Title

Presentation

Altice USA, Inc. beats earnings expectations. Reported EPS is $0.35, expectations were $0.05.

Operator: Greetings, and welcome to the Altice USA Second Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sarah Freedman, Investor Relations. Thank you, Sarah. You may begin.

Sarah Freedman: Hello, everyone, and thank you for joining. Before we begin, I’m thrilled to share that Nick Brown is currently on parental leave, as he and his family have recently welcomed their first baby. Turning to our agenda, we are joined today by Altice USA’s Chairman and CEO, Dennis Mathew; and CFO, Marc Sirota, who together will take you through the presentation and then be available for questions about our results. As today’s presentation may contain forward-looking statements, please read the disclaimer on Slide 2. Dennis, please go ahead.

Dennis Mathew: Thank you, Sarah, and a big congratulations to Nick. Kicking off on Slide 3, when I joined the company in October of last year, I committed that at Altice USA, we would act with discipline and focus to execute on our mission for Optimum to be the connectivity provider of choice across all the communities that we serve. And today, I’m pleased to share that we’re continuing to make great progress in delivering on this strategy with sustainable operational and financial improvements across the business. We’re seeing significant achievements across our care, support and broader service experience due to our investments in simplifying customer experiences and improving field operations. Our diligence in this space is leading to higher customer satisfaction metrics including double-digit growth in NPS and impressive reductions in call volume, service visits and overall rates.

Our focus on creating better experiences for our customers has led to lower operating costs and has resulted in stronger net addition performance in the quarter compared to the prior year. This quarter, we strengthened our product portfolio and offers to deliver greater value and experiences to our customers. Notably, and earlier than planned, in the quarter, we launched ultrafast 8-Gig Symmetrical Fiber Internet to more than 1.7 million passings, representing the widest availability of 8-Gig speeds in the country. The milestone cements Optimum as the nation’s largest 8-Gig Internet provider, and gives us a unique competitive advantage in the marketplace. Finally, we are seeing stabilization in our operating and financial metrics by delivering on better customer experiences and by executing with greater financial discipline.

Our strategy to provide the best products, the best networks, the best customer experiences and the best employee experiences through operational execution and financial discipline is leading to stronger trends across our Residential and B2B businesses. Our work here is not done, but I am optimistic about the achievements in the quarter, which are leading indicators of a return to sustainable broadband and cash flow growth. Turning to Slide 4, I’d like to get into these trends in greater detail and revisit our 4 key strategic pillars. First, a moment on our people and our culture. Over the last several months, we’ve welcomed over 30 new leaders to complement our existing team. We’ve attracted high performing executives with significant experience from across the U.S. telecoms and cable industries to run finance, sales, product, care, operations and other critical positions at Optimum.

Continuing to attract, retain and develop our talent remains a priority for us, so that we can be the best-in-class in everything that we do. We also recently introduced a new regional market structure that will allow us to be more nimble responsive and act hyper-locally across our footprint in ways that we have not done before, positioning us to achieve growth and be the connectivity provider of choice in every community that we serve. With this new model, each of our 5 new areas now has an experienced and dedicated general manager, who owns the regional P&L, drives sales, leads competitive response, and drives operations that includes customer experience, employee experience and community engagement. This approach empowers our local teams and will accelerate our ability to deliver go-to-market strategies based on the unique characteristics of each market.

Recognizing the differences in our markets while continuing to leverage the benefits of being part of a large national organization will be a competitive advantage for us going forward. I’m confident that we now have the right structure with the right people who bring experience, focus and commitment to our customers and employees. Turning to our growth pillar. As a reminder, in May, we entered the market with our converged Optimum Complete internet plus mobile offer, demonstrating the power of our connectivity services inside and outside the home. We’re pleased with the results and specifically with the attention it is bringing to our Mobile service, as evidenced by our mobile attachment acceleration. We saw impressive early mobile attachment rates for new broadband customers, more than doubling since the launch of Optimum Complete and have more room to grow.

The Optimum Complete value proposition not only helps accelerate Mobile growth, but it translates to better customer stickiness and greater customer lifetime value. We also deployed Optimum Stream, our streaming video experience that provides access to our full Optimum TV service, including live TV, DVR, On Demand and more, alongside any other streaming app available in the Google Play Store. The CPE is lightweight and sleek, and it gives customers more viewing options and doesn’t require a coax connection, allowing for easier self installation. And we just upgraded the remote to include 10 digit keys in addition to voice capabilities to blend the full experience of linear TV and streaming. Optimum Stream creates a better video experience on fiber compared to our legacy boxes, which will help to accelerate fiber customer additions and migrations.

