Altice USA, Inc. Class A

Q2 2021 Earnings Conference Call

7/28/2021

spk01: Good day. Thank you for standing by. And welcome to the Altice USA Q2 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you will need to press star 1 on your telephone keypad. If require any further assistance, please press star 0. Thank you. I would now like to hand the conference over to your speaker today, Mr. Nick Brown. The floor is yours.
spk09: Thank you. Hello, everyone, and thanks for joining. In a moment, I'll hand you over to LTCUSA CEO, Dexter Gray, and our CFO, Mike Groh, who will take you through the presentation, and then we'll have time at the end for Q&A. As today's presentation may contain forward-looking statements, please read the disclaimer on page two. Dexter, please go ahead.
spk04: Hello, everyone. Before we jump into a summary of our second quarter results, I once again want to express my gratitude for the continued dedication and commitment of the LTTSA team, without which we couldn't and wouldn't have been able to navigate the pandemic as well as we have. Starting on slide three, we saw an acceleration revenue growth in the second quarter to 1.7% year-over-year, with a particularly strong rebound in our medium advertising business. We continue to deliver high broadband revenue growth up about 8% year-over-year, although we have seen elevated move activity recently as consumers return to home locations, as well as the protracted impact of several pandemic-related regulatory programs and hurricanes. Despite these headwinds, we reported flat organic broadband customer growth in Q2, or plus 30,000, including our recent Morris broadband acquisition. We remain confident in faster customer growth going forward from our accelerated pace of footprint expansion, sudden cable network upgrades, and optimum fiber upgrades. We also continue to invest in innovative new products, more specifically our optimum stream device, which I'll come back to shortly. Turning back to financials, adjusted EBITDA was flat year to year, even with some tougher comparisons, which Mike will touch on later. We delivered another strong quarter of free cash flow at $406 million and just under $1 billion for the first half of the year alone. This has supported $726 million of share of purchases year-to-date or just under half of our full-year target, all of which gives us the confidence to reiterate our 2021 financial outlook. Looking at Q2 revenue growth in more detail on slide four, we can see an acceleration from the first quarter, growing at 1.7%. The residential revenue was flattened year-over-year, the personal growth flow compared to the peak we saw at this time last year. Business services growth accelerated to 1.8%, supported by more reopening activity. Finally, news and advertising grew very strongly, up 36.4%, with a much easier year-over-year comparison. Turning to slide five, focusing our residential business. We report an organic net loss of 12,000 residential customer relationships, excluding more for our VAMS acquisitions, which separately added 35,000 unique customers since the closest acquisition within the quarter. To provide some context, the second quarter is usually seasonally different, but as I flagged earlier, we did see a noticeable pickup in move churn as markets are reopening more widely. This includes customers leaving our suburban footprint around New York and going back to New York City, which, remember, is outside of our adventure footprint. For illustration, this move turn was more in line with the second quarter of 2019. We estimate we actually would have been slapped in terms of customer relationships and would have reported 14,000 broadband additions rather than the new coast of Europe. Additionally, in the quarter, we disconnected about 7,000 customers for nonpayment, that were previously protected by pandemic-related regulatory programs, meaning the SEC Pledge or New Jersey Executive Order, or those affected by prior hurricanes in Louisiana. In other words, without the impact of elevated mood turn and pandemic programs and storms, we would have been at plus 21,000 data net ads and plus 7,000 customer relationships for the quarter. Recall that New York was the latest state to prevent us from disconnecting customers with legislation enacted in May this year. While this New York order was lifted at the end of June, coinciding with the end of the declared COVID-19 state of emergency, it has led to some customer and revenue disruption, which will carry over into the third quarter. We've now finally been able to resume our normal disconnect policies across the whole company, and so our trend should normalize by the fourth quarter. However, if elevated move churn persists, as we have continued to see it recently, it may be difficult to match the sort of 2018 and 2019 organic broadband customer growth for this year. Against this backdrop, our strategy remains the same, which is to achieve faster broadband customer and revenue growth by accelerating the pace of new builds and network upgrades, including our fiber rollout. We are expanding our footprint and will be delivering services which are consistently better than those offered by our competition which sets us really well for the next few years. On slide six, we would like to provide an update on some data usage trends. Average monthly data usage per customer was 445 gigabits per month in Q2, with broadband-only customers using closer to 600 gigs per