Frontier Communications Parent Inc

NASDAQ:FYBR

Earnings Call Transcript 2021-Q4

[Operator]

Hello everyone and welcome to the Frontier Communications Q4 2021 Earnings Conference Call. My name is Bethany and I'll be your operator for today's call. [Operator Instructions] I will now hand the call over to Spence Kurn, Head of Investor Relations. Spencer, over to you.

[Spencer Kurn, Head, Investor Relations]

Good morning and welcome to Frontier Communications fourth quarter 2021 earnings call. This is Spencer Kurn, Frontier's Head of Investor Relations and joining me on the call today is John Stratton, Executive Chairman of the Board, Nick Jeffery, President and Chief Executive Officer, and Scott Beasley, Chief Financial Officer. Today's presentation can be followed within the webcast and is available in the Webcast & Events section of our Investor Relations website. Let me refer you to slide two, which contains our Safe Harbor disclaimer and remind you 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. In addition, during this call, we will 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 John.

[John Stratton, Executive Chairman]

Good morning everyone and thank you for joining today's discussion. Our business continues to be well-positioned to win in key markets and we continue to execute on the unique opportunity to create significant shareholder value. We have a strong foundation of fiber assets and infrastructure, a significant customer base, and strong competitive positioning. In the last 12 months, we've generated $6.4 billion of revenue and $2.5 billion of adjusted EBITDA, which represents a 39% adjusted EBITDA margin. And driving this performance are our 2.8 million broadband customers across both consumer and commercial businesses. As we've said before, fiber is the future of Frontier. $1.1 billion of our EBITDA in the last 12 months has been generated by our fiber products and we're investing to grow our fiber EBITDA rapidly. We have approximately 400,000 businesses with 250 feet of our fiber network and over 23,000 towers within one mile of our fiber. As we continue to build out our network, we expect to grow and convert these attractive in-footprints opportunities. Onto slide five and looking back to review 2021, we made significant progress on our transformation of Frontier. It began when Nick Jeffery joined in March and we recruited a talented new Board of Directors with high levels of subject matter expertise across key areas including digital transformation, brand development, capital investment, operational efficiency, and telecom strategy. We emerged from bankruptcy at the end of April and listed on the NASDAQ Exchange on May 4th. We refocused the company around a simple, but powerful purpose, building gigabit America and at our Investor Day in August, we announced our accelerated build plan to reach 10 million locations with fiber by 2025. The third quarter was the first full quarter at Frontier for most of our executive team. And since that new team has been in place, we've consistently set new records on growing our fiber footprint and our broadband customer base. In addition, just yesterday, we launched two gigabit per second broadband speeds across our entire fiber network and we believe it's a very compelling offer with a large suite of value-added services, which positions us extremely well to provide the absolute best broadband service to satisfy our customers' growing demand for faster data speeds. There are several inflection points that will be critical to our transformation. And we've discussed these as our key indicators of success throughout the process. The core driver of our businesses broadband customer growth, which is ultimately what will drive revenue, EBITDA and free cash flow growth. Rapidly expanding our fiber footprint is the first critical step and achieving broadband customer growth. We executed on accelerating the pace of our build in the second quarter of 2021. Almost immediately after our new management team began to form. In the third quarter of 2021, we demonstrated that we could accelerate the pace of fiber broadband net ads, and we reached the point where our fiber broadband customers overtook our copper broadband customer base. And then in the fourth quarter of 2021, we grew our fiber broadband net adds, an excess of our copper broadband losses, reaching the key inflection point in total broadband customer growth. We expect that these three critical inflection points will soon drive inflection points in our financial metrics. And while we still face headwinds from legacy products, we expect to drive sequential EBITDA growth for the total company by 2022. And drive year-over-year revenue and EBITDA growth in 2023. We remain encouraged by the long-term secular tailwind behind our fiber centric strategy. Demand for high speed broadband is increasing at an accelerating pace between 2020 and 2025, usage is expected to triple and fiber is clearly the best product to meet this rising demand. Fiber's performance is vastly superior to cable today with 34% faster download speeds, roughly 18 times faster upload speeds, and 42% lower latency level than cable. We're seeing the demand in real time across our network. In January of this year, our average fiber broadband customer consumed 828 gigabytes of data on our 500 megabits speed tier and 1.1 terabytes of data on our one gigabit speed tier, presenting increases of more than 30% since pre-pandemic levels across both speed tiers. We're uniquely positioned to capitalize on these demand trends, with a 20% cost advantage in building fiber, and a clear low cost path to extending our leadership and broadband to 10 gigabits service and beyond. And we're encouraged that the government is aligned with our purpose of building gigabit America. The government has already passed legislation that will drive an estimated five to six times increase in broadband stimulus over the next few years. We believe that government funding should be targeted to locations that will be uneconomic to pass this private capital alone. We've been active in existing government programs within our footprint, and will remain active as funds related to the broadband infrastructure bill are released. And importantly, I'd like to reaffirm our commitment to ESG, as we build the future backbone of our nation's connectivity infrastructure. This commitment aligns well with growing pools of capital directed at ESG investments. We continue to invest in products that connect underserved communities, and rural areas in our footprint, helping to bridge the digital divide. We're committed to creating a safe, healthy and inclusive workplace in which our people can thrive. We're also committed to investing in the communities where our employees live and work. We recognize our responsibility as stewards of the environment, and our opportunity to lead on sustainability in the industry. Fiber is a passive technology that uses less energy than competing technologies like cable. As we upgrade our copper network to fiber, we'll be on a path to reduce our greenhouse gas footprint significantly. And lastly, we're committed to modeling the highest standards of governance. We have a Board with diverse backgrounds and relevant experiences and skills with separate Chairman and CEO roles. We have implemented comprehensive compliance and ethics programs and we have built a pay for performance compensation philosophy into our executive compensation programs. We look forward to providing more details on our ESG commitments as we continue to make progress on our ESG journey. We've built our strategy around four key levers of value creation. Expanding our fiber footprint is at the core of our strategy. We plan to accelerate our fiber deployment to be able to reach over 10 million homes by the end of 2025. Along with growing our footprint, we'll be launching new best in market products to meet customer demands and increase penetration in our fiber footprint. How we engage with customers is also critical to our success. Our goal is to deliver an exceptional experience throughout all of our interactions with customers. And lastly, we continue to identify opportunities to simplify how we operate and focus our operations across all parts of the company. I'll now turn the call over to Nick to review how we perform against these initiatives in the third quarter. Nick?

