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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning. Thank you for attending today's Frontier Communications Second Quarter 2023 Earnings Call. My name is Megan, and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end.
I would now like to pass the conference over to Spencer Kurn, Senior Vice President, Investor Relations at Frontier Communications.
Good morning, and welcome to Frontier Communications second 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 Chief Executive Officer, and Scott Beasley, our Chief Financial Officer. Today's presentation can be followed within the webcast available in the Events and Presentation section of our Investor Relations website.
Before we start, please see our safe harbor disclaimer on Slide 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 our President and Chief Executive Officer, Nick Jeffrey.
Thanks, Spencer, and good morning, everybody. As you saw in our press release, we delivered another quarter of strong operational results. Before we dive into the quarter, let's briefly step back and take a look at our market dynamics.
On Slide 4, you'll see that we operate in an attractive industry, which is underpinned by explosive growth in data usage and an influx of government funding that recognizes the critical need for reliable high-speed broadband connectivity. Fiber as a technology, is best positioned to meet this demand with faster symmetrical speeds and lower latency than either cable or wireless alternatives.
There are four factors that differentiate Frontier from other fiber broadband companies. Firstly, our scale gives us a significant advantage on the speed and cost of our fiber build. Secondly, in 85% of the markets where we operate, we have one or zero competitors who are capable of competing with Frontier in delivering gigabit speeds. Thirdly, our business generates healthy operating cash flow that we carefully reinvest back into our high-return fiber expansion. And fourthly, we have what I believe is the best team in the business, experienced, disciplined, and full of grit. They are the driving force of our results quarter after quarter.
Our investment thesis is simple. Build fiber infrastructure to deliver the best broadband product available and capture a minimum of 45% penetration in our fiber markets, which is approximately 5 times our copper penetration today. Over the course of the last two years, we've executed well against our strategy and the team delivered again this quarter.
Now let's turn to Slide 5 to review the highlights of our second quarter. Our fiber build remains on track. Halfway through the year, we are well on our way to achieving our target of 1.3 million fiber locations built. We've had another strong quarter selling fiber. We added 66,000 fiber broadband customers in the quarter, and that's up 22% versus Q2 of last year. And the changes we've made to bring our ARPU in line with the market are working. ARPU is up 3% sequentially, and I expect it will trend upwards from here.
While we're pleased with the performance in our consumer business, the star of the quarter was our business and wholesale segment. Business and wholesale revenue broke through to positive territory for the first time in six years. That's even more profound against the backdrop of our telecom peers who continue to report mid to high single digit revenue declines in this segment.
When we started 2023, we described it as the year that we would return to growth on both our top and bottom line. And I'm pleased to share that the team's strong operational performance has powered our company to positive year-over-year EBITDA growth through the first half of the year. And while we haven't turned positive on the top-line just yet, we are showing positive revenue growth outside of our low margin video business.
Lastly, I want to highlight our recent fiber securitization transaction, which priced $2.1 billion of committed capital that we will use to continue to fund our fiber expansion. The securitization market is exclusively reserved for high quality businesses with stable and predictable cash flows that support attractive valuations. We're incredibly proud to be the first publicly traded company in the US to secure funding for fiber-to-the-home infrastructure, and Scott will talk more about this later in the call.
If you turn to the next slide, you'll see that our fiber customer growth and fiber net adds are both trending in the right direction. What's even more impressive is that we grew our customer base whilst making disciplined changes to our pricing and packaging. We reduced our use of gift cards, adjusted our prices to market, unbundled value-added services, and incentivized customers to choose gig plus speeds. These changes delivered measurable results.
In the second quarter, more than half of our new customers chose gig plus speeds, one third of our new customers took one or more value added service, and new customer intake ARPU climbed into the $70 range. We then spent the first two months of the quarter refocusing our sales force and optimizing our channels, and I'm thrilled to report that June was our second best sales month to date.
On the next slide, there's more detail on how we delivered our best quarter in business and wholesale in six years. For the second quarter in a row, SMB and enterprise had double digit fiber revenue growth. And our wholesale business had a standout quarter, driving revenue growth for the segment overall. Now, two years ago, we began to overhaul our wholesale operations. We brought our pricing in line with the market, signed a strategic agreement with our largest customer, and shifted our business towards growth areas like fiber-to-the-tower and edge data centers.
