Cincinnati Bell (CBB) Q1 2019 Earnings Call Transcript

Cincinnati Bell (CBB)
Q1 2019 Earnings Call
May. 08, 2019, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Cincinnati Bell 1Q '19 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Joshua Duckworth. Please go ahead, sir.

Joshua Duckworth -- ice President of Treasury, Corporate Finance and Inventor Relations

Thank you, and good morning. I'd like to welcome everyone to our first-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. Remarks made on today's call that are not historical facts are considered forward-looking statements and are made pursuant to the safe harbor provisions presented on Slide 2.

Please see today's press release and the company's recent SEC filings, which are 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.

Leigh Fox -- President and Chief Executive Officer

Thank you, Josh, and good morning, everyone. Thanks for joining us today. Our solid first-quarter results continued the momentum generated during a transformational 2018, further differentiating Cincinnati Bell from its traditional peer group. The key driver for this has been Cincinnati Bell and Hawaiian Telcom's decision to invest in dense local fiber for more than a decade, resulting in a combined network with over 16,000 fiber route miles throughout Greater Cincinnati and Hawaii.

This strategic decision locks in the value as both residential and business customers continue to view localized fiber density as the most reliable path of fulfilling future demand for faster data speeds as usage continues to accelerate in an unprecedented rate. In Cincinnati, we have deployed a fiber-to-the-premise technology to approximately 60% of our total addressable market, which is capable of providing Internet speed unmatched by the competition. During the quarter, we increased our fiber-to-the-premise Internet base by 6,100 subscribers, with penetration rates reaching 43%. Total Internet customers increased by approximately 2,000 from the previous quarter as growth in fiber-to-the-premise Internet customers more than offset Fiber-to-the-Node and DSL declines.

In Hawaii, fiber-to-the-premise technology is available to 50% of the homes and businesses on Oahu, with Internet penetration reaching 30% since the close of the merger as we strive toward rates consistent with those achieved in Cincinnati. The integration with HCOM is progressing as planned, with initial efforts focused on improving all aspects of the customer experience. As an example, the teams have reduced installation and repair lead times from as high as seven days prior to the merger to less than three days currently. Another area differentiating us from our peer group is our IT services business.

We continue to evolve from a traditional value-added reseller to a solutions-based organization focused on helping clients navigate and solve complex infrastructure issues as they transition to next-generation cloud offerings. To illustrate our success, recurring services revenue increased $11 million year-over-year or 20% after normalizing for the impact of one of our customer's decision to in-source certain cloud services. We are also excited that our IT services portfolio is gaining traction in Hawaii. This quarter, we were awarded a large multi-year Infrastructure Solutions project with a well-respected institution in the Hawaiian community that was previously lost during the regulatory approval period prior to the close of the acquisition.

This win has reestablished trust in a large key relationship and should create further opportunities to provide additional solutions that generate recurring revenue streams in the future. I'm also pleased to announce CBTS was awarded Partner of the Year in the VMware SD-WAN category by VeloCloud, a premier provider of SD-WAN technology. This award further demonstrates our capability in delivering flexible software-defined infrastructure solutions to our growing base of diversified customers across North America. As evidenced, the Communications Practice signed UCaaS, NaaS and SD-WAN multi-year deals totaling approximately $5 million in contract value during the first quarter of 2019.

To complement the growth in communications, we also successfully expanded our consulting practice, adding over 150 billable resources and increasing the revenue base by 24% year-over-year. We are pleased with the continued momentum in our newly scaled IT services footprint and will continue to focus on growing higher-margin recurring services revenue. With that, I will turn the call over to Andy who'll provide additional details on our consolidated and segment results for the first quarter.

Andy Kaiser -- Chief Financial Officer

Thanks, Leigh. As noted on Slide 5, consolidated revenues totaling $380 million and adjusted EBITDA of $98 million were consistent with our expectations for the quarter as we remain on track to achieve our full-year financial guidance. During the first quarter, Hawaiian Telcom contributed revenue of $87 million and adjusted EBITDA of $24 million, both consistent with the prior quarter as integration efforts continue and synergies are realized. Turning to our Entertainment and Communications segment results on Slide 6.

