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.

Thank you, Dexter, and good afternoon, everybody. I'm turning now to slide 15 with a summary of our financials for the quarter. Our revenue declined 2.1% in Q2, with adjusted EBITDA declining 8.8%, with similar performance year to date. Our adjusted EBITDA margin was 40.9% in Q2, which is three percentage points below the prior year quarter, reflecting higher operating costs to invest in some of the areas we've outlined to drive better customer growth and higher medium to long-term revenue and cash flow growth. For example, as Dexter pointed out, We have now reached over 400 door-to-door salespeople and over 100 retail stores, and we are continuing to put marketing dollars behind our recent mobile converged offers and our rebrand campaign. Our cash capex was up 50% year-over-year, driven by increased fiber investment. This all contributed to a 33.2% reduction in our EBITDA-less capex, or operating free cash flow. On slide 16, You can see our capital intensity was 19.7% in Q2, up from 12.8% in the prior year quarter. Without fiber and new home-build growth investment, capital intensity would have been 9.1%. Our CapEx target in 2022 remains between $1.7 billion to $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-build CapEx compared to the prior year. Remember that after a couple years of elevated CapEx to support our accelerated fiber rollout, we expect to start seeing significantly reduced CapEx after 2024 once we start scaling back that build. Slide 17 highlights the components of free cash flow in Q2, totaling $191 million for the quarter and about $400 million year-to-date. which is lower year over year given all of our accelerated growth investments. Our cash interest was $253 million in Q2, which should be slightly higher in Q3 and Q4 given recent rate increases. Cash taxes were elevated at $150 million in Q2, but we currently expect payments to be significantly lower in the second half when compared to the first half of the year. And lastly, other financing activity reflects continued debt pay down, amounting to about $85 million for the quarter using excess free cash flow. Finally, on slide 18, we want to reiterate that we have a very well-termed-out debt majority profile following prior refinancing activity. 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 CSD Holdings' revolving credit facility. For example, We can easily cover the upcoming $650 million note maturing in September in this manner without any need to access the credit markets. Last month, we entered into an amendment to our main CSC Holdings revolving credit facility, extending the maturity on an aggregate amount of $2.3 billion of our total revolver commitments to July 2027 at a rate equal to SOFR plus 2.35% per annum. At the end of Q2, we had liquidity of approximately $2 billion on top of maintaining a healthy level of free cash flow generation. The weighted average life of our debt is currently 5.9 years, and our weighted average cost of debt is 4.9%. And as we demonstrated again with our recent revolving credit facility refinancing, we will continue to proactively and opportunistically manage our liabilities. And with that, we will now take any questions.

Thank you. And at this time, we'll conduct our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press the star key followed by the number 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, to ask a question at this time, simply press star 1 on your telephone keypad. Our first question comes from Philip Cusick with J.P. Morgan. Please go ahead.

Hey, guys. Thanks. Two, if I can. First, Dexter, in the past you've talked about a potential return to growth at some point this year on broadband subs. Is that still valid? And if not, then what has to happen to get there? And then second, there's a lot of chatter in the market about a sale of assets. Can you give us an idea of where you might be in that process and what the response is? Thank you.

Thanks, Phil. On the first one, yeah, we're doing all the right things strategically and operationally to invest back in the growth of our business. I think we are confident that we will come back to growth. I think the question is when. We have been expecting to see that in the second half of this year. I still think that we can still see it in the second half this year. But I don't think we can give you an indication as to when precisely we think that as of now. But we continue to see good improvements from an operational standpoint here that we see and expect to bear into fruition positive net ads in the second half this year, hopefully. On the sale of assets, you know, I think there's been a lot of chatter out there. I think we can confirm there is a process going on. I don't think we want to comment any further than that. Much like what we did when there was a lot of chatter on MyPath, we'll update you and the rest of the market when it's, we deem appropriate to update. But at this time, there's nothing more to really talk about.

Thanks, Dexter.

Our next question comes from Jonathan Chaplin with Newstreet. Please state your question.

Thanks. Dexter, just following up on that question from Phil, can you give us a sense of the number of subscribers at Suddenlink versus Optimum and the breakdown of EBITDA between Suddenlink and Optimum?

