Q1 2022 Frontier Communications Parent Inc Earnings Call
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Welcome to the Frontier Q1, 2022 earnings call at this time, all participants are in listen only mode.
After the Speakers' presentation, there will be a question answer session to ask a question. Please press star followed by one on your telephone keypad. Please be advised that today's conference is being recorded.
I would now like to hand, the conference to your speaker today <unk> head of Investor Relations. Thank you and please go ahead.
Good morning, and welcome to Frontier Communications' first quarter 2022 earnings call. This is Spencer Kurn frontier as head of Investor Relations and joining me on the call today is John Stratton Executive Chairman of the Board, Nick Jeffrey President and Chief Executive Officer, and Scott Beasley, Chief Financial Officer.
Today's presentation can be followed within the webcast and is available in the events and presentations section of our Investor Relations website.
Let me now refer you can 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 and with that I'll turn the call over to John .
Good morning, everyone and thank you for joining today's discussion.
Our business remains well positioned to win in key markets and we continued to execute on our unique opportunity to create significant shareholder value.
We have a solid foundation of fiber assets, a significant customer base and strong competitive positioning.
In the last 12 months, we generated $6 $2 billion of revenue and.
$2 $3 billion of adjusted EBITDA, which represents a 37% 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 from here.
$1 1 billion of our EBITDA in the last 12 months has been generated by our fiber products.
And we're investing to grow our fiber EBITDA rapidly.
We now have approximately 400000 businesses within 250 feet of our fiber.
And over 23000 towers within one mile of our fiber.
As we continue to build out our network.
Expect to grow and convert these attractive in footprint opportunities.
It's now been about one year since we emerged from bankruptcy and so it seems a good time to step back and review why we believe frontier is one of the best investment opportunities in the market today.
First and foremost we operate in a very attractive industry.
Our industry thesis is underpinned by the explosive growth data consumption that we've seen over the last two decades, and which is expected to increase threefold between now and 2025.
And we're seeing this demand in real time across our network.
In March of this year, our average fiber broadband customer consume 900 gigabytes of data, representing an increase of over 30% versus pre pandemic levels.
And a substantial and growing portion of our base is consistently consuming more than one terabyte of data every month.
Against the backdrop of exponential growth of data consumption in the coming years.
Fiber is absolutely critical to meet market demand.
<unk> performance is vastly superior to cable and wireless alternatives today, providing faster download speeds.
In terms of magnitude faster upload speeds and significantly lower latency.
Fiber networks provide a clear low cost path to delivery broadband speeds to 10 Gigabits per second.
With minimal additional capital investment.
And most critically fiber has the best economies of scale of any technology as data throughput and consumption increases across networks.
Our business is in our sector with similar characteristics favorable market structure high operating leverage and dependable long term growth.
<unk> tended to deliver attractive returns deserving of higher multiples.
We've seen this theme unfold over the past 20 years first with towers and data centers and enterprise fiber.
We believe fiber to the home is the next frontier of this continuum of exceptional infrastructure investments.
And within the Investable universe of fiber companies frontier is excellently positioned.
We have the second largest announced fiber build of any company in the United States through 2025.
We are uniquely advantaged to execute on our fiber build with an early mover head startup industry, an incumbent position that affords both speed and cost benefit.
Vital purpose building gigabit America that is wholly aligned with the goals that the federal government's 42 billion funding for broadband infrastructure.
This time last year, just after emergence during our first quarter of 2021 earnings call.
Provided an illustrative example of our company's potential valuation.
Using the same widely published industry benchmarks of value per premises passed.
At the midpoint of 3% to $4000 per fiber passing.
3% to $600 per copper passing a business today would be worth just under $20 billion.
And as we March towards our wave two plan to build 10 million fiber locations by 2025.
Our enterprise value stands to rise materially.
Using the same midpoint to roughly $38 billion.
Upon reaching the stage fiber would represent over 90% of our enterprise value.
Simply put we are the largest pure play fiber to the home investment opportunity in the United States.
Now based on these industry benchmarks, our current market valuation implies a meaningful discount to what were worth today.
And then even more substantial discount to what we will be worth.
But as we've said since our earnings call last April .
As a company that recently emerged from bankruptcy.
A show me story and.
And we understand the need to objectively demonstrate our ability to execute against this opportunity.
And just help realize the importance of our commitment to transparency, which I referenced on slide seven.
We outlined our goals for you at our Investor Day last August .
10, plus million fiber path things by 2025.
Dave to steady state terminal penetration of 45% with four plus $1 billion of adjusted EBITDA and EBITDA margins in the mid to high <unk>.
And we committed to showing you how we're doing as we go providing enhanced disclosure by splitting out our fiber based network from a new build.
In reporting penetration of both the legacy base and our new build cohorts every quarter.
This is a turnaround story, it's not complicated but it does require a fundamental execution as we build a strong and durable foundation for growth.
Attaining in sustaining total revenue and EBITDA growth is our most critical milestone.
And as we said will generate both in 2023.
