Ladies and gentlemen, thank you for standing by and welcome to the Altice USA Q2 Results 2020 Presentation. [Operator Instructions] I would now like to hand the conference over to your speaker today, Nick Brown. Please go ahead.

Thank you. Hello, everyone, and thank you for joining. In a moment, I'll hand you over to Altice USA's CEO, Dexter Goei; and 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. Slides are available on the company's website, and a replay of the call will be made available. And now I'll hand over to Dexter.

Thanks, Nick. Hello, everyone. Why don't we just jump right into the presentation. Starting on Slide 3. I'd once again like to take the opportunity to thank the Altice USA team. Our world has been greatly disrupted over the past few months, and I'm very proud of the ongoing dedication displayed by our employees. Collectively, we have been incredibly nimble to respond to the surge in demand that we've seen for our services. In summary, we delivered an exceptional quarter with total revenue growth of 1%, driven by broadband revenue growth of 14% year-over-year. We saw record demand for our broadband services and achieved the best ever quarterly subscriber results with 70,000 broadband net additions. We also delivered the best ever quarterly customer net additions of 53,000. We continue to see strong trends in speed upgrades and network usage, which we are supporting with the expansion of 1 gig availability, which is now available in over 3/4 of our entire footprint and our ongoing FTTH network rollout. We saw resilience in business services across both our SMB and enterprise customers and delivered business services revenue growth of 2.2% for the quarter. As the quarter progressed and local and regional lockdowns began to ease, we also saw a recovery in advertising, exceeding our expectations. We grew adjusted EBITDA 2.5% year-over-year. Excluding mobile, our adjusted EBITDA would have grown 3.7% year-over-year. This translates to a margin expansion of 160 basis points year-over-year to 45.8%. We saw another very strong quarter of free cash flow growth, up 50% year-over-year, driven by our growth of EBITDA, reduction in CapEx and reduced interest costs. We continue to take advantage of the dislocation in our share price to buy back shares, completing over $630 million in share repurchases or nearly $1.4 billion year-to-date against our $1.7…

Thank you, Dexter, and good afternoon, everybody. Thanks for joining us, and we certainly hope everyone is doing well and staying healthy. On Slide 17, we underscore the strength of our underlying margin trajectory. As Dexter already noted earlier, on an as-reported basis, we posted an adjusted EBITDA margin of 44.7%, an expansion of 70 basis points year-over-year. Excluding mobile, we grew margins 160 basis points year-over-year to 45.8%. The -- remember, this is now over 10 percentage points higher than when we first acquired Suddenlink and Cablevision, and we have been able to continue to expand margins from these elevated levels while investing in all of our growth -- new growth initiatives, which have been supporting additional revenue growth. In the quarter, we incurred just under $20 million in one-off costs related to the pandemic from a combination of facilities expense, premium pay and bad debt. Although clearly, we had a number of tailwinds in our residential business and took other cost actions in the quarter, which more than offset this. Our EBITDA less CapEx or operating free cash flow margin reflects added capital outlays related to our fiber investments from the end of 2018, as Dexter outlined, suggesting we have more room to grow here as we achieve further OpEx efficiencies and longer-term CapEx normalizes to below $1 billion. In Q2, our operating free cash flow margin was up 430 basis points year-over-year, driven by a combination of EBITDA margin growth and lighter CapEx due to some of the delays in permitting. Turning to Slide 18, you will see our free cash flow in more detail. We generated $707 million of free cash flow in the second quarter, up 50% year-over-year and have generated just over $1 billion year-to-date. We repurchased $631 in the quarter -- $631 million…

[Operator Instructions] Your first question comes from the line of Craig Moffett from MoffettNathanson.

I wonder if you could just drill down a bit into the different broadband trends that you're seeing in the Optimum footprint and the Suddenlink footprint. I'm interested in particular, just given the -- how low the penetration historically has been in Suddenlink's markets, whether the work-at-home phenomenon is leading to the same kind of uptake. And has that changed your expectations for how quickly you can close the penetration gap in those markets? And then in Optimum, where you're competing against FiOS, how much difference does the fiber-to-the-home strategy make? And if you could just tell us a little bit more about how the FTTH program is working competitively.