To that end, it is officially now our marquee video product and is available to all fiber customers as their primary video solution. It is also available to new HFC customers in select markets and will be fully available across the majority of our markets by the end of this year. In addition, we are identifying opportunities to manage our customer relationships in a more thoughtful way through proactive retention programs and the enhancement of our pricing strategy. We are also exploring ways to deliver greater value with targeted rewards for loyal customers, including gifting speed tier increases. Our goal is to simplify our pricing structure to benefit our customers and top-line performance, reinforce the value of our products and experiences and, of course, to remain competitive.

We will begin rolling out pricing, loyalty and proactive retention programs to select markets later this year. Shifting gears to B2B. This is an exciting area of opportunity for us. We are renewing our strategy around B2B with an experienced new leadership team as of June, which brings a regimented focus on growing our B2B business through expanding our product portfolio, refining our go-to-market strategy, improving conversion rates through better onboarding, and converting business customers to fiber utilization in a more meaningful way. At the end of June, this team was already making progress in expanding our product portfolio, having enabled single line business hosted voice connections versus requiring multiple lines, which resulted in an immediate take rate.

In addition, we continue to scale our fiber voice capabilities to offer multiline services to customers of all sizes. We are actively working on expanding the availability of voice solutions to B2B customers across the west and will launch a business services Optimum Complete bundle later this year, bringing the best value proposition of mobile and broadband services to our business customers. Other areas of opportunity within B2B include the growth we are seeing in fiber circuit sales to Tier 1 and Tier 2 wireless carriers, reinforcing our superior network quality as a trusted partner to some of the nation’s largest wireless carriers. We also saw solid win rates on e-rate bids for the upcoming school year, providing integral connectivity services for local K through 12 education segment.

Moving to the third pillar, our network. As I mentioned in the quarter, we launched 8-Gig Symmetrical Fiber service available to more than 1.7 million passings, which strengthens our competitive advantage in our fiber markets. Our ability to launch 8-Gig symmetrical speed, it’s because Optimum Fiber is deployed using state of the art XGS-PON technology, which enables multi-gigabit speed. XGS-PON technology is superior to the legacy G-PON or older standards used by many other fiber providers today. And from our experience, it would likely require significant capital investment to upgrade to a new network infrastructure that could match our network speeds and performance. In Optimum West, we continue to upgrade the remaining network to DOCSIS 3.1 to bring faster speeds and enable more bandwidth; we upgraded an additional 70,000 passings in Q2.

Our teams are also actively innovating, and we see a path to deliver multi-gig speeds over DOCSIS 3.1 using mid-split architecture. I’m pleased to share that we successfully tested in our labs up to 2 gigabits download speeds and 200 megabits upload speeds over DOCSIS 3.1, and we’ll keep pressing to deliver the best speeds at a great value. Thanks to both our DOCSIS and fiber upgrades, we offer 1-Gig speeds in almost 95% of our entire footprint, and we’ve boosted our fiber capabilities to multi-gig, all of which gives us tremendous runway to bring customers to faster speeds as broadband usage continues to grow. Finally, due to all our investments, our broadband services are delivered with 99.9% reliability, which is what we know, matters most to our customers.

This leads to our fourth pillar, customer experience, which is a priority across every single team at the company. We’re finally getting better at bringing digital to the forefront of customer experience. For example, we enable text message communication as a direct correlation on cost control. Earlier this year, I committed that we were planning to launch a new customer app as part of the CX and Care journey. I’m pleased that last week we began to rollout this new My Optimum app, which offers an enhanced digital service app for Optimum customers to manage their in home Wi-Fi experience, troubleshoot issues using intelligent assistance, and make payments and manage their bill, all in one place. Our progress here is significant. From improving our onboarding experience to providing tools to help our customers better understand and access our services, to offering simplified experiences to meet customer needs.

These programs are having a direct impact on our customer experience metrics, which translate into lower cost to serve the customer. Let’s now turn to Slide 5. Marc and I frequently get asked what KPIs we track. That give us the optimism that we are successfully executing our strategy and heading toward a return to growth. On this slide, you can see a few of these customer experience metrics, and Marc will later review some financial KPIs, all of which we would expect to turn in the right direction before we get back to customer and financial growth. First on NPS, our tNPS, or transactional net promoter score, is up 19 points year-over-year in Q2. tNPS measures a customer’s willingness to recommend our services across care, field, retail, and sales.

