Altice USA, Inc.

Greetings and welcome to the Altice USA second quarter 2023 results conference call. At this time, all participants are in 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, Sarah Friedman, Investor Relations. Thank you, Sarah. You may begin.

Hello, everyone, and thank you for joining. Before we begin, I'm thrilled to share that Nick Brown is currently on parental leave, as he and his family have recently welcomed their first baby. Turning to our agenda, we are joined today by Altice USA's Chairman and CEO, Dennis Matthew, and CFO, Mark Cervera, who together will take you through the presentation and then be available for questions about our results. As today's presentation may contain forward-looking statements, please read the disclaimer on slide two. Dennis, please go ahead.

Thank you, Sarah, and a big congratulations to Nick. Kicking off on slide three, when I joined the company in October of last year, I committed that at Altice USA, we would act with discipline and focus to execute on our mission for Optimum to be the connectivity provider of choice across all the communities that we serve. And today, I'm pleased to share that we're continuing to make great progress in delivering on this strategy with sustainable operational and financial improvements across the business. You know, we're seeing significant achievements across our care, support, and broader service experience due to our investments in simplifying customer experiences and improving field operations. Our diligence in this space is leading to higher customer satisfaction metrics, including double-digit growth in NPS and impressive reductions in call volume, service visits, and overall rates. Our focus on creating better experiences for our customers has led to lower operating costs and has resulted in stronger net addition performance in the quarter compared to the prior year. This quarter, we strengthened our product portfolio and offers to deliver greater value and experiences to our customers. Notably, and earlier than planned, in the quarter, we launched ultra-fast 8-gig symmetrical fiber internet to more than 1.7 million passings, representing the widest availability of 8-gig speeds in the country. The milestone cements Optimum as the nation's largest 8-gig Internet provider and gives us a unique competitive advantage in the marketplace. Finally, we are seeing stabilization in our operating and financial metrics by delivering on better customer experiences and by executing with greater financial discipline. Our strategy to provide the best products, the best networks, the best customer experiences, and the best employee experiences through operational execution and financial discipline is leading to stronger trends across our residential and B2B businesses. Our work here is not done, but I am optimistic about the achievements in the quarter, which are leading indicators of a return to sustainable broadband and cash flow growth. Turning to slide four, I'd like to get into these trends in greater detail and revisit our four key strategic pillars. First, a moment on our people and our culture. Over the last several months, we've welcomed over 30 new leaders to complement our existing team. We've attracted high-performing executives with significant experience from across the U.S. telecoms and cable industries to run finance, sales, product, care, operations, and other critical positions at Optimum. Continuing to attract, retain, and develop our talent remains a priority for us so that we can be the best in class in everything that we do. We also recently introduced a new regional market structure that will allow us to be more nimble, responsive, and act hyper-locally across our footprint in ways that we have not done before, positioning us to achieve growth and be the connectivity provider of choice in every community that we serve. With this new model, each of our five new areas now has an experienced and dedicated general manager who owns the regional P&L, drives sales, leads competitive response, and drives operations. That includes customer experience, employee experience, and community engagement. This approach empowers our local teams and will accelerate our ability to deliver go-to-market strategies based on the unique characteristics of each market. Recognizing the differences in our markets while continuing to leverage the benefits of being part of a large national organization will be a competitive advantage for us going forward. I'm confident that we now have the right structure with the right people who bring experience, focus, and commitment to our customers and employees. Turning to our growth pillar. As a reminder, in May, we entered the market with our converged optimum complete internet plus mobile offer, demonstrating the power of our connectivity services inside and outside the home. We're pleased with the results and specifically with the attention it is bringing to our mobile service. As evidenced by our mobile attachment acceleration, We saw impressive early mobile attachment rates for new broadband customers more than doubling since the launch of Optimum Complete and have more room to grow. The Optimum Complete value proposition not only helps accelerate mobile growth, but it translates to better customer stickiness and greater customer lifetime value. We also deployed Optimum Stream, our streaming video experience that provides access to our full Optimum TV service, including live TV, DVR, on-demand, and more, alongside any other streaming app available in the Google Play Store. The CPE is lightweight and sleek, and it gives customers more viewing options and doesn't require a coax connection, allowing for easier self-installation. And we just upgraded the remote to include 10-digit keys in addition to voice capabilities to blend the full experience of linear TV and streaming. Optimum Stream creates a better video experience on fiber compared to our legacy boxes, which will help to accelerate fiber customer additions and migrations. To that end, it is officially now our marquee video product and is available to all fiber customers as their primary video solution. It is also available to new HFC customers in select markets and will be fully available across the majority of our markets by the end of this year. In addition, we are identifying opportunities to manage our customer relationships in a more thoughtful way through proactive retention programs and the enhancement of our pricing strategy. We are also exploring ways to deliver greater value with targeted rewards for loyal customers, including gifting speed tier increases. Our goal is to simplify our pricing structure to benefit our customers and top-line performance, reinforce the value of our products and experiences, and of course, to remain competitive. We will begin rolling out pricing, loyalty, and proactive retention programs to select markets later this year. Shifting gears to B2B, this is an exciting area of opportunity for us. We are renewing our strategy around B2B with an experienced new leadership team as of June, which brings a regimented focus on growing our B2B business through expanding our product portfolio, refining our go-to-market strategy, improving conversion rates through better onboarding, and converting business customers to fiber utilization in a more meaningful way. At the end of June, this team was already making progress in expanding our product portfolio, having enabled single line business hosted voice connections versus requiring multiple lines, which resulted in an immediate take rate. In addition, we continue to scale our fiber voice capabilities to offer multi-line services to customers of all sizes. We are actively working on expanding the availability of voice solutions to B2B customers across the West, and will launch a business services optimum complete bundle later this year, bringing the best value proposition of mobile and broadband services to our business customers. Other areas of opportunity within B2B include the growth we are seeing in fiber circuit sales to Tier 1 and Tier 2 wireless carriers, reinforcing our superior network quality as a trusted partner to some of the nation's largest wireless carriers. We also saw solid win rates on E-rate bids for the upcoming school year, providing integral connectivity services for local K-12 education segments. Moving to the third pillar, our network. As I mentioned in the quarter, we launched 8-gig symmetrical fiber service available to more than 1.7 million passings, which strengthens our competitive advantage in our fiber markets. Our ability to launch eight gig symmetrical speeds is because Optimum Fiber is deployed using state-of-the-art XGS PON technology, which enables multi-gigabit speeds. XGS PON technology is superior to the legacy GPON or older standards used by many other fiber providers today. And from our experience, it would likely require significant capital investment to upgrade to a new network infrastructure that could match our network speeds and