Sure, Craig. Listen, on the broadband trend, we flagged a lot of this in the first quarter, which we were seeing a higher penetration of new wins in the Optimum footprint of DSL and mobile-only homes, which has shown very, very strong performance on the broadband side and continue to push our penetration levels up higher. I -- we then saw, as we flagged in the first quarter earnings that we were starting to see similar trends in the Suddenlink footprint, given that the walk down, stay-at-home directives started a little bit later than in our Optimum footprint. I think it is our belief that we will continue to see strong trends and continue to push higher and higher penetration levels in the Suddenlink footprint. There's no reason in our minds that there should be a large discrepancy and penetration levels between the Suddenlink footprint and the Optimum footprint. And that Suddenlink will continue to catch up, particularly as the overall quality of our network, and we do have pockets of our network, which are under-invested in or have been left to be not very focused on because of some of the demographics where they lie or where they are not connected -- interconnected with our broader network. And so as we continue to invest in, not only edge-out technology, but also in upgrading those households, we'll see increased penetration levels in the Suddenlink footprint. I think on your second question, I think it's too early to tell. It's probably the first answer. We're at about 900,000 FTTH homes passed today, ready for service. We have about 10,000, 15,000 FTTH customers today. But the most important thing, which we are very bullish about is clearly the performance of the network with asymmetric speeds up and down that we're delivering at 1 gig today, and we will be delivering at much higher speeds going forward is really going to be a very large differentiator for our customer base and the Optimum footprint where upload speeds have been challenging in the stay-at-home environment as video conference calls take up a big, big, big amount of that capacity and show some flutters in network performance. So we really feel that the symmetric fiber-to-the-home technology is going to be a big differentiator. And so we are going to upgrade the entire Optimum footprint. So 40%, 45% is in non-FiOS area, and we also believe that in the FiOS area, our technology is going to be vastly superior to FiOS' technology, which is an older, let's call it, fiber-to-the-home technology.

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

Just a question about the Lightpath transaction. You noticed that -- you noted that the proceeds are net of taxes, which means you are paying some degree of tax. I'm wondering, have you fully utilized your NOLs at this point in time? And do you have any update on the time line to being a cash taxpayer once you've closed the transaction?

Mike, do you want to take that?

Yes, sure. So I think coming into the year, we shared that we expect to be a [ federal ] taxpayer really in the beginning of 2021, pursuant to the Cares Act, we feed a whole bunch of interest that was otherwise hung up on our balance sheet for tax purposes, and so we pushed that out about 12 to 15 months in the beginning of '22. By virtue of the Lightpath transaction, we're kind of back where we started the year. So we would expect to be a full federal cash taxpayer really pretty early in 2021 based on that current profile and the gain that we'll realize on that transaction.

Got it. And if you don't mind, just one quick follow-up question about the structure. Since you are financing it, it's going to have its own financing silo once the deal has been completed. And you noted that the leverage is already higher. It's going to be higher than your current level of leverage. Is total corporate leverage going to be higher pro forma for this deal? And are you expecting to be more aggressive with CapEx in the Lightpath footprint since you are going to be able to finance it separately?

I think the answer to that is we will be slightly higher in terms of overall consolidated leverage, probably to the tune of 0.1 turn if we stay at 6.5x leverage at the Lightpath level. And secondly, yes, one of the growth drivers of Lightpath going forward is finding more opportunities to invest and light up more network. And so we'd expect for Capex, which has been averaging probably more like $90 million to $95 million a year to edge-out going forward at the Lightpath level.

Our next question comes from the line of Phil Cusick from JPMorgan.

Dexter, I understand your guide is to EBITDA growth this year. But can you update your thoughts on the 4% to 5% in the back half that you discussed at our conference in May? What are the puts and takes since then? And also, can you dig into cost-cutting opportunities from here through the year?