The strong bookings that we've talked about for the past year are now successfully converting into revenue growth. And it's encouraging to see our transformation from a legacy copper business into a fiber-based digital infrastructure business. That covers the highlights from the quarter.
Now let's talk about the value our fiber build creates and our path to realizing that value. Please turn to slide 8. As we've shared, our plan is to pass at least 10 million locations with fiber and to do so at very attractive IRRs in the mid to high teens. At the end of the second quarter, we are more than halfway there with over 6 million fiber locations, and the IRRs remain just as attractive as we initially thought.
Assuming that macro climate and capital markets remain stable, we're confident in our plan to pass at least 1.3 million new fiber locations annually and complete our committed build to 10 million. And while we see a clear path to 10 million fiber locations, our ambitions go far beyond that. We plan to be active participants in government programs like BEAD and to pursue additional opportunities, both in and out of our footprint.
We know that as we build fiber, we build value, and it's our goal to build as much value as possible for the benefit of all our stakeholders. Now, before I turn it over to Scott, I want to pause for a moment to review our performance against our strategy.
You can see on Slide 9 that our transformation is now fully in flight. We've expanded our fiber footprint by 80% and increased our customer base by 40% since we started this journey, all while improving the way we serve our customers, and doubling our initial cost savings goal. It's our high performing frontline and operational teams that are driving these transformational results, and I want to thank them for delivering yet another strong quarter.
We all have an important role to play in building Gigabit America. And I really, really appreciate the hard work it takes to turn a business like this around. So thank you all.
Lastly, I'd like to address the recent Wall Street Journal articles on lead sheath cables. First and foremost, we deeply care about the health and safety of our people, customers, and the communities we serve. Our policy has always been to comply with all environmental and occupational safety regulations, and we have no reason to believe that lead in Frontier cable has called any health or environmental harm.
Based on our own internal evaluation, we wanted to provide an update on our initial assessment. And while these results are still preliminary, based on our analysis, we estimate that lead cloud cables represent a single digit percentage of our roughly 685,000 total miles of metallic cabling in our network. And we will not be able to provide any additional detail on this topic during the call.
So, Scott, now over to you.
Thank you, Nick, and good morning, everyone. I'll start with the financial highlights of our second quarter. Revenue was $1.45 billion, which was up sequentially as growth in data and internet services offset declines in voice and video. We had a net loss of $2 million of net income while we earned $533 million of adjusted EBITDA. $323 million of our adjusted EBITDA came from fiber products. This was up more than 10% year-over-year as we combined strong revenue growth with significant cost reductions.
We were pleased to break through to EBITDA growth in the first half of the year, a major milestone for Frontier. Additionally, we generated $276 million of net cash from operations, bringing our cash from operations to $1.3 billion over the trailing 12 months. Our healthy cash flow before CapEx demonstrates the underlying cash generation profile of our business.
Slide 12 shows the strength of our fiber customer growth across base and expansion markets. As Nick highlighted, our broadband customer base grew 19% over the last 12 months. In our base fiber footprint of 3.2 million locations, our penetration increased 80 basis points year-over-year to 43.4%. Although it dipped sequentially, due to seasonality in our footprint, we are ahead of where we expected to be at the end of the first half of the year. And our first half gains put us on track to achieve our target penetration rate of at least 45% in the next two to three years.
In our expansion markets, the first half of 2022 was a large cohort of roughly 0.5 million locations. Its 12-month penetration of 19%, which is at the high end of our target range, highlights our team's ability to rapidly win new customers with a superior product and a constantly improving suite of value-added services. Our 2021 cohort was penetrated at 24% at two years, slightly below our target range. As we have shared on previous calls, this first half cohort of 261,000 locations has consistently lagged other cohorts, given that it was built prior to our integrated build and execution that we started in mid-2021. As the additional 2021 locations reach 24 months in the second half of this year, we expect the overall penetration rate to rise into our target range.
Moving to slide 13, fiber revenue accelerated to 9% year-over-year growth, driven by healthy consumer and business performance. Consumer fiber broadband accelerated to 18% growth, driving overall consumer fiber revenue to 10% growth. Business and wholesale fiber accelerated to 8% growth. Copper revenue declined in the quarter, consistent with prior quarters.
Turning to Slide 14, we grew our adjusted EBITDA through the first half of the year compared to 2022. Second quarter adjusted EBITDA was roughly flat year-over-year, but the second quarter of 2022 included a one-time $8 million tax benefit. Our EBITDA growth is primarily a function of two factors, rapid fiber revenue growth, and effective cost reduction. As we move into the second half of the year, we expect these two factors to accelerate EBITDA growth into the mid-single digit range.
