Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Cincinnati Bell (NYSE:CBB)

Q4 2013 Earnings Call

February 20, 2014 10:00 am ET

Executives

Joshua T. Duckworth - Vice President of Investor Relations and Controller

Theodore H. Torbeck - Chief Executive Officer, President and Director

Leigh R. Fox - Chief Financial Officer

Analysts

David W. Barden - BofA Merrill Lynch, Research Division

Simon Flannery - Morgan Stanley, Research Division

Batya Levi - UBS Investment Bank, Research Division

Frank G. Louthan - Raymond James & Associates, Inc., Research Division

Sergey Dluzhevskiy - G. Research, Inc.

Barry McCarver - Stephens Inc., Research Division

Jonathan G. Epstein - Deutsche Bank AG, Research Division

Operator

Good morning, everyone. Thank you all for holding and welcome to Cincinnati Bell's 4Q 2013 Earnings Call. Your host for today's conference will be Josh Duckworth. [Operator Instructions] Today's call is being recorded. At this time, I would now like to turn the call over to your host, Josh Duckworth. You may begin.

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 are our Chief Executive Officer, Ted Torbeck; and our Chief Financial Officer, Leigh Fox. This morning, Ted will review our 2013 highlights and provide an update on our strategic investments.

Leigh will review the fourth quarter and full year segment results and will conclude his comments providing an overview of our 2014 financial guidance. We will then 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 will also find presentation slides for today's call, which we hope you will find helpful in your analysis. Today's call is being webcast, if you would like to listen to it at a future time.

Now, I would like to draw your attention to our Safe Harbor statement presented on Slide 3. 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 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, 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'm 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 today. Our results for 2013 were outstanding and highlight our early success towards our goal of transforming Cincinnati Bell into a fiber-based entertainment, communications and IT solutions company. This transformation ultimately creates a healthy fiber-based company with growing revenue, growing profits and significant cash flows. As seen on Slide 6, progress towards our goal is evident by the 17% full year revenue growth from our strategic products. Revenue from these high demand products totaled $359 million for the year, and offset the declines from our legacy products by more than 10%. The growth in strategic products was a key focus of our 2013 investments and contributed to achieving our full year revenue guidance of $1.2 billion. I am also pleased to report that we achieved our revised full year adjusted EBITDA guidance. Adjusted EBITDA, excluding CyrusOne, totaled $407 million, including $6 million of mark-to-market gains associated with our stock compensation plans. As such, on a normalized basis, our adjusted EBITDA totaled $401 million compared to our original guidance of $390 million. Additional highlights for the year are described on Slide 7, and further illustrate the successful execution of our initiatives.

2013 got off to a fast start with the IPO of CyrusOne. We now effectively own 69% of the economic interests of that business, which is currently valued approximately $1 billion. This morning, CyrusOne reported impressive results, resulting in full year guidance, as well as providing a strong outlook for 2014. We remain bullish on CyrusOne and are confident in its ability to execute on its stated objectives. CyrusOne's strategically located facilities and the long-standing relationships with high-quality customers have created a unique differentiator that we expect will enable them to outperform their peers.

As mentioned in the past, we take our role as the larger shareholder of CyrusOne very seriously. And we will consider all of our options with respect to responsibly monetizing this investment. In January, the lock-up period for monetizing any portion of CyrusOne investment expired. However, we are still restricted in the amount of shares we can sell until the registration statement is filed in March and becomes effective shortly thereafter. We remain a patient investor. And have the operational flexibility and the appropriate capital structure to ensure that we execute on a well-timed and thoughtfully coordinated monetization plan that balances our longer turn upside in CyrusOne with the capital needs of our growing fiber business.