We’ve seen increases across a wide range of NPS scores, including for our service visits, onboard experience, and fiber services with double-digit point increases in each of these categories. These NPS improvements once again signal that our dedication to improving and simplifying the customer experience is resonating and making an impact on how our customers feel about Optimum. Another important highlight is how we are easing the onboarding experience with the wider adoption of self-installation and the impact it’s having on our business. Self-installation minimizes both cost and time for Optimum customers, and our teams have enhanced our self-install process to make it even clearer, faster and simpler for a customer to connect to our services.

We have had great success in accelerating the pace of self-installation, which has grown 49% in Q2 year-over-year from 22% of qualified gross additions in Q2 of last year, up to 34% in Q2 this year. This has been a tremendous cross functional effort with our sales, care and field teams partnering to give our customers new and simple solutions at every single touch point. Customers choosing a self-installation over a professional install yields many benefits. Customers enjoy that it is fast, easy and doesn’t require an at-home appointment, and for our business, it translates into fewer installation truck rolls. Self-install remains a huge opportunity for us, and we will be leaning into it more in the second half of this year. Moving to truck roll and service visit trends higher self-installation adoption is just one piece of our lower overall truck rolls, combined with improved network and product quality and simplified effective troubleshooting tools both on the customer side and in our field operations.

We’ve seen 300,000 fewer truck rolls over the last 12 months, supported by a 10% decline in the rate at which a customer requires a service visit annually. In addition to fewer service visit truck rolls, we are lowering the frequency at which we need to perform network maintenance truck rolls both through better network quality and improving tools around network repair. Earlier this year, we launched a new tool for proactive network management, which enables us to identify and resolve network issues faster. Traditionally, a ride out is required to find issues such as damaged cables, taps, or other equipment. But with the launch of this new advanced tool, our team can now pinpoint the exact location of impaired network, resulting in faster detection, lower time to repair, better network experience for our customers, and lower OpEx related to fewer truck rolls to physically identify network impairments.

Lower overall truck roll volumes and improved service visit rates reflect a huge opportunity for us to continue reducing costs, while delivering a superior service experience. On the same note, we saw 900,000 less inbound calls into our call centers in the last 12 months, thanks to our self service features, proactive communications and ongoing experience improvements. We see the annual rate at which customers contact us for account questions or technical troubleshooting also continue to decline, improving 7% in Q2 year-over-year. First time right is our motto, when we consider the customer experience and we are laser focused on getting it right the first time on everything from installations and onboarding to addressing any customer needs.

And when we do get a technical or customer care call, we want to ensure that we give each customer thoughtful, tailored and specific solutions that is also solved the very first time around. This attention to customer experience is beginning to improve voluntary churn. Year-over-year voluntary churn in Q2 was relatively flat despite the incremental competition we have seen over the last 12 months, proving that easing customer pain points and focusing on total customer experience gives us runway to continue to see improvements in voluntary churn trends. Overall, these KPIs are early indicators which support that we are making progress on our strategy, and we will continue to press hard on these areas to deliver the best customer experience while structurally reducing operating cost and improving trends.

Finally, before turning it over to Marc to review our quarterly business and financial performance, I want to take a moment to address the news you may have seen coming out of Portugal. Last month, the Portuguese authorities identified that Altice Portugal was allegedly defrauded as a result of harmful practices and misconduct of certain individuals and external entities, and that the company was cooperating with the authorities. In response to these circumstances in Portugal, we have made the immediate and prudent decision to launch our own internal investigation at Altice USA. I was appointed Chairman of the Board in addition to my responsibilities as CEO, and we placed our head of procurement on leave. Since the commencement of the investigation, we have subsequently separated him and hired a new Chief Procurement Officer, Jennifer Yohe, a 25-year veteran in the U.S. cable procurement industry.

Additionally, we’re currently reviewing our supplier and vendor relationships and proactively pausing some capital spend until we have completed our investigation, which will impact our fiber construction targets in the short-term. In parallel, we are both onboarding new and scaling existing vendors, where needed to support our go forward strategies and operations. We are currently reviewing our full year fiber passings and CapEx targets. And using this as an opportunity to ramp-up our sales and marketing machine to drive more customers and penetration on this network, especially given the strong performance metrics we continue to see from our existing fiber customers. In summary, we are committed to conducting our business with the highest integrity and will continue to move forward operating with the best interest of our stockholders, customers and employees at the forefront.

We appreciate your understanding that we do not have any additional information to share at this time. And, of course, if there is anything material to share in the future, we will do so. And now, I’ll turn it over to Marc.

