Q4 2021 Frontier Communications Parent Inc Earnings Call
Please proceed.
Yes.
Okay.
Sure.
[music].
Hello, everyone and welcome to the Frontier Communications Q4, 2021 earnings conference call. My name is Bethany and I'll be your operator for today's call.
If you would like to register to walk a question during the Q&A session at the end of the presentation. You may do so by pressing star followed by one on your telephone keypad. If you change your mind you compress staci.
I will now hand, the call over to <unk> head of Investor Relations Spencer over to you.
Good morning, and welcome to Frontier Communications fourth quarter 2021 earnings call.
With respect to your current ventures, having investor relations and joining me on the call today is John Stratton Executive Chairman of the Board, Nick Jeffrey President and Chief Executive Officer.
Scott.
Chief Financial Officer.
Today's presentation can be volatile and will that cash is available in the webcast section of our Investor Relations website.
Let me now refer you to slide two which contains our safe Harbor disclaimer and remind you that this conference call may include forward looking statements that involve risks and uncertainties that may cause actual results to differ materially from those expressed today.
In addition, during this call we will refer to certain non-GAAP financial measures, which are defined and reconciled in our earnings presentation press release and trending schedule.
With that I will turn the call over to John .
Good morning, everyone and thank you for joining today's discussion.
Our business continues to be well positioned to win in key markets and we continue to execute on a unique opportunity to create significant shareholder value.
We have a strong foundation of fiber assets and infrastructure a significant customer base.
Strong competitive positioning.
In the last 12 months, we've generated $6 $4 billion of revenue.
$2 5 billion of adjusted EBITDA, which represents a 39% adjusted EBITDA margin.
Driving this performance are $2 8 million broadband customers across both consumer and commercial businesses.
As we've said before fiber is the future of frontier.
$1 $1 billion of our EBITDA in the last 12 months have been generated by our fiber products and we're investing to grow our fiber EBITDA rapidly.
We have approximately 400000 businesses within 250 feet of our fiber network and over 23000 towers within one mile of our fiber.
As we continue to build out our network, we expect to grow and convert these attractive and footprint opportunities.
On to slide five and looking back to review 2021, we made significant progress on our transformation that frontier.
It began with Nick Jeffrey joined in March and we recruited a talented new board of directors with high levels of subject matter expertise across key areas, including digital transformation brand development capital investment operational efficiency and telecom strategy.
We emerged from bankruptcy at the end of April listed on the NASDAQ exchange on May 4th.
We refocused the company around our simple but powerful purpose.
Gigabit America and at our Investor Day in August we announced our accelerated build plan to reach 10 million locations with fiber by 2025.
The third quarter was the first full quarter at frontier for most of our executive team and since that new team has been in place. We've consistently set new records on growing our fiber footprint and our broadband customer base.
In addition, just yesterday, we launched two gigabit per second broadband speeds across our entire fiber network and we believe it's a very compelling offer with a large suite of value added services, which positions us extremely well to provide the absolute best broadband service to satisfy our customers' growing demand for faster.
Data speeds.
There are several inflection points that will be critical to our transformation and we've discussed these as our key indicators of success throughout the process.
The core driver of our business is broadband customer growth, which is ultimately what will drive revenue EBITDA and free cash flow growth.
Rapidly expanding our fiber footprint is the first critical step in achieving broadband customer growth.
We executed on accelerating the pace of our build in the second quarter of 2021, almost immediately after our new management team began to form.
In the third quarter of 2021, we demonstrated that we could accelerate the pace of fiber broadband net adds and we reached a point, where our fiber broadband customers overtook our copper broadband customer base.
And then in the fourth quarter of 2021, we grew our fiber broadband net adds in excess of our copper broadband losses, reaching the key inflection point in total broadband customer growth.
And we expect that these three critical inflection points will soon drive inflection points in our financial metrics and while we still face headwinds from legacy products, we expect to drive sequential EBITDA growth for the total company in late 2022 and drive year over year revenue and EBITDA growth in 2023.
We remain encouraged by the long term secular tailwind behind our fiber centric strategy.
Demand for high speed broadband is increasing at an accelerating pace.
Between 2020 in 2025 usage is expected to triple in <unk>.
Fiber is clearly the best product to meet this rising demand.
Five years performance is vastly superior to cable today with 34% faster download speeds.
18 times faster upload speeds at 42% lower latency level than cable.
We're seeing the demand in real time across our network.
In January of this year, our average fiber broadband customer consumed 828 gigabytes of data on our 500 megabit speed tier and one 100 terabytes of data on our one gigabit speed tier representing increases of more than 30% since pre pandemic levels across both speed tiers.
We are uniquely positioned to capitalize on these demand trends with a 20% cost advantage in building fiber and a clear low cost path to extending our leadership in broadband to 10 gigabit service and beyond.
And we're encouraged that the government is aligned with our purpose of building Gigabit America the.
The government has already passed legislation that will drive an estimated five to six times increase broadband stimulus over the next few years.
We believe that government funding should be targeted for locations that would be uneconomic to pass with private capital alone.
