Q3 2022 Frontier Communications Parent Inc Earnings Call
Okay.
Okay.
[music].
Welcome to the Frontier Communications third quarter 2022 earnings call. My name is Howard and they'll be coordinating your call today.
If you'd like to ask a question during the Q&A you May do separate question Star one on your Tyler Thank you Pat.
I'd now like to hand drive it to your host Spencer can head of Investor relations to begin.
Good morning, and welcome to the Frontier Communications third quarter 2022 earnings call. This.
This is Spencer Kirk Frontiers head of Investor Relations joining me on the call today are John <unk>, Our chairman, Nick Jeffrey our President and Chief Executive Officer.
Scott Beasley, our Chief Financial Officer.
Today's presentation can be followed within the webcast available in the events and presentations section of our Investor Relations website.
Before we start please turn to slide two here, you'll see our safe Harbor disclaimer.
This is a reminder, 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.
During the call we may refer to certain non-GAAP financial measures, which are defined and reconciled in our earnings presentation press release and trending schedule.
With that I'll turn the call over to John .
Thanks, Spencer and good morning, everyone. Thank you for joining us today.
As you saw on our press release the team delivered another strong quarter of operational results are.
Our transformation to a fiber first company is fast becoming a reality.
If you turn to slide four Youll see an updated company overview to the third quarter let.
Let me run you through a few highlights.
By the end of this month, we will reach the 5 million fiber, passing part, which puts us halfway towards $10 billion target.
We've also continued to expand our customer reach we announced a $2 8 million broadband customers across our consumer and business markets.
In the last 12 months, we generated $5 $9 billion of revenue and $2 $1 billion of adjusted EBITDA.
This represents a 36% adjusted EBITDA margin.
Our relentless focus on fiber investment has reaped strong results fiber.
Cyber products alone generated $2 $7 billion of revenue and $1 $1 billion of EBITDA in the last 12 months and fiber now represents the majority of customers and EBITDA are crucial benchmark as we build gigabit America.
You can see on slide five the four levers that anchor our strategy.
Build fiber.
Sell fiber.
Prove the customer experience and streamline operations.
It's been about a year since we assembled a new leadership team and I'm proud that we continue to perform against our four levers of value creation.
By all accounts the teams executed extremely well on each lever since we emerged from bankruptcy in April of 2021.
Let's run through the details.
Built fiber to a total of $1 4 million locations, that's a 40% increase in our fiber footprint.
We've added more than 250000 fiber broadband customers driving a nearly 20% increase to our fiber broadband customer base.
We've improved our customer experience with a 30 point improvement in our fibre net promoter score.
And we've radically streamlined our operations, you'll hear more from Nick and Scott about how we nearly reached our initial cost savings target more than a year ahead of our plan.
The team is consistently set records against our four strategic levers, which is even more impressive given the challenging market.
It takes intense operational discipline to win in this environment and this team continues to put points on the board quarter after quarter.
If you turn to slide six you'll see that the long term trends in our business remain extremely encouraging.
Our industry thesis is based on the view that the significant growth in data consumption that we've seen over the past two decades will continue to ramp up tripling over the next four years alone.
Confident that fiber is best positioned to meet the long term demand for data consumption.
And there are several reasons for this.
<unk> fiber is a vastly superior product cable and wireless alternatives.
I said it before it's like comparing a Ferrari to of course, that's because fiber provides dramatically faster download speeds exponentially faster upload speeds and significantly lower latency.
A second fiber has the best economies of scale of any technology as data throughput and consumption continues to increase across networks.
Our core fiber network is already capable of 10 gigabits per second and requires only minimal capital investments to enable faster speeds.
And lastly, fiber is the future proof infrastructure, our country needs to compete and to lead.
The government has recognized the critical nature of digital infrastructure and earmarked funding to help build it.
We've won more than $440 million of grant funding since we started our bill and we'll continue to apply for funding. So we can bring fiber to even more Americans.
Within the Investable universe of fiber companies, we've achieved a paramount position as an industry leader.
We have the second largest fiber build in the country with our plan to reach at least 10 million locations by the end of 2025.
Our scale and first mover advantage provides us the advantage of speed and cost benefits.
We expect our fiber build to yield IRR in the mid to high teens are very attractive return on capital.
