Greetings, and welcome to the Altice USA First Quarter 2023 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Nick Brown, EVP of Corporate Finance and Development. Thank you. You may begin.

Hello, everyone. Thank you for joining. We are joined today by Altice USA's CEO, Dennis Mathew; and our new 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 read the disclaimer on Slide 2. Dennis, please go ahead.

Thanks, Nick, and hello, everyone. I'm pleased to be here to discuss Altice USA's Q1 2023 results. But before we begin, I want to take a moment to thank our employees across the entire organization. During the last 60 days, we've welcomed a new telecoms management team, and we continue to attract strong leadership talent across the organization. We introduced a new mission and strategy and accelerated a culture of teamwork and accountability by putting the customer at the center of everything we do. And while we certainly have more work to do, I'm incredibly proud of how the team has rallied around our strategy to be the connectivity provider-of-choice across all the communities that we serve. And I thank everyone for their endless commitment, teamwork and energy. So let's jump into the results, starting on Slide 3 with a summary of our first quarter performance. Last quarter, I shared that we were looking deeply into our go-to-market packages and that mobile would take on a more meaningful role. While I'm pleased to share that as you may have seen this week, we launched Optimum Complete, our exciting new internet and mobile-converged bundle offer. This is an important milestone for us and something I've been heavily focused on with the team to ensure we bring to market a differentiated and customer-friendly offer that delivers real value and transparency. I'll go into more detail on this later in the presentation, but I'm pleased that even ahead of this launch, we started to see an acceleration in our mobile customer growth in Q1. Turning to our network. We were fortunate to have very mild weather this winter, and that played into our advantage. We strategically pulled forward some of our budgeted annual spend to deliver network upgrades and accelerated passings earlier in…

Thank you, Dennis. It's a pleasure to be here this afternoon for my first earnings call as CFO of Altice USA. I look forward to getting to know you all more in the days and weeks to come. Let me begin with a financial overview on Slide 9. Total reported revenue in Q1 declined 5.3% year-over-year, driven by declines in Residential and News and Advertising. Residential revenue was down 5.6% year-over-year, mainly driven by the impact of the cumulative video and broadband subscriber losses we've seen over the last year. As Dennis highlighted, we are focused returning to broadband customer growth with our new Optimum Complete converged bundles. We believe we are striking the right balance between volume and rate. Business Services revenues declined 1.1% year-over-year, although excluding about $3 million in onetime Sprint early termination fees from the prior year in the Lightpath business, this would have been closer to flat. Our SMB division, excluding enterprise and carrier revenue was flat year-over-year on a flat customer and ARPU growth. But as Dennis mentioned earlier, we are heavily focused on accelerating growth here. News and Advertising was down 13.9% year-over-year in Q1 or down 11%, excluding political revenue. We are seeing some overall softness in the advertising market and less political spend. But on top of this, remember, this time last year, we saw strong growth in gaming revenue tied to legalization in New York, which has slowed down. We've also seen less COVID-related spend in the Healthcare segment. Now turning to Slide 10. Our cash CapEx was up approximately 47% year-over-year at $583 million in Q1, mainly driven by increased investments in fiber upgrades and new builds as we really stepped on the gas here since Dennis joined to try and bring forward the customer benefits. We are reiterating…

[Operator Instructions] Our first questions come from the line of Phil Cusick with JPMorgan.

A few on the same theme. Dennis, you said your goal is to meaningfully accelerate fiber growth and penetration to return to overall revenue and growth. When do you expect to get there? Can this business return to subscriber growth by year-end? Also, how do you expect seasonality this year? I think you mentioned some of your 2Q challenges in terms of colleges. And then finally, if you can talk about the sales initiatives you've implemented in the last few months since you got there and the potential timing of the impact from those.