month. Video streaming remains the biggest driver, accounting for about two-thirds of data usage, and this is also helping drive demand for higher broadband speed. Remember, over 50% of our customer base still only takes 200 megabits per second or lower, so we still have a lot of room for growth here. 42% of our growth additions are taking one-gig broadband speeds in areas where it is available. We're being very optimistic about the one-gig and multi-gig opportunities ahead of us. Slide 7 shows us how much success we're having right now in continuing to upsell customers to higher broadband speed tiers. Our one gig customer penetration increased to 11.3% in Q2, up from just 3.7% a year ago. Our average download speeds have nearly doubled in the past three years to 316 megabits. And as you can see, that this is accelerating as customers are increasingly taking the one gig service. Tony, for flying speed, we want to update you on our long-term network expansion and fiber strategy. On the left, you can see we're on track for at least 150,000 new homes built, mostly edging out around the 17th footprint, with more broadband inorganically adding another 90,000 homes packed in North Carolina. This is an acceleration of our prior run rate of new builds. We are still achieving about 40% after the first year of expanding out our network into new areas, so we're getting a very good return on this investment. Separately, we are continuing to upgrade existing homes in the southern footprint in areas where customers previously only received a maximum of 150 megabits per second, taking this up to either 400 megabits or one gig. On the run, as you can see in Q2, we reached about 1.1 million fiber homes passed ready for service. We are still on track to pass half a million homes this year with the material pickup right now in the summer months. Our penetration of fiber passings is now up to 4.3%. compared to just 1% in Q2 2020. About two-thirds of our fiber growth ads are taking our symmetric one-gig product, which is our best service available today. But we are focused on making multi-gig speeds available as soon as possible and should start marketing fiber more actively in the next two quarters. Moving to slide nine, last week we announced our latest product, Optimum Stream and Sudden Stream. This is a new 4K streaming device powered by an Android TV operating system. Customers will have access to a wide range of content, including over 50 streaming TV channels and all of the most popular streaming apps pre-sold, with thousands more available in the Google Play Store. The new streaming device is available for free to broadband-only customers who take our one-day service or the highest broadband speed available in their service area, and is available to other broadband-only customers for just $5 per month. We believe this offers a really good alternative for our broadband customers that don't want to take a legacy cable TV bundle. Last week, we also announced the rebrand of Altice Mobile as Optima Mobile, which is the first step in our plan to align all of our connectivity brands, including Sunlink Adventures, under one national opt-in brand. Recall, we recently migrated all of our active mobile customers to two mobile networks, And as we're seeing now much better customer service, this is a great time to rebrand and align the business more closely with our fixed broadband business. Austin Mobile had approximately 180,000 mobile lines as of the end of June, reaching 3.8% penetration of LTCUSA's residential customer base, with revenue in Q2 of 4%. On slide 10, on business services, I'm pleased to say revenue trends continue to recover across our SMB and light path businesses. as customer growth has been much better in recent months. In fact, Q2 saw our best ever SMB customer net ads in four years. Business reopening activity has been accelerating as vaccination rates increased and operational restrictions relaxed. Restaurants, theaters, health clubs, travel, and tourism are examples of businesses and industries that started to reopen more widely in Q2. The swing back around the New York tri-state area is more dramatic because the COVID crisis generally helped it be harder. We still see a higher than normal retail and commercial office space vacancy rate, which means many businesses are still missing, but the situation is improving. As K-12 and college kids safely go back to school, we believe this will be the next big step up for the economy and our B2B business. During the quarter, Lifepath also announced the expansion of its network into Boston through three acquisitions and into Queens through new organic fiber build. This strengthens Lifepath's presence across Tier 1 markets in the Northeast, and we're making investments and growing the sales team to drive penetration. Focusing on our news and advertising business on slide 11, we saw very strong growth this quarter, up 36%, as remember Q2 last year saw the biggest negative impact from the pandemic on our advertising business. Local, regional, and national advertising markets are all recovering, which we expect to continue. And we saw additional growth in the recent New York mayoral and New Jersey gubernatorial election races. We still expect revenue for the whole of 2021 will be flattish on the year-over-year basis, though, as we will have a tougher comp in the second half due to the political comp. And now I'll hand you over the mic to go over the financials in more detail.