Turning to capital expenditures on Slide 15. We are on track to meet our guidance of full year CapEx in $3.0 billion to $3.2 billion range. CapEx will decline significantly in the second half as we consume pre-work, reduce working capital, and benefit from a lower cost build mix. We also remain confident that CapEx will decline in 2024 versus this year's current range.
On the next slide, we'll discuss the transformational nature of our recently priced fiber securitization transaction as the transaction provides a path to fully fund our fiber build. We securitized approximately 600,000 fiber locations in our Dallas markets, with roughly 80% of net cash flow rated at an investment grade level. We priced a total of $2.1 billion of committed capital from this transaction.
I'll make three key points on the importance of the fiber securitization. First, it provides a clear path to fully fund our fiber bill. Second, it attracted a new pool of investment grade long-term investors into our capital structure. This new investment class should reduce our cost of capital over time, similar to the way that other digital infrastructure asset classes like data centers and towers have benefited from the stability of their cash flows. We can continue to access this investment grade pool of investors as part of our strategy to migrate to a more diversified capital structure with a lower total cost of capital. We expect our long-term capital structure to include both securitization and traditional debt. Finally, the transaction highlights the value of mature fiber assets. We raised debt at roughly $3,400 per passing, highlighting the value of the stability and resilience of cash flows from fiber passings.
We'll now turn to liquidity on Slide 17. These numbers are as of the end of June and do not reflect the recently priced fiber securitization. At the end of the second quarter, we had approximately $1.9 billion of liquidity, to which we will add the proceeds of the securitization. In addition to this strong liquidity, our balance sheet remains healthy. Approximately 85% of our debt is at fixed rates. And we do not have any significant maturities earlier than 2027.
You can see on Slide 18 that our 2023 guidance remains unchanged. We continue to expect adjusted EBITDA in the $2.11 billion to $2.16 billion range. We continue to expect to pass 1.3 million additional locations with fiber in 2023 and expect cash capital expenditures of approximately $3.0 billion to $3.2 billion.
With that, I'll close by thanking our team for another quarter of strong operational results. I'm personally proud of the work that our team is doing to build Gigabit America and connect millions of consumers and businesses to the digital economy.
I'll now turn the call back over to Spencer to open the line for questions.
Thanks, Scott. Operator, let's open up the lines for Q&A.
[Operator Instructions] Our first question comes from the line of Greg Williams with TD Cowen. Your line is now open.
Great. Thanks for taking my questions. Just, congrats on a good quarter, and the ABS raise, I do see this is as a game changer here. And I see in Slide 16, you noted in your security remarks as well, $3,380 per home at even rates. But I was hoping you could shed some light on other metrics of loan to value, or LTV, for the implied value per home that we're trying to get to? I mean, it seems like the debt markets are valuing these homes a lot higher than the equity markets are. And then just second question is, if I look at the math on Slide 16 correctly, you can get over $8 billion in capacity from ABS raises. What would be your capital priorities? Would you accelerate the builds, refi your debt stack or go and fund Wave 3? Thanks.
Yeah. Sure, Greg. This is Scott. Let me take those in sequence. So on LTV, we're still in the middle of the transaction. It's priced but not closed. So I need to limit my remarks. But we think it's a very attractive LTV for our investors. If you look at multiples in the pure play fiber space, those multiples are typically in the teens to 20 per -- 20 times range. And so at -- given that we raised $2.1 billion, that would assume a conservative LTV that make sure debt investors are well compensated. On the total -- and I will highlight your reiteration that we showed $3,380 per passing. Again, we've always said that the market doesn't quite understand the value of mature fiber, stable cash flows, resilient cash flows. And I think this is a good marker to show that this new pool of investment grade investors values the stability of mature fiber cash flows. So that's point one on valuation.
And two, on our priorities, I think you hit all of them. I mean our priorities include, if we're able to accelerate the build and Nick has said before, 1.3 million is kind of the sweet spot now of balancing build plus sales plus installation. But if we're able to add capacity to our machine and go faster, we now have a pool of additional capital to access to go faster. We also see this as a path to refinance traditional debt. I've reiterated that our long-term leverage target is in the mid 3s, and this gives us a pool of capital to refinance over time and then pay down debt once we become free cash flow at the end of the build.