Phil, thank you for your questions. I remain very optimistic that we are going to continue to see improvements in the business. We're heading in the right direction. As I look at the underlying trends, we continue to see improvements in terms of year-over-year reductions in key operational metrics like call-in rate, 15% less year-over-year; service visit rate, 15% less year-over-year; our NPS year-over-year, up by 24 points, and so that's why I am optimistic that we are laying the right foundation to ultimately get us to subscriber growth. And then as I look at the fiber trends, in particular, and I see that our ARPU trends are $10 to $15 ahead of HFC as I look at churn, 10 points better. And I'll also call out the West. Our tactics in the West are working. The last 3 out of 5 months, we have been positive broadband. And so I remain very optimistic that we have made the right investments. We've increased our door-to-door channels -- channel. We've continued to expand retail, and we're seeing strong output from these channels. We've also been very focused on driving performance in these channels. Our call center, for example, we've improved yield by 20% in the first quarter. And so we are still laying the foundation. We are still driving execution discipline, which is going to help us achieve ultimately growth. But I don't want to speculate on exact timing at this right now, but I do expect seasonally lower Q2. I think it will be better than historic seasonality, but there is going to be a bit of a seasonally lower Q2. You asked about the sales initiatives. Our #1 initiative is Optimum Complete. We launched that on Monday, and we're already seeing the benefits. We had 2 of our best days selling mobile on Monday and Tuesday. And so that is all pointing in the right direction.

Our next questions come from the line of Brett Feldman with Goldman Sachs.

Obviously, we've seen your other cable peers have a lot of success with their converged offers. So it may seem like a bit of a naive question, but what gives you confidence that leading with the converged offer is what the market wants and that the incremental customer really is most likely to gravitate towards someone who can give them multiple services as opposed to maybe just a much better deal on broadband? And then as investors and analysts, what are we going to be monitoring to see that Optimum Complete is having the desired impact on your financials. Are we mostly looking to see an improvement in broadband subscriber trends? Or are there other metrics that may stand out sooner than that?

Brett, thank you for the question. I'm confident that the market is looking for converged offers because we asked the market. We did the consumer research, and we found that customers are looking for converged offers, simple, transparent pricing, and we are providing that to our customers. We have the power of our fixed network, fiber and DOCSIS and then we have the power of our MVNO relationship with T-Mo that gives us the largest 5G network. And we're seeing it. I mean it's early days, and so I can't give you too much detailed information. But even before the Optimum Complete, as you can see, we started to see improvements in our mobile trends even in Q1. And that was just by sheer discipline and focus of presenting broadband and mobile together in our sales channels and starting to get that muscle flexing. And now with Optimum Complete, we have not just -- we have now the marketing, the offers, the sales channels, and a simple, transparent pricing strategy for our customers. And so our focus going forward is household ARPU. We are going to be driving household ARPU. And I know there's lots of questions on broadband ARPU, but our focus is household ARPU and then driving profitability, leveraging the new customer lifetime value model that we're implementing that will allow us to manage the base much more effectively going forward so that we can drive upsell of faster speeds so that we can sell in mobile so that we can ensure that the highest value customers are getting offers that are specific to them so that we can move them up the chain and fill out the product portfolio in their homes. And so that is kind of some of the metrics that you should be looking for, and that's our desired impact.

Our next questions come from the line of Craig Moffett with MoffettNathanson.

I'll stay with the topic that Brett raised, which is pricing. So your Optimum Complete pricing does seem much more competitive for the bundle. But -- the -- your pricing for stand-alone broadband in particular, especially in year 2 and beyond is still quite high relative to competitors. Is there a scenario where you bring ARPU down faster or it looks like ARPU -- broadband ARPU is coming down about 0.5%. Is that fast enough to sort of really reverse the competitiveness of your what is actually a pretty good broadband product for customers that aren't ready for the bundle or for that large base of customers who are still stand-alone.