Achieving this requires us to hit a series of seven key inflection points along the way.
It starts with scaling the fiber build.
We doubled our build rates by second quarter of 2021, and it has continued to scale rapidly since then.
For us to roughly double it yet again by the end of this year.
Next we needed to scale the pace of our fiber net add generation, which we did in the third quarter of last year and this in turn drove two other milestone.
We now have more consumer customers on fiber, but on copper and our total fiber EBITDA has also eclipsed our copper EBITDA.
Our net adds acceleration continued into the fourth quarter of last year and for the first time outpaced our copper declines, allowing us to achieve our next inflection point.
<unk> broadband customer growth.
These operational milestones, which we've already achieved and our continued momentum with <unk> power positive inflection in our key financial metrics.
We expect to generate sequential EBITDA growth for the total company late 2022.
And year over year revenue and EBITDA growth in 2023.
All of this demands a relentless focus on our four levers of value creation.
After deployment.
The penetration.
Customer experience and operational efficiency.
Nick and his team have been unwavering in their pursuit of these critical priorities and have built strong momentum in the business.
I'll now turn the call over to Nick to review, how we performed in the first quarter Nick.
Thanks, John .
Q1, op team executed extremely well against our strategic priorities.
A record 211 pounds need fiber location.
We also added a record full Val alright.
Fiber broadband customer net additions, which is only about 20% higher than the prior record we set last quarter.
Our full fold increase over the same period last year.
Our fiber net adds continued to outpace comp losses this quarter, resulting in 20000.
Broadband net adds.
Two times higher than the prior.
Record, we set last quarter.
We gained momentum in business and wholesale reaching key inflection point in SMB.
Congress, improving our employee engagement.
Last week, we unveiled our new from J brand a.
A year ago, we said, we would take a long hard look on our brand and its future.
Alright data driven evaluation I'm delighted with the result.
Our new branded Martin more relevance more tech oriented and reflects our commitment to relentlessly a backup in our business and for our customers.
We have announced our first strategic initiative fiber deployment is on slide 11.
Fiber build continued to scale so another record quarter, partly in Q2 hundred 11000 unit cases.
Our build speed was impacted by Covid related delays in January and February one.
I did we scaled our build rapidly pumping over 101000 locations in March.
Scaling puts us on track to achieve our target of at least 1 million locations with fiber this year.
Im, particularly proud of our team's strong execution and accelerating our build in the midst of supply chain and COVID-19 related disruptions.
Our ROE and rigorous focus on supplier diversification cross functional planning cost control has really paid off and meeting I'll build on pumping target.
Heightened challenging environment.
I remain confident in our plan for pumping 1 million locations this year and acceleration to $1 6 million locations in 2023, and our long term plan to reach 10 million plus location by the end of 2025.
On the next slide we'll move on to our second strategic initiative fiber penetration.
Our team is hard at work over the past year to make significant improvement in consumer broadband.
We streamlined our product offerings with three clearly defined and designed to provide the fastest speed best value.
<unk> performance.
We enhanced our core broadband product with value added services like Aero Wi Fi Youtube TV and Directv stream, it's early critical pain points with our customers.
We established cutting edge digital customer acquisition capability through our partnership with Red benches are.
Our acquisition funnel.
And something I will cover in more detail in a few slides, we launched our new brand, which will add fuel to all the underlying improvement that we have implemented so far.
Our hard work is paying off as demonstrated by our third consecutive towards a fiber broadband net adds.
We added 52000 consumer fiber broadband customers this quarter driving an acceleration of our fiber broadband customer growth to 11% year over year.
On slide 13, we look more deeply into our fiber broadband customer base.
We showed that we didn't just gained customers by deploying fiber into low penetrated market.
<unk> gained customers in our mature fiber market, what we referred to in our fiber footprint.
And on price fiber footprint penetration increased 50 basis points sequentially to 42, 4%.
Based fiber footprint.
Target for where we expect to drive penetration in our expansion fiber footprint.
We expect to steadily grow penetration to at least 45% over time.
And our expansion footprint, we're also making excellent progress.
At the 12 month, Mark by 2021 build cohort reached penetration, 18% consistent with our target range of 15% to 20%.
And the 24 month Mark.
2020 build cohort reached penetration of 44% significantly outperforming our target range of 25% to 30%.
As larger bill pulled into 2020 cohort throughout the year, we continue to expect penetration of 25% to 30% at the 24 month Mark.
I would now like to move on to our third strategic initiative on slide 14, the customer experience. We've made enormous progress on transforming the customer experience across all aspects of our company over the last year.
We made billing simple and easy to understand paperless and introduced on Autopay discount to encourage customers to use an easy feature.
We streamlined IV, all automated SMS and E Mail communications and introduced an array of self help too.
And we've implemented initiatives like next day installed and ultimately the equivalent return to make our customers' lives easier.
These initiatives delivered another quarter of stellar result.
Fiber net promoter score continues to increase sequentially and remains at least 30 points up since the same period last year.
Importantly, customers have higher NPS goals and longer tenured customers, which suggests that our overall NPS schools have significant upside to grow as our customer base expand.
