Altice USA, Inc.

Thank you for standing by and welcome to the Altice USA first quarter 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. Thank you. I would now like to turn the conference over to Mr. Nick Brown. Sir, please begin.

Hello, everyone. Thanks for joining. In a moment, I'll hand over to LTC USA's CEO, Dexter Goey, and our CFO, Mike Brough, who will take you through the presentation, and then we'll have time for Q&A. As today's presentation may contain forward-looking statements, please read the disclaimer on page two of the presentation. Dexter, please go ahead.

Hello everyone. Before we begin, I once again want to express my gratitude for the hard work and commitment shown by the LTC USA team with our employees continuing to navigate the pandemic effectively together. We've had a great start to the year delivering strong financial and customer growth in the first quarter, which positioned us well for the rest of the year. As such, we are confident in reiterating our financial outlook for 2021. Starting with slide three, reported revenue grew 1.2% year over year. Adjusted to exclude customers' past due payments greater than 90 days in the prior quarter, in other words, for customers we consider to be current or paying, adjusted broadband net ads were 20,000 and adjusted residential customer net additions were 8,000. In addition, this quarter we reached a fantastic milestone for passing over 1 million homes with fiber to the home. Furthermore, our product suite continues to expand. Just this week we launched our smart Wi-Fi 6 service to further drive an enhanced connectivity experience. Turning to financials, we grew adjusted EBITDA 4.2%, achieving adjusted EBITDA margin of 43.4% or foul losses. We also delivered our best-ever first quarter free cash flow performance, generating over half a billion dollars of free cash flow, which grew 82% year over year. This supported incremental share of purchases of $523 million in Q1. Finally, earlier this month, we successfully completed the acquisition of the very fast-growing cable business Morris Broadband, which will nicely complement the organic growth we're seeing across the company. Turning to slide four, you can see that our revenue growth remains strong in this environment, again, highlighting the defensiveness of our business. Total revenue growth grew 1.2% year over year in the first quarter, 1.3% supported by the exceptional customer growth we saw last year. Business services continues to be resilient, growing 0.7% with early signs of recovery coming from positive reopening trends at both our light path and SMB businesses. Finally, news and advertising was flat year over year at minus 0.4%, which is truly remarkable results given the tough comparison to Q1 of last year pre-pandemic. Turning to slide five, we've seen a normalization in our customer and broadband growth following a record year in 2020. On a reported basis, we had a net loss of 1,000 residential customer relationships, Remember, in the fall, we were impacted by the combination of three hurricanes, Delta, Laura, and Isaiah, and in the first quarter, by the Texas winter freeze, resulting in about 9,000 customers in our customer count at the end of Q4, whose bills were passed due more than 90 days, which is when we would usually disconnect those customers. Payment plans and cash payments, these customers became current in Q1. On an adjusted or current basis, including those storm-affected climates, We realized customer net additions of 8,000 in Q1, which as in prior quarters, we believe is the best measure of our underlying performance. We gained 12,000 residential customers in the first quarter on a reported basis and 20,000 broadband additions adjusting for the former storm affected customers who are now current again. Overall, we're very pleased with the subscriber activity we saw in the first quarter, including very strong and above expected retention and payment trends from past two customers who became current in the fourth quarter. One thing to touch on is regulatory. New York State may implement new legislation which could prevent us from disconnecting some customers that are past due on their bills, very similar to the New Jersey Executive Order and FCC Pledge, which we managed very effectively last year. We have built all the tools to administer this type of legislation signed by the governor. This could mean, if passed, there will be likely continued customer and financial impact starting in Q2, in the same vein as the New Jersey order and the FCC pledge last year. In that case, we would continue to report customer figures on both a reported basis and an adjusted or what we would consider current or paying basis for any customers over 90 days. Additionally, we will be participating in the FCC Emergency Broadband Benefits or EBB program, which provides a discount of up to $50 per month towards broadband service for certain eligible customers. This gives us cautious optimism that we will continue to see a favorable payment trend across our get past any residual noise from the storms and the New Jersey order in the first half, including a second quarter that tends to be a seasonally weaker one. We expect more of a tailwind to customer growth in the second half of the year, especially as we see more benefit from our accelerated pace of edge outs. We continue to expect the customer growth for the full year in 2021 to be at least in line with or better than 2019 and 2018 levels, not including approximately 30,000 more broadband customers, which we added in the second quarter. On video, we continue to see lower video attach rates in our base and continue to expect video net losses to be similar to 2020. We remain focused on customer retention of existing video customers and believe this is a combination with lower video attach rates and the mixed shift towards broadband only will only be accretive to margins over time. I also want to briefly touch on our mobile customer trends. We reached 174,000 lines at the end of Q1, which is equivalent to 3.7 penetration of our residential customer base. Our tiered data plans continue to gain traction with about 70% of our gross ads now taking our one gig and three gig plans in Q1. These tiered plans, along with our right size unlimited prices, are helping us drive much better gross margins as we continue to focus on profitability. Substantially, all of our customer devices have now been migrated to the T-Mobile network, delivering a premium network experience, which has helped us reduce churn by 20% compared to the prior quarter and will also help us further reduce costs. For the full year, we expect mobile EBITDA losses to continue to improve year on year. Turning to slide six, we continue to see our network performing very well, even with the heavier usage trends persisting into the beginning of this year. Average monthly data usage per customer was up 39% year over year. Focusing on our only broadband customer base, data usage has now reached over 600 gigabytes per customer per month, which is 26% higher than the average for our entire customer base. particularly as we're seeing elevated levels of video streaming activity. We see no signs of this data consumption growth slowing down and feel really well positioned with the quality of our network to meet this customer demand. Our recent smart Wi-Fi 6 launch is the latest development in improving the customer experience, including three times faster Wi-Fi speeds, a more reliable connection with less interference, and support for a lot more devices in the home. In tandem with this data usage growth, we are continuing to see more and more customers taking faster and faster broadband speeds. 