Altice USA, Inc.

Greetings and welcome to the Altice USA fourth quarter and full year 2022 results. At this time, all participants are on a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nick Brown. Thank you. Please go ahead.

Hello, everyone. Thank you for joining. We're joined today by Altice USA's CEO, Dennis Matthew, and CFO, Mike Rohr, who together will take you through the presentation and then be available for questions. As today's presentation may contain forward-looking statements, please read the disclaimer on slide two. Dennis, please go ahead.

Thank you, Nick, and hello, everyone. I'm pleased to be here to discuss Altice USA's results for 2022 and share what we've been working on since I joined the company in October. as well as give a preview of what's ahead in 2023. But before we get started, I want to take a moment to address the management changes we announced alongside our earnings this afternoon. Core to driving our culture and delivering against our plans is ensuring that we have the right leadership structure and team who can sharpen focus on our customer centric strategy and drive growth. To that end, we announced the addition of several talented senior executives who bring decades of industry experience to the organization. But first, Mike Braugh, whom you all know and who is with us today, has made the decision to step down as CFO on March 1st. Mike has been with the company for over 20 years and at both Cablevision and Altice USA has been a steadfast and passionate leader. I'm incredibly thankful to him for his partnership over the last few months and appreciate that he'll be staying on as an advisor until early July to help our new CFO, Mark Sirota, in his transition to the role. On behalf of the entire team at Altice USA, we thank him for his immense contributions and his leadership. On that note, I'm pleased to welcome Mark as CFO Effective March 1st. He most recently served as CFO of Comcast Business in the company's central division, which spans more than 22 million passings, and he brings a tremendous amount of industry and financial experience to this role. You know, I've known Mark for many years, and I'm confident that he will help drive discipline in the organization as we execute against our growth strategy and deliver value to our shareholders. I'd also like to recognize and thank Matt Grover, who announced he's retiring from his role as Chief Revenue Officer, and we appreciate that he will also be serving as an advisor through June. In light of this, I'm pleased to welcome our new Chief Revenue Officer, David Williams, Chief Growth Officer, Leroy Williams, and Chief Customer Experience Officer, Shu Roy, to complement our very talented executive leadership team. With a sharp operational and financial focus, deep technical and industry experience, and proven leadership capabilities, the team is collectively focused on partnering to accelerate our growth strategy. Now let's get into our 2022 full-year results summary on slide three. To start, I want to thank all of our employees and share how incredibly proud I am of their accomplishments. From the acceleration of our fiber and new build construction, which now makes us one of the top fiber builders in the country, to ramping up our sales distribution channels and improving our customer service metrics, all while continuing to find our footing in the wake of the pandemic. You know, the early days of the pandemic certainly taught us the immense value of our optimum connectivity services. In 2022, we saw our business begin to normalize, but also be impacted by new conditions, competitors, and behaviors that we are confident we are going to address as part of our 2023 strategy, and which will again prove the strength and resiliency of our services. Of course, the secret sauce to what makes a connectivity company great has a few different ingredients. From our talented people to the quality and value of our products and network to the service and support that we delivered. In the past year, we've invested in all of these areas and we continue to do so in 2023. We are seeing signs of recovery, but the need to remain focused and disciplined in our strategy and capital allocation is critical. So let's run through a brief snapshot of our full year 2022 performance. Full-year revenue declined 4.4% year-over-year, mainly driven by pressure in our residential and advertising businesses, as well as the loss of Airstrand revenue in the prior year after the termination of our legacy Sprint contract. Excluding Airstrand revenue, the revenue decline would have been 3.2% year-over-year. Adjusted EBITDA declined 12.7% year-over-year, with a margin of 40.1%. or down 10.3% excluding air strand revenue, reflecting both the revenue decline and the higher OPEX to drive future growth. Free cash flow remains solid even with our elevated fiber investment, as we generated 453 million of free cash flow in 2022. This would have been over $500 million without the impact from a legal settlement payment to T-Mobile of approximately $65 million in Q4 from a legacy Sprint VoIP patent dispute. Residential broadband customer net losses totaled $103,000 for 2022 with a significant improvement in the quarterly trend in Q4 with broadband net losses of just $8,000. Like others in the industry, we continue to be impacted by relatively low market activity and increased competitive pressures, but we are very pleased to be able to say that we're starting to see the benefits from our investment initiatives, which I'll expand on later in this presentation. We ended the year with nearly 2.2 million optimum fiber homes passed, adding just under 1 million new passings in the year. We also accelerated fiber broadband customer net additions, adding more than 100,000 net new fiber subscribers in the last year. Additionally, we continue to advance the pace of our new builds, adding 200,000 organically in the last 12 months. And we have meaningfully expanded our sales distribution channels. almost doubling headcount in our door-to-door sales team and increasing the number of optimum branded stores across the country by about 50% to strengthen our reach. To close out the summary, I wanted to highlight that in December, we successfully extended approximately 50% of our term loans due in 2025 and 2026 out to 2028 as we continue to proactively manage our debt maturity schedule. Now let's turn to slide four to review our strategy and the company's renewed mission. It has been clear to me since my first day as CEO that we needed to redefine a clear mission and strategy for the company, one that will drive all our actions, and that mission is to make Optimum the connectivity provider of choice across all of our communities. We are starting with a strong foundation given our various increased investments over the last 12 to 18 months. notably around our fiber network expansion, accelerated new build activity in our western footprint, the optimum rebrand, and incremental investments in both customer care and in growing our distribution channel. With this renewed mission, my priority has been to cement a strategy that will set us on a path to return to sustainable customer revenue and cash flow growth. This strategy is centered around growing our broadband and mobile businesses by delivering best-in-class customer and employee experiences. We are rallying around four tenets. The first is customer experience. In a world of 24 by 7 connectivity, we know how much our customers rely on us, and it is the quality of the experience paired with the value of that experience that matters most. So we're going back to basics with a heightened focus on elevating quality and end-to-end customer experience. We are putting programs in place to simplify how our customers interact with us and experience our services to make us a company that is easier to do business with. And we will measure this by advancing a culture that focuses on driving improved net promoter scores across all channels. I want to emphasize that this does not necessarily require a higher level of investment. In many cases, this work centers around modifying antiquated processes and redirecting resources and energy into areas such as digital transformation, self-installation, and improved customer tools. This will pull transactions and costs out of the system, having a direct correlation on field, care, and overall customer experience improvements We are particularly committed to these initiatives as they will lead to both cost and growth optimization. Second, we are accelerating our grow to market strategy with a broadband first focus to grow broadband customer relationships. We are digging right now into evolving our bundle and speed tier strategies to instill more rigor around pricing, packaging, offers, and marketing to drive profitability, long-term customer value, and customer growth. Mobile will take on a more meaningful role, and we are looking at our overall product roadmap as we formulate a new bundled offer to take