Broadband churn on across both fiber and copper broadband customers also continued full to record lows.
90 day, <unk>, which tends to be higher than it is across the total base of customers declined 16%.
Same period last year, which indicates that the changes, we're making to the customer experience we are driving results.
Monthly call Center volumes were down 20% the same period last year and Caf volumes, specifically were down 23%.
This demonstrates that our previous survey has resulted in fewer complaints.
<unk> reasons, why come from record, which lead to higher production levels and lower costs.
While these results are encouraging customer journey of continuous improvement for us, we're constantly refining automating and simplifying our processes for interacting with customers and rigorously measuring our progress as we go.
Turning to slide 15, we've also made significant progress improving our business and wholesale performance.
This quarter marked a critical turning point for SMB.
Over the last few quarters, we've implemented a series of improvements that are truly revitalized this segment we.
We've strengthened the product with our two gigabit offering and our recently announced partnership with bringing central.
We've enhanced our demand generation with tailored marketing campaign, and we've expanded our sales channels full fold with best in class door to door and outbound vendor relationships.
We've implemented a CRM platform, which optimizes sales operation and customer management.
And we've installed robust analytics to predict John and drives higher retention.
Together these actions have driven a number of key inflection points and F&B over the last six months.
Ill fiber broadband gross adds have doubled.
Our fiber broadband net ads have increased seven fold and on fiber broadband up about 2% demonstrating customer's willingness to pay a high quality connectivity services.
We still are in the early days of achieving our aspirations and the F&B market.
This segment was not a focus the old pump.
Penetration and F&B remained significantly below the levels, we see in consumer.
How about we put in the hard work to drive these critical inflection point in this business and the momentum we generated this quarter is encouraging as we address this largely untapped opportunity in front of them.
On slide 16, I'll shift gears and something is really important to me our company culture.
When I joined frontier a year ago, the culture was broadly broken.
Employees were minimally engaged.
Joe Black Pepper and morale was low.
We set out to build a new culture and define key elements of the within the funds in a way we centered on earning customer loyalty getting things done together doing what we say, we'll do and currently in the future.
And we rapidly introduced new ideas to cultivate these elements and build them into our corporate culture for.
For example, we started the company wide town holds which we call listen live.
Along with the executive team, we openly discussed our progress in the business.
Answer questions and employee.
We've invested in employee training and formed our leadership Academy.
And we've implemented a new culture of performance management to recognize high performers.
And finally, we strengthened engagements by launching a number of initiatives to get suggestions directly from employees on how we can make frontier bedroom. Two examples include a cost reduction program that more than doubled our initial goal of $20 million savings and an initiative to eliminate bureaucracy throughout the organization called eliminating them.
Okay.
On the next slide it is clear that these initiatives have driven measurable improvements to employee engagement.
Every six months, we conduct our people pulse survey.
As a survey that spans across all of our employees is completely enrolled and are administered by a third party.
Over the past year with survey shows that the share of employees with overall public employee sentiment is up two percentage points.
The share of employees deal that work gets done.
<unk> is up 17 percentage points.
On the share of employees you see a clear link between the work on from these objectives is up <unk> six percentage points.
These results are still far from where I want them to be but the trajectory, resulting from the improvements we've made clear and we'll continue to build on this momentum in the years to come.
I'll close with the exciting topic of our new brand that we unveiled last week over the past year, we've evaluated our brand through a methodical data driven process.
And quantity.
And its survey over 12000 customers to understand brand protection brand tracking and path to purchase.
We performed deep died ethnographies with over 20 customers.
Their behavior and interactions closed up.
We tested the brand positioning created and Visional random across more than 4000 customers and we tested our culture and community exploration across more than 50 stakeholders.
We found that while our brand reputation struggled in some copper market.
There was a growing and positive equity in the <unk> name and brand and fiber market.
High customer sentiment and tremendous employee affinity and loyalty.
And this is critical because we noted that our future is fiber and fiber customers are the ones that will drive our growth in the years to come.
Now I strongly believe that the brand is what our brand Doug.
New brands simply doesn't change customer protection on its own.
So we've been working hard change, what we do and drive transformation from the inside out.
Over the past year, we've improved our product services and value proposition with a dedicated focus on improving our customer experience.
Have a strong conviction that these changes have resulted in improved customer validation.
Our fiber penetration is accelerating with windshield up 13% over the past year.
Our loyalty is improving with.
So the second sequential quarter of <unk>.
Record low churn and.
And established a clear trend and rising 5% NPA, resulting in another record high this quarter.
So clearly we've made progress in changing what we do.
And we've generated the underlying momentum supports a new and exciting brand reinvention.
Our extensive research on brand in conjunction with a strong customer validation.
We've seen in response to the underlying changes we've made guided to.
To keep frontier name and reinvent the brand into one that is more and more relevant more tech oriented and with wider appeal.
So I am pleased to share with you our new brand visual identity.