And then I'd also add that it's a bit of a war chest to be aggressive if there are BEAD funding that that we win and try to accelerate if we decide to do stuff out of our footprint and in other ways to grow the business even beyond the committed $10 million. So, I agree with your notion that it's a game changer. I think it's a great step for us and a great step for the industry.
Thank you. Our next question comes from the line of Phil Cusick with JP Morgan. Your line is now open.
Hi, guys. Thank you. I want to dig into the fiber subscriber growth numbers. Last quarter, I think it was 87,000. This quarter, 66,000. And, obviously there's some seasonality in there, although The Cable Company saw less than normal seasonality. So I think there's a lot more competition going on than there is seasonality. Can you talk about, number one, you did a price increase. Number two, you've cut back on gift cards, and number three, seasonality. So help us sort of allocate the slowdown there and how you're confident in a rebound by assuming growth going forward? Thanks very much.
Yeah, Phil. Hi, it’s Nick. I'll take that one. I think we've talked about on previous calls our pricing strategy really is at its core to offer the best product at a very attractive price. And over the last two years, whilst we've been in the midst of this turnaround, of course, we've had to use price and gift card and other promotional activity, get this sales engine going just in the same way that we've got the build engine going. And at the same time, of course, significantly improved our product and extended up with gig plus offerings and value-added services and so on. While we were doing that, fiber ARPU was still at a bit of a discount to the market.
So I think as we said in Q1, we made some very disciplined changes to our pricing and the way we package our offers, designed to bring ARPU more in line with our competitors in line with market. For example, we reduced the use of gift cards, we implemented some price to market adjustments, we unbundled our value-added services and incentivized customers to choose gig plus speeds. And in doing so, I think we've achieved exactly the results we're looking for. For example, in the second quarter, more than half of all our new customers chose gig plus speeds. The value-added services that we had previously given away for free and we unbundled and started charging for [Technical Difficulty] double with now one-third of new customers taking one or more value added service, which they pay for.
And simultaneously, new customer intake ARPU has now climbed up into the $70 range. So whilst we took a couple of months to kind of optimize our sales channel for these changes, made a few personnel changes and so on, actually, June was the second best sales month we've had on record. And when we take into account quality, ARPU, and quantity, June was the best sales month we've had so far. So, I come back to best product, competitive offer, really strong channels. And, yes, of course, there’s some seasonality in the quarter, I think others have spoken about it on their results. We just say -- we see the same thing. Those headwinds now often turn into tailwinds later on in the year, and I really think we've got our proposition and channel tuned to deliver the right mix of volume and value. Operator, next question. Thank you.
Absolutely. Our next question comes from the line of Brett Feldman with Goldman Sachs. Your line is now open.
Thanks. I'll just follow-up on that. So, Nick, based on what you just said, how should investors assess your operational performance in the back half of the year? In other words, what's the right way of determining whether the net add trajectory that we see in the back half that obviously has a little more of a seasonal tailwind to it compares with what you're trying to achieve on an ARPU standpoint. In other words, what that balance -- we're not over indexing towards one of those metrics versus the other?
And then, Scott, you pointed out that capital is going to be -- capital investment will be a lot lower in the back half of the year just based on what your guidance is. And you had pointed out and you expect overall capital to be lower next year than what you're going to spend this year. Should we be looking at the second half of this year as being somewhat indicative of a run rate, or is it just too seasonal for us to extrapolate? Thank you.
Yeah. Hi, Brett. It’s Nick, I'll -- perhaps I'll start on that and, Scott, hand over to you. Look, on revenue, revenue was down 0.6% through the first half of the year, which was, of course, a significant improvement versus the decline in 2022. So we think it's really clear that the strategy and the pricing strategy is working. And our fiber revenue growth continues to accelerate, it's now approaching double digits. As we mentioned in the prepared remarks, business in wholesale broke through to positive revenue growth this quarter, which is really a major milestone and the first time in six years we've done that, whilst a lot of our telecom peers continue to report declines in that segment.
So in the back half, I think we see two drivers that will continue to improve revenue growth. The first is that, we'll see an improvement in our overall fiber mix, so the percentage of fiber in the overall revenue mix, and that will grow in the second half. And secondly, an improving consumer fiber broadband ARPU as our new pricing changes begin to wash through into the base. And, Scott, I don't know if you want to pick up the second half of that.
