Optimum Communications, Inc. (OPTU) Q3 2022 Earnings Report, Transcript and Summary

Hello, and welcome to the Altice USA Q3 2022 Earnings Conference Call and Webcast. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Nick Brown. Please go ahead.

Hello, everyone. Thanks for joining. Today, we're joined by Altice USA's Executive Chairman, Dexter Goei; and CFO, Mike Grau. And we're delighted to introduce our new CEO, Dennis Matthew, who together will take you through the presentation, and then we'll have time for Q&A. As today's presentation may contain forward-looking statements, please read the disclaimer on Slide 2. Dexter, please go ahead.

Hello, everyone. Kicking off with the summary of our third quarter performance on Slide 3. Revenue declined 7% year-over-year, mainly driven by pressure in our Residential and Advertising businesses as well as the loss of AirStrand revenue in the prior year after termination of our legacy Sprint contract. Excluding AirStrand revenue, the revenue decline would have been just 4.3% year-over-year. Q3 adjusted EBITDA declined 18.1% year-over-year with a margin of 39.9% or down 12.7%, excluding AirStrand revenue, reflecting both the revenue decline and higher OpEx to drive future growth. Residential broadband customer net losses were $43,000 for Q3, which was relatively in line with the losses in Q2 as the lower market activity environment and current competitive pressures impacted the pace at which our growth initiatives are materializing. Free cash flow remains solid, even with our elevated fiber investments generating $136 million in Q3 and $535 million to date. Our Optimum fiber network deployment continues to accelerate, rolling out at the fastest quarterly pace to date, adding 321,000 new fiber passings in the quarter. We also added 31,000 fiber customers in Q3 and expect to continue to grow at an accelerated pace through both gross additions and migration of existing customers to our fiber network. We continue to advance the pace of our new builds and expand our sales distribution channels, including the opening of several more Optimum stores across the country, both of which support future customer growth. And finally, I'd like to welcome our new CEO, Dennis Matthew, who formally joined us exactly 1 month ago today. Before I turn it over to Dennis, I want to share that leading Altice USA has been the most rewarding experience in my career, and I could not be proud of what we accomplished together, thanks to leadership and the thousands of dedicated employees across the country to enthusiastically serve our customers and communities every day. The decision to step away from the CEO role at this time was a difficult one, but based on personal reasons as my family and I would like to move back to Europe. But having found Dennis, we take to take the reins at Altice USA, I couldn't be more optimistic about the company's future, and I'm confident it is in good hands. Dennis is a great operator with a proven track record, an exceptional leader and team player, and in just a few short weeks, has acclimated incredibly well across the Altice leadership team, frontline workforce and broader organization. As we look ahead, following the transition period we're in now, I will remain involved with Altice USA's Executive Chairman with a focus on strategic opportunities for the company. With that, I'd like to hand this over to Dennis to say a few words about himself.

Thanks so much, Dexter. I'm very excited to join Altice in the role of CEO at this important juncture for the company. I see immense potential to further connect with and serve customers while elevating the company as the broadband provider of choice. And by way of background, I have nearly 18 years of experience at Comcast, previously leading some of the company's largest regions in the East Coast, most recently was the Freedom region, which includes areas of Pennsylvania, New Jersey and Northern Delaware. And so my goal is to position Altice USA as a best-in-class broadband provider with a focus on operational excellence and customer experience. In my first 30 days, I've had the opportunity to spend time on the ground with frontline teammates, hold deep strategy sessions with the leadership team here and meet employees throughout the organization, discussing areas where we can deliver a stronger employee and customer experience. And so I'm proud to lead such an innovative company that has the right vision and long-term strategy centered on investments in fiber infrastructure and a superior customer experience. I'll give you more of an update on where we are with fiber and the new build initiatives in a few moments. But first, I'd like to hand it back to Dexter to take you through the headline Q3 performance in a bit more detail.