performance. In Optimum West, we continued to upgrade the remaining network to DOCSIS 3.1 to bring faster speeds and enable more bandwidth. We upgraded an additional 70,000 passings in Q2. Our teams are also actively innovating, and we see a path to deliver multi-gig speeds over DOCSIS 3.1 using mid-split architecture. I'm pleased to share that we successfully tested in our labs up to 2 gigabits download speeds and 200 megabits upload speeds over DOCSIS 3.1, and we'll keep pressing to deliver the best speeds at a great value. Thanks to both our DOCSIS and fiber upgrades, we offer one gig speeds in almost 95% of our entire footprint, and we've boosted our fiber capabilities to multi-gig, all of which gives us tremendous runway to bring customers to faster speeds as broadband usage continues to grow. Finally, due to all our investments, our broadband services are delivered with 99.9% reliability, which is what we know matters most to our customers. This leads to our fourth pillar, customer experience, which is a priority across every single team at the company. We're finally getting better at bringing digital to the forefront of customer experience. For example, we enable text message communication for things like appointment confirmations, outages, or when payments are due. Simple tools like this have helped drive a decline in the number of inbound calls, which has a direct correlation on cost control. Earlier this year, I committed that we were planning to launch a new customer app as part of the CX and Care journey. I'm pleased that last week we began to roll out this new My Optimum app, which offers an enhanced digital service app for Optimum customers to manage their in-home Wi-Fi experience, troubleshoot issues using intelligent assistance, and make payments and manage their bills, all in one place. Our progress here is significant, from improving our onboarding experience, to providing tools to help our customers better understand and access our services, to offering simplified experiences to meet customer needs. These programs are having a direct impact on our customer experience metrics, which translate into lower cost to serve the customer. Let's now turn to slide five. Mark and I frequently get asked what KPIs we track that give us the optimism that we are successfully executing our strategy and heading toward a return to growth. On this slide, you can see a few of these customer experience metrics. And Mark will later review some financial KPIs, all of which we would expect to turn in the right direction before we get back to customer and financial growth. First on NPS, our TNPS, or Transactional Net Promoter Score, is up 19 points year-over-year in Q2. TNPS measures a customer's willingness to recommend our services across care, field, retail, and sales. We've seen increases across a wide range of NPS scores, including for our service visits, onboarding experience, and fiber services, with double-digit point increases in each of these categories. These NPS improvements once again signal that our dedication to improving and simplifying the customer experience is resonating and making an impact on how our customers feel about Optimum. Another important highlight is how we are easing the onboarding experience with the wider adoption of self-installation and the impact it's having on our business. Self-installation minimizes both cost and time for Optimum customers. and our teams have enhanced our self-install process to make it even clearer, faster, and simpler for a customer to connect to our services. We have had great success in accelerating the pace of self-installations, which has grown 49% in Q2 year over year, from 22% of qualified gross additions in Q2 of last year up to 34% in Q2 this year. This has been a tremendous cross-functional effort with our sales, care, and field teams partnering to give our customers new and simple solutions at every single touchpoint. Customers choosing a self-installation over a professional install yields many benefits. Customers enjoy that it is fast, easy, and doesn't require an at-home appointment. And for our business, it translates into fewer installation truck rolls. Self-install remains a huge opportunity for us, and we will be leaning into it more in the second half of this year. Moving to truck roll and service visit trends, higher self-installation adoption is just one piece of our lower overall truck rolls. Combined with improved network and product quality and simplified effective troubleshooting tools, both on the customer side and in our field operations. We've seen 300,000 fewer truck rolls over the last 12 months, supported by a 10% decline in the rate at which a customer requires a service visit annually. In addition to fewer service visit truck rolls, we are lowering the frequency at which we need to perform network maintenance truck rolls, both through better network quality and improving tools around network repair. Earlier this year, we launched a new tool for proactive network management, which enables us to identify and resolve network issues faster. Traditionally, a write-out is required to find issues, such as damaged cables, taps, or other equipment. But with the launch of this new advanced tool, our team can now pinpoint the exact location of impaired networks. resulting in faster detection, lower time to repair, better network experience for our customers, and lower OPEX related to fewer truck rolls to physically identify network impairments. Lower overall truck roll volumes and improved service visit rates reflect a huge opportunity for us to continue reducing costs while delivering a superior service experience. On the same note, we saw 900,000 less inbound calls into our call centers in the last 12 months thanks to our self-service features, proactive communications, and ongoing experience improvements. We see the annual rate at which customers contact us for account questions or technical troubleshooting also continue to decline, improving 7% in Q2 year over year. First time right is our motto. When we consider the customer experience and we are laser focused on getting it right the first time on everything from installations and onboarding to addressing any customer needs. And when we do get a technical or customer care call, we want to ensure that we give each customer thoughtful, tailored, and specific solutions that is also solved the very first time around. This attention to customer experience is beginning to improve voluntary churn. Year over year, voluntary churn in Q2 was relatively flat, despite the incremental competition we have seen over the last 12 months, proving that easing customer pain points and focusing on total customer experience gives us one way to continue to see improvements in voluntary churn trends. Overall, these KPIs are early indicators which support that we are making progress on our strategy, and we will continue to press hard on these areas to deliver the best customer experience while structurally reducing operating costs and improving trends. Finally, before turning it over to Mark to review our quarterly business and financial performance, I want to take a moment to address the news you may have seen coming out of Portugal. Last month, the Portuguese authorities identified that Altice Portugal was allegedly defrauded as a result of harmful practices and misconduct of certain individuals and external entities, and that the company was cooperating with the authorities. In response to these circumstances in Portugal, we have made the immediate and prudent decision to launch our own internal investigation at Altice USA. I was appointed chairman of the board in addition to my responsibilities as CEO, and we placed our head of procurement on leave. Since the commencement of the investigation, we have subsequently separated him and hired a new chief procurement officer, Jennifer Yohi, a 25-year veteran in the U.S. cable procurement industry. Additionally, we're currently reviewing our supplier and vendor relationships and proactively pausing some capital spend until we have completed our investigation, which will impact our fiber construction targets in the short term. In parallel, we are both onboarding new and scaling existing vendors where needed to support our go-forward strategies and operations. We are currently reviewing our full-year fiber passings and CapEx targets, and using this as an opportunity to ramp up our sales and marketing machine to drive more customers and penetration on this network, especially given the strong performance metrics we continue to see from our existing fiber customers. In summary, we are committed to conducting our business with the highest integrity and will continue to move forward operating with the best interest of our stockholders, customers, and employees at the forefront. We appreciate your understanding that we do not have any additional information to share at this time. And of course, if there is anything material to share in the future, we will do so. And now I'll turn it over to Mark.