We have a strong leadership team and a deep bench of operators with a track record of success.
And we're well capitalized with a strong balance sheet low leverage and healthy free cash flow generation that we're reinvesting into our fiber expansion.
And before I turn it over to Nick I want to share an update on our ESG commitment.
I am proud to share that we launched our first ever social impact programme broadband for good a few weeks ago.
As part of this program will identify opportunities to connect and vital community loved hubs in the communities, we serve to a reliable high speed fiber broadband technology.
The program will demonstrate what's possible with the power of our technology.
We're hearing from employees across the country that broadband for good is quickly becoming a source of pride.
We're also making good progress on our energy savings and carbon reduction initiatives under our Red loves Green program.
We have a solar pilot running in Connecticut, and California, and our first order of electric vehicle transit trucks are being delivered later this year in California.
If you haven't had a chance to read our inaugural ESG report that we published back in June you can find it online in our newsroom.
Our ESG journey is just beginning.
It's at the heart of our purpose of building Gigabit America.
I am proud of all we are accomplishing as we transform our business with that I'll turn the call over to Nick to review our performance in the third quarter.
Nick.
Thanks, John .
We delivered another quarter of record breaking results, which has enabled us to reach a number of critical milestones ahead of schedule.
As we build gigabit America, our strategy is simple to build fiber.
<unk> improved the customer experience and streamline operations and it is clearly winning in the market.
Let's cover the highlights from this quarter.
We build fiber at a record pace again.
Adding 351000, new fiber locations.
And as John sure.
At the halfway point in our initial goal of passing 10 million fiber homes later this month.
We also added a record number of new fiber broadband customers this quarter 66000 to be exact.
The context, that's twice the number we added in Q3 last year.
And as we deliver an improved product to small businesses across our footprint, we're seeing record customer growth in the SMB sector too.
More than we've seen at any point in the last three years.
What is remarkable is that we've been able to materially accelerate our fiber expansion while at the same time delivering significant cost savings.
In fact, we are nearly at our $250 million cost savings target one full year ahead of schedule.
And as a result, we are now raising our gross cost savings target to $400 million by the end of 2024.
And finally, we continued to generate healthy free cash flow from operations, which we continually investing back into our fiber expansion and Scott will cover this in more detail later in his section.
Before we get into our quarterly results, let's zoom out and look at how we're doing on our transformation.
On slide 10, you can see the inflection points, we've already delivered and those were on target to achieve.
First we scaled our fibre build in the second quarter of 2021, and we have consistently hit record fiber build every quarter.
Then in the third quarter of 2021, we delivered an inflection and fiber broadband mcnabb.
That's also the point at which either EBITDA or path.
EBITDA for the first time.
Our acceleration of fibre net adds continued in the fourth quarter of last year for the first time in more than five years fiber adds were greater than comp decline, resulting in positive clinical broadband customer growth.
And last quarter, we accelerated our fiber build and deliver the sequential increase in EBITDA, the magnitude of which frontier has not seen since 2015.
And as I just said at the same time, we achieved our initial total cost savings target this quarter by radically simplifying our business and maintaining a laser sharp focus on delivering our strategy.
The team delivering fiber strategy and it's showing in our results.
The success, we're having with our operational initiatives gives me great confidence that we will achieve our financial goals in the fourth quarter and beyond.
Now, let's turn to slide 11 to dive deeper into our two core strategic initiatives building fiber and selling fiber.
I'll start with our fiber build performance this quarter.
As I said earlier, we added a record 351000 fiber location.
We've now outperformed eight consecutive quarters and scaled our build six fold since we began our fiber build pilot in late 2020.
This keeps us right on track to hit our target of 10 million fiber locations by the end of 2025.
Notably, we're the only company in our sector to have announced an increase in our fiber build this year.
As the second largest fiber builder in the country, our scale gives us a competitive advantage and a tight supply chain environment.
Early on we put in place a strategy that has allowed us to attract leading vendors and secure cost efficient material and labor and as a result, we now have been actively choosing us for best gas capacity because they see that we are well funded we're here for the long term and we deliver.
This is why we thrived building ahead of plan within our cost parameters, even with a tough macroeconomic backdrop of inflation and supply chain challenges.
Second strategic initiative is selling fiber.
We're transforming the way we sell the way we price on the way we are perceived in the market.
