, we believe that projecting any intent regarding our position at CyrusOne, destroys shareholder value. With that said, we continue to be committed to maximizing value by executing a well-timed and thoughtfully coordinated monetization plan that balances the upside growth in CyrusOne with our goal of reducing leverage. The completion of the wireless transaction and our strategy for monetizing CyrusOne has increased operational and capital flexibility. It also provides us the ability to focus on our fiber investments. Our Fioptics suite of products is currently available to more than 40% of Greater Cincinnati. And we plan to expand that coverage to between 70% and 80% over the next few years. Revenue from Fioptics exceeding $140 million in 2014, growing more than 40% on average each year, since we launched the product in 2009. Over that same period, our subscriber base has increased on average 30% annually, and penetration has remained steady, even as we aggressively increased our market coverage. Our goal is to get our fiber products in the hands of as many consumers as soon as possible. The ongoing success of Fioptics, combined with our unique market opportunity gives us the confidence to accelerate our fiber investments. As we progress into 2015, our strategic objectives remain constant. First, we are focused on efficiently deploying our fiber network. We continue to believe in the quality and long-term relevance of our fiber assets, and are confident that we will provide attractive returns. In addition to our success with Fioptics, I am also pleased to announce, we recently secured a $30 million, multi-year small cell agreement with a national carrier. We believe this win is in the first step in a much broader opportunity for us, as we are uniquely positioned with both networking and wireless expertise. All of our investments remain success-based and we will continue to actively monitor all the key metrics that drive return. Second, we also remain intently focused on the health of our balance sheet. During the past two years, we have reduced our net debt by approximately $400 million and reduced interest payments by more than $50 million. We remain in a friendly interest rate environment and will continue evaluating opportunities to improve our cash flow and our balance sheet. In closing, 2014 was an exceptional year for Cincinnati Bell, and I am extremely proud of our progress. We achieved our 2014 financial guidance, generated year-over-year Wireline revenue growth, and produced positive free cash flow. In addition, we completed the sale of our wireless spectrum and paid down approximately 15% of our outstanding debt with proceeds from CyrusOne monetization. These accomplishments prove we are capably successfully transforming Cincinnati Bell into a fiber-based telecommunications and IT company with growing revenue, profits, and cash flow. I'd like to now turn the call over to Leigh to provide additional detail on our fourth quarter and full year results, as well as our 2015 financial guidance.

[Leigh R. Fox:]