We've been active in existing government programs within our footprint and we will remain active as funds related to the broadband infrastructure Bill are released.
And importantly, I would like to reaffirm our commitment to ESG as we build the future of the backbone of our nation's connectivity infrastructure.
Commitment aligns well with growing pools of capital directed at ESG investments.
We continue to invest in products that connect underserved communities in rural areas in our footprint, helping to bridge the digital divide.
We're committed to creating a safe healthy and inclusive workplace in which our people can thrive.
We're also committed to investing in the communities, where our employees live and work.
We recognize our responsibility as stewards of the environment and our opportunity to lead on sustainability in the industry.
Fiber is a passive technology that uses less energy than competing technologies like cable as.
As we upgrade our copper network to fiber will be on a path to reduce our greenhouse gas footprint significantly.
And lastly, we're committed to modeling the highest standards of governance.
We have a board with diverse backgrounds and relevant experiences and skills with separate chairman and CEO roles, we have implemented comprehensive compliance and ethics programs and.
We have built a pay for performance compensation philosophy into our executive compensation programs.
We look forward to providing more details on our ESG commitments as we continue to make progress on our ESG journey.
We built our strategy around four key levers of value creation.
Expanding our fiber footprint is at the core of our strategy.
We plan to accelerate our fiber deployment to be able to reach over 10 million homes by the end of 2025.
Along with growing our footprint will be launching new best in market products to meet customer demands and increased penetration in our fiber footprint.
Now how we engage with customers is also critical to our success. Our goal is to deliver an exceptional experience throughout all of our interactions with customers.
And lastly, we continue to identify opportunities to simplify how we operate and focus our operations across all parts of the company.
I'll now turn the call over to Nick to review, how we performed against these initiatives in the third quarter.
Nick.
Thanks, Jonathan before I get started I want to acknowledge that many analysts and investors.
An execution story.
So on this call we're going to go deeper into the key action with a contributed to our strong results.
In Q4, our team executed extremely well against our strategic priorities.
We built a record of 192000, new fiber location.
Our target of 4 million fiber locations at the end of 2021 .
We added a record 45, thousands by the broadband customer acquisition, which is nearly a fivefold increase over the same period a year ago.
50% increased compared with our previous record from last quarter.
Fiber net adds this quarter with greater than a couple of losses, resulting in positive total broadband net adds for the first time in more than five years.
We earned record high net promoter score.
Record low churn, but if across buyback and compound.
And importantly, fiber NPS and posted for the first time this quarter.
And just yesterday, we launched the first and only network wide two gigabit symmetrical provider.
Which further extend our leadership and offering the best possible broadband products in our market.
Moving to our first strategic initiative.
Women.
On slide 12, our fiber deployment continues to increase.
We don't apply that to a record 192000 locations this quarter.
Firstly.
We put six times the number of locations.
The one that we passed in 2020.
Our team has demonstrated our ability to get while also navigating global supply chain COVID-19 related disruption.
We're excited to continue accelerating our build to reach 1 million plus locations in 2010.
This will put us at 5 million fiber locations by the end of June and on pace to reach our previously announced.
Okay.
And in five locations by the end of 2025.
Okay.
With all the disruption that I, just mentioned I'd like to reflect on the foundations that we've established throughout 2021, which gives us conviction in our ability to accelerate on final Bill near home network performance over the coming years.
We expanded our pool of supply for both labor and material, providing us with redundancy if any particular supplier issue.
At this time.
We secured a multiyear agreements with key partners.
Ply while meeting cost.
Target.
And we've improved our permitting processes to reduce our time to market and we continue to push the bounds.
Hello, humming I'd like to touch on that.
Okay.
Yes.
We've made incredible progress in consumer broadband this year simply by focusing on getting the basics right.
We've streamlined our offers to three clearly defined priced is designed to provide.
That study.
And Thats performance.
While eliminating organizational complexity customer confusion.
We enhanced our industry, leading broadband products with value added services like Arrow, Youtube and Directv stream journeys critical pain points for our customers.
We establish digital customer acquisition capability.
Thank you.
Not only do these capabilities open a previously untapped channel through which we can acquire a customer.
We're also continuing the E com a pallet.
And mix optimization analytics enable more effects come from the toxin with resulting in higher customer addition at lower cost.
And lastly, Brian with arguably tarnished the pool, we began implementing our new strategy.
And we have already seen a sharp increase in net promoter scores with fiber NPS 33 point since January .
At 2021, and Tony pumped it.
First time this quarter.
All of these improvements have driven a sharp increase in fiber broadband customer activation.
We added a record 44000 consumer fiber broadband customer this quarter driving an acceleration in our fiber broadband customer growth.
The 8% year over year.
To put it into perspective, we are the only fixed broadband provider in our footprint have Hyatt net adds this quarter than last quarter, which truly underscores our ability to gain market share as we continue to improve on all these initiatives that I described on the pipeline.
On slide 17, we look more deeply into our fiber broadband customer base.
We didn't just gained customers been deploying fiber into low penetrated market.
Also gained customers in our mature fiber market or what we refer to the about base footprint.
Based upon our footprint penetration increased 40 basis points sequentially, maybe 42%.