Yeah, Jonathan, I think we're going to sidetrack that a little bit. I don't think we're in a position to talk about the assets in detail. I think we can confirm that we've We've received a lot of reverse inquiry for all or parts of the Sunlink assets. I don't think we want to get into a debate as to financial and operational KPIs in a public forum. But, you know, numbers have been out there historically on the assets, so I think you could probably, with other analysts, figure out, broadly speaking, what the numbers look like. Got it.

Okay. Thanks, Dexter.

Our next question comes from Brett Feldman with Goldman Sachs. Please go ahead.

Yeah, thanks for taking the question. You know, from some of your peers across telecom and cable, we heard discussions around inflationary cost pressures, in some cases a normalization of bad debt. Some of them are seeing longer collection times. I was just wondering, can you give us an update to what extent at all are some of these macro pressures reflected in your trends this quarter or what's your outlook for that? Thank you.

Yeah, I think from an inflationary pressure standpoint, clearly some of the obvious things like utilities numbers can be quantified. We had seen pressure on labor in the early part of this year. There's probably less pressure on the labor side. today, which probably is indicative in terms of some of our success in driving some of our distribution channel investments ahead of schedule. But I think overall from an execution standpoint, our operating costs aren't meaningfully being impacted by inflationary pressures. I think the utility number year to date is maybe costing us an extra $10 million of utility costs today. There is pressure in supply chains, as everyone talks about, whether it be CPEs or fiber in itself. We feel good about where we are from a supply chain standpoint, given that we've been at it for a couple of years here on fiber. So we clearly are going to run into, I'm sure, instances where we wish we had more in the supply chain than we have, but none of it is impacting our 2022 capital investment strategy in terms of being able to deploy and deliver what we expect to. Brett, you asked something else other than utilities, didn't you?

Bad debt expense, collection timeline, stuff like that.

I'll hand that to Mike to answer.

Sure, Brett. We're seeing a little bit of deterioration in that space, not a lot, and I would I would point out this is deterioration versus the prior year when bad debt expense and non-pay write-offs were at historical all-time lows. I think we've always actually been, we've ranked pretty well among our peers and in the industry in terms of bad debt as a percentage of revenue and that continues. So mild pressure but nothing of note.

So is this getting back to what you saw pre-pandemic or is it trending a little worse?

No, I would say it's somewhere between pre-pandemic and the all-time lows we saw last year. I don't think we're back to pre-pandemic levels. Thank you.

Our next question comes from Craig Moffitt with Moffitt Nathanson. Please go ahead.

Yeah, hi. I'd like to talk about wireless a little bit. It looks like your numbers in wireless are at least starting to look a little bit more like others in the industry, but it represents 1% of your revenues versus close to six at Charter. Can you talk about what you're seeing with wireless now that you seem to finally have the product that you wanted to sell all along and what impact it has on the rest of your business? Are you seeing churn reductions? Are you seeing pull-through in broadband and that sort of thing?

Yeah, Craig, that's a good question. One, obviously we're focused on getting a good product And our friends over at T-Mobile have been helpful on that. So since effectively close to the beginning of the year, we've had a good product out there. Second was to get out an offer product and a marketing campaign that made sense. We've been working at that for the last couple of quarters, and we're starting to see some of the fruition here, particularly also on the distribution side of our business. being able to push more channels there on the mobile side. I think, listen, I think we continue to believe it's a good churn enhancer. There's not a lot of material data we have here, given that the inflection points on the acceleration of our mobile this year, you know, we're not into kind of those churn reduction statistics in terms of timeframes yet. So we'll have a better view on the cohorts from the beginning of this year, better next year. But we don't anticipate seeing anything different than what we see from our peers in terms of their impacts on churn and those types of pull-through characteristics. I think we are attracting, obviously, some of the lower pay tiers here with the 1 gig and the 3 gig or the 5 gig product, depending on when we are delivering those. And we're seeing about a third of our mix is on the unlimited side. So very similar statistics that we see and we hear from our cable peers there. So maybe we could give you a little bit more detail on financial impact and customer impact in a couple of quarters as we look at some of these cohorts and provide you with some more detail. All right, thank you.

Our next question comes from Kukan Moral with RBC Capital Markets. Please state your question.

