Value for the company, or coupling that with the work that we've been doing around investing in AI and machine learning to make the jobs of our customer service and field technicians easier to do and to make them more successful in being able to serve our customers better. What that does is, over time, also allow us to serve customers more proactively and drive down the number of transactions that we have to have with the customer from a billing and service perspective. When we drive that down, that also makes the business operate more efficiently from a cost perspective. You pull it all back together, it's all aligned with the strategy. It's been the same strategy for a long time.
We're providing high-quality products at prices that customers can afford and that create value for customers, and coupling that with high-quality customer service, which we think is the right strategy to grow the business.
Great. And then touching on, coming back to something you just touched on there. The brand relaunch with Spectrum Life Unlimited launched in September, and based on 1Q results, the strategy appears to be working, as you touched on there. Where are we in terms of sell-in and attach rates? Is that still ramping? I mean, what inning is it in terms of that rollout?
You know, we're always tweaking the plan, but the rollout was really at the end of Q3. We rolled to small business, then sort of early in Q1. I think it's been kind of across the footprint, at least it was for most of the last quarter. It's doing the things we wanted it to do. It's selling more products per customer, particularly when you think about mobile and video. It's driving customers into those higher product tiers, which allows, it's really, you know, you can take more total price because you're providing more value inside of the bundle to the customer and really earning the value that you've put in. I think it then enables you to be competitive against, and in the new format, really both fiber and cell phone internet in what you're delivering in the market.
We continue to be happy with the results that it's been producing. I will tell people, I think that it's being successful at the things that we wanted it to do. It's still a competitive marketplace, right? While the product is successful in what it does, we're in a competitive business and we're competing well, but the market is what it is.
Yeah. I mean, I guess sticking with that theme for a second. So 2Q, broadband, net adds, as you look out, and expectations. Why should we be thinking about seasonality on a sequential basis? You know, over the last couple of years, we've talked about, between other competition, as well as maybe more maturation within the market. You've probably seen some of that. Seasonal shifts probably taper off to an extent, but in 2Q, I would imagine you probably still expect some level.
2Q, I still expect to have some seasonality impact. As you mentioned, you know, over the last several years, it's been more muted, but I think there's still seasonality in Q2.
Okay. You touched on, within just speaking to Spectrum Life Unlimited, just the ability to earn price, right? As you think about that product rollout and the focus on maybe managing promo rolloffs, and I guess particularly against this macro backdrop, does that change your view at all of, you know, taking price and, you know, maybe passing through programming cost inflation?
On the video side in particular, I think we've done a ton of work over the last year and a half to make sure that we were adding the value back to the video product and that we were enabling ourselves to be able to sell also skinnier packages that had customers wanted what customers wanted, but were also what they could afford. From that perspective, I think I'm comfortable with our ability to adjust for programmer rates to the extent that that's necessary. Our strategy has never been to grow the business primarily by taking price, right? That continues to be true. That being said, I think where it's appropriate, we're willing to make adjustments to rates, and there's nothing in macro right now or in consumer behavior that says to me that we wouldn't be able to do that.
Got it. Back to broadband for a moment there. On the call, Chris noted that mobile substitution still remains below pre-pandemic levels, but continues to normalize. Been an area of focus coming out of the first quarter results. Any notable change, I guess, maybe in mobile substitution trends in 1Q relative to the last several quarters in terms of that, you know, return back to pre-pandemic levels?
You know, we continue to see sort of reversion in mobile substitution, consistent, I think, with what Chris said. We sort of expect that as it comes back to where it was in pre-pandemic levels, that it's self-limiting and so that it will start to slow, but we haven't seen evidence of that yet.
Got it. Okay. Now shifting gears to just 2025 EBITDA expectations, you reported a strong first quarter, excluding, you know, a one-timer. Tell us, you know, is this level of growth sustainable in the second quarter and before maybe comps get a little bit tougher in the second half? Maybe what are some of the underlying drivers and, you know, what's durable within that outperformance, I guess, in the first quarter?
