Frontier Communications Parent, Inc. (NASDAQ:FYBR) Q1 2024 Earnings Call Transcript

Frontier Communications Parent, Inc. (NASDAQ:FYBR) Q1 2024 Earnings Call Transcript May 3, 2024

Frontier Communications Parent, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning. Thank you for attending today's Frontier Communications First Quarter 2024 Earnings Call. My name is Cole and I'll be the 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. [Operator Instructions] I'd now like to turn the conference over to our host Spencer Kurn. Please go ahead.

Spencer Kurn: Good morning, and welcome to Frontier Communications First Quarter 2024 Earnings Call. This is Spencer Kurn, Frontier's Head of Investor Relations and I'm joined on the call today by Nick Jeffrey, our President and CEO; and Scott Beasley, our CFO. Today's presentation can be followed within the webcast available in the Events and Presentations section of our Investor Relations website. Before we start, please see our Safe Harbor disclaimer on Slide 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. During the call, we may also refer to certain non-GAAP financial measures, which are defined and reconciled in our earnings materials. With that I'll turn the call over to Nick.

Nick Jeffery: Thanks, Spencer. Good morning, everybody. I'm here today with Scott and we're excited to share our Q1 results with you. Let's start with the headline of the quarter. We had a strong start to the year and delivered positive revenue growth for the first time since 2015. This is a major inflection point for our company and it's a fast follow for us having achieved EBITDA growth last year for the first time in more than a decade. Until now, Frontier has been a story about reinvention. Today, while our reinvention accelerates, our story turns to one of growth. Through consistent execution over the last three years, we've delivered an operational turnaround and emerged as a leader in the fiber industry. Let's talk about how we've achieved this.

It all starts with our clear strategy to build fiber, sell fiber, improve service for all our customers and increase operational efficiency. And at the center of our strategy sits our ambitious purpose, to build this digital infrastructure this country needs to thrive now and into the next century. This is the why behind the work that we do and we call it Building Gigabit America. Over the last few years, we've advanced our purpose and shown rigor and discipline in executing our strategy. Firstly, we've developed the capability to quickly and efficiently build fiber at-scale. We've more than doubled our fiber footprint in just a few short years. Secondly, we've grown our fiber broadband customer base by nearly 60% since 2020. And today, we have a record 2.1 million customers connected to our blazing fast fiber Internet.

Thirdly, we've improved our customer service. 75% of our customer interactions are now digital, driving greater customer satisfaction as reflected in our industry-leading NPS scores. And lastly, we can move faster and with greater efficiency because we've created a simpler and more digital organization. Three years of relentless execution has brought us to where we are today, the largest pure-play fiber Internet company in America. On the next slide, you can see that fiber now represents the majority of our business. With 6.8 million fiber passings, simple math puts us at 68% of the way towards our initial goal of building to at least 10 million fiber passings. Our fiber broadband customers now represent 70% of our total broadband customer base and fiber now accounts for more than 50% of our revenue and 60% of our adjusted EBITDA.

We've said as fiber becomes a greater share of our business, we become an even stronger company and Q1 is the perfect illustration of this dynamic. Let's turn to Slide 6 to review the details. I shared at the top of the call that we achieved a positive inflection point in revenue growth this quarter. This is a result of our fast-growing fiber business continuing to accelerate. We grew fiber broadband customers by 18% and ARPU by 6% this quarter. Combined, these two metrics helped us deliver total fiber revenue growth of 10%. As data consumption continues to rise, customers are increasingly turning to the best broadband product in the market, fiber. We're also seeing this need for speed translating into higher adoption of symmetrical gigabit plus speeds.

And our customers are increasingly purchasing value-added service add-ons such as Whole-Home Wi-Fi and premium tech support. The numbers clearly show how our fiber business is lifting our overall revenue and it's lifting our EBITDA too. We delivered 5.4% EBITDA growth this quarter as our revenue growth was supported by our continued focus on cost efficiencies. This is in fact the third quarter in a row of accelerated EBITDA growth and our fastest quarter of EBITDA growth since 2016. Before I turn it over to Scott, let's recap our 2024 priorities on Slide 7. This year we're focused on driving three simple outcomes. Maintaining strong operational momentum, delivering revenue growth, and accelerating our EBITDA growth. As our first quarter results show, we're off to a fast start, which puts us in a strong position to deliver accelerated growth for the full year.