advantage of our capabilities in this regard. Additionally, we're employing a more hyper-local engagement strategy to give us greater visibility into the uniqueness of our distinct market and drive more relevant local level marketing. While we now benefit from one national optimum brand, we believe this new simplified and hyper-local approach to how we go to market will help to improve our competitive position and ensure that we are optimizing our sales channels more strategically to drive win-backs and accelerate penetration in new build areas most effectively. Next, our network. As you know, we've been investing in building and maintaining the fastest and most reliable broadband networks, and I'm very proud of the progress to date. In fact, last month, Ookla released its 2022 Q4 speed test results, which ranked optimum ahead of two of our largest competitors for broadband download speeds, demonstrating the results of our investments in strengthening network quality. In 2023, we'll continue to advance our fiber expansion strategically, And to support my comment earlier on quality, we'll continue to invest in plant and network upgrades across our whole footprint to ensure every market we serve has reliable and quality broadband. We are taking a balanced approach here as we strategically deploy fiber and work with our growth, product, sales, and marketing teams to drive value from our fiber network so we can realize the benefits of our investments. I'll talk more about our fiber approach shortly. And finally, a moment on our people. Since joining the company, I've had the pleasure of traveling across the footprint and meeting with our teammates. And what I've observed is that our employees are passionate, driven, and want nothing more than to deliver on our mission of becoming the connectivity provider of choice in all of our communities. And I'm proud to have the opportunity to lead this team. And I'm working with my leaders, including the new leaders we announced today to ensure our employees are engaged and are supported to be the best and feel proud of the progress that we are making. In conclusion, I took this position because I believe in this company and have confidence that we can drive improved performance. While what I just laid out will not happen overnight, I believe that with a clear growth strategy and customer-centric mindset, our team is collectively focused on disciplined execution and operational excellence to maximize our investments and see a return to sustainable growth. With that, let's move on to look at our results in more detail, starting on slide five. Total reported revenue for the full year declined 4.4% year over year on a headline basis or down 3.2% excluding air strand revenue in the prior year. Total revenue declined 6% year over year for Q4 or down 4.4% excluding air strand revenue. Residential revenue was down 4% for the full year driven by the lower subscriber base with a decline of 5% in Q4. Business services revenue declined 7.1% year over year, but was up 0.6% excluding air strand revenue. For Q4, business services revenue declined 9.3% and was down 0.4% excluding air strand revenue. News and advertising revenue was down 5.5% year over year in the full year and down 10.8% in Q4, as the pickup in political revenue wasn't sufficient to offset the impact from the market slowdown in ad spending into the end of the year, with quite a few campaign cancellations given the macro environment. Excluding political, advertising revenue declined 10.5% year-over-year in the full year and was down 25% in Q4. Turning to slide six on recent quarterly customer trends in our residential business. In Q4, we reported a net loss of 16,000 residential customer relationships and a broadband net loss of 8,000 supported by a return to growth in broadband customers in our West footprint. This is a significant improvement compared to the past couple of quarters where we lost over 40,000 broadband customers in each of Q2 and Q3. While we tend to see an underlying improvement in Q4 sequentially, the additional improvement is driven by a number of factors. First, we've been seeing an increase in gross ads driven by the investment in growing our sales channels, including door-to-door and retail stores, as I mentioned at the onset. Second, the rebrand has been a success. We've seen increased awareness and consideration of Optimum, as well as improved brand perceptions across our customer surveys, with Optimum being perceived more positively than Suddenlink on key perceptual measures including speed, service, reliability, quality, and price. And third, our customer experience and care investments are beginning to make an impact. For example, TNPS scores across all frontline teams in care technical support, retail stores, and sales all improved five to 20 points compared to 2021 as our teams got better at addressing customer needs at the first attempt. On the care side, the number of customers contacting us for technical troubleshooting decreased 14% year over year as customers experienced fewer technical issues related to our devices and network. And as we continue to drive improvements in ivr proactive customer notifications troubleshooting tools and self-service capabilities customer repeat calls for care and technical support have declined by almost 10 percent year over year and fourth we continue to gain 40 plus penetration in the first year we roll out to new build areas lastly our trends across the new york tri-state area have also improved as we gain traction with our fiber investment, which is now more meaningfully helping our broadband net ads. It's also worth noting that we launched a partnership with the New York City Housing Authority to provide services to several housing units in the city, which brought in around 9,000 customers in the fourth quarter. While we're cautious about extrapolating from one quarter's performance, we're optimistic about what we're seeing at the moment. Slide seven is an overview on our fiber and new build growth. We added just under 1 million new FTTH passings for the full year, including 251,000 in Q4, bringing our total fiber passings to 2.16 million at the end of the year. The majority of these fiber upgrades have been focused in the New York tri-state area, although we did complete our first few thousand fiber passing in the West footprint in Q4. As I said last quarter, I'm a big believer in fiber and the best broadband technology for the future. I've extensively reviewed our multi-year Fiverr strategy with the team over the last few months and will continue to take a balanced and measured approach as we strategically deploy Fiverr and evolve the corresponding go-to-market strategy to drive value from this network so we can realize the benefits of our investments. And so to that end, in 2023, we will press ahead with the fiber build across the tri-state area as we've made great progress here, and it's a relatively low cost for us to upgrade. Across the western footprint, though, we're going to look to be more opportunistic about where we upgrade for fiber in the near term, focusing on areas that give us the best return on investment. As we've shown in Q4 broadband results, we have many different levers to improve performance across this part of our footprint without needing to immediately upgrade everywhere for FTTH. This includes all things I described earlier, including a more hyperlocal approach, taking advantage of our new brand and expanded sales distribution channels, completing our DOCSIS 3.1 upgrade across the rest of the footprint, to enhance quality everywhere, and continuing to edge out our network to drive new customer growth. We are updating our overall FTTH passings target for full year 2023 to add at least another 900,000 fiber passing so that we end the year with more than 3 million. This is more than half of the tri-state network and nearly one-third of our entire Altice USA network. Thereafter, we'll review the pace of our fiber build annually as we want to make sure we're allocating capital in the most efficient way while continuing to drive a healthy level of free cash flow. On the customer front, we accelerated our FiberNet additions again in the fourth quarter to add 36,000 fiber subscribers through a combination of gross ads and migrations of existing customers. Our fiber broadband customers continue to exhibit favorable churn trends And we expect that this will become a more meaningful driver as we continue to market and deliver high quality multi-gig data speeds. On the right side of this slide, you'll see we beat our full year target for new build passings, adding 200,000 as we've edged out our footprint. For 2023, new builds remain a significant driver of growth, and we plan to deliver at least another 150,000 passings as we balance the pace of rollout against the volume of fiber passings we want to achieve. With that, I'll now hand it over to Mike to go over our business services segment and walk you through our financials in more detail.

