Ladies and gentlemen, thank you for standing by, and welcome to the Altice USA Q4 2020 Results Presentation. [Operator Instructions] I would now like to hand the conference over to your speaker today, Nick Brown. Thank you. Please go ahead, sir.

Hello, everyone, and thank you for joining. In a moment, I'll hand you over to Altice USA's CEO, Dexter Goei; and our CFO, Mike Grau, who will take you through the presentation. And then we'll move to Q&A. As today's presentation may contain forward-looking statements, please read the disclaimer on Page 2.

Hello, everyone. Before we begin, I once again want to thank and take the opportunity to thank the Altice USA team. Extremely proud of its ongoing commitment displayed by our employees in navigating the pandemic, together delivering superb results for 2020, including very strong financials and record customer growth. Starting with Slide 3. We grew reported revenue 1.4% for the full year or 2.6% adjusted for the impact of RSN and storm credits. In the fourth quarter, we grew reported revenue by 2.5% and 3.6% adjusted for RSN and storm credits. We grew adjusted EBITDA 3.5% on a reported basis for the full year or 4.8%, excluding mobile and storm costs. Q4 saw an acceleration in EBITDA growth to 6.1% year-over-year on a reported basis or 6.6% ex mobile and storms. The pandemic highlighted the importance of connectivity for both homes and businesses, and we set a record for both customer broadband net additions. And we continue to see very strong demand for higher broadband speeds. We added 81,000 residential customers, more than 5x the 15,000 customers we gained in 2019; and 142,000 broadband customers, about double that of 2019. We also delivered our highest-ever free cash flow of $1.9 billion for the full year. In 2020, we also took advantage of market volatility and demonstrated our commitment to delivering attractive shareholder returns, delivering a record $4.8 billion in share repurchases, including a $2.3 billion tender offer we completed in December. We successfully completed the sale of a minority stake in our Lightpath business to Morgan Stanley Infrastructure Partners in Q4 and acquired Service Electric of New Jersey earlier in the year. We also continued to proactively manage and strengthen our balance sheet, refinancing $4.4 billion in debt, achieving our lowest-ever average cost of debt at 4.7%. All of this…

Thank you, Dexter, and good afternoon, everybody. Thanks for joining us. We certainly hope everyone's doing well. I'd like to start by spending a minute highlighting our EBITDA growth trajectory on Slide 14. In Q4, we grew adjusted EBITDA 6.1% year-over-year or 5.8% year-over-year excluding mobile, since we lapped the launch of this business just over a year ago, a very strong result to cap off of an unusual year. In the quarter, we had an additional impact of approximately $9 million to adjusted EBITDA due to the hurricanes. Excluding mobile and excluding storms, we grew EBITDA 6.6% year-over-year. We continue to benefit from a combination of strong customer growth and cost efficiencies and remain very confident in our ability to continue to grow EBITDA in 2021. We also feel very good about our opportunity to continue to drive further margin expansion in our business, which I'll turn to now on Slide 15. On Slide 15, you can see we posted an adjusted EBITDA margin of 45.4% in Q4, up 150 basis points year-over-year. Some of this margin improvement in the quarter was driven by the pass-through adjustment from the decrease in revenue and the commensurate decrease in programming costs for RSN credits due to expected rebates from sports programs. Excluding those RSN credits, adjusted EBITDA margins would have been 45.1%, still up 120 basis points year-over-year. Excluding mobile EBITDA losses, our 4Q EBITDA margin was 46.5% or 46.3% further adjusted for RSN credits compared to the 45.0% a year ago or 130 basis point improvement year-over-year. And in Q4, our EBITDA less CapEx operating free cash flow margin of 31.8% was up 100 basis points year-over-year due to the combination of EBITDA margin growth and lighter CapEx due to some delays in fiber permits. Turning to Slide 16. We…

[Operator Instructions] Your first question comes from the line of Phil Cusick of JPMorgan.

Maybe start with some revenue drivers. Broadband ads, you're guiding to, I think, still better than the '18-'19 run rate. Help us understand the confidence there. And I know you talked about some of the build-out plans, but just take us through that again, please.