We're also becoming more digital which is good for both our customers and our business.
Quarter over quarter, we're seeing this work pay off.
And now as a result, we added a record number of fiber broadband customers again this quarter.
We continue to outpace our competitors gaining share against every one of them in every geography in which we operate and we are now taking this good momentum into the fourth quarter.
A time when we will also have the wind at our back in Florida, one of our largest market.
<unk> returned the Sunshine state for the winter.
On slide 13, we take a closer look at our base and expansion markets to better understand where the growth is coming from and what we can expect.
It's no secret that we're taking the majority of our new customers from cable based on a fundamental truth.
Fiber does what cable com.
Any way you look at it is a much better experience and the proof is in the penetration numbers.
And our base by the footprint, we have $3 2 million.
These homes are in more mature markets that are have fibre for several years.
Penetration in this footprint in Q3 increased 30 basis points sequentially to 42, 9%.
And when we look at the growth over the past year, we see a clear path to achieving our long term target of 45% penetration in our base market.
If you look at our expansion fiber footprint <unk>.
'twenty, one cohort is right on target and our 2020 cohort is exceeding expectations.
So that will just pop in Pock fun and every quarter since the new leadership team came on board, we've improved our go to market strategy.
Becoming smarter in the way, we operate and increasingly efficient and now it's showing in the numbers.
Moving forward to slide you can see that the actions. We are taking are beginning to support our long term <unk> growth.
This includes our structural price increases and rising gig plus speed adoption.
ARPA growth is up 2% year over year, if we adjust for short term promotion and in the third quarter of last year, we implemented gift card promotion, which is slightly disguising the year over year after a growth trend.
One of our largest drivers.
As customer demand for faster speeds.
45% to 50% of our new fiber customers continue to choose one gig speeds or above and.
And in fact customers on one gig plus speeds now make up 15% to 20% of our base and Thats up from 10%, 15% last quarter.
As the mix of the base on one gig plus speeds catches up to the mix of Activations.
Naturally rise overtime.
As a specific example of how we're strengthening our pricing power, let's look at what we're doing in the SMB sector.
First we enhanced our product by launching two gigabit per second speeds network wide.
Secondly, we simplified our pricing structure to enable broadband only pricing flexible add ons.
And thirdly, we introduced value added services like ring, central which perfectly complement our lightning fast fiber broadband.
These added services create greater value for our customers increase <unk> and reduce churn.
And now we've structured our pricing ladder to incentivize customers to adopt higher gigabit plus speeds and the net result of these changes has been a 10% increase in acquisition often.
And this is a strong models that we've already begun to put in place in our consumer business too.
Now I want to take a moment to talk about our carbon footprint as these customers play a critical role in our transformation to a fiber company.
The best way to keep these customers happy and improve their lives is to bring fiber to their homes and businesses as quickly as possible.
We expect that by the end of 2025 fiber will be available in at least two thirds of our cup of footprint.
In the meantime, we are seeing churn this quarter, specifically, we saw an increase in copper churn for two main reasons.
The first one is a good trend we continue to see our copper customers migrate to fiber.
The second is actually bad weather.
Some of our markets were impacted by bad weather on the outages that come with it as Youll remember copper is negatively impacted by weather in a way that buyback is not.
Until we can bring fiber to a copper customers, we're focused on improving their experience we've invested in our customer care operation, we've improved customer communication with a more personalized approach we've added retention specialists to our call center operations and as a result.
<unk> is the copper churn will stabilize in the fourth quarter.
Finally, and with Great pleasure I would like to talk about the positive momentum we're seeing in our commercial businesses.
A few months ago, we welcome New World Class leadership to advance our fiber strategy for the benefit of our business customers and the early results are encouraging.
Across all three business units, we're seeing a sharp increase in order volume and a more favorable sales mix, which is leading to higher pricing.
As I said earlier SMB achieved a 10% increase in acquisition of <unk> and enterprise had record high bookings in the month of September .
And wholesale is making great progress on our fiber to the tower initiative.
And it really is excellent to see this momentum building in areas that were previously ignored by the old frontier.
We're confident we can achieve year over year revenue growth in our commercial businesses I look forward to sharing our progress with you over the coming quarters.
