Greetings, and welcome to the Altice USA First Quarter 2024 Earnings 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, and welcome to the Altice USA Q1 2024 Earnings Call. 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. As today's presentation may contain forward-looking statements, please carefully review the section titled Forward-Looking Statements on Slide 2. Now turning over to Dennis to begin.

Thank you, Sarah. I'm pleased to be here with all of you to review our Q1 performance and discuss some of the opportunities we are working on for the rest of the year. In Q1, we continued to make progress on improving our financial and operational performance. Our transformation journey is well underway, and I'm thrilled to report that our efforts are yielding results. To start off, I'd like to acknowledge the dedication of our teammates across the country who are working hard every day to serve our customers. Over the past year, our focus has been on investing in our teams and talent, evolving our go-to-market strategy and elevating quality across every area of our organization. We are focused on quality products, quality network and quality service. Customers want quality and value, and our teams are working hard to deliver the best quality at the best value. To that end, we are strengthening our networks, improving our execution discipline and enhancing our product portfolio to compete more effectively against existing and new market players. Our improvements across First Time Right initiatives are driving lower contact rates, fewer service visits and higher Net Promoter Scores and are evidence that we are making operational progress, which is translating into customer loyalty and sets us up for long-term growth. And our efforts have garnered recognition from independent third parties, further validating our progress. Beginning on Slide 3, I will review some of the progress we made in Q1 against the main levers for sustainable long-term growth, which we laid out last quarter. First, we are focused on delivering the highest-quality network experiences to our customers. Through our advanced networks, both fiber to the home and hybrid fiber coax, our customers are receiving faster and more reliable services than ever before. We're pleased…

Thank you, Dennis. Turning to Slide 4. I would like to begin with an overview of how we are maximizing profitability in our customer base. If we look at the profitability of each individual customer, which includes recurring revenue, direct cost and the total cost to serve each customer from sales acquisition costs to total customer contact rates, this allows us to focus on the value of each customer from a profitability standpoint, not just ARPU. We have a long tenured base, which supports our strong Residential ARPU of over $135. Approximately 60% of our customers have been with us for 5 years or more, and approximately half of those customers have been with us for 10 years or more. We have runway to improve ARPU trends as we minimize overall churn, remain disciplined on acquisition and retention offers, sell in higher-speed tiers and offer additional products like mobile. As we streamline our base management programs to enhance long-term value and focus on profitable growth, it's important to recognize that this has and may lead to disconnect volumes. We did see a slight uptick in disconnects in the first quarter with this new disciplined approach. We are ensuring our offers across all channels optimize conversion and save rates while remaining competitive in each market. This aligns with our segmented go-to-market approach, moving away from a one-size-fits-all strategy. Instead, we adjust our approach based on the competition to maximize both subscriber trends and profitability. This level of focus has enabled us to begin stabilizing Residential customer ARPU trends. Despite facing headwinds from ongoing loss of video customers, we have successfully mitigated ARPU declines by increasing mobile penetration, maintaining stable churn and integrating AI and advanced data analysis into our sales, care and retention centers. In Q1, Residential ARPU grew $0.35 or…

[Operator Instructions] Our first question is from Kutgun Maral with Evercore ISI.

I was hoping you could unpack the competitive backdrop across broadband a bit more and perhaps what you're seeing into the second quarter beyond typical seasonality. Dennis, you called out stable trends against fiber overbuilders, which is encouraging. Any sense on whether the case of overbuild activity has changed across your footprint? And are you seeing any notable shifts across fixed wireless? We've seen some growth moderate across certain fixed wireless operators, so that seems to be offset by the rollout of AT&T's Internet Air. I'm not really sure how that plays across your footprint. So any help would be appreciated.