Thank you, Dennis, and good afternoon, everybody. First, let me say it's been a pleasure serving as CFO for the last three and a half years. leading the finance team at Altice USA. I'm very grateful for the partnership and friendship of the countless colleagues I've worked with for over more than 20 years here. It has also been great getting to know all of you. While this was a difficult personal decision to make, I have no doubt that you will be in great hands with Mark and the team. Getting back to our results and picking it up on slide eight. Business services revenue declined 7.1% year-over-year for the full year, although grew 0.6%, excluding ASTRAN revenue. Within this, SMB and other revenue was down 9.3% year-over-year, or grew 1%, excluding ASTRAN revenue, and LightPath revenue growth was essentially flat. Note that LightPath growth in Q4 was impacted by the loss of one-time contract termination revenues from the prior year, but we still expect an acceleration of growth here, given our recent network and Salesforce expansions across New York, Boston, and Miami. We have seen some increased competition in the SMB market in the last few quarters, which is impacting both customer and offer growth. However, we expect all of the initiatives and investments that Dennis mentioned in relation to the residential business will also positively impact our SMB trends. This includes our fiber upgrade, the rebrand, expanded sales distribution, customer care improvements, and new bundle propositions. We're also focused on developing additional products and services specifically designed for the SMB market. Slide 9 is an overview of our CapEx. Our cash CapEx was up approximately 55% year-over-year, mainly driven by increased investments in fiber upgrades and in new builds. Total capex for 2022 of $1.9 billion was about $100 million above our prior full-year target, as we brought forward some capital investments at the end of last year to accelerate pre-construction on fiber and delivery of new-build passings. Without fiber and new builds, capital intensity would have been about 10% of revenue. Recall, we previously indicated annual CapEx could go up towards $2 billion in 2023 and 2024 if we materially accelerated fiber passings across our western footprint. However, we now expect CapEx could be up to $300 million lower than this level, as the fiber builds we're targeting for this year will include more MDUs in the east and more RFOD conversions in the west at a lower cost per passing. So we are guiding a range of between $1.7 billion and $1.8 billion of cash capex for 2023. Slide 10 shows a bridge of free cash flow for the full year. Free cash flow was $453 million, although, as Dennis mentioned, this would have been over $500 million without the impact from a legal settlement payment to T-Mobile of approximately $65 million in the fourth quarter. The total amount of the settlement was $112.5 million, and we will pay the balance in the first half of 2024. This case dates back to 2018 when Sprint filed a complaint alleging that we infringed their patents by providing VOIP services following similar litigation initiated by Sprint against numerous other broadband and telecoms providers where they've also received settlements. While the total amount of the settlement is less than half of what we previously disclosed might be at risk, we are looking to pursue indemnities from our equipment suppliers to recoup some of this amount. Free cash flow for the fourth quarter was negative $82 million due principally to higher capex spending in the quarter. It's worth noting that excluding our fiber to the home investment and the legal settlement, free cash flow would have been closer to $1.2 billion for the year. Our cash interest payments were $1.25 billion for the full year and $334 million in Q4, which reflects recent rate increases although recall 76% of our debt is fixed. Our cash taxes were $254 million for the full year, which was broadly in line with the prior year, including $50 million in the fourth quarter. Finally, slide 11 is an update on our debt maturity profile following recent refinancing activities. In December, We successfully extended the maturity of approximately 50% of our term loan B1s and B3s from 2025-26 to 2028 with an incremental term loan B6. The extended term loan has an interest rate of SOFR plus 4.5%, which is 225 basis points higher than the unextended loans. This transaction was leveraged neutral and extended our weighted average life of debt to 5.7 years as of the end of 2022, with a weighted average cost of debt of 5.7%. We continue to have a strong liquidity position at approximately $1.2 billion and expect free cash flow generation and undrawn revolver capacity to be able to address the unextended loan tranches at maturity. That said, we will continue to monitor the market over the next 12 to 18 months and potentially look to issue a new bond to free up additional revolver capacity and refinance the $750 million to 2024 maturity, as market conditions have been improving in the last few months. Separately, I wanted to mention that last month we unwound the Comcast collar position Altice inherited with the Cablevision acquisition. This will result in a gross debt reduction of about $1.7 billion as we deliver the Comcast stock we held underlying the collar as settlement for the collateralized debt obligations we had on our balance sheet. Although, do remember, we have not historically included this in our reported net debt calculations, given the offsetting value of the equity. We also monetized the related derivative positions, resulting in a net cash payment to us of over $50 million that you'll see reflected in our Q1 financials. And we'll get additional annual cash interest savings from this transaction of over $30 million. We're very happy with this result, especially having previously benefited from being able to monetize the increase in the value of the stock efficiently over many years. And with that, we will now take any questions.

Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Again, that's star one to register a question at this time. Our first question today is coming from Philip Cusick of J.P. Morgan. Please go ahead.

Hi, thank you. You know, Dennis, maybe you can just talk about the fiber plans and the network upgrade plan. It seems like you've gone from a sort of very aggressive fiber plan that Altice had before to a more traditional Comcast-like network upgrade path. Can you talk about your philosophy on what cable needs to have to compete with fiber and with fixed wireless over time and how we should think about both the fiber plan over the next five years and the CAPEX plan that had been outlined a year ago. Thanks very much.

Hey, nice to hear from you, Philip. As I look at Optimum East and Optimum West, I think we have very different competitive profiles. As you know, in Optimum East, we have Verizon, who is 70% overbuilt in our footprint. We have Frontier, who's also building fiber. very mature, full product set. And so I'm very bullish, as I've mentioned, that I do think fiber is the best technology. We're seeing benefits of fiber from a churn perspective, from an ARPU perspective. And so we're going to continue to drive fiber in the East. And we're committed to driving 900,000 homes next year, 850,000 in the East. And so I feel really good about that strategy. We know that fiber from a Operating perspective delivers an incredible experience from a speed as well as from a network management and maintenance perspective. And so I'm bullish there. But as I look at the Optimum West, it's a different profile. You know, Optimum West is 25% overbuilt. 50% of that is AT&T. And the other 50% is fiber overbuilders. in different pockets of the footprint. And so I think we have to take a different approach. And we've seen already in Q4 that we're able to leverage our portfolio of capabilities and be able to be competitive. And we've seen that the investments that we've made in our sales channels are starting to pay off. You know, we doubled our door-to-door sales channel, and we see the benefits of that. And I do think we have to operate a bit more hyper-local, where we are pricing and packaging and, you know, really competing at the local level so that we can drive sustainable growth. The reality is that, you know, the cost profile is very different in the East versus West. You know, East is dense, West is less dense, and so the cost profile is different. And so we think that we can continue to invest in DOCSIS in the West, depending on the footprint. We're going to invest in 3.1, for example. We have 200,000-plus homes that we're going to invest in, and we believe that those investments will allow us to be competitive and to drive growth. And so we're going to take a balanced approach in terms of our CapEx spend over the next – know few years and we're going to really make investments in the west in fiber where we think there's appropriate return thank you yep thank you the next question is coming from brett feldman of goldman sachs please go ahead yeah thanks for taking the question um you mentioned i believe in your remarks that you're going to be looking to do more