Thank you, Dennis. Moving to Slide 4, showing revenue trends in more detail. Total reported revenue in Q3 declined 7% year-over-year, mainly due to a decline in the Residential business of 4.4% and our News and Advertising business, which declined 16.1%, which I'll come back to in a moment. Total revenue was down 4.3%, excluding about $75 million of prior year AirStrand revenue. In Q4, we'll have another $36 million of lost AirStrand revenue year-over-year. Remember, we had approximately $120 million of AirStrand revenue for the full year in 2021, which we will not see in 2022. Business Services revenue in Q3 was down 16.8% year-over-year on a reported basis, but flat excluding this AirStrand revenue. Turning to Slide 5 on Q3 customer trends in our Residential business. We reported a net loss of 50,000 residential customer relationships and broadband net loss of 43,000. While we typically see seasonal return-to-school benefits in Q3 when comparing to Q2, we're still experiencing higher competition in parts of our footprint. It's clear that fixed wireless broadband has taken some of the growth in switchers out of the market in the past few quarters given the growth from these operators as well as some localized pressure from fiber overbuilders. This is on top of the observing general lower market and move activity and some households moving back to mobile-only solutions since the pandemic. We firmly believe that we're on track to improve these trends and return to broadband growth through our growth investments, inclusive of our fiber deployment and multi-gig speed launches, customer experience improvements, new build expansion and distribution channel investment. Separately, we continue to see positive trends in our mobile business, adding 5,000 mobile lines this quarter, which is a slowdown from the previous quarter as we discontinued some of our service promotions. Slide 6 is an overview of our Business segment revenue. Revenue declined 16.8% in Q3. Excluding AirStrand revenue, revenue was flat year-over-year. Similar to our residential business, the SMB market is also seeing some impact from incremental competition and revenue for the quarter was also impacted by a carrier price down in our entire enterprise business. Once we lap the AirStrand revenue impacts, we are still mindful that an economic slowdown may delay a more material pickup in growth here. SMB and other revenue was flat ex AirStrand in Q3 and Lightpath revenue grew 0.5%. Lightpath recently announced an additional footprint expansion with the entrance into the Miami market with 135-mile fiber network build. Lightpath's entrance into Miami will kick off with a 55-mile subterranean network of brand-new high-count fiber that will be ready in early 2023. This comes as the second major East Coast market that Lightpath has entered into over the past 16 months following Boston in June of 2021. Slide 7 is a summary of our News and Advertising business performance. Revenue was down 16.1% in Q3 driven by a couple of factors. First, some of the expected revenue for this year will be more weighted to Q4 than Q3 for us. Second, we had a couple of larger nonpolitical campaigns contributing to revenue in the prior year, which did not occur this year. In addition, we continue to start seeing some campaign cancellations at the end of the quarter as the ad market retreated given the macroeconomic environment. As one of the bigger drivers, we are starting to see auto spend pick up, although it is slow in recovery. And now I'd like to pass it back to Dennis to update you on the fiber build and the new build expansion.