Thank you, Dennis. Turning to slide seven, I'd like to begin with some key highlights demonstrating our commitment to financial and operational discipline and how that is reflected in our Q2 performance. First, we have stabilized broadband losses, and for the first time in five quarters, we've improved broadband net ads versus the prior year, a promising indicator of our go-forward customer expectations. Moving on to ARPU. We have continued our path of stabilizing ARPU declines, and I'm excited to highlight that we've sequentially grown residential ARPU in Q2 through discipline acquisition pricing, broadband speed up-tiering, and retention segmentation. Our operating costs have come down in Q2, declining sequentially from Q1 and from the peak of our recent OPEX spend in Q4 of 2022. These lower operating costs contributed to improved margin trends, which we'll come back to momentarily. In addition to OpEx moderation, we brought down capital spend in Q2, stepping down CapEx sequentially versus first quarter by 19%. And last, I want to highlight that we are well positioned in our debt maturity schedule. Following the amend and extend transaction that we did at the end of last year to extend about half of our 25 and 26 term loans, out to 28, we raised a new $1 billion senior guaranteed note April 2023. We used the proceeds to repay outstanding borrowings drawn under the revolving credit facility. We ended Q2 with over $1.8 billion in liquidity through a combination of undrawn RCF and ending cash balance, which positions us well to address near-term maturities. As always, we will continue to be opportunistic and proactive in managing our debt maturity profile. Turning to slide eight, let's go deeper on quarterly customer trends. As I said earlier, for the first time in five quarters, we came in stronger in Q2 compared to the prior year, with net losses of 37,000 compared to 39,000 in Q2 of 2022, an improvement of approximately 3,000 net adds year over year. Recall, we typically have a seasonally low point in net additions during the second quarter due to the impact of disconnects in our university footprints, primarily in Optimum West. Still a lot more work to do, but it's a first sign that our Optimum strategy that Dennis reviewed is taking hold. Furthermore, we continue to be impacted by the small housing market and a low move environment. Plus, we have ongoing pressure from both fixed wireless and competitive fiber operators. Despite these headwinds, we do see improved trends in parts of our footprint where we're competing through our fiber network upgrades and improved go-to-market strategies. While much of the macroeconomic industry and competitive trends are out of our control, we remain focused on how we can drive continued improved performance. As an example of this, recall last quarter, we highlighted non-pay trends worsening year-over-year due to macro pressures. In Q2, we reduced those year-over-year declines by nearly 80%, which we attributed partly to new programs to proactively notify customers when their bills are due, as well as programs to care for the individual needs of our customers. As a result, we saw a significant reduction in customers who went into collections compared to Q2 last year. another example of ways that we are enhancing our customer communication and overall experience, leading to improved customer trends. In addition, we are directly addressing competition by strengthening our marketing and advertising to highlight our network, speed, experience, and product superiority, ensuring customers know that the quality and value of Optimum is unmatched by new entrants. On the right side, as I mentioned earlier, we are seeing acceleration and optimal mobile growth, adding 16,000 lines in Q2 or plus 35,000 when adjusting to include only paying subscribers. Recall last year we ran a promotion for free 1-gigabyte mobile data plans for 12 months and expect to begin to close the gap between reported and adjusted mobile lines by next quarter as a majority of the legacy-free mobile customers migrate off the free plan. Our positive trends in Optimum Mobile are supported by our Optimum Complete offer, as well as better sales training and incentives to help our employees promote and sell Optimum Mobile through our existing distribution channels. Finally, in light of our converged strategy with Optimum Complete, I'd like to note that we have updated our disclosures around residential revenue and ARPU. Mobile service revenue is now reported in residential and business service revenue lines, and mobile equipment revenue sits in other. We have restated revenue in ARPU through 2021 to align with this reporting. This updated disclosure highlights our focus on driving improved average revenue per account across all of our connectivity solutions. Moving to slide nine, we'll review our fiber progress. We added an additional 287,000 fiber passings in the quarter, which brings us to more than 500,000 new fiber passings year-to-date, ending Q2 with just under 2.7 million fiber passings. We continue to accelerate the pace of new fiber customer additions, adding 40,000 new fiber customers through growth additions and voluntary migrations of existing customers. We ended Q2 at 250,000 fiber customers, and we continue to see performance and satisfaction benefits out of this cohort. First, our broadband product NPS continues trending higher on fiber versus HFC, which reflects our improved customer trends in fiber markets. Second, monthly broadband revenue per customer for