Craig, thank you so much for the question. I am very confident that we will be able to compete effectively and drive growth. We have the best network with the best products and services. We're investing in quality, we are investing to have the best go-to-market strategy and sales channels, in particular, to drive performance. We're investing in the best customer service. As I've mentioned previously, we're leaning into digital. We're leaning into communicating and providing simple tools for our customers. And now we have the best packaging and value propositions and leveraging some of the new tools that we're implementing with customer lifetime value, we are laser-focused on improving average revenue per account and that will allow us to continue to grow and be competitive. And so I do believe that we have the tools that we need to drive growth, and we're starting to see that in the core business.

Our next question comes from the line of Doug Mitchelson with Credit Suisse.

I was hoping for a clarification on the fiber ARPU, the $10 improvement over non-fiber, is that just the new customer cohort or does that include the migrations into fiber? I just want to make sure we don't have a selection bias [ so really just ] want to understand if there is or isn't. And then -- on the wireless strategy, you'll correct me if I'm wrong, the base tier, the $45 offer is for a metered line and I think you've got availability where you have symmetrical fiber, but maybe less so in the HFC areas. Can you just clarify for me the strategy around the wireless bundling and how broad it is? Is it fiber-focused? And is it a mix of metered and unlimited? And what's the thought process there?

Doug, thanks for the question. On your first item, the $10 to $15 increase is for new gross add fiber connects. And so that is a new gross add number. Our number historically or in the last quarter has been about 50% gross adds and 50% migrations. And so we're going to continue to lean into our fiber go-to-market as we go forward. We're going to be leaning into our -- not just our gross add strategy, but also focusing on the base and driving migrations there. And so that goes back to the CLV model and making sure that we have a disciplined approach of managing the base and getting them on to our fastest speeds where fiber is available. I'll pass it over to Marc to talk a little bit more about the bundles.

Just on the fiber ARPU around the migrations versus new customers, we are seeing when customers do migrate, we're seeing significant lift upwards of $30 per transaction. And then in retention, we're actually seeing less dilution out of the retention transaction tied to fiber. And Den, do you want to take the wireless...

And the bundle is -- the Optimum Complete is offered across the footprint, both in fiber -- across the Optimum East, fiber and non-fiber and across the entire West. And we do have various options across depending on how many lines that you take.

This comes from the line of John Hodulik with UBS.

Great. I just want to follow up on some of the comments Marc had at the end of the prepared remarks. Just you guys have had -- it looks like about 3 quarters of EBITDA declines in the sort of 12% range. But it sounds like you guys think that, that gets better as we move through the year. If you could sort of sort of pull out the drivers of that? I think you said that you get a one-time -- you get a step up in your programming cost. There are some other issues, maybe some costs coming out. But if you could help us quantify how big of an improvement do you think we get as we move through the year and maybe where we exit the year in terms of EBITDA declines, that would be helpful.

Thanks, John. We won't get specific as far as exact numbers as far as where we think we'll land the full year. But as we've previously mentioned, certainly, prior year subscriber losses will continue to weigh on current year results. And we're optimistic about the improvements we've made, but we still don't want to commit to a specific number around EBITDA growth. I will say that we are very confident now though, we have the new team in place. We've launched Optimum Complete. As you heard, we have the best fiber network in the business and the accelerating trends in CX and OpEx mix just gives us really strong confidence that we have a path to improve EBITDA in the second half of the year compared to the first half.

I mean the only other thing I'll add, John, is that Q1 was the first quarter where we had a step down in OpEx sequentially since the pandemic. And so we do think that we are heading -- we've stabilized OpEx, and we're heading in the right direction.

Can that sequential decline in OpEx continue, Marc?

Yes. So as you look, we did drop $26 million of OpEx, excluding share-based comp. That gives us confidence that we'll have an annualized cost of about $2.6 billion. If you look at the fourth quarter, the annualized cost of that would be about $2.7 billion. So as we discussed, as we pull transactions out of the business, we do feel that there is potential to continue to drive cost out of the business, but we like where we're heading.

Our next questions come from the line of Ben Swinburne with Morgan Stanley.