Now I'd like to turn your attention to our operational achievements. The benefits from our strategic product investments are increasingly evident, as we continue to experience higher than anticipated demand for these products. For example, during the year, we generated more than $100 million of Fioptics revenue and achieved record-high net activations for both our entertainment and high-speed internet products. As noted on Slide 8, we were able to grow our consumer market revenue year-over-year by 2%. Strategic consumer revenue totaled $104 million, which is up $35 million from the prior year due primarily to the 49% increase in Fioptics consumer revenue. Our increased fiber investment has also proven critical to delivering higher customer data speeds for our copper-based products in the areas around the Fioptics deployment. As of the end of the year, we are able to deliver at least 10 MB of speed to more than 430,000 addresses and we now have approximately 39% of our consumer customers choosing this speed or higher.

Each of the past 4 quarters, we have grown our broadband subscriber base and gained market share. Further illustrating consumer demand for increased speeds and the importance of expanding our fiber network. As a result, we close the year with a record-high 268,000 broadband customers. Slide 9 provides an update on our key Fioptics metrics. We ended the year with 74,000 entertainment subscribers and 80,000 Fioptics high-speed Internet subscribers. Both of which were up more than 35% over last year. Our fourth quarter net activations were up more than 10% compared to the prior year. However, due to the holiday season and winter weather, our net additions were down slightly compared to the previous 2 record setting quarters. Penetration rates remain strong at 29% matching the previous quarter. Fioptics consumer ARPU improved to $138 compared to $135 in 2012. For the quarter, single-family churn was 2.2% while churn in multi-tenant units was 4.5%, as the number of our customers changing their primary residence remains high due to the improved housing market in Greater Cincinnati.

Turning now to Slide 10. Our consolidated business and carrier markets also continued to perform well and generated $250 million of strategic revenue for the year, an increase of 8% from last year. Revenue from our Metro Ethernet and MPLS products was up $11 million, or 8%, due to increased demand for cell site backhaul and VoIP applications. Strategic managed and professional services revenue was up 7% from the prior year based on growth in our virtual data center products, monitoring and managed services and staff augmentation. Our accomplishments in 2013 generated a significant amount of momentum heading into 2014, and provide increased confidence in our ability to achieve full year Wireline revenue growth, while maintaining consisting capital expenditures, while generating positive free cash flows.

Our 3 strategic goals this year will be consistent with those in 2013. First, we expect to continue our investment in our fiber-based products. Our expansive fiber network provides our residential customers a superior entertainment and high-speed Internet experience, and our business customers with enhanced access to our premier IT and communications solutions. We believe in the quality and the long term relevance of our fiber assets and are confident that we will provide attractive returns. All of our investments remain success-based, and we will continue to actively monitor our key metrics, including the associated costs for the fiber deployment.

Second, we are diligently managing our Wireless business. In 2013, our revenue declined by 17% consistent with the decrease in our subscriber base. As we forecasted, our Wireless adjusted EBITDA was down $22 million compared to the prior year. And we are no longer able to take out cost at the same rate of revenue declines. For 2014, we are again experiencing service revenue declines in the 15% to 20% range. And we expect adjusted EBITDA to decline another $15 million. Our Wireless team has done a fantastic job managing this business for cash flow, and they remain poised and focused on their objectives. We're still exploring our strategic alternatives for this business and have no updates at this time. We continue having ongoing communication with multiple parties, and the interest in these assets remains high.

Finally, we remained intently focused on a well-timed and appropriately executed CyrusOne monetization strategy, aimed at maximizing shareholder return. Cincinnati Bell made significant strides in 2013, and our team is motivated to carry that success into the future. We are excited about the opportunities that are ahead of us, and I am more confident than ever in our ability to successfully complete our transformation goals.

I will now turn the call over to Leigh Fox to provide additional detail on our full year and quarterly results as well the 2014 financial guidance.

