Frontier Communications Parent, Inc.

Good morning. Thank you for attending today's Frontier Communications third 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. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to Spencer Kern, head of investor relations at Frontier. Mr. Kern, you may proceed.

Good morning and welcome to Frontier Communications' third quarter 2023 earnings call. This is Spencer Kern, Frontier's head of investor relations. Joining me on the call today are 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 presentation section of our investor relations website. 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. 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. With that, I'll turn the call over to Nick. Thanks, Spencer, and good morning, everybody.

As you saw in our press release this morning, we reported another strong quarter of operational results and delivered accelerated EBITDA growth. Before we go into details on the quarter, I want to highlight the progress we've made in executing our strategy over the last two years. At our investor day back in 2021, we outlined a clear plan to build a future-proof digital infrastructure company designed to meet the current and future needs of our customers. Our strategy is based on four value drivers, build fiber, sell fiber, improve customer service, and increase operational efficiency. And if we turn to slide four, you can see that we're delivering on our plan, and we've done so even in a challenging macroeconomic environment. Let's start with our fiber build. Since we started in late 2020, we've expanded our fiber footprint by approximately 90%. We now provide 6.2 million homes and businesses access to our high-speed fiber network, and we're more than halfway to our goal of 10 million fiber locations. On fibre penetration, we've grown our fibre broadband customer numbers by approximately 45% since 2020. In our base fibre footprint, we've now achieved penetration of 44%, just shy of our long-term target of 45% or better. And in markets where we're building fibre, our penetration rates are at or above our target ranges at the one- and two-year marks. And we're doing all of this whilst also growing ARPU. showing that our fiber offer is clearly attractive to our customers. We've also improved customer service. Over the last two years, we've created a culture where earning customer loyalty is a part of everyone's job. A weekly drumbeat of operational improvement enhanced by new digital channels means we are now better able than ever before to serve our customers. We can see the results of these improvements in our record net promoter scores, reduced churn, reduced truck rolls, and lower call volumes. And finally, on operational efficiency, we've dramatically simplified the way we work by eliminating unnecessary processes and systems, decreasing our real estate footprint, and investing in new digital tools to make us more productive. We are on track to achieve $500 million in cost savings, double our initial target by the end of this year. And we're not done. We see potential additional savings in the future. With this strong progress, you can see why I'm more confident than ever about the value we're creating. Let's turn to slide five. Our goal is to build the leading pure play fiber technology company in the US. This should create significant shareholder value as we execute on the key levels of our financial model. It all starts with revenue growth. We offer customers a superior technology at a compelling price. And we do this in a highly attractive market structure with only one or zero gigabit capable competitors in 86% of our footprint. And these market dynamics support revenue growth as we increase the number of Fiber customers and increase ARPU. At the same time, we're actively managing structural revenue declines in our legacy copper and voice products. And together, we expect to see sustained revenue growth as Fiber becomes a greater and greater percentage of our overall mix. The next driver of returns is increasing margins. We are constantly identifying ways to work smarter, and our targeted investments in technology, specifically in the areas of digital and automation, should drive sustainable long-term savings. Also, as we grow revenue and increase scale, we should benefit from fiber's favorable unit economics. Fiber is an inherently more efficient technology and delivers tomorrow's capacity needs at a fundamentally lower cost than legacy networks. The strong unit economics of our model, combined with fiber's inherent scalability, should lead to material margin expansion. Next, let's talk about capital. I'm pleased to say that we're in a very strong position when it comes to liquidity. Thanks to the securitization transaction we executed earlier this year, we have a clear pathway to fully fund our build to 10 million locations. While the current interest rate backdrop is clearly a challenge, we've proven we can navigate it well. we have high confidence in our ability to deliver IRRs in the mid to high teens, well above our cost of capital. Ultimately, value is derived from EBITDA growth and cash flow generation. As our revenue mix expands towards more fiber, we should show accelerating EBITDA growth. And to give you a glimpse of what we're driving towards, I'd like to revisit our steady state model. At a fiber build of 10 million homes passed and targeted penetration of 45%, we expect to generate EBITDA of approximately $4 billion. Now, after subtracting maintenance and customer connection capex of approximately $1 billion, we should therefore yield recurring cash flows of approximately $3 billion. As we reach this steady state, we should be able to generate the cash flow to both reduce leverage and return cash back to investors. And given the inherent superiority to fiber, we should be able to generate attractive returns for decades. Now let's turn to slide six to review how our third quarter results illustrate our progress. This quarter saw our strong operational performance deliver accelerated EBITDA growth. We delivered EBITDA growth of 4%, our fastest quarter of growth in more than six years. We expect another quarter of solid EBITDA growth in Q4. I also want to call out the positive trends in our customer growth this quarter. Broadband net ads were up 20%, both sequentially and year over year, and consumer ARPU growth turned positive for the first quarter in more than a year. This is the direct result of the targeted changes we made earlier this year to bring our ARPU more in line with the market. These trends powered positive overall consumer revenue growth for our first time as a new public company. And we expect this growth to accelerate next quarter. In conclusion, I'm pleased with the progress we've made in transforming Frontier into a fiber broadband leader. And I'm excited about the tremendous opportunity ahead of us. Before I turn the call over to Scott, I want to say a huge thank you to all of our team. I appreciate the hard work it takes to drive our transformation and advance our purpose of building Gigabit America. So thank you all. Scott, now over to you.