[Nick Jeffery, President & Chief Executive Officer]

Thanks John. Before I get started, I want to acknowledge that many analysts and investors have said the Frontier is an execution story. So on this call, we're going to go deeper into the key actions that are contributed to our strong results. In Q4, our team executed extremely well against our strategic priorities. We built a record of 192,000 new fiber locations, reaching our target of 4 million total fiber locations at the end of 2021. We added a record 45,000 fiber Broadband Customer Net Edition, which is nearly a five fold increase over the same period a year ago and a 50% increase compared with our previous record from last quarter. Our fiber net ads this quarter were greater than our couple losses, resulting in positive total Broadband Net Ads. For the first time in more than five years. We earned record high Net promoter scores and record low churn both across Fiber and copper. And importantly, our Fiber NTS had positive for the first time ever this quarter and just yesterday, we launched the first and only network wide 2 gigabit per second electrical fiber service, which further extends our leadership and offering the best possible broadband products in our market. Moving to our first strategic initiative, Fiber Deployment. On Slide 12. Our fiber deployment continues to increase and we built fiber on record 192,000 locations this quarter. To put the year into perspective, we passed six times the number of locations in 2021 that we passed in 2020. Our team has demonstrated our ability to accelerate our fiber build and to do so within our established cost targets. While also navigating global supply chain and COVID related disruption. We're excited to continue accelerating our build to reach 1 million plus locations in 2022. This will put us at 5 million fiber locations by the end of 2022 and on pace to reach our previously announced target at 10 fiber locations by the end of 2025. With all the disruptions that I just mentioned, I'd like to reflect on the foundations that we've established throughout 2021, which gives us conviction in our ability to accelerate our fiber build and enhance network performance over the coming years. We expanded our pool of suppliers for both labor and material, providing us with redundancy, if any particular supplier issued in the given points in time. We secured multi-year agreements with key partners to secure supply while meeting cost targets. And we've improved our permitting processes to reduce our time to market. And we continue to push the boundaries on fiber technology with our industry-leading trial of 25 gigabit per second broadband speeds. With our fiber humming, I'd like to touch on our second strategic initiative, fiber penetration. We've made incredible progress in consumer broadband this year, simply by focusing on getting the basics right. We streamlined our offers to three predefined prices designed to provide the fastest speed, best value and best performance all while eliminating organizational complexity and customer confusion. We enhanced our industry leading broadband products with value added services like Eros, YouTube TV, and DirecTV Stream to release critical pain points for our customers. We established digital customer acquisition capabilities through our partnership with Red Ventures. Not only did these capabilities open a previously untapped channel through which we can acquire customers, but also our consumer e-cart, AI-powered, A/B testing and mix optimization analytics enable more effective customer targeting, resulting in higher customer additions at a lower cost. And lastly, our brand is arguably tarnished before we began implementing our new strategy. And we've already seen a sharp increase in net promoter scores with fiber NPS up 33 points since January of 2021 and turning positive for the first time ever this quarter. All these improvements have driven a sharp increase in fiber broadband customer activation. We added a record 44,000 consumer fiber broadband customers this quarter driving an acceleration in our fiber broadband customer growth to nearly 8% year-over-year. To put this into perspective, we are the only fixed broadband provider and our footprints to have higher net adds this quarter than last quarter, which truly underscores our ability to gain market share, as we continue to improve on all these initiatives that I described on the prior slide. On slide 17, we get more deeply into fiber broadband customer base. And we showed we didn't just gain customers from deploying fiber into low penetrated market, but we also gained customers in our mature fiber market or what we refer to as our base fiber footprint. In our base fiber footprint penetration increased 40 basis points sequentially to nearly 42%. Again, this represents a sequential increase in net adds. Whereas all of our competitors show decline. Our base fiber footprint serves as a target for where we expect to drive penetration in our expansion fiber footprint and we expect to steadily grow penetration to at least 45% over time. Our 2020 expansion cohort continues to outperform our expectation. The penetration of 22% at the 12 month mark. Last quarter, this metric was 30%, but we cautioned that it represented a small sample size at just 26,000 locations, bringing in another 60,000 locations this quarter, which is more representative of a scale build penetration for our 2020 build cohort reached 22% at the 12 month mark, which outperforms our highest penetration of 15% to 20%. We continue to expect penetration of 25% to 30% at the 24-month mark, and