Leigh R. Fox

Thanks, Ted, and good morning, everyone. My comments today will focus on consolidated segment results for the fourth quarter of 2013. I will also discuss our financial position, free cash flow and provide our 2014 financial guidance. The fourth quarter of 2013 capped off an exceptional year. We exceeded our original expectations for adjusted EBITDA and ended the year in the top half of the increased guidance range. Revenue growth in our strategic products was strong throughout the year, positioning us to achieve our goal of full year Wireline revenue growth in 2014. Our fourth quarter results are presented on Slide 12. Excluding CyrusOne, fourth quarter revenue totaled $308 million, as the growth of our strategic products increasingly mitigates Wireless revenue declines. As a result, operating income for the quarter totaled $40 million, down $10 million from a year ago. We reported a fourth quarter net loss totaling $28 million. The loss in the quarter was primarily due to our recent refinancing activity, which is expected to save us approximately $20 million in interest payments in 2014. Adjusted EBITDA of $90 million was in line with the revised guidance provided during our last earnings call.

As compared to the previous quarters in 2013, the fourth quarter was impacted by $5 million of additional handset subsidy related to Wireless holiday promotions. $3 million of increased mark-to-market compensation expense, $2 million associated with onetime IT and network efficiency projects, and $2 million due to the timing of hardware rebates. Adjusted for these onetime items, our fourth quarter adjusted EBITDA was in line with the trends, and we remain confident in our ability to manage future profitability.

Before turning to our segment results, I would like to highlight our quarterly strategic revenue growth. As you can see on Slide 13, our investments continue to drive strong consecutive growth across all segments within the strategic product mix. Versus 2012, Fioptics revenue has grown by 49%, business fiber revenues has grown by 8% and our managed and professional services revenue has grown by 19%. This growth is impressive and we believe the trend will continue into the future.

Now turning to Slide 14. Wireline revenue for the fourth quarter was at $182 million and flat compared to the prior year. We have now reached the inflection point where the growth in our strategic products begins to more than offset legacy declines. Wireline strategic revenues totaled $69 million, up $15 million compared to the prior year, due primarily to the growth in Fioptics and strategic business products. Adjusted EBITDA for the quarter was $80 million down $4 million from the fourth quarter of 2012. Wireline adjusted EBITDA margin remains solid at 44%, but margins were down slightly from last year as the loss of high margin access lines more than offset the additional adjusted EBITDA generated by our strategic products.

Moving to Slide 15. Wireless revenue of $47 million for the quarter declined by 17% compared to the prior year. Driven largely by the continued loss in postpaid subscribers. Also contributing to the revenue decline was an 8% decrease in prepaid ARPU as the number of our prepaid subscribers enrolled in the lifetime subsidy program has increased. The impact of these decreases was offset by a slight improvement in our postpaid ARPU. As our ratio of postpaid subscribers using smartphone increased to 49%, up from 40% at the end of 2012. Postpaid churn was 2.6% for the quarter, significantly improved from a year ago due to increased holiday promotions. Adjusted EBITDA for the quarter was $10 million, resulting in an adjusted EBITDA margin of 21%, as handset subsidy in the quarter had a $5 million onetime effect on our results.

Turning to Slide 16. Our IT Services and Hardware segment revenue for the quarter was $86 million, down $1 million from the prior year due to the timing of hardware sales. Strategic Managed and Professional services revenue totaled $32 million, up 19% year-over-year and partially mitigated the $6 million decline in hardware sales. Adjusted EBITDA was $5 million for the quarter, resulting in an adjusted EBITDA margin of 6%.

Moving to Slide 17. Net debt at the end of the fourth quarter was $2.3 billion. Our leverage ratio is currently 5.6x adjusted EBITDA. But if net debt were reduced by the market value of our investment in CyrusOne, our adjusted leverage ratio is 3.1x. Also noted on Slide 17, our liquidity position at year-end remained high at $165 million.

Slide 18 provides an update on our quarterly and full-year cash flows. Excluding CyrusOne, our free cash flow results were in line with our expectations. For the quarter, free cash flows were negative $31 million, and were impacted by interest payments totaling $62 million and capital expenditures of $55 million. Our fourth quarter and full-year 2013 capital expenditures are detailed on Slide 19.

