Q2 2023 Frontier Communications Parent Inc Earnings Call
Good morning.
Speaker 1: Good morning. Thank you for attending today's Frontier Communications second quarter 2023 earnings call. My name is Megan and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to Spencer Kern, Senior Vice President Investor Relations at Frontier Communications.
Thank you for attending today's of Frontier Communications second quarter 2023 earnings call. My name is Megan and I'll be your moderator for today's call.
All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end I would now like to pass the conference over to Spencer Kurn, Senior Vice President Investor Relations at Frontier Communications.
Good morning, and welcome to Frontier Communications second quarter 2023 earnings call.
Speaker 2: Good morning and welcome to Frontier Communications second quarter 2023 earnings call. This is Spencer Kern, Frontier's Head of Investor Relations.
This is Spencer kurn frontiers head of Investor Relations joining.
Speaker 2: Joining me on the call today are Nick Jeffery, our President and Chief Executive Officer, and Scott Beasley, our Chief Financial Officer.
Joining me on the call today are Nick Jeffery, our President and Chief Executive Officer, and 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.
Speaker 2: Today's presentation can be followed within the webcast available in the events and presentation section of our Investor Relations website.
Speaker 2: Before we start, please see our Safe Harbor disclaimer on slide 2.
Before we start please see our safe Harbor disclaimer on slide two.
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.
Speaker 2: 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.
Speaker 2: During the call, we may also refer to certain non-GAAP financial measures which are defined and reconciled in our earnings presentation, press release, and trending schedule.
During the call. We may also refer to certain non-GAAP financial measures, which are defined and reconciled in our earnings presentation press release and trending schedule.
Speaker 2: With that, I'll turn the call over to our president and chief executive officer, Nick Jeffrey. Thanks, Benza.
With that I'll turn the call over to our President and Chief Executive Officer, Nick Jeffrey.
Spencer and good morning, everybody.
As you saw in our press release, we delivered another quarter of strong operational results.
Speaker 3: As you saw in our press release, we delivered another quarter of strong operational results.
Speaker 3: Before we dive into the quarter, let's briefly step back and take a look at our market dynamic.
Before we dive into the quarter, let's briefly step back and take a look at our market dynamics.
Speaker 3: On slide four, you'll see that we operate in an attractive industry, which is underpinned by explosive growth in data usage, and an influx of government funding that recognizes the critical need for reliable, high-speed broadband connectivity.
On slide four you'll see that we operate in an attractive industry, which is underpinned by explosive growth in data usage and an influx of government funding that recognizes the critical need for reliable high speed broadband connectivity.
Speaker 3: Fibre as a technology is best positioned to meet this demand with faster symmetrical speeds and lower latency than either cable or wireless alternatives.
Fiber is the technology is best positioned to meet this demand with Boston symmetrical speeds and lower latency than either cable or wireless alternatives.
Speaker 3: There are four factors that differentiate Frontier from other fibre broadband companies.
There are four factors that differentiate frontier from other fiber broadband companies.
Speaker 3: Firstly, our scale gives us a significant advantage on the speed and cost of our fiber bill.
Firstly, our scale gives us a significant advantage on the speed and cost of our fiber build.
Secondly, an 18, 5% at the markets, where we operate we have one or zero competitors, who are capable of competing with frontier and delivering gigabit speeds.
Speaker 3: Secondly, in 85% of the markets where we operate, we have one or zero competitors who are capable of competing with Frontier in delivering gigabit speed.
Thirdly, our business generates healthy operating cash flow that we carefully reinvest back into our high return buyback expansion.
Speaker 3: Thirdly, our business generates healthy operating cash flow that we carefully reinvest back into our high-return fiber expense.
And fourthly, we have what I believe is the best team in the business.
Speaker 3: And fourthly, we have what I believe is the best team in the business.
Speaker 3: experienced, disciplined and full of great. They are the driving force of our results, quarter after quarter.
Experienced disciplined and full of great. They are the driving force of our results quarter after quarter.
Our investment thesis is simple.
Speaker 3: Build fiber infrastructure to deliver the best broadband product available and capture a minimum of 45% penetration in our fiber markets, which is approximately five times our copper penetration today.
Fiber infrastructure to deliver the best broadband product available and capture a minimum of 45% penetration in our fiber markets, which is approximately five times a couple of penetration today.
Speaker 3: Over the course of the last two years, we've executed well against our strategy and the team delivered again this course.
Over the course of the last two years, we've executed well against our strategy and the team delivered again this quarter.
Speaker 3: Now let's turn to slide five to review the highlights of our second course.
Now, let's turn to slide five to review the highlights of our second quarter.
Our fiber build remains on track halfway through the year, we are well on our way to achieving our target of $1 3 million fiber locations built.
Speaker 3: Our fiber build remains on track. Halfway through the year, we are well on our way to achieving our target of 1.3 million fiber locations built. We've had another
We've had another strong quarter selling fiber.
Speaker 3: We added 66,5 of broadband customers in the quarter and that's up 22% versus Q2 of last year.
66000 fiber broadband customers in the quarter, and that's up 22% versus Q2 of last year.
And the changes we've made to bring our <unk> in line with the market are working on.
Speaker 3: And the changes we've made to bring our arpu in line with the market are working.
Speaker 3: APU is up 3% sequentially and I expect it will trend upwards from here.
<unk> is up 3% sequentially and I expect it will trend upwards from here.
Speaker 3: While we're pleased with the performance in our consumer business, the star of the quarter was our business and wholesale
While we're pleased with the performance in our consumer business. The star of the quarter was our business and wholesale segment.
Speaker 3: Business and wholesale revenue broke through to positive territory for the first time in six years.
Business and wholesale revenue broke through to positive territory for the first time in six years.
Speaker 3: That's even more profound against the backdrop of our telecom peers who continue to report mid to high single digit revenue declines in this thing.
That's even more profound against the backdrop of our telecom peers, who continued to report mid to high single digit revenue declines in this segment.
When we started 2023, we described it at the year that we would return to growth on both our top and bottom lines.
Speaker 3: When we started 2023, we described it as the year that we would return to growth on both our top and bottom line.
Speaker 3: And I'm pleased to share that the team's strong operational performance has powered our company to positive year-over-year EBITDA growth through the first half of the year.
And I'm pleased to share that the team's strong operational performance has powered our company to positive year over year EBITDA growth through the first half of the year.
And while we haven't turned positive on the top line just yet we are showing positive revenue growth outside of our low margin video business.
Speaker 3: And while we haven't turned positive on the top line just yet, we are showing positive revenue growth outside of our low margin video business.
Lastly, I want to highlight our recent fiber securitization transaction, which priced $2 $1 billion of committed capital that we will use to continue to fund our fiber expansion.
Speaker 3: Lastly, I want to highlight our recent five-esticuritization transaction, which priced $2.1 billion of committed capital that we will use to continue to fund our price for the stamp migration.
The securitization market is exclusively reserved for high quality businesses with stable and predictable cash flows that support attractive valuation.
Speaker 3: The securitization market is exclusively reserved for high quality businesses with stable and predictable cash flows that support attractive valuation.
We're incredibly proud to be the first publicly traded company in the U S to secure funding for fiber to the home infrastructure and Scott will talk more about this later in the call.
Speaker 3: We're incredibly proud to be the first publicly traded company in the US to secure funding for Fibre to the Home Infrastructure and Scott will talk more about this later in the call.
If you turn to the next slide you'll see that our fiber customer growth in fiber net adds are both trending in the right direction.
Speaker 3: If you turn to the next slide, you'll see that our 5A customer growth and 5A Net ads are both trending in the right direction.
What's even more impressive is that we grew our customer base, while making disciplined changes to our pricing and packaging.
Speaker 3: What's even more impressive is that we grew our customer base while making discipline changes to our pricing impacts.
Speaker 3: We reduced our use of gift cards, adjusted our prices to market, unbundled value-added services, and incentivized customers to choose GIG Plus speeds.fieldtime length to manage and manage demand in any book
We reduced our use of gift cards.
<unk> prices the market on bundled value added services and incentivize customers to choose gig plus speeds.
These changes delivered measurable results.
Speaker 3: In the second quarter, more than half of our new customers chose Gig plus speed. One third of our new customers took one or more value added service.
In the second quarter more than half of our new customers chose gig plus speeds one third of our new customers took one or more value added service.
Speaker 3: A new customer intake arpu climbed into the $70 range.
New customer intake off who climbed into the $70 range.
We then spent the first two months of the quarter refocusing, our sales force and optimizing our channels and I'm thrilled to report that June was our second best sales month to date.
Speaker 3: We then spent the first two months of the quarter refocusing our sales force and optimizing our channels. And I'm thrilled to report that June was our second best sales month to date.
On the next slide there's more detail on how we delivered our best quarter in business and wholesale in six years.
Speaker 3: On the next slide, there's more detail on how we delivered our best quarter in business and wholesale in six years.
Speaker 3: For the second quarter in a row, SMB and Enterprise had double digit by the revenue growth.
For the second quarter in a row, F&B and enterprise had double digit fiber revenue growth.