Our new logo is an iconic roundel, representing an inclusive connected nation and symbolizes the speed and capability that we bring to customers as we build gigabit America on new typeface, it big punchy, reflecting a bold aspiration.
Our vibrant color scheme represent the ambition expertise and celebration of the future we're building.
Following the brand launched last week, we rolled out the new advertising campaign that showcases our revitalized brand.
<unk> industry, leading claims.
Our new campaign is eye catching the messaging and bold and Chris.
Incompetence, who we are a fiber company is creating the future with our customers.
And to emphasize on new visual identity, we were recently verified by the independent third party <unk> as having the fastest internet in la and the fastest internet in Florida, and we're thrilled to now begin sharing these claims with our customers.
Our reinvented brand add fuel to the changing customer protection, we've begun to ignite.
Our initial response has been encouraging.
And we look forward to updating you on its impact to our operational and financial performance in the quarters to come.
And with that I'll turn it over to Scott to run through our first quarter financial performance and our performance against our fourth strategic pillar.
Operational efficiency Scott everybody.
Thank you Nick and good morning, everyone.
As I have done on the last several calls I will reference pro forma numbers in 2020 that had been adjusted for fresh start accounting changes in order to more clearly describe the performance of our business versus previous periods.
Turning to the results on slide 22 revenue was $145 billion in the quarter driven by higher sequential data revenue, but lower voice video and subsidy revenue.
We earned $65 million of net income and $509 million of adjusted EBITDA.
$274 million of our adjusted EBITDA came from fiber products. This was up 2% year over year, a strong consumer fiber broadband growth offset declines in voice and other.
We generated $528 million of net cash from operations in the quarter driven by healthy operating performance and increased focus on working capital management.
Turning to slide 23, our total revenue declined 11% this quarter, primarily due to the exploration of Caf II subsidy revenue.
Excluding subsidy revenue revenue declined 6% consistent with declines from last quarter. Additionally.
Additionally, we sold our CPE business in Q4 of 2021, which negatively impacted year over year revenue by roughly $12 million in the quarter, but had minimal impact to EBITDA.
Fiber revenue was flat year over year as consumer broadband revenue growth of 12% and business broadband revenue growth of 9% were offset by declines in video voice and other <unk>.
Excluding video fiber revenue grew 3% year over year, representing an acceleration from 2% growth last quarter our.
Our consumer fiber broadband <unk> grew 2% this quarter consistent with our expectations as growth from underlying price increases and a higher one gig or above speed mix was partly offset by a $5 autopay discount and promotional gift cards for new customers.
We continue to expect these value creating initiatives to be headwinds to ARPA growth until we lap them in the second half of 2022, but we remain on target for 3% to 4% <unk> growth for the full year.
As I've mentioned on the 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 has had minimal impact on profit due to high content costs.
Copper revenue growth declined 10% year over year, as both consumer and business faced expected headwinds.
As this year progresses, we expect fiber revenue growth to accelerate driven by strong growth in consumer fiber and continued stabilization in business and wholesale.
We expect copper declines to moderate as our customer experience initiatives take hold but we still expect overall declines in copper due to legacy product headwinds.
As a final note on revenue, we expect the first quarter of 2022 to be the low point of the year for subsidy revenue.
We expect subsidy revenue to increase sequentially to the 15% to $20 million per quarter range by the end of the year driven largely by the commencement of our Dod funding.
Turning to slide 24, as we noted before the primary headwind for total adjusted EBITDA was the exploration of the Caf II subsidy fiber.
Fiber EBITDA grew 2% year over year, a strong consumer fiber broadband growth and margin improvements offset EBITDA headwinds from legacy products.
Frontier is a fiber first company fiber products represent 54% of our adjusted EBITDA and will increasingly drive the growth trajectory of the overall company.
Next we'll move to capital allocation on slide 25.
We've made great strides on our business simplification initiatives this quarter.
We exited approximately 20 office locations in the quarter, which resulted in a lease impairment of $44 million and we will reduce our operating cost structure going forward.
We continue to perform well against our fit for the future cost savings initiatives through the end of Q1, we had realized $139 million gross annual cost savings exceeding our 2022 target of $100 million.
And putting us on track to exceed our initial goal of $250 million by the end of 2023.
Additionally, the underlying cash flow generation of our business remains strong.
Our newly centralized procurement team is doing an outstanding job managing through a challenging supply chain environment, while also controlling working capital closely.
We're committed to managing our balance sheet in a disciplined manner with net leverage in the mid threes.
Finally, our fiber build will be the primary focus of capital allocation over the next several years are projected build cost per location of 900 to $1000 remains unchanged.
Turning to our liquidity and debt maturity profile on slide 26, we ended the first quarter with $2 2 billion of cash and short term investments and roughly $500 million of available capacity on our revolver totaling roughly $2 7 billion of liquidity.
In addition to the strong liquidity, we also have ample balance sheet flexibility.
Our net leverage remained low at roughly two five times at the end of the quarter, giving us healthy headroom under our net leverage target.
Approximately 81% of our debt is at fixed rates and we do not have any significant maturities earlier than 2027.