to rise further from there towards our terminal penetration of 45%. Our history 500 megabit per second and one gigabit per second consumer offering with symmetrical upload and download speeds and lower latencies were already superior to cable. And our recent launch of two gigabit per second speeds across our entire fiber network further extends our network passage. With two gigabit per second services, we will enable next-generation experiences such as augmented virtual reality, cloud-based gaming and multiple 8K TV streams. And we're including a suite of value-added services to customers that opt into our two gig service, such as My Premium Tech and Multi-Device Security. Our two gigabits per second launch is a big step forward to Frontier, and we plan to continue rolling out faster speeds over time and already in advance planning to launch a five to 10-gigabit per second ultra-high speed offering. Our 10-gig speed will revolutionize how broadband can be used, including advanced digital healthcare procedures such as tele-surgical operations, and supporting the widespread use of hologram like 3D video conferencing. At the same time, as we improve our consumer segments, we're also making significant progress in turn around our business and wholesale segments. In SMB, we took a complex offer with generic marketing campaigns and limited ways to engage with customers to a simple three tier attractively priced offer with specific tailored marketing campaigns, which expanded channels to reach more customers that are likely to engage with them, and a proactive strategy to migrate fiber eligible copper customers to fiber. In Enterprise, we took an undefined coverage model with outdated products and fragmented sales operations to a refined segmentation and coverage model to focus on the highest potential value of customers, a simplified portfolio focused on strategic products, and a robust CRM platform to optimize sales operations and customer management. In Wholesale, we took a declining business that lacks key relationships to a multi-year strategic agreement with AT&T to improve our win share in enterprise and fiber to deploy our customers. Taken together, these actions are already showing early signs of improvement. We aim to take share of an estimated $8 billion market opportunity within our footprint, and we still have a long way to go to further differentiate our business with best-in-class products, value-added services and industry leading partnerships. So please stay tuned for more updates here, which we'll cover in future earnings calls. Now I'd like to move on to our next strategic initiative, the customer experience. I've often said that there is no single silver bullet to improve the customer experience and that it requires hundreds and even thousands of small changes rooted in attention to detail and a determined execution across the business to quickly remove these pain points. We made enormous progress on transforming the customer experience this year. We took inconsistent paper bills and radically simplify them making them paperless and introducing auto-pay, which significantly improves the customer lifetime value. We took our manual customer communications, operations and streamlined our IVR, automated and simplified our SMS and email communication and introduced a whole range of customer self help tools, which have increased customer satisfaction, whilst lowering call center volumes by 20%. We introduced next-day installed across our footprint to reduce cancellations arising from long installation time. And we simplified the process for equipment return. Instead of requiring technicians to pick up or our customers to drop off equipment, we simplified an automated return process with a mail-in option and simple QR code. The improvements made in 2021 are already delivering excellent results, which I'll speak to in just a minute. But it's important to keep in mind that we're still at an early stage in our transformation. Customer Care is a constantly evolving mission for us. Our executive team meets two hours every single week to review all aspects of customer journey and build clear actionable plans to improve them. We are constantly refining automating simplifying our systems and processes for interacting with customers and rigorously measuring our progress as we go. Now, on to the excellent mission that our customer care initiatives committed to score. Our Fiber net promoter score increased 33 points from January to December of 2021 and turn positive for the first time ever in November. Our NPS scores continue to find in 2022 and importantly shorter tenure customers have significantly higher NPS scores than longer tenure customers, which suggest that our overall NPS scores have a long way to run as we grow our customer base. Additionally, broadband churn across both fiber and copper customers continues to fall each down more than 20 basis points, versus the fourth quarter last year. Churn tends to be higher for the first 90 days of the customer lifecycle than it is across the total couple of days, so early churn is an important metric that we track internally to measure customer satisfaction. 90 days churn continues to be down 30% since the same period last year, and down 25% since March of this year, which indicates that the changes we're making to the customer experience are driving real results across the business. I'll now turn the call over to Scott to run through our fourth quarter financial performance and our performance against our four strategic pillar of operational efficiency.

[Scott Beasley, Chief Financial Officer]