Now before I turn it over to Scott I want to take just a moment to recognize the incredible dedication and commitment of our people.
When Hurricanes hit, Florida, our employees kept our customers connected to our critical services and to each other despite the extraordinary challenges they faced personally.
To ensure we have a way to support our employees and their families. During this and any future natural disasters, we set up our very first employee relief fund the fund will provide financial assistance to employees, who have been impacted by natural disaster, just like Hurricane Ian.
We are building gigabit America, and I am so proud that we're taking good care of our customers and each other as we do it so scott over to you.
Thank you Nick and good morning, everyone.
Let's start with a look at our third quarter financial results revenue was $144 billion a.
A decline of $15 million sequentially as higher fiber and subsidy revenue was more than offset by lower copper revenue.
We earned $120 million of net income and $508 million of adjusted EBITDA.
$276 million of our adjusted EBITDA came from fiber products.
This was down modestly year over year as revenue growth of 1% was more than offset by higher energy and growth related customer acquisition costs.
Additionally, we generated $284 million of net cash from operations in the quarter.
Bringing cash from operations in the first nine months of the year to 1.0 or $1 billion.
Our healthy cash flow demonstrates the underlying cash generation potential of our business and as a result of our increased focus on liquidity and working capital management.
Moving to slide 25, our revenue increased 1% both year over year and sequentially.
Our biggest growth engine consumer fiber broadband accelerated to 14% year over year revenue growth.
The bulk of our capital and management focus and our first 18 months has been allocated to our consumer fiber growth. So this mid teens growth rate is highly encouraging.
Additionally, our fiber revenue from business and wholesale grew sequentially as we started to transform these businesses and see the fruits of the repositioning that Nick discussed.
As expected copper revenue declined 9% year over year consistent with prior quarters as both consumer and business faced legacy product headwinds.
On slide 21 fiber EBITDA declined 1% year over year, our revenue growth was more than offset by higher energy and growth related customer acquisition costs.
Total EBITDA, excluding subsidies declined 3% year over year, which represents a material improvement versus the past five quarters.
Sequentially roughly half of our higher expenses in Q3 related to higher electricity costs, which we expected given higher electricity rates and usage during the summer months.
Additionally, we achieved roughly 22% higher gross adds in Q3 than Q2. So this accelerating growth led to higher customer acquisition costs.
We remain confident that we will hit our sustained EBITDA inflection during Q4 target that we have been working towards since our Investor Day last August .
Slide 22 shows our more than $3 3 billion of liquidity to fund the fiber build we.
We ended the third quarter with $2 6 billion of cash and short term investments and $767 million of available capacity on our revolver.
In addition to the strong liquidity, we also have ample balance sheet flexibility.
Our net leverage was three one times at the end of the quarter.
Approximately 84% of our debt is now at fixed rates and we do not have any significant maturities earlier than 2027.
Our capital structure and maturity timeline provide us with a clear runway to continue advancing our fiber build.
Moving on to fit for the future initiatives on slide 23, we've made rapid improvement streamlining our cost structure and as Nick shared we nearly achieved our initial target of $250 million of gross annualized cost savings more than one year ahead of plan.
We capture these cost savings earlier than expected and as we've dug deeper into our operations. The scope of the opportunity has increased we now see a runway to $400 million by the end of 2024, and we have raised our target.
Consistent with our strategy, we will continue to reinvest a portion of these savings into initiatives that accelerate topline growth, while a portion will flow directly into improved margins.
Turning to slide 24, we are well positioned in the current macroeconomic environment.
Talked about this on previous calls and I'll reiterate that our business is well insulated from a range of macroeconomic headwinds.
Connectivity services, we provide are critical for consumers and businesses to connect to the digital society.
Our consumer health metrics continued to trend favorably with bad debt expense and days sales outstanding better than one year ago.
Our cost structure, including our fiber build is well positioned to withstand inflation.
And finally, our capital structure is well positioned in a rising interest rate environment with 84% of our debt at fixed rates.
Turning to slide 25, we are reiterating the guidance that we provided last quarter.
We expect capital expenditures of $2 five to $2 6 billion.
Reflecting our accelerated build to one one to $1 2 million fiber locations. This year.
<unk> build cost per location of 900 to $1000 remains unchanged.
We also continue to expect EBITDA of 2.0 $5 to $2, one 5 billion.
