Altice USA, Inc.

Stand by. Thank you for your patience. Again, today's conference is scheduled to begin shortly. Please continue to stand by. Thank you for your patience. Music THE END THE END Good day and thank you for standing by. Welcome to the Altus USA fourth quarter and fiscal year 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's remarks, 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. And if you require any further assistance, please press star 0. Thank you. I would now like to hand the conference over to your first speaker today, Mr. Nick Brown. Sir, please go ahead.

Hello, everyone. Thank you for joining. In a moment, I'll hand over to Altice USA's CEO, Dexter Goh, and CFO, Mike Brough, 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.

Hello, everyone. I'm going to start today by summarizing the full year and Q4 results, and then I'll provide a recap on our strategy to accelerate investment plans. Starting on slide three, revenue growth for the full year in 2021 was 2% year-over-year, with a strong recovery in news and advertising and business services. Organic broadband customer net losses were 3,000 for the full year. This is a bit better than I previewed in December as we finished the quarter better than expected. We just launched more competitive internet plus mobile converged offerings in January as planned and have begun expanding our sales distribution channels to support additional growth. Full year adjusted EBITDA grew 0.3% year over year with a margin of 43.9%. We delivered another strong year of free cash flow at $1.6 billion in line with our target. This supported share of purchases of $805 million for the year, although in Q4 we shifted capital deployment to heavier investment in the business to drive future growth. Lastly, I want to highlight that we announced today a new plan to bring 100-cent fiber broadband delivering multi-gig speeds to more than two-thirds of our entire footprint over the next four years, reaching a total of 6.5 million FTTH passings by the end of 2025. This will include about 4 million fiber passings at Optimum, covering all the areas where we overlap with Fios and Frontier, and 2.5 million fiber passings at Suddenlink. Fiverr is the future, and given the progress we have made at Optimum with our Fiverr build, we're excited to build on that success and break ground later this year at Sunlink to bring our state-of-the-art network to more customers and communities. We strongly believe this is the right approach to improve customer experience and enhance the value of the business. Turning to slide four, looking at the revenue growth in more detail, you can see the reported full-year revenue growth of 2%. Reported Q4 revenue declined slightly by 0.6% year-over-year due to the absence of political advertising revenue and recent pressure on the residential business. We also show here a couple of adjustments worth mentioning to see our underlying trends. Adjusting for RSN credits, which impacted revenue in 2020, total revenue growth was 0.8% for the full year and declined 1.2% in Q4 of 2021. Further adjusted for an incremental $100 million of air strand revenue, which we recognized in the second half of the year for the early termination of a backhaul contract, revenue growth would have been closer to flat for the full year at minus 0.2% and down 2.4% in Q4. Residential revenue grew 0.3% for the full year, but declined 1%, adjusting for RSN credits. Business services grew 9% for the full year on a reported basis. However, excluding the RSN credits and $100 million of air strand revenue, business services revenue was up 2%. News and advertising grew 6.1% for the full year, supported by strong recovery across local, regional, and national advertising. Turning to slide five to look at Q4 customer trends in a residential business. We reported a net loss of 13,000 residential customers in Q4 and broadband net loss of 2,000. This is an improvement from Q4 last year where, remember, we saw some pressure from storms across Louisiana as well as volatility from pandemic-related regulatory programs. It's also an improvement from the prior quarter as we aligned our acquisition offers more closely with Fios and pushed harder on marketing in Q4. On slide six, we show the annual customer trends in our residential business. We reported an organic net loss of 51,000 residential customer relationships in 2021, although if you include the Morris broadband acquisition, which we completed last year, our unique customer base reduced by 16,000. Their organic broadband customer net loss was 3,000 in 2021, although increased by 27,000 if you include the Morris broadband acquisition. Clearly, the pandemic has meant we've been operating in an unusual environment for the past couple of years, seeing exceptional customer gains in 2020, which in hindsight was partially a pull forward of demand which depressed growth in 2021. This has also reduced visibility into our business trends, which have not yet fully normalized, including lower gross ad activity for the past two to three quarters and higher move turn than normal across the New York Tri-State area. However, we remain confident that we will see more benefit from our accelerated pace of footprint expansion, fiber rollouts, other investments in customer experience, and expanding our sales distribution. These growth and investment initiatives are likely to build cumulative through the year, so we expect to see a greater impact in the second half. I want to highlight again that we continue to see growth at optimum and non-FIOS areas and across Suddenlink in 2021, which was close to 2018 and 2019 levels. We only saw customer losses in optimum areas where we overlapped with FIOS, and that's the main area where we started to see improvements already in Q4. Now on slide seven on business services. Revenue growth continues to trend towards pre-pandemic levels as markets reopen, and customer growth has been much better than in 2020. Reported revenue growth for business services was up 2.2% for the full year, excluding rare strand revenue, and up 3.6% in Q4 on the same basis. We also saw an improvement in revenue growth at LifePath, up 2% for the year and 3.2% in Q4. On our news and advertising business, on slide 8, revenue grew 6.1% for the year, or 15%, excluding political advertising, with an easy comparison given the peak COVID impact on the sector was in the middle of 2020. In Q4, revenue was down 11.7%, although it grew 4.2% ex-political, which was better than expected. We will hopefully see more normalized advertising trends going forward now, with more of a political benefit this year in the second half. Local, regional, and national advertising markets have been all recovering, with a notable reduction of the auto segment, which remains weak. Excluding autos, our news and advertising revenue was actually up about 26% versus Q4 2019 levels. This recovery has continued to the end of the year, with the gaming sector providing a boost at the moment. Slide 9 is a recap of strategic measures we announced at the end of last year to enhance the company's network, product portfolios, and customer experience on an accelerated basis. First, we are significantly accelerating our fiber network rollout and expanding the availability of multi-gig services. With a more differentiated broadband service, we expect to drive higher gross additions and help reduce churn given the reliability of fiber network service, reducing our long-term network maintenance and technical service costs as well. Just as a side note, technical calls are down 30% on a like-for-like basis versus HFC. NPS scores are up 44% versus our HFC. Gross ad ARPUs are increasing 6% to 8% on our fiber gross ads. And early churn is 1.5% to 2% better after three to four months, which on an annualized basis gets us closer to 5% to 6%. We are also accelerating our new build activity, edging out to the Sunlink footprint to drive customer growth with a shift to more fiber, new build construction, where practical. I mentioned already we have accelerated investments in mobile and converged offerings, which became available last month, and we expect this will help improve broadband customer return as well. On the customer experience side, we have begun expanding our sales and distribution channels to pre-pandemic levels to support additional customer growth. Finally, as our operational performance improves, we will rebrand Sunlink to Optimum to drive a consistent marketing message and customer experience across the entire footprint. This should start in April of this year. Slide 10 is a good illustration of how we are in the early innings of the growth we expect from selling high-quality, high-speed broadband services that we can support very high levels of data usage. Our 1-gig customer penetration increased to 15% in Q4, almost doubling from a year ago, with close to 50% of new customers now taking 1-gig speeds. The average download speed customers take now increased to 352 megabits, which continues to accelerate as customers are increasingly taking the 1-gig service. Still, about 50% of our customer base take speeds of 200 megabits per second or lower, so we still see a lot of growth to come here. average monthly data usage for broadband only customers was 556 gigabits in q4 with video streaming remaining the biggest driver at the high end 14 of our broadband only customers are actually using more than one terabyte of data per month all of this gives us confidence we're making the right decision focusing on fiber to prove to future proof our network given it's the best technology that exists to support high levels of throughput and data usage with very low latency and very high reliability of service. You can see in the lower left of this slide our fiber penetration of total fiber passings was about 6% at the end of 2021 with around 70,000 customers. Our focus has been on selling fiber to new customers, but we will start to do more migrations later this year to accelerate penetration and bring the benefits of this new network to a wider part of our customer base. Slide 11 summarizes our updated fiber roadmap, as we announced today a new multi-year plan to bring 100% fiber broadband to more than 6.5 million passings across the Optimum and Sunlink. As a starting point, we reached 1.2 million total fiber passings at the end of 2021, which were available for sale to customers across the Optimum footprint, adding just under 300,000 passings for the year. This differs slightly from our previously reported fiber homes past metrics, which showed the fiber passings ready for service, or in other words, constructed, but not necessarily yet available for marketing to customers. The difference relates to issues such as power connectivity, which can delay lighting up the network by a couple of months. We believe this ready for sales number is a better reference for this figure going forward.