Thank you, Nick, and good morning, everyone. As I have done on the last several calls in order to more clearly describe the performance of our business versus previous time periods, I will reference pro forma numbers in 2020 that have been adjusted for fresh start accounting changes. Turning to results on slide 24, revenue was $1.54 billion in the quarter, driven by roughly flat sequential data revenue, but lower voice revenue. We earned $189 million of net income and $585 million dollars of adjusted EBITDA, $273 million of our adjusted EBITDA came from Fiber products. This was roughly flat year over year, a strong consumer Fiber broadband growth offset the clients and voice and other. We generated $468 million of cash from operations in the quarter, helping to add to our strong liquidity. Turning to slide 25, our total revenue declined 6% this quarter, consistent with declines from last quarter. Fiber revenue declined 1% year-over-year as consumer broadband revenue growth of 11% and business broadband revenue growth of 8% were offset by declines in video, voice and other. Two notes on Fiber revenue. First, Q4s year-over-year consumer Fiber broadband ARPU growth of 4% was in line with our long term expectations for 3% to 4% ARPU growth. ARPU declined slightly sequentially as we introduced two strategic initiatives in the second half of the year, our $5 auto-pay discount and gift cards for new customers. Both are value creating initiatives that will be a headwind to ARPU growth for a couple of quarters. We do not expect these to be material headwinds to ARPU growth once we lasts these impacts in the second half of 2022. Second, as I mentioned on the last several calls. We made the decision to stop marketing videos to new customers in early 2021, which has contributed to revenue declines, but it had minimal impact on profits due to high content costs. Copper revenue growth was flat sequentially at negative 9% as both consumer and business based expected headwinds. In 2022, we expect fiber revenue growth to accelerate into positive territory as the year progresses, driven by strong growth and consumer fiber and stabilization and business and wholesale. We expect copper declines to moderate slightly as our customer experience initiatives take hold, but we still expect overall declines in copper due to the legacy product headwinds. As a final note on revenue, the fourth quarter was the final quarter, where we received subsidy revenues from the CAF II program. While we expect to be an active participant in the recently announced $43 billion infrastructure investment and JOBS Act, these funds are unlikely to be significant in 2022. Therefore, we expect the range of $10 million to $20 million of subsidy revenue per quarter in 2022, with Q1 as the low point, because of delayed timing for several awards. Turning to Slide 26, total EBITDA declined 13% this quarter end, again driven by declines in copper. Fiber EBITDA was roughly flat year-over-year, a strong consumer fiber broadband growth and margin improvements were offset by revenue declines in voice and other. Frontier is a fiber first company. Fiber represents 54% of our adjusted EBITDA and will increasingly drive the growth trajectory of the overall company. Copper EBITDA declined consistent with their expectations and we expect sequential declines to moderate over the next several quarters as a result of our improved customer experience. Turning to Slide 28, our Fit for the Future Program remains on track to exceed our initial goal of $250 million of gross annual cost savings by 2023. When we kicked off the program this past summer, we set out to achieve $25 million in gross run rate cost savings in 2021. I'm pleased to note that we have already surpassed that number, and realized more than $90 million of gross annualized cost savings, with more than $40 million in year savings captured in 2021. This puts us on track to exceed our long-term goals. And I am encouraged by our culture of simplification as we continue to identify areas of efficiency throughout our organization. On Slide 29, I'll highlight four key simplification initiatives that will help free-up stranded cash as well as structurally lower our cost base. The first is divest non-productive real estate, we've identified an opportunity to consolidate and exit over 30 locations in our administrative footprint, representing more than 1 million square feet of office space. In 2021 alone, we sold 18 properties for cash proceeds of $42 million, giving us a solid start towards our goal of achieving at least $150 million of proceeds by 2023. The second initiative was the closure of our retail stores in order to meet the shift in consumer preferences towards digital engagement. In the second half of 2021, we closed more than 50 retail stores, allowing us to redeploy our attention into more efficient forms of customer interaction. The third initiative was the sale of our CPE business, which did not align with our strategy of focusing on higher margin core connectivity services. We closed the sale in Q4. The CPE divestiture will reduce annual revenue by roughly $50 million, but will have minimal impact on EBITDA. And lastly, we have transformed our procurement team and processes to help drive simplification across our supplier base. Under a newly centralized team, we've diversified our labor and material supplier base for our fiber build, while at the same time consolidating our overall vendor base. Our actions in procurement have already led to more efficient supplier relationships with lower costs and better liability. And we are still in the early stages of this transformation. We'll move to capital allocation on slide 30. The underlying cash flow generation of the business remains strong. We generated $468 million in net cash from operating activities in the fourth quarter. We're committed to managing our balance sheet in a disciplined manner with net leverage in the mid-threes. Finally, we're committed to rigorous capital allocation decision making. Our fiber build will be the primary focus of capital allocation over the next several years. Our projected build cost per location that we've communicated to you over the last few quarters $900 to $1,000 from 2022 to 2025 remains unchanged, including roughly $1 billion of debt that we raised in October, we ended 2021 with $2.1 billion in cash and $529 million of available capacity on our revolver, totaling $2.6 billion of liquidity to fund our fiber build and normal operations. In addition to the strong liquidity, we also have ample balance sheet flexibility, our net leverage remained low at 2.4 times at the end of the quarter, giving us healthy headroom under our mid-threes net leverage target. We do not have any significant maturities earlier than 2027. This maturity timeline provides us a clear runway throughout our Wave 2 fiber build. Additionally, as a result of our build plan, we do not expect to be a significant federal cash taxpayer throughout Wave 2. As I stated before, we will pursue a discipline financial policy that will enable us to manage the range of economic scenarios. I'll now turn to our 2022 financial guidance. For 2022, we expect capital expenditures of $2.4 billion to $2.5 billion. The increase versus 2021 $1.7 billion is primarily driven by the acceleration of our fiber build, where we expect to pass at least 1 million new locations in 2022. Additionally, we expect higher success based CapEx as we connect more customers to fiber across consumer, business and wholesale. Two other notes on CapEx. First, we expect our build cadence throughout 2022 to follow a typical seasonal pattern with the better weather quarters of Q2 and Q3 at a faster paced in the winter quarters of Q1 and Q4. Additionally, as we are accelerating our builds from 2022 into 2023, we will have CapEx in the latter part of this year, that is pulled forward I 2023 for material and build costs related to locations that will not be held for sale until 2023. We display the similar trend in the latter part of 2021. Next, we expect adjusted EBITDA of 2.0 billion to $2.15 billion. Our outlook assumes a loss of roughly $275 million of revenue and EBITDA related to subsidies versus 2020. By the end of the year, we expect an inflection point in EBITDA as we return to sustain EBITDA growth. The loss of subsidy related revenue and EBITDA will result in a sequential step down in margins of approximately 350 basis points from Q4 2021 into Q1 of 2022. But we expect this to be the low point in margins for the year. We expect margins to be flat to up for the first three quarters of 2022, before inflecting more significantly in the latter part of the year. I’ll now close by bringing the Frontier investment thesis all together. First, there's a strong and growing demand for fiber, driven by expanding household data consumption. As john mentioned is his opening remarks, we are seeing rapid increases in data consumption across our network. And as new use cases emerge, we expect these trends will continue. Fiber is a superior product for a number of reasons, including symmetrical upload and download speeds that far exceed cables capability, lower cost of ownership driven by fibers passive technology, and lower latency levels that enable important uses like video conferencing and gaming. We have a clear strategy and purpose. We're building Gigabit America to connect Americans to the digital economy. We have ample liquidity and a strong balance sheet, providing us with access to capital to fund our strategy. Last, we’ve attracted a strong and experienced leadership team, who are singularly focused on executing our four-part strategic plan. I’ll now turn the call over to Spencer to open up the line for questions.