Marc Sirota: Thank you, Dennis. Turning to Slide 7, I’d like to begin with some key highlights demonstrating our commitment to financial and operational discipline and how that is reflected in our Q2 performance. First, we have stabilized broadband losses, and for the first time in 5 quarters, we’ve improved broadband net adds versus the prior year, a promising indicator of our go forward customer expectations. Moving on to ARPU, we have continued our path of stabilizing ARPU declines, and I’m excited to highlight that we’ve sequentially grown Residential ARPU in Q2 through disciplined acquisition pricing, broadband speed up-tiering and retention segmentation. Our operating costs have come down in Q2, declining sequentially from Q1 and from the peak of our recent OpEx spend in Q4 of 2022.

These lower operating costs contributed to improved margin trends, which will come back to momentarily. In addition to OpEx moderation, we brought down capital spend in Q2, stepping down CapEx sequentially versus first quarter by 19%. And last, I want to highlight that we are well positioned our debt maturity schedule following the amend and extend transaction that we did at the end of last year to extend about half of our 2025 and 2026 term loans out to 2028, we raised a new $1 billion senior guaranteed note April 2023. We used the proceeds to repay outstanding borrowings drawn under the revolving credit facility. We ended Q2 with over $1.8 billion in liquidity through a combination of undrawn RCF and engine cash balance, which positions us well to address near-term maturities.

As always, we will continue to be opportunistic and proactive in managing our debt maturity profile. Turning to Slide 8, let’s go deeper on quarterly customer trends. As I said earlier, for the first time in 5 quarters, we came in stronger in Q2 compared to the prior year with net losses of 37,000 compared to 39,000 in Q2 of 2022, an improvement of approximately 3,000 net adds year-over-year. Recall, we typically have a seasonally low point in net additions during the second quarter due to the impact of disconnects in our university footprints, primarily in Optimum West. Still a lot more work to do, but it’s a first sign that our Optimum strategy as Dennis reviewed is taking hold. Furthermore, we continue to be impacted by the slow housing market and a low move environment plus we have ongoing pressure from both fixed wireless and competitive fiber operators.

Despite these headwinds, we do see improved trends in parts of our footprint where we’re competing through our fiber network upgrades and improved go-to-market strategies. While much of the macroeconomic industry and competitive trends are out of our control, we remain focused on how we can drive continued improved performance. As an example of this, recall last quarter, we highlighted non-pay trends worsening year-over-year due to macro pressures. In Q2, we reduced those year-over-year declines by nearly 80%, which we attributed to partly to new programs to proactively notify customers when their bills are due, as well as programs to care for the individual needs of our customers. As a result, we saw significant reduction in customers who went into collections compared to Q2 last year.

Another example of ways that we are enhancing our customer communication and overall experience, leading to improved customer trends. In addition, we are directly addressing competition by strengthening our marketing and advertising to highlight our network speed, experience and product superiority, ensuring customers know that the quality and value of Optimum is unmatched by new entrants. On the right side, as I mentioned earlier, we are seeing acceleration in Optimum Mobile growth, adding 16,000 lines in Q2, or plus 35,000 when adjusting to include only paying subscribers. Recall last year we ran a promotion for free 1-gigabyte mobile data plans for 12 months and expect to begin to close the gap between reported and adjusted mobile lines by next quarter as the majority of the legacy free mobile customers migrate off the free plan.

Our positive trends in Optimum Mobile are supported by our Optimum Complete offer, as well as better sales training and incentives to help our employees promote and sell Optimum Mobile through our existing distribution channels. Finally, in light of our converged strategy with Optimum Complete, I’d like to note that we have updated our disclosures around Residential revenue in ARPU. Mobile service revenue is now reported in Residential and Business Service revenue lines and mobile equipment revenue sits in other. We have restated revenue in ARPU through 2021 to align with this reporting. This updated disclosure highlights our focus on driving improved average revenue per account across all of our connectivity solutions. Moving to Slide 9, we’ll review our fiber progress.

We added in an additional 287,000 fiber passings in the quarter, which brings us to more than 500,000 new fiber passings year-to-date, ending Q2 with just under 2.7 million fiber passings. We continue to accelerate the pace of new fiber customer additions, adding 40,000 new fiber customers through growth additions and voluntary migrations of existing customers. We ended Q2 at 250,000 fiber customers, and we continue to see performance and satisfaction benefits out of this cohort. First, our broadband product NPS continues trending higher on fiber versus HFC, which reflects our improved customer trends in fiber markets. Second, monthly broadband revenue per customer for new customers taking our fiber product remains consistently higher compared to new HFC customers.