Yeah. As I think you're pointing out, I think EBITDA growth is more difficult over the rest of the year than it was where we were in the first quarter. Some of that is because political ramps, even starting in 2Q, right? Some of it is because I think when you get to August, we'll lap a prior year rate adjustment, and absent doing something with rates on our side, the comps become more difficult because of that. On the other side of that, I would point out, the things that are driving our ability to say that we, you know, plan to have EBITDA growth in spite of those headwinds are really that the business is performing extraordinarily well on the mobile side, and mobile does generate sort of financial growth.
When you think about the impact that mobile has on EBITDA over the course of this year, it's quite positive. In addition to that, the things that I talked about, you know, those AI and machine learning plans that we've been doing, as well as the investments in tenure and the impact I think that Chris talked about in Q1, that having on service rates and how many transactions we're having to have with customers, it's that improvement that I think is driving some of our expense outlook, particularly in cost to serve, that creates it's helpful in the face of those headwinds to getting to our plan to grow EBITDA for the year.
As you think about the AI, ML, and, you know, other just multi-year focus on improving the customer experience and investing in your tenure, Salesforce, to me, a longer-tenured Salesforce, is this cost of serve tailwind, I'll call it? Is this multi-year? Is this opportunity, perhaps?
It's absolutely a multi-year. I think we're early in our evolution of tools that we will bring for agents and for the way that we interact with customers over time. I think the potential to drive down customers' need for service by proactively fixing things in the network and in our business, and then in addition to that, to make those service interactions more efficient and even sales interactions more efficient by driving better tools for agents and for customers continues to ramp over time. It's difficult to say sort of when you reach the peak benefits of that, but we are far from it. I think there are years of goodness to come.
The cost, you announced a cost program last year to focus on longer, you know, near-term as well as longer-term cost efforts, but nothing that would hinder your acquisition strategy. Is there maybe longer-term opportunities that are still on the come of programs that are perhaps in flight that we should be thinking about, or, you know, any chunky, you know, opportunities?
Chunky. There are certainly things that will continue to have an impact over time. You know, I think there's always a drive to make the business more efficient, but there are projects that, because of the way you implement them, it takes, you know, six, 12, 24 months to get them all the way into place. I think there is still some goodness from that program to come. What I would tell you is that in the context of, like, what really drives the cost of the business, the thing that drives the cost of our business is how many transactions you have with customers, whether those be sales or service calls or billing calls or truck rolls. The way that we can really make the business more efficient is to make those types of activities more efficient.
The way that we will get there is around investing in employee tenure and investing in the tools and service capabilities that make us more efficient in delivering those transactions, as well as with the network upgrades, you know, putting new parts in the car, which then will make it run more efficiently and make the business more efficient going forward.
Thinking about the transaction side for a moment there, Spectrum Life Unlimited, right, you have maybe higher connect activity, higher SAC to an extent, perhaps drove to some, you know, partially higher sales and marketing in the first quarter. Is that, you know, how do you balance those two, I guess, in terms of the efficiency side, but your new pricing and packaging strategy trying to drive a higher level of connect activity? Is that a pressure that we should anticipate continuing?
If we have higher connect activity and it generates more commissions and that puts some pressure on sales and marketing expense, that's a good day, right? I'll take that problem all day long. I'll tell you from an expense outlook perspective, growth, we've been a little bit higher, and I'll try to get the words right, in our marketing and resi sales expense growth over the last several quarters. When you look at what I said about outlook for the year, which I think is low to mid-single digits on that growth line, that means we have to grow at a lower rate over the rest of the year. That's not a lower sales expectation. It's because we have some efficiencies coming inside of that space.
I'm still quite confident in the outlook, but it's because of some work that we've done behind the scenes on that side.
Got it. Okay. That's helpful. Now switching to convergence and mobile for a moment here. Net adds did re-accelerate in the first quarter. Is that just entirely driven by the Life Unlimited gross add insurance benefits? Help us maybe think about how your new pricing and packaging bundle value proposition is resonating in a market. Just trying to think about that.