43% of our gross additions took 1 gigabit broadband speeds in areas where it was available, up from 13% a year ago. And we remain very optimistic about 1 gig and multi-gig opportunities. Over 50% of our customer base still now only takes 200 megabits per second or lower, so this represents a multi-year upgrade growth story. Turning to slide seven, the completion of our DOCSIS 3.1 upgrade last year to support one gig availability across 100% of the optimal footprint increased our opportunity to continue to upsell customers to higher broadband speed tiers. Our one gig customer penetration increased to 9.8% in Q1, up from 2.4% a year ago. Doubled in the past three years to 302 megabits per second, And as you can see, this was an accelerating as customers are increasingly buying into and valuing the step up to one gig. Turning to slide eight, we want to focus and to remind you on our long-term fiber network strategy. In Q1, we exceeded 1 million homes passed ready for service or about 20% of our optimum footprint. We are currently on track to pass a half a million homes this year. more in line with 2019 levels before the pandemic slowed down the permitting process in 2020. Following the commercial launch of our fiber double and triple play offerings in the second half of last year, fiber selling rates have picked up to about two-thirds of gross additions, up from just 14% a year ago. This is supporting increased penetration of TTH passings, up to 3.6% now compared to 0.7% We continue to expect accelerated adoption of our FTTH offering, where we really only started offering a more full suite of fiber products, including video, last summer. Today, two-thirds of our fiber gross ads are taking our symmetric one gig product, representing a great opportunity to differentiate our fiber offering and increase our revenue, increasingly appreciating higher upload speeds. As a result, we are already seeing 25% higher customer satisfaction from our installed fiber customer base compared to our HFC cable customers. This is a great indication of a long-term improved customer experience we're expecting from our fiber investment, not to mention the additional long-term OpEx and CapEx efficiencies. Separately, we are simultaneously accelerating our new build deployment, particularly around the edges of the Suddenlink footprint. And our recent Morse broadband transaction opens up even more new build opportunities in North Carolina. We're also continuing to upgrade about 400,000 homes in the Sunling footprint through full upgrades of RF equipment to be up to one gig capable. All in all, we remain very busy on the network and expansion front and expect this to translate to higher net customer additions over time. On slide 9, we want to highlight our success with our recent Service Electric of New Jersey acquisition and the additional opportunities we see in our Morris broadband acquisition. Recall, we also were able to execute on significant margin expansion with our prior Sunlink and Cablevision acquisitions while growing revenues sustainably and embarking on significant network upgrades to support future growth. And our margins would actually be even higher if it were the same. same scale as some of our larger peers on the program assigned. First, on the left, for Service Electric, you can see that based on our estimates, we've already more than doubled Service Electric's adjusted EBITDA margin to less than a year, and we still expect further expansion from here. As we roll out the optimum suite of products and services, we are also targeting increased customer penetration, ARPU, and revenue growth. Morris Broadband on the right has a similar number of customer relationships, but much lower penetration, just about 35% broadband penetration, as well as significant new build growth opportunities in surrounding areas. This is one of the fastest growing cable businesses we've seen in the U.S. market with relatively low margins and a network recently fully upgraded to DOCSIS 3.1. By executing on very similar efficiencies to what we've achieved with Surface Electric, including programming synergies, we are targeting approximately 60% margins by next year. We also get significant tax benefits with the transaction as a transaction structure allowed us to complete step-up basis for the acquired assets. We continue to actively look for additional bolt-on cable M&A opportunities as we believe this to be an extremely creative use of capital given our track record. On slide 10, looking at business services, We have begun to see a recovery in revenue trends across our SMB and light path businesses, including our best month of customer growth in March that we've seen for about 18 months as major markets like Texas and New York have begun reopening. This includes some seasonal businesses like resorts opening earlier than usual to make up for 2020. Business services grew 0.7% year-over-year in Q1, up from about flat in Q4. We continue to see strong demand for higher speed tiers from education and healthcare verticals, driven by remote learning and telehealth solutions, as well as growth in corporate demand to allow for remote work conditions. Our new LightPath management team is already gaining traction and extending beyond its historical enterprise customer focus into strategic wholesale and carried communications infrastructure opportunities. We've also been actively looking at entering into new tier one enterprise markets as an additional growth opportunity and should have more to say here in the coming months. For the full year we expect business services to continue to generate positive revenue growth with recovery picking up more in the back half of the year. Now turning to our news and advertising business on slide 11 we are very pleased we've been able to keep up with revenues flat approximately year over year despite the tougher comps pre-pandemic a year ago and with a sharp drop off in political spend from the end of 2020. We continue to see a recovery in local advertising and the comparisons year over year should be a lot easier to bottom out last year. We anticipate this recovery will continue through this year as markets reopen and business confidence improves and expect to be flattish on the year over year basis, even with a tougher comp in the second half due to political. And now I'll hand you over to Mike to go over the financials in more detail.