Thanks so much, Dexter. I'm a big believer in fiber as the best broadband technology that exists today. So that's a key tenet of the Altice strategy, which I'm very optimistic about. With that in mind, I'm pleased to -- I'm very pleased on Slide 8 to present a current snapshot of our progress with our fiber build and customer trends. We've released an incremental 321,000 fiber passings during Q3, reaching a total of 1.9 million passings. This is the highest ever number of additional quarterly fiber passings Altice USA has ever achieved. We expect fiber passings in the fourth quarter will be at a slower pace as we experience colder weather, which tends to slow down the construction, but we'll end the year well over 2 million cumulative fiber passing. At the bottom of the slide, you'll see our quarterly fiber customer net additions, which also accelerated to 31,000 in Q3 as we've been marketing the fiber product across a wider footprint, supporting gross adds, as well as doing voluntary migrations of existing customers. At the end of September, we had a total of 135,000 customers on the fiber network. And to support our fiber strategy, Optimum recently introduced symmetrical 2-gig and 5-gig fiber Internet speed tiers for the first time, which is significantly faster speeds than our main residential competitors. Multi-gig speeds are now offered across all of Long Island and Connecticut and will be available everywhere we have fiber by Q1 '23. Importantly, let me highlight some stats that underscore the long-term benefit of fiber. Fiber trends indicate a significantly better experience for broadband customers on our fiber network compared to our customers on our HFC network. Specifically, we're seeing meaningful NPS improvements, 12% higher ARPU, and about 5 to 6 percentage points of annualized improved churn benefits. This makes us even more optimistic and confident in our fiber play and expectations for growth. On Slide 9, you can see the company added 52,000 new build passings in Q3 and 152,000 pass year-to-date, putting us well on track to add approximately 175,000 passings organically this year. We're mostly edging out the legacy Suddenlink footprint, and we're consistently achieving over 40% penetration after the first year of expanding our network into new areas, which is a key driver for new customer growth. Additionally, broadband subsidy programs will enable us to accelerate new builds even faster in the coming quarters. We've received awards for 35,000 new homes year-to-date, totaling $44 million. And in Q3, we were awarded 9,000 passings in West Virginia and 2,000 passings in North Carolina. We'll continue to actively apply to additional grant programs, and we're excited for the opportunity to be a trusted partner to local governments to bring broadband to unserved and underserved communities. Slide 10 illustrates the long runway we have to sell faster and faster broadband services that can support high levels of future data usage. The average download speeds customers take across our total base was 391 megabits per second as of Q3, but our fiber customers are taking twice these speeds on average. Our 1-gig customer penetration increased to 19% in Q3, which continues to grow every quarter. Around 42% of our customer base have speeds of 200 megabits per second or lower which represents a big opportunity to keep selling customers to higher speeds, especially as we market multi-gig speeds on our fiber network more broadly. Average monthly data usage for broadband-only customers was 576 gigabits in Q3, mostly driven by video streaming. In Q3, about 15% of our base of broadband-only customers are using more than 1 terabyte of data per month. And within our fiber base, about 1/4 of our customers are using more than 1 terabyte of data each month. Fiber is the best technology to support this growth trend toward increasing data usage demands with position -- which positions us really well. And with that, I'll hand it over to Mike to review the financials in more detail.

Thank you, Dennis, and I do want to add to the warm welcome. So we're certainly very happy to have you join us here at Altice USA. Good afternoon, everybody. I'm going to pick it up on Slide 13 with a summary of our financials for the quarter. Our revenue declined 7% year-over-year in Q3, with adjusted EBITDA declining 18.1%. Excluding AirStrand revenue from the prior year period, total revenue was down 4.3% and adjusted EBITDA down 12.7%. On a year-to-date basis, excluding AirStrand, revenue was down 2.8% and adjusted EBITDA down 9.5%. Our adjusted EBITDA margin was just under 40% in Q3, which reflects higher operating costs as part of our investment plan to drive better customer growth and higher medium to long-term revenue and cash flow growth. Our cash CapEx was up approximately 60% year-over-year, driven by increased fiber investment. This all contributed to a 46% reduction in our EBITDA less CapEx or operating free cash flow. Slide 14 is an overview of our CapEx. Capital intensity was 20.6% in Q3, up from 12% in the prior year quarter. Without fiber and new home build growth investment, capital intensity would have been 10.5%. Year-to-date, we've spent about $1.4 billion of cash CapEx. Our full year target remains between $1.7 billion and $1.8 billion on a cash basis. Remember that after a couple of years of elevated CapEx to support our accelerated fiber rollout, we do expect to start seeing significantly reduced CapEx once we start scaling back the build. Turning next to Slide 15, which shows the bridge of free cash flow in the third quarter. Free cash flow for the quarter was $136 million and was $535 million year-to-date, which is lower year-over-year given all of our accelerated growth investments. Note that excluding our investment in FTTH, free cash flow would have been over $1 billion year-to-date. Our cash interest payments were $348 million in the third quarter, which is slightly higher than previous quarters given recent rate increases, although 77% of our current debt is at a fixed rate. Cash taxes were $30 million in Q3, and we do not expect any material cash tax payments in Q4. Lastly, other financing activities reflects continued debt paydown amounting to about $114 million for the quarter. We repaid the $650 million 5 7/8% notes in September with our revolving credit facility and have been subsequently paying down the revolver with excess free cash flow. Finally, on Slide 16, I want to highlight again that our debt maturity profile is well positioned with termed out maturities following prior refinancing activities. We have no annual bond or term loan maturities greater than $1 billion before 2025, all of which can be covered by either free cash flow generation or capacity from CSC Holdings revolving credit facility without any need to access the credit markets. If you recall last quarter, we entered into an amendment to our main CSC Holdings revolving credit facility, extending the approximately $2.5 billion maturity to July 2027 at a rate equal to SOFR plus 2.35% per annum. At the end of Q3, we had liquidity of approximately $1.4 billion on top of maintaining a healthy level of free cash flow generation. The weighted average life of our debt is currently 5.8 years and our weighted average cost of debt is 5.1%. Again, we remain very well positioned in our debt maturity schedule and we will continue to proactively and opportunistically manage our liabilities as and when we think it is appropriate to do so. And with that, we will now take any questions.