A couple of questions. Maybe first, in Optimum West. You mentioned some of the tactics that are working. What's going on competitively in that market? I think a couple of quarters ago, you were -- at least my interpretation was that was a market you were seeing some pretty aggressive competition, I think both fixed wireless and fiber builds. Has anything changed there? Or is it all entirely changes that you guys have made to improve the trend line? I would love some more color on that.

Thanks, Ben. Thanks for the question. The competitive environment remains intense, as I've described in the previous calls, 25% overbuilt by fiber, 50% of that is AT&T, a very mature fiber provider and then the other 50% is the fiber overbuilders. Our overall footprint, we're estimating 40% fixed wireless competition. And so we have started to operate in a much more hyper-local fashion because the way we compete in Texas versus Arizona versus Oklahoma versus North Carolina, it has to be different. And so we are staffing up a little bit in terms of regional leadership teams that are laser-focused on driving performance, understanding the competitive landscape, driving customer experience, employee experience, and then developing hyper-local marketing strategies to give us a much more of a local impact to help us drive our go-to-market. And that is starting to show benefits, and that is allowing us to win. And now we think with Optimum Complete, we have even more tools in our toolkit to drive Optimum West.

And then a follow-up, if I could, just on broadband ARPU. I mean, if you guys could reverse the trend there of declining year-on-year, I think it was down like 3% this quarter, that obviously would do a lot for your goals around revenue. Can you just talk about what's happening in broadband ARPU to put pressure on that line? And do you have visibility into sort of stabilizing and improving that because obviously, that would help quite a bit on the revenue front.

Yes, Ben, I'll take that one. Actually, when you look at implied broadband ARPU, we were actually down about 0.5% year-over-year, which was in line with the guidance we previously provided around flat to stable ARPU. But if you -- more importantly, if you look sequentially, we actually have stopped the erosion of broadband ARPU significantly. We're only down $0.05 quarter-over-quarter. Last quarter, that was a much larger over $1.20 sequentially in the fourth quarter decline. So we've pretty much stopped that. I'll say the way we've done that is just using a financially disciplined approach and having a balanced way of going to market with revenue and rate and that's really starting to pay dividends. Additionally, we're leveraging AI in our centers around how to treat customers differently. And that is -- that's yielding some favorableness in the rates. So we feel like we're on a clear path to stabilize the erosion of broadband ARPU.

Our next questions come from the line of Jonathan Chaplin with New Street.

Two sort of minutiae questions. I'm sorry to say. So on EBITDA, if we annualize 1Q, we come out at about $3.5 billion. It sounds like from your comments, you think the full year would be better than that because we get improvements in EBITDA dollars as we progress through the year. And I'm just wondering if you could confirm that. And then on ARPU, it's great to hear that trends are starting to stabilize sequentially. But when I look at where you're pricing your 1-gig product, which I assume is your flagship product, it's well below where your average ARPU is, your average ARPU is sort of well above where Comcast and Charter are. And I'm wondering if you can give us some insight into sort of the demographics and the difference in your go-to-market proposition that you feel allows you to sustain an ARPU above your peers and your competitors.

Jonathan, thank you. I'll let Marc take the first one, and I'll take the second question.

Yes, Jonathan, on EBITDA, although we're not providing specific guidance here for the full year EBITDA trends, but you said it correctly. We see that the second half of this year, we have a real [ flat ] to have improved EBITDA trends in the second half versus the first half, all tied to the things that we talked about, the new team, the best network, the CX and OpEx reductions that Dennis mentioned, so we're optimistic that there is a path for improvement in EBITDA. With that, let me just turn it over to Dennis.

Yes. And Jonathan, to your question, as I've mentioned, I'm very bullish on focusing on customer household ARPU. And so we're focused on selling in Optimum Complete. And we -- there's a lot of upside in terms of selling in lines as well. Historically, we've sold about 1.3 lines, and I know that we can do significantly better than that. And so as we drive customer household ARPU and then focused on profitability as we stabilize erosion in overall ARPU by just being much more sophisticated in the way that we go to market and being much more disciplined in the way that we go in the offers that we provide. We've pulled back on some of the gift with purchase and gift cards and are really driving sales performance and yield and performance management and aligning compensation so that we can execute better in the sales channels, we believe that we can continue to drive profitability in the business and growth.