spk05: Thank you, Dexter, and good afternoon, everyone. Thank you for joining us today. Picking it up on slide 12, you can see our adjusted EBITDA margin was 43.9% in the second quarter, which is in line with 2019 levels. with total EBITDA growth flat year-over-year. Excluding mobile EBITDA losses, our Q2 EBITDA margin was 44.8 percent. In looking at year-over-year variances, recall that we had some temporary savings in the second quarter of last year, about $30 million in total, including store closures and lower sales and marketing expenses. Our EBITDA-less CapEx or operating free cash flow margin of 31.1% was also in line with 2019 levels as we ramped back up on the pace of our fiber rollout and new builds. You can see this again on slide 13, as our capital intensity was 12.8% this quarter, almost exactly in line with 2019 levels. Without growth investments in fiber and new home builds, capital intensity would have been under 10%. As we flagged previously, our CapEx spend is increasing back up to historical levels now as we're back on track with our network expansion and upgrades, without as many delays on the fiber permitting side in particular. As Dexter outlined, we remain excited about the long-term potential of our network to keep delivering superior connectivity solutions to our customers at a reasonable cost, driving sustainable volume-based organic growth. Slide 14 highlights another strong fifth quarter of free cash flow generation at $406 million, which means we've achieved free cash flow of $943 million year-to-date. I would highlight that cash taxes have started to step up now, with a net outflow of $97 million in the second quarter. We still expect total cash taxes of about $300 million to $350 million for the year. We also saw cash outflow for the Morris Broadband and LightPath transactions closing in the quarter, and our cash flows from financing activities included an outflow of $222 million related to our share repurchase program. Moving to slide 15, we show our consolidated debt maturity profile. Following our recent refinancing activities, the weighted average life of our debt was extended to 6.6 years, and our available liquidity was boosted to over $2.3 billion even after our recent acquisition. Our weighted average cost of debt remains at 4.7%. Specifically, recall that in May, we issued $1.5 billion of new 10.5-year, 4.5% senior guaranteed notes and $500 million of new 10.5-year, 5% senior notes to refinance the existing 5.5% senior guaranteed notes due 2026 and repay a portion of the drawn revolving credit facilities. 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 as we've done in the past and still see plenty of additional refinancing opportunities. For example, we have a non-callable 6.75% bond maturing in November this year, so that's probably the next thing for us to address in 2021. Lastly, on slide 16, we provide a reminder 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. We are at a peak in leverage right now, given our recent acquisitions, and as our EBITDA has normally weighted more to the second half of the year. Our medium-term leverage target remains unchanged at between 4.5 and 5 times. We expect cash capex in a range of $1.3 to $1.4 billion as we ramp up our fiber rollout and new builds, driving higher capital expenditures in the second half of the year. And finally, we are still targeting $1.5 billion in share repurchases this year, having completed just under half of this amount at $726 million year-to-date. Lastly, before I finish, I also just want to take a moment to thank our team at Altice USA for all their dedication and commitment. and emphasize how focused we are on executing on all of our growth initiatives. And with that, we will now take any questions.
spk01: As a reminder, to ask a question, you will need to press star 1 on your telephone keypad. Again, that is star 1 on your telephone keypad. You have your first question coming from the line of Philip Cusick from JP Morgan. Your line is now open.
spk03: Hey, guys. Thanks. You know, first, I guess, from Mike, can you help us think about EBITDA on the back half? You talked about a tough topics comp in the second quarter. Growing from the second quarter level, the 3Q, 4Q seems difficult. I'm curious why that happened. And then second, Dexter, as you think about the consumer broadband growth expectation change, what's changed specifically that you now think it's tougher to hit that 18, 19 level? Thank you.
spk05: So to talk about the second half EBITDA bill, you know, based on our own internal projections, different programs we have in place, as well as, you know, some of the comps, at least on the OpEx side, get a little easier as some of those temporary cost savings reverted back into our cost base in the second half. We're pretty confident we can grow EBITDA in a manner that's, you know, implied by the guidance we've given. You can do the math and figure out exactly what's implied by that. So, you know, we're pretty confident that we're going to be able to hit those targets, which is why we're reiterating that guidance.
spk04: Yeah, Phil, I think, listen, we flagged this on the last call, and I think we flagged this with some of our shareholders, is, you know, we've seen a reversal, obviously, with elevated levels of move churn, and we've seen some impact regarding regulatory. And if you see the footnote on slide five, You know, we've got about 10.7,000 subscribers between New York at 7,000 and some storm-related numbers of about 3.7,000 that are going to affect coming into the third quarter. And if we take kind of our historical save rate in terms of undisconnected clients that have been balance forgiven, and then effectively the save rate going forward. We're about two-thirds. So we've got about 4,000-ish numbers of storm-related and regulatory-related customers. But the biggest issue is really elevated levels of move churn. And as we flagged in some of the commentary, we've seen about 14,000 incremental move churn in the second quarter of this year relative to the second quarter of 2019. And so we're being cautious here. If move-turn continues to persist, and we've seen elevated levels of move-turn in July, then the numbers that we expected to hit for the year, which were historical 18 and 19 numbers, we may come in light on that. But we have to really see if those elevated levels of turn continue. Just to refresh the memory, I think in 18 and 19 we had about 72,000 broadband net ads for each of those years. Last year, in 2020, we had 142,000 broadband net ads, right? So obviously the business is growing on a cumulative basis, 2021 versus 18-19, but maybe not at the rates of 18-19 on individual years if Elevate Move Turn continues.