Okay.
Again this represents a sequential increase in net add whereas all of often that showed decline.
Ah based fiber footprints.
<unk>, four where we expect to drive penetration in our expansion footprint and.
And we expect to steadily grow penetration to at least 45% overtime.
Our 2020 expansion.
<unk> continued to outperform our expectations with penetration of 22% at the 12 month Mark.
Last quarter this metric was 30%.
Cautioned that it represented a small sample size adjustment six locations.
Bringing in another 60000 locations this quarter cohort reached 22% at the 12 month, Mark which outperformed our target penetration.
Just trying to get it done.
We continue to expect penetration of 25% to 30%.
Four months, Mark and you're right starting from the dual terminal penetration 45%.
Our existing 500, Megabits, a second one gigabit I can consume offerings with the metrical upload and download speeds and lower latency.
Superior to cable.
And our recent launch of two gigabit per second speeds across our entire fiber network further extend our network advantage.
With two gigabit per second services, we will enable next generation experiences such as augmented and virtual reality cloud based gaming and multiple HDTV Street.
And we're increasing our suite of value added services to come.
The Occupancies are two gig revenue.
<unk> premium <unk> and multi device security.
Can you give me just a second launch.
The full list of frontier and <unk>.
We plan to continue rolling out faster speeds overtime and already in advanced planning for launch.
10 gigabit per second ultra high speed offering.
Our 10 gig speeds revolutionize how broadband can be used.
<unk> advanced digital health care procedures.
Surgical operation and supporting the widespread use of hologram like <unk> video conferencing.
At the same time as we improve our consumer segment, we're also making significant progress in turning around our business and wholesale segment.
In SMB, we took a complex all forward generic marketing campaign and limited ways to engage with customers.
A simple three tier attractively priced offer with.
With specific targeted marketing campaigns, which expanded channels to reach more customers that are unlikely to engage with them.
And a proactive strategy to migrate by the eligible customers to fiber.
In enterprise, we took an undefined coverage model without products and fragmented set of operation to a refined segmentation and coverage model focused on the highest potential body of customers.
Our simplified portfolio focused on strategic product.
And a robust CRM platform to optimize sales operations and customer management.
In wholesale we took a declining business lacks key relationships.
So our multi year strategic agreement with AT&T.
<unk>.
In enterprise and fiber to the tower.
Yes.
Taken together these actions are already showing early signs of improvement we aimed to take share of an estimated $8 billion market opportunity within our footprint.
And we still have a long way to go to further differentiate our business with battery cost product value added services and industry, leading partnerships. So please stay tuned for more updates here, which will come back in future earnings call.
Now I would like to move onto our next strategic initiative the customer experience.
I've often said there is no single silver bullet to improve the customer experience.
And then it requires hundreds and even thousands of small changes rooted in attention to detail and a determined execution across the business quickly remove pinpoints.
We've made enormous progress on transforming the customer experience this year.
Inconsistent paper, Bill and a magazine simplifies them, making them pay for those and introducing autopay, which significantly improves the customer lifetime value.
We took our manual customer communications operations and streamlined our idea.
Once you make it and simplified our SMS and email communication and introduce a whole range of customers.
Increased customer satisfaction, whilst lowering call center volumes by 20%.
We introduced next day installed across our footprint to reduce cancellations arising from long installation time.
And we've simplified the process equipment per ton instead of requiring technicians to pick up or our customers to drop off equipment, we simplified and automated the return process with a maintenance option simple QR codes.
<unk> results, which I'll speak to in just a minute.
Keep in mind, we're still early stage in our transformation.
Customer care is a constantly evolving mission for us.
Our executive team to Allen every single week.
Aspects of the customer journey and build clear actionable plans to improve them.
We are constantly refining automating and simplifying our systems and processes for interacting with customers and rigorously measuring our program as we go.
Now, obviously excellent initiatives that our customer care initiatives, maybe just ballpark.
On slide the net promoter score increased 33 point from January December 2021, and 10 posted for the first time ever in November .
Our NPS score is the continued decline in 'twenty, two and importantly, shorter tenured customers <unk>.
Mr can be higher NPS score than longer tenured customers, which suggests that our overall NPS score have a long way to run as we grow our customer base.
Additionally, broadband churn across both fiber and copper customers continues to fall each down more than 20 basis points versus the fourth quarter last year.
Churn tends to be higher for the first 90 days of the customers' lifecycle than it is across the total customer base.
Churn is an important metric that we track internally, we measure customer satisfaction.
90 day churn continues to be down 30%.
At the same period last year and down 25% since March of this year.
Could you indicate that the changes we are making the customer experience.
Driving real results across the business.
I'll now turn the call over to Scott to run through our fourth quarter financial performance.
Our performance against our fourth strategic pillar operational efficiency.
Thank you Nick and good morning, everyone.
As I have done on the last several calls in order to more clearly describe the performance of our business versus previous time periods I will reference pro forma numbers in 2020 that had been adjusted for fresh start accounting changes.
Turning to results on Slide 24 revenue was 154 billion in the quarter driven by roughly flat sequential data revenue, but lower voice revenue.