Thanks, Ted, and good morning, everyone. As Ted mentioned, 2014 was a great year for us, both operationally and financially. Our revenue and adjusted EBITDA results are highlighted on slide 11. Consolidated revenue for the year totaled $1.3 billion, a 3% increase over the prior year, as demand for strategic products and increased hardware sales more than offset Wireless and legacy revenue decline. Adjusted EBITDA for the year was $379 million, with net income totaling $76 million, resulting in diluted earnings per share for the year of $0.31. Fourth quarter consolidated revenue was consistent with the prior year, totaling $308 million. Adjusted EBITDA for the quarter was $78 million, down from the prior year, primarily due to shutting down the Wireless operations, increased costs associated with accelerating our fiber investments and the impact of other non-recurring expenses related to our Wireline segment. Our segment results start on slide 12. Wireline revenue for the quarter totaled $188 million, up $6 million from a year ago. Fourth quarter strategic revenue for business customers totaled $42 million, up 8% on strong demand for Metro Ethernet and VoIP products. Consumer strategic revenue was up $10 million, driven largely by the 40% increase in Fioptics revenue. Adjusted EBITDA totaled $74 million for the quarter, resulting in margins of 39%. Margins were impacted by the previously mentioned one-time expenses, and in line with our expectations. Turning to slide 13, Fioptics annual revenue totaled $142 million in 2014, and the product is now available to 335,000 addresses or 41% of our market. We ended the year with 114,000 Fioptics Internet subscribers, up more than 40% compared to the prior year, as customers continue to demand faster Internet speed. We also ended 2014 with 91,000 video subscribers, up more than 20%, compared to the prior year. Fioptics ARPU by product increased on average 8%, compared to a year ago as video ARPU totaled $79 and Internet ARPU totaled $40 during the quarter. Churn continues to remain relatively constant and penetration rates have remained strong, even as we have continued to aggressively build out our fiber network and scale our operations. Moving to slide 14, the IT Services and Hardware segment generated revenues totaling $110 million for the quarter, up $23 million from the prior year on higher than anticipated hardware sales. Strategic and managed professional services revenue totaled $37 million, an increase of 17%. Adjusted EBITDA and operating income both – were both up $2 million compared to a year ago. Adjusted EBITDA margin for the quarter was 6%, which is consistent with the prior period. Slide15 details our cash flow results. For the year, we generated $12 million of free cash flow. In 2014, cash flow was impacted by capital expenditures of $182 million, interest payments of $153 million, and pension and post-retirement payments of $31 million. Looking forward to 2015, we expect interest payments to decrease by approximately $35 million and pension and post-retirement payments to remain flat. In addition, CyrusOne announced that would increase its dividend 50% to be more in line with its peer group. As a result, if we maintain our current ownership level in 2015, we would expect to receive $33 million in cash dividend. Turning to slide 16. Capital expenditures totaled $182 million for the year, coming in at the low-end of the communicated range. In 2014, we invested $50 million on the construction of Fioptics passing 59,000 addresses. We also invested $24 million in installation and $19 million to support other platform and IT enhancement as well as network upgrades to support additional traffic for both residential and business customers. Capital expenditures for success-based fiber builds business and managed services projects totaled $37 million. As noted on this slide, our goal is to pass 100,000 additional homes with Fioptics in 2015. We expect construction costs to be between $80 million and $85 million next year to achieve this goal. In addition, we are forecasting installation cost to be approximately $40 million. We also expect to invest $40 million in platform and IT enhancements and continued upgrades to the core network to support increased traffic. Our strategic capital investments are expected to be in the range of $50 million to $55 million for other projects, including capital required to deploy small cell as a part of the agreements mentioned earlier during Ted's comments. In total, 2015 capital expenditures are expected between – to be in the range between $270 million and $280 million. Our 2015 guidance is presented on slide 17. We expect revenues of $1.1 billion in line with the current year results excluding Wireless. 2015 revenues will be impacted by a forecasted decline in non-recurring hardware sales as we do not expect to repeat the success we experienced in 2014, with the sale of these lower margin products. We are forecasting adjusted EBITDA of $297 million plus or minus 2% inclusive of costs being absorbed as a result of shutting down the Wireless business, costs associated with accelerating our fiber investments and the impact of declining hardware sales as noted on slide 18. As highlighted on today's call, the investments we are making in our strategic products will be the catalyst for driving future revenue growth, increased profitability and – increased probability and producing significant cash flows. Our goals this year center around efficiently executing our Fioptics acceleration plan and evaluating market opportunities to improve the health of our balance sheet. I'm confident in our strategy and our continued ability to successfully transform Cincinnati Bell under a growing fiber-based entertainment and IT solutions company. This concludes the prepared remarks for today's call. Thank you for listening. We will now turn over the conference to questions.

[Operator:]

Thank you. And we'll take – we'll take our first question from Batya Levi with UBS.

[Batya Levi:]

Great. Thank you. You – I wanted to ask you about the Wireline revenue expectations. You had very solid growth in 2014. And looking into 2015, I know there's going to be some headwinds as you see pressure from wireless backhaul revenues. But what are your thoughts of Wireline revenues in general? Do you think that as you balance more Fioptics adds and the pricing pressures that you're seeing, could we still expect that to continue to grow? And on the Fioptics, can you talk a little bit about the competitive environment? You brought on more homes through this footprint, but the net adds fell somewhat sequentially. What were some of the drivers of that? And as you look out to bring on about 100,000 more homes, what is your expectation for take rates for next year? Thank you.

[Theodore H. Torbeck:]

Okay. First on the Wireline revenue. We continue to see growth opportunities in 2015. So we expect still to see additional growth in our numbers. So what is it – that's 2%?