Sure. Hey, Phil. Listen, we, in '18 and '19, were in kind of that 70,000 to 80,000 broadband net adds. So we feel really good about those numbers and being able to do at least as well, if not better. You talked a little bit about our CapEx plans. We historically have been delivering about 100,000 to 125,000 the last couple of years of new homes billed. We expect that number to be -- hit 150,000, and hopefully more this year as we ramp that up. And then that will accelerate 2022 and 2023. On top of that, we've got 400,000 Suddenlink homes out of 750,000, 800,000 that we want to upgrade. The ones that we are first upgrading are very underpenetrated, where, in many respects, we're providing broadband speeds of less than 100 megabits in those areas. And so we're freeing up a lot of capacity and upgrade those, and those will get done probably throughout the year up until Q3. So we expect to see some good activity on those subscribers. And then lastly, on the fiber-to-the-home, we continue to see very, very good activity there. As you see, our sell-in rates are 2/3 of 1 gig. The fiber product is starting to get some good traction in terms of market share, and we'll continue to accelerate that growth. I think the other thing, to just take a step back is, as we spoke about in previous quarters, only about 25% of our activity in our footprint is in the FiOS zones, right? So we have discovered a brand-new zone, which is a non-FiOS Optimum zone, where we saw a tremendous amount of activity in the Q2, Q3, Q4 time frame. And the Suddenlink footprint continues to be underpenetrated and showing very, very good growth on the broadband net adds. So all of those things put together, a little bit of CapEx here, a little bit of upgrade there, a little bit of fiber there, some renewed zones where we're seeing a lot of increased activity, plus the continued outperformance of the Suddenlink footprint from a penetration standpoint, really makes us feel good about 2021 and onwards on our broadband subscribers.

That's helpful. If I can just dial out for one last quick one. Now I know the outlook is for growth in revenue and EBITDA this year. Do you think that the business can grow better than the 2.6% and 4.1% sort of normalized numbers in 2020?

It's -- well, we're cautious only because you just don't know what's going to happen in the advertising market, which, number one, we're going to lose about $60 million of advertising revenue -- $60 million, $70 million of political advertising revenue this year. Given how big 2020 was both on the political side, which was a lot bigger than historically it's been in political years, we expect the News and Advertising business to be pretty much flat, which would be a fantastic result, which means we're taking up that $60 million to $70 million of political revenue that we're losing and we're getting it from somewhere else. So I think we're just being cautious on that. Can we get back to 2.5% and 4% EBITDA growth? I think we can, absolutely. I just think -- I think from a guidance standpoint, Phil, we want to be cautious here on News and Advertising and also on the SMB side, as we just don't know how the next kind of few quarters are going to roll out on the SMB side. But on the residential side, we're seeing back to business, continued very good activity in January and February. So I think we feel good about the guidance, obviously, given it's conservative. But I just don't want to pinpoint ourselves at this point.

Our next question comes from the line of Craig Moffett from MoffettNathanson.

Let's turn to your buybacks for a minute. You made the in -- I think it was October, you made the bid for Cogeco and Atlantic Broadband. And I presume you've been looking for other acquisition targets. I wonder if you could just talk about that search a little bit and what you're thinking is now with respect to potentially finding other targets. And is it appropriate to read the pace at which you were buying back shares as an acknowledgment that there just aren't willing sellers out there at the moment?

Listen, Craig, we definitely want to go out there and find attractive MVPDs to acquire, right, just focusing on our residential business. I would say that there is a handful of smaller operators that are available to acquire. We eliminate a lot of them given -- for either geographic reasons or for competitive reasons, and narrow it down to a couple that we find very attractive, right? So the bite-sized, Service Electric type of acquisitions are very attractive for us. So we'll continue to do that. And hopefully, we'll be able to unlock one of those this year, if not more. But we'll continue to try to unlock as many of those as possible. But yes, in the absence of doing attractive M&A, the best use of our capital right now for us is to continue to buy back shares. We continue to see a high single-digit free cash flow yield this year. And with -- we're financing our debt at the kind of 3%, 3.5% level. So we're still seeing a very good 500 to 600 basis point spread. We are cognizant of taking down our leverage back down to the 4.5 to 5x. So that will naturally occur with the EBITDA growth. But we'd like to redeploy our capital, to the extent that we don't have M&A to buy, to buying back shares. If something like an Atlantic Broadband comes to sale or anything even of larger size than that, we definitely continue to believe that M&A is the best use of our capital, if anything's available.

Your next question comes from the line of Doug Mitchelson from Crédit Suisse.

