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.