This means that we actually now expect to reach an additional

1.3 homes passed ready for sales in 2022 as we close the gap to what we already constructed last year. So we're on track to reach a prior target of 2.5 million total fiber passings by the end of 2022, which will be ready for sales. We expect a total peak in incremental fiber passings in related CapEx in 2023 and 2024 at around 1.6 million new passings in both years. especially as we expand across the Sunlink footprint at an accelerated pace. However, this includes reallocating some new-build CapEx towards new-build FTTH passings, as well as Fiverr homes we may build with government broadband subsidies, so we'll have some items offsetting our total CapEx spend. Specifically, we now expect to build out Fiverr to about 2.5 million homes at Sunlink over the next four years. with approximately 200,000 passings focused initially this year in Texas, growing to 600,000 additional passings in 2023, 900,000 in 2024, and 800,000 in 2025. By the end of this period, we will have covered about 1 million homes in Texas with fiber and another 1.5 million homes across the settling states. I've put down the footprint targeting an incremental 1.7 million passings from 2023 to 2024 primarily, to reach a total of 4 million fiber passings in the New York Tri-State area by the end of the period. Moving to slide 12, you can see we added 141,000 new homes built last year, mostly edging out around the Sunlink footprint, with Morris Broadband inorganically adding another 89,000 passings. We are still achieving about 40% penetration after the first year of expanding our network into new areas, so remains a great driver of new customer growth. We're still targeting additional 175,000-plus passings in 2022 of new homes built. Separately, in 2021, we completed the upgrade of over 300,000 Sunling HFC homes in areas where customers previously only received a maximum download speed of about 150 megabits per second, taking this up to either 400 megabits or 1 gig. We're planning on a similar HFC upgrade of more than 100,000 additional homes during 2022. But beyond this, we'll be focused on moving straight to fiber wherever possible. Lastly, so far, we've applied for broadband subsidies totaling for over 150,000 homes where we could get support for new FTTH build. We are close to completing our first win here on about 30,000 homes passed, which we hopefully will shortly announce. We should be able to apply for additional subsidies for close to $500,000 and potentially up to a million unserved or underserved homes by the end of this year and believe we're in a strong position to win a good proportion of these funds. These will all be built out in FTC. Slide 13 summarizes our new mobile converged offerings with up to $30 monthly savings if you take both a broadband and mobile service from us. This positions us much better versus our competition and should support improved customer growth this year. But as I alluded to earlier, we think we'll be able to be even more aggressive here in the coming months. Optum Mobile had approximately 186,000 lines at the end of December, reaching 4% penetration of LTCUSA's residential customer base. On slide 14, I want to remind you how we pulled back on sales distribution channels during the pandemic. necessitated by stay-at-home orders and social distancing protocols, but we're now extremely focused on getting back to pre-pandemic levels here. On the left, you can see we're targeting approximately double the number of door-to-door sales representatives we have in 2022, up to 400 to 500. And on the right, you can see we've been targeting an additional 50 to 75 new retail stores in 2022. Most of these new stores should open the second half of this year, as it takes time to secure the locations and get the stores up and running. But we feel confident about hitting these targets in 2022. And now I'll hand it over to Mike for the financial and more detail.