new customers taking our fiber product remains consistently higher compared to new HFC customers. And last, we are seeing over a 10% point differential of better survivability after the first 12 months on fiber versus HFC, which indicates a significant churn reduction opportunity. On usage, we continue to see customers taking and wanting faster speeds. Today, our broadband-only customers average over 600 gigabytes of data uses per month, and this continues to trend up. Our fiber plane has the capacity to handle well beyond this level of data usage and can now deliver it up to 8 gig symmetrical speeds in the majority of our fiber footprint. Looking ahead, as Dennis mentioned, our focus today with respect to our fiber program is to ramp up sales and marketing to move more customers onto the new fiber network as we temporarily pause some capital spend. Our fiber builds to date are focused on the east side, Optimum East footprint with about 46% of the East upgraded to the most advanced fiber technology. We have just under 10% penetration of our 2.7 million fiber passings today. With a backdrop of financial and customer experience benefits on fiber, strong NPS scores, improved turn rates, and superior network quality, it makes sense for us to use this as an opportunity to drive more ORIs while strengthening our customer metrics going forward. We know our technology and experience is better than any other service, whether it's fixed wireless or legacy fiber company. Our goal is to reinforce our market leadership as the best network to attract the best customer relationships to Optimum. Turning to slide 10 on revenue and expenses. In Q2, total revenues declined 5.6% year-over-year, driven by declines and our residential and news and advertising businesses. Residential revenue is down 5.7% year-over-year, mainly driven by the impact of cumulative video and broadband subscriber losses we've seen over the last year. Business services revenues declined 1.9% year-over-year, driven by S&B and other segments declining 2%, and LifePath down 1.4%. Although excluding one-time sprint early termination revenue in the prior period, life path would have grown 1.1%, and total business services would have been down 1.3%. Within other, news and advertising revenues declined 14.8% year-over-year in Q2, or down 8.4% excluding political revenue. We continue to see macro slowdown in advertising spend, but see underlying growth in our direct channels. The quarterly trend on the right-hand side shows revenue stepping up sequentially, representing sequential ARPU growth through disciplined pricing and up-tiering as well as promotional roll-offs weighted towards Q2. Programming rates continue to increase with more of a step-up in Q1 as usual, but overall programming costs continue to come down due to video customer loss. We continue to also see stabilized operating expenses excluding share-based compensation. which have declined by $14 million in Q2 sequentially from Q1, which is $40 million lower, or 6% lower, than the recent peak in OpEx in Q4 of 2022. The recent improved OpEx trends are a direct result of the improved operational metrics that Dennis highlighted earlier. Fewer trucks, lower call volumes, more self-install, along with many other improvements across our operations that structurally reduce operating costs while enhancing our customer experience. This leads us to slide 11 on margin trends. In Q2, we saw 180 basis points of EBITDA margin expansion compared to the prior quarter, which is the first quarter of sequential margin expansion in eight quarters. In Q2, adjusted EBITDA margin was 39.7%. reflecting our disciplined approach to operating expenses and a balance of rate and volume on the revenue side. Operating free cash flow margins increased 690 basis points sequentially to 19.3%, reflecting the moderation of our CapEx spend quarter over quarter. This brings me to slide 12 on capital. Q2 capital spend was $473 million, representing capital intensity of over just 20%. excluding FTTH and new-built CapEx, capital intensity would have been 11.4%. Capital spend stepped down $110 million, or 19% sequentially, in Q2 versus Q1. We remain focused in Q2 on capital investments and growth opportunities in areas where we are reinvesting back into the business. In Q2, we've added 287,000 fiber passings, 66,000 new building passings, and upgraded 70,000 passings to DOCSIS 3.1. As Dennis noted earlier, you should expect to see a lower level of capital spend and fiber passings completed in the second half, and we may come in below our prior CapEx guidance for the full year. And last, slide 13, is a bridge of our free cash flow. Free cash flow for the quarter was negative $35 million due principally to higher capital spend in the quarter associated with the fiber billet. in higher cash taxes due to the timing of payments in the second quarter. Without the additional $152 million of capital on our fiber project in Q2, free cash flow would have been a positive $118 million. We continue to expect improved free cash flow in the back half of the year and to be positive for the full year as CapEx continues to step down. In summary, in Q2, we have continued to deliver on many of the commitments we set out over the last few quarters and remain steadfast on getting back sustainable customer revenue, EBITDA, and cash flow growth that will return us to our target leverage levels. And with that, thank you all for your time. We will now take questions and ask that they focus on our business performance. Operator?