spk03: Dexter, on that move churn, the housing market is really strong. I would think anybody moves out of a home, someone else is moving back into that. Are you finding that you're losing share on churn now? Are you a net share loser on customers who turn over, whether it's yours or someone else's?
spk04: Well, I think that would be a relevant comment necessarily for us if we had a much bigger footprint. But as you know, just in the New York Tri-State area, we benefited from quite a bit of people leaving the city to going to the outskirts of the city, and that move turn is reversing effectively the other way. And so people are not necessarily... at full capacity penetration replacing the empty homes in Long Island or in Connecticut or in New Jersey that are coming back into the city. So we have not got a share issue. We're just in our footprint. And in the southern footprint in particular also, as you know, you move down to the next town over, that may not be our footprint. So there's some rearranging there. Again, on a cumulative basis, if you take 72 plus 72 and 18 and 19, that's 144. We did 142 in 2020. We're going to materially beat the average of 18 and 19 to your point about housing activity. But I do think we're going to see some reversal or have seen some reversal in some of those gains that we did last year, which are just going to to bring down most likely the 18 and 19 absolute numbers relative to 2021. Got it. Okay.
spk03: Thanks, Chris.
spk01: Your next question comes from the line of Doug Mitchelson from Credit Suisse. Your line is now open.
spk10: Oh, thanks so much. Doctor, I just wanted to continue on the broadband path. Anything you're seeing in terms of changes in level of competition or promotions, any shifts by you in your go-to-market strategy or your marketing efforts on broadband that we should be thinking about? And then sort of separately with what's going on in the marketplace today, when you think about your big three initiatives to drive broadband growth going forward, can you give us a sense of when we should see those really kick in for each? I appreciate the update you're giving in terms of how many homes passed and and homes upgraded and fiber homes built. When do those really kick in in terms of driving incremental subscriber growth relative to the company's historical case? Thank you.
spk04: Yeah, that's a great question. On competition, we're not seeing elevated levels of competition across the board. People focus very much on the Fios numbers. Last year in 2020 in Q2, about 23% of our gross ad activity happened in the Fios footprint. Um, this quarter, uh, 2021, 22% of our activity is happening in the fast footprint, right? So we're not seeing, um, uh, major differences in terms of competitive environment, which is, uh, being driven by, uh, some of the larger competitors. Um, it is true that with the, um, lower activities around non-pay disconnects that we've seen in the first half. And I think that's, uh, we've seen that across our peers as well. there is less gross ad activity in general as people are not disconnecting on a non-pay basis and reconnecting with someone else. So gross ads in general, I think, are down. But in terms of where our activity is, we're still seeing the same amount of activity in such things as the files for print versus historical numbers. In terms of overbuild, we're not seeing any elevated levels of overbuild either, particularly in the southern footprint today. So I think it's pretty much business as usual if we put aside what's happening in move churn and on the regulatory and storm front, which cleaned up in the third quarter of this year. In terms of our CAPEX initiatives, The big summer months are now, which is where most of the build activity occurs. So really mostly back-ended going into the fourth quarter, which really sets us up for 2022, as I think we've signaled going into this year that 2022 and onwards we expect to see much more elevated levels of broadband and ads. So, you know, we're going to do about 250,000 to 300,000 upgrades in Sunlink that will get delivered this year. Most of them are going to get delivered at the back end of the third quarter going into the fourth quarter. We've got 500,000 FTTH homes this year, and that number will increase going into 2022. And we're on track to deliver 150,000 edge-out new homes built this year. But, again, a lot of those are coming online at the end of the third quarter going to the fourth quarter. So, you know, our penetration numbers of let's call it 40% in the first year that we see from Edge Out New Homes Build, that's really going to benefit our 2022 numbers. Got it. Thank you.
spk01: Your next question comes from the line of Ref Feldman from Goldman Sachs. Your line is now open.
spk08: Thanks. I'm going to stick with the CapEx theme, if you don't mind. Now that you're sort of getting back on pace with the fiber deployment, I imagine all of that or virtually all of that would be in optimum regions where you're competing with Fios. And so the first question would be, at what point would you expect that you would have substantially upgraded the Fios footprint to be fiber on your end. And then when you get to that point, what do you expect to do then? Do you see merit in continuing with the fiber rollout across other portions of the footprint because there's certain cost savings? And if you're not going to do that, what would be very high on the CapEx or the capital allocation prioritization list at that point in time? And then just a quick question on the edge outs. How much of that is building your network where new homes are being built versus expanding into areas where you previously didn't operate, and why is now the right time to do that? Thank you.
