FYBR - NASDAQ

Good morning. Thank you for attending today's Frontier Communications Fourth Quarter 2023 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 pass the conference over to our host, Spencer Kurn. Please go ahead.

Good morning, and welcome to Frontier Communications fourth quarter 2023 earnings call. This is Spencer Kurn, Frontier's Head of Investor Relations. Joining me on the call today are Nick Jeffery, our President and CEO; and Scott Beasley, our CFO. Today's presentation can be followed within the webcast available in the Events & 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 presentation, press release and trending schedule. With that, I'll turn the call over to Nick.

Thanks, Spencer. Good morning, everybody. I'm here with Scott today in our new Dallas headquarters, and we're looking forward to sharing our Q4 results with you and providing 2024 guidance. But before we do that, I'd like to take a moment to ground us on where we are today, nearly three years into this great American turnaround story. From the beginning, we said 2023 would be the year that we would return to sustainable growth. And I'm pleased to share with you that we did exactly that. For the first time in more than a decade, we achieved full year EBITDA growth. And this accomplishment is the result of our team's relentless execution of our strategy. It's the culmination of the strong operational results we've achieved quarter-after-quarter, and it's the most compelling evidence yet that our fiber-first strategy is working. Today, we are the largest pure-play fiber provider in the country. We've scaled our fiber build, ending the year with 6.5 million fiber passings. Easy math puts us at 65% of the way towards our goal of building to 10 million fiber locations. And we've connected a record 2 million customers to our high-speed fiber broadband network and that's noteworthy because our fiber broadband customers now represent two-thirds of our total customer base. And this is a remarkable evolution in just three years. As fiber continues to become a greater share of our business, we will become an even stronger company. So how do we build this leadership position? Well, if we turn to Slide 5, we can see that the answer is in the consistent execution of our strategy: build fiber, sell fiber, improve customer service for all customers and increase our operational efficiency. So let's take a closer look at each of these components. It all starts with our fiber build. Last year, we increased our fiber footprint by 25%, and we've doubled it since we began our build back in 2020. We continue to stand out from the pack as the only scaled fiber builder to add more fiber passings year-after-year. The second pillar is selling fiber. Fiber is a superior product. And as data usage continues to grow exponentially, this only becomes more true. There's a need for speed that only fiber can deliver, and that's showing up in our customer growth. Today, we have 50% more broadband customers than we had three years ago. And I'm proud to share that last year, we gained market share against every competitor in every market we serve, and we did so whilst also growing ARPU. Scott will talk more about our fourth quarter performance shortly. But to give you a preview, we grew broadband customers by 19% year-over-year, with ARPU up 5%. Next, let's talk about the improvements we've made to our customer service. Last year, we saved our customers a collective 50 years of time on the phone by eliminating 2 million service calls from a total of nearly $9 million the year before. Even more impressively, we did so whilst growing our broadband customer base by nearly 20% over the same period. This was the result of us putting the customer firmly back at the center of our universe. We have removed thousands of customer irritations and invested in digital self-service tools like our app and our AI chatbot. We made it easier for customers to interact with us digitally and in many cases, eliminated the need for customers to contact us at all. The outcome, churn is down to near record levels and MPS has skyrocketed. And we are now the industry leader in fiber broadband customer satisfaction as measured by independent NPS research. And finally, we've become more efficient. We've simplified the way we work, introduced new technology to improve how we operate and right-size our real estate footprint. This focus on operational efficiency has achieved over $500 million in cost savings since 2021, and that's double our initial target. If we take a step back and look at our performance over the past three years, we've clearly delivered an operational turnaround. And if we turn to Slide 6, you can see how these results are now driving sustainable financial growth. I love this chart. It clearly shows how building and selling fiber is delivering EBITDA growth. You can see here that our strong execution drove fiber EBITDA growth of 14% in 2023, which lifted total company EBITDA growth into positive territory for the first time in a decade. This is a critical inflection point that we've been working towards over the past three years and an important milestone in our progress towards unlocking the next phase of our growth. Underpinning these results is our fiber broadband revenue, which grew 20% in 2023, that's up from 13% in 2022 and 12% in 2021. We've created a model for driving sustainable growth. It's a virtuous circle. We put fiber in the ground, we connect more customers to our superior fiber product, we offer higher gig speeds and value-added services, delivering higher ARPU, which all leads to revenue growth. We invest that revenue back into our company for the benefit of our customers and our business. It's repeatable and scalable and the value created at every turn of this flywheel. With the strong results we delivered in 2023, I'm confident that we will accelerate our growth in 2024 and beyond. Which brings me to the priorities for this year, which you can see on Slide 7. I'm going to share an overview of our plan, and then Scott will provide more detailed 2024 guidance later in the call. Firstly, we will execute our strategy with determination and rigor, just like we did last year and the year before that. Specifically, we plan to build 1.3 million fiber locations again this year. We plan to add more fiber broadband customers in 2024 than we did in 2023, whilst also accelerating ARPU growth at or above 3% to 4%. And we plan to improve our customer service and streamline operations to deliver benefits to our customers and to our bottom line. Secondly, we plan to accelerate fiber revenue growth, which will drive overall company revenue growth in 2024. We expect this top line growth to come from an acceleration in consumer revenue with Business and Wholesale remaining relatively stable and importantly, we plan to accelerate EBITDA growth into the mid-single digits this year. So let me wrap up by saying a huge thank you to the builders of Gigabit America. Everyone at Frontier paid a role in making 2023 a success and I'm confident that 2024 is going to be our best year yet. Before I turn it over to Scott, I want to remind everybody that we're planning to host an investor update later this year. The event will be held in the second quarter and we plan to provide additional detail on our longer-term financial goals and a path to driving additional shareholder value. So please stay tuned for more information. Scott, over to you.