And last, we are seeing over a 10% point differential of better survivability after the first 12 months on fiber versus HFC, which indicates a significant churn reduction opportunity. On usage, we continue to see customers taking and wanting faster speeds. Today, our broadband-only customers’ average over 600-gigabyte of data usage per month and this continues to trend up. Our fiber plan has the capacity to handle well beyond this level of data usage and can now deliver it up to 8-Gig symmetrical speed in the majority of our fiber footprint. Looking Ahead, as Dennis mentioned, our focus today with respect to our fiber program is to ramp-up sales and marketing to move more customers onto the new fiber network as we temporarily pause some capital spends.

Our fiber builds to date are focused on Optimum East footprint with about 46% of the East upgraded to the most advanced fiber technology. We have just under 10% penetration of our 2.7 million fiber passings today. With a backdrop of financial and customer experience benefits on fiber, strong NPS scores, improved churn rates and superior network quality, it makes sense for us to use this as an opportunity to drive more ORI [ph], while strengthening our customer metrics going forward. We know our technology and experience is better than any other service, whether it’s fixed wireless or legacy fiber company. Our goal is to reinforce our market leadership as the best network to attract the best customer relationships to Optimum. Turning to Slide 10 on revenue and expenses.

In Q2, total revenues declined 5.6% year-over-year, driven by declines in our Residential and News and Advertising businesses. Residential revenue was down 5.7% year-over-year, mainly driven by the impact of cumulative video and broadband subscriber losses we’ve seen over the last year. Business Services revenues declined 1.9% year-over-year, driven by SMB and other segments declining 2%, and Lightpath down 1.4%. Although excluding one-time Sprint early termination revenue in the prior period. Lightpath would have grown 1.1% and total business services would have been down 1.3%. Within other, News and Advertising revenues decline 14.8% year-over-year in Q2, or down 8.4% excluding political revenue. We continue to see macro slowdown in advertising spend, but see underlying growth in our direct channels.

The quarterly trend on the right hand side shows revenue stepping up sequentially; representing sequential ARPU growth through disciplined pricing and up-tiering as well as promotional roll-offs weighted towards Q2. Programming rates continue to increase with more of a step-up in Q1 as usual, but overall programming costs continue to come down due to video customer loss. We continue to also see stabilized operating expenses, excluding share-based compensation, which have declined by $14 million in Q2 sequentially from Q1, which is $40 million lower or 6% lower than the recent peak in OpEx in Q4 of 2022. The recent improved OpEx trends are a direct result of the improved operational metrics that Dennis highlighted earlier. Fewer trucks, lower call volumes, more self-install along with many other improvements across our operations that structurally reduce operating costs, while enhancing our customer experience.

This leads us to Slide 11 on margin trends. In Q2, we saw 180 basis points of EBITDA margin expansion compared to the prior quarter, which is the first quarter of sequential margin expansion in 8 quarters. In Q2 adjusted EBITDA margin was 39.7%, reflecting our disciplined approach to operating expenses and a balance of rate and volume on the revenue side. Operating free cash flow margins increased 690 basis points sequentially to 19.3%, reflecting the moderation in our CapEx spend quarter-over-quarter. This brings me to Slide 12 on capital. Q2 capital spend was $473 million, representing capital intensity of over just 20%, excluding FTTH and new build CapEx, capital intensity would have been 11.4%. Capital spends stepped down $110 million or 19% sequentially in Q2 versus Q1.

We have remained focus in Q2 on capital investments and growth opportunities in areas where we are reinvesting back into the business. In Q2, we’ve added 287,000 fiber passings, 66,000 new building passings and upgraded 70,000 passings to DOCSIS 3.1. As Dennis noted earlier, you should expect to see a lower level of capital spend and fiber passings completed in the second half and we may come in below our prior CapEx guidance for the full year. And last, Slide 13 is a bridge of our free cash flow. Free cash flow for the quarter was negative $35 million, due principally to higher capital spend in the quarter associated with the fiber bill and higher cash taxes due to the timing of payments in the second quarter. Without the additional $152 million of capital on our fiber project in Q2, free cash flow would have been a positive $118 million.

We continue to expect improved free cash flow in the back half of the year and to be positive for the full year as CapEx continues to step down. In summary, in Q2, we have continued to deliver on many of the commitments we set out over the last few quarters and remain steadfast on getting back to sustainable customer revenue, EBITDA and cash flow growth that will return us to our target leverage levels. And with that, thank you all for your time. We will now take questions and ask that they focus on our business performance. Operator?