spk04: Sure, Brett. Listen, specifically on the Fios fiber footprint, we expect to be built out over the next two years. So by the end of 2023, I think we would have covered the 3 million homes passed while we compete with Fios. Thereafter, we absolutely will look to do more. There are areas that are going to be prohibitively expensive. So it's not necessarily only in the outcome footprint, but a lot of our edge-out new homes built are either going to be done in fiber to the home or we're going to be doing it in quasi-fiber to the home in our fog effectively basis. And so, you know, we're going to continue to deploy fiber to the home actively across our footprint. But obviously, after we finish in 2023, the big bulk of our fiber outlay will have been done. And then we'll have to look at selectively attractive ROI situations to your point about cost savings or longer-term effects in terms of revenue effects going forward and make those choices one by one. What else do you ask? In terms of edge outs, most of it is in terms of new homes build areas. And then there are adjacent markets that are either DSL only or are run by smaller mom and pop local operators. where they do not have the advantage of either a very high-performing network or in terms of attractive bundled services that we have. And so most of our new homes built activity today remains new areas, new homes built, particularly in the Texoma area. But we do see certain areas where we are overbuilding just purely some smaller operators where we think we have a real competitive advantage.
spk06: Thank you.
spk01: Next question is from John Hodlik from UBS. Your line is now open.
spk04: Great, thanks. Thanks for just final clarification on the high-speed data side. Do you guys think that given the trends you're seeing as far as the quarter that you can grow high-speed data ads in the third and the fourth quarter? um and then um uh my second question is on the mobile strategy actually rebranding in the the uh optimum footprint um you know any um expectations for for maybe being a bit more aggressive i saw the 5 000 i had this quarter but um you know is what do you see is the opportunity there on the on the wireless side and should we expect any sort of changes to the current strategy yeah i think the answer on the first one where on a reported basis were at 12 000 year to date uh through the first half of data net ads we absolutely expect to be um data net app causes both the third and fourth quarter um in terms of mobile strategy um you know really this was based on the fact that we finally have migrated everything uh onto the t-mobile network that our churn rates have gone have almost virtually halved in the first six months of this year And, you know, assuming everything continues to be on that basis, we absolutely want to get a lot more aggressive here on the marketing strategy going forward. So probably more around a back-to-school type of event as a lot of promotions and marketing activity happens through to the end of the year. We'll be looking at being more aggressive on the mobile side. All right. Thanks.
spk01: Next question is from James Radliff. Please also state your company name. Your line is now open.
spk14: Thank you. It's Evercore IS. Hi. Two, if I could. First of all, regarding churn, how are you doing in non-move churn, so voluntary customer switching to other providers? Have you seen a shift in terms of the net flows on that front? And secondly, with the goal of four and a half to five turns of leverage, what's the mix to get there in terms of EBITDA growth versus reduction in absolute net debt over time? Thanks.
spk04: I think on churn, you know, non-pay disconnect setups have been done a lot better than historical levels, which makes a lot of sense given the trends coming out of the pandemic. And voluntary churn has been pretty stable across the footprint, right? pockets here and there where you do see aggressive promotional activity, whether it be from AT&T or Fios every now and then, or smaller mom and pop operators. But overall, we're seeing voluntary churn stable. But the non-paid disconnect churn improvements are not outweighing the move churn numbers that we're seeing. In terms of leverage, as I said, I think We look at this in lots of different ways. Obviously, the share buyback strategy is really going to be very much dependent on cost of capital and where the stock is trading in those types of events and whether or not we have any opportunities. But, you know, it should be a mixture of free cash flow, the leveraging, as well as EBITDA growth.
spk06: Thank you.
spk01: Next question is from Ben Swinburne from Morgan Stanley. Your line is now open.
spk07: BEN SWINBURNE- Thanks. Good afternoon. Two questions. First, on Altice Stream, Dexter, or Optimum Stream and Suddenlink Stream, just talk a little bit more about that strategy and sort of product plan. It's interesting, you guys. I know you have a lot of apps on the Altice One box. So why did it make sense to sort of go with the streaming stick approach? Have you considered a broader marketing push beyond the one gig service? It's a product that's probably not too expensive for you guys, especially wholesale. I'm just curious if you think about using that as a more aggressive marketing or bundling approach than what you've done so far. I was curious. I don't think anyone's asked about EBB yet. And there were some comments earlier in the quarter that that was not a major driver of net ads in the quarter. I was curious, now that we have the quarter in the books, if you had any comment on the size or benefit from EBB on the net ads.