Thank you, Nick, and good morning, everyone. The team delivered another excellent quarter of operational and financial results. I'll walk you through the highlights from the quarter and then share our guidance for 2024. Slide 9 is a snapshot of our Q4 operational highlights. We passed 333,000 new fiber locations and exceeded our goal of 1.3 million fiber passings in 2023. We added 84,000 fiber broadband customers in the quarter. Importantly, we grew our customer base while also growing ARPU by 5% versus Q4 of 2022. We implemented numerous initiatives early in 2023 to drive ARPU growth. We offered faster speed tiers, adjusted pricing and started charging for value-added services. As a result, nearly 60% of our new customers are taking speeds of 1 gig or faster, and roughly 45% of customers purchased at least one value-added service. Consumer fiber broadband churn also improved to 1.20% in the quarter, that's down 12 basis points from the prior year. Last, we achieved double our initial cost savings target at the end of 2023, surpassing $500 million of savings for the program. Let's turn to Slide 10 to show how our strong operational results drove improved financial performance. In the fourth quarter, revenue was $1.43 billion, strong consumer fiber revenue growth of 11% drove total consumer revenue growth of 1%. We had $17 million of net income and earned $549 million of adjusted EBITDA, that's up 4% year-over-year. This was our fastest quarter of EBITDA growth since 2016. $356 million of our adjusted EBITDA came from fiber products. Additionally, we generated $296 million of net cash from operations, bringing our cash from operations to $1.3 billion in 2023. Let's dive deeper into each of our core growth drivers. Our EBITDA growth has been driven by accelerated customer growth, healthy ARPU growth and a significant cost reduction program. If you turn to Slide 11, you can see our progress growing our fiber broadband customer base. We ended 2023 with a record 2 million fiber broadband customers. The 2 million figure is a significant milestone, representing roughly 50% growth since the beginning of our transformation. Our base fiber penetration now sits at 44.5%, close to our target of 45%. In expansion markets all cohorts are performing at or above our target ranges at 12 months and 24 months. Our smaller 2020 build cohort, roughly 86,000 fiber locations reached penetration of 35% at 36 months. We are now almost 80% of the way to our terminal penetration after just three years. Turning to Slide 12. Our success gaining customers is translating into fiber revenue growth. We ended the year on a high note with strong fiber revenue growth, driven by our consumer performance. Consumer fiber revenue grew 11% in Q4, and we are confident that this trend will continue to accelerate in 2024. For the second quarter in a row, consumer fiber revenue growth offset copper declines resulting in total consumer revenue growth of 1%. This was a key inflection point for us two quarters ago, as the lift from consumer fiber broadband finally began to more than offset the declines of legacy video and voice products. As this dynamic continues, we expect consumer revenue growth to further accelerate in the coming quarters. Business and Wholesale fiber revenue declined 2% year-over-year as growth in SMB and enterprise was offset by declines in wholesale. Q4 was a difficult comparison for wholesale because of several one-time benefits in the fourth quarter of 2022, as the wholesale business tends to be lumpy. We expect fiber Business and Wholesale revenue to return to year-over-year growth in Q1. Moving to Slide 13. Our customer and revenue trends led to an important acceleration in EBITDA growth. We grew adjusted EBITDA by 4% in the fourth quarter. As Nick shared, EBITDA growth for the year was primarily driven by fiber revenue growth. At the same time, we took cost out of the business and managed copper declines. It was the same story for the quarter. At our 2021 Investor Day, we set out