Greetings, and welcome to the Altice USA Second Quarter 2023 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sarah Freedman, 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 Mathew; and CFO, Marc Sirota, who together will take you through the presentation and then be available for questions about our results. Today's presentation may contain forward-looking statements, please read the disclaimer on Slide 2. Dennis, please go ahead.

Thank you, Sarah. And a big congratulations to Nick. Kicking off on Slide 3. 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. 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 volumes, 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 network, 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…

Thank you, Dennis. Turning to Slide 7. 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 5 quarters, we've improved broadband net adds 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 disciplined 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 will 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 use 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 8. Let's go deeper on quarterly customer trends. As I said earlier, for the first time in 5 quarters, we came in stronger…

We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Brett Feldman with Goldman Sachs.

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 out 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 may be doing a more holistic reassessment of the scope of the fiber upgrade project?

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.

Yes, Brett, as you mentioned, we will have a firmer line of sight as we get deeper into 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 million to $200 million or less in the capital intensity than we originally previously disclosed.

Our next question is from Phil Cusick with JPMorgan.

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 6 months from some of your competitors? And then second, if you could talk about the -- your expectations in gross and churn on the wireless side over the next couple of quarters as you start comping those promotions coming off, that would be great as well.

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, we do -- while we see the fixed wireless competition, we're very comfortable we have the right tools. 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 be 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 continue -- we're going to see -- continue to see mobile acceleration in the second half.

Our next question is from Ben Swinburne with Morgan Stanley.

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, so I wanted to get more color on that. And then programming costs, I think per sub were up like 3% -- a little over 3% this quarter, and they've been trending lower. I guess anything onetime this quarter or any help thinking about the programming cost growth on a per customer basis going forward. I'm not sure, if you guys are maybe negotiating better rates or seeing things there.

Yes, 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 adds perspective. In Q2, we delivered 40,000 fiber adds, which is the best quarter to date. And 50% of that was on the gross add 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 adds 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 costs. .

Ben, no real significant onetime 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 are very focused on margin improvement and video is a part of that as well, that 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 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.

Our next question is from Craig Moffett with MoffettNathanson.

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 broad stand-alone 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.

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'll -- 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 rec rates still being quite a bit higher than, say, Verizon FiOS or AT&T in the West?

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 Optimum 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.

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

Yes. We're very excited for Nick and family. .

Our next question is from John Hodulik with UBS.

Maybe back to the margin question. You showed some nice sequential improvement in margins. Can that continue, as you 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, the sort of the [indiscernible] 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 I don't want to harp on the investigation, but 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 sub trends? 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?

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 hyper locally. 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 include some that are related to our fiber build. And so, we are going to moderate that for now, and Mark has already provided some of the details that we are able to share at this time. In terms of stream, 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.

Yes. I mean we think we're very pleased with the rebound in 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 that we're in a good spot now, and we'll continue to take a measured and balanced approach on driving growth.

Our next question is from Jonathan Chaplin with New Street.

So two quick ones, if I may. We saw a 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?

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

Yes, ABS, we did see and that 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.

Yes. 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 in move certain months, 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 was -- is typically a seasonally -- 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 a follow-up for Mark, quickly, if I could. Is there anything in your newly negotiated debt deals that were sort of complicate doing an ABS deal or prevent you from doing a structure like that? .

I guess, Jonathan, there is not anything that would preclude us from doing a ABS deal. .

Our next question is from Kutkal Maral with Evercore ISI.

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 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 broadband 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 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 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 1 gig sell-in perspective, in Q2, we were at 29%. And on fiber, it was 34%. When you talk about 2 and 5, 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 from -- 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 we're not going to provide guidance on specifically some of those elements, but we're very optimistic about the momentum, and we're going to continue to build on that. .

Mark here, just to add to that, Dennis. Although we are down year-over-year on broadband implied ARPU, I do turn your attention to the sequential improvement. 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 $1 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 and 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 deadline.

Our next question is from Bryan Kraft with Deutsche Bank.

I had a couple, I guess, for Mark. 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, Bryan. Yes, 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 tell you is, and we're very optimistic around the progress we've made but there 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 time lines around that.

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

Yes. As we mentioned earlier, we will assess our capital deployment needs annually. And we will update you at the appropriate time.

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.