This capital structure and maturity timeline provide us protection from potentially higher interest rates as well as a clear runway during our wave two fiber build.
Building on that point Slide 27 describes our strong positioning in the current macroeconomic environment.
The services, we provide are critical to our customers and we offer a wide range of products and services to meet specific needs, including participation in the government's affordable connectivity program.
Our focus remains on offering customers a best in class service with unmatched value and we are relentlessly focused on bringing more value to our customers and every action that we take.
Our cost structure and our fiber build is also well positioned to withstand inflation due to the multi year agreements that we established in mid 2021, our expanded pool of labor and materials suppliers and are fit for the future cost savings program.
Finally, as I noted on the previous slide our capital structure is also well insulated for rising interest rates with 81% of our debt at fixed rates and no significant maturities until 2027.
Moving to slide 28, we are reiterating the 2022 financial guidance that we provided last quarter.
We expect capital expenditures of two four to $2 5 billion as.
As we accelerate our fiber build to pass at least 1 million new locations and connect more customers across consumer business and wholesale.
Two other notes on Capex.
We expect our build cadence throughout 2022 to follow a seasonal pattern with a better weather quarters of Q2, and Q3 at a faster pace than the winter quarters of 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 next year.
Finally, we are maintaining our guidance for adjusted EBITDA of 2.0 to $2 $1 5 billion.
By the end of the year, we expect an inflection point in EBITDA as we return to sustained EBITDA growth.
I'll close by bringing the frontier investment thesis altogether on slide 29.
First there is strong and growing demand for fiber driven by expanding household data consumption.
Fiber is a superior product for a number of reasons, including symmetrical upload and download speeds that far exceed cables capability, a lower cost of ownership driven by fiber passive technology and lower latency levels that enable important uses like video conferencing and gaming.
We have a clear strategy and purpose. We are building gigabit America to connect Americans to the digital economy.
We have ample liquidity and a strong balance sheet, providing us with access to capital to fund our strategy.
Last we have attracted a strong and experienced leadership team who are singularly focused on executing our four part strategic plan.
I'll now turn the call back over to Spencer to open up the line for questions.
Thanks, Scott operator, we're now ready for Q&A.
Thank you very much our first question comes from Brett Feldman from Goldman Sachs. Bret. Your line is now open. Please go ahead with your question.
Yes. Thank you for taking the question Nick I was hoping you could give us a little bit more color on what the competitive landscape looks like right now obviously, the improving traction you're having with your fiber net adds task is to some degree becoming at the expense of your cable competitors. So I'm wondering what reaction you've.
We're seeing from them I am also interested to hear your thoughts on the impact you might be seeing from fixed wireless whether that different whether youre looking at your more rural areas versus your more densely populated areas, where youre deploying fiber and then Jeff.
In terms of the people who are coming to you for fiber.
Many of them are switchers mean, no. They are disconnecting another service versus to what extent are you just winning more jump balls as people are forced to make a decision.
Thank you.
Thanks, Brad good questions Matt.
But sort of picking them off one at a time.
It's clear that the vast majority.
You talked about.
But equally we are taking share from cable.
Obviously in our fiber market.
We are now consistently gaining market share therefore.
Clearly taking share.
I think that just reflects that.
The fact that is.
Yes.
Barry.
Product.
Better proposition.
In terms of reaction of course, the cable company.
We've got a deep respect for them.
But it is pleasing to see that.
Okay great.
The cable industry is now recognizing the fact that fiber is simply a better product and switching.
Starting to invest in fiber.
But even then.
Reflecting on the fact that we have at least a 12 month advantage.
Accelerating our bill locking in <unk>.
And attractive.
For both labor and materials.
Fixing forward prices.
Okay great.
Not just a better product.
Okay.
Sure.
But it also affects us.
Right.
Our cable competitor.
Perhaps.
Backlog.
More than they should have done overtime, we're investing as much as we can and improving.
My pre prepared comments and I think that is reflected in the fact that our NPS goals on how systematically tracking up at.
13%.
Yes.
And something I'm extremely pleased with.
I think we've said before a number of flow firstly <unk> really.
Really is.
Different proposition.
The fiber internet.
Not any different proposition.
But it also has fundamentally different underlying economics.
Our fiber network is already did that.
Throughout the.
Okay.
The high capacity and we're seeing on average.
By the customers of about one point.
Q3 terabytes.
The upper quartile of more than two terabytes.
If we compare that.
Got it.
<unk> usage Vegas.
Industry players all three to 400.
Jake.
Then we can see that our data continues to grow at this stage.
At some point, where the economics of that.
Simply flip debate negative.
If that relentless growth.
So I think what we're going to see.
It will be a fixture in the market it will always be there, but ultimately as data growth.
Consumers want reliable high speed fiber.
As fiber winner in the market.
I think we say it.
Thank you.
Thanks, Brad Operator, we'll take our next question please.
There is a total so the next question is from Philip Cusick from J P. Morgan Philip Your line is now open. Please go ahead with your question.