a plan to reverse our structurally declining EBITDA by the end of 2022, and we expected full year EBITDA growth in 2023. Through the hard work of our 13,000 plus employees, we returned to full year EBITDA growth in 2023. And importantly, our growth accelerated throughout the year. We'll talk in a few minutes about our expectation to accelerate adjusted EBITDA growth in 2024, but I want to thank our team for hitting this critical milestone. Let's spend a few minutes on capital expenditures and liquidity before we get to 2024 guidance. We delivered capital expenditures of $3.21 billion, plus $4 million of vendor financing for total capital investment of $3.22 billion. As expected, our fiber build spend declined in the second half of the year, as we consumed prework in inventory, managed working capital and benefited from a lower cost build mix. There are two points that I'd like to highlight on capital investment. First, our 2023 direct build cost per location landed within our range of $1,000 to $1,100 per location. Since we began building fiber in 2020, we have passed roughly 3.3 million new fiber locations at a direct bill cost of approximately $920 per location. We continue to expect future passings to cost approximately $1,000 to $1,100 per location, resulting in a total project spend in the $1,000 range per location passed. Second, the mix of our capital investment will continue to evolve in 2024. We expect our fiber build spend to begin to decline, while our customer acquisition CapEx will increase with higher gross adds. Overall, we expect capital investment in 2024 to be lower than 2023. 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. Once we are through the investment phase, our business will generate significant growing free cash flows. We'll now turn to liquidity on Slide 15. At the end of the quarter, we had $3.2 billion of liquidity. As we shared in August, our landmark fiber securitization deal gives us a path to fully fund our build to 10 million passings. In addition to our strong liquidity and access to capital, our balance sheet remains healthy with approximately 87% of our debt at fixed rates. Finally, we do not have any significant maturities until 2027. I'll close today on Slide 16 with our 2024 guidance. The most important part of our guidance is adjusted EBITDA, which we expect will accelerate to mid-single digit growth this year. We expect adjusted EBITDA of $2.20 billion to $2.25 billion in 2024, and we expect to deliver year-over-year growth in every quarter. We also expect full year revenue growth as accelerating consumer growth combines with roughly stable Business and Wholesale performance of plus or minus 2%. Operationally, we expect to pass another 1.3 million locations with fiber. Right now, this is our optimal build pace as we balance speed with operational efficiency. We also expect cash capital investment, which includes capital expenditures and vendor financing payments of approximately $3.0 billion to $3.2 billion, representing a decline versus 2023. As we scaled our fiber build, we've been able to secure more favorable payment terms in line with the rest of the industry. Vendor financing payments are included in our capital investment guidance, meaning that the $3.0 billion to $3.2 billion will be comprised of two lines from the cash flow statement, capital expenditures and payments of vendor financing. Finally, in terms of cadence, we expect timing related factors to result in capital investment being front-end loaded in Q1 at a level similar to the first quarter of 2023, and before stepping down materially in the second, third and fourth quarters. As I wrap up, I want to say thank you to our amazing Frontier team for delivering these results. We set a new bar for success in 2023 by placing the customer at the center of everything we do, and I'm looking forward to doing it again in 2024. Operator, we'll now open the line for questions and I'd ask our participants to limit themselves to one question and one follow-up.