spk04: Thanks. On the stream side, Ben, listen, the strategy is pretty simple, right? I think the L2-1 experience is a great experience for those heavy users of large bundles. But the capex associated with that product is significant. And with the attachment rates continuing to fall on the bundled product where, you know, we're kind of in the high 50s, low 60s two, three years ago, and we're kind of in the 30% to 35% level today in terms of video attachment rates, there is a desire – for our 1P broadband subscribers to have a video product alternative, that's very cheap and cheerful. So when you're getting your stream box for free and you're a 1P subscriber, that's an attractive product for a lot of people who are mainly OTT-based. And to the extent that they ever want to get a bundle package on an OTT basis, they can do it also over the stream product. So it's really a capex plane being reactive also to what our consumers want and how our consumers are behaving today with most of their activity on the video side being OTT-based. And if you really look at what we spend and how easy it is to deploy a StreamVox versus an Altice OneVox, it's a no-brainer. So there's boxes for one type of subscriber. and then boxes for other types of subscribers that we think is going to help stickiness with our customers. On the one gig product, absolutely we expect to go to multi-gig as we've spoken about relating to our FTTH product. You know, are we going to be more aggressive on bundles and marketing? Yes, I would assume so as we get into 2022 and launch multi-gig products. Have we started to signal what we're going to do? Not yet. But we have put in our orders for multi-gig modems up to 10 gig, and so that will be a product that we're going to deliver and launch in 2022. On the EBB front, this is a small number of subscribers. I think we had about 29,000 applications year-to-date, and we've had about approvals of about 6,500 approvals. But of those 6,500 approvals, only about 300, 400 are new customers. The rest are existing customers who have benefited from the subsidy.
spk07: Got it. And that's probably too small to impact ARPA, I assume, right?
spk04: Yeah, absolutely tiny, exactly.
spk07: Yeah, okay. Thank you.
spk01: Next question is from Katgen Moral from RBC Capital Markets. Your line is now open.
spk12: Great. Thanks for taking the questions. A few on fiber, if I could. It's great to see the accelerating momentum with the build and penetration. You touched on this a bit in a prior answer, but I was hoping for a bit more color, specifically with fiber in terms of the timing of the benefits you expect to see across customer metrics, revenue, OpEx, and CapEx. In other words, given the build plans you have ahead, would you expect to see a discernible impact to your consolidated results exiting this year into 2022? Or should we think about it more of a 2023 and beyond event? And just lastly, I know you're not guiding to 2024 or 2025 today, but as you move beyond the big bulk of the fiber outlays in 2023, should we expect the call it 300 to 400 million of annual fiber CapEx to roll off then? Thanks.
spk04: A lot of questions. Just trying to sift through some of them, which is clearly on the CapEx side on fiber-related CapEx, um you know the big bulk of our fiber capex is going to be coming in 2022 and 2023 um and uh and then uh we should see a reduction in our fiber spend capex in 2024 and onwards um in terms of um consolidated that's called more opex related since i answered the capex question opportunity benefits the penetration levels are still quite small right now. And so I think we had always flagged that probably somewhere maybe two to three quarters, three to four quarters from now, we'll get a better sample size. But we have already seen satisfaction incidence rates come down by about 30% on our fiber subscribers. We know that those numbers can improve from there. significantly given our experiences in other geographies around the world. And so we know that there's going to be a positive effect. I think the numbers are too small today for us even to flag anything of meaning. But it's probably something more of a 2023 effect where you'll start seeing hopefully some meaningful effects. In addition to the fact that service-related visits as well as coals into the coal center continue to reduce nicely. We saw that in 2020. That is continuing into 2021. And with the continued investment in network here and in products, we expect hopefully those numbers to continue to fall. So there's a bunch of initiatives here that are affecting better service-related OPEX numbers.
spk12: Thank you.
spk01: Next question is from Jonathan Chaplin from NewsSuite. Your line is now open. Thanks.
spk02: A couple quick ones. So we saw Dish get an incredible MVNO from AT&T, Dex, and I'm wondering if that is an opportunity for you guys as well to improve on the MVNO that you've got with T-Mobile at the moment by shopping it around. the alternative that i thought about in the past is is finding some way to hop into the comcast charter and you know it seems like theirs is pretty compelling as well and relatedly i'm wondering if you can give us a sense for what the fixed cost base in in uh in mobile is or kind of what's driving costs um in that business at the moment should cost stay flat from here, and as you grow subscribers and revenues, you're growing against that cost. Or apart from your MVNO cost, is there other variable costs that we need to think about? And then, unrelatedly, there have been reports on uplink pressures in parts of your network. And I know some of your brethren are looking at an upgrade to 1.2 gigahertz with a high split. Is that something? you guys need to think about in portions of your network as well? Or is it obviated entirely by the fiber deployment? You can sort of get by with what you've got until you've got fiber everywhere.