Okay.
Hi, guys. Thank you.
Two things if I can first EBITDA sequentially as we go through the year.
Especially as the regulatory side ramps why would it be down any quarter from the current $5 seven.
Like the 2.1 billion is pretty cautious at this point and then second I thought it was interesting that newbuild penetration at 24 months is higher than your base penetration.
Do you think is the barrier to getting that space back up toward where you used to be.
I think it's sort of a brand or legacy customer experience issue or are there more competitors in those based market.
Just a share issue over time thanks.
Okay.
Sure Phil This is Scott.
I'll take the first one and then pass to John for the second one.
The strong start to the year in Q1 reinforces our confidence in our 2020 guidance, which as you noted was two one year to $2 one $5 billion of EBITDA.
We expect Q1 to Q3 to be roughly flat as we will continue growing our consumer and SMB fiber, but we have some expected headwinds from wholesale repricing that we've discussed before legacy copper products and then some cost inflation, particularly in items like fuel and electricity. So that's it.
Cadence, we expect for the first three quarters, but we're in a very solid position to have a significant inflection point in EBITDA by Q4, we'll have continued momentum from that consumer fiber growth.
Full year impact of our future cost reduction programs and additional additionally.
Subsidy that we talked about.
We're confident that we'll be there by the by the end of the year.
Yes, Bill Hey, John just real quick on the second.
We've kind of talked down that first tranche 2020 build cohort in terms of its penetration rate so what I mean by that.
Very small bill and.
And it was sort of as optimal as could be.
Midland what was the pre existing rich fiber market in their own right had very high penetration rate. So as we were going to add it looks in the mirror is effectively what you would see on the ground in those markets as opposed to the <unk>.
<unk> penetration rate across the country I think the important number is to keep an eye on for US as we go forward quarter and will continue to disclose this every quarter is targeted at 15, 1%.
Yes.
12 month, Mark 25% to 30% of the 24 months, Mark and as we go through right now.
Thank you.
The first thing we did was with product leadership was really general Bill go.
Fats go hard at that.
The channels are consumer and that business a couple of months behind those.
Those new teams were put in place mid of last year. They are now getting their hands, its really spooled up and going our expectation it will be maybe at the upper end of those ranges that we just described but I think what youll see as we go out into the second half of the year than the 23.
Each cohort will start to really show.
At a really high level as we go through it so hopefully that's helpful.
Thanks very much.
Thanks, Phil Operator, we'll take our next question please.
And our next question is from Anthony <unk> from Citi and sitting your line is now open. Please go ahead with your question.
Alright.
Hi, good morning, and thanks for taking the questions.
Just to go back on the margins for the quarter. I think you are expecting that that 300 basis point sequential headwind and I was just wondering what drove that outperformance.
Then in terms of the 100 megabytes offer that you announced last month for the ACP any update on the traction for that and how much of that contributed if any to the net adds in the quarter.
Sure Anthony this is Scott.
On the margin outperformance, we did improve our our margins beyond our expectations largely driven by.
Outperformance of our cost reduction program are fit for the future program. We're ahead of schedule there.
We've done some really great things in terms of real estate rationalization improved productivity improved demand management. Both for electricity appeal. So we were ahead of plan in Q1, which led to that outperformance as I noted before.
We do have some headwinds just from fuel electricity prices and Thats why we said, we expect kind of flattish.
Q1, and Q3 EBITDA.
Until Q4.
On the on the second question.
Question was around participation in the government's ACP program.
<unk> seen a very healthy rate.
Participation in the program we think.
And there has to be able to access high speed broadband.
And we're seeing our numbers growing.
Every day.
Okay.
Yes.
And our next question comes from Greg Williams from Cowen Greg Your line is now.
Okay.
Great. Thanks for taking my questions.
<unk> was really impressive both in fiber.
And Congress copper at 153 in churn as a fabric.
<unk> five are these levels.
Okay.
Perfect.
Second.
Question, just on the fixed wireless.
<unk>.
Start selling off the previous question are you seeing any fixed wireless taking from your copper base I know, you're saying, it's an inferior product, but it would take from there.
I mean, just broadly speaking about half the broadband industry I'm curious to hear your thoughts of where they are taking prompt.
Yes, Greg Thanks, Nick.
Yes.
Right right right Chad.
Sure.
The low volume into the market at the moment.
As well.
Perhaps but of course that that helps you a little bit, but I think more importantly it.
As the very significant effort, we're putting into the company.
The math.
With mature and then later that week in week.
We count on it number.
Number one.
It's literally hundreds of thousands of small things that we got.
Sure.
And that's why we're seeing a systematic improvements.
Fiber and copper therefore.
Yes.
Is it.
Of course, not what would you be pushing breaking it out.
And we're currently offerings again, we're always trying to get better if we can I read that one the efficacy.
Okay.
Hello.
Yes look of course, it's going to be more attractive.
Yes.
Remote areas.
Perhaps some time out.
But look I think the way to think about it.