We will now begin the Q&A session. [Operator Instructions] Our first question is from Jonathan Chaplin with New Street. Your line is now open.

Thanks, guys. So my one question for Scott is, you guys obviously did a phenomenal job with the $500 million of cost cuts in 2023. What is the opportunity for continuing cost cuts in 2024 and have you included anything in your EBITDA guidance for cost cutting? Thanks.

Yeah. Thanks for the question, Jonathan. First, I'd say we're not done with cost savings. We're really proud of the $500 million that we've captured so far. But we really think that we're in the early stages of our cost transformation program. That's a key reason that we expect margins to improve this year, which is a key component of our 5% EBITDA growth at the midpoint. We'll give more specific targets at our investor update next quarter. But I can give you some color on where we think the savings will come from. First, in field operations, we still have a lot of productivity improvements to make, especially, reducing truck rolls and non-productive dispatches. In customer care, we've made phenomenal progress reducing call volumes down roughly 65%, but we still have more work ahead to digitize our customer experience and then we have big cost opportunities ahead of us in self-install capabilities and copper decommissioning. So overall, a lot of good work ahead of us, a lot of opportunity, and we'll share more updates next quarter.

Thanks. [Multiple Speakers]

Go ahead, Jonathan.

I was going to say how does it sort of play out during the course of the year? Do you expect a steady acceleration in EBITDA growth quarter-to-quarter or is it lumpy?

Yeah. We think -- we said a few things on EBITDA growth. We expect year-over-year growth in every quarter and we also expect the rate of growth to accelerate throughout the year as we get momentum behind the consumer business as well as continued momentum in our cost savings program. So those are the two points of guidance around EBITDA cadence for 2024.

Perfect. Thanks, Scott.

Thanks, Jonathan. Operator, we will take the next question.

Our next question is from Greg Williams with TD Cowen. Your line is now open.

Great. Thanks for taking my two questions. First one is on fiber churn. I mean, nice work at 1.2%. You guys mentioned NPS scores are skyrocketing. So is this peak performance for the churn on the fiber side, do you think or is there room for more, obviously, adjusting for seasonality and with those impressive levels, I mean, you could perhaps get more aggressive on gross adds and promo since your CLV would be up? The second question I have is, on your CapEx guidance. It looks like it's cash CapEx guidance. Can you help us with how much vendor financing you do anticipate in terms of borrowing for 2024 CapEx, the net benefit as you pay down vendors, but you're also going to be borrowing on the back end. Just wanted to get a sense of maybe the accrued CapEx as well as the cash CapEx that you guided. Thanks.

Yeah. Hi, Greg. It's Nick here. Perhaps I'll start the answer to the question on churn and NPS and Scott hand over to you. Look, on NPS, we are extremely pleased that by some external measures, we've now become the market leader in NPS in a phenomenally short period of time. And that really is the result of a huge company-wide effort to understand all the reasons for customer dissatisfaction. In fact, the management team at the ExCo look at all that data every single week and have done for the last three years and then systematically remove all the reasons why anyone would contact us or anyone would be dissatisfied and try and make their customer experience, which is a horrible term, much, much better. And that work is really, really paying off. And of course, high NPS leads to higher customer satisfaction, it flows through to lower churn. And our churn rates are at close to record lows. Would I like to see that go further? Yes. Do I think we can go further on NPS? Yes. Is that work done not by a long way. But will we continue with determination and maniacal focus on creating the best possible customer experience for what is the best product in the market. Yes, absolutely. Scott, do you want to add to that?