Thank you. We will now be conducting a 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 your line is in the question queue. You may press star 2 if you'd 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. One moment please while we poll for questions. Thank you. Our first question is from Brett Feldman with Goldman Sachs. Please proceed with your question.

Thanks for taking the question. I'll start off here with CapEx. I appreciate you may not have full visibility into how long you're going to be in this reevaluation phase, but if you can give us any insight as to how much lower capital intensity is going to be while you're going through it, just so we can kind of think through what we're comfortable modeling now for the rest of the year. And then just, is this pause really predominantly about assessing the integrity of the procurement funnel, or are you actually maybe doing a more holistic reassessment of the scope of the fiber upgrade project. Thanks.

Hey, Brett. This is Dennis. I'll comment on the second part of your question, and I'll let Mark talk about the CAPEX trajectory here. But as I mentioned, when we learned about the investigation through the media that the Portuguese authorities had begun, we began our own investigation as well and we're going to conduct a thorough investigation of a number of our vendors and that includes some of the vendors who are supporting us from a fiber perspective and so we feel it's very prudent for us to take a moment and pause as we look at as we conduct this investigation and we will continue to drive our fiber strategy and growth strategies as we continue to learn more and as we proceed here. But Mark can provide a little bit of guidance on what we're expecting on the CapEx and fiber side.

Yeah, Brent, as you mentioned, we will have a firmer line of sight as we get deeper into the investigation. But given the construction are already in process, committed to and kind of paid for, we are anticipating that we should have completed at least 600,000 passings in total for fiscal 2023. That would imply potentially about $100 to $200 million less in the capital intensity than we originally previously disclosed.

Thanks for that, Colin.

Thank you. Our next question is from Phil Cusick with JP Morgan. Please proceed with your question.

Hi, guys. Dennis, you mentioned higher competition year over year. Can you talk at all about what you're seeing from fixed wireless and fiber, not just year over year, but quarter to quarter? We've heard of some incremental fiber backing off over the last six months from some of your competitors. And then second, if you could talk about your expectations in gross and churn on the wireless side over the next couple quarters as you start comping those promotions coming off, that would be great as well. Thank you.