Thank you, Dexter. Good afternoon, everybody. Turning to slide 15, you can see our adjusted EBITDA margin was 43.9% in 2021, or 44.8% ex-mobile, which is slightly ahead of 2019 levels. Remember that we had some temporary savings in 2020 at the peak of the pandemic, making 2019 a better comparison. Full-year adjusted EBITDA was 0.3% year-over-year, although Q4 EBITDA declined 5.9% year-over-year with the revenue decline and higher marketing spend. Our EBITDA less capex or operating free cash flow margin of 31.7% in 2021 was also ahead of 2019 levels, although a bit below last year, driven by increased network investments. I do want to remind you that some of the areas where we are increasing investment will include higher operating costs as well as higher capex, which will likely negatively impact margins in 2022 to drive better customer growth and higher medium to long-term revenue and cash flow growth. Specifically, we're looking at over $100 million of additional OPEX, including rebrand costs, which are more of a one-off, expanded door-to-door sales and retail store distribution, and higher marketing spend around our revamped mobile and converged offerings. On slide 16, you can see our capital intensity was 12.2% in 2021, up from 10.9% in the prior year. Without fiber and new home-built growth investment, this would have been closer to 9% in 2021. Our CapEx target in 2022 remains between $1.7 billion and $1.8 billion on a cash basis, including $300 to $400 million of additional FTTH CapEx and $100 million to $200 million of additional new-built CapEx. Note this excludes any CapEx associated with potential subsidized rural broadband construction, as this is more uncertain right now. However, as Dexter said, we are pursuing this opportunity aggressively as we are experienced in fiber construction and well positioned with a cost advantage to help cover the unserved and underserved areas around our footprint. We still see the same opportunity to reduce CapEx after 2024 once our fiber build starts to scale back. We are just accelerating spend here to bring forward the benefits. Slide 17 highlights the annual free cash flow trend. We had another strong year of free cash flow generation at over $1.6 billion in line with our target. Recall we exhausted our tax NOLs, so cash taxes have been higher this year, and our capex increased year over year given the construction restrictions that we had in 2020. We do expect free cash flow to be lower in 2022 with the accelerated investments we're planning to drive growth. But also note that we should see improved EBITDA growth from 2023 and reduced CapEx after 2024 as we scale back the fiber build, supporting medium-term free cash flow. Lastly, slide 18 shows our COC Holdings leverage trend since the acquisition of Cablevision, completed in mid-2016, when net debt to EBITDA was closer to seven times. We've been trending to our leverage target of four and a half to five times in the last few years, with a couple of exceptions being the $1.5 billion dividend we paid in mid-2018 in conjunction with the spinoff of Altice USA, and the $2.3 billion tender offer at the end of 2020 following the light path minority stake sale. We remain committed to reduce leverage to this target range, even as we are accelerating investments to support all of our key strategic initiatives. We did not do any share repurchases in Q4, instead opting to pay down debt and invest more heavily in our business. And I do want to highlight that our balance sheet remains very strong and in very good shape right now. At the end of Q4, we had liquidity of over $1.7 billion on top of our very healthy level of free cash flow generation. The weighted average life of our debt is currently 6.2 years, and our weighted average cost of debt was 4.6% at the end of 2021. We have no annual bond maturities greater than $1 billion before 2025, all of which can be covered by free cash flow generation and or capacity from our revolver. We will continue to proactively and opportunistically manage our liabilities, although we really don't need to go to the market for anything right now. As a final comment before we proceed to Q&A, I would note that we will not be giving any additional financial guidance for 2022 today as we want to maintain maximum flexibility to invest more in our various growth initiatives. And with that, we will now take any questions.

Thank you, Mike. As a reminder, to ask a question, you will need to press star 1 on your telephone keypad. And to withdraw your question, just press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Philip Cusick with JP Morgan. Sir, your line is open.

Hey, guys, thanks. A couple. First, the faster fiber build in 23 and beyond, do you think that leads to higher capex in those years as well, or is the 1.7 to 1.8 a good range?

Phil, you know, the math isn't perfect here, given that there's going to be some HFC-related changes maintenance and growth capex that's going to be coming down. But I think it's probably fair to say that we probably will be a couple hundred million dollars at the most higher in capex for a couple of years, like in 2023, 2024. And then it starts coming down in 2025 and obviously 2026. It's a massive reduction in capex.

That helps. And then you said you ended December better than expected. Can you just talk about what you're seeing in the market? Just expand on that a little bit, whether it's moves or new interest. What do you see out there? Thank you.