For the year, we spent $46 million on Fioptics construction and $25 million on Fioptics installations. In addition, we have invested $8 million in Fioptics value-added services, such as our TV Anywhere platform, which allows mobile viewing from different devices. These type of investments drastically enhance user experience and are critical to improving ARPU and churn.

During 2013, we spent $44 million investing in our other strategic product lines, which includes, but is not limited to, investments in fiber-based order builds, fiber-to-the-tower builds, Metro Fiber, cloud services and managed services projects. These investments are success-based and bring measurable deal-driven returns.

Our 2014 guidance is presented on Slide 20. For 2014 we expect revenues of $1.2 billion and adjusted EBITDA of $383 million, plus or minus 2%. To further illustrate the year-over-year change in guidance, we provide a chart on Slide 21. Starting with our reported EBITDA results for 2013, we have adjusted our guidance down $8 million due to the deconsolidation of CyrusOne, down $6 million from mark-to-market gains included in our 2013 results, and down $15 million to account for the continued decline in our Wireless subscriber base.

As highlighted on the slide, strategic revenue growth has minimized the impact of declines associated with our legacy products, and we, believe we will continue to narrow the gap in the future. Consistent with prior years, we will not be providing specific free cash flow guidance for 2014. However, because we have stated that we will be cash flow positive for the year, we have provided you with additional details on Slide 22. We expect 2014 interest payments to decrease by $20 million as a result of our 2013 refinancing activity, pension and OPEB payments in 2014 are expected to decrease by $12 million, our annual dividend from CyrusOne will increase by approximately $15 million and cash taxes will remain minimal for the year.

As noted on Slide 23, we expect capital expenditures to be in the range of $180 million to $190 million consistent with 2013, based on increased demand for our strategic products. We anticipate spending between $75 million and $80 million on continued Fioptics expansion. We plan to spend $42 million to expand the network and $27 million for installations and $11 million for the other value-added services around this product. In 2014, we plan to pass an additional 52,000 homes slightly less than last year, as we begin to build more fiber directly to the home as opposed to the node. Our current research indicates that this product provides a better customer experience and, ultimately, increases penetration and reduces churn, 2 key factors in managing return.

Our Wireless results -- our Wireless spend is expected to decline by approximately 40% as we continue to manage this business for cash. Investment in other strategic products is expected to increase, as we continue to see more opportunity from our enterprise customers. The investments in our strategic products will continue to drive revenue for the business and lead to increased profitability. These efforts, combined with the future monetization of CyrusOne, will be the catalyst for us becoming a healthy fiber-based company with growing revenues, profits and cash flow. We're excited about the future and confident in our ability to execute in 2014. This concludes our prepared remarks for today's call. Thanks for listening. We'll now turn the conference over to questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from David Barden with Bank of America.

David W. Barden - BofA Merrill Lynch, Research Division

I guess, Ted, first question just on the Wireless business, could you kind of maybe give us a sense of the dynamic, as you think about the value of this business. Obviously, on the one hand, managing it for cash kind of expecting a $15 million year-over-year decline in EBITDA, the business is clearly shrinking. On the other hand, the argument would be that, as time passes, the spectrum asset becomes more valuable. So on a net basis, which of these forces is more powerful? Is waiting longer to negotiate a deal helpful? Or is it hurting the valuation of the business because it's kind of being cannibalized by competitors? And then, I guess, the second question, Leigh, would be -- I think, you mentioned in your conversation quickly, that you had a onetime hardware cost that kind of compressed the Wireless business it might've skewed what we saw in the fourth quarter. Could you kind of elaborate a little bit more on that, please?

Theodore H. Torbeck

Okay, David. Thanks for your question. As far as the wireless business is concerned, I mean, as long as we're making positive margin and positive free cash flow, it makes sense to continue to run the business. We value the spectrum somewhere between $150 million to $180 million. And as you stated, we see the value possibly going up. So, you add those together, we're going to continue to manage it for cash flow and do the best we can to keep it -- keep it healthy.

Leigh R. Fox

David, this Leigh. Your question was around the Wireless onetime, correct?