We are on track to deliver a sustainable EBITDA inflection in the fourth quarter and year over year revenue and EBITDA growth in 2023.
I'll close by reiterating our investment thesis on slide 26.
First there is strong and growing demand for fiber driven by expanding household data consumption.
Second fiber is a superior product.
Fiber has symmetrical upload and download speeds that far exceed cables capability, a lower cost of ownership because of its passive technology and lower latency levels that enable uses like video conferencing and gaming.
Third we have a clear strategy and purpose, we have rallied around our purpose of building gigabit America as we build fiber, we're making it possible for everyone on our footprint to connect to reliable high speed broadband.
Fourth we have ample liquidity and a strong balance sheet, providing us with access to capital to fund our strategy.
Last I am proud to be part of an experienced leadership team that has consistently delivered on our commitments every single quarter.
Today's results Mark our eighth consecutive quarter of record fiber builds and our fifth consecutive quarter of record fiber net adds this team has executed extremely well in a challenging environment and we're all motivated to continue this operating momentum.
Now I'll turn the call back over to Spencer to open the line for questions.
Thanks, Scott operator, we're now ready for Q&A.
If you'd like to ask a question. Please dial star one on your telephone keypad now.
And our first question comes from Jonathan Chaplin of New Street, Jonathan. Please go ahead.
Thanks, guys. Two quick questions. If I may given that EBITDA is a little bit lower than consensus. This quarter. I'm wondering if you can give us a little bit more context for the inflection in EBITDA that you are.
Anticipating for next quarter.
For example, if we sort of back out the impact of the lost Caf II funding.
Will we see year over year growth in EBITDA in the fourth quarter.
Do we still have to wait for <unk> next year to really see.
See that magnitude of improvement and then I'm wondering if you can give us some comments just on the pricing environment generally and expectations for potentially for price increases next year I think we had from Verizon and AT&T.
They are expecting to take prices up for for their products broadly.
So a big increase in charter's pricing this year and I'm wondering how that sort of factors into your thoughts about <unk> growth for next year. Thank you.
Yeah.
Sure. Jonathan This is Scott let me take the first question and then I'll pass it to Nick for the second question. So in terms of our adjusted EBITDA. Let me give you a little more color in Q3, and then we'll talk about Q4 in a second so.
Excluding the one time tax refund highlighted Q2, our EBITDA was roughly $20 million lower.
In Q3 sequentially half of that was due to higher electricity costs as we had higher rates plus elevated usage during the summer months.
And then the other half was sequentially higher marketing and commissions.
I've said in the prepared remarks, we had 22% higher gross adds in Q3 and our cost per gross add was roughly flat, but that acceleration and total gross ads led to those higher commission costs.
Good expense growth related expense.
Even with those incremental electricity cost, which should persist a bit into Q4.
And higher gross cost, we expect to inflect EBITDA.
In Q4 from Q3, and then have a sustainable year over year EBITDA growth in 2023 versus 2022, we're not giving specific quarterly guidance.
But we do expect that inflection.
Expect that growth to persist into next year.
Yes.
As I've said, many times before frontier will be a rational pricing actor in this market.
But having said that along with almost every other business right now and we're seeing inflationary pressures.
Monterey and of course, we may be considered applicants to the pricing actions to compensate for that is just as I think we're seeing others do it but our goal is always to move.
Great range of products and services at competitive prices in order to make sure we can meet our financial and operational goals.
I get a little bit better.
I hope I think theres, an opportunity for us to build on cable positioning that we've now made public to really terminal ahead.
The kind of pricing practices.
So the industry does but we know customers right.
The way they price step up and other things, which I think are attractive to.
The customers want.
Tightening our competitive price position.
Hi.
Of course, I think we need to think about pricing actions to compensate.
We of course will.
Great. Thanks, guys.
Thanks, Jonathan Operator, we'll take the next question please.
Great maybe normal the next question comes from Greg Williams with Cowen. Your line is now open.
Great. Thanks for taking my questions first one just on access to capital that you guys have messaged in the past maybe tapping that market again in 2024, just wondering if theres any updates there to that timeline with rising costs that you just mentioned and rising interest rates, but it does sound like you have a great cost savings program, that's been accelerated and 84% of your debt.