[Leigh R. Fox:]

Yeah. Yeah. We expect consistent Wireline growth. Obviously, we – it's a – even with the Wireline, it's a competitive – you see competitive pressures both on the consumer and the business side. So we're balancing a lot of the same inputs into both businesses, which is basically a transition from TDM to SIP-based or IPE-based technologies. But so far we've been able to overcome that especially on the consumer side with our investments in fiber, which is also helping on the business side. So yeah, we definitely – we expect fairly consistent growth.

[Theodore H. Torbeck:]

On the competition side, Time Warner has definitely gotten more aggressive, we've seen that especially in the DSL, the lower-end, lower meg customers that we have. We've seen a lot more aggressive actions from them. But we're doing very well. Our penetration rates are holding. When we open a neighborhood, we do extremely well and we're seeing good follow-up as we go back to re-sweep the neighborhood as well. So we're seeing a real positive response from our customers.

[Leigh R. Fox:]

And on your Fioptics question on take rates. The take rates are fairly cyclical during the year. We're not seeing anything that is alarming at all, so things remain consistent, penetration rates remain very solid. So we expect continued momentum.

[Batya Levi:]

Okay. Thank you.

[Operator:]

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

[Simon Flannery:]

Great. Thank you very much. I'm staying on Fioptics. Your Internet adds on Fioptics were about 2X your TV adds. What's going on there? Is that cord-cutting that we're seeing or is that just say, some markets you went out with double play rather than triple play? And how that plays into maybe over the top of your thoughts about that? And then, on the CapEx guidance, I think you had install CapEx up about two-thirds to $40 million, is that a good proxy for what your kind of gross Fioptics adds are going to be year-over-year in 2015? Thanks.

[Theodore H. Torbeck:]

Yeah. Well, one of the initiatives is really to get out there quicker with the Internet because of the need for speed. So we have put a strong emphasis on that, and that's why you're seeing that increase in Internet adds. The other piece on – over-the-top is, we still feel that, that is going to be a – it's definitely growing, but it's still a relatively small number, and we feel that by putting the best pipe to the home or the business absolutely is the thing to do, and that's what we're really focused on doing. You still are going to need the largest, fastest pipe and that's where we're focused.

[Leigh R. Fox:]

Simon, the plain answer to your question on Internet is exactly what Ted said. We shifted some operations because we had some bandwidth and we saw the demand in Internet. So we shifted some tech time and focused on installing Internet and squeezing some windows and we saw a really strong response to that at the end of the year. But – and it had – I think it had a lot more to do with that than any kind of macro trends.

[Simon Flannery:]

And on 2015? The installed CapEx?

[Leigh R. Fox:]

Yeah. I think to your point, yeah, I think it is indicative of what you should expect.

[Theodore H. Torbeck:]

Yeah. I think it's very relative to 2014. We'll see basically the same.

[Simon Flannery:]

Great. Thank you.

[Operator:]

And we'll take our next question from Barry McCarver with Stephens, Incorporated.

[Barry L. McCarver:]

Hey, good morning and thanks for taking my questions. Ted, you mentioned your cable competition was targeting, I guess, a lower bandwidth customer. But just curious, any more color on what competition is doing in front of that, the big pending merger?

[Theodore H. Torbeck:]

Yeah. I mean they're – Time Warner is definitely being aggressive to get as many subs as they can. We'll win a customer, and they try to go back to them and offer a lower price. But again as you can see by our growth and the penetration rates, we're being very successful. And the other – they're doing things like not doing credit checks, which to us is not the way we want to run it. So, but we think we got a better product. We know we have a better product. And we're winning in the marketplace, so...

[Leigh R. Fox:]

Yeah. You definitely – Barry, you definitely saw some pre-deal fervor in the fourth quarter. And as Ted mentioned, we still came out with excellent results. So we feel like it just over emphasized our ability to compete, even in a toughening environment. But we do think it's kind of pre-deal items. And so this is probably – I don't know, the worst we'll see it from a competitive standpoint in behavior.

