Altice USA, Inc.

Dan, welcome to the Altice USA second quarter 2022 earnings results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during this conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Nick Brown.

Please go ahead. Hello everyone, thanks for joining. Today we are joined by our TCUSA CEO, Dexter Goey, and CFO, Mike Rohr, 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 slide two. Dexter, over to you.

Hello everyone. I'm kicking off with a summary of our second quarter performance on slide three. Revenue declined 2.1% year-over-year, mainly driven by our residential business. Residential broadband customer net losses were $40,000 for Q2, with similar market dynamics to what we've seen in the last few quarters, but with some incremental pressure coming from normal seasonality, which we've not seen in a couple years due to the pandemic. Q2 adjusted EBITDA declined 8.8% year-over-year, with a margin of 40.9%, reflecting both the revenue decline and higher OPEX to drive future growth. Free cash flow remains robust, generating 191 million in Q2 and about 400 million year-to-date, even with the elevated levels of investment to accelerate our fiber rollout and new build activity. Our optimum fiber network deployment has meaningfully accelerated, rolling out at a faster pace than we've ever achieved, with as many incremental fiber passings added in Q2 as the entire prior year of 2021. At 1.6 million total fiber passings, we are very much back on track with our long-term fiber build plan. In the quarter, we surpassed 100,000 fiber customers and expect to continue to grow at an accelerated pace. With the launch of multi-gig speeds, we are now positioned as the fastest fiber broadband provider in the New York tri-state area. Our optimum mobile business also saw significant accelerations in fiber growth. reaching more than 200,000 lines with attractive promotional offerings for our Optimum broadband customers. Lastly, we've rebranded Suddenlink to Optimum, unifying telecommunications brands under one powerful national Optimum brand, which will ensure consistency and simplification in all of our marketing, offers, and experience. And we continue to rapidly expand our sales distribution channels, including the opening of several more Optimum stores across the country. We have begun to see the benefits of our reinvestment strategy, and we're extremely focused on executing on all of our key growth initiatives, which we expect to improve our overall customer growth going forward. Slide four shows our revenue trends in more detail. Total reported revenue in Q2 declined 2.1% year-over-year, mainly due to the trends in our residential business, which declined 3%. Total revenue was down 1.9%, excluding about $5 million of prior year air strand revenue. To remind you, our backhaul contract with T-Mobile was terminated at the end of last year. This is resulting in a loss of about $120 million of air strand revenue this year when comparing to 2021, with about $110 million of this in the second half of the year coming out of our business services division, including $75 million in Q3. Business service revenue in Q2 was flat, down 1.1% year-over-year on a reported basis, but grew 1.3%, excluding this Airstrand revenue. Last, news and advertising grew 1.1% in Q2, as trends here are normalizing. Turning to slide five and Q2 customer trends in our residential business. We reported a net loss of 48,000 residential customer relationships and a broadband net loss of 40,000. Recall the second quarter is normally seasonally weaker for Suddenlink because of its exposure to university towns. The difference between Q1 and Q2 this year of about 26,000 broadband customers is exactly in line with our four years average variation between these two quarters prior to the pandemic across 2016 to 2019. In other words, the underlying performing of the business suggests that we are yet to see a full benefit and pickup from our growth investments but we are confident this will come as we remain full steam ahead on our various initiatives. We also continue to see lower level of market activity and gross additions across our footprint, which we don't think is unique to us. Clearly, fixed wireless broadband is taking some of the growth and switchers out of the market in the past couple of quarters with more aggressive promotions, and there is some incremental pressure for fiber overbuilders. Although visibility remains lower than normal, we are still confident that we will return to broadband customer growth with our accelerated fiber rollout, multi-gig services, and new build activity, complemented by more attractive mobile bundles, expanded sales distribution channels, and improved customer service. Slide six is a recap of our longer-term fiber targets, where we are still on track to bring 100% fiber broadband, delivering multi-gig speeds to more than two-thirds of our entire footprint over the next four years, targeting a total of 6.5 million fibers at home passings by the end of 2025. Given our more reliable fiber network service, we expect to drive higher gross additions and reduce churn as well as reduce longer-term maintenance and technical service costs. When comparing the experience of broadband customers on our fiber network to that of customers on our HFC network, we are now seeing 80% NPS improvements, 10% higher ARPUs, and five to six percentage points of annualized churn benefits. And we're still seeing these customer metrics improve every quarter, which is evidence of our fiber strategy really paying off. In June, Optimum introduced symmetrical 2-gig and 5-gig fiber internet speeds tiers for the first time, making us the fastest residential fiber internet service provider in the New York Tri-State area. We started by offering these multi-gig tiers in select areas of Long Island, and we will progressively roll them out across the company's entire Tri-State fiber footprint by year end. The fiber network we're building is also very scalable, as we've demonstrated with this multi-gig deployment, and will continue to allow much faster upgrades in the future to enable more capacity and higher broadband speeds. Slide seven is a current snapshot of progress with our fiber build and customer trends. You can see in the first row that we released an incremental 270,000 fiber passings during Q2, reaching approximately 1.6 million total passings, mainly in our optimum footprint. To