with your mobile offering. And I was hoping maybe you could just talk high level about the level of importance you see in being able to offer a converged service. In other words, do you anticipate that that's going to be sort of the default product suite that your customers are going to want? Or do you think it's niche? And then whatever the answer to the question is, do you believe you have everything you need to be successful in the converged market, including the right MVNO partnership?

Thanks. Thanks, Brett. I appreciate the question. I do believe that to be the connectivity provider of choice in the communities that we serve, that we have to have a very compelling broadband and mobile offering. And so we're actively working right now to looking at our pricing, packaging, and offers with the goal of launching a evolution of our broadband and mobile offering later this year, which I'm very excited about. I think that we have a lot to offer there. I really do think we have a great partner in Timo from an MVNO partnership perspective. We've made the investments in retail. We've grown our retail presence to 137 stores, and that retail facility is really these facilities are the best place to showcase mobile and to be able to drive mobile sales, particularly into our base. as we have our existing customers visiting us and we have a chance to showcase our products. We are going to be focused on evolving our go-to-market strategy by building a value proposition that is centered around broadband and mobile. I'm very excited about our MVNO relationship with Timo, and I believe that our investments in retail will allow us to showcase mobile and be able to drive mobile effectively as we move forward. Thank you.

Yep.

Thank you. The next question is coming from Ben Swinborn of Morgan Stanley. Please go ahead.

Thanks. Good afternoon. Two questions. Dennis, given the improvement in customer metrics we're seeing here in the fourth quarter, what's your expectation of getting back to overall customer growth in 2023? Is that realistic at some point during the year? And maybe talk a little bit about your pricing philosophy, given the competitive environment. And then I was wondering if we could get any help from you guys on your expectation for cash interest in 23, given the change in interest rates. That would be helpful as well. Thank you both.

Thank you so much. I'll let Mike address the last question. But in terms of customer growth, we're not going to commit to when we're going to get to positive, but I'm very optimistic. I'm very optimistic given the trends that we've seen. We're going to continue to lean into the investments that we've made in our sales channels, and we're seeing the fruits of that. We're also going to continue. We've seen great receptivity in the West to our optimum branding. And so we're getting great customer reception to the new brand. We're also doing a better job in terms of churn. You know, we have started to see improvements in the customer experience investments that we made. As I mentioned earlier, 5 to 20 points of improvement on NPS. Our contact rate is down 14% year over year. Service visits rate has improved 10%. And so this is all culminating into better customer experience, which we think will improve churn. And as we evolve our pricing and packaging and go to broadband and mobile strategy, and I am revisiting all of our pricing. So as I look at the pricing approach, I think that there were pockets where You know, we were doing gift with purchase, and we had some very aggressive offers. And then there were other areas where we had intense competition where we may need to have revised offers and bundles with mobile and with broadband. And so I don't think it's a one-size-fits-all. I think we have to, as I mentioned, really look at our different areas and the competitive landscape and evolve pricing accordingly. I do know that our rack rates are a bit confusing. Only 10% of our broadband customers actually pay our rack rates. And so I'm looking to and presenting it this way makes it confusing. And so I am looking at is there an evolution of that as we move forward as well.

On cash interest expense then, you're right. We are somewhat subject to the rising rate environment. I would remind you that after swap contracts different hedges, we are about 76% fixed on our debt towers, but still a decent amount of exposure to the rate environment. I think I would guide you to something in the neighborhood of about $1.5 billion of cash interest expense in 2023. Okay.

That makes sense. Thank you, guys. Yeah.

Thank you. The next question is coming from Doug Mitchelson of Credit Suisse. Please go ahead.

Oh, thanks so much. I think the follow-on to Ben's question is, You know, with the commentary around, you know, pricing and customer growth is, you know, one of your strategies is return to sustainable cash flow growth. So when do the lines cross for returning to EBITDA growth? Is it relatively obvious that it's, you know, late in 23 or 24 or beyond? You know, what I've heard in this call is, you know, still cycling through some investments, but there's some efficiencies coming and, you know, you know, rethinking pricing, which, you know, could be, you know, a little bit lower in some cases, I imagine, to be more competitive. So what does that all add up to on the bottom line? And separately, you know, Dennis, for the New York footprint, are you able to give us a sense of how much of the Northeast footprint, excuse me, the East, you expect to, you know, build out? So I get that you're over 50% now, and I get the 2023 guide. Is there kind of an end state for the East that you're willing to share for a percentage cover with fiber? Thank you.