We earned $189 million of net income and $585 million of adjusted EBITDA.
$273 million of our adjusted EBITDA came from fiber products. This was roughly flat year over year, a strong consumer fiber broadband growth offset declines in voice and other.
We generated $468 million of cash from operations in the quarter, helping to add to our strong liquidity.
Turning to slide 25, our total revenue declined 6% this quarter consistent with declines from last quarter.
Fiber revenue declined 1% year over year as consumer broadband revenue growth of 11% and business broadband revenue growth of 8% were offset by declines in video and voice and other.
Two notes on fiber revenue first.
First Q4 year over year consumer fiber broadband <unk> growth of 4% was in line with our long term expectations of 3% to 4% <unk> growth Arco.
<unk> declined slightly sequentially as.
As we introduced two strategic initiatives in the second half of the year are $5 autopay discount and gift cards for new customers, both our value, creating initiatives that will be a headwind to our growth for a couple of quarters, we do not expect needs to be material headwinds to our growth. Once we lap these impacts in the second half of 2022.
Second as I mentioned on our last several calls we made the decision to stop marketing video to new customers in early 2021, which has contributed to revenue declines, but it had minimal impact on profit due to high content costs.
Copper revenue growth was flat sequentially at negative, 9% as both consumer and business space expected headwinds.
In 2022, we expect five revenue growth to accelerate in the positive territory as the year progresses, driven by strong growth in consumer fiber and stabilization in business and wholesale.
We expect copper declines to moderate slightly as our customer experience initiatives take hold but we still expect overall declines in copper due to legacy product headwinds is.
As a final note on revenue in the fourth quarter was the final quarter, where we receive subsidy revenue from the Caf II program.
While we expect to be an active participant in the recently announced $43 billion infrastructure investment and jobs Act. These funds are unlikely to be significant in 2022.
Therefore, we expect a range of $10 million to $20 million of subsidy revenue per quarter in 2022 with Q1 as the low point because of delayed timing of several awards.
Turning to slide 26, total EBITDA declined 13% this quarter again driven by declines in copper.
<unk> EBITDA was roughly flat year over year, a strong consumer fiber broadband growth and margin improvements were offset by revenue declines in voice and other.
Frontier is a fiber first company fiber represents 54% of our adjusted EBITDA and will increasingly drive the growth trajectory of the overall company.
Copper EBITDA decline consistent with our expectations and we expect sequential declines to moderate over the next several quarters as a result of our improved customer experience.
Turning to slide 28, our fit for the future program remains on track to exceed our initial goal of $250 million of gross annual cost savings by 2023.
When we kicked off the program. This past summer, we set out to achieve $25 million gross run rate cost savings in 2021.
I am pleased to note that we have already surpassed that number and realized more than $90 million of gross annualized cost savings with more than $40 million in year savings captured in 2021.
This puts us on track to exceed our long term goals and I am encouraged by our culture of simplification as we continued to identify areas of efficiency throughout our organization.
On slide 29, I'll highlight four key simplification initiatives that will help free up stranded cash as well as structurally lower our cost base.
The first is divesting nonproductive real estate, we have identified an opportunity to consolidate and exit over 30 locations and our administrative footprint representing more than 1 million square feet of office space in 2021 alone. We sold 18 properties for cash proceeds of $42 million.
Given our solid start towards our goal of achieving at least $150 million of proceeds by 2023.
The second initiative was the closure of our retail stores in order to meet the shift in consumer preferences towards digital engagement in the second half of 2021, we closed more than 50 retail stores, allowing us to redeploy our attention into more efficient forms of customer interaction.
The third initiative was the sale of our CPE business, which did not align with our strategy of focusing on higher margin core connectivity services, we closed the sale in Q4.
The CPE divestiture will reduce annual revenues by roughly $50 million, but will have minimal impact on EBITDA and.
And lastly, we have transformed our procurement team and processes to help drive simplification across our supplier base.
There are newly centralized team, we've diversified our labor and materials supplier base for our fiber build while at the same time consolidating our overall vendor base.
Actions in procurement have already led to more efficient supplier relationships with lower costs and better reliability and we are still in early stages of this transformation.
We will move to capital allocation on slide 30.
The underlying cash flow generation of the business remains strong we generated $468 million and net cash from operating activities in the fourth quarter.
We're committed to managing our balance sheet in a disciplined manner with net leverage in the mid threes.
Finally, we are committed to rigorous capital allocation decision, making our fiber builds will be the primary focus of capital allocation over the next several years.
Projected build cost per location that we have communicated to you over the last few quarters $900 to $1000 from 2022% to 2025 remains unchanged.
Including the roughly $1 billion of debt that we raised in October we ended 2021 with $2 $1 billion of cash and $529 million of available capacity on our revolver totaling $2 $6 billion of liquidity to fund our fiber build and normal operations.
In addition to the strong liquidity, we also have ample balance sheet flexibility our net leverage remains low at two four times at the end of the quarter, giving us healthy headroom under our mid <unk> net leverage target.
We do not have any significant maturities earlier in 2025. This maturity timeline provides us a clear runway throughout our wave two fiber builds.