Yeah. Just to make sure that we're talking about the same thing. I think net adds grew year over year in the first quarter. If you look at the sequential, we've been in that 500s range for a few quarters. Pricing and packaging is not the thing that, the only thing that drives sales and mobile, right? We've been working on rolling out some new products that are helpful. In Q2 of last year, we launched an Anytime Upgrade, which is part of our Unlimited Plus plan. We've had a lot more uptake in Unlimited Plus because of that and because of the pricing and packaging we launched in Q3. We also launched a Phone Balance Buyout plan in that quarter, which targets specifically households with high numbers of lines to bring over, you know, those four, five, six line households.
That plan also has been going quite well. In addition to that, I think our brand recognition and sort of respect for the brand in the marketplace continues to grow. When you put those three things together and then you put on top of it what we did with pricing and packaging in Q3 and then in Q1, I think it is really the combination of all of the things that gets you to a place where we have higher gross adds this year than what we had last year in Q1 and gets you to that place of being confident in our ability to continue to grow the mobile business at a rapid rate, even as our base has continued to grow. Naturally, the absolute amount of churn on that base grows.
Right. So actually to that last point, I think we've talked, so absolute or just, you know, the number of disconnects getting thrown off that larger base is going up, but I think churn on a rate basis is going on a percentage basis.
On a percentage basis has been down, yep.
Yeah. What's driving that? How do you think about that?
There are a few things there. One is just maturity of the base, right? Newer customers tend to churn more than customers who have been there longer. As our base grows naturally, the churn rate will come down. The other is that, you know, we have been improving processes in how we deal with customers on things like billing and on our customer service infrastructure. I think I talked probably a year ago about sort of having integrated together some of our, you know, traditional broadband and video service with the mobile service.
It is just, it is those incremental changes that you make and how you deal with the customer over time that I think drive improvement as well, as well as, you know, there are real benefits to having customers have their mobile be bundled with their broadband and generating higher value in the customer relationship that way, as well as just more stickiness to drive value in the long term.
Where do you think, yeah, I guess what, 20% of your broadband base is now penetrated by mobile? What is the team's aspirations longer term for where that can go?
I am not going to put a ceiling on it, but I think that what I can say is, you know, we're continuing to improve the product. We already deliver the fastest mobile speeds because of the benefits of being on our broadband network and the Spectrum Mobile network. We can save customers hundreds or even thousands of dollars against their, you know, traditional phone bills by switching to Spectrum. When you put those things together along with that increasing brand reputation, the share of gross adds that we take in the market is much larger than the portion of our, you know, total footprint that currently has our mobile product. I think there is a ton of opportunity for us to continue to grow at a rapid rate for years to come.
With, I think you touched on in your opening remarks about the CBRS rollout, I think Chris said on the most recent call he planned to be in 23 markets by year-end. Any early learnings in your current deployments?
You know, we've been very happy with the results of our early CBRS deployments. We made sure to spend the time to make sure that we can make the network work well for mobile customers because it's important to us to provide high-quality service. In doing that, we have been really successful with the deployment that we have in Charlotte. We're deploying against a number of new markets over the course of this year and have plans over the course of the next couple of years to deploy against all of the CBRS licenses that we own. We've already sort of included the capital for that inside of our multi-year capital outlook. From a sort of level of investment that it takes to deploy and get the benefits of that and the return of it across the footprint, it's an extremely efficient use of capital.
We're excited about the results that we're seeing already and very excited to get it deployed across the rest of the footprint.
Awesome. Shifting gears back to video, as you touched upon earlier, I guess this seamless entertainment, you know, still on the come, and I think Chris described it as a quote-unquote call option, right, on the first quarter call. Can you maybe just help us in terms of thinking about, you know, the update on the timing of the digital storefront and maybe next milestones or, you know, steps from here before launch?