Great. Thanks for taking the questions. I wanted to follow up on the asset monetization discussion. You know, we typically talk about legacy Suddenlink, but I was hoping to get your perspectives on the strategic value of legacy Optimum, just given that it's, you know, the top DMA and is much further along in its fiber build. And if I could just circle back to the broadband trends, you know, you noted that the Q1 to Q2 trend this year was consistent with the average seasonality you saw pre-pandemic. I know there's limited visibility at the moment, but just to level set maybe how to think about next quarter, I think the historical average seasonal benefit heading into Q3 has been about 4,000 or so. So sorry to get a bit too specific, but is that the right way to think about your near-term expectations? Thanks.

Good questions. On the asset monetization side, maybe taking a step back. Clearly, we've gotten a lot of inquiry around the Sunlink assets, which is why we're engaging on being responsive here. It shouldn't escape the fact that we're embarking in our Sunlink upgrade over the next year. and thereafter, which effectively is a good time for us to pause here and look for potentially significantly creative transactions for shareholders before we embark on a big upgrade. So it's the right time for us to be looking at this given where we are in our capital deployment timeframe. To your point, Optimum is going to be pretty fully fiberized by the end of 2024. And it has not escaped us that we believe that's going to be a very, very strategic asset going forward, given its DMA. But we are not engaged in a discussion around that. And we'll have that discussion in future years, I'm sure. But that is not on the table today. But you're thinking about it right in terms a potential remain code would look like to the extent that we do something with the Sunlink assets. On this quarter, I think we're not in the business of commenting intra-quarter that way. I told my team earlier today that the statistic that they asked me to talk about on Q1 to Q2 is misleading from Q2 to Q3 because the numbers are a little bit all over the place from Q2 to Q3. You cited a 4,000 number, but there's also a 14,000 number also out there improvement. So we went back three or four years pre-pandemic, and they're a little bit all over the place going from Q2 to Q3, but very consistent going from Q1 to Q2. So I don't want to preface what we're seeing in Q3, particularly given that July is seasonally typically the worst or the second worst month of the year, but then we tend to have the best months of the year being August and September. So we're just at the beginning of August, and we'll talk about this in our next quarter earnings.

Very helpful. Thank you.

Thank you. And next question comes from James Ratcliffe with Evercore ISI. Please go ahead.

Hi. Two, if I could. First of all, you talked to about broadband trends, about seeing lower gross ad activity. Can you just give us a sense of how you feel your share of those gross ads are trending and particularly any different areas where you're marketing the fiber product versus where you don't have it? And secondly, can you talk a little bit about scale and how much that matters at this point in the cable industry? I mean, historically, there was a big advantage to absolute scales just in terms of programming, negotiation leverage. Is that as big a deal?

It's interesting. On the overall landscape, we see lower activity on the gross ad side in the historic Cablevision footprint in the east, but we still continue to see very robust gross ad activity in the Sunlink footprint, where we see churn differential is we see churn in the east being very stable, but in the west being a lot higher because of competitive pressures, right? So it's a little bit, we see two different topographies in terms of our footprint. In terms of the jump balls, yeah, I think we're performing well in terms of jump balls. We've got very competitive products. relative to Fios, which is the key peer for us in the east. We see ourselves across the board as a better economic proposition relative to Fios, if you look at the bundles, our bundles versus their bundles. And clearly in our fiber footprint, which today is 1.6 million homes, growing to anywhere from 2.3 plus by the end of this year in the east, you know, we will start being a differentiating factor, we believe, in those jump balls. In the West, we don't have the fiber product and, you know, we are seeing competitive pressures from fiber overbuilders in a certain part of our markets. And then clearly, even though we can't put our finger on it specifically on the churn activity relating to FWA, but we're certain that FWA is impacting in particular, our Sunlink footprint out there. Does scale matter? It does because of two things. One, you mentioned programming, which is key, but secondly, relative to your marketing and distribution efforts, it's key. And we see that in the Sunlink footprint where it's difficult to harmonize and centralize marketing and distribution efforts when you're in a lot of disparate, smaller communities out there. And so, scale does matter from efficiencies in marketing and distribution, and to your point, in efficiencies of programming costs.

Thank you.

Our next question comes from Peter Cepino with Wolf Research. Please state your question.

Hi, thank you. I have a question about trends in Suddenlink and another about fiber. On Suddenlink, I'm curious if you could comment on changes competitively that might be resulting from churn or just the size of the gross ad pool. I heard your comment just a couple of minutes ago about the impact of fixed wireless and possibly on churn. And I've heard other operators say that churn is stable. So wondering how churn and gross ads are trending in Suddenlink. And then on fiber, I'm wondering how your cost per home passed is trending and whether it includes CapEx for the drop and the install. Thank you.