Sure. The back-of-the-envelope math, as we had released first quarter earnings, in order for us to do $1.7 billion of share repurchases and end the year at 5x L2QA leverage was 4% to 5% EBITDA growth. Based on our results here in Q2 and year-to-date, that's pretty much more like 4% or maybe even slightly lower in the second half of the year. So we feel really good about our ability to hit that EBITDA growth. We've got strong momentum, as you saw in the B2C. We think that the political advertising tailwind is going to be helpful, obviously, as well. The OpEx initiatives, as you saw in our slide deck, which were down 8.6% year-over-year. I'd say that in the second quarter, we probably did about $50 million of OpEx savings, of which $30 million or so, maybe $30 million, $35 million are permanent. And so we continue to look at OpEx opportunities going forward. And so the combination of those, plus just some lapping of the acquisitions of Cheddar and the launch of mobile in the second half of the year, we feel very good about being able to deliver that 4% EBITDA growth in order to reach our leverage and share buyback targets.

Okay. So aside from hitting that target, which would imply now of 4% or so in the back half, is there any reason you would be less optimistic on that growth in the back half than you were 8 weeks ago?

No. Not from what we see today. Obviously, we can't, without the perfect crystal ball. But based on our revenue trends in our core telecoms business, an expectation of some uptick in the advertising business and the initiatives that we've put in place on cost side, we feel good about our ability to deliver that.

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

Thanks for all the detail in the slide show and the call, Dexter. I just -- I wanted to follow up on Craig's question around fiber and the go-to-market strategy. I immediately went to your website to try to order, and I can't find fiber mentioned anywhere. So I'm just curious are you putting marketing muscle behind that? And what is the process to let customers know all about the fiber and try to start selling that in? And then separately, I have had some inbounds over the last bunch of weeks with people wondering how fewer college students attending this fall might impact broadband net adds, people who stay in the Hampton's perhaps, how that might impact broadband adds? Any 3Q swing factors on broadband that we should be thinking about? That would be helpful.

Yes. Listen, on the first point, we've had fiber on a 1P basis, broadband-only, out there for the past couple of quarters. We have not put any marketing muscle behind it at all in anticipation of waiting for our ability to deliver triple play, let alone using double play. And so we are just in that phase right now where we're starting to market slowly on the double play and triple play fiber-to-the-home. So the marketing muscle is really going to be more of a back-to-school and thereafter. And so we are not putting on the blinkers right now until we start to see coming back into the back-to-school periods. So that will be much more obvious to you. On your second question, I mean, we do have exposure to universities. I don't think it's -- we have a view yet based on all the different types of programs that universities are putting in place. And I'm -- I don't think most universities actually know exactly what they will be doing yet until coming into the fall, even though it's very, very close to now. Some of the activity that we're seeing is a lot of the people, who are students, who are supposed to be online only, will actually be going to their campus towns and moving in and trying to have their college experience that way. So I think it's a little bit too early to tell whether we're going to have a negative impact from the online schooling mantra for college students. But it -- we clearly will probably see some softness there relative to what we've seen in the previous years. You had another...

Well, and also for that matter, will be folks staying in the Hamptons longer than they normally would. So I just wasn't -- it was more are there multiple swing factors to the quarter?

Well, that's -- yes. Yes. I mean, yes, I think that's clearly the case with the exodus that we are seeing currently and anticipates, particularly in Manhattan and the Greater New York City. And a lot of those people are moving out to the suburbs, which is Optimum territory. So that's a good swing factor where we won't be seeing people shutting down post-summer. And we've seen the activity levels in terms of housing rentals and housing sales in the suburbs tick up significantly, right? So that is a tailwind factor for us going forward through the rest of the year.

Your next question comes from the line of John Hodulik from UBS.