Yeah. So I think we have, I'm going to say, almost all of the programmer streaming apps rolled out. There may be two left to go. The steps after that, we've been working, thinking about, I think of it as the back office side, but how do you make it so that a customer can upgrade from an ad-free version of the app to, from a with-ads version of the app to an ad-free version? How do you make it so that the customer has a good experience in moving from their current subscription into utilizing the subscription that's provided as part of our product? How do we make sure that customers know what products they have access to by surfacing that content in spaces like the Spectrum TV app? We're making good progress, I think, across all three of those fronts.
When you, then the next one, inside of this year, I think we plan to roll out, and I say that maybe later this year, we plan to roll out the digital storefront, which then will also allow us to sell apps to our broadband customers and allow them to move in and out of those apps utilizing that digital storefront. There are a lot of steps in the path there. I think the team is doing a great job deploying each one, but the product will continue to get better over time and easier for users to utilize, which ultimately is the goal. We do not want our customers to have to pay twice for content. We want them to get all of the content that they have access to.
We're working hard at making sure that can happen.
Got it. And then on the business services side, as we think about, you know, SMB, you know, PSUs there, you know, the decline in PSUs is, you know, maybe accelerated a little bit over the last couple of quarters. Help us think about, you know, whether this is a function of just, you know, FWA and fiber pressures accelerating there. And you touched upon earlier the new rollout of Life Unlimited pricing and packaging in this segment. How, you know, maybe help us think about, or the team's expectations in terms of bending the trend in, you know, PSUs there.
Yeah. The real pressure in SMB is related to cell phone internet and in particular the push there for low utilization businesses. I think what we did around rolling out pricing and packaging inside of Q1 is intended to be helpful to that, but most of what that pricing and packaging is doing is the same things we see it doing in resi. It's, you know, driving better sales of packages that include more products, including, again, mobile and video, and driving better tiering. I think ultimately we think that it's set up to be able to deliver against the opportunity in SMB. We've always been underpenetrated in SMB relative to, relative in small business relative to our competitors. I think we continue to be underpenetrated. The opportunity is still there.
There's pressure from cell phone internet today, but ultimately I think what we're pulling together will enable us to deploy well against the opportunity and grow again in the medium to long term.
Got it. On the mid-market and large business side, revenue was up 3.9% driven by, you know, accelerating PSUs with growth up 4.4% ex wholesale. I didn't ask, but it's good to see maybe the cell tower backhaul component of that wholesale is not as much of a headwind as it has been. Maybe we're on the other side of the tunnel there. As we think about the steady growth and volume improvement there, is this, you know, what are you seeing there? Is this a durable trend? You know, again, are we near that, you know, end of the headwind on the wholesale side?
You know, the trend in medium and large business continues to be good and I think can continue to be good. It's driven by a few things inside of the large business segment. We had invested over the last several years in being able to deploy against particular verticals. You think about something like hospitality and have been successful in deploying against those verticals, which has been driving a lot of growth there. We're excited now about the business changes that we made around moving the way that we address sort of small, medium, and large business together as the Spectrum business overall component of the business and through that doing a better job of addressing middle market where I think maybe we haven't been as engaged in the opportunity and we think that there's a good growth opportunity for us going forward. And then you're right.
The good news about having shrinking cell tower backhaul is that at some point it becomes smaller as a portion of the total base. Even if it continues to shrink, the impact that it has on the larger revenue category is less impactful. I think that's where we are. It just has gotten smaller as a portion of the total.
Okay. And then maybe as we kind of near the end here, as we think about capital allocation, I think you said on the call you now expect leverage to "gradually increase to the midpoint of your 4x-4.5x range," you know, pro forma. You know, and I think I asked you this, but why not accelerate the pace of, you know, that pace of buybacks a bit faster?
Yeah. I do not know that I need to tell this room, but the market is extraordinarily volatile right now for reasons that have not a lot to do with our business. That being the case and having a buying program that works the way that ours does, I think that coming back into the stock over time will be, is a good strategy for us. That said, you should not misinterpret it. We continue to believe that the shares are undervalued and that continuing to buy back our shares creates value for shareholders in the long term. We will be out there doing that.
Got it. Should we expect the midpoint of the range as you kind of made that pivot last year, I think? Is this the new kind of longer term destination on the leverage side?