Speaker 3: and our wholesale business had a standout quarter, driving revenue growth for the segment overall.
In our wholesale business had a standout quarter driving revenue growth for the segment overall.
Now two years ago, we began to overhaul our wholesale operations, we brought our pricing in line with the market signed a strategic agreement with our largest customer and shifted our business towards growth areas like fiber to the tower and edge data centers.
Speaker 3: Now two years ago we began to overhaul our wholesale operations. We brought our pricing in line with the market, signed a strategic agreement with our largest customer and shifted our business towards growth areas like Fibres of the Tower and Edge Data Center.
The strong bookings that we've talked about for the past year and now successfully converting into revenue growth.
Speaker 3: The strong booking that we've talked about for the past year and how successfully converting into revenue growth. And it's encouraging to see our transformation from a legacy copper business into a fiber-based digital infrastructure business.
It's encouraging to see our transformation from a legacy copper business into a fiber based digital infrastructure business.
That covers the highlights from the quarter now lets talk about the value of our fiber build grades and a path to realizing that value.
Speaker 3: That covers the highlights from the quarter. Now let's talk about the value of fibre build creates and our path to realising that value.
Please turn to slide eight.
Speaker 3: As we've shared, our plan is to pass at least 10 million locations with fiber, and to do so at very attractive IRRs in the mid to high T.
As we've shared our plan is to par at least 10 million locations with fiber and to do so at very attractive IRR in the mid to high teens.
Speaker 3: At the end of the second quarter, we are more than halfway there with over 6 million fiber locations and the IRRs remain just as attractive as we initially thought.
At the end of the second quarter, we are more than halfway there with over 6 million fiber locations on the IOL. All remained just as attractive as we initially thought.
Speaker 3: Assuming the macro climate and capital markets remain stable, we're confident in our plan to pass at least 1.3 million new fiber locations annually and complete our committed build to 10 million locations.
Assuming the macro climate in capital markets remains stable, we're confident in our plan to pay off at least 1.3 million new fiber locations annually.
And complete our committed build to 10 million locations.
Speaker 3: And while we see a clear path to 10 million fiber locations, our ambitions go far beyond that.
While we see a clear path to 10 million fiber locations, our ambitions go far beyond that we.
We plan to be active participants in government programs like bead and to pursue additional opportunities.
Speaker 3: We plan to be active participants in government programs like BED and to pursue additional opportunities both in and out of our footprints.
And out of our footprint.
We know that as we build fiber, we build value and it's all going to build as much value as possible for the benefit of all stakeholders.
Speaker 3: We know that as we build fiber, we build value. And it's our goal to build as much value as possible for the benefit of all our stakeholders.
Speaker 3: Now before I turn it over to Scott, I want to pause for a moment to review our performance against our stress.
Now before I turn it over to Scott I want to pause for a moment to review our performance against our strategy.
Speaker 3: You can see on slide 9 that our transformation is now fully in flight.
You can see on slide nine that our transformation is now fully in flight.
Speaker 3: We've expanded our fiber footprint by 80% and increased our customer base by 40% since we started this journey.
We've expanded our fiber footprint by 80% and increased our customer base by 40% since we started this journey.
Speaker 3: all while improving the way we serve our customers and doubling our initial cost savings goal.
Ooh, while improving the way, we serve our customers and doubling our initial cost savings goal.
It's a high performing frontline and operational team that are driving these transformation of results and I want to thank them for delivering yet another strong quarter.
Speaker 3: It's our high performing front line and operational team that are driving these transformation results. And I want to thank them for delivering yet another strong course.
Speaker 3: We all have an important role to play in building Gigabit America. And I really, really appreciate the hard work it takes to turn a business like this around. So thank you all.
We all have an important role to play in building Gigabit America and I really really appreciate the hard work. It takes to turn a business like this around so thank you all.
Speaker 3: Lastly, I'd like to address the recent Wall Street Journal Art School's on-led Sheets cable.
Lastly, I'd like to address the recent Wall Street Journal articles on lead sheets cables.
Speaker 3: First and foremost, we deeply care about the health and safety of our people, customers and the communities we serve.
First and foremost we deeply care about the health and safety of our people customers and the communities we serve.
Speaker 3: Our policy has always been to comply with all environmental and occupational safety regulations and we have no reason to believe that lead in frontier cable has called any health or environmental harm.
Our policy has always been to comply with all environmental and occupational safety regulations, and we have no reason to believe that led in frontier cable has cooled any health or environmental harm.
Speaker 3: Based on our own internal evaluation, we wanted to provide an update on our initial assessment.
Based on our own internal evaluation, we wanted to provide an update on our initial assessment.
Speaker 3: And while these results are still preliminary, based on our analysis, we estimate that lead cloud cables represent a single digit percentage of our roughly 685,000 total miles of metallic cabling in our network.
And while these results are still preliminary based on our analysis, we estimate that led pad cables represent a single digit percentage of our roughly 685000 total miles of metallic cabling in our network.
Speaker 3: and we will not be able to provide any additional detail on this topic during the call. So Scott, now over to you. Thank you Nick, and good morning everyone. I'll start with the financial highlights of our second quarter. Revenue was $1.45 billion, which was up sequentially as growth in data and internet services offset declines in voice and video.
We will not be able to provide any additional detail on this topic during the call.
So Scott now over to you. Thank you Nick and good morning, everyone I'll start with the financial highlights of our second quarter.
Revenue was $1 $45 billion, which was up sequentially as growth in data and Internet services offset declines in voice and video.
Speaker 4: We had a net loss of $2 million of net income, while we earned $533 million of adjusted EBITDA.
We had a net loss of $2 million of net income, while we earned $533 million of adjusted EBITDA.
Speaker 4: $323 million of our adjusted EBITDA came from fiber products. This was up more than 10% year over year as we combined strong revenue growth with significant costs redu-
$323 million of our adjusted EBITDA came from fiber products. This was up more than 10% year over year as we combine strong revenue growth with significant cost reductions. We were pleased to break through to EBITDA growth in the first half of the year a major milestone for frontier.
Speaker 4: We were pleased to break through to EBITDA growth in the first half of the year. A major milestone for front-
Speaker 4: Additionally, we generated $276 million of net cash from operations, bringing our cash from operations to $1.3 billion over the trailing 12 million.
Additionally, we generated $276 million of net cash from operations, bringing our cash from operations to $1 $3 billion over the trailing 12 months, our healthy cash flow before capex demonstrates the underlying cash generation profile of our business.
Speaker 4: Our healthy cash flow before CapEx demonstrates the underlying cash generation profile of our business.
Slide 12 shows the strength of our fiber customer growth across base and expansion markets.
Speaker 4: Slide 12 shows the strength of our fiber customer growth across base and expansion markets.
As Nick highlighted our broadband customer base grew 19% over the last 12 months.
Speaker 4: As Nick highlighted, our broadband customer base grew 19% over the last 12 months.
Speaker 4: In our base fiber footprint of 3.2 million locations, our penetration increased 80 basis points year over year to 43.4%.
In our base fiber footprint of $3 2 million locations, our penetration increased 80 basis points year over year to 43, 4%.
Speaker 4: Although it dips sequentially due to seasonality in our footprint, we are ahead of where we expected to be at the end of the first half of the year. And our first half gains put us on track to achieve our target penetration rate of at least 45% in the next two to three years.
Although it dip sequentially due to seasonality in our footprint. We are ahead of where we expect it to be at the end of the first half of the year and our first half gains put us on track to achieve our target penetration rate of at least 45% in the next two to three years.
Speaker 4: In our expansion markets, the first half of 2022 was a large cohort of roughly half a million locations.
In our expansion markets. The first half of 2022 with a large cohort of roughly half a million locations. Its 12 month penetration of 19%, which is at the high end of our target range highlights our team's ability to rapidly win new customers with a superior product and are constantly.
Speaker 4: A 12-month penetration of 19%, which is at the high end of our target range, highlights our team's ability to rapidly win new customers with a superior product and a constantly improving suite of value-added services.
Proving suite of value added services.
Speaker 4: Our 2021 cohort was penetrated at 24% at two years, slightly below our target range.
Our 2021 cohort was penetrated at 24% at two years slightly below our target range as we have shared on previous calls. This first half cohort of 261000 locations has consistently lagged other cohorts given that it was built prior to our integrated build and execution that we started in may.
Speaker 4: As we have shared on previous calls, this first half cohort of 261,000 locations has consistently lagged other cohorts, given that it was built prior to our integrated build and execution that we started in mid-2021.
Mid 2021.
Speaker 4: As the additional 2021 locations reach 24 months in the second half of this year, we expect the overall penetration rate to rise into our target range.
Is the additional 2021 locations reached 24 months in the second half of this year, we expect the overall penetration rate to rise into our target range.
Moving to slide 13 fiber revenue accelerated to 9% year over year growth driven by healthy consumer and business performance.
Speaker 4: Moving to slide 13, fiber revenue accelerated to 9% year-over-year growth, driven by healthy consumer and business performers.
Speaker 4: Consumer fiber broadband accelerated to 18% growth, driving overall consumer fiber revenue to 10%.