David W. Barden - BofA Merrill Lynch, Research Division

Yes.

Leigh R. Fox

Yes. We had approximate $5 million in Wireless handset subsidies in the quarter, really based on success that we saw around holiday promotions. This was actually an incredible year for us. We saw, as an example, Black Friday, we saw better sales than I think we've seen in the last 2 previous years. So we just saw...

Theodore H. Torbeck

As the 2 previous years, combined.

Leigh R. Fox

Combined, yes. The 2 previous years combined. So we saw an incredible amount of success in the quarter, which resulted in that onetime.

David W. Barden - BofA Merrill Lynch, Research Division

So it's not so much onetime as it was kind of more success-based, related to the business just ongoing?

Theodore H. Torbeck

Correct, absolutely. And they all signed up, any new customer signed up. Any new customer we sign was a 2-year contract.

David W. Barden - BofA Merrill Lynch, Research Division

Got it. And Lee, just because you mentioned it, were there any other onetimers in the non-wireless businesses in the quarter?

Leigh R. Fox

Yes, we mentioned a few onetime items in the quarter we had.

Theodore H. Torbeck

Adjusted EBITDA.

Leigh R. Fox

Yes, yes. We had -- some of the major ones, I think, I've mentioned when we were on the road. We're looking at some Wireline efficiency projects. So, the concept around transforming the wire center into a share IP center. So, we've been investing quite a bit on that side. And then, and we had $3 million mark-to-market in the quarter, which also affected results.

Operator

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

Simon Flannery - Morgan Stanley, Research Division

You had a nice calculation around the market value of CyrusOne and the leverage implied. Are you still looking at getting your leverage into the 2s? You just talked about your philosophy around that and I think you talked in the past about monetizing over a period of several years. And I'm assuming that your guidance does not contemplate any monetization because, presumably, there'd be changes to interest expense, certainly and potentially. I don't know CapEx, if you got large proceeds you might start to move more aggressively. And then, secondly, I think, you're guiding to a better Wireline revenue trajectory, turning that around. That's sort of a holy grail for a lot of companies, obviously. Can help us understand the EBITDA, you've talked about that stabilizing? Is that a point where this is stabilization then next year, you think we're kind of -- we're troughing on margins so we can start to see EBITDA inflect as well, as well as revenues?

Theodore H. Torbeck

Yes, Simon, thanks for the question. On the Cyrus front, we still have a target to get in the 2s for a leverage, that still is our target. We're still very bullish on CyrusOne. I think they're executing very well, I think the results this morning demonstrate that. So we think that '14 is going to be a -- even a stronger year or better than '13 for them. So we're pretty excited about that investment. And at the same time, we'd like to take risk off the table and we're going to monitor and measure to do the right thing for our shareholders. So, that's the target. And we don't have a crystal ball, but we think that, that company is still in a very strong position.

Leigh R. Fox

Simon, this is Leigh. On the Wireline EBITDA front, we're not in a position quite yet to really commit to any kind of infection on Wireline. We see a lot of positive momentum. But there is just an immense amount of complexity underneath in managing the transition between the legacy type services and the more strategic services. The Wireline, the wire center transition that I mentioned earlier is one piece of it. We're doing a lot of research on how to best make the transitions and, like I said, we're making very great progress, but we're just not in a position to really nail down when that inflection point will hit.

Operator

And we will go next to Batya Levi with UBS .

Batya Levi - UBS Investment Bank, Research Division

A question on the strategic segment. I think this revenue stream now makes up about 1/3 of your business and growth has been very strong at mid-teens. What -- do you expect this run rate to continue in 2014? And also, noticed that the Fioptics ARPU was down sequentially, can you talk about the driver for that?

Theodore H. Torbeck

Yes. I'd like to talk about the strategic, we still feel very bullish about the strategic revenues and the growth in '14. So we think, we'll see mid-teen growth in '14 in those strategic products. Clearly, the largest is fiber, and Fioptics and what we're doing there. But quite frankly, we're seeing a lot of success on the enterprise side, too. And there's big opportunities there that we see growth that we'll be investing in.