Kutgun, happy to address these topics. On the competitive front, we've got a little bit of a different composition across the East versus the West. I am very happy with the trends, particularly from a churn perspective. As I look at where we are, we've really done an incredible job as a team to stabilize churn, particularly in the East. And so we're really focused on continuing to drive gross adds and top of the funnel. As I mentioned, we have a lot of headwinds to work through. With interest rates where they are and mortgage rates at 23-year highs -- near highs and housing starts being down 30% in the Northeast, there are just less jump balls, less calls coming into the call center, less shoppers online. We're seeing Verizon go hard after the lower end of the market, both with their offers, $30 offers to 300 meg. They've now launched their fixed wireless solution. So there is a bit more amplification and competition at that lower end. I am happy to say that I'm seeing our win share stabilize against fixed wireless generally, and some of our local go-to-market strategies are really helping us compete more effectively. When I look at the West, we are continuing to see build, absolutely. 200,000 overbuild passings in the second half of last year. And we do see these folks coming in and taking some share upon initial launch, which is not surprising, but our ability to compete is really improving. And we're starting to see actually our ability over time to compete and improve every day, every week. We're finding customers now starting to come back as they're dissatisfied with the quality of service. They're dissatisfied with the hidden fees. We are more present than ever. We're delivering better quality: quality products, quality network, quality service. People want quality and value, and that is what we are committed to delivering, which is evidenced by the awards from Ookla and from CNET. And we're really focused on profitable growth as we move forward as well. And so we are really becoming -- we've really implemented some nice discipline on our go-to-market acquisition offers as well as in our retention. And so the competition is fiercer than ever, but our ability to compete continues to improve every day.

Our next question is from Greg Williams with TD Cowen.

You guys noted for the past 2 quarters now you're focused on cyber migration. So I was curious if you had a percentage of what your adds were on the fiber side. How many came from HFC migrations versus new to Altice? I think in the past, you said it was 50-50. And I'm wondering if that's shifting. And also just general color on EBITDA trends for the balance of the year. You've had some OpEx investments and seasonality in the first quarter. Just wanted to see how that shakes out through the remaining 3 quarters.

Thanks, Greg. Our fiber migration processes are improving by the day. In this past quarter, we actually had 70% of our adds -- fiber adds come from migrations. As I mentioned on the last couple of calls, there's a whole host of process and technology improvements that the teams are working hard on, and we're starting to see those improvements deliver results. And we have a whole host of additional technology improvements coming towards the middle of May. So I imagine we'll be a bit flattish in terms of Q2 fiber migration performance, and then we want to really hit the accelerator as we move into the second half of the year. And our customers are already telling us that they are experiencing the improvements with improved NPS and customer satisfaction. Our teammates are also sharing, we're now seeing in pockets an ability to deliver 90% completion upon fiber migration and some marked improvement from mid- to low 70s just a few months ago. And so I'm very optimistic that we're going to be able to have a step function change in terms of acceleration of migrations as we move into the second half. Marc, I'll throw it over to you to talk a bit about our EBITDA.

Yes. Greg, on EBITDA trends, as we've mentioned before, prior year subscriber losses will continue to weigh on current year results. We're optimistic about the improvements we're making that we talked about on the call. We're transforming literally every aspect of this business, and we think that we'll -- fundamentally, we'll be able to grow EBITDA over the long term. We're acting with discipline on OpEx. And we feel like we have the runway to continue to sustain EBITDA growth for the long term.

Our next question is from Jonathan Chaplin with New Street.

I've got a question or really a couple of questions on ARPU. Marc, I think you said you expected ARPU to improve from last year. Was that for Residential ARPU or for broadband ARPU or both? And then I'm just wondering, with the new pricing plans that you put into effect, clearly, they're having a benefit in helping stabilize churn. But when do you think you'll get to a point of ARPU stability? Could that happen at some point this year? Or is it more likely next year?

Jonathan, yes, on ARPU, we do look at ARPU holistically because there's a little bit of fair market allocation between the product line. So our focus fundamentally is on the overall Residential ARPU. And as you've seen, we're pleased with the stabilization of ARPU, especially over the past 3 quarters, really erasing significant declines that we previously experienced. And so just note, as we've talked about previously, video losses will continue to weigh on ARPU declines, but we're offsetting these -- that exposure would mean just more discipline around price, with retention, around gross add acquisition offers, selling incremental services like mobile. And we're passing on more of the programming costs to our customers as well. And then really just excited about how we're leveraging advanced analytics and AI tools with our frontline employees to help them guide each and every individual customer interaction. So we feel like we have a real path to sustain a balanced approach on ARPU, and we're optimistic around that.

Our next question is from Jessica Reif Ehrlich with Bank of America.

I have a question on video and question on advertising. On video, can you talk about like efforts to keep programming cost per sub down? And maybe some color on, Dennis said, more optionality for video packages. This is still video, but it looks like for the first time, I think, ever, we're starting to see cable overbuilding each other. Can you talk about what strategies you're employing to differentiate? Anything you can say on the overbuilding for cable. And then just advertising quickly, your numbers were really strong, even without political. Can you give us some color on where that's coming from and progress in advertising initiatives?