I'm excited to provide more detail on our longer-term financial goals and the path for driving increased shareholder value at our forthcoming investor update. The exact timing of which will depend on the strategic review process, which we announced on a previous earnings call. We're looking forward to this event and I'll keep everybody posted on timing. I'll wrap up by saying a huge thank you to our customers, employees, partners and everyone who played a role in building Gigabit America. And I want to say a special thanks to our IT team. A few weeks ago, we disclosed that we had a cyber-incident that impacted some of our IT systems. Our IT team was quickly able to contain the incident and worked tirelessly to get us back up and running. And I'm extremely grateful for all their hard work and dedication and I'm proud of our whole team for rallying together to continue to serve our customers.

So thank you all. Scott, over to you.

Scott Beasley: Thank you Nick, and good morning everyone. We started the year with a strong quarter of operational and financial results. We added 322,000 fiber passings in Q1, which puts us on-track to achieve our goal of 1.3 million passings this year. We also added 88,000 fiber broadband customers in the quarter, resulting in customer growth of 18% year-over-year, while growing ARPU at the same time. Consumer fiber broadband churn was also solid in the quarter, remaining low at 1.2%. Finally, we continued to execute on our cost savings initiatives, and we have reached a cumulative $536 million of savings since we started the program in 2021. These strong operational results continue to drive our financial performance. Our financial highlights are on Slide 10.

Let's start with revenue. Our first quarter revenue was $1.46 billion, up 2% versus Q1 of last year, and we earned $1 million of net income. As Nick highlighted at the beginning of the call, growing revenue year-over-year was a major inflection point for us. Our $547 million of adjusted EBITDA represents our third consecutive quarter of adjusted EBITDA growth and our fastest pace of growth since 2016. We also generated $335 million of net cash from operations, bringing this total to $1.3 billion over the trailing 12 months. Slide 11 shows the continued progress that we are making in growing our fiber customer base. We grew our total fiber broadband customers by 18% versus last year. This number is up nearly 60% since the end of 2020. We have driven this customer growth while also accelerating ARPU growth, which as Nick mentioned, grew by 6% year-over-year.

Our ARPU growth was a result of three drivers, introducing faster speed tiers, price adjustments and expanding our sales of value-added services. In Q1, over 60% of our new customers took speeds of 1 gig or faster and nearly 50% of customers purchased at least one value-added service. We are now seeing strong execution translate into revenue growth. Our customer and ARPU growth drove a 24% increase in fiber broadband revenue this quarter, which more than offset legacy product declines. Total revenue growth for consumer accelerated for the third quarter in a row to 3%. Business in wholesale was roughly flat, leading to overall revenue growth of 2%. We expect the trends of accelerating consumer revenue growth in roughly stable business and wholesale revenue to continue for the rest of the year.

Moving to Slide 13, we achieved 5% adjusted EBITDA growth this quarter, driven by 12% growth from fiber products. We are also managing the decline of adjusted EBITDA from copper products, which declined 2% year-over-year. Let's turn next to Slide 14. We had cash capital investment of $1.0 billion in the first quarter of 2024, down $125 million versus Q1 of last year. Cash capital investment was front-end loaded this year as expected, largely due to the timing of working capital related to the build. We expect to see capital investment decline for the remaining three quarter of the year and we remain on track for our 2024 capital investment to be lower than 2023. As we noted on our last call, we expect to spend less capital on the same number of passings as we consumed pre-work and inventory that we built-up in 2022 and 2023.

Our capital investment mix is also shifting with lower build spend, but higher success based customer acquisition spend as we increase gross adds. We continue to have high confidence that our fiber build will deliver IRRs in the mid to high teens well above our cost of capital. And that once we are through the investment phase, our business should generate significant growing free cash flow. Touching briefly on Slide 15, at the end of the first quarter, we had $2.6 billion of liquidity. Our balance sheet remains healthy with approximately 87% of our debt at fixed rates and we do not have any significant maturities until 2027. Finally, you can see on Slide 16 that we are reiterating our 2024 guidance. Our adjusted EBITDA growth in Q1 gives us increased confidence that we can grow adjusted EBITDA in the mid-single-digit range for the year, which would be a significant milestone in our turnaround.

Before we open it up for questions, I want to say thank you to our Frontier team for delivering another great quarter and a strong start to the year. Operator, we'll now open the line for questions.

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