Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Frontier Communications Parent Inc (FYBR, Financial) achieved its fastest quarter of organic growth in over a decade, driven by record fiber broadband net additions and strong ARPU growth.
- The company added a record 92,000 new fiber broadband customers in Q2, marking a 37% increase from the previous year.
- Frontier exceeded 7 million fiber passings, moving closer to its goal of 10 million locations.
- The company's fiber penetration reached 45% in its base fiber footprint, demonstrating strong market acceptance and brand recovery.
- Frontier's cost-saving initiatives have resulted in $580 million in savings since 2021, contributing to a 5% EBITDA growth for the quarter.
Negative Points
- Frontier reported a net loss of $123 million for the quarter, primarily due to a non-cash pension re-measurement and a $25 million one-time legal settlement.
- Consumer fiber broadband churn remained flat at 1.4%, indicating no improvement in customer retention.
- The company anticipates potential headwinds from the Affordable Connectivity Program (ACP) impact in the second half of the year.
- Despite strong growth, the company’s adjusted SG&A expenses were elevated for the second quarter in a row, driven by higher marketing and commissions costs.
- The company’s copper business revenue remains under pressure, with ongoing declines expected despite some stabilization efforts.
Q & A Highlights
Q: Nick, we've seen a number of announcements from industry players, including two mobile in recent weeks, which kind of suggest that fiber buildouts of your competitors are going to be increasing. So directionally, does that make you more or less likely to accelerate your own fiber passing plans, either organically or by finding one or more capital partners?
A: Yeah, hi, Jim. Thanks for the question. I mean, first of all, I'm encouraged that others across the industry see fiber as an attractive market opportunity. This is something we spotted three or four years ago. And I think I'm very pleased that we were the first to really scale up, kind of build across our footprint. Of course, that's been reinforced by government coming in behind us with the BEAD program, again signaling strongly that fiber infrastructure is something this country needs, and therefore, given the market structure and the returns we can get from it, is a very attractive thing. Do I see it materially impacting our ability to build? Not really, not necessarily accelerating, as I said on previous calls, we've scaled our build very much to act in harmony with the rest of our business. So our ability to sell, our ability to service, our ability to provision customers, all needs to work in harmony to make sure that we're maximizing returns for investors across the entirety of our investment, not just our build.
Q: Can you provide a little bit more color on the strength of broadband ads we saw in the quarter, any specific region or cohort that did better? And how should we think about the second half with potential ACP impact and against the typical seasonal boost you get? And then, just quick follow up on ARPU growth. Can you also provide some color in terms of the -- maybe the deceleration in the growth that we saw? Any impact from the credits that you gave to the customers potentially due to the disruption?
A: Sure, Batya. This is Scott. Let me make a few points on ACP that was embedded in your question, and then I'll talk a little more broadly about Q3, and then follow up with ARPU. So you asked about ACP, it's a relatively small portion of our customer base, about 4%. We've said before, we've developed a number of transition plans to serve this quadrant of the market, including our 200 meg plan, but timing is still a bit uncertain. We saw some voluntary disconnects from ACP in Q2, but we expect the impact to be larger in Q3 and Q4. Now kind of broadening out to our view of Q3, we expect it to be very healthy. We have strong momentum in our sales channels. We're selling across an expanding fiber footprint. Q3 tends to be the seasonally strongest quarter of the year and the primary headwind we have is ACP, like I mentioned. When you put all those factors together, we expect Q3 net ads to be up significantly year over year, and our team is working hard to beat the record that we just set in Q2. Now pivoting to your question on ARPU, I'd say we're delivering very healthy growth in ARPU. Q1 was up 6%. Q2 is up 3.5% year over year. We do expect Q3 to be roughly flat sequentially, as we work through the ACP transition plans, and particularly the 200 meg plan, but then we expect more of an ARPU pickup in Q4 to end the year right in line in a 3% to 4% range that we've given as our long-term target.
Q: Was there an impact from the hack on ARPU growth this quarter? And can you give us what the impact was from gift cards going away, but from last year to this year? And then, more importantly, when I look at the pace of gross ads, it's up close to 30%, despite, well, I guess looking at year over year, seasonality wouldn't be a factor. But despite an impact from ACP and despite an impact from the hack, that's pretty phenomenal growth in growth ads, particularly given that industry growth is down 30% to 40%. Can you give us some context? Is this sort of the new level of gross ads that you expect to be able to be able to maintain? Is there anything one-time that helps you this quarter? And then, I know that you've sort of put in cost to acquire over the course of the last two quarters. Are you at a level of spend that you can maintain and you expect to leverage from here?
A: Jonathan, thanks. That's not sure you're sticking to the one question rule, obviously. And we got all of those. But Scott, perhaps you start.
Scott Beasley: Yeah. Let me unpack those. So first, on your question on the cyber event, as we noted before, we don't believe that the event had any material impact on our financial or operational results. That would include ARPU. So I'll just reiterate that point today that was in a previous 8-K. Your second question on impact of gift cards, we're no longer breaking that out in the training schedule, but it was roughly similar to last quarter. We don't have a big impact from gift cards because those were largely discontinued about a year ago. I'm going to pass it to Nick for kind of questions on broader industry trends. I will say, just adding to your question on the impact of the cyber event on the net ads, we largely recovered throughout the quarter. The team did a great job getting everything back online, getting customers installed. So we don't expect it had a material impact in Q2, nor any real catch up in Q3, but I'll pass to Nick on the broader industry trend.
Nicholas Jeffery: Yeah, I mean, look, on the kind of fiber gross net ad performance, we're very, very pleased with the trajectory that we've got here. And of course, as we're building more fiber, every single quarter, and just to remind everybody, we're building at a rate of about 3,500 fiber passings a day. And that means our feedstock is, of course, getting bigger. But if we take a step back a little bit, I think there are some fundamentals at play here that are now beginning to show through in our numbers. The first of which is we just have a better product. The cable companies' legacy kind of product, copper-based product was great in its time, but fiber is the product that the market wants now. And we see this in so many countries around the world, where fiber penetration just goes up and up and up. Because it's a better product, because it's future proof, indeed as our recent 100 gig trial with Nokia absolutely proves the fiber network is the last network any customer will ever have to buy. But perhaps I'll give you a little insight as well into some of the work we've been doing internally, which I haven't shared on previous calls. And that is, you may have heard me talk about the very intense work we've done with our Executive Committee on customer service, and removing and eliminating customer irritations over the past three years
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