Thank you, Dexter, and good afternoon, everyone. Thanks very much for joining us today. I'm now on slide 12, where you can see we posted an adjusted EBITDA margin of 43.4% in the first quarter, up 130 basis points year over year. For the quarter, we grew adjusted EBITDA 4.2%. Excluding mobile EBITDA losses, our Q1 EBITDA margin was 44.1% compared to 43.1% a year ago. for a 110 basis point improvement. You'll notice our quarterly mobile losses have started to come down now as we reach scale and see the gross margin benefits Dexter described coming through. In Q1, our EBITDA less CapEx operating free cash flow margin of 34.8% was up almost 500 basis points year over year due to a combination of EBITDA margin growth and lighter CapEx. as we are still ramping up on the pace of our fiber rollout and new build. Turning to slide 13, our capital intensity was 8.6% in Q1, and without fiber and new home builds growth investment, this would have been 6.5%. Remember, we were impacted by permitting delays in the last year due to the pandemic, but we are now re-accelerating all of our network initiatives, so we should see our CapEx spend increase back up to historical levels over the next few quarters. We remain focused on accelerated new build activities, upgrades to portions of our network in select areas in our western footprint, and continued rollout of our fiber-to-the-home build in the east to create a platform for sustainable volume-based organic growth. As Dexter outlined, we are excited about the long-term potential of our network to keep delivering superior connectivity solutions to our customers at a reasonable cost. Slide 14 highlights another very strong quarter of free cash flow generation, which grew 82% year over year to a total of $537 million. This is our highest ever level of Q1 free cash flow and a really good start to the year. It's a similar story to last year with a combination of revenue growth, disciplined cost management, and lighter capex from the temporary slowdown in our fiber bills, as well as refinancing savings flowing through reduced interest costs. Cash taxes were only $10 million in Q1, but recall, we do expect this to increase later this year since we exhausted most of our federal net operating loss deductions in the 2020 tax year. However, between our recent Morris broadband transaction and other tax planning initiatives, total cash tax totaled to 350 million in 2021, lower than we previously expected. Our cash flows from financing activities included an outflow of just over $500 million related to our share repurchase program. On slide 15, we provide an update to our balance sheet. First of all, I am very pleased to announce our recent upgrade by S&P to a corporate issuer rating of BB with a stable outlook, including an improvement in our recovery rating to our credit facilities and guaranteed notes and an upgrade to our senior notes rating from B to B+. This is a direct reflection of our numerous efforts to continue to strengthen and turn out our balance sheet, as well as a more positive view on our operational execution and the defensiveness of our business and the cable sector more broadly. In 2020, we refinanced $4.4 billion in debt, achieving run rate annual interest savings of over $200 million compared to 2019, which reduced our total cost of borrowing to 4.7%. The weighted average life of our debt is currently 6.3 years. We have no annual bond maturities greater than $1 billion before 2025, all of which could be covered by either free cash flow generation or capacity from our revolver. We will continue to proactively and opportunistically manage our liabilities in the same way going forward with plenty of additional refinancing opportunities. We have demonstrated throughout the pandemic that we retain best-in-class access to the debt capital market, and we remain extremely comfortable with the strength and resilience of our balance sheet. Finally, on slide 16, we provide a recap of our financial outlook for 2021, which we are reiterating today. We expect to grow both revenue and adjusted EBITDA for the full year, reducing leverage to under 5.3 times, and we remind you that our medium-term leverage target remains some change at between 4.5 times and 5.0 times. We expect cash capex in a range of $1.3 to $1.4 billion as we ramp up our FIBA rollout and new builds. And lastly, we are planning on $1.5 billion in share repurchases this year, having completed just over a third of this amount in Q1 alone. Before we close, I would also like to take a moment to thank the Altice USA team for another great quarter and reiterate that we are really well positioned for 2021. And with that, we will now take any questions.