Leigh R. Fox

Yes, Batya, on the ARPU front. Sequentially, we're down slightly due to promotions, but if you look year-over-year, we're still seeing a healthy increase in that ARPU, which is what we're aiming for.

Batya Levi - UBS Investment Bank, Research Division

So you would expect that to continue to grow on a sequential basis?

Leigh R. Fox

Yes. Yes, we would.

Operator

And we'll go to next Frank Louthan with Raymond James.

Frank G. Louthan - Raymond James & Associates, Inc., Research Division

Can you talk to us a little bit about some of the new enterprise products, be a little bit more specific about what do those look like? And what level of reliance on the data center partnership with CyrusOne are you seeing with customer demand from the enterprise side right now?

Theodore H. Torbeck

One of the things we're seeing is, some of our largest customers would like to outsource basically everything, in their IT front. So, it's presenting opportunities for us that we once were not allowed to get at. And so, some of it's managed services, some of it's -- some of the people side of it. And so that's one piece, and that's generally the enterprise. We're also seeing growth in the mid-major market and that's basically selling CBTS services to that marketplace, where once we didn't go down market in. So we are seeing success on both ends in opportunities that we haven't, we hadn't had before.

Frank G. Louthan - Raymond James & Associates, Inc., Research Division

Okay, great. And looking at some of the cable mergers in the market, is that a marketing opportunity for you, for Fioptics? Do you think that's going to give you some opportunity to take some share ahead of that? What are your thoughts on the competitive dynamics that -- pre and sort of close to merger.

Theodore H. Torbeck

That's a great question. We think, in the short-term, it's going to give us a big opportunity. And we're ready to pounce on that opportunity. But in the long-term, I mean, the Cincinnati market's very competitive today. Time Warner is a very strong competitor, they got about 50% market share. So it's not like we're used to being -- working in a competitive marketplace. But we do believe any big acquisition like that is going to cause disruption, and it'll give us an opportunity.

Operator

And we'll go next to Sergey Dluzhevskiy with Gabelli & Co.

Sergey Dluzhevskiy - G. Research, Inc.

A couple of questions. It would say the company has done a good job taking cost out of business over the past few years. But do you still see opportunities for cost savings in the near future? Maybe, if you could, size up those cost savings opportunities or identify the biggest buckets of cost savings, that would be available to you in the next year or 2. And second question, while, obviously, you have commented in the past that any monetization of your assets would likely lead to debt reduction. I was wondering if there is still room for opportunistic stock buybacks given where the stock is trading?

Theodore H. Torbeck

Okay, Sergey, I'll address the cost. There is still great opportunity for cost reduction in this business. We're still implementing the G&A reduction. We still got a few opportunities there that we're looking. We are also looking at, if you heard, that we're going to be moving more to fiber all the way to the home, that brings with it cost reductions in the amount of -- especially in the field. That's also an opportunity. Dave Heinbacher, who runs our operations has -- he's got a team of people just strictly focused on improvement and driving process improvement. So there are still legs here that we're getting at and we'll continue to get at for the next couple of years coming.

Leigh R. Fox

Sergey, this is Leigh. On the monetization front, yes, we have approximately 15% wiggle room within our credit agreement. And yes, we're looking at all options. Obviously, when the time comes that we do monetize, we will absolutely look at the intrinsic value of our stock and what drives the greatest return for our shareholders.

Operator

And we will go next to Barry McCarver with Stephens.

Barry McCarver - Stephens Inc., Research Division

So I guess thinking strategically about a potential monetization event, you talked about ramping up CapEx a little bit. What, theoretically, do you think you could do on the CapEx side in the near-term? If you did, if you did have an event, maybe pay down debt and that freed up some free cash flow. Is that -- could we feasibly see a significant increase in maybe strategic CapEx in the near-term if that happened?