Firstly -- following up first on broadband. Obviously, strong numbers. Anything you can tell us about trends in July? And do you guys think that you benefited during the quarter in the FiOS territories where -- based on the fact that Verizon wasn't going into homes and installing fiber connections and that possibly may have changed? So that's number one. And then on the edge-out strategy, you were talking about that as a potential source of growth and applying for [ RCF ] funds. Can you give us a sense of how big that could be? Have you done like some kind of a -- any sort of study on how many homes sort of bordering the Suddenlink territory you could eventually address? And then what kind of an opportunity that could be for you?

Sure. Trends in July, listen, they continue to be strong. Obviously not as strong as we saw in the end of March going into April and May, but we've seen very, very good churn reduction numbers, and continue to see year-over-year growth in our gross add numbers in July. And so I think last year in July, just from memory, we were at minus 4,000 approximately of customer net adds for the month of July. We will clearly beat that number this month of July. We'll see where we end up for August and September and end up for the quarter, but I'm cautiously optimistic that we'll have another growth year-over-year relative to last year's performance in this quarter. In terms of Verizon, is Verizon back to installations affecting our ability to market share? I don't think so. As I flagged in Q1, less than 20% of our net subscriber activity was coming from the Verizon footprint at Altice USA, so it is not the largest driver of our performance is -- or counter-performance is the rise in footprint. On the edge-out strategy, listen, last year, we did about 90,000 new homes built. This year, we should do more than 100,000, and probably 110,000, 120,000 around there. We would have hoped to do more if it weren't for the pandemic. It's clear that we believe that we've got a road map of doing 150,000 plus a year. We also have about 300,000 to 400,000 homes in the Suddenlink footprint, which currently are suboptimal in terms of network performance, that we are going to be upgrading to be able to perform and provide true broadband speeds. And those levels of penetration in the -- those 300,000 to 400,000 homes tends to be in that 10% to 20% level, so very low penetration. So we expect to see strong broadband growth going forward in those areas as we upgrade them. On the rural opportunity, we'll see what's available and whether we think the economics are attractive. But we will continue to push on our edge-out build-outs here, and try and be thoughtful in capitalizing those opportunities as well. So I think the overall sentiment here is that we will be accelerating in terms of our footprint and our ability to market to new homes.

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

I realized the topic of residential ARPU is getting complicated by those that are on bundles versus those that are on stand-alone services like broadband. I was wondering though if you could unpack what you're seeing on the ARPU side overall in residential. And maybe specifically for broadband and video, whether it's around the tiers customers you are taking as well as the impacts of any price increases that you're passing through.

Sure. Maybe the focus on broadband and video ARPU, just to give you a sense of the numbers, because accounting, as you know, plays tricks on the numbers every quarter here. In terms of the broadband ARPU growth, which was up 11.3% year-over-year, 2/3 of that came from subscriber activity, which means people coming in subscribing at higher tiers, up-tiering of speeds as well as rates, and only 1/3 of it comes from accounting allocation. In terms of video ARPU, that declined 2% year-over-year, 70% of that is accounting. And so that doesn't surprise me given that 1/3 of the broadband ARPU is accounting, so it's reimbursed. And 30% of it is related to subscriber activity, which is really down tiering of packages. So the overall trends are very similar, I guess, in terms of the subscriber trends, which is a very strong acceleration in broadband connectivity and net adds. And the inverse with video, which have seen some slight acceleration in disconnections or really about gross adds attachment rates coming down as well as down tiering in terms of video packages. That is the overall picture that we're seeing -- that we've seen for the last 2 or 3 quarters very clearly. I don't think there's a very clear other way to think about things because, as you say, it does get a little bit murky as you try and get really, really deep into the detail.

And do you see any inflections in the way, on the video side, your customers are behaving with the tiers engagement? And how the rising availability of these SVOD options and AVOD options might influence their video purchasing?