Additionally, as a result of our build plan, we do not expect to be a significant federal cash taxpayer throughout wave II.
As I stated before we will pursue a disciplined financial policy they will enable us to manage through a range of economic scenarios.
I'll now turn to our 2022 financial guidance for 2022, we expect capital expenditures of $2 four to $2 5 billion.
The increase versus 2021 to $1 $7 billion.
It's primarily driven by the acceleration of our fiber build where we expect to pass at least 1 million new locations in 2022.
Additionally, we expect higher success based capex as we connect more customers to fiber across consumer business and wholesale.
Two other notes on Capex first we expect our sales cadence throughout 2022 to follow a typical seasonal pattern with the better weather quarters are Q2, and Q3 at a faster pace than the winter quarters, Q1 and Q4.
Additionally, as we are accelerating our build from 2022 into 2023, we will have capex in the latter part of this year that is pulled forward from 2023 for material and build costs related to locations that will not be open for sale until 2023.
We displayed a similar trend in the latter part of 2021.
Next we expect adjusted EBITDA of 2.0 to 215 billion.
Our outlook assumes a loss of roughly $275 million of revenue and EBITDA related to subsidies versus 2021, but by the ended the year, we expect an inflection point in EBITDA as we return to sustained EBITDA growth.
The loss of subsidy related revenue and EBITDA will result in a sequential step down in margins of approximately 350 basis points from Q4 of 2021, and the Q1 of 'twenty two but.
But we expect this to be the low point in margins for the year, we expect margins to be flat to up for the first three quarters of 2022 before and collecting more significantly in the latter part of the year.
I'll now close by bringing the frontier investment thesis altogether.
First there is strong and growing demand for fiber driven by expanding household data consumption is.
As John mentioned in his opening remarks, we are seeing rapid increases in data consumption across our network and as new use cases emerge. We expect these trends will continue.
Fiber is a superior product for a number of reasons, including symmetrical upload and download speeds to far exceed cables capabilities lower cost of ownership driven by fiber passive technology and lower latency levels that enables important uses like video conferencing and gaming.
We have a clear strategy and purpose. We are building in gigabit America to connect American to the digital economy we.
We have ample liquidity and a strong balance sheet, providing us with access to capital to fund our strategy.
We've attracted a strong and experienced leadership team who are singularly focused on executing our four part strategic plan I'll now turn the call over to Spencer to open up the line for questions.
Thanks, Scott operator, we're now ready for Q&A.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad now if you change your mind, you compress staci and once the <unk>. What's your question please until Youre on mute.
The first question comes from Phil Cusick at Jpmorgan. So please go ahead.
Hey, guys. Thank you.
Two things first maybe.
Let's talk about the confidence in maintaining positive subscriber momentum from here, you've talked about copper churn coming down fiber momentum increasing should we look for positive net adds each quarter going forward.
Yes, Phil do you want us to go one by each or do you want to.
Provide both questions and we'll figure out which one we would prefer to answer first.
Okay.
My question is can you give us an update on the wave three progress.
Is this sort of situation, where you are building books now and maybe look for sale later in the year or are we not quite far along thank you.
Yeah, great. Thanks, Bill so I'm going to ask Nick it's John I'm going to stick to.
Take the.
Question about subscriber momentum and then maybe niccolo.
Yeah, great. Thanks, Bill good question.
If I step back a little bit from.
The question of momentum and look at it from a what have we been doing on fundamental.
Over the last year as we built a new team with very sick domestically as we've said on previous earnings calls focused on operational execution of the basics.
We've simplified our pricing to make ourselves competitive at an entry level and also accretive out of one gig and now two gig level.
We have put in place hundreds if not thousands of operational changes to make the customer experience better.
We've implemented new channel.
Improved customer communications improved Brian Communications, all of which is a buildup. So the results you are seeing here. So I've got every expectation that we will continue to make those operational improvements continued to execute well and therefore, we will see market momentum.
If we take a step back we have now I believe.
Gaining market share in all of our fiber market against every single one of our competitors.
I sort of.
Moment in time or an aberration not the result of strong operational execution across many many dimensions and I think we'll see that carry forward into the future.
Thanks, Nick.
Phil to your question about wave three one of the things that are naming convention wave one wave two wave three.
Almost suggest is that it's sort of a sequential pattern. When you do one then you do the other than you do the third in fact, a wave three is running simultaneous with the work that we're doing on wave two and just better detail.
When we announced in August of 2021, our intention to build.
To a total of 10 million homes by the end of 2025, I think we surprised the market a bit in the size of that build in the pace with which will be accomplished but that was basically our wave two announcements with this 6 million additional homes from the $4 million. We intended to have at the end of 2021.
And those were for US no doubt about it pinned back years, and just go with hard and as fast as you can so so that is well underway, but the.
<unk>, three which is the balance of our passing perhaps 5 million.
Locations are being worked simultaneously and we're progressing actually quite well and it's a matter of working through the specifics of those locations to determine the best approach to either build it out.
There are an opportunity to partner is there some divestiture.
What is that sort of mix of solutions that allows you to sort of optimize value there.