Well, I think, you know, it depends on our market. But, you know, broadly speaking, you know, even coming into January and February, gross activity is lower, but it's relatively stable relative to last year. So not at all back to 2018 or 2019 levels. And depending where we are in our footprint, from a competitive standpoint, churn rates are in line to slightly higher depending on if we're seeing increased competitive intensity or not. But, you know, what we're seeing is that where we are providing one gig service, where we are providing now good distribution on the mobile side, and where we're starting to start delivering better distribution channel productivity, we're seeing better performance there on the sales side of our equation. So, you know, the reason why Mike and the team have agreed to not drive too much financial forecasting at this point is because we are starting to see some nice returns on investments. And we'd like to just maintain some flexibility here if we need to for the next couple of quarters. But, you know, I think it depends. Fios is not being hyper-competitive as much as it was being in the better part of 2021. They've raised the prices on data. Where you have seen some aggressive marketing and pricing is on the AT&T side. But AT&T Fiber only overlaps with about 400,000 of our home staff. on about 12% in our suddenly footprint today. That will increase, obviously, as AT&T increases its fiber footprint. So we're not seeing any massive competitive pressures here, but it's, you know, it is a month-to-month kind of change of pace depending on if something new comes up.

Chaplain with Moose Street Research. Sir, your line is open.

Thanks. Two for you, Dexter, if I may. So first on ARPU, it looks like it was down a little bit year over year. I'm wondering if you can talk through just the dynamics of where your lead offer pricing is relative to ARPU.

And as you look across the next few quarters, where do you think ARPU is?

And then my second question is, it's been a long time since you've given us a thought of where CapEx and margins would be once you get through the fiber upgrade, since you last gave that guidance.

Where now do you think in 2026, once the upgrade's done, sort of business as usual, your capex and margins would land. Thanks.

So on the ARPU side, you know, even our overall residential ARPU from a fourth quarter standpoint year over year or from an annual standpoint is slightly down. Obviously that's driven primarily out of our business.

And also what we're doing in terms from a promotional standpoint in the third and fourth quarter is contra revenue and So that impacts, obviously, but it's non-recurring in many respects. So, you know, we still feel good about our broadband ARPU. I think what I had mentioned, third and fourth quarter of last year, throughout this year, we'd be broadband ARPU. And so we

Feel good still about that, those levels. And then, you know, I can't call where video ARPU is going to go, but we continue to see some decent unclosed ads there. With regards to CapEx, you know, if you looked at our non-fiber CapEx today, we're probably close to about a billion one, a billion 150 type number. But if you were to extrapolate to a pretty much a full fiber network by 2025 of 6.5 million homes, our non-fiber capex related to HFC is going to come down materially from there. So I think it's fair to say that we're looking at a sub-1 billion type of capex number from 2026 onwards. And probably already in 2025, we'll start seeing numbers in the mid to lower teens of the billions. And from a margin standpoint, that's a little bit difficult one for us to call, Jonathan, given that video plays havoc with margins here. But clearly the gross margins on data are very strong. And given that we continue to migrate more and more to a heavier weighting on data, you'd expect to be able to get to significantly high margins to where we are today.

Dexter, if I could just follow up on the ARPU comment. When we look at where the leadoff pricing is, I forget the numbers. I think it's 40, 50, 60, or 45, 55, 65 on broadband. which is all below where average ARPU is for broadband. How do you, with bringing customers on at these rates on what looks like flat pricing plans, how do you maintain ARPU in that sort of $74, $75 range?

Well, I think our growth at ARPUs today on data, given that we are seeing 50% plus We're seeing those numbers in the kind of mid-60s in terms of the growth at ARPUs on data. And so, you know, we're not too far off from where our average is. And then obviously, you know, rate action and the fact that 50% of our subscriber base continues to be at 200 megabits or less, uh continues to drive um uh some some nice upsell and you have to remember we're in a we're in a heavier promotional time uh period right now i don't expect our pricing relative to files which is about twenty dollars to twenty five dollars cheaper today on one gig for us to maintain uh those levels um so you know we'd expect to continue to be able to drive our food growth here on data uh for the for the near term and as we go into multi-gig which we'll start announcing in the middle of this year, we will have that product roadmap to go up to higher speeds and higher offers. Thanks, Dexter.

Thank you. The next question comes from the line of Craig Mossett with Mossett Nathanson. Your line is open.

Hi. Two questions, if I could, Dexter. First, the wireless strategy, your peer cable operators have obviously made it a very large part of the starts. I wonder if you could just put a little more meat on the bones of why we should be confident that now is the time we can start to see some acceleration in the wireless strategy.

so much of your share account that there may not be a near-term incentive for you to get your stock price up. I wonder if you could speak to that and maybe provide some reassurance in the stock price and Patrick's as well, perhaps.