I'll let Mike jump in on the first, and then I'll address the fiber piece.

Hi, Doug. So in terms of return to EBITDA growth, you know, with apologies, we've consciously avoided giving concrete financial guidance outside of the CapEx envelope. So I'm not going to give you a lot of clarity on that one. I do think your overall take on the call is right. You know, we are cycling through some additional investments, but I do think we have mitigating factors. So I think, you know, what you'll see from us in 23 from an OpEx perspective, we will continue to invest in the customer experience I think the sales distribution channel investments are in the latter innings, but around digital transformation, what have you, I think we will check the growth in OpEx and probably bring it down a little bit overall. But we're going to steer clear of giving any firm guidance on when a return to EBITDA growth will take place. Certainly, you recognize that given the customer losses we had in 22, there will be pressure on revenue and EBITDA in 23 on a year-over-year basis.

Doug, I will say that from an OpEx and EBITDA perspective, we have We are looking at the business, and digital transformation is one that we're excited about and leaning into. So we're going to be leaning into a couple different areas. One is self-install. Today we do about 40% in terms of HFC broadband only self-install. We see a path to growing that by 50-plus percent. That, one, gives customers choice in terms of, options for install, but then also gives us a lower cost profile from a truck roll perspective. We're also gonna be launching later this year a new cable box, stream box, which will also facilitate video self-install, which we don't offer today. Additionally, we're gonna be launching a new mobile app. That mobile app will allow customers to more effectively manage their accounts. do basic troubleshooting, chat with us. Again, all with the goal of driving down transactions in the system so that we can more efficiently run the business, but also deliver a great customer experience because that's what customers want to do. They want to be able to interact with us on the app. They want the choice to be able to do things like self-install. And so we're going to continue to drive and lean into that. From a fiber perspective in the east, as I mentioned, I think that fiber is the right technology in the east. We're going to deliver another 850,000 homes in the east this year. And we're going to continue to look at our CapEx intensity and drive our build out in the east as we go forward.

All right. Thank you.

Yes.

Thank you. The next question is coming from Michael Rollins of Citi. Please go ahead.

Thanks, and good afternoon. In the past, Altice has described some efforts to optimize the asset portfolio, and Dennis, just curious for your thoughts on whether you believe all of the markets that you have belong together under this current Altice USA umbrella, and if there are opportunities to streamline or optimize your markets or some of the assets that you continue to own.

Michael, I'm very excited about the West. I had a chance to visit Texas and spend some time with our friends in Plano, and I'm continuing to learn about our West markets. And I continue to learn that we have tremendous opportunity. In our new build markets, we're seeing 40% penetration in year one, and we have more new build to do. I'm seeing some great opportunity in terms of As we've now launched our door-to-door, as we've scaled our door-to-door, we're seeing the returns there and We're also seeing some really exciting opportunities with our retail channel as we look to drive mobile in the West. And so right now, my focus is how do we continue to drive growth? We've just gotten to two months of modest data growth in the West. And so we want to continue to lean into that. And that's my focus right now. We believe that the customer experience investments that we're making will allow us to compete more effectively where we are being overbuilt there. As I mentioned, we have 25% overbuilt in the West. And I believe that the investments that we're making in DOCSIS 3.1, 200,000 plus homes will allow us to compete more effectively. The investments that we're making in digital, the investments that we're making in quality are all going to allow us to continue to drive growth in the West in the long term as well.

Thanks.

Yep.

Thank you. The next question is coming from John Hodulik of UBS. Please go ahead.

Sure. Two follow-ups. First of all, do you think that the changes to pricing will put further pressure on residential aqua? Obviously, that's been down a bit for the last several quarters. But do you think you can do that in a revenue-neutral way? And then number two, the New York City housing contract, is that – any more color you can provide us on that? Is the 9,000 stuff sort of a one-time thing, or is there more growth there? And did that come at a lower ARPU than you traditionally see in the old cable vision markets? Thanks.

Thank you, John. Appreciate the question. On pricing, We are, as I mentioned, looking at pricing and I want us to be very focused on customer lifetime value. And so as I look at some of our offerings in last year, I do believe that we need to be a bit more disciplined in terms of our gift with purchase, in terms of our save offers, in terms of our repackaging and upsell offers. And so I believe that there's opportunity there. I think that the broadband and mobile value proposition will help us to drive growth ads from a subscriber perspective and that we have opportunity to sell into the base in ways that we have not done effectively yet. As we look at CLV and we look at opportunities there, we want to drive mobile. We want to drive speed upgrades. We want to bring people over to fiber in the east. And we believe that we can do that profitably, and we can bring people into packages that bring the best of our products, but then also deliver great value. NYCHA contributed 9,000 customers in Q4. There is more opportunity this year, and we're excited about that. You know, nothing to announce today, but we're excited about that partnership, and we're going to continue to see growth from that in the first half of this year. Maybe I'll let Mike talk a little bit about the ARPU question that you had on NYCHA.