Sure. Greg, on churn, in particular, we're really proud of the 12 basis point improvement we made year-over-year in fiber broadband churn. And we've said NPS is a key driver of that. We are in a low move environment, and we all recognize that and that perhaps is one reason that churn has been lower. But if the move environment returns to a more historic level, we actually think that will be good for Frontier because we are a share taker. If there are more jumbos in the market because people are moving at more normal rates, then we like our ability to grow even faster. So I think we're happy with where we are, and we'll see where the move environment goes. On your second question of vendor financing and CapEx, I'll make a few points there. Vendor financing is included in the $3.0 billion to $3.2 billion capital investment guidance we gave. We don't know exactly how much will hit the vendor financing line of the cash flow statement versus the capital expenditures, but it's probably a few hundred million dollars in vendor financing. The balance will be in capital expenditures. And then secondly, I'd reiterate, this is kind of, our procurement team has done an incredible job renegotiating with suppliers to get more favorable payment terms for the company. So it's been a good -- we made good progress in the last few years getting the advantages of scale. We're the second biggest fiber builder in the country and so, our suppliers have been able to work with us on that. But there’s no separate interest costs related to the vendor financing.

Got it. Thank you.

Operator, we will take our next question.

Our next question is from Sam McHugh with BNP Paribas. Your line is now open.

Thanks, guys. Just a question on the base areas. Obviously, you've seen a really nice sequential growth still and you'd always talked about a 45% long-term penetration target. I guess that's still the right target? Are you more optimistic than you may have been in the past? And if you did hit that target, should we think about you shifting strategy at all and may be a bit less aggressive on net ads and you could redeploy that elsewhere. So just some color around that would be great.

Yeah. Sam, it's Nick here. We've always said at least 45%. 45% is just kind of mathematical right outcome in a two player market where some of the market doesn't take service at all and the rest is divided equally amongst the remaining two players. In actual fact, we have many markets and many cities where our penetration in our base markets is already way higher than 45%. So we have no ambition to stop at 45% whatsoever. We will continue to push very, very hard on this. But because it really, really matters more broadly because our penetration and in fact, our growing penetration in our base markets where we faced a long-established well-entrenched cable competitors where they're already FWA coverage as well. And yet, we are still able to grow our penetration by over 4 percentage points in the last few years up to very, very close now to our ambition of 45% on average and as I said, higher in some other places is a great and very strong indicator for what we believe is possible to achieve in the expansion markets where we're building fiber. Now of course, it takes a bit longer because you have to build the market, sell it, penetrate it over time. But we are highly convinced that our 45% penetration target is achievable across the entirety of our footprint. We've proven it in our core markets. And if we can go further, we will.

Fantastic. And can I just ask a quick follow-up on the vendor financing. Like, when we're thinking about the balance of vendor financing outstanding, so I understand the cash payments, but are you assuming you pay down this $255 million balance of vendor financing within the CapEx guidance or you're assuming you'll take on more than the financing? I'm just trying to understand the difference between cash and accrued and the financing.

Yeah. So we think the cash capital investment will be very similar to accrued capital investment in 2024. So as we continue building, as we continue renegotiating with suppliers, we may have some vendor financing that goes out of '24 to '25, but we don't expect it to change materially. The other note I'd make, we actually reduced our payables balance by about $100 million in 2023. So it's -- CapEx is lumpy, the build is lumpy, but the key is to continue getting industry best terms so that we can manage our cash flows.

Awesome. Thanks, Scott.

Thanks. Operator, we will take the next question.

Our next question is from Nick Del Deo with MoffettNathanson. Your line is now open.

Hey. Good morning. Apologies for my voice. I had one question on commercial revenue and one on subsidy revenue. So Scott, I think you said the commercial revenue should be roughly stable in '24 versus '23. I think you said plus or minus 2%, should we think on a full year '23 as being the benchmark or kind of the second half of '23 as being the benchmark? And then on subsidy revenue, can you share anything about what you're baking into your guidance on that front? Is it just stuff that's in your pipeline today or are you incorporating some rising level of subsidy revenue over the course of the year? Thanks.

Sure, Nick. I'll take both of those. On Business and Wholesale, when we say plus or minus 2%, that's full year '24 versus ‘23. And again, the Business and Wholesale business is lumpy. You have some big projects that come in a specific quarter and then some that don't hit and hit the next quarter. So that's one to take a longer-term view on across multiple quarters. So '23 full year is really the benchmark there. And then on subsidies, in our -- we're not giving specific subsidy guidance, but we do not expect BEAD or new programs to materially change our trajectory in 2024. We kind of have a steady state of what we've achieved in the last few quarters. We think that will persist throughout 2024. And if we're successful, which we think we will be in winning BEAD dollars, BEAD dollars will start to flow in 2025 and beyond.

Okay. Thank you, Scott.

Thanks, Nick. Operator, we will take the next question.

Our next question is from Michael Rollins with Citi. Your line is now open.

Thanks. Good morning. I'm curious if you could give us an update on the strategic front in terms of some of the items that were flagged in the press release from a few weeks ago, joint venture opportunities, possibly non-core asset monetization, and just the broader elements of that Frontier is looking at and considering at the moment? Thanks.

Yeah. Hi, Michael. Nick here. Just taking a step back a little bit and thinking about the strategic review more broadly. When the company was emerging from Chapter 11, and we put together the new Board and the new executive team, of course, one of the things we did at that time was a complete strategic review of all the options for the company going forward. And of course, we settled on our new fiber strategy and our ambition to build to at least 10 million fiber passings because we're kind of three years into that, and we've got that 10 million fiber passing kind of goals firmly in our sights. I think it's entirely appropriate that the Board and the executive team look again at what next for the company. What's the next Frontier of growth and what's the best way to unlock shareholder value in the future. And this is a review, of course, that's something we've been doing continuously really over the last few years. But we think we're at a point in time where it's right to make public that we're looking at all the options again, and that includes an evaluation of our operational and financing strategy whether they are smart strategic partnerships that we should engage with potentially joint ventures, divestitures, mergers and some business combinations may make sense. But look, that's a review that's in process and our Board is always looking at every possible opportunity to create shareholder value in great detail. And I think when we're ready to share any of that detail, we'll come back and share it with you. But that's something we're looking at right now. So it's live, it's in the moment. And when we're ready to share something, we'll come back and do that with the market. Operator, thank you. Next question?

I had a question.

Sorry, go ahead, Mike.

If I could just one more. On the cash capital investment, in 2023, I think it's Slide 14, you show about $1.7 billion for customer acquisition, maintenance and other. Can you further unpack how that $1.7 billion splits between these big buckets acquisition maintenance and other and how that evolves more so in 2024?

Sure, Michael. This is Scott. And let me talk through the cash capital investment guidance that we did – we gave for 2024. So the overall guidance range is $3.0 billion to $3.2 billion but there are really two main moving parts within that. First, our fiber build spend will actually be lower with the same number of passings because we will consume inventory and pre-work. So we'll do 1.3 million passings, but we'll spend less money and then our direct spend per passing will still be in the $1,000 to $1,100 range. So that's the kind of the first peak where we've peaked in the fiber build spend in 2023, and we'll start working that down as we consume pre-work and inventory throughout the rest of the build. Now the bucket that's going up is our connection CapEx and that's success-based and only occurs when we win new customers. Now the bulk of that connection CapEx will be in the consumer business because we expect higher gross adds in 2024 versus 2023. And our cost to connect is still in the same range, roughly $600 to $800 as we scale our self-install capabilities. But then once we scale self-install more broadly, it should come down to even below $600 million. So those are the two big moving buckets within overall cash capital investment, but the total number should be lower than it was in 2023, and we’re highly confident on that. On your specific question around maintenance versus customer acquisition, we don’t break another – we don’t break those out more specifically, but I’ve kind of given you the building blocks around connection CapEx for consumer. There’s also success-based connection CapEx for Business and Wholesale with the rest of that bucket being maintenance and other.

Thanks.

Thanks. Operator, we will take the next question.

Our next question is from Simon Flannery with Morgan Stanley. Your line is now open.

