Consolidated Communications Holdings (CNSL) Q4 2021 Earnings Call Transcript

Consolidated Communications Holdings (CNSL -0.23%)
Q4 2021 Earnings Call
Mar 03, 2022, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. My name is Shontell, and I will be your conference operator today. At this time, I would like to welcome everyone to the Consolidated Communications fourth quarter earnings conference call. Please be advised that today's conference is being recorded.

[Operator instructions] I will now turn the call over to Jennifer Spaude, senior vice president of investor relations and corporate communications. Jennifer, you may begin your conference.

Jennifer Spaude -- Senior Vice President, Investor Relations and Corporate Communications

Thank you. Good morning and welcome to Consolidated Communications fourth quarter 2021 earnings call. Our earnings release, financial statements, and presentation are posted on the Investor Relations section ofour website at consolidated.com. Please review the safe harbor provisions on Slide 2 of our presentation.

Today's discussion includes forward-looking statements about expected future events and financial results that involve risks and uncertainties that may cause actual results to differ materially from those expressed today. A discussion of factors that may affect future results is contained in Consolidated's filings with the SEC, including our 10-K report, which we'll -- we intend to file on Friday, tomorrow. In addition, during this call we will you refer to certain non-GAAP financial measures, which are defined and reconciled in our earnings presentation and press release tables. On the call today are Bob Udell, president and chief executive officer; and Steve Childers, our chief financial officer.

Following the prepared remarks, we will open the call up for questions. I will now turn the call over to Bob Udell.

Bob Udell -- President and Chief Executive Officer

Thank you, Jennifer, and good morning, everyone. On today's call, I will provide my thoughts on our fourth quarter results and update on several operational initiatives, and recap our long-term strategic priorities. Steve will then provide details on our financial results, the recent Kansas asset sale agreement, and he'll provide an outlook for 2022. Before I get into the fourth quarter, let me remind you of how far we've come these past 18 months, and I'm incredibly excited with the progress we are making.

A year and a half ago, we initiated a new growth plan for Consolidated by entering into a strategic partnership that enabled the most ambitious fiber expansion in our 127-year history. As part of this growth plan, we secured a total capital infusion of @425 million. This investment served as a catalyst for us to complete a global refinancing of our external debt and allowed us to strengthen our balance sheet by extending maturities and increasing liquidity. This partnership structure also enables us to immediately invest and execute as a fiber-first broadband company.

The fourth quarter was a critical inflection point for Consolidated as we completed year one of our five-year fiber expansion plan. Our first-year priority was to create the network build engine and scale while also redefining the customer experience, and I'm extremely pleased with what we -- that we delivered just that. First, we exceeded our target by upgrading 330,000 passings with fiber services and gate plus capable speeds. And we began to scale our customer acquisition engine, creating the foundation for significant adds in 2022.

Second, we launched our new Fidium fiber brand with a fresh and easy-to-use web interface, and we're building the customer acquisition engine to align with the construction pace. We also implemented Net Promoter Score or NPS measurements. Third, we closed on the second stage of the Searchlight investment, which provided additional capital to support our growth plan. Each of these accomplishments provides the runway for accelerated momentum in the current year and beyond.

We are on track with our build plan, we've learned a great deal over the past year and we are building the path for a return to growth. This team is energized, motivated, and we're very excited. Now, speaking of the excitement. Have you seen our fiber -- our new Fidium fiber brand? In November, we launched Fidium fiber, the brand representing our new fiber-based broadband offering and an entirely transformed customer experience.

Fidium is designed to make broadband easy, as outlined on Slide 5 of our investor presentation. It means simple plans, transparent pricing, and a stellar experience from end to end. We are offering superior gig symmetrical speeds, premium whole home mesh Wi-Fi capabilities, no data caps, no contracts, and all at an extremely competitive price point. We have the ability to install fiber services within three days of order and we have a dedicated premium customer support channel.

All this is to create the best customer experience, which we measure by NPS, a widely used customer satisfaction and loyalty benchmark for performance and productivity. Fidium has been very well received, as measured by our industry-leading NPS numbers and the very positive customer feedback we received so far. In mid-November, we did launch the Fidium brand in select markets in northern New England, and it is coming soon to other regions this year. Our new online ordering experience has grown our digital channel and is now producing nearly half of our new Fidium orders.

As you can imagine, the excitement at Consolidate is incredibly high as we position Fidium to grow and accelerate in 2022. As a result, fourth quarter brought our strongest quarter of fiber net adds, with 4,500 new fiber subscribers and 15,500 fiber net additions in the first year of our build plan. Expanding the Fidium experience and our customer acquisition engine to the rest of our markets will certainly have a positive impact on our fiber penetration this year. Our growth machine is beginning to scale and is accelerating.