[Spencer Kurn, Head, Investor Relations]

Thanks, Scott. Operator, we're now ready for Q&A.

[Operator]

Thank you. [Operator Instructions] The first question comes from Phil Cusick at JPMorgan. Sir, please go ahead.

[Phil Cusick, JPMorgan]

Hey, guys. Thank you. Two things, first. Maybe, first talk about the confidence to maintain positive subscriber momentum from here. You've talked about copper churn coming down, fiber momentum increasing. Should we look for positive net ads each quarter going forward?

[John Stratton, Executive Chairman]

Yeah. Phil, do you want to go one by each, or do you want to provide both questions and we'll figure out which one we would prefer to answer first.

[Phil Cusick, JPMorgan]

Okay. Second question is, can you give us an update on the Wave 3 progress? Is this sort of a situation where you're building books now and maybe look for sale later in the year or we have to follow along? Thank you.

[John Stratton, Executive Chairman]

Yeah. Great. Thanks, Phil. So I'm going to ask Nick -- its John. I'm going to ask Nick to take the question about subscriber momentum and then maybe, Nick, I’ll handle the Wave 3.

[Nick Jeffery, President & Chief Executive Officer]

Yeah. Great. Thanks, Phil. Good question. Look, if I step back a little bit from the question of momentum, and look at it from a, what we’ve been doing on fundamentals over the last year was, as we built the new team, we very systematically, as we've said on previous earnings call, focused on operational execution of the basics. We've simplified our pricing to make ourselves competitive at an entry level, and ARPU accretive at one gig and now two gig level. We have put in place hundreds, if not thousands, of operational changes to make the customer experience better. We've implemented new channels, improve customer communications, improve brand communications, all of which is a build up to the results you're seeing here. So I've got every expectation that we'll continue to make those operational improvements continue to execute well. And therefore, we'll see market momentum where -- again, if we take a step back, we're now, I believe, are gaining market share in all of our fiber markets, against every single one of our competitors. And that isn't a sort of moment in time or an operation. That's the result of strong operational execution across many, many dimensions. And I think we'll see that carried forward into the future.

[Nick Jeffery, President & Chief Executive Officer]

Yeah. Thanks. Thanks. Phil, to your question about Wave 3, one of the things that are naming convention Wave 1, Wave 2, Wave 3, almost suggest is that, it's sort of a sequential pattern, you do one, and then you do the other, then you do the third. In fact, Wave 3 is running simultaneous with other work that we're doing on Wave 2. And just for better detail, when we announced in August of 2021 our intentions to build to a total of 10 million homes by the end of 2025, I think we surprised the market a bit in the size of that build and the pace with which it would be accomplished. But that was basically our Wave 2 announcement with this 6 million additional homes from the 4 million we intended to have at the end of 2021. And those were for us no doubt about it pingback your ears and just go as hard and as fast as you can. So that is well underway. But you know, the Wave 3, which is the balance of our passing, the last 5 million locations are being worked simultaneously. And, we're progressing actually quite well. And it's a matter of working through the specifics of those locations to determine the best approach to either build it out, is there an opportunity to partner, is there some divestiture, what is the sort of mix of solutions that allows you to sort of optimize value there. So this is something that we're working in the next couple of quarters, we will expect to be more specific, we'll come to the market with an explanation of precisely, what we plan to do with that remaining 5 million households. But it's not going to be sort of after we finish Wave, but rather very much here shortly this year.

[Phil Cusick, JPMorgan]

Got it. Thanks, guys.

[Nick Jeffery, President & Chief Executive Officer]

Okay. Thanks, Phil.

[Spencer Kurn, Head, Investor Relations]

Thanks, Phil. So, operator, we'll take our next question, please.

[Operator]

The next question comes from Jonathan Chaplin at New Street. Jonathan, your line is open.