Our next questions come from the line of Kan Venkateshwar with Barclays.

Dennis, firstly, you talked a lot about fiber and the potential to upgrade further to 8-gig and 25-gig service and so on. Why do you think speeds is a limiting factor to growth, especially when gig speeds are way more than what most consumers use and fixed wireless today is successfully even with lower speeds. Why not instead take the opposite path of maybe slowing down fiber investments and reinvesting it back into customer support and building the brand back to some extent? And I have a follow-up after that.

Kannan, thank you for your question. We are investing in the future, and we're investing in this network. We know that as we continue to launch faster speeds, customers are taking those speeds, using those feeds. Our average usage now is over 600 gigs and our highest users are using a terabyte and they're taking the fastest speeds. And so as we think about the future, we're building a network for the future that will ultimately unlock applications as we think about AR, VR, Metaverse, other elements, more streaming, all of these use cases, we're building our fiber network to be able to support, especially as I look at our Optimum East footprint, we are competing against a very mature fiber provider. And so we need to have the best to go against the best. And then ultimately, that will -- if I look on the return on investment, well, we're not going to get into the details. We know, as I mentioned, the maintenance and the support of that network is apples and oranges versus a legacy HFC network. That being said, we're going to continue to invest in fiber strategically as we look at the competitive landscape as we look at the cost. And where it makes sense, we will continue to expand the fiber network. And so we believe that we are building for the future, and we're bullish on the network that we're building out, that it will allow us to compete effectively. We're also investing, you mentioned in a brand and things like that, that's our investments in customer experience. That's our investments in quality. That's our investments in making sure that we are, by far, providing the best service to our customers as we optimize our care centers as we optimize our field operations as we drive digital. And so we're doing both. We're building out the best network. We're also building out -- we're upgrading DOCSIS so that we can compete effectively there. And then on the brand side, we're investing in quality. And quite frankly, on fixed wireless, as I look at the usage, 600-plus megs, people that are taking the faster speeds using a terabyte, I'll wait and see how as capacity gets filled up on fixed wireless networks, how that performs.

Got it. And just as a follow-up on the guidance for net adds for Q2. I mean you did mention seasonality but when I look at Q1, seasonally, it tends to be stronger than Q4 sequentially, but it looks like net adds were basically the same across both quarters. And you attributed some macro pressure. Could you just help us understand what that impact was in the quarter? Because your bad debts are still quite low versus, I think, most of the cable and telecom folks.

I'm going to let Marc talk a little bit about non-pay and some of the macro trends.

Yes, Kannan. Good question. Yes, we have seen an uptick in non-pay disconnects, which we believe is really macro-related. The good news is we offsetting this pressure is really underlining improvements in other areas. So it's not had a material impact on our customer trust, thankfully. To be specific, we saw a [ churn ] of an additional about 9,000 additional customers related to non-pay in the first quarter compared to the same period last year. Again, this is just macro driven, and we feel this will subside.

Our next questions come from the line of Peter Supino with Wolfe Research.

I wondered if you would mind comparing churn and gross add trends in the East to the West. It was interesting to hear that you've had a few better months in Suddenlink. I think that's different than commonly perceived. I would love to hear you break down the different territories?

Peter, thanks for your question. We are seeing improvements in gross adds in the West, which is helping us drive overall performance. And as I mentioned, 3 out of the last 5 months, we've seen positive broadband growth, and that is on the back of stronger gross adds. We are seeing pressure on churn across the board as Marc just mentioned, non-pay is a challenge across the board. And there is overall gross add pressure across both the East and West as moves are down 6.5% and in both the East and the West as we looked at it. So that is providing overall pressure as well.