Now, as we look back on our first plan year, we've created a well-oiled machine which builds fiber to scale. We knew we needed to stay ahead of the supply chain, but found that access to advanced CPE was more difficult to secure than we anticipated. We now have ample CPE to support our customer acquisition plan. If you only have one chance to launch a new brand, and we were committed to ensuring all aspects of the fiber product and customer experience are optimal.

We intentionally launched fiber Fidium later in the year than planned for this reason, to ensure the best customer experience, which we view as a key differentiator. We've improved our processes and are aligning our build plan with our go-to-market strategy. We continue to provide transparency on our fiber cohort penetration targets, which are outlined on Slide 6. We expect to achieve 14% cohort penetration within 12 months of being ready for sale, 24% within 24 months, and 33% after 36 months in the life of an individual cohort.

As we approach the one year anniversary of our Q1 2021 cohorts, we are exceeding the 14% year one target penetration. As we have discussed in the past, we believe our long-term penetration capability is closer to the 40% range, which we can achieve -- where we can achieve duopoly parity over a five-year horizon. The opportunity for Fidium is significant, and we're just getting started. Now looking at 2022, we are laser focused on ramping our customer acquisition initiatives as we extend the Fidium brand to additional markets and ramp up the sales teams in areas where we are expanding our fiber reach.

We have significantly enhanced our digital sales engine, adding operational efficiencies to our customer installation process. Our strategy is to win subscribers at the neighborhood level and provide a frictionless digital order experience. We continue to connect with our customers at local and community pop-up events. Our new digital customer experience provides intuitive, self-serve options, which make it easy for customers to do business with us.

These tools also significantly enhance the customer experience throughout the service delivery process. And let me tell you, this is a powerful combination of using a targeted neighborhood sales channel coupled with a best-in-class digital customer experience, which is key to the value proposition of our new fiber services. Our Fidium online experience launched in mid-November, and in just over a month we drove significant order activity to the web. We expect this trend to continue as more customers utilize self-service tools, lowering our overall cost, and improving efficiency and customer communications.

Our fiber build plan is outlined on Slide 4, and it shows the progression as we upgrade 1.6 million locations or 70% of our total passings by 2025. We're making fantastic progress. In the fourth quarter, we brought fiber gig plus capable services to more than 111,500 locations. For the full year, we upgraded 330,700 fiber passes and doubled our fiber coverage to 22% of our addressable markets by the end of 2021.

We have built a machine that is fully capable of upgrading more than 100,000 locations per quarter, bringing economic, employment, and quality of life benefits to the residents and businesses in the communities we serve. In 2022, our target is even bigger. We plan to upgrade 400,000 locations, which when complete, will bring one million total passings or nearly 40% of our addressable market being fiber by the end of the year 2022. We are well positioned to capitalize on government programs and public/private partnerships within our footprint, and are actively pursuing all broadband infrastructure grant opportunities that make sense for us.

Just this week, the NTIA awarded $18.3 million to the Connect Maine authority, supporting our build of 22,000 fiber locations within our footprint. We are the primary build partner in this grant and are excited to bring Fidium to even more locations in rural Maine. Connect Maine and other agencies recognize that our incumbent advantages and build track record make us a quality partner, and we expect to continue to do so where it makes sense for us. This fiber expansion is our path forward for growth and represents the foundation of our transfer -- transformation.

It also provides opportunities for commercial and carrier channels to use the same assets for multiple revenue opportunities, which I'll discuss next. Before I do, let me remind you of our commercial and carrier strategy. We are focused on leveraging our core fiber network to offer the most reliable network solutions and unique fiber routes. Our network architecture and core upgrades enable 10 gig and eventually 100 gig services to the edge, future proofing our product portfolio.

Steve will provide more details in his remarks on trends and results for these channels and discuss the impact of the carrier contract renewals. But within our carrier channel, we have a long track record of delivering industry-leading, high bandwidth solutions to national wireless providers and hyperscalers. We deliver innovative bandwidth solutions to carriers who choose Consolidated over and over again based on the earned trust and reputation we have built over decades of meeting their needs. We see emerging 5G network opportunities across our regions and with all major carriers, as well as some hyperscalers.

Our carrier team is proactively managing contract renewals, which is resulting in some near-term price compression, but in exchange for incremental long term contract value. Within the commercial channel, we're leading with fiber-based solutions, coupled with our cloud services in order to secure and retain long-term relationships with businesses in our markets. We do this by leveraging three sales channels direct sales channel, inside sales, and an agent channel we call Partner One. We continue to see great sales activity for our ProConnect Unified Communications voice solution.