[Operator Instructions] Our first question today is coming from Phil Cusick from JPMorgan.

Dennis, welcome aboard. Dexter, thanks for your help. . Dennis, I thought maybe it would make sense to start, first of all, with what do you see in the first month, opportunities and threats in the Optimum versus Suddenlink markets. I can't help but follow up on your comment about fiber being the greatest technology, given your recent history at Comcast where the company is very wedded to the DOCSIS path. What you think about out loud how the companies maybe are in a different situation? Or do you think this is sort of an inevitable move towards fiber over time?

Thank you so much for the questions. Over the last 30 days, I've been deeply focused on strategy and budget sessions with Mike and the executive leadership team here and meeting the various teams and employees across the whole business. And what's clear to me is that the company has made a lot of progress in setting a strong foundation for best quality broadband through the deployment of its fiber strategy, the launch of multi-gig speeds and the rebrands of one brand. And I'm really a big believer that fiber is the best technology that exists today. So that's a hallmark of the Altice strategy that I'm actually very optimistic about. As I look ahead, I think we need to focus on disciplined execution and customer experience in order to maximize our investments and to return to broadband growth. So I do think that there are areas where we can accelerate such as with our go-to-market strategy, aligning our product portfolio. I'm looking deeply at our packaging and our offers and how we can continue to ramp up sales and marketing machines to get us back to sustainable growth. And I'm looking forward to working with the team to making that happen.

Any further questions, Phil?

Yes. I guess if I can follow up there. As you look strategically at the business, any thoughts of your own on the process of selling Suddenlink, which was out there for a little while? I know the credit markets are a little tougher. Is that still in process?

I'm going to pass that to Dexter who's involved in our strategic initiatives. So I'll let him...

Yes. I mean, Phil, we've been pretty consistent on these calls and saying that we'll update the market when we have something to update the market on. I think it's fair to say that we're getting to a place where a decision is pretty imminent as to whether or not we're going to do something or not on that. But I won't comment any further than that, and we'll update the market appropriately.

The next question is coming from Craig Moffett from MoffettNathanson.

And Dennis, let me add my congratulations. And Dexter, let me add my thanks for working with you over the past few years. Two questions, if I could, and I'm going to stay with some of the same themes. First, Dennis, I guess, what's your early thinking about broadband pricing? Dexter, you said a while back that you were taking a strategic look at your pricing strategies. I wonder as you come in, Dennis, how you think about the broadband pricing situation at Altice and what you think the prospects are to continue to grow ARPU, which sequentially was down this quarter fairly significantly. And then second, I know you can't comment too much on possible Suddenlink transaction. But can you at least discuss the thinking behind potentially selling it in parts rather than all of it? Is that driven by where the demand side of the market is? Or was that something you saw about pieces that you wanted to hang on to?

So I'll again let Dexter address the Suddenlink piece. But on the pricing, this is a part of my assessment as I go through the budget process with the team. I'm looking at rate card, I'm looking at the offers we have in the marketplace and how we can evolve our go-to-market strategy. And so that's a critical area of focus for me. I'm looking at our pricing opportunities with fiber as we continue to deploy fiber. And so as we solidify our budget, we'll be taking a deep look and making some decisions quickly.

Craig, I think on the Suddenlink side, I think that was being responsive to inquiries we have received in terms of the size of the overall operation and the disparate nature of the geographies. And so we had some inquiries along pieces of it as opposed to the whole thing across multiple players. And so we were being responsive that way to a piecemeal versus a whole company solution.