Azarima, star one on your telephone. To withdraw your question, press the pound key. Once again, that's star one on your telephone. Your first question comes from the line of Philip Klusak from JP Morgan. Your line is open.

Hey, guys. Thanks. Let's dig into the confidence on the four-year ads at this point. You talked about seasonally slower in the second quarter, which means a lot in the back half. Can you talk about how many homes you expect are going to come available for sale around that time or with much better service and the payments in the hurricane areas where you zeroed bills? Thank you.

Sure. Hey, Phil. Listen, I think, you know, we are on track to upgrade, you know, our 400,000 Sun Lake homes. The first batch of those are already starting to get released now, and we should have the bulk of them all released by the third quarter of this year. That's going to drive increased penetration opportunities for us. Obviously, the two M&A transactions, Seco and Morris Broadband, show very strong opportunities for us to increase penetration levels there. And on a build-out perspective, we did 34,000 in the first quarter. You know, we're targeting to get to 125,000 to 150,000 for the year and hopefully accelerate going into 2022. So we're on track there. As we FTTH, so I think we remain very confident here that we're going to continue to see very good opportunities to increase penetration, both through new builds, upgrades, and our recent acquisitions. And so, you know, that is kind of what we've been signaling here for the better part of a couple of months. that we expect after a seasonally weak second quarter where we see an extraordinary amount usually of moves happening, that back to business in Q3 and Q4, we're going to see some good opportunities to continue to drive penetration and drive payments. Question. Sorry. Did you want to interrupt? Yeah, I was going to say, is that higher move rate?

Do you anticipate... losing share in those moves that Fios in particular is a shared gainer now, or am I looking at that the wrong way?

Yeah, I think we have higher anticipated moves always in the second quarter due to Suddenlink, which are impacted a lot by university towns, even though it's a bit skewed given the pandemic. You do see a lot of activity in the second quarter in May and June. We are seeing some reversal of moves, let's call it, out of some of our optimum footprint homes, I would assume back into the metropolis areas where we're not in places like that. So more seasonal moves here. It's just not a competitive dynamic relative to Fios. It's just people moving out of our footprint. And then you mentioned in terms of payment terms, I think we've seen very good reaction to payment, particularly on the New Jersey FCC pledge numbers that we finished off of the year. Over 60% of those clients have become current. And in terms of storm-related, we're just going into end of March and beginning of April into some of the first batches of those 9,000 people coming due, so it's too early to tell the reaction there. But we have seen some good reactivity on some non-pay disconnects typically that we would see as non-pay disconnects in the Louisiana area coming due and paying very quickly and becoming current. So we're optimistic here that we're going to see stronger than expected trends in payment, and that's what we've seen on the retention side. is that non-pay disconnects continue to trend much below average relative to 18 and 19, which doesn't surprise us given the pandemic dynamics and the resilience of the broadband product. So stronger moves, better retention, and good payment terms that we're seeing from overdue customers.

Got it. Thanks, Dexter.

Sure.

Your next question comes from the line of Craig Moffitt from Moffitt Knightson. Your line is open.

Yeah, hi. Dexter, can you talk about what your expectations are for federal stimulus and how you're sort of operationalizing the preparation for those funds being available for customers in your footprint? And specifically, I'm curious, Will you have a new product for broadband that is priced at the $50 range that sort of dovetails with what's available under the stimulus? And then I have one follow-up question about margins, if I could.

So the product itself at $50 probably not matches exactly that. It's because it is a subsidy where effectively we subsidize the client, and they get reimbursement through an arm of the FCC. We are very well prepared, particularly since we have a large amount in the EBB program, which is targeted very much for remote working and remote schooling, to be targeting those SMB clients, which we are heavily weighted towards, and enterprise clients, the light path. to focus on that. So typically what we expect to happen is school districts and schools going out there and effectively saying we would like to allocate X amount to our students, and that could be up to 100% because a lot of municipalities are still heavily doing remote learning. And then when they allocate those subscriptions, we go ahead and do those installs and then go and get the subsidy back from the federal government, right? So we are ready to go. The EBB program has not been put into place yet, but we expect it imminently. And as you may know, I think it's $3.2 billion of that that's available from a first-come, first-served. So we're very prepared on that side. There's also, as you know, sorry?

for what it might mean in terms of numbers?