So I just, Peter, to reiterate kind of what I just said a couple minutes ago, I think we are seeing two different trends. I know that our peers, particularly our larger peers, talk about more of their national trends. You know, we see two very different different types of trends in two different types of topographies, where we don't see lower activity from a gross ad standpoint in our Sunlink footprint. It's marginally in the thousands maybe different. So it's negligible in terms of actual numerical numbers relative to last year on gross ads. But we do see an uptick in churn due to competitive competitive environment, whether it be FWA or fiber overbuilders. We can isolate to the markets where we see fiber overbuilders and tell you that we have incremental churn that probably leads to a majority of the impact that we're seeing in Sunlink on a quarterly basis. So that has not escaped us at all. And then the impact of FWA. We can't put our finger on it exactly where it may be hitting in which markets because most of our markets in Suddenlink are exposed to FWA. But we do see the same growth at activity, but we do see higher churn. So it must be some coming from the competitive pressures of FWA. We just can isolate it a lot closer because of the different topographies we have than our peers. I'm certain our peers are seeing the same trends we are, depending on whether they're in urban areas or rural areas. In our more urban areas, which is on the optimum side, our gross ad activity is lower, but our churn is very stable. And we also believe that the exposure to FWA in our more urban areas is a lot lower than it is in Sunlink in terms of what we think the technology can do and where it is and where we think it's marketed. So hopefully that gives you a little bit of insight. On the cost for Homes Pass, we are in the east. I think we've been public around that $500, $550 number in terms of the average cost. Sometimes it's more expensive. Sometimes it's a lot less expensive. It depends on MDUs or a lot less expensive aerial. And then if there's engineering work, obviously it's more expensive. But we're averaging in that $500 to $550. That does not include the drop and does not include the CPE cost. that really is the passing, but not the installation process. Thanks. Really helpful answers.

Our next question comes from Kanan Venkateshwar with Barclays. Please state your question.

Thank you. Dexter, maybe a couple big picture ones. When we think about, you know, fixed wireless, as a competitive threat at Suddenlink or more broadly across the country. Given the success the product's having, I mean, does it make you rethink the fiber investment? If, you know, in theory, an inferior product is able to take share from you despite your investment in fiber, is there any kind of a threshold in terms of, you know, price or in terms of the marginal utility of every extra gig of speed that you can offer to the consumer, which makes fiber maybe less valuable in certain parts of the country. And therefore, maybe you can adjust your CapEx plans accordingly. So that's one part of the question. And the second one is more about the strategic intent when Altice entered the U.S. I mean, at that point, we were all you know, thinking about Altice's intentions and potentially scaling up and becoming significantly bigger. Now we are talking about completely different opportunities and monetizing suddenly and potentially optimum and so on. You know, is this Altice more or less throwing in the towel on the U.S. market or are we thinking about this wrong?

On the first one, I think I'd answer it the exact opposite way than you asked it, which is the FWA product, which tends to be an up to 300 meg type product, is the exact reason why fiber is so powerful going forward. I think it's not escaped our friends in the FWA world that there's a short runway potentially for the product in terms of its lifecycle given its limitations in terms of delivery and so the upgrades that you're seeing in fiber across the country whether it's ourselves or other people or even the investments of some of our peers in DOCSIS 4.0 is going to crystallize the inferiority of the product FWA so it's a temporary perspective in our view that we're going to see market share losses across the board in FWA, but as you see in our average speeds taken, we're at the 600 megabits on average with a big chunk of our people doing one tear and above. And the average speeds are about 400 megs, right? So we're already surpassing the capabilities of what FWE can do. And so, you know, we're going to do the inverse as to what you suggested, which is not and stop doing our fiber, but to accelerate our fiber, because that is the strategic goal is to be able to deliver the best product with the best bandwidth and speeds and experience. which will then lead us to have a significant cost-to-serve advantage over our peers and deliver great free cash flow returns going forward. So that's the way we think about the FWA threat. In terms of strategy, you're right. We would have loved to have acquired a lot more things out there. There just has been nothing for sale. And the competitive dynamics have changed. in many respects relative to the thesis five or six years ago when we did come to the market. I don't think that looking at very creative transactions for our shareholders equates to throwing the towel. I think that's the right thing for us to be doing. And I have not suggested in one ounce of my commentary that we're thinking about selling the optimum footprint at Cablevision. I just said that we think it's a very strategic asset going forward, and we'll see it at that. But I think it's fair to say that if you look at the history of the investments of the group globally, we've never really exited countries. But you have to adapt to the topography that you're dealing with and the competitiveness that you're dealing with and the players. and try and maximize shareholder value any which way you can, depending on the different dynamics that change, you know, year over year or quarter over quarter. So I think we're addressing that as best we can today. All right. Thanks, Hector.