Revenue for the quarter totaled $250 million, generating adjusted EBITDA of $91 million. Revenue for the Cincinnati market totaled $170 million, with Fioptics revenue increasing 5% year-over-year to $87 million. Hawaii revenue for the Entertainment and Communications segment was consistent with the prior quarter as Consumer/SMB Fiber revenue increased 4% sequentially. Slide 7 provides additional metrics on our fiber suite of products in Cincinnati and Hawaii.

Cincinnati Fioptics Internet subscribers, which includes a combination of fiber-to-the-premise and Fiber-to-the-Node customers, totaled 243,000 at the end of the quarter, up 5% from a year ago, as the declining relevancy of the Fiber-to-the-Node product was more than offset by the addition of approximately 20,000 new fiber-to-the-premise customers. Fioptics Internet ARPU totaled $52, increasing 3% compared to a year ago, while churn remained low at 1.5%. We ended the period with 139,000 video subscribers in Cincinnati, a decrease of 5% from the prior year primarily due to customers shifting toward over-the-top streaming video services. Video ARPU increased 8% from the prior year, totaling $96, as churn decreased to 2.3%.

Hawaiian Telcom increased its Consumer/SMB Fiber Internet subscriber base, which includes a combination of fiber-to-the-premise and Fiber-to-the-Node addresses by nearly 1,000 during the first quarter of 2019, while video subscribers decreased by a similar amount. Consumer/SMB Fiber Internet ARPU was up 8% during the quarter totaling $40. Video ARPU, totaling $79, was consistent with the prior quarter. Moving to our IT Services and Hardware segment results on Slide 8.

Adjusted EBITDA declined to $10 million, reflecting the impact of the cyclical nature of the hardware business and one of our customers' decision to in-source certain cloud services. Last quarter, we communicated the pending impact on our cloud practice of this customer's in-sourcing initiative. Certain cloud revenue from this customer totaling $7 million generated adjusted EBITDA of $5 million in the first quarter of 2018 compared to revenue and adjusted EBITDA of $4 million and $3 million, respectively, in the first quarter of 2019. We anticipate this service being fully migrated during the second quarter and continue to expect that it will negatively impact 2019 annual adjusted EBITDA by $15 million to $20 million as compared to the prior year.

In total, revenue for the IT Services and Hardware segment increased 7% from the prior year to $136 million. Our consulting practice revenue totaled $39 million for the quarter, up $8 million year-over-year primarily due to a 17% increase in billable resources. Communications revenue increased $7 million from the prior year on continued strong demand for our UCaaS, NaaS and SD-WAN offerings. Slide 9 illustrates continued success in the communications practice.

Revenue from strategic products was up 28% from a year ago, more than offsetting legacy declines. During the quarter, we added 4,900 hosted UCaaS seats, which now totals approximately 245,000. We also added approximately 300 NaaS locations and 200 SD-WAN locations in the first three months of 2019. An update on capital expenditures is presented on Slide 10.

During the quarter, we constructed fiber-to-the-premise to 5,300 new homes and businesses in Cincinnati and 1,100 new addresses in Hawaii. Including construction and installation costs, we invested $30 million in our Consumer/SMB Fiber products across both markets. In total, capital expenditures were $57 million for the quarter, and we continued to estimate full-year capital between $215 million to $235 million, including $60 million to $70 million for Hawaiian Telcom. As noted on Slide 11, free cash flow for the quarter totaled $6 million as we remain on target to generate positive free cash flow for the full year.

Net debt remained consistent with the prior quarter at $1.9 billion, resulting in leverage of 4.7 times. Our liquidity at quarter end remains strong at $190 million. Additionally, on a gross basis, we maintain a net operating loss carryforward of approximately $710 million. We remain confident that our capital structure and ability to generate positive free cash flow enables us to execute on our long-term strategy.

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

Leigh Fox -- President and Chief Executive Officer

Thanks, Andy. I'm excited about the progress achieved toward creating two distinct complementary lines of business. In the network business, our superior fiber asset, capable of producing higher bandwidth and faster data speeds, combined with our heavily localized focus, has created a unique opportunity to continue to capture additional Internet market share. Within our IT services business, our diversified services portfolio and expanded geographic scale has created a competitive and innovative platform, driving significant recurring revenue across our North American footprint.