Tumor fiber broadband accelerated to 18% growth driving overall consumer fiber revenue to 10% growth.
Speaker 4: Business and wholesale fiber accelerated to 8%.
Business and wholesale fiber accelerated to 8% growth.
Speaker 4: Copper revenue declined in the quarter, consistent with prior quarter.
Copper revenue declined in the quarter consistent with prior quarters.
Turning to slide 14, we grew our adjusted EBITDA through the first half of the year compared to 2022.
Speaker 4: Turning to slide 14, we grew our adjusted EBITDA through the first half of the year compared to 2022.
Speaker 4: Second quarter of Justin Yvada was roughly flat year over year. But the second quarter of 2022 included at one time $8 million tax benefit.
Second quarter, adjusted EBITDA was roughly flat year over year, but the second quarter of 2022 included a one time $8 million tax benefit or.
Our EBITDA growth is primarily a function of two factors rapid fiber revenue growth and effective cost reduction.
Speaker 4: Our EBITDA growth is primarily a function of two factors, rapid fiber revenue growth and effective cost reduction.
Speaker 4: As we move into the second half of the year, we expect these two factors to accelerate EBIT into the mid single digit range.
As we move into the second half of the year. We expect these two factors to accelerate EBITDA growth into the mid single digit range.
Speaker 4: Turning to capital expenditures on slide 15, we are on track to meet our guidance of four-year CAPEX in the 3.0 to 3.2 billion dollar range.
Turning to capital expenditures on Slide 15, we are on track to meet our guidance of full year, Capex and a 3.0 to $3 $2 billion range.
Capex will decline significantly in the second half as we consume pre work reduce working capital and benefit from a lower cost build mix.
Speaker 4: CapEx will decline significantly in the second half. As we consume pre-work, reduce working capital, and benefit from a lower cost build mix.
Speaker 4: We also remain confident that CAPEX will decline in 2024 versus this year's current.
We also remain confident that Capex will decline in 2024 versus this year's current range.
On the next slide will discuss the transformational nature of our recently priced fiber securitization transaction.
Speaker 4: On the next slide, we'll discuss the transformational nature of our recently priced fiber-secure designation transaction. The transaction provides a path to fully fund our fiber bill.
The transaction provides a path to fully fund our fiber build.
We securitized approximately 600000 and fiber locations in our Dallas markets with roughly 80% of net cash flow rated at investment grade level, we priced a total of $2 1 billion of committed capital from this transaction.
Speaker 4: We secured ties to approximately 600,000 fiber locations in our Dallas markets, with roughly 80% of net cash flow rated at an investment grade level. We priced a total of $2.1 billion of committed capital from this transaction.
Speaker 4: I'll make three key points on the importance of the fiber security date.
I'll make three key points on the importance of the fiber securitization.
Speaker 4: First, it provides a clear path to fully fund our fiber bill.
It provides a clear path to fully fund our fiber build.
Speaker 4: Second, it attracted a new pool of investment grade long-term investors into our capital structure.
Second it attracted a new pool of investment grade long term investors into our capital structure.
Speaker 4: This new investment class should reduce our cost of capital over time, similar to the way that other digital infrastructure asset classes like data centers and towers have benefited from the stability of their cash flow.
This new investment class should reduce our cost of capital over time similar to the way that other digital infrastructure asset classes like data centers and towers had benefited from the stability of their cash flows.
Speaker 4: We can continue to access this investment-grade pool of investors as part of our strategy to migrate to a more diversified capital structure with a lower total cost of capital.
We can continue to access this investment grade pool of investors as part of our strategy to migrate to a more diversified capital structure with a lower total cost of capital.
Speaker 4: We expect our long-term capital structure to include both securitization and traditional debt.
We expect our long term capital structure to include both securitization and traditional debt.
Finally, the transaction highlights the value of mature fiber assets, we raised debt at roughly 3000 and $400 per passing.
Speaker 4: Finally, the transaction highlights the value of mature fiber F.
Speaker 4: We raised debt at roughly $3,400 per passing, highlighting the value of the stability and resilience of cash flows from fiber passings.
Lighting the value of the stability and resilience of cash flows from fiber passing.
We'll now turn to liquidity on slide 17. These.
Speaker 4: These numbers are as of the end of June and do not reflect the recently priced fiber securitization. At the end of the second quarter, we had approximately 1.9 billion dollars of liquidity, to which we will have the proceeds of the securitization.
These numbers are as of the end of June and do not reflect the recently priced fiber securitization.
At the end of the second quarter, we had approximately $1 $9 billion of liquidity to which we will add the proceeds of the securitization.
Speaker 4: In addition to the strong liquidity, our balance sheet remains healthy. Approximately 85% of our debt is at fixed rates, and we do not have any significant maturitys earlier than 2027.
In addition to the strong liquidity our balance sheet remains healthy approximately 85% of our debt is at fixed rates and we do not have any significant maturities earlier in 2027.
You can see on slide 18 that our 2023 guidance remains unchanged.
Speaker 4: You can see on slide 18 that our 2023 guidance remains unchanged.
Speaker 4: We continue to expect adjusted EBITDA in the 2.11 to 2.16 billion dollar range.
We continue to expect adjusted EBITDA in the $2, one $1 billion to $2.16 billion range.
Speaker 4: We continue to expect to pass 1.3 million additional locations with fiber in 2023, and expect cash capital expenditures of approximately $3.0 to $3.2 billion.
We continue to expect to pass $1 3 million additional locations with fiber in 2023, and expect cash capital expenditures of approximately 3.0 to $3 $2 billion.
With that I'll close by thanking our team for another quarter of strong operational results I'm personally proud of the work that our team is doing to build gigabit America and connect millions of consumers and businesses to the digital economy.
Speaker 4: With that, I'll close by thanking our team for another quarter of strong operational results. I'm personally proud of the work that our team is doing to build Gigabit America and connect millions of consumers and businesses to the digital economy. I'll now turn the call back over to Spencer to open the line for questions.
Now I'll turn the call back over to Spencer to open the line for questions.
Speaker 2: Thanks Scott, operator, let's open up the lines for Q&A.
Thanks, Scott operator, let's open up the lines for Q&A.
Absolutely.
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If you would like to ask a question. Please press star followed by one on your telephone keypad.
If for any reason you would like to remove that question. Please press star felt they too.
Again to ask a question press Star one and as a reminder, if you're using a speaker phone. Please remember to pick up your handset before asking your question. In addition, we kindly request that you ask one question only we will pause here briefly as questions are registered.
Speaker 1: Our first question comes from the line of Greg Williams with TD Cowan. Your line is at open.
Our first question comes from the line of Greg Williams with TD Cowen. Your line is now open.
Speaker 5: Great, thanks for taking my questions. Just congrats on a good quarter and the ABS race.
Great. Thanks for taking my questions.
Congrats on a good quarter in the ABS Freights I D.
Speaker 5: And I see in 2016, you noted in your Shippard Marks as well, 3380 per home that you can raise. But I'm going to shed some light on other metrics with loan value or LTV for the implied value for a home that we're trying to get to. I mean, it seems like the debt markets are valueing these homes a lot higher than the accurate markets are. And then just second question is.
This is a game changer here and I see in Slide 16, you noted in your script remarks about $33 80 per home that you can raise but I was wondering you shed some light on other metrics of loan to value.
Our LTV for the implied value for a home that we're trying to get to I mean, it seems like the debt markets are valuing these homes a lot higher than the aggregate markets.
And then just second question is.
If I look at the math on slide 16 correctly, you can get over $8 billion.
Speaker 5: If I look at the math on slide 16 correctly, you can get over $8 billion in capacity from ABS raises. What would be your capital priorities? Would you accelerate the builds, refile your debt stack or go and fund Waze 3?
Pasadena from Avs races.
Would be your capital priorities would you accelerate the builds refi your debt stack or go and fund wave III. Thanks.
Yeah sure Greg This is Scott.
Speaker 4: Yeah, sure Greg, this is Scott. Let me take those in sequence. So on LTV, we're still in the middle of the transaction. It's price but not closed. So I need to limit my remarks. But we think it's a very attractive LTV for our investors. If you look at multiples in the pure play, fiber space, those multiples are typically in the teens to 20 times range. A line longpark.
Let me take those in sequence so on LTV, we're still in the middle of the transaction, it's price, but not closed so I need to limit my remarks, but we think it's a it's a very attractive LTV for our investors. If you look at multiples in the pure play fiber space.
Multiples are typically in the <unk>.
Teens to 2020 times range and so at.
Speaker 4: given that we raised $2.1 billion that would assume a conservative LTV that makes your debt investors are well compensated. On the total, and I will highlight your
Given that we raised $2 $1 billion that would assume a conservative LTV that make sure that investors are well compensated.
On the on the total and I will highlight you. Your your reiteration that we showed $3380 per passing.
Speaker 4: your reiteration that we showed $3,380 per path.
Speaker 4: Again, we've always said that the market doesn't quite understand the value of mature fibers, stable cash flows, resilient cash flows. And I think this is a good marker to show that this new pool of investment, great investors values the stability of mature fiber cash flows. So that's point one on...