Leigh R. Fox

Hi, this is Leigh. It's a good question. There are several dynamics that we look at with respect to the monetization. We stated in the past, with respect to our investments, the one thing that we don't want to do is, we don't want to borrow to invest right now. We feel like we can self fund our investments. Obviously, as you -- if you hit some sort of monetization event, you want to look very closely at the cash flow that increases or that provides to the business. I will say that our operations teams probably have a little bit of flexibility in their ability to ramp, but as we stated in the past, ramping up any operation causes a bit of inefficiency. So you have it be cognizant of the inefficiencies that you drive when you ramp up any kind of operation, and right now we feel like the team is at a really good spot. They're at a great run rate, and they're able to build at a very efficient rate, which drives the attractive returns that we're looking at.

Barry McCarver - Stephens Inc., Research Division

Okay. And then, second question, if I may. I know you've already been asked about Wireline margins and if you made additional comments in your prepared remarks and I missed it, I apologize. I had to jump on a little bit late. But given that strategic revenues are starting to become a bigger piece of pie versus legacy, do you expect, at least the velocity of margins to change a little bit and eventually, down the road, swing back in favor as that segment grows? Can we see the light at the end of the tunnel at this point?

Leigh R. Fox

It's a great question. I don't think the velocity will change much. You've seen on the Wireline side a steady decline, and when you're trading high-margin legacy revenue for lower margin strategic revenue that's -- the dynamic you're going to see. It's pretty complex. We're looking at it very actively on our end. And it's -- it has a lot to do with some of the comments we made earlier in the call about the transition between the legacy business and the strategic business, and exactly how you make that migration and do you migrate quickly to an all IP-based network, et cetera. So there's a lot of complexity. It's a huge focus. I think there is -- personally, I do think there is a floor. I don’t think we've made too many comments on what that floor is. But we do see a floor, but I don't see any change in the near-term on the velocity --

Theodore H. Torbeck

But one thing that does open up for us is, as we go to more VoIP versus legacy, is it opens up opportunities for our services organization. And as I mentioned, the pie is getting bigger and the opportunity to do more business with these companies is becoming greater, because there's a strong initiative to get out of owning or having inside IT resources. And so, although, our margins are declining when we move to VoIP, if you look at the opportunity that we have is to get more businesses, is actually greater. And we've demonstrated that in a number of customers already.

Operator

And we'll go next to Jonathan Epstein with Deutsche Bank.

Jonathan G. Epstein - Deutsche Bank AG, Research Division

Weather impacts on Fioptics subs in the fourth quarter, so did your cable competition see the same impacts? And how are gross adds trending in the first quarter, since the weather probably hasn't improved much?

Theodore H. Torbeck

One of the things that you correlate when -- we're looking at new activations and we say, weather, the good news is -- what happens is churn is down as well. So -- and we're seeing that in spades here versus the weather we've had recently. But, yes, we're having tremendous success. The fourth quarter, you've got the holidays and a lot of things during those holidays, you're just not going to have people switching their entertainment. So I think, it's seasonal and it's -- it happens every December and November. But, I think, again, the churn's down as well. But cable probably sees very similar.

Jonathan G. Epstein - Deutsche Bank AG, Research Division

Okay. Can you talk about your trends in achieving penetration of your fiber-fed buildings, and what you're seeing as far as your ability to take share once you're in these buildings? And how is your competition behaving in the building space with regard to pricing and bundles?

Leigh R. Fox

Yes. You know -- this is Leigh. The great part of being who we are in this city is that we're -- we touch a lot of these buildings naturally and so when we actually do enter a building, we have some type of relationship with the customers. We are seeing competitive reaction. And we expect that to increase over time, it's just natural. So we don't live in a monopoly-type environment. We do compete on a daily basis, but I wouldn't expect the competition to really change the trends drastically in the kind of the near to mid-term, and who knows on the long-term. We compete on a daily basis and we just -- we do expect that to continue.

Operator

And there are no following questions. This will conclude today's conference. Thank you, all for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Cincinnati Bell Management Discusses Q4 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts