Good day, ladies and gentlemen, and welcome to today's Frontier Communications Fourth Quarter 2018 Earnings Call. I'd like to remind everyone that this conference is being recorded. .

And at this time, I'll turn the floor over to Luke Szymczak. Please go ahead. .

Thank you, Grey. Good afternoon, and welcome to the Frontier Communications fourth quarter earnings call. My name is Luke Szymczak, Vice President of Investor Relations. With me today are Dan McCarthy, President and CEO; and Sheldon Bruha, Senior Vice President and Interim CFO.

The press release, earnings presentation and supplemental financials are available in the Investor Relations section of our website, frontier.com/ir. .

During this call, we will be making certain forward-looking statements. Forward-looking statements, by their nature, address matters that are uncertain and involve risks, which could cause actual results to be materially different from those expressed in such forward-looking statements.

Please review the cautionary language regarding forward-looking statements found in our earnings press release and other SEC filings. On this call, we will discuss certain non-GAAP financial measures.

Please refer to our earnings press release for how management defines these measures, certain shortcomings associated with these measures and reconciliations to the closest GAAP measures. .

I will now turn the call over to Dan. .

Thank you, Luke. Good afternoon, everyone, and thank you for joining us. .

Please turn to Slide 3. We continued to make progress against our plan in the fourth quarter. We achieved revenue of $2.12 billion, which was stable sequentially. This was driven by an increase in Consumer revenue and a decline in Commercial. Consumer churn improved sequentially as well as relative to the fourth quarter of last year.

Consumer ARPC increased sequentially, and Sheldon will discuss this further. .

Adjusted EBITDA of $895 million increased sequentially as a result of growth in Consumer revenue, continued strong expense management and early benefits from the company's transformation program. We continued to expand the number of transformation initiatives underway in the fourth quarter, and I'll provide more detail momentarily.

And we remain very confident in our ability to obtain the $500 million EBITDA benefit we target from this program. .

Finally, we continue to make progress on our balance sheet. In the fourth quarter, we retired a maturity and also had open-market purchases of the upcoming March 2019 maturity. .

Please turn to Slide 4. Total Broadband net losses were 67,000 as compared to a loss of 61,000 in the third quarter. These results reflect the benefit of improved churn, offset by a more disciplined approach to gross additions.

Our transformation program is focused both on improving churn as well as a more efficient approach to demand generation and attracting new customers to our platform.

Our view is that focusing on acquiring customers who are less likely to churn will, over time, result in further churn improvements, while reducing the cost associated with adding customers that have higher propensity to churn.

This selectivity is a factor in the stronger fourth quarter EBITDA result, and you should expect to see further progress on all of these metrics in coming quarters. .

first, our churn in both CTF and Legacy markets improved sequentially; second, both measures also improved relative to fourth quarter of 2017; and third, we're very pleased with the underlying trend in churn related to our strategic product, Broadband. .

Please turn to Slide 6. Now I'll update you on our transformation program. First, let me start with outlining the EBITDA benefits that we anticipate. Over the course of calendar year 2019, our target is to realize between $50 million and $100 million of benefit, with this being back-end loaded to the second half and particularly, the fourth quarter.

We are targeting to exit 2019 with benefits at roughly a $200 million annual run rate, and we continue to target a $500 million run rate EBITDA opportunity as we exit 2020. .

We expanded the scope of our initiatives over the course of the fourth quarter, continuing the trend we established in the third quarter. The program will continue to accelerate over the course of 2019 as we increase the number of initiatives underway. At this point, we have completed 4 [ initiatives ].

As a result of these completed initiatives as well as others underway, we are in the process of scaling 21 solutions. Eight of these solutions are in capture phase and should represent approximately a $60 million annual run rate benefit, once fully implemented. In addition, another 13 solutions are in various phases of scaling.

We estimate that these 21 solutions that are being scaled would represent a total EBITDA benefit comfortably in excess of $200 million. .

revenue enhancements, operational enhancements and customer care and technical support. Our various initiatives in field operations fall mostly within the category of operational enhancements. Naturally, we expect that many of the solutions we implement will yield benefits across multiple categories.

We have been changing practices in how we allocate resources within the field. The results have been greater responsiveness to customer needs and more efficient resource allocation. In essence, better performance with lower cost. We are in the early stages and have more enhancements to come over the course of the year. .

Moving to customer technical support. Improvements here fall into the customer care and technical support category. An important area of opportunity is to reduce the need for dispatches. We have already attained 20% of the targeted reductions in dispatches and expect further progress going forward.

We had initiatives underway in the call centers to improve interactions with customers. These largely fall within the revenue enhancement category, and we are pleased with the effectiveness of the improvements we have been able to achieve so far. .

Finally, we have a number of initiatives underway related to improving churn trends and even more in the funnel to be undertaken in the future. These fall within the operational enhancements and customer care and technical support categories.

Each initiative focuses on a portion of the life cycle of churn, and we have begun to scale solutions from some of these and anticipate more to come over the course of 2019. .

Finally, back to the category of revenue enhancements. We continue to have teams working on new products and product enhancements. For example, yesterday, we announced Simply Wi-Fi Secure, a product which we expect will bring a number of benefits to small business customers. .

In 2019, we will be deploying the capability for 10-gigabit fiber service across our FiOS footprint for Commercial customers as well as for 5G backhaul capability. Although leading edge, this expansion will only require capital spending of approximately $50 million, reflecting the ease with which our fiber capabilities can be expanded. .

I'm extremely pleased with the progress we have made with our transformation program in these early phases, and I remain very confident in our ability to deliver on our targets for 2019, 2020 as well as beyond. .

In summary, we are targeting $200 million in EBITDA run rate improvements by year-end 2019 and $500 million by year-end 2020, and the entire organization is fully focused on these objectives. .

I'll now turn the call over to Sheldon Bruha to discuss our financial performance in more detail. .

Thank you, Dan, and good afternoon, everyone. I will review our fourth quarter financial performance and also provide our guidance for 2019. Once again this quarter, we show the results on the basis of the current ASC 606 revenue recognition standards as well as the previous ASC 605 standards for comparability purposes, where appropriate.

For 2019, we will report only on the basis of ASC 606. .

Please turn to Slide 8. Total fourth quarter revenue was $2.12 billion, stable compared with the third quarter of 2018. The fourth quarter net loss was $219 million. This included a goodwill impairment of $241 million or $214 million net of tax. .

Net cash from operating activities in the fourth quarter was $603 million. This increase from the third quarter level of $286 million was a result of the cyclicality of cash interest payments. Our cash interest payments are significantly higher in Q1 and Q3 and lower in Q2 and Q4, so this result fits our normal quarterly pattern. .

Once again in the fourth quarter, we continued to execute well and manage expenses, and our cost discipline will continue into 2019. Adjusted operating expenses declined $19 million sequentially. .

Fourth quarter adjusted EBITDA was $895 million, a sequential increase of 2%. Adjusted EBITDA margin of 42.1% also increased sequentially, and we continue to target adjusted EBITDA margins above 40%. Finally, operating free cash flow for 2018 was $620 million. .

Please turn to Slide 9. On this slide, I will be making comparisons to 2017, so my comments are based on ASC 605, the accounting standard used in 2017.

We've now achieved 5 sequential quarters of roughly stable Data & Internet services revenue, which reflects the benefit of our improving execution, particularly on the Broadband services revenue, which is a component of this category. .

In Consumer, strength in Data & Internet services offset the sequential decline in Voice revenue, yielding just over a 1% sequential increase in Consumer revenue. .

In Commercial, we're pleased that we're able -- we achieved sequential stability in SME in the fourth quarter. In the wholesale portion of Commercial, we had a small sequential decline. .

Lastly, regulatory revenues increased slightly sequentially in the fourth quarter. Note that under ASC 606, switched access revenue is part of Commercial revenue, and the USF fees that we that we bill are in both Consumer and in Commercial. .

Please turn to Slide 10. Excluding the adoption of ASC 606, monthly Consumer ARPC was $86.05. The fourth quarter result continues the trend of gradual increases, reflecting the continued benefit of improved base management of customers migrating off introductory promotional pricing, partially offset by secular unit declines in Video. .

Please turn to Slide 11. Capital spending in the fourth quarter was $245 million and for the year was $1.19 billion. The focus of our capital spending remains consistent with approximately 75% of our capital program emphasizing revenue-generating and productivity-enhancing projects.

We continued building broadband in CAF markets and have completed construction to 486,000 locations as of the end of the quarter. .

In 2018, we extended fiber service to more than 30,000 greenfield locations, and we are nearly complete with the expansion of gigabit capability in our fiber network. And in 2019, we'll implement -- we'll be implementing 10-gigabit capability on fiber system-wide for Commercial customers as well as to expanding 5G wireless backhaul capacity. .

Also in 2019, we'll continue to build in CAF markets and continue building fiber-to-the-home based high-speed Internet in some non-CAF rural areas through state funding sources. .

Please turn to Slide 12. We continued to make progress with our balance sheet in the fourth quarter. On October 1, we repaid the outstanding $431 million of the 8.125% unsecured notes as scheduled. Also in the fourth quarter, we purchased in the open market $56 million principal amount of the 7.125% March '19 unsecured notes at a discount to par.

We'll repay the balance of the 7.125% notes, which totaled about $350 million, on the maturity date on March 15..

In January, we closed on the previously announced sale of towers for $76 million in cash. As of December 31, we have $275 million drawn on our revolver. Beyond the upcoming March maturity, we have modest unsecured maturities well-spaced across 2020 and 2021.

We have ample liquidity to meet those obligations, including full access to our $850 million revolver. We have the runway to focus on executing on these -- on our initiatives to improve the business and to achieve the $500 million EBITDA target of our transformational program.

We believe that executing on our priorities will, over time, expand the range of options for leverage reduction, including the ability to refinance our longer-dated unsecured maturities in the high-yield markets. Nonetheless, we continue to evaluate balance sheet alternatives as we remain committed to reducing debt and improving our leverage profile.

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For the full year, we expect adjusted EBITDA of approximately $3.45 billion to $3.55 billion; capital expenditures of approximately $1.15 billion, this includes approximately $50 million related to the 10-gigabit fiber upgrade that Dan mentioned earlier; cash taxes of less than $25 million; cash pension and OPEB of approximately $175 million; cash interest expense of approximately $1.475 billion; and operating free cash flow of approximately $575 million to $675 million.

One remaining point on guidance, in the first quarter, we'll have our typical expense reset, which we expect to be in the area of $20 million. .

I also want to mention the cost related to achieving our transformation. This cost was $11 million in the fourth quarter, consistent with the third quarter costs. And for 2019, we expect the cost to achieve transformation to be around $50 million. .

As we've discussed, we anticipate the company-wide transformation initiatives to continue to translate into improving trends of our financial results, and we remain confident in our ability to continue to improve the business. .

I'll now hand the call back to the operator to open up for questions. .

[Operator Instructions] And first from UBS, we have Batya Levi. .

A couple of questions. First, can you provide more color on the drivers of the ARPC growth in Consumer? It accelerated nicely this quarter. And is this a trend that we can expect to continue? And then on the Broadband subscriber churn, looks like churn continues to improve but growth has come in lower.

Can you talk about what drove that? And will the focus going forward remain on lowering churn, but can we expect you to drive more marketing dollars towards new customers as well?.

Sure, Batya. I'll take those. So first on the color around the ARPC trends. I think one of the things that we've been focused on, really for the better part of 2 years, is what we felt was a significant opportunity for the company, which was doing a better job of base management.

Define base management as taking advantage of the pricing opportunities, recovering content cost, really dealing with customers moving from promotional pricing to steady-state pricing, and then offering different opportunities for customers, both from a speed and package perspective, to move them to their desired point on the product curve.

During the year, I was probably a little bit disappointed in the beginning of 2018 that we weren't able to execute faster on some of those initiatives. And that really was what we were hoping to drive some of the improvement and our original guidance for approximately $3.6 billion of EBITDA last year.

We worked on that right through the summer, tested, tested again, validated our approaches, and we began to execute really at the back end of the third quarter and into the fourth quarter. So we saw some very good, obviously, lift associated with all of those categories that I just described. We did not see excessive churn, as you pointed out.

We saw churn improve as ARPC was being lifted. So we think that we've got the process and the techniques dialed in pretty well.

The opportunities will not be every single quarter to that magnitude, but having that capability improve as substantially as we've been able to do that, through a lot of hard work by a number of different teams over the last several years, is a critical initiative.

And I'm very happy about what we were able to accomplish in the ARPC side of the equation. As far as your observation on Broadband sub trends, again, you're spot on. Our focus, which I have said on the last several calls, has been on churn. We think that, that was something that was absolutely in our control.

We've had teams working on it pretty religiously for the last year or 2, and accelerating work on it using the transformation program over the last 6 to 9 months.

More work will continue to be done on that because we think that there is more benefit to be realized as we dissect the life cycle of the customer and then focus discrete solutions on each portion of the life cycle to drive churn lower. If there was a weakness in the quarter -- again, you are absolutely right.

On the Broadband gross additions, we have transformation efforts that are focused on that as well. We have been diligently scaling different opportunities to improve lift, but the quarter really was about us targeting customers very selectively and really trying to improve customer lifetime value of the targeted segment.

I do think that we were probably very prescriptive and tested a number of different approaches. I think that we've modified compensation in our alternate channels as well as expanded some of the marketing efforts. And I think we've started to see benefits already in Q1.

So you should expect, as we're 2/3 of the way through the first quarter, you would see significant benefit both on gross activations and net activations for fiber and copper customers in Q1 this year. .

And next from Raymond James, we have Frank Louthan. .

Can you talk to us a little bit about -- you mentioned the fiber backhaul for 5G. Are you concerned at all in the CTF markets with 5 -- potentially enabling some competitors with 5G? And then just on the ARPC lift there.

How much of that is from getting customers to spend more or upgrading customers versus just the average moving up as lower-end customers are the larger part of the mix that are dropping off?.

Sure, Frank. So on your first part of your question, I think 5G will happen at whatever pace 5G is going to happen because of the standard adoption. What we wanted to do was to position ourselves really from a commercial opportunity, but also for potential 5G backhaul.

And we think that the 10 gigabit is probably going to be the choice for a lot of carriers for that backhaul capability. The side benefit of doing it is the entire FiOS footprint, every OLT will be upgraded for 10 gigabit. So that kind of future-proofs the need for the Consumer side as well.

So even though that won't be a targeted offer for Consumer initially, it really does kind of create what we think is a state-of-the-art network in the place where we think 5G might be -- the first places where it might come in as an alternative.

And having the kind of speeds, whether it's 1 gig or higher, will actually be very competitive and compelling, from our perspective, for customers. So we're not as worried about that. I think on the ARPC side, there was probably 1/3 to half was normal base management, and the remainder was either upsell or some pricing actions, Frank. .

Okay. And then just one last question. With the EBITDA -- the cost cut and the EBITDA improvement.

At what point can we expect that EBITDA to be -- to flatten out, and for some of those to have sort of a net positive benefit rather than sort of offsetting some of the declines?.

Well, I think the difference about the program that we are embarked on now from a transformation perspective, which is very different than anything that we've done before where we might have put out a $350 million synergy target or $500 million, those were really about the cost reduction opportunities when we were putting different business units together.

This is really about transforming how we do business processes, our real focus right out of the gate. And that's why some of the solutions that have moved into production already have really been about churn and focusing on how we sell and do a more efficient and effective job of attracting customers.

Those are meant to really stabilize the revenue side of the equation. You combine that with the techniques that we've developed on base management, and we think we're in a different place as far as that.

So I think you're going to see us focus on trying to improve the revenue trends substantially, while at the same time drive the EBITDA improvement through cost reduction. But it's really a two-pronged effort, and I think you'll see us make progress throughout 2019 on that front. .

And next question will come from Mike McCormack with Guggenheim Partners. .

Dan, maybe just a quick comment, thinking about the churn improvement obviously, but those customers on the fiber network that are churning off for Broadband, what's the main cause of that? And then I guess, secondly, in the Video revenue side, what drove the sequential increase in revs?.

Sure, Mike. We have been studying the Broadband on the fiber churn. That's probably our biggest opportunity to really move the needle on that. It's -- and I think that over the longer term, we should see 30 to 40 bps of improvement as we really go through the different initiatives that are driving it today. It can be a wide range of different drivers.

There's no one silver bullet that is the answer. But that's why when you break it down into the various cohorts and focus on each stage of the life cycle, we're doing it on copper as well as fiber. But I think the bigger opportunity and what we want to perfect is on the fiber side.

Because obviously, we want to start growing Broadband market share from that perspective. So there's no one single thing. But I do think that's probably one of the biggest opportunities for us right now.

As far as the Video ARPC lift, it was a combination of people moving from promotional pricing plus some content pricing increases that were put into the market that really, we should have been doing a better job historically of moving those into the market, and we did it very successfully in this quarter. .

And moving on we have David Barden with Bank of America. .

It's Josh Frantz in for Dave. Just a few, if I could. What are you expecting for Consumer and Commercial subs and kind of how that circles into your guidance? And then secondly, within Commercial, you said SME was flat sequentially and wholesale was down.

Is there anything you can call out there? Or is this the trend we should expect? And then lastly, do you have any update on the permanent CFO?.

Sure. Let me start with the last one first. I'll let Sheldon jump on one and then I'll probably come back in on the subs at the end. So first on the permanent CFO.

We continue to review candidates, and we're really looking for the right mix of past skills, including extensive public market experience in a highly levered situation, experience in telecom is obviously a plus and experience with capital-intensive business models. So we've been working on that diligently, really since the last call.

We're very pleased with the interest that we're seeing from a number of very, I would say, impressive candidates, and we expect the search to accelerate now that year-end reporting season is concluded. .

Sure. This is Sheldon. I'll just tackle your questions around the Commercial side. Look, I think what we are -- a positive trend that we've experienced and we saw in this quarter was the stability on SME. That reversed the trend that's been in decline for a series of quarters.

And look, I think there are just several initiatives where we've been focusing on that area. And I think what's -- some of the things, I think, to come, which Dan mentioned, is the Simply Wi-Fi product that we've rolled out, we rolled out yesterday to address that segment. .

As far as sub trends, you should expect us to attempt to change the trends on both copper and fiber and then start to build some traction on Commercial with some of the new products that we start to introduce, and the first one was really around the Simply Wi-Fi that I talked about.

And then as we upgrade the network to the 10 gigabit, I think you'll see us start to pull more and more in the Commercial units as you get into the back half of the year. .

Next, from JPMorgan, we have Philip Cusick. .

A couple of follow-ups.

First, can you talk more about the pricing actions? How much of the benefit hit in the fourth quarter? And what should we expect in terms of quarter-to-quarter increase going forward?.

Sure. So Phil, most of the -- we -- actually, I wanted a good chunk of that action to happen in the third quarter. But because as you make those different pricing actions, you want to make sure that you've tested it, tested it again and made sure that there's no unintended consequences of pulling the trigger on that.

It really predominantly hit right in the fourth quarter. I think the trends out of the fourth quarter remained very stable as we went into the first quarter. As we're in the second month of the first quarter, we still remain very strong. So I feel very good about the first quarter from a revenue perspective.

And then each quarter will present itself different opportunities for us from a base management perspective, and we'll integrate that, obviously, with our acquisition and retention plans and cross-sell, upsell. So there'll be a pretty vibrant mix as we go across the year.

But I'm pretty pleased with the work that we've spent, close to 2 years, on -- that got us to this point, and obviously, we had a really good result in the fourth quarter because of it. .

Okay. And it hasn't been that easy to find information on your pricing moves.

Is -- was it sort of a uniform change? Did you roll through a big, like broadcast increase or a sports increase, something like that? Or was it sort of market-to-market, a little more targeted?.

It was market-to-market and it was also not all customers. There are customers that wouldn't fit in that zone to really go after it. And that's why the complexity of the base management was something that we really didn't do particularly well.

And we knew that if we started to do this in a much more methodical and successful fashion, that we had a real lever that we can drive value and stabilize some of the revenue trends in the business. So it was absolutely key to us.

I don't think you're going to see us broadcast how we do some of that base management just because it's -- it would be a competitive disadvantage. But we certainly did target different parts of the base, some of it was around a video content price increase.

If you went back, you'd probably see where we had noticed customers that we would do that, and it was obviously before we implemented the increases. .

And the other thing, talk to us about where you are in the CAF initiatives? And just remind us where the build is so far and what's left to do as well as how that has gone from a management standpoint and where we are today?.

Phil, could you just repeat that one more time? You broke up a little. .

I'm sorry.

Can you talk about where you are in the CAF initiatives in terms of how much of the build is done so far, and what the penetration looks like?.

Yes. I think Sheldon gave you the number, but we hit our goal. There was, I think, a report that we had a single state where it was a couple of hundred that was off. We've kind of completed that at this point. It had to do with some permitting on some power to some remote locations. So we're at that -- we hit our targeted amount for the fourth quarter.

The challenge for us now is finding unique ways to market to that. We're integrating the field operations team into that so that it's a much more, I would call it, tactical rather than centralized marketing approach.

And in doing that, we hope to accelerate the penetration further and to go after customers that are recently turned up and not had a lag. I think we've been doing all right on the CAF II side, but I'd like to see us accelerate that penetration and start picking up the additional subs and -- which obviously would be helpful as we get into 2019. .

I would've expected people would be welcoming you as you drive down the street with your lines.

Is it -- is there either more competition in these markets or just not like that?.

No.

I think the way you should think of it is once they actually uncover that it's available, and I think our teams need to do a better job of delivering that message that the product is there and available for sale because it's -- usually it's a very convoluted process to actually construct these very discrete DSLAMs that are put out really in the middle of some remote areas.

So it's not the easiest targeted segment to go after. And I think these customers, for many years, had only a single choice, or maybe if they were lucky, a second choice with a WISP, but it was really satellite.

So I think using our field ops teams who will be in that area and doing what we used to do from a local engagement perspective is going to be a key factor as we try and accelerate penetration. That might mean door hangers.

It might mean dropping signs at different locations, allowing customers to let us put a sign on their lawn or in their field in some cases that broadband is now available. So in some ways, we're doing a little bit of back to the roots.

The good news is the leader of our field operations was a black belt in those tactics and he is actually deploying those. I'm looking for some real improvement as we get into 2019 on the CAF II sales. .

And next, we have Simon Flannery with Morgan Stanley. .

It's Spencer for Simon.

I might have missed it, but did you guys say what drove the $240 million goodwill impairment this quarter?.

We had. And let me -- this is just as part of our scheduled impairment review process, so we do it at this point of the year. We went through. What essentially was driving it at this point in time was related to market multiples and the shifts and the movements you would've seen sort of in the sector, particularly over the course of fourth quarter.

That drove that down and that resulted in a revision of the market multiple used for that calculation, which hopefully drove the impairment test -- or the impairment result that you would've seen. .

Okay. And then in terms of further asset sales, the -- I think you did a tower sale this year and then the commercial partnership in 2017.

Is there any other expectations for more similar sales in the future, whether the same size or even larger?.

So Spencer, I think we are combing the entire country, looking at different opportunities to monetize something that's not core and not part of delivering our strategy to our customers. So I don't have anything to report right this second.

But the most likely candidates are some of the real estate holdings that we have, and we have a team that looks at that all the time and has successfully done some asset sales in the past. And my expectation is that you would see some additional sales, maybe not in the near term, but as we go through the next year or so. .

Next question will come from Matthew Niknam with Deutsche Bank. .

Just thinking about EBITDA, the midpoint of your guide is about $3.5 billion. If I think about the $895 million this quarter, you talked about a $20 million expense reset that hits in 1Q. But if I just take the sort of implied $875 million for 1Q and I run rate it, I get to that midpoint.

And so I'm wondering, a, are you effectively implying stable EBITDA over the course of 2019? And then, b, is that more a function of top line improvement? Or is this more largely just the transformation initiatives, which will benefit EBITDA stability?.

Matt, it's Dan. I think when you look at what we're expecting for the year, you can look at Q4 and the improvement on the revenue trends. That was really a result of the fundamental changes that I was discussing previously about how we're going to manage the base from a life cycle and an ARPC perspective.

I think that it's safe to say that we are expecting to see improvements versus the historical trends on the revenue side. Do I think that it's going to be perfectly stable as we go through the year? I don't think I would go that far at this point. But I do think that you will see us make significant improvements on the revenue trends.

Obviously, we are going to continue to work on taking the cost out. I think the single-biggest thing that would potentially improve EBITDA over what the initial guidance would be is if we were to accelerate some of the transformation benefits. I think that we have been appropriately conservative at this point in sizing what the in-year impact is.

But as we start to scale some of the solutions and we assess what the impact is to the organization -- from an organizational change perspective, we may choose to either accelerate or slow down some of those transformation initiatives purely to make sure that they go really, really well.

So I -- we are not trying to guide anything other than improvements on revenue, continued cost takeouts. And if we can move faster on the transformation, then you'll probably see us doing even better. .

And next from Citi, we have David Phipps. .

All my questions have been asked and answered. .

Moving on, from Goldman Sachs, we have Brett Feldman. .

This is -- this will be the last question. .

I'm going to actually go back to Matt's question and ask it a little differently, just kind of get a sense as to pacing of EBITDA throughout the year and maybe even some of the potential conservatism, because -- and bear with me while I do just a little math.

If we look at the midpoint of the EBITDA range of $3.5 billion, if I understand your commentary correctly, that is inclusive of $75 million of EBITDA benefits from your cost transformation programs. And I think that you articulated that would be very concentrated towards the back end, predominantly in the fourth quarter.

So what that implies is that actually on average, over the course of the first 3 quarters, you'd only have maybe $850 million to $860 million of quarterly EBITDA, and then that inflects significantly to maybe $930 million or higher in the fourth quarter.

And maybe the hockey stick's not going to be that severe, but I guess I'm just trying to understand, is that actually the right way to interpret the way EBITDA could trend throughout the course of the year, particularly as you start to capture the benefits of those cost transformation programs?.

No, Brett, I don't think that's how I would think about it. I would think that the transformation in-year benefits is going to be between $50 million and $100 million. You picked the midpoint obviously at $75 million. I think a lot of that benefit right now, until we could pull it forward, will occur heavily in the fourth quarter.

So as you look at that, it's probably even heavily in kind of the November time frame into December. So I think that you would see probably a little bit higher EBITDA than what you were calling out in the beginning of the year, and the impact could be in that $50 million range.

And it's going to probably happen in the late third quarter into the fourth quarter. .

That concludes our Q&A session. I'll turn the floor back to President and CEO, Dan McCarthy, for additional or closing remarks. .

So first, the fourth quarter results were very strong as highlighted by the sequential stability in revenue and continued strong expense management, and it was a good sequential increase in adjusted EBITDA.

We are deep into the early phases of a transformation program, and I'm very pleased with the progress and have growing confidence in our ability to deliver on our targets. We continue to innovate with products and investments in our capabilities, and we are making headway in improving our financial profile and anticipate further progress in 2019.

I want to thank you all for joining us today, and I look forward to updating you on our first quarter results in a few months. .

And once again, ladies and gentlemen, that concludes our call for today. Thank you, again, for joining. You may now disconnect..