spk04: Thanks. A lot of questions. Just on MVNO, listen, yes, absolutely. We continue to always monitor what else is going out in the market. Timo has been a great partner. very constructive on a whole host of issues with us. And so we like our partnership. We think economics can improve, and we continue to have discussions with them. So I think we are aware of what's going on. We do get inbound calls from people on that, but we also are very, very happy here currently with T-Mobile. On the cost base, you know, there is really two variable factors. Obviously, one is the direct costs with our owning charges, and the second is marketing costs, right? And so we're keen to bring this business to EBITDA break-even to positivity by the end of next year. We are, as we have said, 70% of our Gross ads are now taking a per gig product, which is a very nice margin positive product. And only 30% of our base is taking unlimited. And today about 80% of our base is unlimited and 20% is on a per gig basis. So those numbers are going to flip as those numbers continue to flip in the right gross profit profile. All the incremental quarter of a quarter, the numbers are getting better, and the only variable cost is really a cost of marking costs. So as we see churn rates come down, customer service matrices and onboarding experiences get better and better, and we continue to deliver attractive margins for all our new subscribers. that's really going to, you know, do we put a push on marketing every now and then to drive volumes to accelerate that pace? That's really the thing to look out for. On upload speeds, you know, listen, we made some changes in certain of our footprint on upload speeds. Those upload speeds are new upload speeds that we're moving towards. are on par or better than any of our peers at the same speeds. We just were a major outlier in terms of our current upload speeds, pre-changes. The changes were really getting driven by some heavy, heavy usages by certain users who were, let's call it, hoarding a lot of the bandwidth. And so this is going to allow us to provide much, much better uniformity and service across certain of our footprints there. But to your point, this is really a short-term thing, particularly in the Alpen footprint, relative to our fiber deployment, where many of the communities that have raised their hands on this announcement are going to get overbuilt with fiber over the next 12 to 24 months. So we have signaled that to the relevant regulatory elements in various neighborhoods and states. And so I think this is just more of a PR story than it is affecting any of our customers in terms of services that they're receiving. Thanks for that story.
spk01: Next question is from Craig from . Your line is now open.
spk11: Hi. Dexter, I wonder if you could just talk a little bit about broadband pricing. You talked about the competitive environment and promotionality earlier. it seems like your broadband prices are now somewhat higher than Verizon's. Can you just talk about what experience you have when your prices are lower or higher than Verizon's, that is in sort of places where you compete in different environments, and how you think about customizing pricing to the competitive environment in individual geographic areas?
spk04: Yeah, I mean, listen, I think, Craig, we monitor our broadband pricing very closely. We are consistently usually $5 to $10 cheaper when you add in all the fees and modem-related fees there. So that's really not where we're seeing pressure from Verizon. Where we do see pressure from Verizon is is on their marketing campaigns, where they start adding free OTP services aggressively, adding on gift cards, and adding on bundling discounts with wireless. So the combination of those three things, OTP freebies, gift cards, and the bundling, is where we see pressure. When you come in aggressively on those fronts, those are obviously starting to see on a combined basis a lot more attractive pricing relative to what we have, right? So there are lots of different things that we look at to counter that. But if you look just purely on video pricing today, they are $15 to $20 higher than ours. And they are redistributing those $15 to $20 of higher prices our poo into more aggressive marketing campaigns on broadband, right? So there are a lot of things to look at in terms of what we can do, but that's really the driver. It's not really about pure 1P broadband pricing. We don't see pressures on a daily basis on just unique 1P pricing.
spk11: How much flexibility do you think you have to price differentially in areas where you're up against BIOS versus not? I would think sort of from a regulatory perspective, that's challenging sometimes.
spk04: I'm sorry. Can I say that one more time?
spk11: How much flexibility do you feel like you have to price differentially in areas where you're up against BIOS versus where you're not? I think from a regulatory perspective, I can imagine that it it might be somewhat challenging to have significantly different prices for different competitive markets.
spk04: Listen, I think we review pricing for, let's call it, less competitive areas regularly, as we do for competitive areas. We want uniformity in our pricing, particularly geographically in states and in regions, in particular regions. But sometimes we will have differential pricing, depending where we are, and there are reasons for that. Maybe cost because of less dense areas or cost of servicing those areas are a lot higher and those types of things. So there are a lot of factors coming to our pricing strategy. But, you know, clearly regulatory is a factor that we are aware of. as well as, you know, just local environment and local competitive environment issues.
spk11: That's helpful. Thank you.