Well, I'll take the first question first, and I'll take the loaded question second after. On the first one, wireless, I think we've been clear that wireless is very important to our strategy, Craig. You're exactly right. You have to use the right terminology, fits and starts. It's been a year now that we've been rehomed on the Timo network, and we've seen our churn rates come down from mid-60s to 70% down to mid-30s today and continue to improve month over month. And so we are at that stage where, one, we weren't going to talk about publicly, but we are on the one-yard line, even though football season's over, to talk about announcing a new agreement with Timo. And so, you know, we're very pleased. I think our partners are very pleased with our commitment as well and our financial commitment. And we'll be able to talk about that a little bit more once we announce it. But it will allow us a little flexibility and it will provide, you know, our partners of our team with some good financial incentives as well. And, you know, we think that we can mimic and do better than our peers over at Comcast and Charter who are starting to grow their mobile subscriber bases nicely. So we don't see there's any reason why we can't achieve as good of results, if not better, than our peers there. And you'll start seeing some of those strategies as we start being more promotional and obviously as we lead into a rebranding of

of Suddenlink in April throughout the rest of the year and a real, you know, reinvestment in the optimum brand throughout the year.

So those strategies will start seeing unfolding in the second quarter all the way through the end of the year, and you'll understand where we are there. In terms of the second question, you know, I can't really speak for Patrick, but as you may know, I'm heavily incentivized. I've got a very large shareholding, at least I believe it's a very large shareholding in LTC USA. You know, that's a big part of my personal net worth, and I'm very focused on making sure that the stock price goes up. As you – I don't think it has been announced, actually. I'm looking at my lawyer. in my room, but I don't think we've announced the new incentive program for the management team. It has been. And so you'll see that we've got a heavily RSU and option-weighted incentive plan for the next three years for the top 200 employees at LTC USA, very focused on the stock price. I couldn't emphasize how much the management team is focused on making sure that the share price reacts the right way, which is why we're doing the things we're doing today, because it is clear in our minds that investing in the industry has a tremendous amount of value and growth for this business, given all the early statistics we've had, that they're meaningfully better than HFC across all the operational KPIs. And so we just have to continue to execute here. And, you know, this is a big year of execution. We feel good about our initiatives that we started in the second half of last year. And we feel good about 2020. Thank you.

Your next question comes from the line of Brett Selden with Goldman Sachs. Your line is open.

You obviously have very specific targets for where you expect to get from a fiber passing standpoint. I was wondering if you'd be willing to share any ambitions or targets that you have for fiber penetration. And what is the penetration strategy? Is it primarily about making sure that you can get as many of the gross ads as possible connected, or do you have an intent to go out there and try to proactively move existing customers over? And then just as a component of that, you've articulated CapEx is likely to be elevated by a certain degree as a result of the passings. Are you also budgeting a certain degree of, I guess, fiber-connected CapEx in there if there's a lot of demand for the product, or would you think of that as all success-based? Thank you.

The goal here is better experience for our customers, significantly reduced churn, and reduced OpEx costs on... And then ultimately, obviously, a significant reduction in our CapEx went forward.

And so, you know, today, where we had been focused on gross ad fiber clients and not so much focused in terms of migration... Because of the stability of some of our CPEs in our installation processes, those have materially improved over the last three months, which is why we're about to launch in March. We're going to start aggressively migrating 1P customers from HFC onto fiber, and then we will capitalize on the install standpoints. But from our perspective, if we are seeing already on 70,000 customers and even smaller cohorts of that an annualized improvement in churn of five to six percentage points after three months, you know, that is voting well for all of the things that we have put into our financial model. You know, 45% better NPS scores, 30%. calls less calls into the technical call center our poo rates of six to eight percent higher in terms of gross at our proof right so if you throw all that math into the cookie box it looks pretty good as we start to continue to grab volume even though from a customer connection standpoint It may be expensive to move people who are producing very good cash flows just on HFC, but the goal here is to move as many people over to Fiverr as possible over the next couple of years and go after all customers existing and new customers and try and put them on Fiverr. Thank you.

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

Thank you. Good afternoon. Just following up on fiber, and I had a wireless question as well. But first, on the fiber side, Dexter, you've got to have been at this for some time on the fiber front, but you're obviously scaling up significantly. Can you talk a little bit about sort of the operational side Areas that you're focused on or any uncertainty around Scaling the build level this quick this this substantially. I'm thinking about just like you know red tape and labor builds And you know these are not insignificant Work projects, and I'm sure you know way better than than I do So you can talk a little bit about that and sort of how much confidence you have in your play to hit these passing numbers and then just on the on the OPEC savings Can you talk a little bit about the timeline to pick those up? In other words, are you sort of running two networks for a period of time, DOCSIS and fiber, and do you sort of cut it over node by node, and that leads to the drop in maintenance costs, et cetera? Just help us think about that, too, as well. Thank you.

Sure. You know, on the first point, you're spot on, Ben. We've gone through fits and starts here, and obviously COVID was probably the worst thing that could have happened to us in terms of trying to accelerate on the CapEx side. But, you know, the big red tape stuff for us has been the state of New York. We have about 700, 750,000 homes that we're waiting on effectively the governor's office to approve. We feel very comfortable that half of those we will get very shortly, and the other half we'll get also this year. So that has been one of the biggest red tape homes initiatives to overcome over the last really year and a half was some of the oversight from the state of New York, which has changed the dynamic in terms of permits. But we feel good about getting those requirements. Connecticut does not have those types of permit approvals. from the governor's office. And so we've got 300,000 to 400,000 in the Connecticut area coming out this year, which is the balance of our optimum footprint this year. And so we feel good about the pipeline going into 2024, which we're going to get closer to completing the entire optimum footprint in 2024. On the labor side and the raw materials side, on the raw materials side, we have currently nine to 12 months of enough inventory for this year. As you do know, we're the larger group of Patrick and his sister companies are big acquirers of inventory. And so we feel good about our ability to fulfill our 2023 and onwards capacity there. So we're not worried about that. That's obviously a focus. It's been a focus of ours for many, many 12 months of inventory on that.