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

Brett Feldman: Thanks for taking the question. I’ll start off here with CapEx. I appreciate you may not have full visibility into how long you’re going to be in this reevaluation phase, but if you can give us any insight as to how much lower capital intensity is going to be while you’re going through it just so we can kind of think through what we’re comfortable modeling out for the rest of the year. And then just is this pause really predominantly about assessing the integrity of the procurement funnel? Or are you actually maybe doing a more holistic reassessment of the scope of the fiber upgrade project? Thanks.

Dennis Mathew: Hey, Brett, this is Dennis. I’ll comment on the second part of your question, and I’ll let Marc talk about the CapEx trajectory here. But as I mentioned, when we learned about the investigation through the media that the Portuguese authorities had begun, we began our own investigation as well. And we’re going to conduct a thorough investigation of a number of our vendors, and that includes some of the vendors who are supporting us from a fiber perspective. And so, we feel it’s very prudent for us to take a moment and pause as we look at, as we conduct this investigation, and we will continue to drive our fiber strategy and growth strategies as we continue to learn more and as we proceed here. But Marc can provide a little bit of guidance on what we’re expecting on the CapEx and fiber side.

Marc Sirota: Yeah, Brett, as you mentioned, we will have a firmer line of sight as we get deeper into the investigation, but given the construction already in process, committed to, and kind of paid for, we are anticipating that we should have completed at least 600,000 passings in total for fiscal 2023 that would imply potentially about $100 million to $200 million less in the capital intensity than we originally previously disclosed.

Brett Feldman: Okay. Thanks for that color.

Operator: Thank you. Our next question is from Phil Cusick with JPMorgan. Please proceed with your question.

Phil Cusick: Hi, guys. Dennis, you mentioned higher competition year-over-year. Can you talk at all about what you’re seeing from fixed wireless and fiber not just year-over-year, but quarter-to-quarter? We’ve heard of some incremental fiber backing off over the last 6 months from some of your competitors. And then second, if you could talk about your expectations in gross and churn on the wireless side over the next couple of quarters as you start comping those promotions coming off? That would be great as well. Thank you.

Dennis Mathew: Absolutely, Phil. From a competition perspective, we still see aggressive competition from fixed wireless, as we looked at the data and we look at availability. We do see availability across the footprint, of course, there’s capacity constraint. But we believe that we’re very well positioned, that’s why we launched Optimum Complete. It provides value when you bundle both broadband with mobile and when you look at other fiber providers. So we have a better product and a better value with $300 annual savings. And so while we see fiber competition, while we see the fixed wireless competition, we’re very comfortable. We have the right tools. We’re also seeing increased fiber overbuilder competition in the West.

As we looked at the data, we do think that it’s now grown to 30%, 35% in the West, which historically has been more in the 25% range. But again, I believe that we have the right tools with Optimum Complete to compete. And I’m very excited about our local management team that we’ve now put in place. We have VPGMs that are deployed across our footprint and they are going to help us compete much more effectively at the local level as we get into town by town. And as we look at the competitive offerings, we’ll be able to evolve and be nimble to be able to drive growth at that local level. So we feel really good about that. On the Mobile side, we offered that free promotion through Q2 of last year. We think there’s a little bit more that will roll off in Q3.

We’ve been able to convert 60% of those into paying subs, so we think there’s going to be stabilization. We feel really good about the mobile growth that we’ve seen since the launch of Optimum Complete. We have been able to double our attachment rate of mobile. And so we view that Mobile, we’re going to continue to see mobile acceleration in the second half.

Phil Cusick: Thanks, Dennis.

Dennis Mathew: Yeah.

Operator: Thank you. Our next question is from Ben Swinburne with Morgan Stanley. Please proceed with your question.

Benjamin Swinburne: Hey, guys. Good afternoon. I guess two questions. You guys talked about kind of ramping up your sales efforts. I couldn’t tell if you’re sort of redirecting some of the CapEx savings that you may be seeing this year. I think you talked about $100 million or so into OpEx to try to drive volume that was sort of a comment in your prepared remarks, so I wanted to get a more color on that. And then programming costs, I think per sub were up like little over 3% this quarter, and they’ve been trending lower, I guess, anything onetime this quarter or any help thinking about the programming cost growth on a per customer basis going forward? Not sure if you guys are maybe negotiating better rates or seeing things there. Thank you.

