Starry Group Holdings, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to Steric Group Holdings' first quarter 2022 earnings call. As a reminder, this conference is being recorded. I would like to turn the conference over to our host, Ben Barrett, Vice President, Investor Relations. Ben, please go ahead.

Thank you and good morning, everyone, and welcome to our first quarter call. I'm Ben Barrett, Head of Investor Relations for Steric. Joining me on the call today are Chet Knojia, our CEO, Komal Mitra, our CFO, and Alex Mule-Burto, our COO. By now, you should have received a copy of Starry's earnings release and investor supplements for the first quarter 2022 results. If you have not, copies are available on our investor relations website. Before we begin, I would note that some of our comments today may be forward-looking. As such, they're subject to risk. and uncertainties described in Starry's earnings press release and SEC filings, and results may differ materially. Additionally, during our call today, we will reference certain non-GAAP financial measures that we believe provide useful information for our investors. Reconciliation of non-GAAP financial measures where appropriate to the corresponding GAAP measures can be found in the company's earnings release and other filings for the SEC.

With that, I'll turn the call over to Jeff. Thank you, Ben. Good morning, everyone, and great to be starting our first-ever earnings call here. I think I've met a lot of folks over my career here, but just for those who don't know me, a quick two-second bio. I'm one of the co-founders and CEO of Starry. I'm an engineer by training, and I've had the diseased career of starting multiple technology companies starting in early 2000. And this entity, Starry, was really started right after my last company, which was Aerea, was shut down. And as the team and I were sort of thinking about what we really wanted to do next, and this is just a fantastic team, and everybody had a desire to continue to work together, we thought building a broadband company made a lot of sense for a variety of different reasons that I'll touch upon as well. The opportunity in broadband is to be able to disrupt the sector with extremely low cost technologies and to be able to achieve scale with relatively less investment compared to the traditional approaches that have been used in the past. And so what motivated us to, I'm sorry, we believe broadband is essential for everyone, just below food and shelter. But the experience is universally bad, it's expensive, and the customer experience is just poor. And I think we can all relate to that from our personal experiences. In founding Starry, we wanted to focus on our customers first and foremost. While our peers look to mine more dollars through price increases, fees, and bundling, we obsess about adding value, speed, and performance to the customer's experience. We knew at the beginning that we needed to be a combination of technologies, in particular in this case fiber, along with last-mile high-capacity wireless in order to have the right disruptive cost structure. But the technology didn't exist, so we did the difficult thing of creating the technology stack ourselves. And that was a process that took us about four years with the first part of the company's life. The result is a totally unique tech stack based on global standards that includes all the radio frequency hardware plus our own software suite that runs our network and provides data. You hear a lot of noise about cloud-based telecom. In telecom, we are cloud native and we run our network effectively from a smartphone. The result of this intense R&D is a new broadband network cost structure, an inversion of the classic model. Instead of deploying billions to build out of fiber, we can cover an entire city with a few million dollars in capex as the price of entry, and then the rest of our capex and cost structure is success-based as customers sign up. This new broadband economic model is what allows us to run a successful business at very low penetration rates in most markets. I firmly believe today we are at a at-water-stir stage of our development process, meaning that the technology and the concept has been proven out, and we obviously continue to need capital to continue to grow the company. That is why we decided to access the markets and become a public company. To that end, we went public on March 19th, raising total net proceeds of about $155 million to de-stack transactions and concurrency of shares. Market conditions obviously are very volatile, but it's a company that has a proven economic model. This is not a concept company, and we've successfully found investors willing to finance our approach. We welcome them to the extended starting family and will strive to prove their thesis right. However, the business ultimately will require more capital. We raised approximately half of what we originally expected to raise in the offering, and we're looking to be raising additional capital in the future days. We have time and multiple pathways to source the future funding on exploring options that combine debt equity and other vehicles with strategic partners as well. As we continue to prove out our ability to scale at a crack of unit economics, we believe we will find the support. I firmly believe that good companies find support in nearly any market condition. Why