[Jonathan Chaplin, New Street Research]

Thanks. Two questions from me, as well, if I may. The NPS improvement that you guys reported as studying it to Comcast and T-Mobile about four years to generate an NPS improvement of that magnitude. Does the improvement you've seen with the brand that you've got obviate the need for a new brand at least at the product level, or is that something that is – that still in the works? And on the sort of the opportunity with stimulus funding for closing the broadband device, I agree with the comment you made at the beginning of the call that to get this done, you need to attack private capital alongside stimulus money, and that it should be focused on markets with no broadband today, when during the course of this year, do you think your discussions with the states will have progressed to a point where you've got clarity on how the – the sort of biggest, most important states in your footprint are going to handle the – the allocation of the stimulus money? Thanks.

[Nick Jeffery, President & Chief Executive Officer]

Yes. Jonathan, it's Nick here, I'll take the first and then John you could pick-up second. S First of all, Jonathan, thank you for your – your observations on the speed of our NPS turnaround, what we – I have to say, we are and I am very pleased with the progress we've made. I think it's also fair just for transparency and honestly to say that, we are coming on a low base, of course. But look, why have we been able to move it so far so quickly? And I think a big part of that is the leadership team that we put together. It's a very experienced leadership team, and at the risk of sounding a bit like the taxing on I'm possibly coming. This isn't the first NPS horse we've written. We taken a lot of time to really deconstruct the underlying drivers of NPS, of which you'll know there, there are many hundreds and figure out the ones that really makes the biggest difference to our customers, and then bring all of our operational expertise to bear on the small number of things that really make a big difference to our customers. And sure enough, mathematically, we're seeing the flow through from that into improved NPS. I would say, I'm pleased with the progress we made. I'd also say we're at the beginning of that journey, there is still a long way to go. Now, I'm encouraged by the fact that the NPS of our newer customers is also higher on average than the NPS of our base or legacy market customers, which is also improving, by the way. But the fact that we're building at a very aggressive rate means that we've probably got some NPS upsides into the future as well, as we have more new customers relative to our base customers. And we continue the weekly focus on driving improvement actions, inch-by-inch, yard-by-yard, and mile-by-mile and that's what we're going to continue doing. So, good progress, a lot more to be done, but really based in the science of understanding the drivers of NPS and then strong operational execution. Now, how that reads across into brand is a great link and I'm glad you made it because as we've said, on previous earnings calls, a brand is what a brand does. So, our effort is to completely focus on what the brand is doing. That would suggest from the early results that the brand is repairable and indeed is repairing quite rapidly. You'll also see from our launch of our national network-wide two gigabit service yesterday that we're experimenting now with a new brand personality, let's just say, new color palette, new fonts, and so on to make the brand more modern, more relevant, more tech-oriented, and more appealing to wider segments of the market. And we'll be monitoring that very closely as we come to the wider decision on what do we do with the brand and the name in the future. And that's a decision we'll be taking to our Board in coming quarters.

[John Stratton, Executive Chairman]

Yes, maybe if I can, I'm going to build on next point here. One of the most important things for any leadership team, and particularly, a new one is not the words that they say but what they do. And what I would say just, , sort of observing Nick and his beginnings at Frontier, the very first recurring meetings that he put on the calendar was a very close review of what was broken in the business, what were the issues that were causing customer pain, and it's literally every week with every member of his senior team. So, as new leaders joined the company in the last six, seven months of 2021, they recognize that this was the number one priority for the CEO and therefore, it became important to them as well. And I think that cascades a message and a very positive shout out to the organization about why this is important, why it matters. I would also say that, as Nick described, it was very negative and so the first thing is the improvement is coming off in an insanely low base. But what that reflects also is we were just going out of our way to break the promise that we made to our customers to do things that would really sort of irritate them. Moving to a point where you're no longer doing that gets you to sort of neutral buoyancy. What I'm most excited about is we're not breaking into clearly positive territory and you see that continuing to grow. And the ambition for the firm is to not be just okay here, not just to be at neutral points, but rather to be a leader in terms of how consumers view the way the business values their business. So, anyway, good progress and hopefully, we'll continue. You asked a question about stimulus funding. We think this is really important. This mission of building Gigabit America is something we talk about all the time inside the company and out to the market. And yet, in some parts of the United States, it's very difficult for private companies to create those networks in an economical way. So this notion that there is some level of funding subsidization at the federal and state level, it's something I think that will help us to heal this continuing to rise. It's complicated, and I think the rules of engagement, both at the federal and state level are still being worked. Our expectations, this probably is very late 2022 into 2023 reality in terms of a meaningful flow of subsidies into the market. Scott could speak more to the specific numbers that we sort of have built in here. But our thought processes, this is a 2023 and onwards in terms of becoming something that starts to scale and really address this opportunity that's in front of us. We will be active in terms of our participation in those processes in the states that we do business. And hopefully we'll see an our fair share or a better outcome in terms of our success in whatever option processes put in place.

[Jonathan Chaplin, New Street Research]

Okay. Thanks, John. Thanks, guys.

[Spencer Kurn, Head, Investor Relations]

Operator, we'll take our next question please.

[Operator]

The next question comes from Brett Feldman at Goldman Sachs. Brett, your line is open.