Dennis Mathew: Yeah. Ben, I’ll take the first part, and then I’ll throw it over to Marc on the programming side. On the sales, it’s not at all about driving up OpEx. We have stabilized OpEx, and we’ve built up our channels. It’s all about execution and driving execution. We’ve made some operational fixes and system level fixes, so that we are more effectively selling fiber in our fiber footprint. We did have circumstances where we were not offering fiber across the board, and we’ve made some system level changes to ensure that we are offering fiber in the footprint. There’s still some incremental fixes that we need to continue to drive. We’ve also invested in our retail centers, in our door-to-door, and we’re going to continue to drive messaging around fiber in these channels so that we can more effectively sell from a gross adds perspective.

In Q2, we delivered 40,000 fiber adds, which is the best quarter to date, and 50% of that was on the gross add side, 50% of that was on the migration side. So just through more disciplined operational execution, I believe that we can drive more from a gross adds perspective. On the migration side, there are also some execution challenges that we’ve had in the past that we’ve fixed. I talked about stream. We now have a video solution that works on fiber that we’re very excited about. As we were migrating folks in the past, we did have – that had double play, we had some challenges there. And so now with the new stream solution, we’re excited about being able to drive more effective migration as well. And so, this is all about continuing to drive our execution as we go forward.

And, I’ll throw it over to Marc to talk a little bit about the programming cost.

Marc Sirota: Yeah. Hi, Ben. No real significant onetime items reflected in the decline you see on a per customer basis or increase on a per customer basis from a programming perspective. As I mentioned on the previous call, we were very focused on margin improvement and video is a part of that as well. And so, we’re taking a much more disciplined approach around the video business and, in fact, you can see sequentially we’ve grown our video margin over 250 basis points and that’s partly due to pricing and partly due to tier mix shifts. And so, those are some of the things that we’re doing to try to drive video profitability up.

Benjamin Swinburne: Thank you, guys.

Dennis Mathew: Yeah.

Operator: Thank you. Our next question is from Craig Moffett with MoffettNathanson. Please proceed with your question.

Craig Moffett: Hi. Thank you. Two questions, if I could. First, I’m wondering if you can comment on reports about the possible sale of Cheddar and how you’re thinking about that. And then, second, my favorite topic, if you could just talk about your broadband standalone pricing and if you’ve updated your pricing [ph] at all about how to ensure that your broadband pricing is competitive with Verizon Fios and competitors in the West?

Dennis Mathew: Hey, Craig, this is Dennis. As you can understand, we’re not going to address rumors or press speculation today on Cheddar. We’re very focused on executing and driving our strategy across all of our lines of business, and so that’s the focus right now. I talked a little bit about base management and a little bit about how we’re thinking about pricing. This is going to be a journey that we’re on. We’re absolutely focused on driving revenue growth, subscriber growth, EBITDA growth, and we want to make sure that we are doing that in a very strategic fashion. And part of that is base management, and part of that is retail pricing. On the base management side, we have not had a relationship with the customers that there’s opportunity there, and so we’re going to start doing things like speed gifting, implementing a loyalty program.

And then on the pricing side, we do want to take a look at how do we provide more clarity, simplicity, make sure that we’re reducing the number of step-ups and really reduce the gap between promotional pricing and retail pricing. And so as we look at that, we’re going to begin with fiber, our sub-base is a bit smaller there, and so we can navigate and manage through that first, and then we are actively looking at our pricing across the board, across the footprint. And so more to come on that, we are working on some strategies that I believe will be in market, the first half of the year for fiber, and we’ll continue to evolve that strategy as we move forward. But we do want to provide simplicity, transparency, less step-ups and close that gap as we move forward, while all the time driving overall top-line revenue growth and EBITDA and subscriber growth.

Craig Moffett: Is there a sense that you have to be at price parity with competitors with your full rack rates still being quite a bit higher than, say, Verizon Fios or AT&T in the West?

Dennis Mathew: In the West, we have a whole host of tools that we are deploying to be able to win, and we’re just starting to really drive that local level competition. We believe Optimum Complete is a great strategy that’s going to allow us to win. The speed gifting is a great tool. We’re going to deploy that in a whole host of markets later this year and that’s going to really allow us to drive some of our tactics on the base management side. We’re going to start to deploy the loyalty program and we’ll provide some more details on that in the next meeting. We believe that as we upgrade DOCSIS 3.1 across the West and take up those 500,000 homes, 200,000 this year, that’s also going to continue to improve the customer experience. And so these are all things that are going to ensure that we can be competitive and win in the West.