Jessica, I'll talk a little bit about video and the overbuild strategy. And then, Marc, if you want to talk about advertising. But on the video programming costs, I'm really proud of the team and the way we're working together better than ever and our Head of Programming, working across with our finance organizations to really leverage data in ways that we've never done before to be able to go into these conversations much more informed. And so we're continuing to drive down programming cost inflation per sub and really having open honest conversations about how broken the model is. As we know -- as we all know, linear video viewing is at all-time lows. Costs are at all-time highs. Direct-to-consumer option availability is at all-time highs. We continue to package in content that folks have no interest in watching. And so those are the conversations we're having. We're putting the customer at the forefront and having these conversations in a way that we're hoping ultimately become a win-win, and those conversations continue. And as we have those discussions, the team is now working on some new video packages, as I mentioned, which I think will provide just some more optionality for customers. We have more work to do in the second quarter to really finalize the content and pricing and go-to-market strategy, but I'm confident it will just provide more optionality for customers in the second half of the year. And we want to be able to provide products that allow customers to watch what they want, when they want it. And so our new stream box, which is an Android-based box, we've launched it across the East footprint. We're now launching it across the West, and that will allow customers to watch linear video as well as direct-to-consumer…

Yes, Jessica, on advertising, we are very pleased. The sales channels are operating at the highest levels. And what we're really encouraged by is the partnership now that's forming between our ad sales and our B2B sales organizations. We think that actually accelerates growth even further. And we're making strategic investments in our advanced advertising platforms, which I think is setting us apart from the rest. So we're very pleased on the path we're on. And as you mentioned, we see political as a nice tailwind as we enter into the second half of this year. So optimistic around our News and Advertising business.

Our next question is from Frank Louthan with Raymond James.

On the wireless, good progress getting the gross margin positive. How long can we reach a scale to get to approach something close to your breakeven on EBITDA? And what is the goal there? And as you see -- we generally see across the board with pricing for broadband, some of your competitors obviously -- some of your peers taking pricing up, and we see a lot of the fiber overbuilders and the telcos taking pricing up. At what point do you think you have opportunity there to participate in some of that upward price movement we see across the industry?

Frank, I'll talk a bit about the wireless mobile strategy. And Marc, if you want to chime in at all on the financials and happy to talk about our pricing strategy generally. But we're very pleased with mobile. We continue to see really strong performance, and we're still in the early days, 3.8x improvement year-over-year. And really the channels are just starting to get into a rhythm. We've launched some new channels in the last few months, and they're starting to come online and perform like our care and retention teams now selling mobile as well. We've transformed our retail centers into mobile sales centers. And we're continuing to operate and sell in ways that we've never done. And we're focused on quality. We've seen a $4 improvement in ARPU. We're selling in unlimited, and we're just continuing to drive attach across the board in lines. And so we're really pleased with the mobile and the opportunity. We're going to continue to drive mobile in B2B as well. We just launched that recently, and we're excited for the growth and, particularly, the churn benefits. We're already seeing 20% benefit to our customers when taking mobile. And so this is going to -- this is a core part of our portfolio. We have more work to do. We have more products to launch. We have watches and tablets and others coming later this year. And we're going to continue to drive profitability as well as we start to look at other products later in the year and focus on insurance and accessories. We're very happy with where we are, and we're confident that we can get to a pacing in line with peers in our industry.

Yes, and Frank, on pricing, again, we're pleased with the stabilization that you see in our overall ARPU rates. And again, we're doing that in a multifaceted way. We're focused on being disciplined around price, both in retention and acquisition. We're selling in incremental services and certainly trying to drive more mobile and just being disciplined on the video side of the house. And so we feel like there is a path from our sustained ARPU growth. We think we'll do slightly better than what we saw last year. And yes, we're pleased on our trajectory in the way we've been able to kind of moderate and stabilize ARPU. And certainly, we'll look at the holistic book of business around when we take and how we take price increases. But we're doing it in just more of a scientific manner at this point, but we feel like we're on a nice path to sustain growth.

Our next question is from Sebastiano Petti with JPMorgan.

I was wondering if you could update us perhaps on what you're seeing from the pace of incremental build in terms of fiber, both in the East and in the Western markets. Obviously, in the East, you have fiber. It's a bit more mature, but they continue to expand somewhat incrementally. But Frontier, I think, has put out a target about the amount of net new locations they plan to fiberize in Connecticut over time. So any change there? And then in the West, obviously, you called out incremental overbuilders and legacy or traditional DSL markets. Has that pace slowed? Have you seen anything from some of the open access announcements we've also seen as well? And while -- and maybe you can give us an update on where do you think fiber overlap, what the terminal penetration is perhaps in the Western markets. I think in the past, Altice did talk about that.