So this is something that we're working in the next couple of quarters, we will expect to be more specific we'll come to the market with an explanation of precisely what we plan to do with that remaining 5 million households, but it's not going to be sort of after we finish wave two but rather very much here.
Shortly this year.
Got it thanks guys.
Excellent.
Thanks, Phil Operator, we'll take our next question please.
The next question comes from Jonathan Chaplin, New Street, Jonathan Your line is open.
Thanks, two questions for me as well if I may the NPS improvement that you guys reported.
It took Comcast and T mobile about four years.
To generate an NPS improvement of that magnitude does the improvement that you've seen with the brand that you have got obviate the need for a new brand at least at the product level or is that something that is that still in the works.
And.
On the sort of the opportunity with stimulus funding for closing the broadband device I agree with you.
The comment that you made at the beginning of the call that.
To get this done we need to attract private capital alongside stimulus money.
It should be focused on markets with no pullback today when during the course of this year or do you think your discussions with the states will it progressed to a point, where you've got clarity on how the sort of the biggest most important states in your footprint are going to handle the allocation of the stimulus money. Thanks.
Yes, Jonathan it's Dave I'll take that John you could pick up a second.
First of all gentlemen, thank you for your observations on the speed of our MTS.
Around what we I have to say, we are and I am very pleased with the progress we've made.
I think it's also fed just full transparency and honesty safe to say that we are coming off a low base goal.
But look what.
We've been able to move it so far so quickly and I think a big part of that is the leadership team that we've put together a very experienced leadership team.
Risk of sounding a bit like.
The tax on top becoming this isn't the first NPS holes we've written.
We've taken a lot of time to really deconstruct the underlying drivers of.
NPS, which youll note there are many hundreds and figure out the ones that really make the biggest difference to our customers and then bring all of our operational expertise to bear on the small number of things that really makes a big difference to our customers.
Sure enough mathematically, we're seeing the flow through from that into improved.
I would say I'm pleased with the progress we've made I would also say we're at the beginning of that journey. There is still a long ways to go now.
I'm encouraged by the fact that the.
NPS of our newer customers is also a higher on average than the <unk>.
MTS base.
<unk> or legacy market customers, which is also improving by the way.
But the fact that we are building out a very aggressive rate means that we probably got some NPS upsides to see into the future as well as we have more new customers relative to our base customers and we continue.
We focus on driving.
Prudent actions inch by inch.
Yard by yard and model by model and that's what we're going to continue doing so good progress a lot more to be done, but really based in the science of understanding the drivers of NPS and then strong operational execution now how that reads across into the brand is a great link and I'm glad you made it because as we've said on previous earnings calls.
Our brand is water Brian Dove.
Our effort is to completely focus on what the brand is doing.
That would suggest.
From the early results that the brand is repairable and indeed is repairing quite rapidly.
Also see from a launch of a national network wide two gigabit service yesterday that we're experimenting now with the new brand seasonality, let's just say new color pallet, new funds and so on to make the brand more model.
More relevant more tech oriented.
And more appealing to a wider segment of the market and we'll be monitoring that very closely as we come to the why the decision on what do we do with the brand and the.
And in the future and Thats, a decision will be taken to our board and coming Goldman.
Yes, maybe if I can John I'm, just going to build on <unk> point here.
One of the most important things for any leadership team and particularly a new one is not the words that they say, but what they do and what I would say just sort of observing Nick and his beginnings at frontier the very first.
Recurring meetings that he put on the calendar.
Was a very close review of what was broken and the business what were the issues that were causing customer pain and it's literally every week with every member of the senior team. So as new leaders joined the company in the last six seven months of 2021. They recognize that this was the number one priority for the CEO and therefore, it became important to them as well.
I think that Cascades a message.
And a very positive shadow out to the organization about why this is important why it matters I would also say that as Nick described it was very negative and so the first thing is the improvement is coming off.
<unk> low base, but what that reflects also if we were just going out of our way to break the promise that we made to our customers to do things that would really sort of irritate them.
Moving to a point, where you're no longer doing that gets you to sort of neutral buoyancy. What I'm. Most excited about is we're not breaking it's clearly positive territory and you see that continuing to grow and the ambition for the firm is to not be just okay. Here not just to be at neutral point, but rather to be a leader in terms of how consumers view the way the business values their business.
So anyway, good progress there and hopefully will continue.
Asked a question about stimulus funding. We think this is really important this mission of building a gigabit America is something we've talked about all the time inside the company and out to the market and yet in some parts of the United States, It's very difficult for private companies too.
Create those networks in an economical way. So this notion that there is some level of funding subsidization at the federal and state level, It's something I think that will help us to heal this continuing divide.
It is complicated and I think the rules of engagement both at the federal and state level are still being worked our expectations probably has a very late 2022 into 2023.
<unk> in terms of meaningful flow of subsidies into.
The market Scott can speak more to the specific numbers that we sort of have built in here.
But our thought process is this is a 23 and onwards in terms of it becoming something that starts to scale and really address this opportunity that's in front of us we will be.
Active in terms of our participation in those processes in the states that we do business and hopefully we will see.