We don't, right? I mean, we don't want to preempt what could happen, right? But we would anticipate to see some nice uptick from that. I just can't give you any volume estimates, Craig. We just don't know.

Got it. And then, oh, sorry, go ahead.

No, no, no. Then, as you know, there's the E-rate program as well, which is really targeted towards low-income broadband-type customers as well as COVID-impacted households, which we are also ready to go on actively because that has been an ongoing program, federal program, but now needs to be applied to these specifics, which we're expecting to happen at any time.

And then just thank you for that. That's helpful. And just on margins, is the trend historically we've seen lower margins in the first quarter. Should we sort of expect the same kind of seasonality pattern going forward that we've seen in the past? Things are obviously a little bit disrupted with COVID. So is there anything unusual in the margin trajectory seasonally?

No. You know, as you know, first quarter we see all the step-ups in programming costs occurring, which is why we always see a dip from fourth quarter to first quarter. And then we work our way up throughout the year to end the fourth quarter and the year at a higher level than the previous year. And we expect that to continue.

Got it. Thank you.

Your next question comes from the line of Doug Mitchelson from Credit Suisse. Your line is open.

Oh, thanks so much. I guess one for Dexter, one for Mike. Dexter, you know, you've got an interesting footprint, right, with half of Optimum, you know, covered by fiber and half not, and then suddenly you can explore markets. Is there anything notable regarding broadband trends, whether it's sort of gross ad or churn, when you look at those three different groups where one was sort of tougher, easier, uh and and for mike on arpus i think um broadband might have come in a little bit less and and video a little bit more anything related to reallocation of bundle discounts or anything else or can we just use those as a good baseline going forward thanks the first side listen from a competitive standpoint uh you know people always focus on the files for print you know we continue to only see about 25 percent of our gross ad activity

occurring in the Fios footprint, which is consistent even with the pandemic year that we had. So nothing to signal. Obviously, Fios and fiber overbuilders, whether that be AT&T or others, are aggressive on price. So we are cognizant of that occurring. Um, but you know, AT&T has about a eight to 10% overbuild on fiber, uh, on our sudden footprint. Uh, the rest is DSL. We don't believe that the remainder DSL footprint, which is about 40%. Uh, of, uh, of additional footprint in, um, in sudden link is going to be the priority for AT&T to overbuild given the small rural communities that they are, uh, there, but we're monitoring that very closely. So we're not seeing anything different. It did not surprise us that in Q3 and Q4 last year when Fios was back online relative to the second quarter where they were pretty much offline in terms of installs, they were a lot more aggressive and took some market share then. And we gave back some and we saw those numbers in the back half of 2020. But nothing to signal out of the ordinary. There were some reports that we had lost an excessive amount of customers, about 140,000, based on Comlink data to Fios in the second half of last year. That number is more like 30,000. So Comlink data and look at trends, their trends are about four and a half times off of the reality. So we're monitoring all that. We continue to see great opportunities in our non-fiber overlap markets. Sunlink continues to see very strong performance. And even in the AT&T overlap subscribers, we were basically flat on market share relative to AT&T. So we're not seeing any excessive. Obviously, our poo pressure occurs occasionally as people are promotional. and we're very good at reacting to those, if not being proactive on market share-related initiatives. So nothing to signal out of the ordinary.

Great. And Arpo?

Yeah, Doug, this is Mike. So you're right on the money. A lot of the The deviation in the ARPU, what you're used to seeing, is in fact a function of accounting allocations or lack thereof, I should say. So I think we grew broadband ARPU just a little less than 6%, whereas we've been reporting low double digits, and we'd always said about a third of the broadband ARPU growth was the accounting allocation. That was driven by some changes that took place when we put Suddenlink onto the same BSS OSS system as Optimum, and then the manner in which we implemented the RAID event was somewhat unique in February of 20. We've now anniversary-ed both of those things, so it's not as prominent a driver. And so the result is you'll see a little lower broadband ARPU growth and a little more robust video ARPU growth because we're no longer pushing as much money on a year-over-year basis, no longer pushing as much revenue from the video and voice products to the broadband products via that allocation methodology. I don't want to get into the weeds too much on it, but you're right on the money. That is the driver for kind of the change in European trend that you're seeing there. A less of a driver would be the manner in which we're implementing our rate event this year. We've talked about this. Rather than doing one large rate event in February, we started a rate event in November, and we're doing it really in 12 monthly installments and segmenting our customer base based on when they roll off promo and a number of other factors. So the rate event is more of a perpetual type thing that takes place in 12 different tranches over the course of the year. And so it manifests itself in the offer a little bit differently as well.