This demand is coming from a variety of industries, including retail, banking, and government. We see good opportunity to grow our ProConnect cloud voice within the SMB channel, where businesses don't want to maintain an on-premise system and realize the many benefits of a commercial grade hosted voice solution. SD WAN growth continues as customers need better routing platforms and built-in redundancy, and network intelligence. Our best-in-class solution through VeloCloud is driving this growth, and the more diversified workforce brought on by pandemic is fueling internet bandwidth growth as well, and its just transition to services like SD WAN.

Our commercial go-to-market strategy leverages our extensive fiber network and our solutions-based sales approach, allowing us to become a trusted advisor to our customers while providing simple solutions to complex problems. New fiber passings provide opportunities to light more buildings and pursue internet fiber expansion. Our security in cloud Wi-Fi are leading cloud solutions, which provide significant benefits to customers, freeing up IT resources and reducing their capital outlay. 90% of our new sales activity is on our network, which correlates to higher margins, increased opportunity to upsell, and a greater ability to ensure the best customer experience.

We're maintaining flexibility in our capex plan for success-based commercial and carrier builds, which also extend our [Audio gap]. I'll now turn the call over to Steve, who will provide more insights on our fourth quarter and full year '21 financials. Steve?

Steve Childers -- Chief Financial Officer

Thanks, Bob, and good morning to everyone. As Bob noted, 2021 was an important leap forward in our transformation to our fiber-first strategy. Today, I'm going to walk you through our fourth quarter financial and operational highlights and bridge 2021 results to our 2022 guidance. So let's start with the financial overview, which you can find on Slide 7 of our presentation.

Operating revenue for the fourth quarter totaled $318.5 million, down 2.3% compared to a year ago. Adjusted EBIDTA was $126.2 million for a 39.6% adjusted EBITDA margin for the quarter. capex for the quarter was $176.3 million and $515.8 million for the year. This is higher than our Q3 revised guidance and reflects our intentional decision to stay ahead of potential supply chain issues by strategically securing fiber build materials and broadband CPE to ensure seamless execution on the ramp of our 2022 build and sales plan.

Now let me remind you of our fiber [Inaudible] investment thesis and our commitment to fiber first strategy that will future proof our business. We're leveraging a number of meaningful fiber development advantages, including our incumbent position. We know these markets very well, and we have a fiber-rich carrier class network that we can cost effectively extend. We own or have long-term leases on the local long-haul networks and have existing conduit capacity for [Inaudible] facilities and pole access, where we have aerial fiber.

In northern New England, approximately 80% of our fiber is aerial and in close proximity to our existing fiber backbone facilities. And we have a very experienced team, including our external and external resources. We can flex to ensure we complete the builds on time. With this plan, we have a tremendous cost advantage, specifically in New England, where we are upgrading over 1 million passings alone over our five-year plan.

We have the greatest opportunity to drive significant returns in New Hampshire, Maine, and Vermont, where more than 90% of our markets have a single or no competitor. We also have a very economical cost to upgrade the majority of network to gig plus enabled speeds, and we are very confident we can acquire significant market share. As outlined on Slide 6, our cost per passing is still in the range of $550 to $600, and the average cost to connect or success-based capex is still approximately $700. Now I'll review revenue by customer channel.

Turning to our consumer channel, total revenue was $121.9 million, down 2.7% compared to a year ago. The key drivers for consumer revenue in the quarter are as follows: first, the launch of our new Fidium brand in November is the starting point of our new customer experience and helped drive a 14% increase in fiber net adds as compared to the third quarter. Second, we experienced our normal seasonality in northern New England, which impacted copper, broadband, and voice services. We continue to see voice erosion rates improve, and -- as we are focused on stabilizing voice declines.

In the quarter, we estimate the seasonality was $1.7 million on consumer revenue. Third, as we have mentioned in prior calls with respect to video, as we continue to sunset our linear video services and transition solely to streaming partnerships, as a result, we will see continued revenue declines, which actually mitigates the negative margin on this product. Overall, consumer broadband in the fourth quarter was $67 million, up approximately 1.1% year over year. Broadband growth stem from speed and fiber upgrades, combined with ARPU gains on new fiber services.

Consumer broadband ARPU was $57.60, up more than $3 or 6% from a year ago. Now turning to commercial and carrier. Revenue totals $143.3 million, down $6.4 million, or 4.3%. In the quarter, we continue to proactively manage certain tower contracts, which we will discuss in some detail.