[Barry L. McCarver:]

Is Cincinnati Bell thinking about any marketing campaigns around this merger to highlight what's going to happen to those customers?

[Theodore H. Torbeck:]

You mean their customers?

[Barry L. McCarver:]

Right.

[Theodore H. Torbeck:]

Time Warner customers?

[Barry L. McCarver:]

Yeah, yeah. I'm sorry – Time Warner customers.

[Theodore H. Torbeck:]

Well, we have a huge push on customer experience. And that's the – we're putting a big push on gig service as well. And a lot of communication around that. We have a big campaign about Light Up Cincinnati, where we're putting Wi-Fi at all the public places in Cincinnati. We're going to have an app that comes out, that will enable customers like the Zoo, Cincinnati Zoo that they can push forward information to customers and make the customer experience a lot better. And we're looking at other public venues to do that as well. So basically we're very proud of the product we have. And we're pushing the strengths of it. And that's speed which is what the customers want.

[Barry L. McCarver:]

Very good. And then on your CapEx slide, I think it was slide 16, you guys mentioned an opportunity for small cell deployment. Is there anything specific on the drawing board there for 2015?

[Theodore H. Torbeck:]

Well, as I've said, we won a significant – we had a significant win in the fourth quarter with a large carrier that we're very excited about. And there's a lot of opportunities going forward. And Barry, the interesting thing is the fact that we have wireless expertise is a big plus in winning these small cell, so we've actually transferred wireless engineers over to the carrier market business, and it's been very successful as they speak the same language as these carriers. It's been very, very successful.

[Barry L. McCarver:]

I got you.

[Theodore H. Torbeck:]

So we're going to be aggressive there.

[Barry L. McCarver:]

Good. That sounds good. And then just lastly, I guess in relationship to potentially selling some more CONE stock – sorry, somebody has to ask on every call, right?

[Theodore H. Torbeck:]

Yeah.

[Barry L. McCarver:]

I know your thought process was to wait a little bit longer and maybe take on some more debt. I think that discussion happened with CONE a lot lower than $30. But I'm just kind of curious as to what opportunities to pay down debt, if it makes sense here in 2015, exists, if any?

[Theodore H. Torbeck:]

Well again, we're very pleased, I think it's paid off that we are a patient investor and we haven't jumped to sell, and we still think that their performance continues to get better and better, and the increasing dividend is also a big plus. So again, we're going to play the role of a patient investor, we're going to do the right thing for our shareholders and optimize and maximize the return that we can get with that investment.

[Leigh R. Fox:]

But to your point, Barry. We have a few debt milestone this year that we're focused on and paying special attention to sub notes drop from $104 million to $102 million and change on March 15th, and then the senior bonds become callable in October of this year. And as you get closer to that, the MPEs of refinancing and looking at different options become a lot more attractive. So we're paying a lot of attention to the capital structure this year, and we're extremely focused on it.

[Barry L. McCarver:]

Great. That's very helpful. Thanks, guys.

[Theodore H. Torbeck:]

Thanks, Barry.

[Operator:]

And we'll take our next question from Sergey Dluzhevskiy with Gabelli & Company.

[Sergey Dluzhevskiy:]

Good morning, guys.

[Theodore H. Torbeck:]

Hi, Sergey.

[Sergey Dluzhevskiy:]

I've a couple questions – hi – if I could. So on CONE, obviously you have indicated that your plan is to be a patient investor, and you would monetize it in a very thoughtful and well-timed manner, with a focus on reducing leverage. And I was wondering if you see any opportunities to accelerate the realization of value from your CONE investment via financial engineering that would allow you to maybe highlight the value of your stake, or realize a portion of the value sooner, while still leaving an option for you to benefit from potential upside in CONE. For example, I don't know if you see creation of a tracking stock or a leverage tracker as viable options. And any other thoughts on financial engineering that potentially would not preclude you from following a strategy, but could accelerate or enhance the value of your CONE stake realization?