Absolutely, Phil. From a competition perspective, we still see aggressive competition from fixed wireless. As we looked at the data and we look at availability, we do see availability across the footprint. Of course, there's capacity constraints. But we believe that we're very well positioned. That's why we launched Optimum Complete. It provides a value when you bundle both broadband with mobile. And when you look at other fiber providers, we have a better product and a better value with $300 annual savings. And so while we see fiber competition, while we see the fixed wireless competition, we're very comfortable we have the right We're also seeing increased fiber overbuilder competition in the West. As we looked at the data, we do think that it's now grown to 30%, 35% in the West, which historically has been more in the 25% range. But again, I believe that we have the right tools with optimum complete to compete. And I'm very excited about our local management team that we've now put in place. We have VP GMs that are deployed across our footprint, and they are going to help us compete much more effectively at the local level as we get into town by town. And as we look at the competitive offerings, we'll be able to evolve and be nimble to be able to drive growth at that local level. So we feel really good about that. On the mobile side, we offered that free promotion through Q2 of last year. We think there's a little bit more that will roll off in Q3. We've been able to convert 60% of those into paying subs, so we think there's going to be stabilization. We feel really good about the mobile growth that we've seen. Since the launch of Optimum Complete, we have been able to double our attachment rate of mobile, and so we view that mobile, we're going to continue to see mobile acceleration in the second half.

Thanks, Dennis.

Yep.

Thank you. Our next question is from Ben Swinburne with Morgan Stanley. Please proceed with your question.

Hey, guys. Good afternoon. I guess two questions. You guys talked about kind of ramping up your sales efforts. I couldn't tell if you're sort of redirecting some of the CapEx savings that you may be seeing this year. I think you talked about $100 million or so into OpEx to try to drive volume. That was sort of a comment in your prepared remarks. I wanted to get more color on that. And then programming costs, I think per sub we're up like three, a little over 3% this quarter. and they've been trending lower. I guess anything one-time this quarter or any help thinking about the programming cost growth on a customer basis going forward? Not sure if you guys are maybe negotiating better rates or seeing things there. Thank you.

Ben, I'll take the first part and then I'll throw it over to Mark on the programming side. On the sales It's not at all about driving up OpEx. We have stabilized OpEx and we've built up our channels. It's all about execution and driving execution. We've made some operational fixes and system level fixes so that we are more effectively selling fiber in our fiber footprint. We did have circumstances where we were not offering fiber across the board and we've made some system level changes to ensure that we are offering fiber in the footprint. There's still some incremental fixes that we need to continue to drive. We've also invested in our retail centers, in our door-to-door, and we're going to continue to drive messaging around fiber in these channels so that we can more effectively sell from a gross ads perspective You know, in Q2, we delivered 40,000 fiber ads, which is the best quarter to date. And 50% of that was on the gross ad side. 50% of that was on the migration side. So just through more disciplined operational execution, I believe that we can drive more from a gross ads perspective on the migration side. There are also some execution challenges that we've had in the past that we've fixed. I talked about stream. We now have a video solution that works on fiber that we're very excited about. As we were migrating folks in the past, we did have that had double play. We had some challenges there. And so now with the new stream solution, we're excited about being able to drive more effective migration as well. And so this is all about continuing to drive our execution as we go forward. And I'll throw it over to Mark to talk a little bit about the programming cost.

Yeah. Hi, Ben. No real significant one-time items reflected in the decline you see on a per-customer basis or increase on a per-customer basis from a programming perspective. As I mentioned on the previous call, we were very focused on margin improvement and video is a part of that as well. And so we're taking a much more disciplined approach around the video business. And in fact, you can see sequentially we've grown our video margin over 250 basis points. And that's partly due to pricing and partly due to tier mix shifts. And so those are some of the things that we're doing to try to drive video profitability up.

Thank you, guys.

Yep. Thank you. Our next question is from Craig Moffitt with Moffitt Nathanson. Please proceed with your question.

Hi. Thank you. Two questions, if I could. First, I'm wondering if you can comment on reports about the possible sale of Cheddar and how you're thinking about that, and then Second, my favorite topic, if you could just talk about your broadband standalone pricing. And if you've updated your thinking at all about how to ensure that your broadband pricing is competitive with Verizon Fios and competitors in the West.