Yeah, sure. So, John, you're right. The ARPU did start to tail off in the back half of 22. I'm talking now about broadband ARPU, certainly customer ARPU. has declined year over year, and that's a function of lower video penetration of the customer base, lower video attach rates, and that's been a somewhat consistent trend for a couple years. On the broadband ARPU, I think the pacing of the broadband ARPU growth in 22 is largely a function of the manner in which we applied promo roles over the course of 22. There was a lot more activity in that regard in the first half of the year, and much less so in the second half of the year, and so you saw some sequential ARPU growth in the first and second quarter, and then it started to tail off in the back half of the year, Very similar to what you saw in 2021, and I think it's probably reasonable to expect a pretty similar trend in 23 as well as far as the quarterly pacing of ARPU growth. I think net-net ARPU growth we told you would be somewhat flattish in 22 at the beginning of the year, and we delivered on that. That probably came in maybe 1% full-year growth, and I think 23 should look pretty similar in that regard. Perfect. Thanks, guys. Yep.

Thank you. The next question is coming from Craig Moffitt of Moffitt Nathanson SVB. Please go ahead.

Yes, hi. Your peers have made very big commitments to wireless as kind of the centerpiece of their strategy. Your strategy is obviously at this point much more focused on fiber and the physical plant, but I wonder if you could just talk about whether you think that the wireless agreement that you have today is sufficient to get you to where you want to be with bundled service offerings and with your wireless strategy going forward.

Thanks, Greg. I am excited about wireless being a key product in our portfolio. I'm excited about As I mentioned, being the connectivity provider of choice in the communities that we serve, so connectivity in the home and outside the home. And I believe that with our MVNO relationship, we can deliver incredible value with our broadband and mobile services combined. This is largely an untapped opportunity for us, and so this is going to be a focus as we move forward. We are actively working on new pricing packaging that brings broadband and mobile together with even more value, and I think that's going to be critical to helping us win in this space. We've made the investments in retail. As I mentioned, we are at 137 retail stores, and we're going to continue to grow that a bit this year, and that'll give us an opportunity to showcase mobile effectively. This is fairly untapped, and I think we do have the right MVNO relationship and partner. I think we have the right product set. We just have to bring it all together. And I'm focused on with our new leadership team, how we can continue to lean into training, how we can lean into our commissions and incentives for our teammates. So I think there's some work that we need to do internally. And then externally, we have to tell the story with our pricing, with our packaging, with our marketing. And then also from a customer-based management perspective, we have a huge opportunity there to reach into our base, make them aware, and be able to have a more disciplined approach of presenting mobile to our existing customers.

Thank you.

Yeah.

Thank you. The next question is coming from Jonathan Chaplin of New Street. Please go ahead.

Thanks. Dennis, I'm wondering if you can give us a little bit more color on the pressure you're seeing in the business services market. I was particularly surprised by it looks like there's a little bit of mounting pressure on the light path revenues. I think you referenced some increased competition, and I'd love to get some more context on that. And then Mike, just a clarification for you. Did you say that operating costs would come down in 2023 or that the growth in operating costs would come down in 2023?

Thanks, Jonathan. On the B2B side, we are seeing pressure as we see increased fiber overbuilders in the West, as we see Verizon be very competitive in this space. As you know, from a B2B, SMB perspective, we're highly penetrated in the East, and so we're very focused on churn management and making sure that we're doing all the right things, blocking and tackling, to be able to mitigate churn in terms of quality of our network, quality of our products, service, and value proposition. And as I look at the West, we have opportunities to expand our product portfolio and to continue to compete, especially in those areas where we have fiber overbuilders to bring the full product portfolio to bear. We do have some gaps in our product set in the West that need to be addressed. And I believe when we address those gaps, particularly from a voice perspective in some pockets, We have an opportunity to bring mobile to bear on the B2B side. I think this will allow us to compete more effectively. And then there's a future opportunity that we're looking at in terms of expanding the product portfolio even further from what we offer today. Today we offer connectivity, but there's more solutions that we can bring to bear that would allow us to be more competitive, drive ARPU, And so that's, those are all things that we're actively focused on delivering and bringing to market. So, Jonathan, just to add to what... Sorry, go ahead, Mike.