The labor shortage is something a little bit less predictable.

Of course, where on the field ops side, about 20% of our workforce is fiber-related. And then we work with In the New York tri-state area, about three or four contracted, incentivized, and onboarded subcontractors. And in the Sunlink footprint, that is already done in the bag in terms of contracted. And we're going to accelerate the Sunlink site, as you can see from our chart. I don't know what page it was on. But for 2023, that's in the pipeline today right now to make sure we fill that. So it's always been about whether or not we believed in the return and getting the machine up and running with all the permits. We've gone through all the hard slog here on. We truly believe that this is the right thing for doing our business to drive a tremendous amount of value, and we see it in all of our KPIs. We've gotten through the red tape issues. We are properly prepared on the inventory side and on the labor side for the next 12 to 24 months. So we feel good about our ability to execute now on a daily basis and making sure that we're executing properly, and hopefully we won't have too many natural disasters out there that will slow us down. But we're in a January and February have been above budget in terms of our deliveries. We're trying to get ahead of the curve, and then we start accelerating as the weather gets better in the spring and the summer.

And anything on the savings? Do you run two networks, et cetera?

Yeah, I think, you know, the savings is there are obviously savings from shutting down one network, which relates to power and to maintenance. But the biggest savings are related to customer touch points. You know, we've seen our sister companies deliver 40% to 50% less customer touch points on fiber versus cable. And if you look at the OpEx that's related to customer servicing, it's about a billion dollars. And so if we can start reducing that over time by 40% to 50% because it's just mathematical in terms of the amount of calls and truck calls that you do, that's a massive number. uh and obviously the the things that you can't quantify are nps and customer satisfaction uh and churn rates uh that go along with that right so we know that um um we've seen cable versus fiber in a european context be seven to eight percentage points better on churn and so our early read of an annualized number of five to six percent is not off the mark And we're already seeing 30% less calls versus the 40% to 50% numbers that we've seen from other companies who've run dual networks. And so we're on track. We're on track to delivering what we think is going to be pretty standard in the industry in terms of the customer experience. And that's going to translate in some very, very large off-ex savings. CapEx, after we finish the rollout, And then on the revenue side, I think it'll be very interesting to see how much translates to increased revenue by better NPS scores and reduced terms.

Right. And just if I could sneak one in on wireless, just going back to Craig's question, we watch you relaunch this product and accelerate the customer growth in 22 and beyond. Any help thinking about wireless service ARPUs that you guys expect? Because I know you're selling a lot of by-the-gig plans, and you've got some promotions out there. It's hard for us to see that in the historical financials. I don't know if you had any thoughts that would help us think about that business as it scales here on the ARPU side.

Yeah, I mean, we're kind of in the low to mid-20s in terms of ARPU. Okay. And that has been tailing lower during 2021 because by-the-gig plans were more popular than the unlimited plans. But with our new agreement, which pricing will be, you know, active as of January 1 this year, we're going to be driving much more on the unlimited packages. And so, you know, we suspect that the ARPU levels will be, you know, firmly ensconced in that mid-20s and hopefully higher as we continue to grow.

Very helpful. Thanks so much.

Our next question comes from the line of John Hodelek with UPS. Your line is open.

Great. Thank you. Just a quick clarification to start off with, Dexter. On the 6.5 million, and I know you guys talked about it a little bit, but does that include any subsidies you expect to get from the government? And if things go well, I mean, could that number creep higher? And if you could sort of size that first, that would be great. And then So related to that, can you quantify the extent to which you guys think you can do edge outs and increase the footprint? That's sort of all one question. And then just another related question, and I think you've answered this basically as part of every other question, but I mean, did you look at DOCSIS 4.0 deployment, especially in the new Suddenlink territories where you're sort of looking at Greenfield and And I guess, obviously, you decided against it, but I guess is it your view that eventually the rest of the cable industry will go ahead in the same direction with you guys and just go full fiber? Thanks.