Thank you. Our next question comes from Frank Lussen with Raymond James. Please say your question.

Hey, guys. It's Rob on for Frank. So you might have spoken to this a bit earlier, but was the Suddenlink rebrand originally slated for early August, or was that accelerated? And if it was accelerated, can you talk about what drove that acceleration? Thank you.

Yes, it was always slated for early August. I don't know how many rebrands you've done, but this is probably one of my first ones. And the frustration that you have to do in terms of the planning is, unreal. So it's been methodically been put in place for the last nine months in terms of the pacing, the investments, and the markets hitting the different distribution and media criteria that we're doing and all the different things that you can think about in a rebrand from uniforms to trucks to labeling of equipment and those types of things. So this has always been slated. People have been asking us is why are you doing a rebrand if you are engaging in strategic discussions because the strategic discussions may amount to nothing and we know we're going to continue to run the business as usual until we don't have to. So we definitely need to continue to do what we had planned to do from a budgetary standpoint, from a strategic standpoint earlier in the year and what we announced at the end of last year. And we'll continue to do that until we have something else to talk about relative to the Sunlink asset. Yeah, it makes perfect sense. Thank you.

Our next question comes from Stephen Cahill with Wells Fargo. Please state your question.

Thanks. So just wondering if the reduction in growth ads and net ads that you and others are seeing causes you to revise the way you think about your penetration assumptions, either for the fiber rollout or the new build activity. I'm just trying to figure out if the growth slowdown is market wide and sort of regardless of technology that's going to market or if it really is very specific to technologies. And so fiber and things like fiber can continue to kind of have that same penetration pattern that you've historically seen. And then just as a quick follow-up, wondering what mobile CapEx is baked into the current guidance. Is that something you think will kind of be steady over time or up or down? Thanks.

So on the fiber side, I think we continue to believe that pound for pound, fiber versus any technology, whether it be HFC or other types of technology, is going to be the majority winner of market share going forward. We see that in the early stats. We see that in other markets across the world. And I think the only difference that people have paused for is maybe the return characteristics of some of the smaller fiber operators have probably changed dramatically in the last 12 months, whether it be competitive pressures driving lower ARPUs on the gross ad side, whether it be inflationary pressures on OpEx. whether it be supply chain issues in terms of execution, which is, I think, why we feel good about where we are in the fiber rollout, because in size, you're able to negate a lot of those issues, particularly with the cash flows being generated from the HFC product as well. So we continue to feel as good, and there's a lot of consultants out there that throw around different penetration levels out there, But I think it's fair to say that we feel good about the penetration numbers that we expect, as well as the return on investment that we're going to deliver. On mobile capex, there is no mobile capex.

Great. Thank you.

Our next question comes from Ben Swinburne with Morgan Stanley. Please go ahead.

Hey, good afternoon. Dexter, you made a couple of comments earlier about sort of accelerating the pace of fiber. I wanted to come back to that. Can you just talk about your expectations for, you know, both the second half of the year? Are you still expecting to hit that two and a half million number by the end of the year? And sort of the organization's ability to ramp that given all the, I know there's a lot of red tape involved and construction, et cetera. And same thing on the installation side. It sounded like you expect FiberNet Edge to accelerate in the second half from the second quarter level. I just wanted to come back and check that and see if you could just sort of flesh that out for us a little bit. And then I just had a quick follow-up on the mobile front.