No, I was just going to add to what Dennis was saying to address your specific question on LightPath. I mean, I think our comments noted in part the revenue growth of lack thereof in the fourth quarter was due to a one-time early termination liability that took place in the fourth quarter of 21, which was fairly material. In general, I would say that the LifePath management team has had certain challenges around residual churn that they've had to confront for the last first couple of years. I mean, certainly a lot of that had to do with the TMO Sprint merger as they pruned certain redundancies in their network and then different other customers were seeing some residual churn challenges. I will say net installs in LifePath has started to go positive as of the last half of 22. The bookings, the actual new sales bookings in LifePath were pretty strong. In 22, they're actually quite strong. We had record quarters in both the first and second quarter, and we had a very strong fourth quarter as well. We've just started. We're in the early innings of expanding into Miami and Boston. So point being, I think there are a return to revenue growth of Lightpath into the kind of low to mid single digits that we were accustomed to seeing maybe, say, 10 years ago. I think that's very imminent and pretty encouraged by what we're seeing there. On operating costs, to clarify what I said earlier, what I said or what I should have said, what I meant to say, we are going to temper the growth we've been seeing in OpEx, and I would expect it to flatten or even go down, come down a little bit from the fourth quarter run rate.

Got it. And that light path turn that you're saying is imminent, Mike, is that a 2023 return to growth at light path?

I was speaking less specifically than that. We are trying to steer away from providing concrete guidance of that nature. I'm simply saying that we're very encouraged by some of the underlying matrices we're seeing at Lightpath, which tend to be a foreshadow of future revenue growth.

Thank you. The next question is coming from Greg Williams of Cowan & Company. Please go ahead.

Great. Thanks for my questions. Just wanted to revisit the fiber to the home discipline that you're messaging. Is there a fear that fiber overbuilders can encroach on your territories in the West? You mentioned 25%. Could that escalate now that you're taking a more disciplined approach. Second question is just on media reports saying that you're exploring fiber-to-the-home JVs. We saw a JV with AT&T. Is that something you are exploring? Because the messaging I'm hearing today suggests maybe the opposite, as you're investing less in fiber-to-the-home and not more. Thanks.

Greg, thank you for the question. On the second item, I don't want to address any speculation here. I'm really focused on the core business and driving long-term sustainable growth. And so to your question on the west, we do anticipate additional fiber overbuild to happen. And so that's where I'm saying we're going to have to be very thoughtful and surgical as to where we need fiber to be most competitive. I'm not saying that we need fiber in every one of those areas. We do have some untapped opportunity as we bring broadband together with mobile and deliver a very compelling value proposition. And as we make these upgrades to 3.1, we can deliver gig speeds, high quality network, high quality speeds combined with a very uh you know strong value proposition with broadband and mobile and that we can be competitive by acting a bit more hyper locally as we look at the competitive landscape and bring to bear some pricing packaging and offers that would allow us to compete most effectively especially with the fiber overbuilders given that we have a broader you know portfolio of products to bring to bear But we will look at being thoughtful, being measured in terms of where we want to build fiber in the West. We are planning for a build-out of some homes this coming year, and we'll continue to look at that on a case-by-case basis as we move forward. As we look at density, as we look at the return on investment, we want to be measured in terms of how we make those investments and where.

Got it. Thank you. Yeah.

Thank you. The next question is coming from of RBC Capital Markets. Please go ahead.

Great. Thanks for taking the question. I wanted to follow up on costs and maybe hone in on the programming cost outlook. Some of your peers have started to benefit from a fairly remarkable moderation in the growth of programming costs per video subscriber. Altice has historically seen this growth to be in the mid to high single digit range. Is there a scope to have that get closer to low single digits or even maybe flattish in the coming years, or is that just not as likely given how your video product is structured? Thank you.

Hey, thanks for the question. I'll address kind of at a broad level, and then I'll let Mike jump in on the programming piece. But we do – I am also looking at our video – service and how that fits into the portfolio. We know that there continues to be a demand for legacy video. We know that there's the demand for streaming video and apps. And so I do believe that there's an opportunity to right-size our go-to-market strategy with video in terms of pricing, packaging, bundling as appropriate. That is something that we're also looking at in terms of how it fits into the portfolio and how we may want to leverage it as we go forward so that we can be most competitive, particularly in areas where we've got fiber overbuilders and other competition. We have this video product and an opportunity to bundle that in to be able to drive our go-to-market as we move forward.

So on the overall question in terms of the inflation rate, we're seeing, you're right, we have historically been seeing numbers in the mid to high single digits. I think that's tempered. When we look at programming costs per sub per month and look at the inflation on that basis, so adjusting for volumes, we've had a couple quarters of the last six quarters, we've had a couple at five or even sub 5%. So I think it's nudging downwards. Anecdotally, I will say, when we go into renewal negotiations, We often come out the other side with a result that is better than what we expected and probably couldn't have said that very often in the 10 years that proceeded, say, the last two years. So I do think there's a little bit of a shift in favor of the distributor in this regard. And we are seeing some tempering of the programming cost inflation we've seen historically. As far as whether that can evolve to be flattish in the near to medium future, I mean, that would be a great outcome for us. But I would hesitate to make that kind of commitment.

Thank you both. Yep.

Thank you. Unfortunately, we have run out of time for questions today. I would like to turn the floor back over to management for any additional or closing comments.

No, just thank you all for joining us and have a good evening. Appreciate it. Thank you. Have a great day.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines at this time and enjoy the rest of your day.