Frontier Communications(FYBR) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Q2 revenue was $1.48 billion, up 2% YoY, marking the second consecutive quarter of revenue growth and the fastest organic growth in over a decade [4][17] - Adjusted EBITDA grew by 5% to $560 million, with EBITDA margins expanding [4][17] - Net loss of $123 million, primarily due to a non-cash pension remeasurement and a $25 million one-time legal settlement [17] - Net cash from operations was $374 million, bringing the trailing 12-month total to $1.4 billion [17] - Fiber broadband revenue grew by 21%, offsetting declines in legacy products [19] Business Line Data and Key Metrics - Fiber broadband customers grew by 19% YoY, with a record 92,000 net adds in Q2 [6][17] - Fiber penetration in base markets reached 45.3%, up 190 basis points YoY [17] - ARPU grew by 3.5% YoY, driven by faster speed tiers, annual price adjustments, and value-added services [18] - Over 60% of new customers chose speeds of 1 gig or faster, and over 50% purchased at least one value-added service [18] - Consumer revenue grew for the fourth consecutive quarter, while business and wholesale revenue grew 4% [19] Market Data and Key Metrics - The company added a record 388,000 fiber passings in Q2, bringing the total to over 7 million passings [5][16] - Fiber securitization raised $750 million, with a weighted average yield of 7.4%, reducing the cost of capital [21][22] - The company expects to achieve 1.3 million fiber passings in 2024 [16] Company Strategy and Industry Competition - The company's strategy focuses on four pillars: building fiber, selling fiber, improving customer service, and increasing operational efficiency [5] - Fiber is positioned as a superior product compared to legacy cable, with a Net Promoter Score (NPS) six times higher than the closest cable competitor [11] - The company has achieved $580 million in cost savings since 2021, driven by operational efficiency and customer service improvements [16][79] - The company is the largest pureplay fiber provider in the U.S., with nearly twice as many passings as the next closest competitor [5] Management Commentary on Operating Environment and Future Outlook - Management is confident in the company's ability to achieve sustainable growth, with fiber revenue growth and disciplined cost management driving EBITDA growth [12][13] - The company expects to maintain strong operational momentum, hit revenue growth milestones, and accelerate EBITDA growth in 2024 [13] - Management highlighted the successful trial of 100-gigabit speeds over a single strand of fiber, showcasing the company's technological leadership [15] Other Important Information - The company completed its second fiber securitization, raising $750 million and extending the maturity of its term loan to 2031 [16][21] - Capital investment declined to $678 million in Q2, with expectations of flat investment in Q3 and Q4 [20] - The company raised the low end of its 2024 EBITDA guidance to $2.22 billion to $2.25 billion, representing 5% growth at the midpoint [23] Q&A Session Summary Question: Impact of Competitors' Fiber Buildouts on Frontier's Plans - Management is encouraged by industry interest in fiber but does not see it materially impacting Frontier's build plans, as the company has scaled its build to align with sales and service capabilities [25][26] Question: Broadband Ads Strength and ARPU Growth - Broadband ads were strong, with a record 92,000 net adds in Q2, driven by expanding fiber footprint and strong sales momentum [28][29] - ARPU growth decelerated to 3.5% YoY in Q2, with expectations of flat sequential growth in Q3 due to ACP transition plans, followed by a pickup in Q4 [29][30] Question: Gross Ads Growth and Cost to Acquire - Gross ads grew by nearly 30% YoY, driven by a better product and improved sales channel optimization [38][40] - The company expects to maintain cost to connect within the $600 to $800 range, with self-install reducing costs over time [43][44] Question: Consumer Fiber ARPU and EBITDA Guidance - Consumer fiber ARPU is expected to be flat sequentially in Q3, with growth resuming in Q4 [47] - EBITDA guidance was raised, with 5% growth expected in the second half, driven by strong operational momentum [47][48] Question: Strategic Review and Capital Allocation - The strategic review is ongoing, with options including joint ventures, divestitures, and mergers, as the company approaches its goal of 10 million fiber passings [58][59] - Capital allocation focuses on reducing the cost of capital, maintaining liquidity, and extending maturities [64][65] Question: SG&A Expense and Video Business - SG&A expense was elevated due to growth-related marketing and commissions, but cost savings in other areas improved margins [67][68] - The video business continues to decline, with the company focusing on over-the-top partnerships like YouTube TV [68][69] Question: Fiber ARPU and Low-End Macro Trends - Fiber ARPU is bifurcated, with over 60% of customers taking gig-plus speeds, while ACP transition plans impact lower-end ARPU [73][74] - No softening is observed at the low end of the consumer market, with strong demand for fiber products [72] Question: Fixed Mobile Convergence and Customer Care Improvements - The company is prepared to launch a wireless offer but sees no immediate need, as fiber growth remains the priority [78][79] - Customer service improvements have reduced calls by 50% and driven significant cost savings [79][80] Question: Vintage Penetration Disclosure - The company simplified its penetration reporting to align with industry peers and better reflect how the business is managed [81][82]