And I'm just wondering if anything there has changed second.
Second question is just on cost per home passed yesterday, one of your peers.
Telco fiber appears took up their cost per home passed modestly on labor and some of equipment seeing if youre seeing any pressures there on the cost per home passed specifically again it sounds like you have a cost savings initiative, that's helping out but just wondering you hear your latest thoughts. Thanks.
Sure. Thanks, Greg This is Scott, let me take both of those questions.
First on funding I'd say, you're right when we completed our debt raise and Upsized. Our revolver in May we said that that should fund us until early to mid 2024, we're still confident in that time and then we have a number of options.
They're including additional debt non core real estate asset sales government subsidies and then the cost savings program that you mentioned that we just raised from 250 million to 400 million. So we're still confident on that.
And we'll share more as well.
Make decisions there.
And the second.
Part of your question cost per home passed we still are confident in our 900 to $1000 per location range and really three points. There. One I think we were fortunate to get a head start on most of the industry and lock up labor.
And materials are ahead of time, roughly 18 months ago, where we got a head start.
Second.
We've diversified the scale of our build in a number of states. So we've said we'll be building in 12 states by the end of this year and then 15 to 16 by Middle of next year and that gives us the flexibility to avoid any certain hotspots, where labor is particularly challenging.
And so we're confident there that will stay within the nine hundreds of thousands we are seeing moderate.
Inflation, there, but that was a bit of inflation was factored into the nine hundreds of thousand guidance that we gave about 18 months ago. So we're still confident that we'll hit that 900000 range.
Okay.
Got it thank you.
Thanks, Craig Our next question comes from Frank Louthan of.
Raymond James Shrinks. Your line is now open.
Great. Thank you how quickly do you get fiber that you build to market, meaning when you start building a market. How quickly are you able to start marketing and selling there and how much larger will your.
Available to market base be say six to 12 months from now from what it is now thanks.
Yes.
Yes, how quickly do we get to quantify that is something we work very very hard on since we started.
A year ago.
We've developed.
What I think is now a reasonably sophisticated playbook for taking fiber to new market.
In fact.
We plan to build into an area, we stopped free marketing.
I would even go in moving people up.
Is it a better product.
They have about it.
And informing them about how they are able to order five eyes rebuild it.
He then roll into town, we did avail pretty much in line with that we sell those at all.
So, but we want the market up we fulfill the market as we build.
Real time as we can.
Be working toward over the last year, but I think the playbook is now reasonably sophisticated that's something we can could you kind of are out and rebuild into new market.
Yes.
Hey, Frank It's John I'll take the second part of your question, which is regarding sort of the addressable opportunity I think is what youre getting at.
And I think the best way to look at that as simply too.
We view the speed with which we are accelerating our fiber build.
And so when we talk about doing $1, one to $1 2 million. This year remember our original target was $1 million.
For this year, so almost a 20% improvement over that number and accelerating its also important to note that the run rate. That's now embedded in our business is such that it portends, an even more significant build next year.
Why this matters as we've said throughout our time here.
Speed is a critical success factor and we recognize that the faster the better we build the network at the proper cost with the right discipline at the highest level of quality.
The more opportunity we have to expand the addressable markets that.
This is paying out it's one of the reasons when you look back at our gross add and net add performance third quarter 2022 versus third quarter 2021, Yes, we continue to sell into our legacy markets. That's an important.
Kpis for us, but look at the contribution that's coming from the new markets is really becoming incredibly volume. So you should expect that to continue we certainly do.
And we will look to drive that in the quarters to come.
Alright, great. Thank you.
Thanks, Brad operator, let's take our next question. Please.
Our next question comes from the line of Anthony <unk> City.
Please go ahead.
Great. Thank you for taking my questions.
On the business segment are you noticing any potential elongation in the sales cycle with some of your business customers and then on the SMB side. What are the key factors of success. There giggling cable is well entrenched in any of the heightened focus on the big three national carriers.
And then lastly, just on leverage as we kind of enter the inflection.
EBITDA for Q and a 23 of your views on your leverage targets at all.
In the mid threes. Thank you.
Yeah, Nick let me take the first couple of those and how does the scope of the leverage question.
Elongation of sales cycles.
Well the way, we think about the commercial segment for us probably just need to sort of build on that question.
The first thing to understand.