If you all wanted to its customers on that glide the dark market as we aggressively build out across all our copper footprint and trying to convert as many corporate customers. The fibers can you give just a fundamentally better proposition.
Imagine yourself in the household.
<unk>.
Okay.
Five more fixed device.
Sure.
What route you go hanging off your network.
Better.
Bye bye.
Doug will be true, if someone's working from home, which they might vote.
Great.
And you are welcome.
Reliable high speed up like.
Then again fiber hands down.
From the rural area.
I wanted to come back.
Other populations.
Got it thank you.
Yes.
Thanks, Gregg operator, we'll take our next question please.
And our next question comes from the cash <unk> from New Street Research. The cash. Your line is now open. Please go ahead with your question.
Perfect.
Thank you for taking my question just anything off of the comment that Mike just made in response to the prior question Gabe.
Cable companies have talked about a low switching environment, which is depressing that go with that so.
<unk> talked about that being that helping a bit so when keeping it sort of goes back to normal.
Meaning that your John would sort of go up.
And secondly, what has been the take rates for the <unk> product that you guys launched.
Yes.
So I think thats the switching environment.
With signs of Bornholm.
Assuming it does critical.
Right.
Workforce.
Thats true industry not just us.
Perhaps the most important thing I think the underlying work with it.
Sure.
No.
And that I think is a stronger counter by imports.
Okay.
John .
Carry on trending down and say hey.
Both copper and fiber.
In terms of.
Gigabit penetration that's not a number we ship.
So very very pleased.
Now how about how about new customer types.
Gigabit speeds.
Great.
Okay.
Adam.
And is reflective of the fact that comfortably one high speed.
But yes, maybe just.
That makes sense.
Right.
Switching environment.
A higher switching environment.
Switching higher booth activity, all accretive values in our favor.
In every single market, where we compete.
We're gaining share.
More customers et cetera.
Okay.
It creates volatility in the marketplace.
And obviously with the momentum.
And then Nick and the team are bill we.
We would expect that to increase over time.
Got it very helpful. Thanks, so much.
Our next question comes.
From Frank from Raymond James Frank Your line is now open. Please go ahead with your card.
Question.
Yes.
Great. Thanks, so much two questions. So just one clarification so with the positive net adds with high River copper just the expectation is this sort of a new normal or could the stops around it before it becomes a permanent trend.
And then my second question that I hear a lot from investors is about pricing and the concern is that with a lot of the new competition coming in pricing, we will get a lot worse can you comment on what youre seeing in the market. When you when you marked with fiber or where you have a competitive more competitive with cable what is the cable response been.
How do you feel the trajectory of <unk>, who is in those markets. Thanks.
Yes.
Thank you Brian .
Sure.
Excellent question.
Yes, but does that help.
That's the environment, we thought really tend to stay.
Quarter over quarter.
Pricing actions, but as I said earlier I think the primary with action.
Encouraged by the recognition of that fiber is a better process.
Switching.
So quite a bit.
Yes, we have seen some pricing.
Well I.
I think in the future.
The way we think.
And that could be.
It's really.
More than price.
Of course.
So value added services and so on.
And that's the way I would expect a rational market that could be Jonathan if you don't want to do anymore.
Yes.
Great.
Alright, great. Thank you very much.
Thanks, Gregg operator, we'll take the next question please.
Yes. So our next question is from Simon from Morgan Stanley Simon. Your line is now open. Please go ahead with your question.
Thanks.
I was wondering if you had an update for us on wave three what are your latest thoughts there and maybe to that just the latest thinking about the infrastructure build on that money.
How that might apply to those assets or other plans you have for that and then I think Scott the restructuring of about $54 million in the quarter.
That cash non cash I think you referenced we also saw the real estate being sold and then how do we think about restructuring for the balance of the year. Thanks.
Okay.
Yeah, Hi, Simon it's John .
First of all we might take.
Three in there for Bill Scott will pass through for the last piece.
Yeah.
As we referenced last year.
Sure.
Wave two.
Bill.
Total so six plus million incremental build that we're are no doubt about it absolutely positive which is a great return profile go as fast as you can.
Pulling them and segregating that piece that way too from the balance of the opportunity set was very important for us because it allows for speeds and you heard Nick earlier referencing contracting for labor materials and everything else because we are able to get a jump on that.
The supply chain issues that a buffet at a few of our competitors have been less of a factor is still to be managed but less of an issue for us and we've been able to move at pace.
Towards the 1 billion.
Plus that we anticipate building this year and onwards.
But wait three is not the sequential piece chronologically, it's just a bit more work in terms of really getting down to a level of detail and as we said on the prior call. The analysis here was to determine what is the inherent value of that set of assets.
The best way to Alicia to tap into it and we've spoken about a number of things.
Is it a full divestiture is it.
<unk> of some sort is it inorganic bill.
And then what are the implications of the.
The federal funding.
Third at the state level, as we think about perhaps changing the underlying calculus on value creation.
So thats all important and that work has been underway, but important also to note is on a parallel path.
We've been at this now for about a year as the company has increased its understanding of the fundamental.