Sure, Brett. On your CapEx question, I'll kind of walk through the drivers of why it will go down in the second half. Then your question is about run rate, exiting the year into next year. So we're confident that it will it will decline in second half of this year due to three drivers. First, we'll consume inventory. You saw us consume a bit of inventory in Q2 and that should continue in Q3 and Q4. If you remember, we built inventory in the second half of last year in the first quarter, and we're beginning to consume that. Secondly, we'll consume pre-work. We spent a lot of CapEx in the second half of ’22, into the first half of ’23, in building out central offices and intermediate infrastructure for locations that will be opened in the second half of this year. We're now in all 15 states in the build, and we've completed that, kind of, pre-work in the new geographies.
And then third, we'll have a lower cost build mix. As I mentioned in the prepared remarks, we have lower cost states with less expensive topography. We'll have a higher aerial mix. And then, we're also in integrated build where we're passing some lower cost locations that include multi-dwelling units, multi-tenant units, small businesses. So altogether, we're confident in that $3.0 billion to $3.2 billion range for this year, with a significant decline in the second half. And then your question about what does next year look like? We have said it will be a lower range than 2023. We think 2023 will be our peak CapEx year. And it should be a bit front end loaded due to seasonality. Operator, next question.
Absolutely. Our next question comes from the line of Frank Louthan with Raymond James. Your line is now open.
Great. Thank you. Can you walk us through the success you're having in the business in wholesale? And what have you changed on the marketing side that's attracting that and tell us how you're thinking about the network construction going forward to make sure you can maximize that opportunity? Thanks.
Yeah. Hi, Frank, Nick here. Look, on business wholesale, we're really, really pleased with it. It's been a kind of breakout quarter for that segment. And a big part of it has been the new leadership that we welcomed to Frontier just a couple of quarters ago, already driving really significant improvements, improvements right across the business units. If we look across all three units, we're seeing a sharp increase in order volume, much more favorable sales mix, which overall is leading to higher pricing. And part of this has been driven by the strategic agreement with AT&T that we talked about in the past we signed earlier this year, which is now translating from a strong order book through to strong financial growth. And that's also helped by a sort of shift towards us selling new offers like digital infrastructure services based on the infrastructure that Frontier's got, but monetizing that in a different way to these segments.
And as I've said before though, our business segment differed significantly from our peers in a number of ways which helped us return this segment to growth. The first of which is we're actually a small part of the market, and I think we have to keep that at the back of our mind. So we don't really reflect market dynamics because we're too small to be -- reflect the market. But equally, we're not as exposed as most of our peers and large enterprise customers. So when we talk about enterprise, we really mean medium and small enterprise customers and SMBs. And those customers have a much higher propensity to buy the kinds of fiber-based internet access products that we're really good at providing and selling and deliver with real quality. So I think we've got a natural affinity towards the smaller segments and that's where we focus our efforts and are building up our teams and expertise.
And then lastly, it's hard to avoid the fact that the enterprise segment overall was not as well managed in the past, let's say, as it could have been. And so there are improvement opportunities incrementally in almost every part of those businesses, which we're now taking and we're seeing those results come through. And we've been pretty sort of mindful and focused on how we're turning this business around. And we really had kind of three milestones we wanted to hit. The first was to inflect fiber business sequentially which we achieved in 2022. The second key milestone was to grow fiber business year-over-year, which we've now achieved for three consecutive quarters. And the third milestone is for fiber growth to offset copper declines, which we achieved in the first quarter this year for the first time in six years. So again, just knocking down those milestones, good day in, day out execution, hiring great people, changing our prices, refining our channels, building our brand, being out in the market, and hustling. And that's what a really good enterprise business does.
Now, having said that, we've got a lot of work to do before we can achieve sustainable positive year-over-year growth in the segment -- business segment overall. But I am really encouraged by the momentum we've got and remain confident in achieving our stable total business and wholesale growth in 2023. Now the second half of your question was about how do we balance, I suppose, capital for developing the kind of products and services that these customers need versus other uses of capital. And Scott, you might want to give some insight into how practically we do that because that might be interesting for people.
Yeah. Frank, one of the things we did early on was develop what's called an integrated build plan. So as we're looking at our network, and we obviously have a priority of passing the committed build of 10 million out of 15 million, but we want to make sure as we're building out our network, that we're optimizing that build for passing fiber to the tower opportunities for wholesale customer, getting close to enterprise customers, getting close to SMB. It's not just a consumer driven build. It's really integrated build across those. So, we're very returns focused. Whatever is going to get us the best returns, we're going to tune the plan to optimize our return on capital.