Our next question is coming from Doug Mitchelson from Credit Suisse.

And sorry for harping on the M&A side. But I'm just curious, Dennis, if you have a perspective on the strategic importance of smaller markets versus larger markets, not necessarily the Suddenlink process itself. But just over time, a lot of experience at Comcast. They had all sizes of markets. Typically, you think about cable as a scale business. But obviously, in the New York footprint, you have super scale, and the economics can be different. I mean, do you find larger markets more attractive than smaller markets, or anything interesting there? And then separately, Dexter, I know, focused on strategy. I think what we've been hearing in the last couple of quarters is focuses on debt paydown. You're obviously still free cash flow positive. Is there any flexibility for tuck-ins? Or should we continue to think that while you're going through the fiber overbuild, you're hunkering down and focused on debt paydown?

Ladies and gentlemen, please stand by. Our speakers will be rejoining us momentarily. Now, rejoining the speaker line. [Technical Difficulty]

Sorry about that. It didn't have anything to do with the question, [indiscernible]. Our apologies.

Well, that gives me a chance to add, Dexter, hope you enjoy the stronger U.S. dollar as you move to London [indiscernible].

It clearly has not escaped me that the timing may be good.

And I'll add my welcome to the rest for you, Dennis. Look forward to working with you. So did you guys catch my questions? Or should I repeat that?

No, we didn't. I'm sorry. So please just give it to us again, that'd be great.

Yes. Well, I'll give you the short version just for the audience. I was just curious, Dennis, your view on strategic importance of small markets versus large markets. Cable is a scale business at the same time, you have super scale in the Optimum footprint. So not Suddenlink specifically, but just curious, the economics of small markets versus larger markets and where you might focus over time? And then Dexter, as you think about strategy, I think the last couple of quarters, the -- I think the discussion has been more focused on debt paydown and having flexibility for tuck-ins or small deals. Is that how we should think about it going forward? You're still free cash flow positive. So just curious where your M&A focus will be.

Yes. So I've got -- as an operator, I have experience in working in both. My footprints have included very small markets as well as large markets. And my focus right now is looking at our go-to-market strategy and how do we address the needs of those disparate markets in the right way. I think we have the -- I'm excited about our strategy and where we're headed. And so as I go through the budget process again and build our strategy for 2023, I'll be taking a close look at how we are addressing both and how we can continue to have a customer experience lens as we move forward.

I think on M&A strategy, I don't think there's much to comment. We've been pretty reactive on certain things, whether there are assets like tuck-ins that are available or additions to some of our other verticals that we would look at. And I think that there is a whole host of things that we would look at that are on our plate, some that may -- that you may expect and some that you may not expect. And so I think at this point in time, there's no need for us to talk about the art of the possible, but there are things that we probably will talk about in the near future in terms of things we're thinking about.

Next question is coming from John Hodulik from UBS.

Great. And again, welcome to Dennis, and congrats to Dexter. So maybe we can talk about the broadband market. I guess, you talked about a couple of things driving the current trends. And maybe you could talk about the difference you're seeing in terms of competition in the Suddenlink markets versus the old cable vision markets? And then I guess, Dexter, you said that you saw the typical back-to-school benefit. I guess, are you suggesting that without the back-to-school benefit that the trends would be worse as we look into fourth quarter? And then lastly, as you look out to 2023 based on the trends you're seeing on the fiber side, do you think that we can get to the point where we get back to growth sometime during the year next year? Or is that something we'd expect more in 2024?