We also experienced a higher rate of voice erosion due to access line declines and the migration of customers to VoIP solutions. Data and transport revenue totaled $90.1 million in the recent quarter and was down 2.9% year over year. Now, data and transport revenue is normally grown at a rate of 1.5% to 2%. We're going to break this down -- break down Q4 results in a little more detail.

While we currently report carrier and commercial on a combined basis, in general, the revenue split between the channels is two-thirds commercial and one-third carrier. Commercial data and transport grew approximately 1.8% year over year. We aim to continue to drive this growth in 2022 with expanded internet opportunities from our fiber expansion. Carrier data and transport revenue was down over $3.7 million in the quarter.

The drivers for this decline were in the fourth quarter of 2020, we recognized $2.2 million in revenue from a non-recurring business development project, and we did not have a comparable product in Q4 '21. Second, with respect to our fiber to the tower revenue base, we proactively renegotiated certain near-term contracts that resulted in approximately $800 million revenue decline in the quarter due to contract pricing and some tower churn. These contract renewals will be even more impactful in 2022 and beyond. We estimate the full year impact -- revenue impact to be in the range of $10 million to $12 million per year, and we believe our carrier team has done a great job of extending terms, minimizing price reductions while preserving long-term contract value and the opportunity to win additional tower business.

For example, in one of the recently completed negotiations, has an estimated contract value of over $60 million for the seven-year contract and serves approximately 600 of our 3,700-plus towers. Network access revenue total $27.8 million, down $3.5 million year over year. Specials and switch access declines partially offset by higher universal service fund revenue. In other products and services, we recognized $5.7 million in non-recurring revenue associated with public/private partnership network builds.

While there is little margin on these construction activities, these opportunities allow us to cost effectively build networks and partnerships with these entities to deliver enhanced and increased broadband services in rural markets with little to no competition. Operating expenses were $209 million, an improvement of $15.2 or 6.8% from a year ago. The primary drivers were lower labor costs, offset slightly by increased marketing expense. In the fourth quarter of 2020, we recognized $7.6 million in transaction costs related to Searchlight Capital Partners investment.

With the second closing on the Searchlight investment on December 7, 2021, we recognize a non-cash gain of $13.1 million related to the decrease in fair value of contingent payment right to Searchlight. And now all contingent payment obligations have been converted the common equity. Net interest expense for the fourth quarter was $38.2 million, a decrease of $10.2 million from a year ago. With the repricing of the term loan, term loan B and the bond offering in the first half of 2021, we improved our weighted average cost of debt by 150 basis points or 5.6%.

Additionally, we had lower non-cash interest in the Searchlight note for approximately $2.8 million as the note converted to perpetual preferred stock in conjunction with the second closing. As you can see from our capital structures on Slide 13, we have no debt maturities until 2027. Our net debt leverage was 3.78 times at December 31st, up slightly at -- from the end of the third quarter. Our leverage will increase approximately a full turn in 2022 as we -- as our build plan continues to accelerate with the -- and the roll off of the [Inaudible].

We expect 2022 to be the high point of leverage and our longer term goal of being below three times remains unchanged. We ended the year with over $460 million in liquidity, which provides us with ample flexibility to execute on our bill plan and return to growth. In December, we did close in the second Searchlight investment for $75 million. They now hold 35% of our common equity and 395 million of perpetual preferred stock, plus the accrued CAF II.

We have approximately 114 million total outstanding common shares. Cash distributions from the company's wireless partnerships were $9.9 million in fourth quarter, compared to $9.5 million a year ago. These distributions totaled $43 million in 2021, up slightly from $41.5 million in 2020. Today, we announced an agreement to sell our Kansas City assets.

This divestiture aligns with our ongoing market portfolio review as part of our capital allocation plan. The Kansas City market is our most competitive market where we have a hybrid boxes and fiber network. We did not have any fiber upgrades planned in the market, which had approximately $50 million in 2021. The sales price is subject to certain adjustments, and at this time, we estimate net proceeds will be approximately $90 million at closing.

The sale is expected to close in the second half of 2022 and is subject to closing conditions and customary regulatory approvals. In addition, on February 1st, we closed on the sale of our Ohio assets, which generated $26 million in proceeds. This transaction did not materially impact our passings and was not in the fiber expansion plan. We will continue to review our portfolio of assets for investment or monetization as we look to exceed our target of 70% one gig plus coverage with our five-year build plan.