Great. Thank you very much. On ACP, could you just size your exposure to that and how you think that would play out? You've got some big cable competitors with large ACP numbers. Do you see that as a potential opportunity in the event we're not seeing a refunding of that program. And you touched on BEAD earlier. Any updates on how the states in your footprint are what the programs the plans look like in terms of attractiveness for you. We've heard some of your peers suggest that certain states are attractive, but others, some of the requirements are less attractive for participation. Thanks.

Sure. Thanks, Simon. So on ACP question first, we have relatively low exposure to ACP. It's roughly 4% of our total broadband customer base. However, we do think ACP or some variation of it is an important program. We've seen in the last five years how critical it is for people to connect to the digital economy, whether that's work from home, school from home or telemedicine and those digital connections are a net positive for the economy. If ACP funding does expire, we have plans that serve that segment of the market. We've already started rolling out some of those plans and we'll be ready for a range of scenarios. But either way, we don't expect the financial impact to us to be significant. On BEAD funding, I think we'll -- we've said before, we are excited to be a participant in BEAD. We have an active team. We've scaled up our team in the last 12 months. We've one, a lot of pre-BEAD subsidy awards in ARPA. So we've reached a good operating rhythm in terms of being disciplined capital allocators as it relates to subsidy programs. We're going to build where it makes sense, where the IRR of the subsidy build is equal to or better than our private build, and then we'll pass if it doesn't make sense. On specific states, we're very well set up for the way BEAD was allocated to the states. Texas and California are two biggest states, Texas and California got the two biggest allocations of the BEAD program. So we won’t comment on the specific programs. Those are still under development. We share kind of peers’ views that we need to make sure those programs make sense for the states but also the builders and we’ll continue to be an active participant in those BEAD conversations.

Great. Thank you.

Thanks, Simon. Operator, we will take our next question.

Our next question is from Frank Louthan with Raymond James. Your line is now open.

Great. Thank you. On the Business and Wholesale, what can you do to drive that higher? Is it more of a sales issue focusing on that or just having to flush out some bad contracts, what will it take to see that kind of get a bounce back. And then on the CapEx, I wonder if we could get a little color on the pacing. You said it's front-end loaded. Is the build schedule front-end loaded as well? Is that more evenly paced or is it equipment? And then also on how the vendor financing payments hit. Any color on the timing of those through the year would be helpful. Thanks.

Yeah. Hi, Frank. It's Nick here. So just on Business and Wholesale, I mean the fact is, we significantly outperformed the industry last year in our Business and Wholesale segment. Our Business and Wholesale revenue was down about 1.5% in 2023 versus the industry, which pretty consistently saw mid- to high-single digit declines. And pretty stably so over previous periods, whereas our trajectory is improving. The bright spot continues to be our fiber business in Business and Wholesale as in consumer, which in the Business and Wholesale segment grew by 4% in 2023. So whilst Business and Wholesale did decline modestly in the fourth quarter, as we've already said, it is a lumpy business with timing of large contracts and payments and so on. And we expect that segment to return to year-over-year growth in Q1. So, as Scott already shared, we expect fiber growth to roughly offset copper declines in this segment, resulting in a stable performance overall of plus or minus 1% to 2%.

And Frank, on your second question related to CapEx pacing. Yeah, So we said Q1 of '24 should be similar to Q1 of 2023, but then the difference of the shape, we expect a material step down in Q2 and then Q3 and Q4 (ph) should be lower as well. So that's primarily due to the pace of activity where we do a lot of activity either late in the year or early part of the year for builds that will open out throughout the year, that's taking in some inventory that's doing central office prework and so we'll see a front-end loaded nature but then have high confidence in that $30 billion to $3.2 billion for the full year. And then on the vendor financing timing, we do think probably more of that gets paid in the first half than the second half. But again, it's too early to say exactly what will fall in vendor financing versus cash capital expenditures, but the key is overall capital investment. And that's one of the reasons we started discussing overall capital investment payment terms with suppliers are really a secondary issue.

Great. Thank you.

Thanks, Frank.

That concludes our fourth quarter 2023 earnings call. Thanks for joining us and look forward to speaking to you again next quarter.