Sebastiano, we see the pace remaining fairly consistent, honestly, across the East and the West. As we know, there's been a faster pace in the West. I mentioned we've seen about 200,000 incremental overbuild in the second half of last year. We continue to see Verizon and Frontier edge out at the paces that they've been edging out in the past. All that being said, our ability to continue to compete at a hyperlocal level continues to progress. That's why I'm so excited about the new brand platform that we've launched as well as these new local go-to-market playbooks. And ultimately, I believe we have the right products and the right portfolio and offers to be able to compete. We do see, as I mentioned, in the West, in particular, as some folks launch into some of these markets that were DSL markets starting to take some share, but then we're able to compete very effectively after that initial launch. And so that's what we're focused on, controlling what we can control. We continue to see sales channels improving in productivity and in yield. We continue to see churn stabilize as we continue to deliver quality, quality network and service and experience and products. And so that's our focus, and we're continuing to expand our footprint as well and continuing to drive. We operate in 4 of the fastest growing cities in the country, 4 of the top 16. All of those are in the West. And we're bringing a new level of discipline in terms of how we drive our own overbuild and new build, which will help us continue to grow from a footprint and a subscriber perspective as well.

If I could quickly follow up. You kind of alluded to it somewhat in discussing your network expansion efforts. But I think a key debate from -- in the investment community is the ability for cable providers to improve -- inflect and improve the trajectory of gross additions. I mean how do you -- how are you thinking about that? I mean do you see this FWA competition and maybe some of the incremental fiber overlap? As the pace of that abates, then perhaps Altice USA should think about or project an inflection within gross additions? Or is it more on a churn environment or on a churn basis where you see the growth algorithm on broadband subscribers being driven more so by retention and slowing attrition rates?

I think it's absolutely both. It's absolutely both. I mean, for us, on churn, our levels are best in the industry. And that being said, we're in a new environment, and we need to be better. And so we're going to drive a level of quality and excellence in operating and continue to focus on leveraging tools and analytics to be able to perform with even more precision. So we need to continue to improve. On the gross adds, we're a bit different in the -- than the industry because we're in a transformation mode. So we brought on a brand-new Chief Marketing Officer, Jen Garrett, at the end of last year. She's transforming her team. And then we brought on a new agency of record. And so I absolutely believe that there are -- there is an opportunity for us to perform at a higher gear from a gross add, top-of-the-funnel perspective. And so we are coming at it from both angles, and we will bend the curve on both ends of the spectrum. And the hyperlocal playbooks, to be quite frank, we were historically on our -- reactive at best. And we are going on the offensive. And as you think about how we compete, we have to compete at a hyperlocal level at the town level based on the competitive landscape, which we have not done before. We've put in a new leadership structure, our OMS structure, Optimum market structure, to allow us to compete at a much more effective level locally. And you'll see that in our new marketing, where we are competing at the town-by-town level in our marketing. And I'm confident that, that is going to start to translate as we -- into gross additions as we move into the year.

Our next question is from Arun Seshadri with BNP Paribas.

Just one for me. I guess the bond price performance in the last few weeks appears to have been impacted by general concerns around the capital structure. I guess given prices of your debt, it seems to open the door for deleveraging via discount capture. Is that something you're looking at? I think the commentary that you made, Marc, earlier on, in the call seems to have added a line regarding all options to maintain a viable capital structure. I don't know if I imagined that, but just any thoughts on either of those would be helpful.

Yes. Arun, as we said before, our focus is operating the business and getting back to sustainable long-term subscriber, EBITDA and free cash flow growth. Certainly, clearing out the near-term maturities in the beginning of the year has given us runway. But as we also talked about, the interest rates remain high and move activity remains low. Consumer spending is pressured and with sustained, high competition. So as we position the business for the long term, we need to be proactively managing our capital against the current environment. To that end, we're well positioned in the near term, but we are looking at all options to address our debt maturity profile and maintain a capital structure that best supports our long-term strategic objectives. Beyond that, we have nothing further to share. But of course, we'll update the market as required if and when we have something to announce.

There are no further questions at this time. I'd like to hand the floor back over to Sarah Freedman for any closing comments.

Thank you all for joining. Please reach out to Investor Relations with any additional questions.

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