And we've we've we've always said that the market doesn't quite understand the value of mature fiber. It's stable cash flows resilient cash flows and I think this is a good marker to show that this new pool of investment grade investors values the stability of mature fiber cash flows. So so that's 0.1 on valuation.
On to on our priorities I think I think you hit all of them. I mean are our priorities include if we're able to accelerate the build and Nick I said before $1 $3 million is kind of a sweet spot now balancing build plus sales plus installation, but if we're able to add capacity to our machine and go faster we now have.
Speaker 4: on on two on our priorities i think i think you hit all of them i mean our our priorities include accelerate the build and and nika said before one point three million is kind of the sweet spot now balancing build plus sales plus installation but if we're able to add
Speaker 4: and pass the D to our machine and go faster. We now have a pool of additional capital to access to go faster. We also see this as a path to refinance traditional debt. I've reiterated that our long-term leverage target is in the mid-threes. And this gives us a pool of capital to refinance over time and then pay down debt once we've become free cash flow at the end of the build. And then I'd also...
A pool of additional capital to access to go faster.
We also see this as a path to refinance traditional debt I've reiterated that our long term leverage target is in the mid threes and this gives us a pool of capital to refinance over time, and then pay down debt once we become free cash flow at the end of the build and then I'd also.
Speaker 4: added it's a bit of a war chest to be aggressive if there are you'll be funding that that we win and and try to accelerate if we decide to do stuff out of our footprint uh... and in other ways to to grow the business even beyond the committed ten million so uh... i agree with your notion that it's a game changer and it's a great step for us and a great step for the industry
Add that it is a bit of a war chest to be aggressive if there are no bead funding that.
Win and try to accelerate if we decided to do stuff out of our footprint.
And in other ways to grow the business even beyond the committed 10 million. So I agree with your notion that it's a game changer I think it's a great step for us and a great step for the industry.
Yeah.
Thank you.
Speaker 1: Our next question comes from the line of Phil Qsic with JP Morgan. Your line is at open.
Our next question comes from the line of Phil Cusick with Jpmorgan. Your line is now open.
Hi, guys. Thank you.
Speaker 3: Hi guys, thank you. I want to dig into the fiber subscriber growth numbers. Last quarter, I think it was 87,000, this quarter 66.
To dig into the fiber subscriber growth numbers last quarter I think it was 87000 this quarter 66, and obviously there is some seasonality in there although the cable companies saw less than normal seasonality. So I think theres a lot more competition going on and then there is seasonality can you talk about number one you did a price increase.
Speaker 3: Obviously there's some seasonality in there, although the cable company saw less than normal seasonality. So I think there's a lot more competition going on than there is.
Speaker 3: Can you talk about, you know, number one, needed a price increase. Number two, you've cut back on gift cards, and number three, seasonality. So help us to allocate the slow down there and how you're confident in a rebound by assuming growth going forward. Thanks, Rick.
Two you've cut back on gift cards and number three is seasonality so help us sort of allocate the slowdown there and how your confidence in a rebound bastian and growth going forward. Thanks very much.
Yes, Phil Hi, it's Nick I'll take that one.
Speaker 6: Yeah, Phil Hi, Nicky, I'll take that one. I think we've talked about on previous calls, pricing strategy, really is at its core to offer the best product at a very attractive price.
I think we've talked about on previous calls our pricing strategy really is at its core to offer the best product at a very attractive price.
Speaker 6: And over the last two years, whilst we've been in the midst of this turnaround, of course, we've had to use price and gift card and other promotional activity. You get this sales engine going just in the same way that we've got the build engine going. And at the same time, of course, significantly improved our product and extended it up with gig plus offerings and value added services and so on. While we were doing that, however, our RPU was still at a bit of a discount to the market.
Over the last two years, whilst we've been in the midst of this turnaround of course, we've we've had to use price and gift cards and other promotional activity you get the sales engine going just in the same way that we've got to build engine going.
And at the same time of course significantly improved our product and extend it up with a gig plus offerings and value added services and so on while we were doing that kind of off who was still at a bit of a discount to the market. So I think as we said in Q1, we made some very disciplined and changes to our pricing and the way we package our office.
Speaker 6: So I think as we said in Q1, we made some very disciplined changes to our pricing and the way we package our offers, designed to bring our food more in line with our competitors in line with market. For example, we reduced the use of gift cards, we implemented some price to market adjustments, we unbundled our value added services and incentivized customers to choose gig plus speed.
Designed to bring up more in line with our competitors in line with market.
For example, we reduced the use of gift cards.
We implemented some price the market adjustments, we unbundled, our value added services and incentivize customers to choose gig plus speeds.
Speaker 6: And in doing so, I think we've achieved exactly the results we're looking for. For example, in the second quarter, more than half of all our new customers chose Gig Plus speed.
And in doing so I think we've achieved exactly the results we're looking for.
For example, in the second quarter more than half of all new customers chose gig plus speeds.
Speaker 6: The value added services that we had previously given away for free and we unbundled and started charging for
The value added services that we had previously given away for free and we unbundled and started charging for ash.
Double with now one third of new customers, taking one or more value added service, which they pay for.
Speaker 6: Double with now one third of new customers taking one or more value added service which they pay for
Speaker 6: and simultaneously new customer intake RPU has now climbed up into the $70 range.
And simultaneously new customer intake off who has now climbed up into the $70 range.
So whilst we took a couple of months to kind of optimize all sales channels to these changes made a few personnel changes and so on.
Speaker 6: So, whilst we took a couple of months to kind of optimize our sales channels for these changes, made a few personal changes and so on, actually June was the second best sales month we've had on record. And when we take into account quality, arpe, and quantity, June was the best sales month we've had so far.
June was the second best sales month, we've had on record.
When we take into account quality of who and quantity June was the best sales month, we've had so far.
So I come back to best product competitive off a really strong channels and yes of course, there's some seasonality in the quarter I think others have spoken about it on their result, we just say we see the same thing.
Speaker 6: So I come back to best product, competitive offer, really strong channels. And yes, of course, the sum seasonality in the quarter, I think, others have spoken about it on their results. We see the same thing. Those headwinds now often turn into tailwinds later on in the year. And I really think we've got our proposition and channel tuned to deliver the right mix of volume and value.
Those headwinds now often turn into a tailwind later on in the year and I really think we've got a proposition and channel tuned to deliver the right mix of volume and value.
Operator next question. Thank you.
Absolutely. Our next question comes from the line of Brett Feldman with Goldman Sachs. Your line is now open.
Speaker 1: Absolutely. Our next question comes from the line of Brett Feldman with Goldman Sachs. Your line is that open.
Speaker 7: Thanks, I'll just follow up on that, you know, to make face on what you just said
Thanks, I'll just I'll just follow up on that Nick based on what you just said.
Speaker 7: how should investors assess your operational performance in the back half of the year? In other words,
How should investors assess your operational performance in the back half of the year in other words, what's the right way of determining whether the the net add trajectory that we see in the back half that obviously has a little more of a seasonal tailwind to it compares with what you're trying to achieve on your RP standpoint in other words, what's that balance that we're not over index.
Speaker 7: What's the right way of determining whether the net add trajectory that we see in the back half that obviously has a little more of a seasonal tail into it compares with what you're trying to achieve.
Speaker 7: under our pre standpoint. In other words, what's that balance so that we're not over indexing towards one of those metrics versus the other? And in Scott, you pointed out that capital is gonna be, capital investment will be a lot lower in the back half of the year, just based on what your guidance is and you pointed out and you expect.
Lean towards one of those metrics versus the other.
Got you you pointed out that.
Capital is gonna be capital investment will be a lot lower in the back half of the year just based on what your guidance is that you'd pointed out that you expect.
Speaker 7: overall capital to be lower next year than what you're going to spend this year. Should we be looking at the second half of this year as being somewhat indicative of a run rate, or is it just too seasonal for us to extrapolate? Thank you.
Overall capital to be lower next year than what youre going to spend this year should we be looking at the second half of this year as being somewhat indicative of a run rate or is it just your seasonal for us to extrapolate. Thank you.
Speaker 6: yeah i brought neck up perhaps i'll start on that and got hand over to you i've got on on revenue revenue was down no point six percent through the first half of the year which uh... was of course a significant improvement versus the decline in twenty twenty two so we think it's really clear that the strategy and the pricing strategy is working
Yeah, Hi, Brian Nick I'll, perhaps I'll start on that and Scott and hand over to you.
On revenue revenue was down <unk>, 6% through the first half of the year, which was of course, a significant improvement versus the decline in 2022. So we think it's really clear that the strategy and the pricing strategy is working.
Speaker 6: In our fiber revenue growth continues to accelerate, now approaching double digits. As we mentioned in the prepared remarks, business and wholesale broke through to positive revenue growth this quarter, which really made your milestone. And the first time in six years we've done that, well, a lot of our telecom peers continue to report declines in that segment.
And on fiber revenue growth continues to accelerate now approaching double digits as we mentioned in the prepared remarks business and wholesale broke through to positive revenue growth. This quarter, which is really a major milestone in the first time in six years, we've done that well a lot of our telecom peers continue to report declines in that segment.