Now, as we look to 2022 outlook and guidance, I'll start by bridging our '21 results to our '22 guidance. First, as previously discussed, effective January 1, 2022 our $48 million in annual CAF II funding transitions to $6 million under the Rural Development Opportunity Fund. The net $42 million subsidy decline will reduce revenue and the EBITDA by $10.5 million per quarter. Second, we also had the impact of the asset sales we just discussed.

First, the Ohio transaction, which closed February 1st, full year revenue is $9 million and EBITDA margin would be approximately 45% to 50%. We're also -- with respect to the Kansas City asset sale, we -- for guidance purposes, we're planning that that closes on September 30, 2022, and we're estimating the fourth quarter impact would be $3 million to $4 million in adjusted EBITDA, again, depending at the time of the close. So factoring in migration from CAF II as well as the asset sales we just discussed, pro forma EBITDA for 2022 -- '21 would have been approximately $450 million. Additionally, as mentioned earlier, the recent and ongoing contract renewals with major wireless backhaul partners will impact '22 -- 2022 by an estimated loss to $10 million to $12 million in revenue and EBITDA.

We expect to be able to partially offset this with new tower business and business development opportunities for IRU or dark fiber cells. We also expect to make a strong investment in our sales and marketing engine to drive new customer acquisition growth of approximately 15 million hours. Finally, we plan to upgrade 400,000 locations to one gig plus fiber services, and we expect fiber net adds to be net positive for 2022. With that background, our 2022 guidance, as outlined on Slide 12, is as follows: adjusted EBITDA is expected to be in the range of $410 million to $425 million; capital expenditures are expected to be in the range of $475 million to $495 million.

Cash interest expense is expected to be in the range of $123 million to 127 million. Cash income taxes are expected to be in the range of $2 million to $4 million; and we do not expect to be a federal cash taxpayer until 2026. In summary, our 2022 EBITDA guide reflects our strategic investment and inflection point as we facilitate a return to total company revenue growth as we work to generate significant margin expansion over the life of the build plan. Connecting millions of homes to gigabit internet and becoming a fiber first company is a marathon, not a sprint, and we are in the early stages of our journey.

With that, I'll now turn the call back over to Bob.

Bob Udell -- President and Chief Executive Officer

OK. Thanks, Steve. As we look forward to 2022 and beyond, we are focused on four key strategic priorities outlined on Slide 9. We will continue to track our record of disciplined execution, and these priorities will enable future growth and create shareholder value.

It begins with our consumer fiber expansion plan. We're in the second year of our five-year plan and expect to reach nearly 40% of our market by year end as we build fiber to 1.6 million locations, or 70% of our footprint by 2025. We'll launch Fidium fiber in the rest of our fiber markets, scale the customer acquisition engine to accelerate broadband growth. We're targeting positive fiber net adds in 2022.

Second, we will continue to drive commercial and carrier data transport growth. We are leveraging our unique fiber assets to light more buildings and target the vast majority of our new sales on network. We will expand our business opportunities and deliver an improved experience with a simplified suite of products supported by our fiber broadband network connectivity. The third pillar is enhancing the customer experience.

Everything we do is focused on improving the customer experience and retention of customers. This means delivering a simplified experience across all customer channels. We are investing in digital tools, which make it easier to do business with us. Finally, we maintain a disciplined capital allocation plan with a clear focus on prioritizing the best return on capital.

This includes strategic investments for future growth and a strategic review of assets with steps to divest of non-strategic markets, all of which further strengthen our capital structure. Our path forward is all about executing on fiber expansion plans and growing strategic revenue. Our focus is on driving additional customer growth by offsetting best-in-class broadband services and a differentiated customer experience. We have a large opportunity and numerous competitive advantages as we become the broadband leader in any market we serve.

We couldn't accomplish any of this without an engaged and tenacious employees. I want to express my gratitude to our consolidated team for their dedication and resiliency. Their excitement is evident in our very fast and productive start to the year. Additionally, we're pleased to welcome Marissa Solis to our board of directors, senior vice president of global brand and consumer marketing for the National Football League.

She brings great experience to an already strong and diversified board of directors. In closing, I'm very proud of our many accomplishments in 2021 and incredibly optimistic about the opportunities that lie ahead for Consolidated. I firmly believe that our strategic priorities, coupled with our extensive fiber assets and our talented team, will drive significant growth and long-term shareholder value. Operator, we'll now take questions at this time.

Shontell?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Gregory Williams with Cowen. Your line is open.

Unknown speaker

Thanks, guys. This is James on for Greg. Thanks for taking the question. Two, if I may.