Operator, thank you. Next question.
Absolutely. Our next question comes from the line of Jonathan Chaplin with New Street Research. Your line is now open.
Thanks, guys. So the -- I just wanted to look at the opportunity outside of the 10 million committed builds a little bit. We estimate that there are about 6 million -- sorry, 600,000 units that are BEAD eligible within your footprint. We'd love to know if that matches your estimates. And then we have a sense that once you deploy fiber to BEAD eligible units, it drives up the returns in other parts of the footprint in and around those markets. And I'm wondering if there's a way to quantify what that sort of aggregate opportunity would be? And then I'm intrigued by the mention of your interest in out-of-footprint opportunities, would love to get some more insight into that, those sort of opportunities that you pursue on your own or with a partner. And then finally, can all of this be financed with access to the ABS market or do you still envisage bringing in a capital partner to go after the sort of the opportunity beyond the initial 10 million?
Thanks, Jonathan. I'll just start with that. As we've said many times before, our committed build of 10 million fiber homes passed with high and attractive IRRs. We're reconfirming today. And that remains the -- a great source of value creation and day-to-day our total operational focus. But if I just take a step back a little bit, it's very clear that the US market is now actively converging as we've seen in other parts of the world. And that in a converging market, that fiber is the scarcest asset, the most difficult to build, and the most inaccessible in many ways. So as the largest pure play fiber provider in the US, and the second largest fiber builder in the US, we know we've got a scarce and valuable asset, and we are certainly interested in looking at all of the options to go beyond 10 million fiber homes passed. And of course, we think about those things all the time.
It's also kind of inevitable if we look at the evolution of the cellular market and how that consolidated in the past, the evolution of the cable market and how that consolidated in the past. The very fragmented fiber market is also likely to consolidate. And as the largest pure play fiber provider, we certainly see ourselves playing an important role in that consolidation. But I come back to the fact that our focus day in, day out operationally is to deliver the high IRRs and good returns from our committed 10 million fiber build. Now, Scott, you might want to talk about BEAD because that's kind of looming on that horizon and will change things.
Yeah, that's right. So we haven't given a specific number. We're still reviewing the FCC maths and confirming how much in our footprint is BEAD eligible. But you know, we think, of our -- we've said before of the 5 million outside of our committed build, several million would likely be attractive to go after, some with BEAD money because it's now going to be eligible and some just as we fine tune our machine and get closer to new regions that we'd be able to expand that 10 million. So still work on the exact numbers of BEAD eligibility.
And the second part of your question for me was around returns and how BEAD might impact the committed build returns. I think you're exactly right. As we've said, mid to high teens IRR for our committed build of 10 million but to the extent we're able to win BEAD funding that help subsidize getting to a specific set of homes that perhaps pass a set of homes that we were going to build with private capital loan, that is going to improve the returns of that private build. So we're going to aggressively go after BEAD. We think it's the right thing country to connect all our underserved homes to the digital economy, and we'll be an active participant there.
And, Scott, it's worth saying, isn't it, that I think when we think about BEAD and we look at expansion and we look at all those other possibilities for us to continue to be the leading independent fiber provider in the US, that the securitization deal that you and the team have so successfully delivered just recently really does open up a range of new possibilities for us as a great and efficient source of capital funding for the business going forward. So I think that's something else that we'll be laying into our considerations in the future, Jonathan. So thank you for your question. Operator, next question please.
Thank you. Our next question will come from the line of Peter Supino with Wolfe Research. Your line is now open.
Good morning. Thank you. A big picture question on long term penetration and returns on capital. Having just launched coverage of Frontier, we've heard pushback from some who don't own your stock, about concern that the ladder vintages of passings will deliver much lower returns than you've experienced so far. Yet your most recent vintage of passing shows higher penetration. And I wondered in that light, if you could talk with us about, what's built into your expectations? And to what extent does that question underappreciate your opportunity? Thanks.