Hey, Craig, this is Dennis. As you can understand, we're not going to address rumors or press speculation today. On Cheddar, we're very focused on executing and driving our strategy across all of our lines of business, and so that's the focus right now. I talked a little bit about base management and a little bit about how we're thinking about pricing. This is going to be a journey that we're on. We're absolutely focused on driving revenue growth, subscriber growth, EBITDA growth, And we want to make sure that we are doing that in a very strategic fashion. And part of that is base management. And part of that is retail pricing. On the base management side, we have not had a relationship with the customers that we are, there's opportunity there. And so we're going to start doing things like speed gifting, implementing a loyalty program. And then on the pricing side, we do want to take a look at how do we provide more clarity, simplicity, make sure that we're reducing the number of step-ups, and really reduce the gap between promotional pricing and retail pricing. And so as we look at that, we're going to begin with fiber. Our sub-base is a bit smaller there. And so we can navigate and manage through that first. And then we are actively looking at our pricing across the board, across the footprint. And so... More to come on that. We are working on some strategies that I believe will be in market the first half of the year for fiber, and we'll continue to evolve that strategy as we move forward. But we do want to provide simplicity, transparency, less step-ups, and close that gap as we move forward, while all the time driving overall top-line revenue growth and EBITDA and subscriber growth.

Is there a sense that you have to be at price parity with competitors with your full rack rates still being quite a bit higher than, say, Verizon Fios or AT&T in the West?

You know, in the West, we have a whole host of tools that we are deploying to be able to win, and we're just starting to really drive that local level competition. We believe Optum Complete is a great strategy that's going to allow us to win. The speed gifting is a great tool. We're going to deploy that. in a whole host of markets later this year and that's going to really allow us to drive some of our tactics on the base management side. We're going to start to deploy the loyalty program and we'll provide some more details on that in the next meeting. We believe that as we upgrade DOCSIS 3.1 across the West and take up those 500,000 homes, 200,000 this year. That's also going to continue to improve the customer experience. And so these are all things that are going to ensure that we can be competitive and win in the West.

Well, thank you. And by the way, congratulations to Nick, who I'm sure is listening from home.

Yes, we're very excited for Nick and family.

Thanks, Craig.

Thank you.

Thank you. Our next question is from John Hodelick with UBS. Please proceed with your question.

Great. Thank you. Maybe back to the margin question. You know, you shared some nice sequential improvement in margins. Can that continue as we look into the latter half of the year, or are there some seasonal issues we need to think about? And then does the stream product, or at least the repositioning of the stream product as sort of the key video product, does that help from a margin standpoint as we look into the back half of the year? I guess that's number one, but number two, just, you know, I don't want to harp on the investigation, but, you know, there's a lot of sort of moving parts, but does the slowdown in CapEx for fiber sort of hurt the overall high-speed data subtrend, or should we think about that as a sort of break on the improvement as we look into the back half of this year or into 24? Thanks.

Hey, John. I'll kind of go in reverse order here. We're very bullish on our broadband trends, and we are very excited about and optimistic about continuing to drive our strategies. We believe that strategies like optimum complete allow us to compete very effectively against mature fiber providers, against fiber overbuilders, against fixed wireless. We believe that Being able to continue to make the upgrades in 3.1 and all of the enhancements and investments that we've made in customer experience are really allowing us to win the fewer jump balls that are in the marketplace. There's a whole – and so the local market, local management team that we've put in place will allow us to compete much more effectively hyperlocally. So I do believe that we'll continue to drive broadband very effectively in the second half. On the CapEx slowdown, as we said, we've begun the investigation and so there are a number of vendors that are part of that investigation which includes some that are related to our fiber build and so we are going to moderate that for now and and uh mark has already provided some of the details that we are able to share at this time in terms of stream You know, Stream, we're excited about as a video solution and as a product in terms of providing a much better solution, particularly on fiber, where we had some challenges with our video solution historically. So I think this will also help us from driving broadband and driving video on fiber as we move forward. From a margin perspective, Mark, I'll throw it over to you.

Yeah, I mean, we think... We're very pleased with the rebound and margins that you've seen here. And we're very focused on not seeing significant increases in OpEx for the full year 23. As I mentioned in my earlier remarks, we could see a slight uptick in the second half just tied to pushing a little harder on marketing. But again, we'll moderate that and take a very balanced approach. I would say I would expect our margins for the rest of the year and full year to aggregate to be better than the first quarter margins that you saw. So we feel like we're at a good spot now, and we'll continue to take a measured and balanced approach on driving growth.

Okay. Thanks, guys.

Thank you. Our next question is from Jonathan Chaplin with News Street. Please proceed with your question.

Thanks. So two quick ones, if I may. big deal for fiber assets priced in the ABS market this week. I'm wondering if that's a market that you guys have looked at, if there's anything in your capital structure that prevents you from doing something similar with your fiber assets. And then I'm wondering if you can give us a little bit of color on the subscriber trends in the East versus the West. Thank you.

Hey, Jonathan, I'll throw it over to Mark to talk a little bit about the fiber question you had.

Yeah, ABS, we did see, and certainly in the news as well, and we're considering all kind of potential sources of financing, and certainly one that we are looking at and considering, and we will look to drive as much liquidity in the business as possible, and that may be an alternative for us as well.