All right, great. Thank you both.

Your next question comes from the line of Mr. Brett Feldman from Goldman Sachs. Your line is open.

Thanks for taking the question. I just want to get a little more insight into getting CapEx back up to the run rate that you anticipate. It's obviously been a bit lower, and you talked about some of the zoning issues. From your comments, it sounds like some of that permitting has been rectified. And so are we at a point where we would expect the fiber to the home CapEx to get back up to trend? And then I think you made a comment about potentially looking to edge out your enterprise footprint.

um would that be considered incremental capital project or would you expect that it would be contained within your typical capex envelope thanks yeah listen on the fiber to the home you're exactly right um we have ramped uh uh started the ramp up in the q4 of last year uh and starting to spend that money um in the beginning of this year and expect to continue to ramp that up throughout the year to get to that 500,000 new homes ready for service target that we have for the year. So we're right on schedule. There's nothing to flag. We're even a little bit ahead of schedule there. So you will start seeing more fiber investment coming in the back half of this year, including as well, obviously, with edge outs. As the permitting processes occur, summer months tend to be heavy on the new build activity. So you'll see more spend coming in Q3 and Q4. On the edge outs relating to light path, they've gone out and looked at some small acquisitions of networks across the country, very focused in the northeast. They've been successful on some of those. They're very small numbers, less than $50 million in total. And we expect that to be very creative transactions in the next coming years. But we expect that to be part of the entire envelope throughout the year. But, again, it's actually less than $40 million. Thank you.

Your next question comes from the line of John Hodulik from UBS. John Hodulik Thank you.

Dexter, there's a lot of noise in the market right now about competition from fixed wireless services. Just your thoughts on, you know, how do you expect that competition to ramp up and, you know, impact your high-speed data numbers? And then turning back to the regulatory side, it looks like the New York State budget proposal requires a low end $15 service for 25 megabits per second in the state. I think it's just a proposal right now. But do you see that as a risk to the business? Or if you could talk about the exposure there, if that were to get passed, that would be great. Thanks.

Sure. On the competitive fixed wireless list, I think we've been speaking about this regularly for the past couple of years. we don't anticipate to see a big challenge from the product in our footprint. Today, as you saw, broadband-only subscribers today, which are pretty much the relevant ones for the fixed wireless substitution-type customers, are 600 gigs per month. And with price points starting for the 1-gig products anywhere between $35 to $70 on promo. So we don't anticipate that to be something that is going to affect specifically our footprint very well. And then as we look at the more rural areas where we have one gig available throughout Sunlink, it's difficult to see a less performing product in place at attractive numbers in order to get penetration. So we're not seeing any noise in our footprint at all from potentially fixed wireless substitution. On the regulatory side, yes, we have seen that. As you may know, we do have a $15 30 meg product, low-income broadband. I think we have currently about 15,000 customers on that. That number typically was more like 120,000 customers. 94% of those who initially initiate signups for the low-income broadband product at the $15 price point end up upgrading to a higher tier. And so we do have a very small percentage of our subscribers that actually take the low-income broadband tier. And 94% of them, either on the initial call or subsequently shortly thereafter, are upgrading to a higher tier. So that is something that we readily have made available for the better part of four years, really, since the closing of the Cablevision transaction, even a little bit longer than that. And so that's something that's quite prevalent in the market today and will continue to do. Great. Thanks, sir.

Your next question comes from the line of Ben Swinburne from Morgan Stanley. Your line is open.

Thanks. Good afternoon. I guess two questions. First, on cash taxes, thanks for the updated guidance. It sounds like the Morris acquisition maybe is creating some sort of basis step-up you can depreciate against taxable income. I'm just trying to understand if this is a durable benefit we'll see beyond 2021. So that's the first question. And then second – At least it seems like there's a lot of aggressive promotions from Verizon on the broadband side out there in the optimal footprint. I don't know if, Dexter, you would describe the competitive intensity as having changed much at all, you know, in Q1, Q2, or if it's kind of status quo. I'd be interested in your thoughts there. Mike, do you want to hit the cash taxes?

Yeah, sure. So, yeah, Ben, I think, listen, I think the guidance we gave previously, we always qualified as being subject to, additional planning initiatives and opportunities. Certainly weren't thinking more as broadband in that context, but part of the lowering of the guidance on cash taxes is a function of being able to get more concrete numbers around some of those opportunities as to which ones you know, are attainable and which aren't. On Morris Broadband, you're right. The transaction was structured as an asset purchase for tax purposes. We haven't finished the purchase price allocation, but the extent that it's allocated to hard, tangible assets would be deductible right away in year one, 2021. The extent that it's allocated to intangible assets, which will be a material number, will take that over 15 years. So, you know, it's not sustainable at 2021 levels, but there is certainly a sustainable benefit beyond year one.