Yes. Maybe taking the entire question on what are we seeing in terms of competitive dynamics and how our KPIs are evolving in our markets, I think it's still some of the same, which we've been commenting on Q1 and Q2, which is clearly we're seeing effects from FWA that's been out there, fiber overbuilders primarily in the West, but we do obviously have Frontier who's grown in the East in a small part of our footprint in Connecticut. So that remains the same. I think the geographic dynamics remain the same as well, which is on the east side, we have lower gross add activity. And on the west side, higher churn activity than we have seen historically. And so we've seen a little bit of the same as we saw in Q2 versus Q3. We go through -- to your point about back-to-school, I don't think it's fair to talk about a unique period of time where the whole year evolves in terms of unique periods of time in terms of how things evolve. In Q2, obviously, we have a big churn issue in the west relating to university towns and whatnot. But effectively, Q2 to Q3 was pretty much flat quarter-over-quarter sequentially in terms of the performance. I will say we've seen some stabilization in October relative to the run rates that we saw in Q1, Q2 and Q3 that are a lot more attractive than we've seen for the balance of the year initially. So the work has been fast and furious for the past 12 to 18 months. We continue to do a lot of work, obviously, on the fiber build and the new build and our investments on distribution and care. And it's a question of time relative to your question relating to 2023, but I'll let Dennis go through, obviously, the budget process and comment on that when we get into Q4 earnings.

Your next question is coming from Jonathan Chaplin from New Street.

Thanks. I'm going to follow up on that question, if I may. I'm wondering if you can give us a little bit of context for what the trends look like in Suddenlink versus Optimum, whether you're losing subscribers in both markets at the moment. One is a function of churn, as you mentioned, Dexter and the other is a function of lower gross adds, and whether the sort of the trajectories are equally challenged. And then to sort of pick up on a question that's come up a couple of times for Dennis. What's going to get the business back to subscriber revenue and EBITDA growth from here? You mentioned that there was a strong foundation that's already been made. Is it sort of just playing out the strategy that's been put in place already? Or do you see big changes that are acquired as a function of your strategic review that you'll sort of implement to get back to growth?

Jonathan, I think on the trend side, trends are improving. And I think the overall macro commentary of lower gross add activity in the east, higher churn in the west remains overall the same. We are losing subscribers in both the east and the west on a year-to-date basis. But again, we are seeing some rays of sunshine coming in, and that's just really about the investments that we've continued to do throughout the year and all the various things that we've spoken about between care distribution, rebrand and other technological things. And so I think the trends are the same, but they're moving in the right direction.

And from my perspective, in the first 30 days, I've seen the investments that have been made, and I see the impacts. I'm bringing my operational experience and customer experience lens now. I've had the opportunity to talk to hundreds of our teammates, spent time in our front lines. And I don't think it's necessarily a significant change in strategy or further investment, but I do think that we need to get focused on process improvements and operational efficiencies. And I think that I'm getting some great feedback from our teammates themselves on the front lines, and I'm spending time there understanding kind of end-to-end where there may be some opportunities to continue to evolve our customer experience and deliver great service.

Our next question is coming from Brett Feldman from Goldman Sachs.

And welcome to Dennis. As some of your cable peers have also seen their broadband trends soften considerably, they really leaned in hard to mobile, and I think they're increasingly talking about it as a mechanism for pulling through broadband, and in particular, advertising mobile as a great way to save money. But of course, you have to buy their broadband in order to do it. You've restructured your opportunity to use mobile more significantly through the new T-Mobile deal, but you've actually eased off a bit recently. So I was hoping you could give us your latest thoughts on the role that you think mobile can play in helping to get the broadband business back to growth? And just a quick one for Mike. You talked about how you've been using some of your cash to pay down some of your debt. Your bonds are trading at pretty significant discounts to par. Wondering if you're also in the market buying back bonds or how you think about the opportunity to do that.

Great question. And in my experience, I do find that mobile is a great product, especially paired with a broadband product. And we are, as you know, continuing to expand our retail presence. And so I'm having some deep strategy conversations with the team on where we've been with mobile. And I do think there's opportunity that I'm very excited about. And so we will be looking at our current offers and looking at how we can continue to evolve our bundles and our offer strategy so that we can drive broadband and also drive mobile. Absolutely.

So Brett, in response to your second question, certainly very aware of the manner in which our debt is trading in the marketplace. That hasn't been lost on us. We have not to date engaged in any sort of open market repurchases of our bonds. Our debt paydowns to date have been via the revolver. As we alluded to in some of the prepared comments is it's a little bit easier to pull off from a logistical standpoint and the enhanced liquidity of value as well. But it's certainly on our radar screen and something we'll continue to contemplate. It's something we've contemplated, historically haven't gone down that road yet, but we're very mindful of it.