Our fair share or better.
<unk> in terms of our success in whatever auction processes put in place.
Okay. Thanks, John Thanks, guys.
Operator, we will take our next question please.
The next question comes from Brett Feldman at Goldman Sachs.
Your line is open.
Great. Thanks, just two first Scott.
Scott you talked about the company's strong balance sheet liquidity position, but it certainly looks like you are inevitably going to want to go raise some additional capital to complete the wave to build so I was hoping you could share your current thinking around timing and some of the financing options that are going to be available to the company and I am curious whether your assessment of your wave three options if one.
The objective there is to use the wave three portion of your footprint, maybe as a tool for financing the wave two build out or if those are distinct processes and then on wholesale I. Just wanted to clarify are we at the point, where some of the pressures you experienced because of the repricing are fully in that sort of quarterly run rate.
We've seen as we were exiting 2021, and then maybe bigger picture you obviously have the strategic agreement with AT&T. How are you thinking about the opportunity to add more strategic wholesale partners as we move into this year. Thank you.
Sure Brett This is Scott. Thanks for the question on your first one about funding. So we did our $1 billion debt offering in October which positions us very well until mid 2023, and then for the rest of the way to beyond mid 2023, we said we have a wide range of options some of which you mentioned.
And <unk>.
First we have internal cash flow, including the fit for the future cost savings in real estate dispositions, we have potential government funding that John mentioned as part of the $42 billion infrastructure Bill wave three presents a range of options.
And then we do have access to additional new capital if we need it. So overall, a really solid range of options for funding beyond mid 2023, and will continue to evaluate those and update you all as as we can.
On your second question on wholesale like kind of the cadence of that in 2022, we still do have a bit of a headwind in 2022 at least through the first several quarters and wholesale due to <unk>.
Contracts that we lost prior to this management team there is still kind of flowing through and then the repricing that we announced late last year. Some of those impact 2022, so bit of a headwind through the year, but by the end of the year, we expect wholesale and business to be to be stabilized and then kind of returning.
The growth by the end of 2022.
And just in terms of additional.
Communities in the market for wholesale partners.
We do think there are yes, we signed obviously a big strategic agreement.
We think there are other opportunities with other carriers John mentioned, the stats on the number of towers in our fiber footprint.
Carriers will continue to add towers and.
I think we're very well positioned to win more than our fair share there.
Thank you.
Sure.
Thanks, Brad Operator, we'll take our next question please.
The next question comes from Greg Williams of Cowen Your line is open.
Great. Thanks, two questions if I may.
Posted solid fiber broadband, we pre announced it.
You did mentioned low churn so I'm just trying to understand how much of the fiber wind towards migration from your existing DSL subscribers versus outright stealing share.
Second question, just on op Tuesday, announcing aggressive fiber to the home plan, particularly in settlement territories and our feet, Texas territories do you have a sense of the overlap in your footprint.
We've got Texas territory.
Sure Greg I'll take the first question so.
So we did have very solid fiber broadband net adds in Q4 45000, we said the vast majority of those were new to frontier. So either share that we won against competitors or new household formation. We did have really healthy migration from our copper base that provides a nice base load.
Usually the first set of customers that you seek to address because you own the customer relationship and it's easier to migrate them, but but the vast majority of the customers in Q4 were new to frontier I'd also point out while we're on that.
Note that we had healthy growth in both the base markets and the expansion markets and we've talked through those.
Those dynamics in the prepared remarks, but real healthy base of.
Of growth there.
The second question on our teachers overlap so.
Across our entire footprint, there's kind of a 6% to 9%.
Overlap with <unk>. So it is not our largest competitive overlap we don't have perfect clarity as to the I think your question was on where they are build will be obviously, we don't have clarity there but.
They have about a 6% to 9% overlap overall.
Got it thank you.
Yes.
Thanks, Craig Operator, we will take our next question. Please.
The next question comes from Frank Louthan, Raymond James Your line is open.
Great. Thank you I just wanted to talk on the cost savings.
How much of that is coming from head count have you done any risks since the last earnings call and then the follow up on the 1 million homes that youre targeting for this year is that in line with your expectations for 'twenty two that you laid out at the analyst day.
Yes, So let me take your first question on cost savings.
A very small portion of it is related to head count we haven't had any significant head count reductions since the last earnings call. We will as we continue to get more productive.
We will likely have a lower employee base per customer, but the vast majority of it is from operational.
Initiatives to lower our structural cost base, whether it's real estate rationalization energy efficiency, becoming more efficient in our fleet, that's where the vast majority of the cost savings are coming from yes. Thanks, It's Nick here.
Frank you talked about the pick up the second part of that question, perhaps build a little bit also Scott on your answer.
Youre quite right of course, the majority of the cost savings come from us being operationally more efficient.
Executing well against the plan on head count. It is also true of course that we are going to need to re profile head count base. So.
As we become more digital more tech oriented with stronger distribution and stronger branding from the marketing skill and there'll be a natural re profiling of our workforce.
But within the overall envelope of increased efficiency that Scott talked about.