emphasize, this is as many new fiber passings in one quarter as we rolled out in the entire prior year, showing that our construction team is now really hitting its stride without the same types of permitting and COVID constraints that we've had over the past couple of years. We expect incremental growth on fiber passings to remain at elevated levels in Q3, following our increased investments since spring and summer months are more conducive to construction and deployment with the better weather. You can also see that our quarterly fiber customer net additions also accelerate to 23,000 in Q2, which is about double our prior quarterly run rate, as we've been doing more proactive migrations and marketing the product more aggressively. We have reached 6.6% fiber customer penetration of our total FTTH passings, with 104,000 fiber customers at the end of June. Note, our total customer penetration, including both our fiber and cable customers, is over 50% in these areas where we have fiber coverage, so we're reinforcing our incumbent position with our fiber upgrades here. On slide 8, you can see we've added also 58,000 new build passings in Q2 and 100,000 year-to-date, putting us well on track to add approximately 175,000 passings organically this year. We are mostly edging out around the Suddenlink footprint, and about one-third of our total new build activity this year will be new fiber homes. We are consistently achieving over 40% penetration after the first year of expanding our network into new areas, which is correlated to new customer growth. To update our broadband subsidy applications program, we received awards of 24,000 homes year-to-date, totaling $35 million of subsidy grants. In Q2, we were awarded the grants for 9,000 homes in Louisiana and 7,000 homes in Arizona, in addition to the 8,000 homes we were awarded in Arizona in Q1. We will be deploying FTTH in all the areas where we receive grants. We are very excited about the public grant co-funding as this opportunity to deliver rapid fiber coverage to unserved and underserved areas, and we're very focused on continuing to be the trusted partner for local governments to help bridge the digital divide. Slide nine demonstrates the long runway we have to sell fiber broadband services that can support very high levels of data usage. The average download speeds customers take across our total base was just under 400 megabits per second as of Q2, but our fiber customers are taking twice these speeds on average. Our one gig customer penetration increased 18% in Q2, and this continues to grow every quarter. Around 45% of our customer base takes speeds of 200 megabits per second or lower, so we still have a huge opportunity to keep driving customers to higher speeds, especially as we market multi-gig speeds on our fiber network more broadly. Average monthly data usage for broadband-only customers was 578 gigabytes in Q2, with video streaming still the biggest driver. For our highest data-driving customers, about 15% of our base of broadband-only customers are using about more than one terabit of data per month. Incredibly, but not unexpectedly, more than one quarter of our fiber customers are using more than one terabyte of data each month. There is no better technology than fiber to support this sort of structural growth trend. Slide 10. provides an update on our optimal mobile business where we've reached 231,000 customers as of the end of Q2, representing 5.1% penetration of our residential customer base. Recall we launched more competitive internet plus mobile converged offerings in January. In March, we announced an expanded MVNO agreement with T-Mobile, allowing us to offer more attractive mobile promotions, including extremely competitive multi-line discounts, which we've summarized on the right hand side of this slide. And we're pleased to be recognized for our excellence in customer satisfaction being ranked number one amongst full service wireless providers by the ASCI recently. Our aggressive one gigabyte mobile promotion again drove the majority of the additional customer growth for the quarter. Even though we've updated this offer to $5 per month, we believe we can maintain a higher level of underlying mobile customer growth going forward and expect this will help provide and improve broadband customer churn as well. Slide 11 shows some of the highlights of the rebrand of Suddenlink to Optimum to unify our marketing efforts and create a consistent customer and employee experience which kicked off in earnest this week. I want to thank all the teams at LTC USA for their tremendous work over the last few months preparing for the rebrand and generating tremendous excitement across the company for this huge milestone. Additionally, we continue to expand our sales distribution channels to support improved customer growth. We've already reached the lower end of our year-end target for door-to-door sales headcount, and the number of new retail locations is due to ramp up into the end of the year as we've executed on almost all of the required leases at this point. Turning to slide 12 on business services, revenue growth of 1.3% in Q2, excluding Airstreamer revenue, is in line with Q1. but below last year's level of growth as the year-on-year comparisons are normalizing after the peak negative impact we saw from the pandemic in 2020. We continue to see positive customer trends, but we're not back yet to the activity levels in the SMB space that we saw prior to the pandemic. And we're mindful that the economic backdrop today may delay a more material pickup in growth here. SMB and other revenue grew 1.8% x air strands in Q2, and light path revenue was flat. However, net sales bookings at Lightpath increased significantly again in Q2, up 63% year-over-year, benefiting from our recent network expansions, new market launches, and expanded sales force. We anticipate that this should also contribute to accelerated revenue growth in the coming quarters. Slide 13 is a summary of our news and advertising business performance. Revenue grew 1.1% in Q2, with year-over-year comparisons normalizing here as well. The auto sector remains weak, although we're starting to see some green shoots of recovery. Remember, we expect some more political benefit this year in the second half given the midterm elections, but didn't see much of a pickup from this yet in Q2. And now I'll hand it over to Mike to review the financials in more detail.