Your next question is coming from Michael Rollins from Citi.

I just want to send my thanks to Dexter and welcome to Dennis. Just stepping back on the future of Altice. I'm curious for each of you how you're thinking about the merits just generally of Altice USA being a public company versus a privately held company. And then second, just following on some of the discussion points on the customer experience, what are the opportunities for Altice in the future to partner, to accelerate the customer experience, whether it's for licensing for technology, or trying to further accelerate distribution, or even opportunities to enhance bundles?

Well, I'll take the first one. I mean, I'd miss speaking to all of you if we were a private company. So that would definitely be one of the low points of doing it. But all joking aside, I think this is obviously something that hasn't escaped us in terms of our ability to maneuver with more flexibility if in a private context, but those are decisions that are at the Board level and shareholder level and not on the table today in terms of our discussions. But that is something that is an analysis that has been looked at, and I'm sure we'll be looked at again in the future as we continue to go through the budget process and going into 2023. So I don't think there's anything of any relevance to comment on. But it's clear that being a private company versus a public company has merits in both ways in terms of the right incentive programs, the capital availability, but also the flexibility to operate more into the radar and those types of things. So that's all I could say today. And at some point in the future, maybe there's a lot more to talk about there.

And on the opportunity or customer experience with partnering?

Yes. And this is Dennis Matthew. I'm not sure I fully understand the question here. We do partner with -- we have business partners that are supporting our operation across the ecosystem whether we're talking about call centers and/or installation, repair, et cetera. And so that's the strategy that we're constantly looking at in terms of the mix and what's the right approach. And being able to deliver the right level of quality and managing those partners most effectively to deliver the quality that we would expect. And so that is a part of the review that's happening as part of the budget process and the strategy sessions and really figuring out the right mix so that we can deliver the best experience.

Your next question is coming from James Ratcliffe from Evercore ISI.

And congrats to Dexter and welcome to Dennis. Just, Dennis, interested in your thoughts in particular on fixed wireless and how you combat that because you've been building out fiber and clearly that gives you some advantages, and you talked about the NPS scores improvement there. But your HFC product is already materially better than the fixed wireless products. So how -- if you're -- if that's a competition, how do you combat that as a competitive force?

That's a great question. And that's part of what I'm looking at as I look at the pricing, as I look at the packaging, as I look at our offers, as I look at our positioning, where we have products available in our sales channels. I do think that we've got a great portfolio of services, especially as we discussed earlier about bundles that we can create with mobile. And so looking at all of these tools and assets, we're going to pull them together so that we can compete most effectively. And fiber, in particular, as we continue to drive that and roll that out, I think that's going to give us the best technology in the marketplace. And so we're excited about driving that as well.

Your next question today is coming from Peter Supino from Wolfe Research.

I wanted to ask a couple, one on churn in the west. You mentioned both local fiber builds and also in fixed wireless. So I wondered is the churn problem specifically happening primarily in places where fiber arrives? Or is it -- is there really a churn -- a fixed wireless churn problem as well? And then on the finance side of the house, could you please discuss your visibility on 2023 and 2024 fiber build costs per home? I know you had a lot of that forward contracted and wondered when that visibility might roll off.

Peter, on the first question, I think it's -- you're spot on, which is we're seeing higher churn activity primarily in markets where we're seeing increased competition on fiber side, on fiber overbuilders, whether that be AT&T or some of the smaller players out there. Because if you were able to kind of look at all the other markets where we're not seeing that type of activity, we're definitely not on the same types of trends.

Yes. Peter, on your second, cost. This is Mike. In terms of visibility on unit cost per household for the fiber rollout, we have pretty good visibility. I think there'll be some inflationary pressure, but I don't think it will be dramatic in terms of labor costs and/or material costs. But you're right. You made a good point. We do have locked in certain longer-term contracts to procure both the labor and the materials that we need to do that. I think what will drive variability in unit cost will be honestly, the mix between build in the east and build in the west. The west build, as we've alluded to in previous commentaries, will be a little more expensive, both due to lower household density per mile as well as the fact that we do have a little more exposure to underground in the West than we do here in the East. But I think our visibility is pretty good on both of those instances.