First on government funding, can you just provide an update on the IIJA and the level in which you'll participate in the case that maybe it gets to a competitive bidding process which may require additional capital? And then the second question just on the margin trajectory throughout 2022, if you could help frame that up for us. I assume that 1Q '22 would be the bottom there, but any color there would be helpful. Thanks.

Bob Udell -- President and Chief Executive Officer

Yeah, I'll take the first on the infrastructure opportunity for government funds. We're going to assess -- the Q's really good for us right now, and we're organized around each of the states and how they work with Secretary Raimondo's NTIA office and Alan Davidson, who's leading that charge. So we're very familiar with the NTIA rules. We're very familiar with, each of our states and what their plans are.

And so we're -- because of the proximity of our network and the the fact that we've got construction activities nearby, we think we've got a cost advantage over most everyone and we'll flex up and rearrange our plan priorities as possible in order to maximize our take. So I think what you're seeing and one of the first NTIA grants and us getting better than fair share of the Maine program is a signal of other things yet to come. So, we're going to get every extension of the capital we spend on those more rural locations and complement our build plan to the best of our ability. Steve, you want to take the second part of that question?

Steve Childers -- Chief Financial Officer

Yeah. Thanks, Bob. For the question, I do agree with the conduit that the -- probably Q1 of '22 will be the low point from an EBITDA margin standpoint. I think the way we did the bridge, it's pretty easy to calculate the kind of walkdown to EBITDA and the overall margin impact.

But I would -- I guess, I would remind you that CAF II, obviously, it's January 1st, having spread the full year impact on the commercial or the on tower piece of this. But then like relative to our fiber ramp and the penetration rates, the net take on that, that'll be increasing and ramping over the course of the year. So that's I think your comments on Q1 being the lowest point of margins, even though they'll be down for the full year relative to the CAF II adjustments.

Unknown speaker

Got it. All right. That makes sense. Thanks, guys.

Operator

Your next question comes from the line of Michael Rowland with Citi. Your line is open.

Michael Rollins -- Citi -- Analyst

Thanks and good morning. And forgive me if you mentioned a couple of these comments during the prepared session -- prepared comments. But first, can you just unpack the full year EBITDA contribution of what the Kansas City assets would be and then what the contribution is to the guidance or the amount that you're taking out of the guidance is -- reflect your timing of the sale? And then just more broadly, if you were to start with the 2021 EBITDA, and I know you gave some of these items in your prepared remarks, but if you could just give us that full bridge to start with '21 EBITDA and how you get to the '22 EBITDA at the midpoint would be great.

Steve Childers -- Chief Financial Officer

Hey, Mike, I think the -- I think we really provided a pretty comprehensive bridge there to get to the guidance number, so I'm probably not going to provide much detail other than if you want to factor in maybe other things that we didn't necessarily call out, which we think are immaterial to the guide, maybe maybe a slightly higher rate of erosion on voice or access lines. And maybe a little bit on the wireless side, this year we had 43 million -- 41 million last year and cash distributions were -- in our budget were probably somewhere between $39 million and $41 million. So I think -- again, I think with the comprehensive bridge we just provided and those additional comments, I mean, I think that's good enough for today. And then the, I guess, the contribution on Kansas City, we did give a quick Q4 numbers, assuming it closed at 9/30 of being between $3 million to $4 million for the quarter.

So you can annualize that.

Michael Rollins -- Citi -- Analyst

And what's changed or did anything change? as you look at what the expectations are, the marketing investments that you're now planning for 2022, maybe the pressures on the back half side. What were the changes or surprises to you when you started this budgeting process and came out with the way you think the fair outlook is for '22?

Bob Udell -- President and Chief Executive Officer

Yeah, I wouldn't say there are major surprises. I think it's learning. The opportunity for extending our build plan, we made obvious when we went from $1.1 million to $1.6 million, coming out of '22 -- '20, 2020. And so as we ramp the build plan and ramp the engine for construction, I think the pleasant surprise is we can build a pretty good clip, and so that's one.

The other is as we were working through the digital platform and getting the benefits -- getting the platform put in place so we could get the benefit of the lower cost long term, there was more to the automated automated provisioning process and integration with the CPE. That probably was a minor surprise. And we were going through a transition from Wi-Fi 5 gear to Wi-Fi 6 and hadn't stocked up on the old gear and got delayed on the new gear, with the intention of not wanting to have that all that older inventory. And so in integrating that with our digital engine, that was probably a bit of a surprise that delayed our brand launch by a couple of months, but again, not hugely material to our overall plan, so I think it's just a natural evolution of our pivot from, having 10%, 11% coverage of fiber already direct -- all the way direct to the consumer -- customer to going to 40%.