Speaker 6: So in the back half, I think we see two drivers that will continue to improve revenue growth. The first is that...
Back half I think we see two drivers that will continue to improve revenue growth. The first is that.
Speaker 6: We'll see an improvement in our overall fiber mix, so the percentage of fiber in the overall revenue mix That will grow in the second half and secondly an improving consumer fiber broadband Arpu as our new pricing changes begin to wash through into the base and Scott I don't know if you want to pick up the second half of that
We will see an improvement in our overall fiber mix are the essentials of fiber and the overall revenue mix and that will grow in the second half and secondly, an improving consumer fiber broadband <unk> as our new pricing changes begin to wash through into the base and Scott I don't know if you want to pick up the second half of the sure Brett on your Capex question.
Speaker 4: sure brett uh... on your cap ex-question i'll kind of walk through the drivers of white will go down in the second half uh... then your questions about run rate uh... exiting the year in the next year so we'll confident that it will get it will decline in the second half of this year do the three drivers
I'll kind of walk through the drivers of why it will go down in the second half.
And your question was about run rate exiting the year into next year. So we're confident that it will get it will decline in the second half of this year due to three drivers first we will consume inventory you saw us consume a bit of inventory in Q2 and that should continue in Q3 and Q4. If you remember we built inventory in the second half of last year in the first quarter, we are beginning to.
Speaker 4: will consume inventory. You saw us consume a bit of inventory in Q2, and that should continue in Q3 and Q4. If you remember, we built inventory in the second half of last year in the first quarter, or beginning to consume that. Secondly, we'll consume...
That Ah <unk>.
Secondly, we'll consume pre work we spent a lot of capex in the second half of 'twenty, two and in the first half of 'twenty, three and building out central offices and intermediate infrastructure for locations that will be opened in the second half of this year.
Speaker 4: We spent a lot of catbecks in the second half of 22 and the first half of 23 and building out central offices and intermediate infrastructure for locations that will be opened in the second half of this year. We're now in all 15 states in the building. We've completed that kind of pre-work in the new geographies.
We're now in all 15 states and the build and we've completed that kind of pre work in the new geographies and then third a will have a lower cost build mix as I mentioned in the prepared remarks, we have lower cost states with less expensive topography will have a higher area of mix and then we're also an integrated bill.
Speaker 4: And then third, we'll have a lower cost build mix. As I mentioned in the prepared remarks, we have lower cost states with less expensive topography. We'll have a higher aerial mix.
Speaker 4: and then we're also in integrated bill where we're passing some lower cost locations that include multi dwelling units, multi-tenant unit, small businesses. So all together we're confident in that 3.0 to 3.2 billion dollar range for this year with a significant decline in the second half.
We're we're passing some lower cost locations that include multi dwelling units multi tenant unit to small businesses. So altogether, we're confident in that three point out at $3 $2 billion range for this year with a significant decline in the second half and then your question about what does next year look like we have said it will be a lower range than 2023.
Speaker 4: And then your question about what does next year look like? We have said it will be a lower range than 2023. We think 2023 will be our peak cat-ex year. And it should be a bit front-end loaded due to seasonality.
We think 2023 will be our peak capex year, and it should be a bit front end loaded due to seasonality.
Operator next question.
Absolutely.
Speaker 1: Absolutely. Our next question comes from a line of Frank Lusin with Raymond James. Your line is not open.
Our next question comes from the line of Frank Loosen with Raymond James Your line is now open.
Great. Thank you can you walk us through the success you are having the business and wholesale.
Speaker 3: Great, thank you. Keith, walk us through this success you're having the business and wholesale. And what have you changed on the marketing side that's attracting that and tell us how you're thinking about the network construction going forward to make sure you can maximize that opportunity back.
And what have you changed on the marketing side.
Tracking that and tell us how youre thinking about the network construction going forward to make sure you can maximize that opportunity. Thanks.
Yeah, Hi, Frank Nick here.
Speaker 6: Yeah, hi Frank Nick here. Like, business and wholesale, we're really, really pleased with it. It's been a kind of breakout quarter for that segment. And a big part of it has been the new leadership that we're welcome to frontier just a couple of quarters ago, already driving really significant improvements in performance right across the business units. You know, if we look across all three units, we're seeing a sharp increase in order volume, much more favorable sales mix, which overall is leading to higher price.
Business in wholesale we're really really pleased with it it's been a kind of breakout quarter for that segment and a big part of it as being the new leadership that we welcome to frontier just a couple of quarters ago are already driving really significant improvements in performance right across the business units.
If we look across all three units were seeing a sharp increase in order volume much more favorable sales mix, which overall is leading to higher pricing.
Speaker 6: Part of this has been driven by the strategic agreement with AT&T that we talked about in the past. We've signed earlier this year, which is now, you know, translating from a strong order book through to strong financial growth. And that's also helped by a shift towards us selling new offers like digital infrastructure services based on the infrastructure that Frontiers got, but monetizing that in a different way to these seconds.
Part of this is being driven by the strategic agreement with AT&T that we've talked about in the past we signed earlier this year.
Which is now translating from a strong order book through two strong financial growth and that's also helped US helped by a shift towards off selling new offers like digital infrastructure services based on the infrastructure that frontier has gone up but monetizing that in a in a different way to these segments.
Speaker 6: And as I've said before though, our business segment differs significantly from our peers in a number of ways which help us return this segment to growth.
And as I've said before though our business segment.
<unk> from our peers and a number of ways, which helped US return this segment to growth.
Speaker 6: But first of which is we're actually a small part of the market and I think we have to keep that at the back of our mind so we don't really reflect market dynamics because we're too small to be, you know, reflect the market. But equally we're...
First of which is we're actually a small part of the market and I think we have to keep that at the back of our mind. So we don't really reflect market dynamics, because we're too small to be.
Reflect the market, but equally well.
Speaker 6: Not as exposed as most of our peers to large enterprise customers. So when we talk about enterprise, we really mean medium and small enterprise customers and SMBs. And those customers have a much higher propensity to buy the kinds of fiber-based internet access products that we're really good at providing and selling and deliver with real quality. So I think we've got a natural affinity towards the smaller segments, and that's where we focus our effort.
Not as exposed as most of our peers to large enterprise customers, but when we talk about enterprise, we really mean medium and small enterprise customers and smbs and those customers have a much higher propensity to buy the kinds of fiber based internet access products, but we're really good at providing and selling and deliver with real.
So I think we've got a natural affinity towards the smaller segments and Thats, where we focused our efforts.
Speaker 6: and are building up our teams and expertise. And then lastly, it's hard to avoid the fact that the enterprise segment overall was not as well managed in the past, let's say it could have been. And so their improvement opportunities incrementally in almost every part of those businesses, which we're now taking and we're seeing those results come through.
And our building up our teams and expertise and then lastly, it's hard to avoid the fact that the enterprise segment overall was not as well managed in the past, let's say that could've been and I'm sorry, their improvement opportunities incrementally in almost every part of those businesses, which went out taking and we're seeing those results come through.
Speaker 6: And we've been pretty sort of mindful and focused on how we're turning this business around. And we really had kind of three milestones we wanted to hit.
Pretty sort of mindful and focused on how we're turning this business around and we really had to kind of three milestones. We wanted to hit the first was to inflect fiber business sequentially, which we achieved in 2020 to the.
Speaker 6: First was to reflect five of business sequentially, which we achieved in 2022.
Speaker 6: The second key milestone was to grow five of business year over year, which we've now achieved for three consecutive quarters.
The second key milestone with the grow fiber business year over year.
We've now achieved three consecutive quarters.
Speaker 6: And the third milestone is for fiber growth to offset copper declines, which we achieved in the first quarter this year for the first time in six years. So again, just knocking down those milestones, good day in, day out execution, hiring great people, changing our prices, refining our channels, building our brand, being out in the market and hustling. And that's what a really good enterprise business does.
The third milestone is the fiber growth offset copper declines, which we achieved in the first quarter. This year for the first time in six years. So again, just knocking down those milestones good day in day out execution hiring great people changing out priced is refining our channels building a brand being out in the market.
And that's what I'm really good enterprise business that now having said that we've got a lot of work to do before we can achieve sustainable positive year over year growth in the segments business segment overall, but I am really encouraged by the momentum we've got and remain confident in achieving a stable total business and wholesale growth in 2023.
Speaker 6: Now, having said that, we've got a lot of work to do before we can achieve sustainable positive year over year growth in the segment, business segment overall. But I am really encouraged by the momentum we've got and remain confident in achieving our stable total business and wholesale growth in 2023. Now, second, I'll give you a question with about how do we balance...
The second half of your question was about how do we balance.
Speaker 6: I suppose capital for developing the kind of products and services that these customers need versus other uses of capital. It's got, you might want to give some insight into how practically we do that because that might be interesting for people.
I suppose capital for developing the kind of products and services that these customers need versus other uses of capital and Scott you might want to give some insight into how practically we do that because I thought might be interesting for people yeah. Frank one of the things. We did early on it was developed what's called an integrated build plans. So as we're looking at our network.