[Leigh R. Fox:]

Yeah. Hey, Sergey. Yeah, we've looked at pretty much every scenario that I and others could think of including many of the banks could think of with respect to different options and creative financial engineering. The issue with that is, and even at the current float, these are options that are probably just impactful on the periphery of what we do. There are still options, but they don't really move the needle much. So there are definitely options in our bag of tricks that we continue to look at on an active basis. But from the standpoint of really moving the needle either with us or CONE, we don't feel like it's – there are really that many options that are really going to move the needle and highlight the value. But we continue to look at it. And as we mentioned in both Ted and my scripts, it's a big part of what we're doing this year. We've got a very major focus on it, and are working with all of our partnership banks on different scenarios. Hope that's helpful.

[Sergey Dluzhevskiy:]

Yeah, it is. And in terms of – I mean this is related question, and obviously it's also related to your focus on debt pay down. But if you could share your thoughts on what the right balance should be between returning cash to shareholders and deleveraging? And given your focus on deleveraging, at what point do you think buybacks would become a more viable tool for you guys?

[Leigh R. Fox:]

Yeah. I think in the short-term, Sergey, we're obviously focused on delevering. As we stated in the past, buybacks are definitely an option. And there's always a balance as we look at it between where our stock price is trading, and where we believe the intrinsic value is versus debt pay down. We've mentioned certain restrictions on how much cash we could use for different items. And to be honest, it's a little restrictive right now, but that's part of what we're looking at when we build plan for the overall capital structure is timing for more shareholder friendly returns on cash. So it's definitely a part of the planning cycle that we're going through right now. And – but I would say in the short-term, it's going to be about repaying debt and getting some of the restrictions, taking care of and getting, I guess a healthier balance sheet, a more normalized look at leverage.

[Sergey Dluzhevskiy:]

Right. And last question, you mentioned that Time Warner is going hard after your DSL customers because they're obviously the most vulnerable. I was wondering how are you planning to address the parts of the footprint that you probably won't be able to reach with Fioptics. Obviously, Fioptics is a focus. But those 20% or 25% of the footprint where you are able to have DSL, what kind of strategy you have those markets, and are you planning to raise speeds? And in the short-term, I guess, what is your immediate response to Time Warner going after those customers?

[Leigh R. Fox:]

Yeah, right now, our focus is to build out the fiber footprint as fast as possible. I mean that's the easiest way to hit the main part of the base that we can address. But to your point, there's always going to be customers kind of – on the outskirts that it doesn't make economic sense to build our fiber. And we're looking at – we're already looking at a few options through our CTO and some of the work that his groups are doing. Pair bonding is an option in some cases. We're also looking at possible Wi-Fi technology and how much speed you could drive through Wi-Fi into various neighborhood. So, yeah, we're definitely looking at it. It is a part of addressing that. If we can get to 75%, it's addressing that 25% we can't get to. So we're not ignoring it. We're thinking through it. And by the time we get there, we do think we'll have some potential viable options that will bring attractive returns. But it's a little early on to kind of be too firm on that since the technologies are still being explored and are shipping on us also.

[Sergey Dluzhevskiy:]

Thank you.

[Operator:]

We'll take our next question from David Barden with Bank of America.

[David W. Barden:]

Hey, guys. Thanks for taking the questions; I guess two if I could. Just first with respect to the ramifications of the wireless wind-down, do you think that, that's had any kind of maybe near-term disruptive effect in the Wireline side of the business that might moderate into the first couple quarters of 2015? And the second question would be, kind of looking at the Wireline segment, is it possible, Leigh, to give us some sense as to the relative margin contributions for the various big buckets, in terms of say the business margin relative to the consumer Fioptics margin, relative to the kind of non-strategic Wireline margin? Just so as these businesses are moving around, we could kind of get an understanding how the margins will be tracking going forward. Thanks.

[Theodore H. Torbeck:]

Well, David, these are good questions. The first – we definitely think there was some impact of the wireless wind-down on the Wireline business. That will subside in basically end of February, as most of our customers leave. It has had an impact on access lines and we think that, that with that – as transfers happen, we have lost customers that necessarily weren't looking to leave us. So we do think that will subside, and this is probably the last month that we will see an impact of that.