Our next question is coming from Steven Cahall from Wells Fargo.

On the fiber passings, you continue to accelerate those. I'm just wondering if there's anything that's constraining that growth, whether it's labor or permitting, I imagine you'd want to pull it forward as much as possible. And maybe you can talk about what the cost per passing you're currently seeing is excluding CPE? And then kind of as a follow-up to that, you're putting fiber into the market. You commented about seeing some fiber coming into your market from builders. When that happens and you see it on offense and defense, how do you think about fiber ARPU versus cable ARPU? Does it put any price pressure into the marketplace? Or is it really just competition for net adds because we're seeing some price increases across the cable channel. So I'm just wondering if you think fiber impacts those or it's really just a competition for customers and not overpriced.

I think on the passing side, we're going as fast as we can is the overall theme. And with -- obviously, we've been doing this in the East for the better part of 3 years. And as you can see in our numbers, we've been accelerating throughout the year. We'll see a little bit of a slowdown due to weather in Q4, but we'll continue to accelerate going into 2023 as we're pretty much done by 2024 on the East. On the West, it's a little bit more -- not complicated is the issue, but it's just that you're dealing with a lot more disparate geographies. And so to go with -- and scale quickly, it takes a lot more organization and planning. The limitations are not really about labor. The one limitation that we've seen regularly in the East has been permitting. The state of New York has been somewhat of a bottleneck in terms of permitting. We probably have 200,000 to 300,000 permits we're waiting on in the State of New York. We've been able to redirect some of our efforts into New Jersey and Connecticut this year as we await permits in the state of New York. But that's -- those are the really the only impediments. We do have access to labor. We have access to the raw materials as well. And in the West, it's just a question of time in getting our ducks in a row relative to all the various different communities that are out there. In terms of fiber ARPU, I mean, the overall theme is our gross adds in fiber tend to generate 10% plus higher gross add ARPUs than we see in HFC. But when we are fiber versus fiber and offense-defense, as you mentioned, obviously, the defensive side to it is materially improves our churn and our gross add profile as we start releasing fiber homes against another fiber overbuilder. Connecticut is probably a good example of that, given that Frontier is built there as we have built as well. And so that type of competition will be more even handed. And I do think it's less about thinking overall about gross add ARPU. It's about your customer, but I think we are very diligent about thinking about our pricing, and Dennis and the team is very focused on that and our go-to-market strategy. So it's not a customer at any price, right? So we're being thoughtful about pricing. And as MVPDs are raising prices, we're going to be obviously thoughtful about our pricing levers as well.

Your next question is coming from Frank Louthan from Raymond James.

It's Rob on for Frank. So you might have spoken to this earlier, but can you guys give us just a quick update on your -- how you would rank your capital allocation priorities currently? And then secondly, again, you guys might have touched on this a bit earlier, but would you say that you've gotten through all or most of the supply chain issues that were keeping you from selling into the fiber build previously?

I think on capital allocation, I think we're obviously focused on the investment cycle on fiber and new build. And excess free cash flow, we've been using for deleveraging. Where we see the excess free cash flow, we're deleveraging on our revolver pretty regularly. So that's pretty straightforward. In terms of raw materials or CPEs related to the fiber side, I think we're well underway. We've got the right inventory levels. We'd be very comfortable with the rollout, both on gross adds and on migration, looking to accelerate on the migration side. And we've got all of the -- our ducks in a row to be able to do that. I think the installation process continues to get better and better, week over week. The repeat rates continue to get better. The issue is that we -- obviously, everyone faces as they start rolling out in the early phases are getting better and better as technicians are getting more and more experienced, right? So it hasn't escaped us. But if you look at New York, installation process is a lot better than Connecticut and New Jersey because of the time served of our New York technicians relative to our New Jersey and Connecticut ones. And those will get just only better and better as we get into 2023.

We've reached the end of our question-and-answer session. I'd like to turn the floor back over to Nick for any further or closing comments.

Thanks, everyone, for joining. Do let us know if you have any follow-up questions. Otherwise, we'll catch up with you in the next few weeks. Thank you.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.