We've always said, and it's true, we continue to evaluate the leverage range all the time. That being said, we recognize that there's value to stability in where we sit in our target. Based on our evaluation today, I don't expect us, we continue to target the midpoint of our 4x-4.5x target leverage range.
Within that, as we think about CapEx, came in, you know, just a little light or low in terms of the first quarter at $2.4 billion, but CapEx guidance for the year was reiterated at $12 billion, which implies a pretty sharp ramp for the remainder of the year. You know, we have been, this is not abnormal, I guess, in terms of particularly cable and communications in terms of timing and seasonality, but is there any risk to the guide coming in below?
$12 billion is a lot of capital. We will have to execute well across the year to spend the $12 billion. That being the case, you're quite right. The history of our business is that often we underspend a bit in the first quarter and then ramp over the course of the year. We certainly believe that we'll be able to execute well against our plan over the course of the year, and that's why we kept the outlook for the year where it was.
Got it. In terms of your capital program, the rural buildout, you reiterated expectations to build 450,000 new rural subsidized passings in 2025, you know, despite maybe getting out the gate a little bit slower in the first quarter here. You know, maybe similar to, you know, the CapEx question, I guess, what gives you confidence in terms of meeting your 2025 target given the slower start?
Yeah. Construction for us is seasonal. The winter months are more difficult than as we, you know, get into the spring and summer. I think in the first quarter we actually were up in our build year over year. With that, I have all the confidence in the business that we'll be able to deliver against the 450,000 target over the course of this year.
Is this maybe the right pace as we think about 2026? As you kind of, was it 2027 is when you believe you will near the end of the program? Just help us think about the cadence of build activity as you, you know, complete the program.
Yeah. In 2026, we do expect another sort of 450,000 a year from there because the RDOF build is largely complete at the end of 2026. The passings per year do ramp down in our outlook. Obviously, the outlook excludes BEAD. We still have to see what happens there. I think this year and next year are sort of the peak years for passings.
Yeah. Any update on BEAD in terms of considerations, appetite?
No, nothing since the last time we talked about it. I think we still have to wait and see how it all plays out.
Got it. Lastly, within the network roadmap, help us think about the network evolution and update us perhaps where you are on that build timeline of completion.
Yeah. Our step one markets, which were the first eight markets, are largely completed. We have distributed access architecture, which is sort of the step two of our plan, operating in several markets today. We expect to ramp that later in the year to really gain some pace on those distributed access architecture markets. Ultimately, we plan, you know, for the full footprint upgrade, the rest of the footprint to be completed in 2027.
Got it. As we think about building scale within those step one markets, you know, moving on to step two, what should we perhaps expect, maybe pricing and packaging updates or changes, or maybe increased emphasis on sales and marketing within those high split markets? What's the timing on that?
Sure. In the step one markets, you'll see that we've deployed across some of those a new two by one product. We've also inside of those markets, we're generally marketing symmetrical speeds to customers. We, from a sales and marketing perspective, often spend some time experimenting with what works for customers. I think that you'll see us have offers and have products. When we have something that works well, you'll see a lot of it. That method works well for us. We believe in the power of upgrading the network and its ability to make us competitive, more competitive both with fiber and cell phone internet providers and to seed those technologies that will generate further demand for broadband from customers over time. We think it's the right thing to do for the long term of the business.
It's the right thing to do for competitiveness. How that plays out and exactly what you see in offers is hard to tell, but we're excited about getting it done.
To date, you're already offering or marketing symmetrical speeds in some of your markets?
Yeah.
Okay. Remind us, I think, Chris, but remind us, where are you again on the step one markets in terms of the number of markets that have been deployed already?
There are eight in the step one, eight step one markets.
Okay. To date, eight total at this point.
Eight that we're in step one. From this point forward, you'll see us move into distributed access architecture, into that step two, which provides us the capability to get to something like five down by one up.
Got it. I think that's probably a great place to end it. Jessica, thank you for joining us. Thanks, everybody.
Thanks.