Speaker 4: yeah, Frank one of the things we did early on was develop what's called an integrated build plan so as we're looking at our network
Speaker 4: and we have to have a priority of passing the committed build of ten million out of fifteen but we want to make sure as we're building out our network that we're optimizing that billed for uh... passing fiber to the tower opportunities for wholesale customer
And we obviously have a priority of passing the committed build a $10 million out of 15, but we want to make sure as we're building out our network that we're optimizing that build for passing fiber to the tower opportunities for wholesale customer.
Speaker 4: getting close to enterprise customers, getting close to SMB, it's not just a consumer driven bill, it's really integrated bill across those. So we're very returns focused, whatever is gonna get us the best returns, we're gonna tune the plan to optimize our return on capital. heart.
Getting close to our enterprise customers are getting close to SMB, it's not just a consumer driven build it's really integrated build across those so we're very returns focused whatever is going to get us. The best returns, we're going to tune the plan to optimize our return on capital.
Operator, Thank you next question.
Speaker 1: Absolutely. Our next question comes from the line of Jonathan Chaplin with New Street Research. Your line is open.
Absolutely our <unk>.
Next question comes from the line of Jonathan Chaplin with New Street Research. Your line is now open.
Speaker 6: Thanks guys. So I just wanted to look at the opportunity outside of the 10 million committed bills a little bit. We estimated there about 600,000 units that are bid eligible within your footprint would love to know if that matches your estimate. And then we have a sense that...
Thanks, guys. So.
I just wanted to look at the opportunity outside of the $10 million committed builds a little bit we estimate that there are about 6 million, sorry, 600000 units hit or beat eligible within your footprint, we'd love to note that matches. Your estimates and then we have a sense that.
Speaker 6: Why do you deploy fiber to beat eligible units? It drives up the returns in other parts of the footprint in and around those markets. And I'm wondering if there's a way to quantify what that sort of aggregate opportunity would be. And then I'm intrigued by the mention of your interest in out of footprint opportunities.
Once you deploy fiber to beat eligible units it drives up the returns in other parts of the footprint.
In and around those markets and I'm wondering if there's a way to quantify what that sort of aggregate opportunity would be.
Intrigued by the mention of your interest in out of footprint opportunities.
Speaker 6: We'd love to get some more insight into that, those opportunities that you pursue on your own or with a partner. And then finally, can all of us be financed with access to the ABS market or do still in-visage bringing in a capital partner to go after the opportunity beyond the initial 10 million?
We'd love to get some more insight into that as those sort of opportunities that you would pursue on your own or or with a partner and then finally can all this be financed with access to the ABS market or do you still envisage, bringing in a capital partner to go after it.
The sort of the opportunity beyond the initial $10 million.
Thanks, Jonathan perhaps I'll just start with that.
Speaker 8: Thanks Jonathan. Perhaps I'll just start with that. As we've said many times before, our committed build of 10 million fiber homes passed with high and attractive IRRs, we're reconfirming today and that remains a great source of value creation and day to day our total operational focus.
<unk> said many times before our committed build all 10 million fiber homes passed with high an attractive IRR as well.
We're reconfirming today.
That remains.
Great source of value creation and day to day, our total operational focus.
Speaker 8: But I just take a step back a little bit. It's very clear that the US market is now actively converging as we've seen in other parts of the world, and that in a converging...
I'll, just take a step back a little bit.
It's very clear that the U S market is now actively converging as we've seen in other parts of the world.
And that in a converging market.
Speaker 8: The fiber is the sketchiest asset, the most difficult to build, and the most inaccessible in many ways. So as the largest...
Fiber is the sketches asset the most difficult to build and the most inaccessible and in many ways. So as the largest.
Speaker 8: pure play fiber provider in the u.s. and the second largest
Pure play fiber provider in the U S and is the second largest fiber builder in the U S. We know we've got a scarce and valuable asset and we are certainly interested in looking at all of the options that go beyond 10 million fiber homes past and of course, we think about those things all the time, it's also kind of in.
Speaker 8: Fiverr builder in the US, we know we've got a scarce and valuable asset and we are certainly interested in looking at all of the options to go beyond 10 million Fiverr homes past. And of course we think about those things all the time. It's also kind of inevitable if we look at the evolution of the cellular market and how that consolidated in the past.
It's about if we look at the evolution of the cellular market and how that consolidated into Paul.
Speaker 8: the evolution of the cable market and how that consolidated in the past.
Evolution of the cable market and how about consolidated in the past that the very fragmented fiber market is also likely to consolidate and as the largest pure play fiber provider, we certainly see ourselves playing an important role in that consolidation, but I come back to the fact that all focus day in day out operationally is to deliver.
Speaker 8: that the very fragmented fiber market is also likely to consolidate and the largest pure play fiber provider we certainly see ourselves playing an important role in that consolidation but i come back to the fact that our focus day in day operationally is to deliver high i r and good returns from our committed ten million five billion that's got you might want to talk about beat because that's kind of looming on the horizon and will change
Hi.
Good returns from our committed 10 million fiber build now Scott he might want to talk about because that's kind of looming on the horizon and will change thing yeah. That's right. So we havent given a specific number we're still reviewing the FCC maps and confirming how much in our footprint as beta eligible, but we think of our we've said before.
Speaker 4: yeah that's right so uh... we haven't given a specific number we're still reviewing the fc maps and and confirming how much in our footprint is be eligible but uh... you know
Speaker 4: of our we've said before of the five million outside of our committed build Several million would likely be attractive to go after some with bead money because it's now going to be eligible and some Just as we fine tune our machine and get closer to New new new regions that we'd be able to expand that 10 million so still work on the exact numbers of bead eligibility And the second part of your question
The 5 million outside of our committed build several million would likely be attractive to go after some with b money, because it's now going to be eligible and some just as we fine tune our machine and get closer to new new new regions that we'd be able to expand that $10 million. So still work on the.
Exact numbers a bead eligibility.
And the second part of your question for.
Speaker 4: for me was around returns and how bead might impact the committed build returns. I think you're exactly...
For me was around returns and how bead might impact the committed build returns I think youre exactly right.
Speaker 4: uh... as we've said mid-to-high teens rr for committed build of ten million but to the extent we're able to win bifunding uh... that
As we've said mid to high teens IRR for our committed build a $10 million, but to the extent, we're able to win bead funding.
That helps subsidize getting to a specific set of homes that perhaps pass.
Speaker 4: help subsidize getting to a specific set of homes that perhaps pass.
Speaker 4: uh... set of homes that we were uh... going to build with private capital loan that is going to improve the returns of that uh... private billed so we're going to aggressively go after being we think it's the right thing for the country to connect all are underserved underserved homes to the digital economy will be an active participant there let's go to what thing is that that
Set of homes that we were going to build with private capital alone that is going to improve the returns of that private built so we're going to aggressively go after because we think it's the right thing for the country to connect all are underserved underserved homes to the digital economy and it will be an active participant there let's go to twist thing isn't it.
Speaker 8: I think when we think about B, and we look at expansion, and we look at all those other possibilities for us to continue to be the leading independent fiber provider in the U.S.
I think when we think about beat and we look at expansion and we look at all those other possibilities for us to continue to be the leading independent fiber provider in the U S.
Speaker 8: that the securitization deal that you and the team have so successfully delivered just recently really does open up a range of new possibilities for us as a great and efficient source of capital funding for the business going forward. So I think that's something else that will be laying into our considerations in the future. So thank you for your question. Operator, next question please.
The securitization deal that you and the team have successfully delivered just recently really does open up a range of new possibilities for us either great and efficient source of capital funding for the business going forward. So I think that's something else that we'll be laying into our considerations.
Consideration in the future as Jonathan So thank you for your question Operator next question. Please.
Thank you. Our next question will come from the line of Peter Zaffino with Wolfe Research. Your line is now open.
Speaker 1: Thank you. Our next question will come from the line of Peter Supino with Wolf Research. Your line is a weapon.
Speaker 9: Good morning, thank you. A big picture question on long-term penetration and returns on capital. Having just launched coverage of Frontier, we've heard pushback from some who don't own your stock about concern that the ladder of ventages of pastings will deliver much lower returns than you've experienced so far. Yet your most recent vintage of pastings shows higher penetration, and I wondered in that light.
Good morning. Thank you a big picture question on long term penetration and returns on capital, having just launched coverage of frontier. We've heard pushback from some who don't own your stock about concern that the latter vintages of passengers will deliver much lower returns than you've experienced so far.
Yet your most recent vintage of passenger shows higher penetration and I wondered in that light.
Speaker 9: if you could talk with us about what's built into your expectations and to what extent does that question under appreciate your opportunity? Thanks.
Could talk with us about what's built into your expectations and to what extent does that question under appreciate your opportunity. Thanks.
Speaker 4: yeah thanks peter this is scott uh... so let me let me take a step back and kind of talk about long term penetration then i'll get into specific cohorts uh... we've we've said that we have a superior product it's competitively priced we have a consistently growing set of value added services and we think we should be able to win at least forty five percent of of the market if not more forty five percent penetration
Yeah. Thanks, Peter this is Scott.