are we so bullish? Why will Starry succeed? First, the technology is delivering, providing a comparable or superior product experience to most broadband consumers. I would say the company's technology is comparable to fiber and superior to most other things out there. We have a full stack tech solution for gigabit last-mile broadband today using licensed millimeter wave spectrum and a technology roadmap that allows us to have multiple gigabit solutions in the future. Our innovation in using global standards based on 802.11 based and adapted for license frequencies in the animated wave spectrum enables us to have fiber-like performance at a fraction of the cost. We've proven out the efficacy of our technology at every level of the chain over the past few years. We continue to invest in R&D in several dimensions to drive down costs and improve spectral efficiency. our subscribers are heavy users of broadband last quarter the average user consumed 574 gigabytes of downstream and a very substantial amount of upstream which i think is a long-term trend that's in our favor second we're continuously improving our unit economics this is a key element for success as investors can realize in this sector costs matter in order to succeed as a competitive provider we need to be able to match speeds and capacity except at much lower cost, and which is our purpose. Today, our cost to pass the market is ballpark $10 to $30 million, depending on the size of the market, which is orders of magnitude better than buyers. This is the cost to make the market serviceable. Think of this as price of entry in a particular market. Then, all the remaining network CapEx is success-based. Today, our cost to attach typical customers is in the mid-hundreds of dollars. It has fallen over years, and we continue to improve our unit economics, and we expect we will continue to decline the cost curve as we achieve more scale and operational efficiency. Let's continue to invest in new R&D for the next generation of technologies. For example, our base stations first were about a quarter of a million dollars, then they cost several thousand dollars today. We expect to see similar trends lay out across most of our major equipment categories. In addition, we saw our cost of goods sold per broker asset, which is essentially the equivalent of a tower and managed rooftop, drop by a full 18% in 2021 compared to 2020, and then 36% compared to 2019. Our vertical integration study is unique in the sense that we have an absolute control of our technology as well. This vertical integration helps us drive our unit economics as well as better prepared to resolve any supply chain issues that arise. And we're extremely proud of our team to have managed these difficult times in the past year from a supply chain perspective without missing a beat. Third, we are performing incredibly well on our deployed network. Alex, our chief operating officer after this, will dig into the network and customer performance, but I want to highlight a few trends. We continue to see penetration in the buildings that we deploy and provide service reach 25% in the first year or more, 28% in the second year, and 30 plus percent in the third year of operations, which is all the data we have today. That just shows us the demand is real for our product. But because we're investing in growth along with so many vectors, the multitude and magnitude of our investment is relative to the size of our base can distort the underlying financial picture. The underlying economic model remains extremely healthy and unchanged. The path forward for us continues to grow our serviceable homes while also increasing our penetration within that set. We continue to see a potential for break-even profitability at approximately 4% take rate of the passing. And we have also discussed our adjusted EBITDA margins approaching cable levels at double-digit penetration of any bidding market. This gives us a lot of confidence in the underlying economic model works as intended and reinforces our desire to expand as quickly as possible. Finally, I want to spend a couple minutes talking about the market segmentation and competition. With our licensed spectrum portfolio covering 40 million households, we have focused mostly on the urban and denser parts of the suburban core. I want to highlight this point. There's a lot of attention being paid now to mobile providers offering fixed services and to new fiber deployments. These are both interesting segments for sure, but they're focused on different geographic aspects of the market than starting days. Mobile operators offering fixed wireless are focused on where they have access network capacity, which generally is not in dense parts of this country. New fiber deployments are focused on existing edge outs or DSL areas, which again, by very definition, tend to be away from dense parts of the country. In addition, we have developed a very meaningful competitive moat against potential new entrants. Our network allows us to deliver speed and capacity, while others can offer one or the other, but rarely both. And this is an important point that I want to highlight on. Our spectrum position is nearly impossible for a new entrant to replicate today because the FCC has nearly auctioned off most of the millimeter wave spectrum that was teed up. And there isn't a meaningful secondary market opportunity to acquire