[Brett Feldman, Goldman Sachs]

Great. Thanks. Just two, first, Scott, you talked about the company's strong balance sheet and liquidity position, but it certainly looks like you are inevitably going to want to go raise some additional capital to complete the Wave 2 build. So I was hoping you could share your current thinking around timing in some of the financing options that are going to be available to the company. And I'm curious whether your assessment of your Wave 3 options if one of the objectives there is to use the Wave 3 portion of your footprint, maybe as a tool for financing the Wave 2 build out or if those are distinct processes. And then on wholesale, I just want to clarify, are we at the point where some of the pressures you experienced because of the repricing are fully in that sort of quarterly run rate we've seen as we were exiting 2021. And then maybe bigger picture, you obviously have the strategic agreement with AT&T, how you’re thinking about the opportunity to add more strategic wholesale partners as we move into this year? Thank you.

[Scott Beasley, Chief Financial Officer]

Sure, Brett. This is Scott. Thanks for the question. On your first one about funding, so we did our $1 billion debt offering in October, which positions us very well until mid 2023. And then for the rest of way to beyond mid 2023, we said we have a wide range of options, some of which you mentioned. First, we have internal cash flow, including the Fit for the Future cost savings and real estate dispositions. We have potential government funding, John mentioned as part of the $42 billion infrastructure build, Wave 3 presents a range of options. And then we do have access to additional new capital if we need it. So, overall, a really solid range of options for funding beyond mid 2023, and we'll continue to evaluate those and update you all as we can. On your second question on wholesale like kind of cadence of that in 2022. We still do have a bit of headwind in 2022, at least through the first several quarters in wholesale due to contracts that we lost prior to this management team. They're still kind of flowing through. And then the repricing that we announced late last year, some of those impact 2022. So a bit of a headwind through the year, but by the end of the year, we expect wholesale and business to be to be stabilized and then kind of returning to growth by the end of 2022.

[Brett Feldman, Goldman Sachs]

Just in terms of additional opportunities, the market for wholesale partners?

[Nick Jeffery, President & Chief Executive Officer]

We do think there are. Yes. We signed obviously a big strategic agreement. We think there are other opportunities with other carriers. John mentioned the stats on the number of towers and our fiber footprint. Carriers will continue to add towers and I think we're very well positioned to win more than our fair share there.

[Brett Feldman, Goldman Sachs]

Thank you.

[Nick Jeffery, President & Chief Executive Officer]

Thanks, Brett. Operator, we'll take our next question, please.

[Operator]

The next question comes from Greg Williams at Cowan. Greg, the line is open.

[Greg Williams, Cowen]

Great. Thanks. I have two questions, if I may. You posted solid fiber broadband. You pre-announced it and you did mention low churn. So I'm just trying to understand how much of the fiber wins was migration from your existing DSL subscribers versus outright stealing share? Second question just on all teams. They announced an aggressive fiber to the home plan, particularly in Salomon territories and a few Texas territories. Do you have a sense of the overlap in your footprint, specifically that Texas territory thing?

[Nick Jeffery, President & Chief Executive Officer]

Sure, Greg. I'll take the first question. So we did have very solid fiber broadband, net ads and Q4 45,000. We said the vast majority of those were new to Frontier. So either share that we want against competitors or new household formation. We did have really healthy migration from our copper base that provides a nice base load and that's usually the first set of customers that you seek to dress because you own the customer relationship and it's easier to migrate them. But the vast majority of the customers in Q4 were new to Frontier. I'd also point out, while we're on that note, that we had healthy growth in both the base markets and the expansion markets and we talked through those dynamics and the prepared remarks. But real healthy base of growth there. The second question on all tees is overlap. So across our entire footprint, there's kind of a 6% to 9% overlap with all T. So it's not our largest competitive overlap. We don't have perfect clarity as to them. I think your question was on where their bill will be. Obviously, we don't have clarity there, but they have about a 6% overlap overall.

[Greg Williams, Cowen]

Got it. Thank you.

[Nick Jeffery, President & Chief Executive Officer]

Thanks, Greg. Operator, we'll take our next question, please.

[Operator]

The next question comes from Frank Louthan at Raymond James. Frank, your line is open.

[Frank Louthan, Raymond James]

Great. Thank you. Just wanted to talk on the cost savings. How much of that is coming from headcount? Have you done any risks since the last earnings call and then follow up about the 1 million homes that you're targeting for this year? Is that in line with the expectations for 22 that you laid out at the analyst day? Thanks.

[Scott Beasley, Chief Financial Officer]

Yeah. So let me take your first question on cost savings. A very small portion of it is related to headcount. We haven't had any significant headcount reduction since the last earnings call. As we continue to get more productive we'll likely have a lower employee base per customer, but the vast majority of it is from operational initiatives to lower our structural cost base. Whether it's real estate rationalization, energy efficiency, becoming more efficient in our fleet. That's where the vast majority of cost savings are coming from.

[Nick Jeffery, President & Chief Executive Officer]

Yes, Scott thanks, its Nick here. Frank, if I can about to pick up the second part of that question, perhaps build a little bit also, Scott, on your answer you're quite right, of course, the majority of the cost savings come from us being operationally more efficient and executing well against those plans. On a headcount, it is also true of course that we're going to need to re-profile our headcount phase so as we become more digital, more tech oriented, with stronger distribution, stronger branding from the marketing skill, there'll be a natural reprofiling of our workforce. But within the overall envelope of increased efficiency that Scott talked about. In terms of the 1 million homes past being in line with our expectations, the short answer is yes, absolutely in line with our plans and what we previously announced.

[Frank Louthan, Raymond James]

All right, great. Thank you.

[Spencer Kurn, Head, Investor Relations]

Thanks, Frank. Operator, we'll take our next question, please.