Well, I think it's really driven -- I think the #1 statistic is really driven by our attachment rates and gross adds. And our attachment rates and gross adds are -- have fallen to about 40% of our gross add numbers, and they tended to be closer to 55%, 60% of our gross ads were taking video. And given that most of the gross adds on video are on promo, they tend to be taking, let's call it, basic to core packages and not premium packages, which also is not surprising, given that SVOD, particularly the Netflixes of the world, HBO Maxes, Amazon Primes, and as such, are the premium alternatives that subscribers are taking. And so there's a mix and match there as those subscription levels go higher on an OTT direct-to-consumer basis. You'd expect that if people are taking cable, that they're probably taking more basic or core packages than much -- than very premium packages.

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

I was just wondering if you could dig into some of the newer sustainable cost opportunities that you've got a bit more confidence about in the last few months with the stay-at-home experience. And I'm just wondering if you can give us the potential magnitude or size order or something like that of the top ones.

Sure. I mean, of the $50 million-ish of OpEx savings in Q2, where we say $30 million to $35 million of it is -- are permanent, there's a whole host of different things that come into that, from personnel-related numbers, to advertising expenses, to customer care experience, all those played into those numbers. I think, going forward, there are some discrete buckets to be thinking about. Number one, real estate. As you may imagine, I would assume every single corporate in America is reviewing their real estate portfolio, given the work-at-home dynamics. And even post-pandemic, I think the expectation that commercial real estate will be less penetrated than it is today or than it was pre-pandemic? Secondly, it's obviously, the customer digitization efforts, which relates to online ordering, self-install as well as more auto pay, which has been a nice benefit that we've seen over the past 3 to 4 months, and we expect it to continue going forward. And then lastly, it's all about the customer care experience as well, which is becoming a lot more automated, and we continue to see large upticks in online versions of customer care and remote customer care. And so I think that the combination of those 3 or 4 buckets there make us feel very good about our abilities to continue to push margins. The knock-on effect to those digitalization efforts is, obviously, probably overhead and certain personnel divisions are probably becoming leaner as well, given that there's less customer person-to-person activity.

Great. And where are you on self in-store at the moment? And where do you think you can get to?

It's a 2021 initiative, which I flagged in Q1 earnings. If you go through the math, we do about 1.1 million of gross adds a year. We probably, on a net basis, between the cost of installs and what we subsidize and what we make customers pay, our net cost is probably somewhere around $50 -- $50 to $60 per install. So you have to think about just how much of the 1.1 million of gross adds will eventually become self-install. That's probably the opportunity there. I think, more importantly, network enhancements and better CPE equipment also is going to drive a lot of the OpEx savings, not just self-install, but obviously, the whole -- a lot of those -- the categories I just mentioned around customer care, less incident rates, online functionality and remote functionality, is a -- probably a much larger opportunity than just self-install.

Your next question comes from the line of Jessica Reif.

A couple of questions for Dexter. Can we discuss a little bit what's going on in advertising? Do you think you're monetizing -- your news ratings grew dramatically. Do you think you're monetizing well? Or is there still upside? And then you sounded a bit cautious on the outlook, and I think it was national, but I was just hoping you can give some color on that. And then the -- on fiber-to-the-home, you said that once you complete the upgrade, CapEx will come down to $1 billion or so. What's the timing of -- would you -- of completing that fiber upgrade? Then just to kind of wrap-up the question. When Doug Mitchelson asked you about the changes in dynamics given COVID, college Kids, the Hamptons, et cetera, how significant is your seasonal package? Meaning if people stay in the Hamptons, how much revenue/EBITDA would you not be -- would you be keeping?