And that our presence in that market, but we are not.
The market.
Any kind of metrics you see about wider market trends and so on.
They apply to us because that was.
Commercial limited.
The market. So we have a small market share from which to build.
The second point I think it.
Is that our commercial customer base does not have the same profile as the commercial customer bases.
Largest commercial player.
Typically a large commercial customer would be.
As a medium sized commercial deposit.
Let me go a smaller cups.
Customer.
<unk> market share.
Firstly, the commercial segment.
We open with you.
Ignored by previous rounds of frontier management, and therefore, it's a great opportunity for us.
Back on its feet and really get out and attack the market.
Okay.
Location on the planet.
No.
Why because we're bringing products that these customers really need fiber fiber product.
On the market.
We have new management focus execution.
New product innovation and pricing innovation and channel management kind of deliberate execution actually I'm very optimistic about the early well results we're seeing that.
And to your point.
Hey.
Many similar points in SMB, there was really no focus on F&B.
Paul.
Fairly significantly increased marketing.
Channel activities.
Frankly.
Many F&B businesses.
But simply not gone back and done.
But the obvious.
And those customers.
And I think market our refining.
Market.
Increasingly sophisticated refinish told us market.
Scaling our channel.
Great.
Im really pleased with the result of things like that.
But I think there's more to come.
Yes sure. Thanks Anthony.
The leverage question coming out of bankruptcy in 2021, we said the mid threes was the appropriate leverage target, but we did say that the target may move higher as we pass more locations with fiber as we hit our penetration targets as we improve the quality of our EBITDA with higher fiber percentage and then eventually once we began.
Growing our revenue and EBITDA again, so I think we are on track to do all of those things and we may decide that higher leverages appropriate for a period of time, while we finished the build and then eventually coming back down to the mid <unk>.
Got it thank you.
Thanks, Anthony Operator, we'll take our next question please.
Our next question is from the line of Simon Flannery of Morgan Stanley Simon. Please go ahead.
Thank you very much good morning, you talked a little bit about copper churn could you talk about fiber churn a bit and what your expectations are for Q4 and beyond given a little bit of a tick up sequentially and year over year and relating to that is the competitive environment any update we obviously see a lot of these bundled offers now from the cable companies with wireless from the.
The wireless companies.
You're bringing in SWA. So how are you thinking about potentially looking at an <unk> or something like that too.
Get some of those customers that are interested in those bundles.
Sure Simon This is Scott, let me take the first one and pass the mic on fiber.
Just to pick up a tiny bit I think it was four basis points year over year, but.
Most of that was in voluntary such kind of returned to normal levels fiber churn. It was right in line with our expectations, maybe even a little below our expectations. So we feel like we're not losing customers to competitive options would be like fiber churn is very healthy right now.
Yeah, Thanks, Bob because I think we said before.
Fundamentally a different proposition.
Cool.
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The underlying question on that.
Economics as data volumes globally.
Hi, Greg so flashes in the past, but if you have the chance to sell let's say end customers find us almost.
Better.
Economics.
Probably less.
And a better customer experience as data I believe is growth.
We of course are looking at SWM.
We have seen since the start.
But we've also got a fantastic return on capital.
Alright.
While we see our churn rates still being.
Relatively low.
We see our growth rate is still coming through at a very healthy way.
Arguments.
Some of that capital.
Into an NDA.
Yes.
I think we're probably not many common shareholders.
Having said that we might have experienced in Vodafone Joe in your spirit and Verizon Veronica.
And AT&T.
Hi, Brian .
Telecom and I have many many many others across the team we do have deep experience in running managing wireless network, we understand the economics of that really well.
<unk> really well.
Some of US myself included a setup.
I mean, it's practically how we would do that so we're watching it very closely and if consumer behavior changes.
The market changes and immaterial weighted impact.
That using some of that capital to build or partner with an entity that would be a smart thing to do and will do it very quickly.
Quickly, but now is at the moment.
Great. Thanks, a lot.
Thanks, Shannon operator, we'll take the next question please.
Great. All final questions today comes from Nick del Deo of Moffett Nathanson Nick. Please go ahead.
Hey, thanks for taking the questions.
First I want to follow up on Simon's question about fiber churn.