Please sneak in 1 more. I would love to ask you if you have thought at all about -- or how you think about the possibility of selling the portion of Lightpath that you still own as a way to pay down debt given the very high cost to borrow money these days.

Peter, thanks for the question. We are not actively pursuing, but it's -- we're always listening to opportunities, but we're not actively pursuing anything right now.

Our next questions come from the line of Michael Rollins with Citi.

I was curious if I could revisit the discussion on EBITDA and margin in 3 parts. The first part would be, Dennis, as you've operated and studied cable assets. What are the portfolio attributes that you have found that have the highest correlation to better EBITDA margin performance? Is it in broadband revenue mix, ARPUs, penetrations, the size of the footprint? Just curious, what's the most causal factor? And then secondly, as you look at where your margin is going to be for this year versus some of your public peers, do you have a bridge of where Altice is seeing the greatest variance? And then the final part of this is just your North Star. As you're looking at over the next few years, where can the margin get to over time?

Mike, thanks for your question. In terms of the first item, and then maybe I'll let Marc take number 2 and then we can tag team number 3. But I've been in the industry for a long time, and it's no secret that broadband is where we can drive the most margin and profitability. And so that's why we are now a connectivity company. When I joined in October, I wanted to set a North Star, and that was to be the connectivity provider-of-choice in every community that we serve. And so we lead with broadband. We want connectivity in the home, but then we also have an MVNO relationship that we are very excited about. And so we want to lead also with connectivity outside the home. And so we lead with broadband and we put together Optimum Complete to allow us to drive our go-to-market as we go forward. And we know that customers are looking for 2 things, quality and value, quality and value. And so for us to drive the highest opportunity of margin, profitability, we've got to be laser-focused on both of those elements. The value is there now with Optimum Complete. We have studied this, and we've done the research, and we're excited that this is an offer that we believe will allow us to compete and provide customers the value they're looking for. On the quality side, we now need to make the strategic investments to ensure that our products, our service, network are providing the level of quality to allow us to drive maximum profitability in this -- in our portfolio.

Yes, Michael, just on the margin this year, we're not going to give specific guidance. But as you see, our margins are compressed given the top line growth pressures in the video subscribers and the subscriber losses we've had over the past year. Coupled with that, we have made investments, as Dennis mentioned, in our sales teams and our CX teams to really improve the quality of what we can do as a company. But we're pretty optimistic with the new team and Optimum Complete, this network, which is yielding just incredible savings on truck rolls and volumes. We're pretty bullish that we can return to normal levels over time. Again, I call attention to the OpEx reductions we've had quarter-over-quarter, the first time since the pandemic, $26 million or 4% reduction. And we also see our gross margins are also improving 60 basis points year-over-year. So we're optimistic that there is a clear path to have a better second half EBITDA performance in the first half. And then in the longer term, again, we are focused on returning to sustainable customer revenue and cash flow growth, which will get us to where we need to be from a margin perspective.

And you asked a question about peers, I believe, in bridging. And ultimately, we don't have the same scale. So on the programming side, we have a bit lower margins. And we're looking at the video business. I know we haven't talked about it at all, but we are looking at that business as well and figuring out how that fits into the portfolio going forward. We know people are watching video, obviously, more than ever. We know that there is interest in linear. There's an interest in streaming. And so we're looking at rightsizing that product in our portfolio, and evolving that go-to-market going forward. And so that will be a focus of ours as well.

And just 1 quick 1 on that. Is it possible to consider outsourcing the video business? Is that an option for Altice?

Anything is possible. So we are looking at all of these options as we build out into new build territories, we're actively having conversations of should we build out video infrastructure or should we be looking at partnering as some of our others have done. And so those are all options that we're looking at as we evolve the portfolio.

That is all the time we have for questions today. I would now like to hand the call back over to management for any closing comments.

Thanks, everyone, for joining. Don't hesitate to reach out if you have any follow-up questions. Thank you. Thank you.

Thank you.

Thank you.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.