We're in that pivot point where we're going to accelerate marketing activity more densely into 2022. And that might have been spread a little more in '21 then than -- as contrary in '22 as it is now. So I think it represents our confidence in the plan.

Michael Rollins -- Citi -- Analyst

And finally, is there an update on to how you're thinking about the assets that you hold in California and whether you're considering monetization of those markets as well?

Bob Udell -- President and Chief Executive Officer

Yeah, I'm not going to comment on specific activity. And I would tell you that, that's a predominantly fiber asset that fits our overall architecture and strategy. We'll finished changing out some of the electronics that were older vintage by the end of this year and lighting up more of the fiber core network that we have access to there. So, I would say assets that we would consider rationalizing our our probably smaller or not as significant as a geographical hub as Roseville in the Sacramento -- Greater Sacramento areas.

Michael Rollins -- Citi -- Analyst

That's helpful. Thanks for taking my questions.

Bob Udell -- President and Chief Executive Officer

Thanks, Mike.

Operator

[Operator instructions] Your next question comes from the line of Jason Kim with Goldman Sachs. Your line is open.

Jason Kim -- Goldman Sachs -- Analyst

Great. Thanks very much. On the build plan, anything you can share with us in terms of what you're seeing in labor cost? And then you mentioned that you expect 2022 to be the high point in terms of leverage. And given that you're still investing heavily into fiber and capex, which should still be high, in order to push the leverage number lower, that would have to come from EBITDA growth.

So -- and you're not giving 2023 guidance today but directionally, am I interpreting your comments correctly at the inflection point in EBITDA should occur sometime later this year and 2023 so that you're growing EBITDA and lowering your leverage profile? And if so, what gives you the confidence in that inflection point?

Bob Udell -- President and Chief Executive Officer

You want me to start, Steve, or you want -- why don't you take the last part first then I'll --

Steve Childers -- Chief Financial Officer

Yes. So, Jason, I think you're I think you're exactly right, and I think we still are -- and as Bob said, again, going back -- or maybe even going back to Mike's question, for '22 this time last year, we thought we'd be a little bit ahead -- further ahead on the fiber-to-the-home. Still Bob kind of talked about the delay in brand launch. We're still a 125% or whatever the biggest number you can have there, confident in our fiber-to-the-prem strategy.

We're just really getting the sales machine built on that. So in our models today and last -- this last year, we had '21 guide. We have a pretty strong path forward for growing the trajectory on revenue and also seeing significant margin expansion. So you're absolutely right.

We're not -- our models do not have EBITDA flat line through, '21 -- '22 through '25. We're we're showing some pretty significant EBITDA, growth margin expansion throughout. And we also, again, from a cash flow perspective, we talked about the acceleration of capex spend primarily on the supply side chain. We think, we, again, we gave up slightly less than $500 CAF II for 2022 but we're also hoping that we'll -- that we're ahead of the inventory supply challenges for right now.

So again, it's incumbent upon us to execute the opportunity that we have, the liquidity position that we have to show that to be able to really hit the inflection point on EBITDA growth that you mentioned will help us manage the leverage number.

Bob Udell -- President and Chief Executive Officer

Yeah, and to add to that, what gives it gives me and our team great confidence is we'll go net broadband unit positive. In other words, our our fiber adds will outpace our DSL copper losses. 20% of our adds on fiber are transitions or converting DSL to fiber but roughly 80% are net new adds. And so we will outpace that decline and go net broadband positive in the second half of this year, and from there follows the the revenue and the EBITDA growth.

And so we're very excited, very confident as we roll out the brand experience and the digital channel and scale -- the direct sales engine coincident with the opening of new homes passed for sale. That ramp is a really good steep one, and our net adds will be well in excess of three times last year's total fiber net adds. Now related to the cost issue on labor. We're in a good position so far.

We're watching carefully when we flex up for public/private partnerships, access to resources and moving some existing and seeing them with additional hands. And so we're managing very tightly. But I think there will be some price increases over time but for right now in this budget year, we feel pretty confident on our position with the resources and long-term contracts that we've established with the providers and contractors that we have a long-term relationship with. So, so far, so good.

Jason Kim -- Goldman Sachs -- Analyst

That's great. Just one last question for me. You highlighted that cash position of over $200 million in the undrawn revolver, which is another $250 million at the end of the fourth quarter, and then there's more assets approach coming in. So how are you thinking about the liquidity profile based on the capex spending you have over the next few years?

Bob Udell -- President and Chief Executive Officer

Yeah, I feel good about the plan and the additional cash coming from the asset sales as being a more cushion. So, we are fully focused on executing on this plan and feel like we've got the capital structure to do it.