spk01: Next question is from Brian Graft from Dosia Bank. Your line is now open.
spk06: Hi, good afternoon. I wanted to ask a couple of questions on the LightPath and advertising side. For LightPath, can you talk about the opportunity you see with the acquisitions that you've announced in the Boston area and also the expansion in Queens? How should we think about the impact on LightPath growth going forward from those things? And then can you maybe just talk about your expectations for news and advertising in the second half of the year, given the tough political comps, but the much easier core comps? Thanks.
spk04: Yeah, on Lightpath, we've not spent a lot of money. I think we've spent about $40 million on various small business acquisitions or just buying some networks or some IRUs. But I think this is an outsized opportunity for us to make, over time, meaningful moves into new markets and get outsized returns on very small investments. These are things we like that the new management team is putting in front of us. Clearly, if there are larger things for us to do, we will absolutely look to do that. We think that we're on the right path here to deliver much higher growth numbers like that. It's going to take a little bit of time. These acquisitions are small. 2022, I'd be surprised if we saw a meaningful move in top line from new areas, but I suspect in 2023 onwards we will do. So this is a good story to monitor. The numbers are small today, but they could get bigger. So we like what the management team is doing. On news and advertising, We're cautious of trying to manage expectations to anything more than the 2020 news and advertising numbers because we have a $60 million political comp difference between 2020 and 2021. So if we could do as well as 2020 advertising and slightly better, that would be great. That would be very, very good news. And then we go back into the political cycle in 2022. So, you know, the things that John Steinberg and his team have been doing have been great. They've been able to, you know, obviously Q2 has been a big quarter relative to last year because it's a down a quarter relative to COVID. But we're growing our business across all of our divisions. and making up for a big loss of political revenue this year. So expectations are for us to be revenue flat to hopefully slightly up.
spk06: Okay, thank you very much.
spk01: Next question is from Andrew Dale from Irish Research. Your line is now open.
spk00: um hi i just wanted to come back to your uh flat organic data net ads and and you know the news news journal non-pay disconnect commentary um i mean i think second quarter normally has a drag from college season out in southern link and obviously you mentioned the 14 14 000 adverse news churn from the settlers back to new york city and the 7 000 uh non extra non-paid disconnects on regulation in Storm. So I guess my question is which parts of your franchise are you seeing the offsetting positive net as this quarter against these multiple drags and whether you can talk qualitatively about the optimum files overlap growth versus the non-overlap franchises and whether there's anything to say about sudden link growth ex-student seasonality or perhaps you've done something differently about the way those student contracts work.
spk04: No, listen, I think, Andrew, probably the disproportionate amount of increased move churn we're seeing is in the optimum footprint. That shouldn't be a surprise there. So, you know, I think the sudden link footprint, as you rightly mentioned, historically Q2 does see very elevated levels of move churn because of all the college towns that we have there. But we are seeing most of the disproportionate amount of return affecting the opt-in footprint. So that's really the key item there.
spk00: Right. And the positive offsetting, the zero net ads, is coming mainly where?
spk04: Well, I think we're seeing continued nice elevated activity and growth coming from the Sunlink footprint. So the growth ad activity continues to build very well, which is why we feel good about our edge-out strategy and our upgrade strategy at SudLink. Okay. Thanks.
spk01: Your last question comes from the line of Michael Rowlands from Citi. Your line is now open.
spk13: Thanks, and good afternoon. I was looking at the disclosures around broadband consumption for the broadband-only users, and it looks like it was down sequentially from last quarter at about 618 gigabytes to about 558. And I think on the year-ago call, you may have referenced a number at about 550 gigabytes. And so I'm just curious if you could share some observations in terms of what might be impacting a sequential downticking usage deceleration and growth year over year and what this might mean for the future direction, whether it's for the consumption of your customers or how this might or might not impact the type of speed tiers and spending levels that they subscribe to with Altice.
spk04: I mean, I don't think we have a real read as to, you know, five or 10% differentials here, other than the upward trend continuing to go in the right direction. You know, I think there could be something to be said about people being less at home going forward and maybe kind of back to an office type of level. But the expectation is we're going to continue to see those usages rise. Now, one of the things to remember is that as the attachment rates increase, on video continued to fall, we're seeing a lot more 1p users, right? So the sample size is growing a lot quicker than it has historically. And so those 1p usage, I would assume, probably drag down the meaning a lot more. Thanks.
spk01: You don't have
spk09: end the call thank you very much for joining everyone do reach out if you've got any follow-up questions otherwise see you virtually i suppose in the next few months thank you thanks very much thank you bye this concludes today's conference call thank you all for participating you may now disconnect
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