So on the first one, John, listen, we've identified 2.5 million homes in the Sunday footprint which we'd like to fiberize, and that's really based on scale mainly and some competitive natures. in some areas which we think we are going to drive penetration even higher by putting in fiber. You know, whether that $2.5 million is all going to be funded by us or some portion of it will be funded with some subsidy money, I couldn't tell you. You know, we're in the early innings of the subsidies game. We've done 150,000 applications for homes past. We think we've won 30,000 here. And so if we use that same ratio, let's call it, and we're applying for about a million, you know, maybe we can end up getting 200,000 homes there, which would be part of that 6.5, but it may take it to 6.7 because the 200,000 homes are homes we were never going to upgrade given that they're in much more unserved, underserved or non-served areas out there. But what we do know is that we are definitely going to hit 2.5 million homes in Sudlink, and around the edges of 100,000 here, there, plus or minus. I couldn't tell you where we end up landing, but I suspect it will be higher than 6.5 million by maybe a couple hundred thousand homes. On the edge-outs, we continue to see abilities for us to edge out. know we're going to do 175 000 plus of edge outs this year um i hope that uh we'll be hitting a run rate of closer to 200 000 a year by 2023 um and we'll be fiberizing as much of that as we can some of it is going to be plant extensions on hfc so it's difficult to do fiber and isolation but we also have intermediate steps where we do our fog technology which allows us to quickly pivot to fiber at a much lower cost when we do decide to put in a fiber head end and overlay fiber across the entire HFC network. We looked at DOCSIS 4.0, but I have to tell we looked at it briefly because of two things. Number one is we continue to be driven by the herd mentality that Fiber is the technology of choice for anyone investing significant amounts of capital into the ground to upgrade their networks or to deploy new networks. And we just don't believe that the isolated U.S. markets um can continue to drive a very u.s centric technology even the the doctors um you know networks in the european context or around the world are all driving themselves to to fiber as well right so um we think that the oem support is going to be a lot lower the r d is going to be a lot lower we think that the cost as we looked at it are quite expensive to drive up to DOTSIS because it's not just the line extension on fiber. There is a lot more fiber to drive into the entire network than just line extensions. And so we think the costs could be even higher than really building, as we're doing, overbuilding our own network with fiber. And by definition, if there's any active components into the network, it's going to be more susceptible to latency issues and worse customer experience than having an end-to-end glass network. So, you know, we don't want to be the smartest guy in the street, but we think that following the tried and tested technology, which is available everywhere and which everyone is pushing towards and which I think consumers, by definition, are gravitating towards, even if they don't even know the difference between HFC and fiber, is going to be meaningful in terms of the success of our business. So, you know, we're committed here. We know the numbers. We have the cash to do it. It's not going to be prohibitively expensive. It's just we need to be able to execute here over the next couple of years, and we feel really good about the performance of the business.

Great. Thank you.

Thank you.

Your next question comes from the line of James Ratcliffe with Evercore ISI. Your line is open.

Great. Thanks for taking the question. Two, if I could. Michael, just give us an idea of ballpark how much that one-off component of the extra $100 million in OPEX is for 2022 and how much is really run rate. And just secondly, Dexter, conceptually, last year the company was buying back stock in the mid-30s. Where the stock is now, the accretive impact on free cash flow per share is more than twice what it was a year ago. So is it that your view on the returns on fiber have gotten dramatically better in the last year, or is there something else that's saying even at half the price, fiber is a better play than the stock now? Thanks.

So, James, in answer to your first question, I would say the one-off element, which is the rebranding of our incremental effects, a placeholder enabled at $30 million would probably work fine.

Thanks. Listen, I think on the return side, you know, there is a financial engineering element which, you know, any Excel spreadsheet would suggest that buying back our stock today at $15 million in the 30s is not a bad bet. But in order to continue to aspire to mid-30s and higher values, you've got to understand that the underlying operations need to be dynamic and you need to be able to react appropriately. Our returns are maybe not as good as buying back our shares.

The longer-term returns are exponentially higher by investing in our network today as quickly as possible.

organic growth and of our existing customers but also from a competitive dynamic standpoint where you know markets are getting more competitive not all markets but some markets are and getting ahead of that curve and being proactive here is going to drive our views of an asset value and terminal value exponentially higher than just buying back our shares right so you know, if we get back down to a sub $1 billion CapEx number in 2026, we're really looking at, you know, if we get back to EBITDA numbers that are similar to last year's or the years before, we're looking at $1.7 billion to $2 billion of free cash flow. And on, you know, $450, not a bad kind of $4 per share of free cash flow, If we've invested correctly in our net, it seems like a pretty nice return for us and for all shareholders going forward. So we feel good about the investment profile today. And as I just mentioned to John in the last question he asked, you know, the fiber performance is showing everything that we thought it was going to show. And as we continue to drive bigger volume numbers, we're confident in the operational KPIs here.

Thank you. Your next question comes from the line of Michael Rowland with Citigroup.

Hi, good afternoon. Just a follow-up and then a question on the competitive landscape. So for the follow-up, with the guidance for higher costs of $100 million during 2022, should that be taken on the fourth quarter run rate or on the full year 2021 cost base? And then Just curious if you're seeing any early impacts from fixed wireless access products. And when you look at the combination of expanding fiber competition over time and the possibilities of fixed wireless, when you're underwriting the business case to upgrade the fiber, are you incorporating any significant market share increases for the broadband business? Thanks.

Michael, in answer to your first question, the incremental OPEX that we're approximating would be versus a full year 21.

And I think on market dynamics, you know, what we had first envisioned was no revenue enhancement on FTTH versus HFC and really just a free cash flow return because the OPEX numbers and ultimately the CAPEX numbers want to come down significantly. But we're starting to see the early signs, both through gross ad arpus and reduced churn numbers, that we'll see a nice revenue impact. Taking market share is probably the wrong way, but just to think about it, but reduced churn, by definition, we should be able to take market share. And so if we're seeing annualized reduced churn numbers already at 5% to 6%, you know, we should be able to take that incremental market share over time in the areas where we have fiber. And if not better, because we're seeing more like 7% to 8% in other markets around the world in terms of head-to-head competition. So that is where we think that we'll be able to drive incremental market penetration.

And not by...

by being aggressive from a promotional ARPU gross ad standpoint.

And are you seeing any early impacts from fixed wireless and have your views of that product and the competitiveness of that product evolved as you've seen some of the new offers hit the market?

In our areas, no. Where we are seeing potential threats on fixed wireless is in MDU contracts. where some of the fixed-wires providers are aggressively going after MDU contracts across, I think, you know, fixed-land country where they can deploy, you know, their capital in our pools.