Yeah. Thanks, Peter. This is Scott. So let me let me take a step back and kind of talk about long term penetration, then I'll get into specific cohorts. We've said that we have a superior product. It's competitively priced. We have a consistently growing set of value-added services. And we think we should be able to win at least 45% of the market, if not more, 45% penetration. And as a marker there, we look at our base footprint. And our base footprint was roughly 41% a few years ago. We've grown it consistently as we've rolled out a new product, new offers, new set of customer experiences. It's now at roughly 43.5% and on track to be at that 45% long term goal. So base is a good indication of where we can eventually take expansion penetration.
Now, on specific cohorts of expansion, I'd caution people to not put too much stock in a single quarter, single cohort. We look at a long time period, 12 months, 24 months, 36 months. And the 2020 build, which was small, is ahead of all of our penetration targets. We've always said the beginning of 2021, where we weren't yet together as a management team, the company was still operating in bankruptcy for the first two quarters of that year, those have always -- that cohort has always lagged our targets. It's only one point below our 24 month targets, 24% versus 25%. And as we get into the later part of 2021, that should get back into the target range. So that's no surprise to us. And we've been very transparent with the market since 2021.
The really good news is 2022 and the cohort penetration with 2022. 2022 is our largest build ever. We built about [1.225] (ph) million passings that year. It's had the best penetration that we've had of any cohort. As you saw today, we're at 18% to 19% penetration for 12 months. And we expect that to stay at the high end of the range as the rest of the 2022 cohort ages into 12 months. So I think that shows that as we've moved on, we've fine-tuned our expansion playbook, we've gotten better at pre-marketing, better at day one marketing once things are open for sale, and then better at staying with those cohorts to make sure they understand the value of fiber, and choose Frontier fiber. So we're confident in our expansion penetration and look forward to continuing that momentum. Operator, next question.
Thank you. Our next question comes from the line of Nick Del Deo with MoffettNathanson. Your line is now open.
Okay. Good morning, guys. First for Nick, just to follow-up on Phil's question earlier, to what degree might changes in competitive intensity have weighed on fiber ads this quarter versus other factors? And then second for Scott, I suppose it's market dependent, but, at a high level, how are you thinking about the appropriate mix of securitized debt versus other types of debt and the capital structure over time? Thank you.
Hi, Nick. Yeah, look, of course, fiber is a competitive market. There's no doubt about that. But it's also got a, I think, a good market structure and we have rational competitors. And our objective is also to be a rational and logical competitor. That's in the backdrop of sort of national inflationary market, which I think is very much in -- are in the industry’s favor right now. In terms of kind of new competitors, overbuilders and so on, we really -- we see some, of course, but none at scale. And I think it's a very difficult time to firstly start a new fiber build. I'm not sure how we would do that if we were setting off right now given the complexities of labor and equipment and all of that. Plus there's so much white space in the fiber market in the US, you would have to be kind of crazy as an owner of capital to start overbuilding Frontier and competing with us when we've got our sales and marketing and proposition engine really humming right now. And you could build somewhere else where there's little competition.
So we don't see a lot of overbuilder activity. I think that's going to be suppressed in this higher inflationary, higher interest rate kind of market that we've got. I think private capital is going to be less incentivized than it was in the past to kind of compete with us. And that's exactly what we're seeing. And our major competitors, of course, the cable operators where we continue to take share from them primarily. That's our primary source of share gain. They continue with customer practices of kind of low introductory prices and then jacking up prices up at the end. And we know customers don't like that, and we don't do that. So I think it's one of the big plus points for us and our brand. But we're very respectful of our cable competitors. The market seems to be rational, broadly priced inflationary. And that kind of suits us well. I mean, Scott, I don't know if you've anything to add to that.
Yeah. And just the second part of your question on the mix of securitization and traditional debt, Nick. I think you're exactly right on. That's a key, important factor of securitization. And let me just reiterate why we think it's such a transformational transaction. It provides the path to fully fund our fiber build. The investment grade debt reduces our cost of capital over time just like it's done for data centers and towers. To your point, it gives us flexibility to optimize our capital structure across securitization and traditional debt.
We've historically financed it through 100% of traditional debt. And now that we have a flexibility there, we'll eventually move to something that's more balanced across securitization, traditional debt. We have access to both markets now, and we'll be flexible between those two markets. And then the last really important part of the securitization transaction, it highlights the value of mature fiber assets. As I said before, 80% of cash flow was rated at an investment grade level. We raised debt of roughly $3,400 per passing, and it shows the value of mature stable fiber assets. Operator, next question.
Thank you. Our next question comes from the line of Simon Flannery with Morgan Stanley. Your line is now open.