Let me, let me take a step back and kind of talk about long term penetration then I'll get into specific cohorts.
We've said that we have a superior product. It's competitively priced we have a consistently growing set of value added services and we think we should be able to win at least 45% of the market if not more at 45% penetration and as a marker there we look at our base footprint and are basically print was.
Speaker 4: And as a marker there, we look at our base footprint. And our base footprint was roughly 41% a few years ago. We've grown it consistently as we rolled out. New product, new offers, new set of customer experiences. It's now at roughly 43 and a half percent and on track to be at that 45% long-term goal. So base is a good indication of where we can eventually take expansion penetration.
Roughly 41% a few years ago, we've grown it consistently as we've rolled out new product new offers.
New set of customer experiences, it's now at roughly 43, 5% and on track to be at that 45% long term goal. So base is a good indication of where we can eventually take expansion penetration now on specific cohorts of expansion I would caution people to not put too much.
Speaker 4: now in specific cohorts of expansion you had caution people to not put too much stock in a single quarter single cohort we look at a long time period twelve months twenty four months thirty six months
Doc in a single quarter single cohort, we look at a long time period 12 months 24 months 36 months and the 'twenty 'twenty build which was small as ahead of all of our penetration targets. We've always said the beginning of 2021, where we werent yet together as a management team that the company was still operating in bankruptcy for the first.
Speaker 4: and the 2020 build, which was small, is the head of all of our penetration targets.
Speaker 4: We've always said the beginning of 2021 where we weren't yet together as a management team the company was still operating in bankruptcy for the first two quarters of that year. Those of us that cohort is always lagged are targets. It's only one point below our 24 month targets at 24% versus 25%. And as we get into the later part of 2021.
Two quarters of that year does a voice that cohort has always lagged our targets. It's only one point below our 24 month target is at 24% versus 25% and as we get into the later part of 2021.
Speaker 4: that should get back into the target range. So that's no surprise to us, and we've been very transparent with the market since 2021.
That should get back into the target range. So that's no surprise to us and we've been very.
Transparent with the market since 2021, the really good news as 2022 and the cohort penetration with 2022 2022 is our largest build ever we built about one point to two 5 million passengers at year. It had the best penetration that we've had of any cohort.
Speaker 4: the really good news is twenty twenty two in the cohort penetration with twenty twenty two twenty twenty two is our largest billed ever we built about uh... one point two two five million passing that year had the best penetration that uh... we've had of any cohort uh... as you saw today were at uh... eighteen to nineteen percent uh... penetration for uh... twelve months
As you saw today, we're at 18% to 19% penetration for 12 months and we expect that to stay at the high end of the range as the rest of the 2022 cohort ages into 12 months. So I think that shows that as we've moved on we've fine tuned our expansion playbook we've gotten.
Speaker 4: and we expect that to stay at the high end of the range as the rest of the 2022 cohort ages into 12 months. I think that shows that as we've moved on, we've fine tuned our expansion playbook. We've gotten better at pre-marketing, better at day one marketing, one things are open for sale, and then better at staying with those cohorts to make sure they understand the value of fiber and choose frontier fiber. So we're confident in our expansion penetration, look forward to continuing that momentum.
At pre marketing better at day, one marketing once things are open for sale and then better it staying with those cohorts to make sure they understand the value of fiber and choose frontier fiber. So we're confident that our expansion penetration look forward to continuing that momentum.
Operator next question.
Speaker 1: Thank you. Our next question comes from a line of Nick Daldeo with Moffit, Nathan Sen. Your line is so open.
Thank you. Our next question comes from the line of Nick del Deo with Moffett Nathanson. Your line is now open.
Speaker 7: Okay, good morning guys. First for Nick, just to follow up on Bill's question earlier, to what degree might changes in competitive intensity have weighed on fiber ads this quarter versus other factors? And then second for Scott, I suppose it's market dependent, but at a high level, how are you thinking about the appropriate mix of securitized debt versus other types of debt in the capital structure over time? Thank you.
Okay. Good morning, guys.
First one for Nick just a follow up on Phil's question earlier.
To what degree might changes in competitive intensity have weighed on fiber adds this quarter versus other factors and then second for Sky.
Suppose it's market dependent but at a high level. How are you thinking about the appropriate mix of securitized debt versus other types of debt in the capital structure over time.
Yeah.
Speaker 8: Hey Nick, yeah, of course, five is a competitive market. There's no doubt about that.
Hi, Nick Yes of.
Of course fiber fiber is a competitive market, there's no doubt about that.
Speaker 8: Well, it's also got, I think, a good market structure and we have rational competitors and our objective is also to be a rational and logical competitor.
But it's also got I think a good market structure.
Have rational competitors in it our objective is also to be a rational and logical competitor.
Speaker 8: That's in the backdrop of a sort of nationally inflationary market, which I think is very much in our in the industry's favor right now. In terms of kind of new competitors overbuilders and so on, we really, we see some of course, let none at scale, and I think it's a very difficult time to firstly start a new fiber build. I'm not sure how we would do that if we were setting off right now, given the complexities of labor and equipment and all of that.
That's in the backdrop of Nash.
Nationally inflationary market.
I think it's very much in our in the industry's favor right now in terms of kind of new competitors over build and so on we really with we see some of course.
But none at scale and I think it's a very difficult time to first they start a new fiber build I'm not sure. How we would do that if we were setting up right now given the complexities of labor and equipment and all of that plus the <unk>.
Speaker 8: Plus there's so much white space in the fiber market in the US. You would have to be kind of crazy as an owner of capital to start overbuilding, frontier, and competing with us when we've got our sales and marketing and proposition engine really humming right now. And you could build somewhere else where there's little competition.
Much white space in the fiber market in the U S. You would have to be kind of crazy as an owner of capital just thought overbuilding frontier and competing with us when we got our sales and marketing and proposition engine really humming right now and you could build somewhere else, where there's little competition.
Speaker 8: So, you know, we don't see a lot of overbuilder activity. I think that's going to be suppressed in this higher inflationary, higher interest rate kind of markets that we've got. I think private capital is going to be less incentivized than it was in the past to come compete with us, not exactly what we're seeing. And our major competitors, of course, the cable operators, where we continue to take share from them. Primarily, that's our primary sources.
So we don't see a lot of over builder activity I think that's gonna be suppressed as higher inflation rate.
Higher interest rate kind of market that we've got I think private capital is gonna be less incentivize them. There wasn't a path to kind of compete with us and that's exactly what we're seeing and our.
Our major competitors are of course, the cable at prices, where we continued to take share from them, primarily a primary source of share gain.
Speaker 8: share gain They continue with customer practices of you know kind of low-introduct free prices and then jacking a price is up at the end And we know customers don't like that and we don't do that. I think it's one of the big plus points
They continue with customer practices, you know kind of a low introductory price isn't a jacking their prices up at year end and we know customers don't like that and we don't do that I think is one of the big plus points for.
Speaker 8: for us and our brand. But we're very respectful of our cable competitors. The market seems to be rational, broadly priced inflationary, and that kind of suits us well. I've got energy and these ads a lot.
For us and our brand.
But we're very respectful of our cable competitors.
The market seems to be rational broadly price inflation rate and that kind of suits us well I'm, Scott anything to add to them.
Speaker 4: yeah and and just the second part of your question on the the mix of securitization and traditional debt neck i think you're exactly right on that's a key uh... important factor of securitization and let me just reiterate why we think it's such a transformational transaction
And just the second part of your question on the mix of securitization and traditional debt Nick I think you're exactly right on that is a key.
Important factor of securitization and let me just reiterate why we think it's such a transformational transaction. It. It provides a path to fully fund our fiber build.
Speaker 4: it provides a pat to fully fund our fiber build uh... the investment grade debt reduces our cost of capital over time just like it's done for data centers and towers
The investment grade debt reduces our cost of capital over time, just like its done for data centers and towers.
Speaker 4: uh... to your point it gives us flexibility to optimize our capital structure across securitization and traditional debt we've treated we've historically finance it through a hundred percent of traditional debt and now that we have it uh... flexibility there will eventually move to something that's more uh... balanced across securitization traditional debt we have access to both markets now and will will uh... you know will be flexible between those two markets
To your point it gives us flexibility to optimize our capital structure across securitization and traditional that we've treated we've historically financed it through 100% of traditional debt and now that we have a flexibility there will eventually move to something that's more balanced across securitization traditional that we have access to <unk>.
Both markets now and we'll will.
We will be flexible between those two markets and then the last a really important part of the securitization transaction. It highlights the value of mature fiber assets.
Speaker 4: And then the last really important part of the securization transaction it highlights the value of mature fiber S.
Speaker 4: As I said before, 80% of the cash flow was rated at an investment grade level. We raised debt of roughly $3,400 per passing and it shows the value of mature stable fiber assets.
I said before 80% of the cash flow was rated at investment grade level, we raised debt of roughly 3000 and $400 per passing and it shows the value of a mature stable fiber assets.
Operator next question.
Speaker 1: Thank you. Our next question comes from the line of Simon Flannery with Morgan Stanley . Your line is so open.