Yeah, on the subscriber trends, as I've mentioned before, Q2 is typically seasonally more challenging than Q1. That being said, we did see some year-over-year improvement. We've got a number of headwinds, as Mark alluded to, in terms of the slowdown and move. Certain months, you know, 20% less moves across the board, as well as some of the macroeconomic challenges. That being said, we did see some improvement in the East year over year by about 2,000 subscribers. We're seeing some nice improvement on the voluntary side with all the investments that we're making from a customer experience perspective. As I think about Q3, pre-pandemic, Q3 was typically seasonally better. Post-pandemic, Q3 is typically seasonally better. has been seasonally worse. I do think that we, with the momentum that we have, will be better year over year, given all of the investments that we're making in customer experience, leveraging and having a couple more months of optimum complete under our belts and continuing to drive that, having the local management teams that we've put in place. And so I'm optimistic about the subscriber trends as we move forward.

Just to follow up for Mark quickly, if I could, is there anything in your newly negotiated debt deals that would sort of complicate doing an APS deal or prevent you from doing a structure like that?

Well, yes, Jonathan. There is not anything that would preclude us from doing an APS deal.

Amazing. Thanks very much.

Yep.

Thank you. Our next question is from Cutgun Miral with Evercore ISI. Please proceed with your question.

Good afternoon. Thanks for taking the questions. One on broadband ARPU and one on the balance sheet. So if I could just first follow up on the broadband ARPU discussion. You're consistently adding on faster broadband speed tiers, perhaps more so than your peers. Last year you began rolling out 2 gig and 5 gig fiber. Now you have 8 gig fiber available across nearly 2 million passings. When do we start to see the benefits in broadband speed up-tiering drive a more positive inflection and trajectory with Braga and ARPU. Dennis, your commentary earlier about maybe starting with tweaking the pricing on fiber in the first half of next year suggests maybe any meaningful improvement may not occur until the back half of 2024. I know you're not guiding to anything, but is that the right way to think about it? And then on the balance sheet, Net leverage is elevated. Free cash flow remains pressured. I think you have about $750 million of debt coming due next year and $1.6 billion in 2025. I know you've been proactive with extending some of your maturities and have a decent amount of liquidity, but can you expand on how you're thinking about the balance sheet at this point? What's your comfort level operating at these levels, and are there any levers you might be looking at to strengthen the overall position? Thank you.

Great. Thank you for the question. On the broadband ARPU piece, we're just getting our feet under us in terms of starting to sell gig and multi-gig in a more meaningful way. Optimum Complete is helping us in that regard. From a one-gig sell-in perspective in Q2, we were at 29%, and on fiber it was at 34%. When you talk about two and five, it was still in the single digits in terms of mix. And so we are just, I feel like we're just getting started. We're working with the teams on really starting to improve in terms of channel performance, yield, productivity, providing the training, providing the tools, being able to sell the value and helping our teams understand how to most effectively sell the value of gig and multi-gig. And we're starting to see the improvement. as we look at it quarter over quarter and uh we're not going to provide guidance on specifically uh some of those elements but we're very optimistic about the momentum and we're going to continue to build on that market just add to that dennis um although we are down year over year on broadband uh implied r2 i do turn your attention to the sequential improvements so we have

As you saw in the first quarter, moderated our ARPU loss. In the second quarter here, we've actually accelerated. We're up almost over a dollar in ARPU expansion. So I think some of the things that Dennis just mentioned is helping us drive a better outcome on the ARPU side. As it relates to liquidity in the debt, as I mentioned earlier, we have $1.8 billion of liquidity right now. We feel like we're in a very good spot to address our upcoming maturities, but as Jonathan asked, we are certainly looking at all options around different vehicles to help our debt load.

That's great. Thank you both.

Thank you. Our next question is from Brian Kraft with Deutsche Bank. Please proceed with your question.

Hi. Thanks for taking the question. I had a couple, I guess, for Mark. Can you help us to think through the outlook for CapEx beyond 23? In other words, maybe 24, 25, and 26, just in broad strokes. And any time period in mind for returning to your target leverage range? And maybe just one more. With all the progress that you guys have been making to improve really every aspect of the business, do you feel that you've got visibility yet into when you might be able to stabilize EBITDA? Thanks.

Thanks, Brian. Yeah, we're not going to specifically give guidance on 24 or beyond that on specific targets around capital, EBITDA, or exactly when we're going to hit our targeted ratios. What I will say is we're very optimistic around the progress we've made, but there's still work to be done, and we're very much focused on returning to consistent Revenue, customer, and EBITDA, and free cash flow growth. And that's really where we're focused, but unfortunately we're not going to give specific timelines around that.

Anything directionally, though, on CapEx for the next couple of years?

Yeah, as we mentioned earlier, we will assess our capital deployment needs annually, and we will update you at the appropriate time.

Okay, thank you.

Thank you. There are no further questions at this time. I would like to turn it back to the company for any closing comments.

Great. Thank you all, and have a good evening. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.