In closing, our results each and every quarter demonstrate this team's ability to execute on our strategic objectives, positioning Cincinnati Bell and its stakeholders for long-term success. We are pleased to reaffirm our financial guidance as outlined on Slide 12 and are committed to growing our two distinct businesses as we further differentiate Cincinnati Bell from our traditional peer group. I will now turn the call over to the operator and open it up for Q&A.

Questions & Answers:

Operator

Thank you. [Operator instructions] And we will take our first question from David Barden with Bank of America.

Josh Frantz -- Bank of America Merrill Lynch -- Analyst

Hey, guys. It's Josh in for Dave. Thanks for taking the questions. Just two if I could.

You know that you cover 35% of Hawaii with fiber-to-the-prem and 50% with fiber-to-the-prem into the node. Can you update what your goal is there and how long you think it will take to do that and how much capital? And then secondly, you've always said that being a Cincinnati company, you had the right to win in Cincinnati. Now that you've operated Hawaii for about a year, do you think that same dynamic exists there? Thanks.

Leigh Fox -- President and Chief Executive Officer

Hey, Josh. It's Leigh. Andy, why don't you take the first one, I'll take the second one.

Andy Kaiser -- Chief Financial Officer

Sure, Josh. So we -- in Hawaii, when you put the 35% number, just to clarify that, it's across the entire state of Hawaii, which includes all of the neighbor islands. So roughly 50% of Oahu is covered with fiber-to-the-prem, which is fairly consistent with Cincinnati. We will build out on Oahu in a similar fashion to the way that we're building in Cincinnati, which is as we generate cash flow within our ability to build and still produce positive free cash flow, that's what we'll do.

So I would say roughly 5,000, 10,000 doors in 2019, and we'll just grow at a methodical pace on Oahu. As it relates to the neighbor islands, we're taking advantage of cap funding, and we've secured an additional $18 million in cap funding that will allow us to get to, call it, an incremental 4,000, 5,000 doors on the neighbor islands. But I would anticipate we'll continue at the clip that we're at for the next five, six, seven years.

Leigh Fox -- President and Chief Executive Officer

And just to add to that, one of the...

Josh Frantz -- Bank of America Merrill Lynch -- Analyst

Sorry, if I could just quickly follow up. I think in your Analyst Day in 2014, I think you said Cincinnati, your target was 70%. Is there no number like that, that we can look at? Or is it just more of as it goes, we'll see?

Andy Kaiser -- Chief Financial Officer

Yes. So go back in time, a lot has changed since 2014. We're five years forward from there. Dynamics change, cost per pass changes, cost per install.

So the entire ROIC calc and the math behind how far we go is a dynamic thing.

Leigh Fox -- President and Chief Executive Officer

And so is the market, Josh.

Andy Kaiser -- Chief Financial Officer

Absolutely.

Leigh Fox -- President and Chief Executive Officer

And I would highlight that back in 2014, demand for speed in the entire video market was much, much different than it is today. So we look at our investment as intelligently as we can with respect to also the change in the macroeconomic factors and the dynamics from the market. So that's also one input that goes into. And right now, we've been very clear -- look, we think fiber-to-the-prem everywhere, now that's not something that is achievable from an ROI standpoint.

But that's sort of as kind of a starting basis, that's how we think about it. We need to get fiber plugged in everywhere because ultimately, that's where everything is heading, right?

Andy Kaiser -- Chief Financial Officer

Yes. And the only comment I would say that's partly off from that is, to Leigh's point, we will go as far as we can practically go. It simply makes sense. The demand is there and provided that the math works, we'll continue to drive out as far as we can go.

Leigh Fox -- President and Chief Executive Officer

Yes. And now Josh, to your second question, so we're -- we have the same focus areas in Hawaii as we've had here. We're focused on profitable subs. I think what you're going to see over the next several quarters with Hawaii is just making sure that everyone's sort of aligned with how we think about build, how we think about achieving customers.