Yeah, I mean, listen, I'll tell you, Ben, our budgetary process last year was targeting to do about a million homes passed in fiber, you know, 900,000 in the east and 100,000 in bibs and bobs across the west. You know, we're trying to re-forecast that to 1.2 to 1.3 type numbers. for this year. I don't know whether we get there. We'll clearly beat the 1 million homes. I suspect we'll get to the 1.2. I don't know whether we get to the 1.3. So we're on pace. We're accelerating because we know that the quicker we do it, the better we are for it, whether that be in terms of being able to get new customers on board or migrating customers and reducing our cost to serve. or just being able to get ahead of any potential inflationary pressures that we may see in the system if we delay. One thing that's helping us is that the state of New York and New Jersey have been very helpful on the permit side over the last kind of six months. So we've been releasing big, big swaths of areas, particularly in New York, where the governor's office and the DOT have been very helpful there. So that's really helping us accelerate. And so we're going to try to accelerate what we had planned, and you see it in the slides, for 2023. Hopefully we'll do more than what we anticipate in 2023 than was on the slides and try and do it quicker than anticipated. From an organizational standpoint, I think we're there, right? You know, we are... You know, July has been a great month again. Q3 is going to be, we expect it to be, knock on wood, materially better than Q2 in terms of our delivery of homes past. And so, you know, this is something that we monitor very, very, very, very closely on almost on a daily basis as to the progress. So we're there from an organizational standpoint. To be able to and again from an installation standpoint as well. We have We've put the resources in place to prioritize as much the gross outside as the migration side And we keep on getting better and better on the migration side there's a lot more IT related stuff and experience related issues to migrate someone than to gross out someone and The gross ad side has been great. The migration side has teething issues. But as you see in our numbers, we're accelerating the migrations, and we'll continue to accelerate those going to year end. I don't know where we're going to end up at year end, but I'd like to get to as close to 200,000 as possible in terms of fiber subscribers and then materially move that number in 2023. Got it.

And then just on wireless, you guys have gotten – more aggressive in the marketplace, that's translating nicely into volume growth. How are you thinking about using wireless to drive broadband versus generating meaningful EBITDA out of the wireless business? I don't know how much you can tell us about the unit economics or at least what kind of service ARPUs you're expecting in that business here as you look out over the next couple of quarters and years. What's your philosophy on using mobile in the marketplace?

Yeah, I mean, listen, I think you're seeing some of the mobile peers using fixed as a driver for mobile, right? And obviously the inverse is the case for the cable operators trying to use mobile to drive fixed. And that's no surprise to anyone. I think we want to keep the discipline on economics that we're not selling negative gross margin products and we're driving positive EBITDA. But clearly, we look at it in terms of customer gross margin as opposed to product gross margin, right? So if we can continue to drive growth in customer gross margin and customers period in volume, that's the way. And you can think about mobile as a Netflix subscription or a gift card or something like that in different promotional periods.

um but overall we're always looking for uh you know growing our gross margin per customer right yeah thank you our next question comes from brian craft with deutsche bank please go ahead hi good afternoon um i had two if you don't mind i guess first once you work through the re-ramp in your sales channels that we get into next year What's the right way to think about broadband ARPU growth in 2023 and beyond? Do you see it returning to the single-digit range, or do you think that's too aggressive given the competitive environment? And then I also wanted to ask about LightPath. You mentioned that LightPath's net sales bookings increased by 63%. Sounds like a lot. Can you help us contextualize that in terms of how much we could expect growth in LightPath to accelerate? Thank you.

I think on the ARPU side, going into a heavy end-of-the-year promotion last year and going into this year, I think people were worried that we were going to see negative impact on broadband ARPUs. As you've seen in our numbers, we continue to grow our broadband ARPU. It's not mid-single digits. It's low single digits, but we're confident that we're going to be able to continue to push broadband ARPA growth, but clearly in that more of that lower single-digit numbers is what we should be pushing for at this stage, given the mix, given the promotional aspects of business that we're seeing. Until we get to levels where our churn reduction becomes material, particularly with our fiber product, I think we will sit there and continue to fight on a day-to-day basis from a promotional standpoint, which will cap broadband ARPU in the near term, going higher than low single-digit growth at this stage. On the second point, did you ask a second question? I'm sorry. Like that. Like that, sorry. You know, the numbers are small because order entries take six to 12 months to actually execute and turn into revenue. But I think it's material insofar as, you know, we're right now kind of flat in revenue growth. But if we were to install these types of numbers over the next six to 12 months, you should kind of look to kind of mid-single-digit growth on the LifePath product.

Got it. Thank you very much.