Which you attributed the higher involuntary churn can you talk a little bit about your screening processes at the time customer intake and how you're ensuring that you are not acquiring customers with a high propensity to churn down the road.
Sure. Nick This is Scott, yes, we have a very solid screening mechanism upfront I think its working well. So in addition to the screening mechanism, we're giving customers an incentive to get on the Autopay and a combination of those two things has led us to record low bad debt expense in the quarter record low days.
<unk> outstanding So I really don't have any concerns about the quality of our customer base and we're seeing customers pay on time for whats the critical service for them.
Okay. Okay. Good to hear and then also.
And obviously fiber broadband <unk> noted was a little pressured because of the way you account for gift cards and some of the promotions there.
I think you had previously suggested that fiber broadband <unk> growth should kind of be back to a more normal 3% range exiting the year as you kind of lap some of the initial impacts of that.
Is it fair to say that our <unk> growth maybe come in below that target given recent trends.
And I guess more generally are your are your subscriber acquisition costs.
Come in and consistent with plan or are those unit costs changing.
Sure. Let me answer the second verse subscriber acquisition costs are right in line with our plans.
We did have a sequential increase in total marketing and commissions, but that was really growth driven based on that 22% higher gross adds that we had.
In Q3 versus Q2, so we're looking to always be as efficient as possible, but that's right in line with our plan.
In terms of fiber at too.
Youre right so.
<unk> had two.
Kind of headwinds related to programs that we put in place in the second half of last year first the Autopay discount second was the promotional gift cards. Both of those had been effective I just talked about the quality of our.
Bad debt expense related to auto pay and then the gift cards have helped us compete effectively in the market.
So without those two programs, we'd be at roughly 4% year over year growth with those.
Our flat sequentially I think once we lap the impact of those.
<unk> put in place a number of the card.
Pricing ladder changes that Nick talked through we'll be back on track for 3% to 4%.
Long term growth in ARPA and Scott if I can.
Past that with all of that is a reflection of that.
From that kind of day to day.
But we have to go after this call.
Wanted advocacy business, which is still in it.
<unk>.
Let's just be very transparent about that with you.
There's still a long way to go.
I think about it.
Hi, good morning.
On the pricing.
It was really about make us competitive.
In some cases aligning to anything on anybody.
Any buyback getting us back in the day, taking the fight the competition with.
Makes sense.
Really pleased with I think.
With that.
I think as soon as we brought in some really great players from across the industry and indeed across the world.
Without beginning to see innovation coming through.
Oh.
And then pricing specifically.
We recently came in.
Consumer segment.
I'd say it was put into the market very quickly and very aggressively.
The new pricing structures, which I think is extremely interesting because we've taken stuff that we used to bundle and give away for free.
Unfunded.
And to price for the stuff that we gave away.
All of this stuff is.
Kind of a capability.
We previously gave.
But what's been amazing is.
The adoption rate.
I've actually gone up.
And that means more customers willing to pay more money.
We used to previously found when you give away a free one.
For example, we've seen acquisition often.
SMB segment go up by 10%.
Which is phenomenal.
Of course.
To be clear that we can replicate that.
But relative.
The relevance of that we've announced.
My market.
Innovate experiment and.
And see how we can start off.
Okay.
Market.
And demonstrate to customers that we have.
On cable company.
Yes, maybe if I can just echo one last point here and its something that makes that earlier in the in the prepared remarks.
When you look back in and ask the question.
About what's possible here.
One of the.
Critical.
Data points that Nick pointed out earlier is the fact that our embedded base looks different than the new subscribers were bringing up the <unk>.
Best Barometer.
From a health and our company's competitive posture.
Is the value that is described as a new sale and if you look at the mix of gigabit plus.
Activations in broadband for new customers.
<unk> higher than our embedded base and as we think about new customer sort of reflect current market needs and requirements.
Our job now will be to migrate the embedded base to look more like what we're bringing in new that is probably our single greatest engine for us for growth as we go forward here on the consumer side, particularly so hopefully as we go forward, we'll be able to demonstrate that.
Quarterly results within the full year.
Okay, great. Thank you.
Yes.
Thanks, Nick.
Concludes our third quarter 2022 earnings call. Thank you all for joining us.
Okay.
Yeah.
This concludes today's call. Thank you for joining and you may now disconnect your lines.
Okay.
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