A question for Dexter. Sticking on the broadband theme from earlier, I just want to make sure we sort of fully flesh this out. Any change in competitor behavior that you're seeing or responding to, any sort of commentary on churn and nonpay disconnect trends? And then lastly, the first quarter historically has been the biggest quarter for broadband net adds. And you mentioned in your formal remarks that it might be a little bit more back-end weighted this year because of the timing of the build-outs and growth initiatives that you talked about. Is this a year where we should expect 1Q isn't sort of seasonally the strongest quarter because some of the dynamics we're talking about COVID trends flowing through? Or is it normal but still stronger in the back half of the year?

Yes. I think on -- from a competitive standpoint, we are always -- it's seasonal, right? So that question, I think we get asked pretty regularly. And the standard operating answer is we don't really see any change because they don't -- promotional -- competitive promotional offers don't last for long periods of time. Specifically in our Optimum FiOS footprint, we did see very aggressive tactics from FiOS as they were off sides for a little bit of time given that there they were not installing, I believe, in the second quarter of the year. But other than that, it was -- it's pretty normal across the board. We haven't seen anything substantive from a competitive standpoint. Same thing with the nonpaid disconnects. Nothing out of the ordinary. The whole kind of, let's call it, mess related to the pandemic with the FCC Pledge, the New Jersey Executive Order, the new altered New Jersey Executive Order and 3 storms that hit 3 different areas of our footprint creates a little bit of a mess from following seasonal trends and accounting and those types of things. But I don't think we see anything in particular out there that makes me anything concerned around our targets for 2021 in terms of broadband net adds. We clearly expect to beat -- meet or beat our historical numbers pre-2020. And in terms of Q1, Q1's pretty much going to be -- for us, a pretty ordinary Q1. It is very much more back ended, but we're not seeing anything abnormal in January and February to date relative to our historical numbers, obviously, pre-COVID historical numbers, because March was a blowout quarter month last quarter in 2020. And we saw obviously renewed activity through Q2 and the beginning of Q3 that became -- that makes the comparisons very difficult. But yes, we will see a little bit more back ended this year given the build-outs and the continued investment in the network.

Your next question comes from the line of Michael Rollins from Citi.

Two questions, if I could. First, just in terms of the guidance for adjusted EBITDA growth versus revenue growth. Is there a spread that you would suggest that EBITDA growth could grow faster than revenue in 2021? And then secondly, just curious how you're approaching the video business with respect to the pricing strategy and what impact that can have on subscriber and video revenue performance as you think about 2021.

Yes. Listen, on spreads, I sure hope so that the spread between revenue and EBITDA growth, for sure. We've been trending historically, I don't know, 200 basis points. Maybe it depends on the year, 200, 300 basis points difference between the 2. I don't think there'd be anything different. Obviously, with the mix shift that's occurring in the industry from broadband -- from video to broadband, it gets a little bit skewed in terms of some of the historical trends, depending on what's happening on the video side. But by and large, I think that's a probably good rule of thumb with us, 200 to 300 basis points spread, maybe more, maybe less, depending on the year. On the video strategy, listen, we continue to be focused on profitability. The attachment rates, as you know, have fallen in the industry, and particularly with us given that we had a very high penetration of video attachment in the Optimum footprint. So we're seeing attachment rates 2 years ago that were close to 60% in our bundles, and now it's closer to 40%, right? So we're losing unprofitable subscribers, or not signing up unprofitable subscribers, which is great, but continuing to maintain a very keen focus on our very attractive and profitable subscribers that have been with us for more than 3 to 5 years. But in terms of pricing, I think we continue to provide the bundle. We continue to focus very much on the broadband net adds, and we continue to focus on being profitable on the video business. So the gross add video business is something that we are less excited about. And so we're not that much focused on that product as much through the bundle. And on trends, I think we lost about 7%-ish points in video subs this year in 2020. I suspect we're on the same rate, right, in 2021.

Next question comes from the line of John Hodulik from UBS.

Just a quick question on the mobile strategy. Is this a good run rate in terms of the growth you're seeing there? And then could you give us an update on your expectations for profitability in that segment?

Yes. I mean, listen, we are -- we're focused very much on a profitable mobile business. I think we've said that regularly. If you look at our EBITDA minus CapEx loss relative to our peers and adjusted for size, we're significantly more -- we've lost a lot less money, let's call it, than our peers. And we're going to continue to try and lose a lot less money. We could obviously spend a lot of money on media spend and marketing to go out there and push the growth. I think we want to make sure that we continue to push profitable growth. And so as you look at our focus, our 1-gig and our 3-gig product is actually penetrating very well right now. And so -- and those are very profitable products. And so we're going to continue to push that. We're going to open up some more retail stores. We're going to invest in more media. But we're going to do that cautiously and making sure that we're doing it and pushing profitable profit products all the time, which -- that gets down to, when do we think we're EBITDA breakeven. I think sometime towards the end of next year, we should be EBITDA breakeven in terms of the business on a monthly basis.