Leverage in the business down to the very very local level.
And in addition through efforts like Scott's leaning on improving the cost base of the business.
Panel leaders driving increased penetration rates and distribution optimization all of that what we see is that the return profile that we had initially modeled candidly back into bankruptcy and then that were further validated by the team are actually conserving.
And what we believe to be the case now is both for our wave two properties and for wave three.
The exceptional level of confidence that what we previously saw is the return potentials are actually understated that we can do better.
So this is now introduced itself into the wave three.
<unk> as well.
Long way of saying, we believe that the wave three assets are of a higher value than we might have anticipated even six months ago.
So that work continues.
Said that in the next two to three quarters, Matt certainly during the course of this year will then be out into the market with the fruits of that decision.
And no delays here on our end just doing the work to get to.
The conclusion on the in for Bill.
As you would expect this is important to us we spend 25 states today and if we look across literally.
<unk> of applications that will be required in order to tap into the.
The value opportunity that we can translate where customers into enabling our service in their markets.
So we have a team that has been assembled around it we will be active in this space in the matter that you would expect.
Do think this could have a nice effect that is not shown in any of our guidance that we laid out for the longer term future.
But we do believe that as we come through the other end of that process that there will be incremental value creation.
The company Scott you want to take that sure yes, Simon on your question on the one time items.
A big the biggest part was the $44 million lease impairment as a result of our plans to exit roughly 20 office locations that was noncash.
There was additional roughly $5 million of severance related costs based on our head count reorganization, but that should be.
That should definitely be the highest quarter, we have in terms of restructuring given that lease impairment.
Was a one time event.
Great. Thank you.
Right.
Thanks Simon.
And operator, I think we have time for one more question. So lets have a final question. Please.
Now where is our final question is from Nick del Deo from Moffett Nathan.
Nick Your line is now open. Please go ahead.
Alright, Hey, good morning, guys. Thanks for fitting me in.
Firstly, you've talked about how some of your long term supply contracts CB protection from the supply chain issues and inflation risk.
Can you help us understand like what share of your planned network build costs.
Over the next few years are either contractually locked in or have kept annual growth rates.
So you can understand.
The risk profile, there and then second maybe continuing with the theme of churn.
If we remain in a low churn environment industry wide. If this is a new normal does that have any implications for your expected penetration rates or sac or other key inputs to the model or with any pressure on the subscriber acquisition side of the equation just be offset by better retention.
Yes, sure Nick let me take those so on the fiber build as you noted we were fortunate to have about a year head start that led us to an extensive RFP process, where we diversified our supplier base.
In both materials and Labor for example, where we used to potentially have one labor partner working in the geography now will have multiple ones.
Provide price protection, but also kind of resilience of the supply chain.
One one contractor run into issues.
Coupled with that RFP process was signing multiyear contracts with most of our key suppliers, both on labor and materials, we haven't given a specific number but we feel very well protected.
Overall in the Bill, which gives us confidence to reiterate the 900 to $1000 cost per passing even.
The inflationary environment across the macro economy.
On the fiber build and.
On churn I think Youre right I think number one we're getting better at churn and even if <unk>.
Industry wide moves returned to pre pandemic levels that may increase churn a bit but also creates more switching that would allow us and increasing.
Total number of gross adds and therefore net ads.
Same time, we are working very hard to reduce our subscriber acquisition cost with more efficient channels to market. We are seeing those numbers trend down as we improve our digital capabilities. So both of those things together lead to improved views of the economics and as John mentioned.
Make our wave two and wave three assets more valuable than we probably thought they were 912 months ago, yes. It maybe Scott if I can just one other point Nick.
Bob.
When we started out and segregated the base fiber network from the expansion fiber network really had two things in mind at that 0.1 was it's very hard for you all to <unk>.
Understand how we're doing.
This is part of our legacy fiber and new fiber the more we're pumping fiber.
Moving to the equation.
Our total penetration rate, which is understandable, but tricky to model and manage as you're trying to understand how we're going.
One reason was to give you clarity on how we're doing there but the other side was we wanted to full priority internal purposes as well as for you all externally.
So have a proxy for what was possible.
Terminal penetration levels, and what we're showing I think every quarter, improving our penetration rate work too.
$42 four to.
Five years at the end of the first quarter is even in this low return environment, we're taking share.
The combination of our improving our own share of the gross adds and net adds translation as Scott described before is pretty positive.
But we're stimulating enough demand.
Ended up quite a bit thats, not just show up with a new product in the first 10% 20% comps.
Choice is better than the one I've got now this is a much different market, it's a mature market with two incumbent providers and in those cases, we're taking share every quarter. So I think that should and will continue and there is no reason why that should look different when we talk about the ultimate terminal penetration.
New fiber build.
Alright, Thanks, Nick and that concludes our first quarter 2022 earnings call. Thanks, everyone for joining US we will talk to you soon thanks.
Thank you very much you may now disconnect your lines.
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Thank you.
Yes.
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Okay.
Okay.
Yes.
Okay.