Got it. Okay. From a competitive dynamic, no, nothing to flag specifically out there. That's not normal course of business that we've seen when people get promotional one quarter to the next or whatnot, right? I think the AT&T noise relative to their rollout is not affecting us today in the Sunlink footprint. And FIOS is FIOS, right? So as you know, that's 25% of our activity, and it's hand-to-hand combat all the time. But we remain well positioned there, particularly with our fiber-to-home upgrade that we're continuing.

Got it. Thank you both.

Your next question comes from the line of Michael Rowlands from Citi. Your line is open.

Thanks. Good afternoon. First, I'm just curious, on the chart that you showed where you've upgraded the fiber to the home, can you provide some greater context in terms of the penetration after a year or two years, same store type of information, and maybe the overall potential benefit you're getting in that market from having fiber on top of where you've had the coax previously? And then secondly, just a quick question on broadband ARPUs. You mentioned the opportunity to keep upselling customers. Can you give us a sense of the financial benefit when a customer trades up to higher tiers? Thanks.

On the first thing, on FibreZone, I think it's a little too early, given that the penetration levels were really only at 3.6% and last year were at 0.7% to give you real data. We do see customer satisfaction level 25% higher, which is right in line with expectations, if not better than expected so early on, because the install process is a little bit longer than the typical COAX one. But we're seeing two-thirds of our gross ads in our Fiverr footprint who are subscribing to Fiverr taking one gig, right? So... That clearly is a great signal for us that we're seeing such high demand of symmetric one gig speeds in our fiber footprint, and we expect that to continue to accelerate. So as our roadmap is going to accelerate from one gig to more than one gig over the next couple of years, we have a really nice runway here to continue to push uh, high, high, high, high speed broadband. And, uh, to your point about upsells to continue to drive, uh, upsells in the product, but we really do with the higher satisfaction rates just by definition. That means we anticipate to see lower, uh, call-ins and touch points, uh, relative to our customer service, which is going to help us drive, uh, OpEx, uh, uh, lower, uh, on the field, uh, services and call service, uh, side. And obviously, from a CapEx efficiency standpoint, as we continue to grow volume here, we're going to get closer and closer to having a big drop-off in our CapEx as we finish off our fiber-to-the-home rollout. To your point about broadband upgrades, the typical one-speed upgrade is a $10 type of a price point. So when people go to $100 to $200 or $200 to $300, And when they go from 300 to a gig, that's usually typically more like a $20 uptick in terms of price points. So go straight down the bottom line, very attractive, doesn't take any work really from our standpoint to upgrade them. And those are very, very sticky customers. So that we continue to see as a strong driver of growth as people continue to upgrade.

Thank you.

Your next question comes from the line of Jonathan Soplin from Unistreet Research. Your line is open.

Thanks. Dexter, just going back to the stimulus impacts, are you expecting that to show up more in net ads or in ARPU? And can you help us dimensionalize it a little bit so we can sort of put it in the context of guidance, you know, is this something that could move you potentially well above the guidance that you've given of net ads that are sort of consistent with 2018, 2019? Or is that sort of an exaggeration of how big an impact this could be?

I think it's just too early to tell. I'm sorry, John, that on this point, you know, we don't want to fall into the trap here. uh on it we do think it's a very attractive opportunity uh that we're going to be pushing uh very strongly and given the relationships that we have the very strong relationships we have with schools um hospitals uh and as such uh in our footprint we anticipate being able to uh to be a very coordinated here uh to try and uh get the the remote learning and remote work at home uh customers that would qualify here for the broadband subsidy. But it's just too early to tell. It hasn't actually come into place yet. And so given that we're dealing with the federal government here, I'm not holding my breath yet, even though everyone keeps on telling me it's imminent. Got it.

A quick follow-up on wireless, if I may, Dexter. The trend in net ads that we're seeing at the moment Are you sort of expecting to keep adding at about this rate and allow losses to improve? Or now that you've done this complicated transition to the T-Mobile network, is there an opportunity to start to ramp up the pace of net ads on the wireless business?

So I don't want to put pressure on my mobile team. We've done a great job here, and we have a great partnership with our friends over at T-Mobile. But as churn rates continue to fall, given the better performance and the increased focus on the IT tools that we have and that we continue to deliver, the anticipation is that we would start investing more heavily in media towards the back end of this year. Let's call it back to school September onwards. where we'd anticipate we would only do that to the extent that we'd expect to get a lot more gross ads, right? So for now, I suspect you'll see very similar trends in Q2 with the perspective that in Q3, we are a little bit more aggressive towards the back end of Q3 with some marketing to drive growth and really drive growth going into 2022. Excellent. Thanks, Dexter.