Jason Kim -- Goldman Sachs -- Analyst

Thanks for your thoughts.

Operator

Your next question comes from Ana Goshko with Bank of America. Your line is open.

Ana Goshko -- Bank of America Merrill Lynch -- Analyst

Hi, thank you very much. So just a few follow-ups on the prior comment, so if we do a back of envelope on your guidance, so it looks like EBITDA less capex, cash interest is about $200 million of use of cash. And then if we do a cash walk for the year, you've got about $110 million to $120 million of the proceeds coming in from the asset sales to help fund that. But the big -- that we don't have is the potential working capital use, and I know there can be a lot of moving parts there, especially with supply chain and inventory.

So what should we expect for cash use there with regard to being able to do a cash walk for the year?

Bob Udell -- President and Chief Executive Officer

Steve?

Steve Childers -- Chief Financial Officer

We typically don't provide that. I mean, we've given you the help -- the numbers you need for the material items and the cash flow item. I mean, we're -- admittedly, the number that you where you do the math, depending on the timing of the asset sales, we could be in the revolver. We will probably have a significantly lower cash balance, but we're not going to guide or give a working capital number.

Ana Goshko -- Bank of America Merrill Lynch -- Analyst

OK. And actually, so you touched on another one of my questions, so when you gave the look on the leverage being about a turn higher. So I think that would take you into the low $0.05 on a gross basis. Is that only based on on the EBIDTA change for the year or is there any kind of assumption that you may be drawing on the revolver?

Steve Childers -- Chief Financial Officer

It includes all. It includes EBITDA guide as well as with what we think will be if we are in the revolver based on the timing of the asset sales.

Ana Goshko -- Bank of America Merrill Lynch -- Analyst

OK, so some potential. OK. And then -- and again, also just kind of following up on the last question. If we look into 2023 hopefully an inflection EBITDA, but you're still going to basically have the same pace of capex because of your build plans.

So do you feel that you're fully funded with the revolver capacity and your existing cash resources?

Steve Childers -- Chief Financial Officer

Well, I think that's a great question. And that's the thing that internally Bob and I and the management team andwith Searchlight are really focused on the long term balance sheet to execute on the plan. So number one, I think it all comes back to the earlier question about what's the inflection point on EBIDTA and the performance of the business. If we had our internal plans for, the EBITDA growth, the ramp of the fiber to the sales plan, we -- commercial and carrier teams continue to perform the way that have with maybe some slight growth uptick, I think we're -- it's -- I think it'll be tight.

But again, I think we have an extremely supportive board. We have an extremely supportive investment partner. So we're totally confident that we have the ability to execute on a plan.

Ana Goshko -- Bank of America Merrill Lynch -- Analyst

OK. And then I can stick one more in just, thanks for the bridge on the EBITDA for the year. But I was wondering with the assets you're divesting, is there any element of like stranded costs or just synergies that you'll be kind of holding initially but might be able to work down over time?

Steve Childers -- Chief Financial Officer

There is. There certainly is but we're also kind of -- in Kansas City, particularly, there's also a little bit of a TSA support after the after the transaction. And also, we -- part of that, as we're in growth mode, if we're successful in divesting that, again, it's hard to give you a number and we probably wouldn't give you a number on what that stranded cost can be. But I think to your point, those are costs today that I don't call them stranded, necessarily because they're supporting -- they're corporate functions that are supporting more than one organization or one state operation.

But they either could be over time managed down or reinvested back on the growth side of the business versus supporting Kansas City or Ohio or whatever whatever assets could get divested over time.

Ana Goshko -- Bank of America Merrill Lynch -- Analyst

OK. Well, that's helpful. Thank you so much.

Operator

[Operator instructions] There are no further questions at this time I'd like to turn the call back over to Mr. Bob Udell.

Bob Udell -- President and Chief Executive Officer

Thank you, Shontell. Well, thank you all for joining the call today. We're very excited about our growth plan, very excited about 2022, and we appreciate you turning in -- tuning in and look forward to updating you on our next call. Have a great day.

Operator

[Operator signoff]

Duration: 51 minutes

Call participants:

Jennifer Spaude -- Senior Vice President, Investor Relations and Corporate Communications

Bob Udell -- President and Chief Executive Officer

Steve Childers -- Chief Financial Officer

Unknown speaker

Michael Rollins -- Citi -- Analyst

Jason Kim -- Goldman Sachs -- Analyst

Ana Goshko -- Bank of America Merrill Lynch -- Analyst

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