Last year, we were very clear that I'm not interested in following vanity metrics, top line sub numbers. I want profitable subs because ultimately I want -- churn's a very important metric for us, and I want to keep subs, and so I want to keep churn at a very reasonable level. And I think that the reason you do that is that those very good metrics stack on one another over time. And that's what we're looking to achieve in Hawaii.

So we look at -- we're starting to dive into what are profitable subs not just from an SMB standpoint, from a bulk standpoint and really kind of cleansing to the market. So I'm really happy with our progress, but it's going to take us a little time, but our goal is to achieve similar penetration rates as we see here in Cincinnati. But it'll take us a little bit of time. That said, on the right to win, absolutely, we have the same right to win.

Look, we take the same strategy as -- in managing Hawaii as we have in managing Cincinnati. We have a local management team. We don't get super involved in how they manage from a day-to-day standpoint in marketing, sales and in the relationships. That's up to them.

Where we do work together is, as a company, what are some of the process things that have worked over time in Cincinnati that they could possibly inherit there. And what works? What didn't work? Can they learn from some mistakes that we made here in Cincinnati and improved on and not make the same mistakes there? Are there different operations that do make sense to put together on the back end? But from a customer-facing standpoint and a regional standpoint, we have a Hawaiian team, and the Hawaiian team runs that territory. I'm a very big believer that ultimately ultra localization will help us win. And regardless of where we put assets or have assets and even grow within CBTS, having very localized management teams is key, and letting them manage is key.

And that's the approach we take. So yes, I believe we have a right to win there.

Josh Frantz -- Bank of America Merrill Lynch -- Analyst

Thanks for taking the questions.

Operator

Our next question comes from Batya Levi.

Batya Levi -- UBS -- Analyst

Thank you. A question on your Enterprise Fiber business. It's been pretty flat over the last seven, eight quarters or so. Can you talk a little bit about what it would take to start to grow that business a bit? And then maybe looking at some of your assets more strategically, that Enterprise Fiber business, could that be spun off on its own? And do you think that there could be some strategic options for that? And also, I think you've mentioned before that you would look at IT services more opportunistically.

Is there an update in that process? Thank you. 

Leigh Fox -- President and Chief Executive Officer

Yes. Enterprise Fiber being spun out by itself away from the consumer, very unlikely. It's all one -- it's all part of an integrated network. I think ultimately, what you may see from us over time is the separation of the legacy network and the fiber network from kind of even more of a reporting standpoint.

I think we've done a really good job over time really highlighting the difference between what is legacy and what is strategic. And obviously, fiber is the strategic side. And so I could see us separating the business out even further from that standpoint. But separating enterprise from consumer, it'd be incredibly difficult.

And then you've got carrier and tower fibers in the mix. And again, it's all one network that sort of spurs on the different types of customers. So very unlikely that you could do anything strategic with that. Maybe with a fiber network itself as you do -- you move over time, but again, that's something that we just look at from a clarity standpoint and reporting.

From the standpoint of -- update on CBTS, we're still going through transition of that company. I'm very happy with the progress. I think we made amazing progress on what's traditionally a VAR moving into a services-oriented business. I mean if you look and you compare that company to companies that are a lot like it in the industry, the percent of services versus onetime hardware in that company is far beyond what you see in other peers.

So I'm very happy with the value we're creating there. And I think we just need some time to let it kind of -- let it take advantage of the tailwinds it has, do the same thing on the legacy revenues that we have in that business that we're doing on the network side, help them work through those transitions, see more and more strategic revenue, growing revenue, take advantage of the scale and scope that we now have that we're seeing a lot of, create options and opportunities being developed out of that. So it just needs time. And I think at some point, will it make natural sense? Maybe but what I like is that we are creating optionality for the business.

And the tech world, as you're well aware, it's moving and changing rapidly. And what I really like about this business is we've got some phenomenal assets we're investing in. I think if you were to say, "Leigh, what's the one thing you focus on the most?" It's creating assets, right? And I think we've got great assets, and we're going to keep focused on creating those assets. And then at some point, if we come to a point where we need to execute on optionality that we've created, then we will do so.

Whether it's going to -- forced on us for some reason or we get it inbound that we can't say no to, and we'll do the same thing. So -- but right now, we're just really focused on creating great assets and continued optionality for the business. And in this landscape, I don't know that you could do more, right? If I look across the landscape, and I think we've done a phenomenal job creating really strong assets and for years now and really taking advantage of what those assets have to offer and where they'll take us five years from now versus everyone else out there. And so that's really what our focus is, but the optionality's there, and obviously we're always open to conversations.

Batya Levi -- UBS -- Analyst

OK. Thank you. 

Operator

And our next question comes from Simon Flannery with Morgan Stanley.

Simon Flannery -- Morgan Stanley -- Analyst

Thank you. Just housekeeping on the cloud commentary, if you can just -- so is it fair to think about maybe we go -- we're 0 in Q3, so it's sort of somewhere halfway between where we were in Q1 and 0 in Q2. And then more broadly on video, you continue -- you referenced over-the-top in your commentary. We saw Verizon expand their partnership with YouTube TV this quarter perhaps to target some of the millennial-type customers who would like rather broadband maybe with OTT. So how are you thinking about maybe changing your product offerings there? And as you lose these video customers, what kind of margin are you seeing on video? Is that a profitable business for you? And how are you thinking about that longer term?

Leigh Fox -- President and Chief Executive Officer

Yes, thanks, Simon. On the GE commentary, I'll start there. You're thinking about it exactly right. I would think about it as being zero halfway through the second quarter, and it's out.

I hope what you see and the market sees is we saw an issue with a customer that was fairly impactful. We announced this to the market even before we really understood the impact just so that folks understood it's out there. Once we understood the impact, we educated the market on the impact. And honestly, we're almost spot on what the impact would be.

So you're thinking about it exactly right. And going forward, it will be washed out of the numbers from that standpoint. On over the top, we're looking at the same things that others are looking at. We have the same approach as Verizon or anyone else.

Video subs, if you look at metrics a year ago, roughly 35% of our incremental subs were taking Internet-only. That's increased by almost 10%. So I mean think about nearly 50% of our incremental subs that we take on are Internet-only and aren't taking video, which is one of the reasons why we have this focus on quality, right? And you mentioned profitability. We've done a really good job with data analytics, understanding our consumer base everywhere we have a footprint.

So whether it's in Cincinnati or Hawaii, we're very good at looking at customers and saying, "OK, are the products we sell to them profitable?" But to your point on video, based on our packages and what we're selling, is it still profitable? Yes, but it's less and less so over time. And so what that's going to cause is that's going to cause a shift in content discussions also. So as content contracts come up, those conversations are going to become very different for us over the next few years. And I think that's both a source of -- that will be a source of frustration for our some customers but also a source of opportunity for the business because those contracts are very expensive.

So yes, we're looking at over-the-top options and product relationships and across-the-board very similar ones. You mentioned YouTube TV having the same conversations and with others, very excited about those. We don't believe we should be in that business long term from the standpoint of a content provider. Others do that much better than we do.

But our goal is to own the best price in the territories where we have network, period. And I think we keep focusing on that asset. As technology changes, regardless of what rise over that technology, we will be the preferred medium of setting that technology to whether it's an end consumer or an end business.

Simon Flannery -- Morgan Stanley -- Analyst

That's very helpful color. On the broadband pipe, what are you seeing in terms of speed tiers? What are people really focused on? And I know that the cable companies shared some usage stats, but I don't know if you have anything on that.

Leigh Fox -- President and Chief Executive Officer

I'm constantly amazed at the increase in actual usage. So there's a difference between the marketed usage and what you get upon an actual usage. Now that said, the unfortunate part of the marketing and pricing piece is that if your competitor is marketing 400 meg and you can't, the perception is, for the customer, "I'm not getting the value." So perception does become a little bit of reality as everyone markets out there. We have a baseline offer right now of 500 meg, and it's unmatched.

As much as the competition will say, "Hey, we can do X, Y and Z," we just have a better product, right? And so that will continue over time. And again, that's our focus. We understand we have a better product. We need to get that better product out.

And I think you see it in the fiber-to-the-prem metrics. And that's another thing I would highlight, to focus on over the next several quarters is look at the fiber-to-the-prem metrics, the ARPUs, the penetration rates, the churn. This is a great business. Now that great business is clouded by the transition from the legacy obviously, but that's where we're heading, right? And so on a usage basis, I'm also surprised that actual usage continues to increase at rates that if I were to -- someone on the call mentioned 2014, if I were to say in 2014, have a conversation, if somebody just said to me, "Hey, usage is going to be X in 2019," I would have laughed.

I would have said, "Well, based on what," right? What are they going to use? And what are the technologies? And I'll find it hard to believe, and yet we're here. And so I think that's one of the dynamics, to really keep in front of also is that not only is usage changing right now and we're seeing probably what the cable guys are seeing, but I would say that usage has gone up, what, 20%, 30% from an actual usage standpoint year-over-year. But look at what's going to happen, as wireless gets more prolific in usage through those networks and 5G, once you scrub to the hype you actually see actual usage and actual development on that type of network and that hits the terrestrial network, it's going to explode. And that's really where we're focused is to make sure that we're ready as those rates just continue to climb up and to the right even faster.

Andy Kaiser -- Chief Financial Officer

And Simon, the only thing I would add to that is we're regularly asked the question around actual usage, up against spectrum in Cincinnati and up against spectrum in Hawaii. The reality is if we're offering a 500-meg product and folks can't match that, that becomes the product that folks are migrating to, whether or not they need that bandwidth. So marketing is a very real thing. To Leigh's point, to be in a position to be able to drive that, if need be, to 750 meg to one gig, we can do that and we can do that literally without any effort on our end, and the incremental margin just drops down.

That is why we like the position we're in with 60-plus percent of -- 50-plus percent of Oahu covered in fiber-to-the-prem.

Leigh Fox -- President and Chief Executive Officer

Yes. The only other thing I'd add to that -- to those dynamics are then you get into the home and the business, and you then start talking about WiFi and mobility, and there's also going to be a lot done around the experience in the home. And we're focused a lot not just on that pipe to the home but the experience going into the home, so through solid WiFi through different partnerships. We just launched a partnership with Google on the WiFi side and their product set into the home.

So there's a lot of exciting things going on with the products, but it's not just video. We're starting to move into how does that great pipe going into the home affect the experience for people in the home and who do you partner with. And so yes, there's a lot of changes happening and coming, but we feel like we're pretty well positioned.

Simon Flannery -- Morgan Stanley -- Analyst

Thanks a lot. 

Operator

And we'll now hear from Sergey Dluzhevskiy.

Unknown speaker

Good morning. My first question is on the IT sources side. So as you look at how you are integrating recent acquisition and as you kind of formulate your strategy going forward, I guess what are the top objectives, maybe top three or top two objectives, for the group in 2019? And in your opinion as you look at the group, what are the key differentiators in products and services offered by your IT services segment maybe in its largest verticals compared to some of the competitors that it -- source in those verticals?

Leigh Fox -- President and Chief Executive Officer

Yes. Thanks, Sergey. So top objectives for the group, they're really -- the top two are really -- we've kind of gone through the integration, so I would say the integration is winding down, and we hit the objectives that we had in front of the business on that standpoint. I would say the top two are, first and foremost, the transition from nonrecurring revenue sales to recurring sales.

We're very heavily focused on really transitioning that customer base over time. And if you see what that transition looks like in the numbers, two years ago to one year ago to today, you're seeing a very, very healthy transition. Now the important part is you have that one customer who transitions to cloud services. If you -- so that might ease the view a little bit from a high level, but we're even growing past that.

So that's all very good news, but that's objective No. 1. Objective No. 2 is really, from an operational standpoint, adding operational scale.

We are seeing a ton of success throughout North America. And that team is focused on -- as that creates a lot of great opportunities, it also creates a lot of problems on the back end because as you grow aggressively, you've got to keep up with that growth for the customers. So our second objective is really making sure that we can keep up with the growth that we're seeing on the top line in the way that we operate and deliver those services. So we're very, very focused on taking advantage of the growth and doing the right things for our customers.

From a differentiation standpoint, I think one of the key differentiators is we're a service provider. I mean we have 140-year history in being a service provider, and that doesn't -- that's not lost on our customers, right? When you talk about the services we have like UCaaS, NaaS, SD-WAN services, you look at some of the private providers, and these are independents that kind of built companies over the last five years. We've been doing this for 140 years, right? We've been doing voice over IP for 20 years. We have a customer base that we could point to that says we do it for X, Y and Z customers, they're large global customers.

This is what we do for them. It's a very stable customer base. And we are -- we have a service provider mentality. And don't underestimate that because a lot of the transitions happening with nonservice providers -- so take the typical IT VAR or IT provider that want to make a transition to services.

It's everything from do you have an e-NOC, right, how functional is an e-NOC? Do you understand network services? Do you understand everything it takes to monitor and manage that product set 24/7, right? Do you understand what needs to install and hold the customer's hand throughout every different vertical? Whether you're selling to healthcare, to retail, it doesn't matter, they're all different, right? So we have a lot of experience, and those experiences come through a lot of scars, right? Our products have developed to a point that they're, to me and from what I hear from the customers, some of the best in the market, but that comes through scars, right? That didn't happen overnight, right? And we made a lot of mistakes and worked through a lot of issues with customers and gotten better and better and better. And again, go to that operational focus on just constant improvement, that takes time. It took us five years to get to this point. And so anyone starting today, if you look at -- this is why I'm so proud of this business.

If you look at traditional peers and they say, "Well, we need to get into offering these type of services over these networks," it's got -- they've got five years to catch up with us. On the fiber side, people got 10 years to catch up with us. So we're in a very good spot. That is a key differentiator, is that service provider background is key, and that's really what differentiates us from a lot of the folks out there.

Unknown speaker

Right. And another question, kind of a bigger-picture question, on the growth strategy for your core network business. So obviously, HCOM was a sizable position for you. You are working on growing that market and making this operation more efficient and achieving your investment objectives.

Assuming you'll make the progress that you're kind of looking for in 2019, how are you thinking about future M&A opportunities? And has anything changed in your M&A philosophy or M&A criteria since you made the HCOM acquisition?

Leigh Fox -- President and Chief Executive Officer

First and foremost, stop for now, right? We did quite a bit right away, right? And really, what I hope that investors see and our stakeholders see is that with the changing environment in landscape and technology, it's not easy to describe -- especially with our history, people think of us a certain way, and it's not easy for them to change their mentality on who we are. So I expected turmoil when we started that really changed who we were. But what that -- what I hope to see over -- see now and begin to see more and more over time is that look at the assets that we have, and look the optionality we have. As things change in an even more robust manner, we can take advantage of those future changes.

So whether it's a fiber network or what -- or the solutions -- software solutions that ride over those networks, we're in a really good position to help business clients and consumers, right? So that was why we changed. But we did a lot at once, right? And so right now, we are just focused on getting back the natural rhythm that every company has. We changed our natural rhythm when we went from being a very regional-focused company to not regional. That changes our rhythm.

So we're really focused on just getting our rhythm back, and it's working. We're doing well as the various teams interact with one another, and I think that's really important. So you get your rhythm, and you really focus on efficiency and organic growth and what you do organically with customers. From the standpoint of acquisition in the future, look, I have no idea.

I'm not focused on it right now. Does that mean we won't be focused on it a year, two years from now? I don't know. Right now, I think one of the things that is really against us in the industry is we have peers that we're compared to that have the similar leverage we do but different assets, and they're experiencing different things in their business. And people sort of overlay that with us.

And so I'm -- we're very focused on our balance sheet and making sure that we keep -- anything we invest in, we invest in with our own cash flow. We are focused on 2024 with our debt stack, making sure that we have a plan for the future and making sure that we stay healthy from a balance sheet standpoint and meet as many objectives as possible. Right now, M&A is not in that, but I can't say that it won't be. If that environment changes and we start to get credit for some of the great things I think we're building, maybe that changes.

Or maybe someone approaches us and we end up spinning out. I don't know. We're very open, and we stay -- we try to stay plugged into the environment. But right now, I can say I'm focused more on creating a business that understands rhythm is sufficient, and it is growing organically.

Unknown speaker

Right. And kind of a follow-up on that to a degree. So I mean in Hawaii, obviously, you still have meaningful runway to build out fiber and increase penetration. In Cincinnati, you're at a higher level, but obviously you still see pockets of opportunity to grow your fiber-to-the-prem footprint.

So a question that I have is maybe a few years down the road or maybe sooner as you look -- as your penetration in Cincinnati increases, do you see opportunities for maybe targeted overbuilds somewhere in Ohio or Kentucky or Indiana, in some markets where the incumbent telco has under invested or maybe there is no strong cable competitor present? I mean some of your peers are pursuing that strategy. Obviously, you have other priorities right now but I was just wondering if those markets exist and whether you see those opportunities for your Cincinnati footprint kind of edge out in some of the neighboring territories.

Leigh Fox -- President and Chief Executive Officer

Yes, we do. I mean we look at edge out from both the Cincinnati and Hawaii standpoint. Andy mentioned the neighbor islands taking advantage of CAF run neighbor islands to sort of edge-out fiber. We'll be doing that in different ways.

So the neighbor islands will have different products as we edge out. But we'd look at it, edge-out opportunities in Hawaii, and we also see edge-out opportunities here absolutely. I mean I think that's part of when I say organic build, I think we see a lot of opportunity from the standpoint of just organic build. And we're running business cases right now on edge-out strategies.

And really what it comes down to is how big do you go and how do you pay for it, do you partner with somebody, do you do it yourself. There's a lot of questions still to ask. Again, fiber-to-the-prem, look at the metrics, this is a very, very good business, whether it's on the business side or consumer side. So we are -- until we see that change, we are interested in building more and focusing on it.

And the other opportunity to definitely not ignore is the opportunity in the business side. As we achieve what we're achieving with the fiber network, look at the overlay of what we offer business customers from CBTS. We're seeing a lot of interesting demand on that side. We're seeing I think greater demand than we thought in Hawaii.

We mentioned one win on the CBTS side in Hawaii. But there's more, right? We're seeing greater demand across North America. Canada is doing -- the team up there is doing phenomenally. And so I'm really excited about not just what we're seeing on the fiber base but what we're seeing on the demand within CBTS.

And you look at that combination, and that's really -- we're focused on growing that. And then on the legacy side, we're focused on the decline there, just making that as efficient as possible, at cutting costs in a very focused manner. That's always going to be a part of who we are. But we're seeing more tailwinds than we are seeing headwinds at this point, so we're super excited about both sides of the business.

Andy Kaiser -- Chief Financial Officer

And Sergey, one thing I would add to that is some of that work is under way. We are seeing a lot of success just north of Cincinnati outside of our island footprint from a business perspective but network-based and gaining a lot of very good accounts relationships that's giving us a great base then to leverage and ultimately move into the consumer markets in those areas. But we're seeing a whole lot of positive momentum and traction outside of our footprint currently from a business perspective.

Leigh Fox -- President and Chief Executive Officer

Just to give you a small example, Sergey, I mean we walked in here this morning, and Jason Praeter is with us who runs the local territory, he's a GM here. And he gave me the news that we won a fiber build up north and partnering with a small city up north. So it's happening across the board. And so we're seeing a lot of positive momentum.

And it's just a matter of time. We're just going to keep on focused on building good assets, like I said earlier in the call, and doing our best to manage the decline in the legacy products that we've had and making sure that, that transition is efficient. And so -- but there's great opportunities.

Unknown speaker

Thank you, guys.

Operator

It appears there are no further questions at this time. Mr. Leigh Fox, I'd like to turn the conference back to you for any additional or closing remarks.

Leigh Fox -- President and Chief Executive Officer

Thanks for joining us again today for today's call. We had a solid start of the year, and I look forward to keeping you all updated on our progress. Thanks for your continued support in Cincinnati Bell, and have a great day.

Operator

[Operator signoff]

Duration: 48 minutes

Call participants:

Joshua Duckworth -- ice President of Treasury, Corporate Finance and Inventor Relations

Leigh Fox -- President and Chief Executive Officer

Andy Kaiser -- Chief Financial Officer

Josh Frantz -- Bank of America Merrill Lynch -- Analyst

Batya Levi -- UBS -- Analyst

Simon Flannery -- Morgan Stanley -- Analyst

Unknown speaker

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