[Operator]

The next question comes from Simon Flannery at Morgan Stanley. Simon, your line is open.

[Simon Flannery, Morgan Stanley]

Great, thanks a lot. Good morning. And just following up on Frank's question there, on the 1 million homes, what's the ability or what's the focus on potentially accelerating the pacing because you're looking to take that up to 16, 17 over the next couple of years. But clearly, you've mentioned several times, the broadband, the infrastructure fund money that you will be looking for, but so well, others, presumably, you've got fixed wireless rollouts ramping as well. So is there an opportunity here to perhaps compress some of this, build that plan and get the opportunity in the market share quicker? And I guess that ties into – it's good to hear that we haven't really talked a lot about supply chain and cost inflation on this call. But any perspective there will be great.

[Nick Jeffery, President & Chief Executive Officer]

Yeah, Simon, thanks, it’s Nick here. The 1 million homes we were probably going to build this year is in line with our plan. If you perhaps wind back to, I think our second earnings call when we announced our plans to accelerate our build to 10 million home and to do it by 2025 in a very rapid timeframe, I think there were two things that were perhaps stood out. Now, one is the scale of the bill and lots of ambition early on before frankly, everyone else was also talking about building fiber. And secondly, the speed with which we are planning to do it. We really recognize the value of a fast build and a built an operational team and an operational engine to go as fast as we can. Now we need to do that in a balanced way. We need to make sure that it's sustainable accelerated growth, because the last thing we want to do is build up resources for one or two quarters and have to take them down in a following one or two quarters. So sustainable acceleration of our build is exactly what we're targeting and to go as fast as we can within the constraints of high quality build that really delivers to customers and delivers for our shareholders. On the supply chain question, I think we were lucky to staff our accelerated build earlier half and the rest of the industry and through hiring people like Veronica Bloodworth, and others in her team were able to gain the sort of wisdom of their experience over time, which led us to securing multi-year supply contracts, both for equipments, for fiber and for labor earlier than I believe the rest of the industry was able to do. And therefore, we got good supply resilient. We've expanded the number of vendors in every category. And we've got good forward cost visibility as well. So I think that's been very helpful to us. And of course, as the demand for fiber accelerates across the industry, as others realize that fiber does what cable can't, it's a fundamentally superior product. We’re in a relatively good and insulated position. So we frankly, we got there first. And we signed up with some deals before anyone else had chance to do so.

[John Stratton, Executive Chairman]

Yeah, if I understand [ph] next listen, I think there's an orientation by this team to set an expectation and sure that it's in the marketplace. And if we can go faster, we will. I think that Nick describes the pre-planning that went on before August of 2021 Investor Day and the work that have been done for diversifying the labor pools for ensuring resiliency in terms of material, fiber and electronics to support a very, very substantial bill is what gives us confidence. And lastly, you'll recall that we set a expected cost per passing, and have mentioned the fact that we had anticipated some inflationary pressure in that number. So therefore, are holding that number as we look outwards through the balance of this bill. : Okay. Thank you.

[Scott Beasley, Chief Financial Officer]

Thanks, Simon.

[Spencer Kurn, Head, Investor Relations]

Thanks, Simon. Operator, we'll take our final question.

[Operator]

The final question comes from Nick Deo of MoffettNathans. Nick, your line is open.

[Nick Deo, MoffettNathans]

Hey, good morning, and thanks for putting me in. First question, the guidance for 2022 EBITDA look solid, which is great, but it comes with a reasonably wide range. Can you talk a bit about, what you see as the most important swing factors behind it, and what needs to happen for you to deliver a result for the high-end versus the low-end? And second, to follow up on Frank's cost savings question from earlier, you basically hit your 2022 cost cutting target a year early. Can you share some thoughts regarding what your updated objectives for 2022 and 2023 might be, is what you've achieved, a more rapid than expected realization savings or do you think the total opportunity for savings is greater than what you initially expected?

[Scott Beasley, Chief Financial Officer]

Certainly, thanks for the question. This is Scott. On the guidance for 2022, I'd say we're early in the year, yes, February, we're very confident in the fundamental trajectory of our business of each of the four strategic pillars. We talked about building fiber, selling fiber, improving our cost structure and improving the customer experience. But I think we're still operating in a pandemic and COVID impacts aren't quite clear to us yet. As we get more clarity on the impact in timing of COVID, we would expect to be able to tighten that range in the next quarter or two once we have better visibility there. And the second question, cost savings. I think you are right I like the characterization, we're basically a year early in getting to the $100 million dollar target that we had by the end of 2022. But we're not stopping there. We haven't given additional guidance as to what our higher cost targets may look like. But as a team, we're very focused on exceeding the $250 million targets that we have for 2023 that will give us the flexibility to reinvest a portion of that savings in growth, which we are doing and then flow a chunk of that savings straight to the bottom line, which we're doing in 2022 and we are expect in 2023 and beyond. So as we get more clarity on the cost savings, we'll get some updated guidance, but I agree with your assessment we're likely to exceed the $259 million.

[Nick Deo, MoffettNathans]

Okay. Thank you, Scott.

[Nick Jeffery, President & Chief Executive Officer]

All right. Thanks everybody. That concludes our call. We appreciate you joining. Thank you.

[Operator]

This concludes today's conference call. Thank you for joining. You may now disconnect your lines.