Great. Thank you. Good morning. Scott, the $500 million cost program, I guess, could you just drill into that a little bit on where we are at mid-year and what you see beyond 2023, into 2024, continuing the productivity improvements. And just to clarify on the financing, I think you said path to fully funded. Previously, I think you'd said you were funded through mid ‘24. So what does this recent raise get you to in terms of what the funding status is and the timeline? Thanks.
Sure. So let me give you a quick update on the on the cost program. We said in a press release today that we had achieved $460 million of cost savings So we're well on track to get there by the end of the year, we still have two quarters to get that remaining $40 million. And I think we'll do more next year. I mean, this is the kind of -- this is the kind of program that's evergreen. It -- we'll continue to make progress there. And, we'll share more details in the next few quarters on that.
Your second question on funding status. So let me give you a few notes as we finish this securitization transaction. So we had $1.9 billion of liquidity at the end of Q2. We add in roughly $2 billion of proceeds from securitization. That gives us roughly $4 billion of liquidity. And we think that funds us into at least late 2025, so roughly 2.5 years or more. But then importantly, the Dallas-Fort Worth markets represent only about 10% of our total fiber passings at the end of 2023. So as we laid out on Slide 16 of our deck, we've got 2.6 million other mature base locations, we've got 2.6 million additional expansion fiber locations that we built. And we still have a long-term leverage target in the mid-3s, but fiber securitization provides a path to fully fund the fiber build and then get down back to the mid-3s when we finish the build. And operator, we will take our final question.
Absolutely. Our last question comes from the line of Michael Rollins with Citi. Your line is now open.
Thanks, and good morning. Just two if I could. So first, when you look at the allocation of fiber EBITDA to copper EBITDA, are you finding that the expenses and the allocations are relatively stable. So going forward, it's just a question of the natural operating leverage in each of these segments, or is there still, just as the business evolves and the mix of fiber versus copper changes, that's still something that gets adjusted from time to time.
And then just secondly, throughout the call, you talked about components of revenue and the opportunity to get to overall revenue growth. I'm just trying to think about, how that cadence should work for the back half of the year and going into 2024, where all the work that you're doing kind of totals up into what type of growth opportunity for aggregate revenue? Thank you.
Sure, Michael. This is Scott. Let me let me take those two questions. On fiber and copper EBITDA allocations, they are relatively stable. So they're based -- typically based on direct operating costs on certain wires or customers that are either fiber customers or copper customers. So we would expect our fiber EBITDA to continue growing, our copper EBITDA to continue shrinking. But that's basically based on the changing mix. We are aggressively taking cost out of declining wire centers where we don't have as many customers or don't have as much network to support there. So we'd expect those same trends to continue.
Now on revenue and EBITDA growth, let me make a few points on the second half and then kind of moving into next year. So we do think it was a big milestone in the first half that we grew EBITDA. We grew EBITDA for a -- for half year, I think, for the first time in a decade plus organically at Frontier. EBITDA was up by about $8 million in the first half. And then we expect second half EBITDA to accelerate. We've said mid-single digit growth in the second half of this year versus the second half of last year. And that puts us in a really good spot with good momentum heading into 2024. And as Nick has said before, this is -- we're still in a critical part of the turnaround, but this is a huge milestone to grow EBITDA in the first half. And we're very confident that we'll grow EBITDA for the full year in 2023.
Thank you, Scott. And indeed, thank you all for your questions. Just before we end the call, I'd like to quickly summarize the key points for the quarter. Firstly, we grew EBITDA, as Scott just said, in the first half and are on track to full year EBITDA growth, and this is a major milestone in our transformation. Secondly, we delivered our best quarter ever of new customer ARPU taking it up into the $70 range and it’s helped drive a sequential increase in ARPU overall. Thirdly, our business in wholesale segment had a breakout quarter, setting revenue positive for the first time in six years. And finally, the fiber securitization deal that we announced last week is truly transformational for Frontier. It unlocks a highly attractive investment grade source of funding and highlights the tremendous value of the digital infrastructure that we are building every day. I am so incredibly proud of the team for delivering another solid quarter in our most important year yet, and I really look forward to updating you all on our progress again next quarter. So thank you everyone for joining the call.
That concludes the Frontier Communications Second Quarter 2023 Earnings Call. Thank you for your participation. I hope you have a wonderful rest of your day.