it. We've spent four plus years, $200 million to develop our technology, which is extremely difficult engineering, time-consuming, and has left us with a great deal of intellectual property and know-how in the market. We've also had the invaluable experience of having built multiple networks in multiple cities. We've worked out the kinks in the system and learned how to most effectively sell the product and serve our consumers. In summary, we've created something really unique. This is, frankly, from my perspective, the only real growth story in the broadband, perhaps even in decades. We've solved really difficult technical challenges, and now we're getting the word out and getting our product in the hands of more and more consumers every day. I will now turn over to Alex, our Chief Operating Officer, to walk you through the operating results of this work. Thanks, Jeff. Hi, everyone. I'm Alex Moulay-Berteau, a co-founder and COO at Starry. I'm responsible for overseeing the business performance and operations here, including network deployment and maintenance, customer delivery and care, as well as sales and marketing. A bit about my background, for those who don't know me. Previously, I worked with Chet and the team at Area, and before that, I spent over a decade in product management and marketing across consumer technology businesses. The underlying thread throughout my career has been to work with high-disruption teams and products. At Starry, that disruption is innovating on how internet access is delivered. expanding high speeds and affordable broadband coverage to millions of americans now let's jump into operating results addressable homes we define this as residential household units within a total market boundary think of this as cam in our live markets we're currently at 9.7 million household units in six live markets flat year over year as many markets were opened you will see this number increase as we roll out new markets. In live markets, we continue to focus on driving serviceable homes by expanding our network. This metric is the household units that we cover and technologically service with our built network. We increase serviceable households by 20% year-over-year to 5.5 million homes. Our customer relationships increase by over 8,000 in the quarter. end at over 71,000 customers, up 72% year-over-year. This is the second quarter in a row that Sari has added more than 8,000 net ads in a single quarter. Sari saw growth in customer relationships in each of our six markets during the quarter with continued strength in the MDE category. Our penetration of serviceable homes was up 39 basis points year-over-year. as the company continues to focus on not only new network expansion, but also deploying and delivering service under existing Starry network coverage. This quarter, we also made great progress with Starry Connect, a digital equity program that now reaches more than 63,000 apartment units of public and private affordable housing. We're proud to say that Starry was named to the Time 100 Most Influential Companies list in recognition of our visual equity work through Star Connect. We also continue to lead our industry in Net Promoter Score. Our lifetime NPS score is 61. This is on par with some of the most beloved household names. So all of these are foundational building blocks that we believe will continue to support our next phase of expansion. and plan to build out new networks in a cost-efficient manner and expect at least one new market to go live in 2022 and more new markets in 2023 and beyond. From the beginning, we looked to align our growth with our equipment costs with strong and consistent focus on unit economics. We originally started by deploying to only large MVUs of 100 department units and above. And we steadily reduced the size of buildings we deployed to as cost deductions in each generation of equipment were realized. In MDUs as of the quarter end, we had approximately 375,000 apartment units connected. As Chet mentioned, we continue to see healthy penetration trends across all MDUs connected in online markets. This healthy penetration dynamic is really driven by a lack of alternative service options, a growing cord cutting segment, and strong customer satisfaction dynamics in the areas that we're serving. We believe this will all support ongoing and robust demand for our service. For single family units, we've rolled out service in select market areas in mostly suburban communities. This is a new market opportunity for us. that has been opened up in existing and new coverage areas. And this is made possible by our declining equipment costs. In other opportunities, the Rural Digital Opportunity Fund, or RDOC as you all know it, and the Affordable Connectivity Program, or ACP, are both government-supported programs we're participating in. we expect to continue to grow our participation in ACP as our overall footprint and the Starting Connect program expands. Over time, we also plan to introduce small and medium business services and more over the coming quarters. In conclusion, our operational focus is on continuing to improve and expand the network, scaling our teams and capabilities to continue to offer We believe we see strong consumer demand. We have the technology and supply to support our customers. And our priority now is to continue to execute. With that, let me now hand things over to Komal.