Your next question comes from the line of Brett Feldman from Goldman Sachs.

Your optimism that you'll be able to deploy your full CapEx budget this year, are you actually at the point where you are seeing the permitting process back up to speed? Or is it ramping up to speed? And then, if you are unable to deploy that full amount of capital this year because of the same logistical headwinds, what do you do to favor that excess money? Last year, obviously, buybacks was the next thing on the list. Is that still the next thing on the list? Or are you going to be a little more balanced with maybe delevering?

Listen, I think we are -- on the CapEx deployment, we're full steam ahead on ramping up the fiber side. And that is focused on the FiOS zones and some non-FiOS zones, which are very wealthy areas. And that's trending very well. So we're not seeing the inability on the permit side in the Optimum footprint. And on the edge-outs as well, we're well on track to building up that steam on that. So I'm feeling good about the ability to deploy the capital today in this environment. And so hopefully, we are able to spend that $1.3 billion to $1.4 billion that we've been talking about. If we don't spend it, I understand that leverage looks, from a multiple standpoint, a little bit above 5 as something that people would like us to take down. But we still believe our stock is -- still continues to be very, very cheap. And so I suspect that we'll redeploy that capital to buy back stock as opposed to deleveraging. I think we'll take all of our free cash flow and buy back stock for the year, ex M&A.

Your next question comes from the line of Benjamin Swinburne from Morgan Stanley.

I guess, Dexter, does that mean you expect $1.5 billion of free cash flow in 2021? Just to follow up on your last comment.

Guidance is conservative, Ben.

Yes. I guess the key point there, right, is you guys will -- I just want to confirm, have cash taxes in '21, right? I think you guys have talked about $400 or something million?

I think that's right. So we have probably about, let's call it, $300 million more of CapEx of taxes. We have a couple of hundred million more of CapEx. Then you've got EBITDA growth, and you've got interest savings of a couple of hundred million, right? So you mix -- put that all in the mix there, and you come up with your free cash flow number.

Yes. Cool. My questions were actually just around thinking about the sort of cadence through the year. I just wanted to confirm, as you guys get into Q3 and Q4, you should be benefiting from lapping the RSN rebates and the storm credits. So we should see, in terms of residential revenue growth, that should be pretty healthy and maybe your highest quarters of growth in those -- in the back half. So then to make sure we had that right, with obviously the natural programming cost offset on the RSN front.

Yes. On a reported revenue basis year-over-year, we should start seeing in Q3 and Q4 just a natural accounting bump, right?

Yes. Okay. And then just one more, if I can. I think you guys historically have had a pretty nice political benefit from the New York mayor race, which is, I think, this year. Is that something that you think could be a source of potential upside as you think about just political spending and there's a lot of people running and maybe get you guys to grow that revenue line this year?

Yes. I mean we didn't -- you raise a good point, because there's a lot of money going into New York's mayor race. When we were budgeting this, that really hadn't kicked off. So maybe there is some upside there. I'm hopeful Andrew Yang and all the money he has just comes and spend a ton of money. But the real mayor race happens in June during the primaries. So it's -- whoever wins the primary, wins the mayor, the Democratic primary race. So I believe it's in June. And for those of you who haven't registered, I believe you have to register for the Democratic primary by now, this weekend, I think. Thing's like February 14, something like that. If you're not registered as a Democratic voter in the New York primary, you're not voting in June.

Important PSA.

Exactly. I've been reminded that by several candidates to tell people to go out there, get ready to vote, but that the real vote is in June.

Your next question comes from the line of Kannan Venkateshwar from Barclays.

Dexter, I guess I just wanted to home in a little bit more on this revenue growth algorithm that you laid out roughly in that 2.5% kind of a range. If you look at it over the last maybe 4-, 5-year period, I think in the early part of that period, a bigger part of the growth came from residential. But more recently, when we look at the contribution of residential to growth, that dropped off a little bit and other segments have picked it up. When you look at that, I think historically, you guys have done about 1.5% unit growth and 1.5% pricing growth to get to that roughly 2% to 3% kind of a growth algorithm in residential. So could you help us think through what that algorithm looks like specifically for residential, as you look at this year as well as more of a medium-term outlook?