A lot of questions. On the advertising side, listen, ratings have been great, as you may imagine. But as you probably know, Jessica, the ability to monetize great ratings has been probably far and few between, particularly in the first 2, 3 months of the pandemic. So we're not seeing an outsized monetization of our great ratings there, but, obviously, doing very well relative to the other sectors in our advertising portfolio. On the outlook for advertising, I think we're cautious on the branded advertising that we have at Cheddar today. On the national side, I think we're also cautious on national, excluding political. And -- but on the local side, particularly on the interconnect side, we've probably outperformed expectations relative to where we were in April. So we're cautiously optimistic as some of these economies, particularly in the Tri-state area, being our biggest exposure to advertising has performed well through their reopening phases of the pandemic relative to our Suddenlink footprints where we have less advertising exposure there. So we feel cautiously optimistic about our ability to grow or at least remain flat on our advertising revenues relative to 2019. On FTTH, listen, we're going to end the year probably around 1 million to 1.2 million homes ready for service. We'd like to get to a run rate of 1 million-plus homes built out per year. So if you do the math, we're probably talking about 4 years until the FTTH program is completely done on the ARPU footprint. And yes, then we believe that our CapEx numbers will become sub-$1 billion after that. In terms of the dynamics, I think -- I don't have that detail. I think I'll get back to you -- I'll ask Nick or Cathy get back to you on the dynamics there. It's clear that we are going to have some nice advantages of the Exodus in the New York Tri-State area to the suburbs. And that will maintain itself throughout the rest of the year. But we'll come back to you as to those who are the winter birds intend to disconnect. And those who are -- many of the subscribers will also disconnect post-summer, maybe try and quantify that for you.

Great. And then can I just ask one last one? What are your thoughts on carrying Peacock? It seems just like such a friendly consumer proposition if you're pay TV support or an attractive proposition, if you're not?

I don't want to comment necessarily on our friends at other places. But I do think that the whole world of OTT content is getting more cluttered. There's a lot of options out there, lots of different colors, lots of different tastes. And so I do think that there are going to be a lot of hit or misses in terms of delivery of some of these platforms. It's also difficult to see which ones are successful and which ones are just having users that have free access to the content. And then from there, how do they monetize it going forward on an advertising basis and/or subscription business, right? So I think the economics at -- in many of these platforms still remain challenging relative to the [ affiliate ] piece. But given that we are seeing video losses accelerating, I think from our standpoint, we're accelerating relative to what has been for the last 2 or 3 years, but less so or slower burn relative to some of our peers. But it will be interesting to see what happens to the content world, given that the dynamics going from the affiliate piece to these OTT platforms.

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

What kind of maintenance issues are you running into on the network when they're running at such high levels of capacity for so long? And then looking at the mobility product, getting -- is getting sales there back up a little bit? Is that really just a factor of getting folks back in the stores? And what's sort of been the trend in Q3 as places have opened back up a little bit?

Yes. Listen, the network performed extremely well during the surge of traffic that we saw in the second quarter. Clearly, they were instances, in terms of performance, where, fundamentally, we just accelerated a lot of node splits. And particularly in the Optimum footprint in the suburbs where the activity was extremely high and very, very concentrated, but that's about it. I think, as we flagged in the first quarter earnings, our network was built to have double the capacity of the pre-pandemic levels. We saw surges of about 30% to 40% in network usage. They were clearly the pockets of usage in neighborhoods where we went aggressively, and then dropped 5%, which is a lot deeper. In terms of mobility, yes, clearly, getting the retail side of the equation back open is helpful. It's not really the main driver of everything. I think for us, it's continuing to hone the experience of our customers online and in our call centers, but as well as being able to deliver them different flavors of products and services, which we won't be delivering until the third and fourth quarter of this year. And so we're continuously getting better at it, particularly on the churn level, which has been high in the early days of a subscriber. Those numbers are coming down nicely, not nice enough. But we're very, very focused on the after-sale experience, particularly in the early days post side up, which is where we see the heaviest churn. But, outside of that, we feel good about the product, where we continue to push there and focus our efforts. And we're -- we look forward to working very closely with T-Mobile going forward here as we start going on to their network.

There are no further questions at this time. I'll turn the call back over to the presenters.

Thank you, everyone, for joining. Do let us know if you've got any follow-up questions and look forward to catching up with you virtually in the next few weeks. Thanks, guys.

Thank you.

Thank you.

This concludes today's conference call. You may now disconnect.