I think we feel very good about our ability to defend our MDUs, particularly since we're upgrading most of them up to fiber.

quickly, and we've got strategies on loyalty from that standpoint. But that's where we see what's called competitive pressure.

Your next question comes from the line of Kotkin Morrow with RBC Capital Markets.

Your line is open.

Great. Thanks for taking the question.

Two related ones on asset monetization, if I could. First, you have a multi-year plan to accelerate investments across your core cable business. Does that change your appetite to monetize any assets that might be considered non-core? And just on the flip side of that, I realize you're embarking on a more meaningful path to driving long-term value with cable assets. But is there an updated view on monetizing some or all of your cable assets? Thanks.

So I don't think we have anything that we believe is non-core to start off with. You could say maybe the advertising business is maybe non-core, but since a lot of the advertising business is tied to our video inventory, all we look at if we could look at bulking up in size or somebody would like to bulk up in size on the advertising business is probably by working

We have 50.1% of our is less core, let's call it.

It's just a different network in many respects than our residential or SMB business. But again, it's in very strategic locations. relative to our B2C business. So I would say it's non-core. We were able to arbitrage obviously valuations nicely by selling 50% of that business. And so I wouldn't ever rule that out on there. And then in terms of the cable network, I'm assuming what you're suggesting is maybe selling the HFC network itself as opposed to the HFC network and I think we're in the business of selling the customers. I think it two networks in many areas, whether we would ever say any value or someone would see some value in buying the HFC network. I'm not so sure we would do that either, given that we're just bringing another competitor. But, you know, I don't see us ever wanting to arbitrage selling some of our cable subscribers to fund a FTTH rollout. There's always going to be things at the edge that make no sense because they're in small jurisdictions and communities that maybe are very inefficient for us to run from very far away. But that's optimization and not about selling businesses out there. So, you know, I think we like the business. And as we grow into a predominantly fiber-to-the-home company, one of the larger ones in the U.S. after AT&T and Verizon. And, you know, I think we're very well positioned for the next generation of consumer trends and experiences.

That's helpful. Thank you.

Your next question comes from the line of Greg Williams with Collin. Your line is open.

great thanks for taking my questions uh first one is just on the fiber of the home strategy obviously you're getting more aggressive in the southern lake territories um just wanting to provide some color on the cost per home pass in the settlement bill it's in the past you said in optimum territory you can do it rather cheap five to six hundred dollars because you have you know 80 plus percent aerial fiber dense footprint etc um but how does that translate into the settling territories in terms of cost per home passage as i think about the out of your capex um second question just on margins um in 2022 just help us with the trajectory of the margins through the years we think of the many moving pieces and the 100 million objects uh increase you know in terms of the sales reps retail stores mobile investment and then the advertising portable tailwinds in the second half uh thank you so on on you know i think suddenly footprint's difficult for me to give you just an overall number uh because every uh community is a little bit different

But we do see the areas, obviously, that we're focused on are the higher density areas and where we do have the bulk of our customers. So, you know, there will be areas which are going to be slightly more expensive than optimum, and there will be probably areas which are going to be twice as expensive as optimum, right? So probably anywhere between $500 to $1,000 for homes passed on average, let's call it, in terms of what we're going to spend in the seven-week footprint. um and then uh on margins a standpoint i think back in um at the ubs conference in the beginning of december uh we talked about you know 41 to 42 percent even down margins for 2022. i think those numbers are in the ballpark again you know we have enough moves and pieces in 2022 that we want to reserve the right to um to be born nimble uh in terms of how we allocate capital But directionally, that's probably the right level. Great.

Thank you.

And our last question comes from the line of Frank Luthan with Raymond James. Your line is open.

Hey, guys. It's Rob one for Frank. You might have said this earlier. How much CapEx and OpEx do you expect to spend on distribution channels this year? And then separately, all your recent efforts to seek broadband subsidy, how much do you guys think you can get from the government from those subsidies over time? Thank you.

Yeah, I think on the distribution channels, on the retail stores, it costs about $900,000, say just under $1 million per store to get a store up and running. That would be the CapEx component. And then once the store is up and running, call it $500,000 to $600,000 annually. And then on the door-to-door salespeople, you know, we're talking about doubling our footprint from 250 to 500. Maybe we get to 400. And I think a fully loaded door-to-door salesperson may be something they would have, you know, unit cost of 75K to 100K would be about right.

And I think on the subsidy side, listen, every community is a bit different. But most of these unserved or underserved markets, or looking to upgrade to at the minimum 100 megs of symmetric fiber up and down in terms of speed, are spending anywhere between $2,000 to $4,000 per homes passed on average and are typically contributing somewhere between $1,000 to $2,000 into the subsidy kitty. And so we're doing the balance of it, so we're spending anywhere from 1500 to 3000 and, uh, local communities are spending anywhere from a thousand to 2000 that numbers. And so, you know, depending on how many homes we end up, um, being able to, uh, to get, uh, you know, if we would look at the, um, uh, the high end of it, where we could get probably a couple hundred thousand, we ended up probably getting somewhere between two to 300 million of subsidies.

Great. Thank you.

Thank you. This concludes our question and answer session. Turning the call back to our speakers. Sir, please go ahead.

Thank you, everyone, for joining. Do reach out if you've got any follow-up questions. Otherwise, we'll catch up with you in the next few weeks. Thank you. Thank you.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.