Our next question comes from Doug Mitchell with Credit Suisse. Please go ahead.

Thanks for squeezing me in. So two questions. One, I just wanted to clarify, Dexter, the comment on 50%, over 50% penetrations where you have both fiber and coax seems like a big deal. I'm just trying to understand, you're building out fiber where you're competing with fiber. And have those penetrations grown since you've launched it? you know, fiber? Or is that, were you over 50% already and you think you can defend that number? So I'm just trying to get some more context around that over 50% penetration, whether that's an improvement since you launched fiber or not. And then, you know, simply, Dexter, I'm just wondering, private market values for cable must be quite enticing for you to start a process on asset sales, and cable valuations are at long-term lows. Do you have any perspective, you know, talking with a lot of potential buyers, I imagine, As to what explains the gap between public and private valuations for cable assets, it seems about as wide as I've ever seen it. Thanks for any help.

On the first one, you're right. Your second comment, you're right, which is that's where our percentages were. We're over 50% in the areas which were the first launch fiber. So we are very confident in being able to maintain those types of market shares. I think the thesis is clear. We are competing against fiber today in the Fios product, but we are competing against a fiber technology which is meaningfully today inferior to the XGS technology. It's our belief that's going to take our friends over at Verizon many, many years to catch up in terms of the investments in order to be able to duplicate the speeds and the experience that we're able to provide. So we believe that once we're able to get critical mass, to get the installation processes down pat, get the migrations perfected, we think we can actually gain market share back in the optimum footprint. So that remains to be seen. Today, obviously, we have an inferior mobile market share And Verizon is very good at using that dominant mobile position in the northeast to its advantage. But, you know, we think we deliver a great mobile product. I think our peers believe that as well. And we're very competitive from a price standpoint and more attractive than them. So we do believe that we will be able to, over time, take market share back in many areas with the delivery of fiber. Your second question, multiples. Ah, well, I'm the wrong person to ask. You guys should ask yourself. Listen, there's a lot to be said that private market multiples, when you're thinking longer term, when you can lever assets in a private context at meaningfully higher numbers than you could in a public context, drives higher valuations. I think it is clear in our minds that synergized for strategic, the private market multiples are high. And then on top of that, if you think about some of the financial cost of capital of some of these funds out there, their cost of capital is probably lower than the public markets. And they're more patient. And so I think that that is what's driving a continued interest from a private market side in higher numbers, which is obviously why we are being reactive, because we think that there could be some very creative transactions out there for shareholders if we're right in terms of the way we're thinking about this process. All right. Thank you.

Thank you. Our next question comes from Matthew Harrigan with Benchmark. Please go ahead.

Thank you. Dexter, you've been pretty adamant in talking about your commitment to the New York metro market and the value there. How much of that could stem from a perspective in the long term? Your fiber on the consumer side is really going to have a lot more apps and visibility into that in terms of just really getting the revenues up much higher. It certainly has been a lot of tactical sparring with you and Verizon, and it feels like you're in a good position right now. But what is it that makes you very committed to New York versus, say, the Sunlink markets? Thank you.

I think you hit it on the nose, Matt, and it's good to hear from you. We've got a strong competitor that we've got a lot of respect for, that is a two-player market and you know putting aside FWA and other potentially technologies out there when you've got two fiber players or even if we believe our fiber is a lot better in terms of our products let's call it you know 1.75 fiber players out there that competitive dynamic is is something I would sign up for for every single one of our markets in the long term right and The demographics are attractive. The population economics are attractive. The competitive environment is stable. And it's very strategic from a footprint standpoint for many third parties in the future. And so knowing that and knowing that you've got a fully fiberized asset, in the wealthiest part of the country, in the largest DMA, we believe that has a lot of strategic value. It's not that the economics are bad in other parts of the country, it's just that we are already super advanced in terms of our fiber rollout in the optimum footprint. And we know how to execute and the cost to execute. There are no surprises over the next couple of years. And then we're done. All right, so the free cash flow dynamics are impressive, on top of it being a very strategic asset.

Thanks, Dexter.

Thank you. There are no further questions at this time. I'll turn it back to management for any closing remarks.

Thank you for joining. Do let us know if you'd like to follow up with us on any questions. Otherwise, we'll speak to you in the coming weeks. Thank you. Thank you. This concludes today's call. I'll pardon my disconnect. Have a good evening.