In terms of the 1 million homes passed in line with our expectations. The short answer is yes, absolutely in line with our plans and what we previously announced.
Alright, great. Thank you.
Thanks, Frank Operator, we'll take our next question please.
The next question comes from Simon Flannery Morgan Stanley Simon Your line is open.
Great. Thanks, a lot.
And just following up on <unk> question, there on the 1 million homes, what's the ability of what's the focus on.
Potentially accelerating into pacings, because you're looking to take that up to 1617 over the next couple of years, but clearly you've mentioned several times the broadband infrastructure fund money.
We will be looking for but so will others, presumably you've got fixed wireless rollouts ramping as well so.
Is there an opportunity here to perhaps compress some of this build out plan and get the opportunity and the market share quicker and I guess that ties into good good to hear that we haven't really talked a lot about supply chain.
Cost inflation on this call, but any perspective, there would be great.
Yes, Simon Thanks, Nick hit.
Yes.
Yes.
The 1 million homes.
We think we're going to build this year is in line with our plan. If you perhaps wind back to I think I'll second earnings call, when we announced plans to accelerate our build to 10 million homes and.
And to do it by.
2025, and at a very rapid timeframe I think there are two things that we're perhaps stood out about one is the scale of the bill and a lot of ambition early on before frankly, everyone else was also talking about building fiber if I can.
The speed with which we are planning to do it we really recognize the value of a farm bill and have built an operational team I don't know operational engine to go as fast as we can now we need to do that in a balanced way we need to make sure that it's sustainable accelerated growth because the last thing we want to do is build up resources, but one or two quarter than have to take them.
Down in the following one or two quarters.
<unk>.
Acceleration of our Bill is exactly what we're targeting and to go as fast as we can within the constraints of high quality build that really delivers to customers and deliver for our shareholders.
On the supply chain question I think.
Lucky to stop.
Accelerated build earlier apps and the rest of the industry and through hiring people like Veronica blood work on other than her team were able to gain the wisdom of their experience.
Over time.
Which led us to securing multi year supply contracts both for equipment for fiber and for labor earlier that I believe the rest of the industry was able to do and therefore, we got good.
<unk> resilience, we've expanded the number of vendors in every category.
We've got good forward cost visibility as well so I think that's been very helpful to us and of course as the demand for fiber accelerate across the industry as others realized five does what table count it's a fundamentally superior product we're in a relatively good.
And insulated position because we frankly, we got there first and we signed up the deal before anyone else can jump.
And Nick just threat listen I think there is a.
Orientation by this team to set an expectation ensure that is that.
In the marketplace and if we can go faster we will.
I think that Nicks described the preplanning that went on before our August of 2021, Investor day, and the work that had been done for diversifying the labor pools for ensuring our resiliency in terms of material on fiber and electronics to support a very very substantial bill is what gives us confidence.
And lastly.
Recall that we set a expected cost per passing and have mentioned the fact that we had anticipated some inflationary pressure in that number and so therefore are holding that number as we look outwards through the balance of this bill.
Great. Thank you.
Thanks, a lot.
Thanks, Shannon operator, we'll take our final question.
The final question comes from Nick Jones at Moffett Nathanson Your line is open.
Hey, good morning, and thanks for fitting me in.
First question the guidance for 2022, EBITDA look solid which.
Which is great, but it comes with a reasonably wide range can you talk a bit about what you see as the most important swing factors behind it and what needs to happen for you to deliver results towards the high end versus the low end.
And second.
To follow up on Frank's cost savings question from earlier, you basically hit your 2022 cost cutting target a year early can you can you share some thoughts regarding what your updated objectives for for 'twenty, two and 'twenty three might be.
Is what you've achieved.
A more rapid than expected realization of savings or do you think the total and the total opportunity for savings is greater than what you initially expected.
Sure Nick Thanks for the question this is Scott.
On the guidance for 2022, I'd first say we're early in the year, Yes. It's February we're very confident in the fundamental trajectory of our business of each of the four strategic pillars, we've talked about building fiber selling fiber improving our cost structure.
And improving the customer experience.
But I'd say, we're still operating in a pandemic and COVID-19 impacts arent quite clear to us yet as we get more clarity on the impact and timing of Covid, we would expect to be able to tighten that range in the next quarter or two once we have better visibility there.
On the second.
Question cost savings. Thank you are right I would like to characterization of where basically a year early.
Getting to the $100 million.
Target that we add by the end of 2022, but we're not stopping there and we havent given.
Additional guidance as to what our higher cost targets may look like but as a team. We're very focused on exceeding the $250 million target that we have for 2023 that will give us the flexibility to reinvest a portion of that savings in growth, which we are doing.
And then.
Hello.
Think of that savings straight to the bottom line, which we're doing in 'twenty, two and we would expect in 'twenty three and beyond so as we get more clarity on the cost savings, we'll give some updated guidance, but I agree with your assessment, we're likely to exceed the $250 million.
Okay. Thank you Scott.
Yeah.
Alright, Thanks, everybody that concludes our call. We appreciate you joining thank you.
This concludes today's conference call. Thank you for joining you may now disconnect your lines.
Yes.
Okay.