I'm sure that my friends, Nick and Mike, can take you off-line and walk you through this. But just from a high-level standpoint, the one thing that's difficult here is obviously the whole video side to it. That algorithm was very easy on rate versus volume to do. Now the whole rate side is a little bit skewed because of how video is performing, where you're losing revenue on video, right? So where we obviously see maybe a headline slowdown on B2C revenue, we're seeing [ unbelievable ] of increased profitability coming from B2C, right? So the algorithm's a little bit trickier that way to get your arms around. But today, assuming that the same kind of 2.5% number is what you're looking for -- 2.5% to 3%, we're really starting to see, more of it we're expecting to come from volume than it is coming from rate. Historically, before 2020, you would have seen a lot more of that 3% skew, more like 2% rate -- 2% to 2.5% rate and 0% to 0.5% from volume. And we're really looking, going forward at a more equilibrium and a lot more volume weighting in there.

Your next question comes from the line of Andrew Beale from Arete Research.

You touched on some of the growth opportunities across the footprint. And I was just wondering if you could give us a bit more background on the broadband penetration levels and increases in penetration you're seeing in what I guess are the 4 main buckets, which are slow Suddenlink versus fast Suddenlink, if I can call it that, as well as non-FiOS Optimum versus FiOS Optimum? And then perhaps with the FiOS Optimum areas, what difference do you find as you start actually marketing FTTH?

Yes. I mean, Andrew, that's a great question. I mean, basically, if you take maybe a step back where we're seeing, let's call it, broadband gross adds, right, so -- and uncouple it that way, you're basically seeing about half-half between Optimum and Suddenlink, right? But the key thing here is you're only seeing 25% of it in FiOS zones in terms of our broadband gross adds. So 75% of it is coming from non-FiOS zones. And where you historically would have seen it more like Optimum was 1/3 of our volume and 2/3 coming from Suddenlink, it's more -- much more now equal because of the non-FiOS zones on Optimum are very, very active areas today when they have historically been a lot less active. And so that's kind of one of the backdrops that we're seeing. The second is the numbers in the Suddenlink zones have skyrocketed in terms of net adds coming from there, right? I think it's -- relative to 2019, we probably have almost a 300% increase coming from the Suddenlink footprint in net adds. That should give you some backdrop in terms of what the activity is. So less activity in the FiOS zones, a lot more activities in non-FiOS zones than historically and just an absolute explosion in the Suddenlink footprint.

Okay. No, that's very helpful. And as you market FTTH, I mean can you -- most of the difference in the FiOS Optimum zones?

Yes. I think, listen, we're a ping pong match between FiOS and us over the last 3, 4 years. It's plus or minus 10,000 every year in net adds, and that really doesn't change. And what we love about the FTTH product is we're really starting to get great mind share in those zones. So we'll start marketing more aggressively as we start having bigger footprint there and start delivering a lot more homes. And we're starting to see people going straight up to symmetrical 1 gig, 2/3 sell-in, when the network's already 10-gig ready, effectively, right? So it's just a question of us pushing higher speeds if we want to. And with the overall backdrop of our entire footprint, 55% of our subscribers are still taking 200 megs or less, right? So we feel really good about the fiber project. We've always talked about it as a cost- and CapEx-savings exercise. We're starting to see the real benefits also -- early benefits of a revenue exercise as well that are going to be very fruitful, we believe.

Okay. And can I just sneak one last one in on the -- as you've migrated the mobile to T-Mobile, are there any material differences in the MVNO agreement aside from the longer term that we should think about?

Not yet. We're working on it with them. We clearly would like to do more with some -- with T-Mobile. So I think there's a lot of things that we're talking about.

Our last question comes from the line of Frank Louthan from Raymond James.

Just wanted to touch base on some of the regulatory issues. If -- how would you view the return of Title II and possibly price regulation in terms of your capital budget? Would you adjust your capital budget if any regulation is brought back in that regard?

Yes. I mean I can't say for sure how we'll react. I don't think anyone today sees the possibility of price regulation. I think everyone talks about potentially Title II being reclassified as Title II as a possibility. But to the extent that we are disincentivized to be spending money and getting the right capital returns on it, I suspect we may reallocate capital. Yes, that sounds like a reasonable equation. I just can't tell you that that's what we would do because we don't know what it could look like.

That's all the time we have for questions today. I'll turn the call back over to Nick Brown.

Thank you, everyone, for joining. Do let us know if you have any follow-up questions. Otherwise, we look forward to catching up with you in the next few weeks. Thank you for joining.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.