Your next question comes from the line of Peter Supino from Bernstein. Your line is open.

Hi, I wanted to follow up on John's question about fixed wireless, specifically if you could share a rough percentage of the Suddenlink subscribers who take, say, 200 megabits or less speed or whatever level would indicate to you some price sensitivity. And then a second question, if I could, I wondered how you're feeling about the broadband pricing environment, given the attention drawn to that issue by the White House infrastructure blueprint recently. Thank you.

I don't have the number off top of my head, Peter. We'll have to follow up with you on the Sunlink side. I do know that the average speeds typically on Sunlink tend to be higher than the optimum. As you may remember, Sunlink had already started its one gig upgrade very early on relative to Cablevision. When we took over Cablevision in 2016, I think 95% of subscribers we're on average around 60 megs, right, with a very small amount of them at 100 megs. And so I would guess that less than the 50% overall that we have of subscribers that are doing 200 megs or below are at Suddenlink. But I'll ask my team to get back to you with some more specificity on that. And then relating to the administration's commentary on pricing, I mean, I can't begin to think or be able to articulate whatever that could mean. We know the acting FCC chairwoman today. There is no discussion at all about about price regulation or price points on broadband. She's very focused on rural and on 5G. But, you know, I think this is too early to tell as to whether anything happens from an administration standpoint relative to regulatory on broadband. I think there's just nothing in the pipeline today other than the comments.

Does it cause you to behave any differently?

No. I mean, listen, you know, markets are competitive. Right. There is, um, there's no free lunch. Um, you know, so, uh, whatever the administration or whatnot, we're seeing around of nature where a gross and gross ad or proves on, uh, depending on the quarter challenged, which competitive environment we are in. Well, you know, I think that's going to be very clear. as well as their discussion around the bill relating to broadband upgrades or build-outs for municipalities. We're going to get to 1.9 trillion versus 600 billion sides of the bill. I expect that there's still a lot of discussions around this, bill, and I'd be surprised that they allocated hundreds of billions infrastructure bill from a municipality standpoint. That typically has never been good money spent, and there seems to be obviously a bid offer on the table between the two sides in terms of the size of this overall infrastructure bill. It's so early to tell here as to what may happen. Thank you, Dexter.

Your next question comes from the line of Stephen Cahill from Wells Fargo. Your line is open.

Thank you. Maybe first just wondering how you're thinking about video subscriber losses this year. It seems like Q1 sort of came on exactly where you'd expect them to be. We did see some news that the NFL is going to be putting more content on streaming, and there's just a lot more streaming services out there. So maybe you can help us conceptualize what you think that pace of video sub-declines might be and how you think about that in terms of the EBITDA performance of the business. And then with the cash tax increase to the year, but no increase to share repurchases, should we just expect a little bit of extra cash if you do generate it to fall down to the balance sheet at this point? Or any other color there would be great. Thank you.

Awesome. I think, you know, we have hit our stride in terms of absolute numbers. Obviously, from a percentage standpoint, may increase given that the absolute numbers seem to be quite stable around that 200,000. And that's really again driven by lower attachment rates on video gross ads, which is an economic standpoint for us. Seeing anything different out there. Clearly, amount of streaming activity and the amount of direct-to-consumer streaming offers programmers out there. A lot of options here who don't want the big bundle coming from cable. And that's going to continue to help us, I think, from an economic standpoint on margins ability as programming costs the pressure at some point here to our peers and our content partners who are looking to continue to price affiliate fees. And the DTC offerings out there, we're not too far away from a shift there in that trend. Actually look at the whole video system as an opportunity to lower our direct costs on programming So to lower our customer touch points, field service, and lower our CapEx spend, you know, the whole equation on that is, you know, the free cash will break even for gross ads. It continues to get pushed out. It was two and a half years a couple years ago. Now it's more like three years today, and I suspect it may be at three and a half years pretty soon. Okay. That just makes us less and less to gross ad video subscribers to them, which is really going to help our profitability numbers and our free cash flow.

On the second question, if I may. Well, the change in cash taxes is not that material, quite frankly. I think we got it to, you know, in the neighborhood of 400 previously. Now we're saying 300 to 350. I don't think it was meaningful enough to revisit the share repurchase guidance. We do have to cover the Morris broadband acquisition, which wasn't necessarily anticipated in that guidance. So we're staying constant with the share repurchase guidance at $1.5 billion.

Got it. Thanks.

This concludes our Q&A session. I will turn the call over back to Mr. Nick Brown for the closing remarks.

Thank you, everyone, for joining. Do let us know if you have any follow-up questions. Otherwise, we look forward to catching up with you in the next few weeks. Thanks again.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.