Thank you.
Our next question comes from the line of Simon Flannery with Morgan Stanley . Your line is now open.
Great. Thank you good morning, Scott.
Speaker 10: Great, thank you. Good morning Scott. The $500 million cost program, I guess could you just drill into that a little bit on where we are at mid year and what you see beyond 2023 into 2024, continuing the productivity improvements. And just to clarify on the financing, I think you said past to fully funded. Previously, I think you said you were funded through mid 24. So what does this recent raise get you to in terms of what the funding status is and the timeline? Thanks.
The $500 million cost program I guess could you just drill into that a little bit on where we are at mid year and.
What do you see beyond 2023 into 'twenty 'twenty four continuing the productivity improvements and just to clarify on the on the financing I think you said pass to fully funded previously I think you'd said you were funded through mid 'twenty four so so what does this recent raise gets you to in terms of.
What what the funding status is in the timeline.
Sure. So let me give you a quick update on the on the cost program we.
Speaker 4: sure so let me give you a quick update on the on the cost program uh... we said in the press release today that we uh... had achieved four hundred sixty million dollars
We said in our press release today that we.
Had achieved $460 million of.
Speaker 4: cost savings so we're well on track to uh... to get there by the end of the year we sell two quarters to get that remaining forty million and i think we'll do more next year i mean this is the kind of uh... this is the kind of program that's evergreen um... it
Cost savings, so we're well on track to.
To get there by the end of the year, we saw two quarters to get that remaining $40 million and I think we'll do more next year I mean this is the kind of.
This is a kind of a program that's evergreen.
It will continue to make progress there.
Speaker 4: We'll continue to make progress there and We'll share more details in the next few quarters on that
And we.
We'll share more details in the next few quarters on that.
Speaker 4: Your second question on funding status. So let me give you a few notes as we finish this securitization transaction. So we had $1.9 billion of liquidity at the end of Q2.
Second question on funding status. So let me give you a few notes as we finish this securitization transaction. So we had $1 $9 billion of liquidity at the end of Q2, we added roughly $2 billion of proceeds from securitization that gives us roughly $4 billion of liquidity and we take that fund.
Speaker 4: We add in roughly two billion of proceeds from securitization. That gives us roughly $4 billion of liquidity.
Speaker 4: Now we think that funds us into at least late 2025, so roughly two and a half years or more. But then importantly, the Dallas Fort Worth markets represent only about 10% of our total fiber passing to the end of 2020.
US into at least late 2025, so roughly two and a half years or more but then importantly, the Dallas Fort worth markets represent only about 10% of our total fiber passing to at the end of 2023. So as we laid out on slide 16 of our deck, we've got $2 6 million other mature base load.
Speaker 4: So as we laid out on flight 16 of our deck, we've got 2.6 million other mature base locations. We've got 2.6 million additional expansion fiber locations that we built. And we still have a long-term leverage target in the mid-3s, but fiber securitization provides a path to fully fund the fiber build and then get down back to the mid-3s when we finish the build. And operator, we will...
Patients, we've got $2 6 million additional expansion fiber locations that we built and we still have a.
Our long term leverage target in the mid threes, but fiber securitization provides a path to fully fund the fiber build and then get down back to the mid threes. When we finished the build.
And operator, we will take our final question.
Yes.
Speaker 1: Absolutely. Our last question comes from the line of Michael Rollins with City. Your line is a weapon.
Absolutely. Our last question comes from the line of Michael Rollins with Citi. Your line is now open.
Speaker 5: Thanks, and good morning. Just two if I could. So first, when you look at the allocation of fiber EBITDA to copper EBITDA, are you finding that the expenses and the allocations are relatively stable? So going forward, it's just a question of the natural operating leverage in each of these segments. Or is there still, just as the business evolves and the mix?
Thanks, Dan Good morning.
Just two if I could so first when you look at the allocation of fiber EBITDA to copper EBITDA are you finding that the expenses and the allocations are relatively stable. So going forward. It's just a question of the natural operating leverage in each of these segments or is there still.
As the business evolves and the mix of fiber versus copper changes, that's still something that gets <unk>.
Speaker 5: fiber versus copper changes that's still something that gets adjusted from time to time and and then just secondly Throughout the call you talked about components of
Adjusted from time to time, and then just secondly.
Throughout the call you talked about components of revenue.
Speaker 5: and the opportunity to get to overall revenue growth and just trying to think about how that cadence should work for the back half of the year and going into 2024 where all the work that you're doing kind of totals up into what type of growth opportunity for aggregate revenue. Thanks.
And the opportunity to get to to overall revenue growth I'm, just trying to think that havent.
How that cadence should work for the back half of the year and going into 2024, where all the work that you're doing.
Kind of totals up until what type of growth opportunity for aggregate revenue. Thank you.
Sure. Michael This is Scott let me, let me take those two questions on fiber and copper EBITDA locations. They are relatively stable. So theyre basically typically based on direct operating cost in a certain wire center.
Speaker 4: Sure, Michael. This is Scott. Let me take those two questions. On fiber and copper ebidialocations, they are relatively stable. So they're basically based on direct operating costs in a certain wire center or customers that are either fiber customers or copper customers. So we would expect our fiber ebidial to continue growing or copper ebidial to continue shrinking. But that's basically based on the changing mix.
Customers that are either fiber customers are copper customers. So we would expect our fiber EBITDA to continue growing our copper EBITDA to continue shrinking but that's.
That's basically based on the changing mix, we are aggressively taking cost out of.
Speaker 4: we are aggressively taking costs out of.
Declines.
Speaker 4: declining wire centers where we don't have as many customers or don't have as much network to support there. So we'd expect those same trends to continue.
Declining wire centers, where we're we don't have as many customers or don't have as much network to support there. So we'd expect those same trends trends to continue now on revenue and EBITDA growth.
Speaker 4: now on revenue and eva dot growth uh... let me let me make a few points on on the second half of the kind of moving into next year so we do think it was a big milestone in the first half that we grew eva dot we grew eva dot uh... for a for half year for the first time in decade plus organically it frontier eva dot was up by about eight million dollars in the first half and we expect second half eva dot to accelerate we've said mid
Let me, let me make a few points on the second half and then kind of moving into next year. So we do think it was a big milestone in the first half that we grew EBITDA we grew EBITDA.
Or for a half year for the first time in a decade plus organically at frontier EBITA was up by about $8 million in the first half and then we expect second half EBITDA to accelerate we've said mid single digit growth in the second half of this year versus the second half of last year and that puts us in a really good spot with <unk>.
Speaker 4: single-digit growth in the second half of this year versus the second half of last year. And that puts us in a really good spot with good momentum heading into 2024. And as Nick has said before, we're still in a critical part of the turnaround, but this is a huge milestone to grow Yvita on the first half. And we're very confident that we'll grow Yvita for the full year in 2023.
Good momentum heading into 'twenty 'twenty, four and as Nick has said before this is we're still in a critical part of the turnaround, but this was a huge milestone to grow EBITDA in the first half and we're very confident that that will grow EBITDA for the full year in 2023.
Speaker 8: Thank you, Scott. And indeed, thank you all for your question. Just before we end the call, I'd like to quickly summarize the key points for the quarter. Firstly, we grew EBITDA, as Scott just said, in the first half are on track to full year EBITDA, bro. And this is a major milestone in our transformation.
Thank you Scott and thank you all for your question.
Just before we end the call I'd like to quickly summarize the key points for the quarter.
Firstly, we grew EBIT dollar as Scott just said and the first half hour.
Trac, just full year EBITDA growth and this is a major milestone in our transformation.
Speaker 8: Secondly, we delivered our best quarter ever of new customer arpu, taking it up into their $70 range, and it's helped drive a sequential increase in arpu overall.
Secondly, we delivered our best quarter ever of new customer also taking it up into the $70 range and this helped drive a sequential increase in <unk> overall.
Speaker 8: Thirdly, our business and whole self-agent had a breakout quarter, turning revenue positives for the first time in six years. And finally, the fiber securitization deal that we announced last week is truly transformational for Frontier. It unlocks a highly attractive investment great source of funding and highlights the tremendous value of the digital infrastructure that we are building every day.
Thirdly, our business in the wholesale segment had a breakout quarter cutting revenue positive for the first time in six years and finally, the fibre securitization deal that we announced last week is truly transformational for frontier. It unlocks a highly attractive investment great source of funding and highlight the tremendous value of the digi.
The infrastructure that we're building every day.
Speaker 8: I am so incredibly proud of the team for delivering another solid quarter in our most important year yet. And I really look forward to updating you all on our progress again next quarter. So thank you everyone for joining us.
I'm, so incredibly proud of the team for delivering another solid quarter and our most important year yet.
And I really look forward to updating you all on our progress again next quarter. So thank you everyone for joining the call.
That concludes the frontier communications second quarter 'twenty to 'twenty three earnings call. Thank you for your participation I Hope you have a wonderful rest of your day.
Speaker 1: That concludes the Frontier Communications Second Quarter 2023 Earnings Call. Thank you for your participation. I hope you have a wonderful rest of your day.
[music].
Yeah.