[Leigh R. Fox:]

Yeah. On your margin question David, yeah I mean, I think we stated in the past that, we expect aggregate margins to begin to fall in line with what you saw in the fourth quarter, though the fourth quarter was impacted by a few one-time things that weren't Fioptics related. But we do expect things to continue to compress, I think we stated in the past that we expect in the high-30%s, and especially as you're growing, and you're spending a lot of money and focus on growth and installation. I think the real question is, where does it normalize? We believe it probably normalizes a little higher as you become more efficient in running a business that you're not running so hard at installation and growth on. So I think, what we stated in the past is still pretty accurate from the standpoint of where we think margins will lay out. And obviously, if we see any different, we'll update you as that comes, but we see nothing that's changed from an aggregate basis on Wireline.

[David W. Barden:]

And just as a quick follow-up, Leigh, I guess just number one, could you just kind of elaborate a little bit on kind of the relative margin of kind of the legacy business versus consumer Fioptics versus business? And then the one-timers you mentioned in the 4Q that kind of hurt the margins, I'd love to know more about those too.

[Leigh R. Fox:]

Yeah. So, I'll start with the latter. The one-time items were just items that we accrued for in order to be fairly conservative for things that we saw coming. That's all I really want to say about it, but they had an approximate $2 million to $4 million impact on EBITDA in the quarter. On the relative margins, as much as I'd love to give you a straightforward answer, there's really not a straightforward answer on relative margins between the legacy business and the Fioptics business. Part of what we continue to battle on a daily basis is effectively managing two businesses on a single platform and managing the shipping of costs between a legacy declining business and a growing strategic business around Fioptics. I've looked and heard everything from the legacy business is at 85% margin, which I don't believe by the way when you fully allocate to, the Fioptics is lower. So it's definitely a balance. The best way to really describe it is in the terms that we've described it to you. We really do believe that you'll see pressure, but we are constantly focused on shifting costs out of the legacy business, and shifting those over to the growth business. And I think that's probably the best way to think about it right now, any kind of relative margins I could give you would be a little bit of a high level guess at this point.

[David W. Barden:]

Got it. Thanks, guys.

[Operator:]

And we'll take our next question from Frank Louthan with Raymond James.

[Frank Garreth Louthan:]

Okay. Great, thank you. Back to the small cell opportunity, I would assume that this opportunity might expand a little outside your footprint where you've done wireless or where you have some other network, possibly to Dayton. And can you give us an idea of the number of RFPs that you've got that you're currently bidding on? And are these carriers providing you sort of upfront capital to help build these at all?

[Theodore H. Torbeck:]

Thanks, Frank. Thanks for the question. First of all, yes, we do get several bids that we're working on. And when I say several, it's more than three that we're looking at possibly that we're bidding on. Many of them are outside – carry outside our normal territory. And we also think this is a big opportunity in the future, and we're looking at how we can even expand it even further. We're pretty excited about it – the opportunity. And again, I don't underestimate that we have expertise that our strong competitors don't have, and that's having the wireless experience and expertise as well. So that really does carry a lot of weight with the people that we're competing against.

[Frank Garreth Louthan:]

Okay, great. And then should we think of 2015 as sort of a peak CapEx year? I mean, I guess even sort of excluding other small cell type builds and/or kind of success-based type contracts you might get, when should we think of CapEx sort of peaking here?

[Theodore H. Torbeck:]

Yeah. We're not going to expand on 2016, but we did say, over the next few years that we'll be getting to 70% to 80% of the city covered. And that's really the main driver for the increase in CapEx. But again, I want to emphasize, this is extremely success based. And if we reach a point in time where we're not getting the returns, we're going to pull back. So we think, that's why we got a estimate of 70% to 80%, somewhere in that range, we feel that we're going to reach the point where it's not given us the returns that we want and we're going to pull back on the capital spend.

[Frank Garreth Louthan:]

Okay, great. Thank you.

[Operator:]

Ladies and gentlemen, that does conclude today's conference. We thank you for your participation. You may now disconnect.