Craig Moffett: Well, thank you, and by the way, congratulations to Nick, who I’m sure is listening from home.

Dennis Mathew: Yes, we’re very excited for Nick and family.

Marc Sirota: Thanks, Craig.

Dennis Mathew: Thank you.

Operator: Thank you. Our next question is from John Hodulik with UBS. Please proceed with your question.

John Hodulik: Great. Thank you. Maybe back to the margin question. You showed some nice sequential improvement in margins. Can that continue as we look into the latter half of the year or there’s some seasonal issues we need to think about? And then does the stream product, or at least the repositioning of the stream product is sort of the key video product? Does that help from a margin standpoint as we look into the back half of the year? I guess that’s number one. But number two, just I don’t want to harp on the investigation, but there’s a lot of sort of moving parts. But does the slowdown in CapEx for fiber sort of hurt the overall high speed data sub trends? Or should we think about that that as a sort of break on the improvement as we look into the back half of this year or into 2024? Thanks.

Dennis Mathew: Hey, John, I’ll kind of go in reverse order here. We’re very bullish on our broadband trends, and we are very excited about and optimistic about continuing to drive our strategies. We believe that strategies like Optimum Complete allow us to compete very effectively against mature fiber providers, against fiber overbuilders, against fixed wireless. We believe that being able to continue to make the upgrades in 3.1 and all of the enhancements and investments that we’ve made in customer experience are really allowing us to win. The fewer jump balls that are in the marketplace, there is a whole – and so the local market – local management team that we’ve put in place will allow us to compete much more effectively hyper-locally.

So I do believe that we’ll continue to drive broadband very effectively in the second half. On the CapEx slowdown, as we said, we’ve begun the investigation. And so there are a number of vendors that are part of that investigation, which includes some that are related to our fiber build. And so we are going to moderate that for now, and Marc has already provided some of the details that we are able to share at this time. In terms of know stream, we’re excited about as a video solution and as a product in terms of providing a much better solution, particularly on fiber, where we had some challenges with our video solution historically. So, I think, this will also help us from driving broadband and driving video on fiber as we move forward.

From a margin perspective, Marc, I’ll throw it over to you.

Marc Sirota: Yeah, I mean, we think we’re very pleased with the rebound in margins that you’ve seen here. And we’re very focused on seeing significant increases in OpEx for the full year 2023. As I mentioned in my earlier remarks, we could see a slight uptick in the second half just tied to pushing a little harder on marketing. But, again, we’ll moderate that and take a very balanced approach. I would say I would expect our margins for the rest of the year and full year to aggregate to be better than the first quarter margins that you saw. So we feel like we’re in a good spot now, and we’ll continue to take a measured and balanced approach on driving growth.

John Hodulik: Okay. Thanks, guys.

Operator: Thank you. Our next question is from Jonathan Chaplin with New Street. Please proceed with your question.

Jonathan Chaplin: Thanks. So, two quick ones, if I may. We saw a big deal for fiber assets price in the ABS market this week. I’m wondering if that’s a market that you guys have looked at, if there’s anything in your capital structure that prevents you from doing something similar with your fiber assets. And then I’m wondering if you can give us a little bit of color on the subscriber trends in the East versus the West. Thank you.

Dennis Mathew: Hey Jonathan, I’ll throw it over to Marc to talk a little bit about fiber question you had.

Marc Sirota: Yeah, ABS, we did see and that certainly in the news as well and we’re considering all kind of potential sources of financing and certainly one that we are looking at considering and we will look to drive as much liquidity in the business as possible and that may be an alternative for us as well.

Dennis Mathew: Yeah, on the subscriber trends, as I’ve mentioned before, Q2 is typically seasonally more challenging than Q1. That being said, we did see some year-over-year improvement. We’ve got a number of headwinds as Marc alluded to in terms of the slowdown in move certain months, 20% less moves across the board as well as some of the macroeconomic challenges. That being said, we did see some improvement in the East year-over-year by about 2,000 subscribers. We’re seeing some nice improvement on the voluntary side with all the investments that we’re making from a customer experience perspective. As I think about Q3, pre-pandemic Q3 was typically seasonally better; post-pandemic Q3 was typically seasonably – has been seasonally worse.

I do think that we with the momentum that we have will be better year-over-year given all of the investments that we’re making in customer experience leveraging and having a couple more months of Optimum Complete under our belts and continuing to drive that having the local management teams that we’ve put in place. And so, I’m optimistic about the subscriber trends as we move forward.

Jonathan Chaplin: Just to follow-up for Marc quickly, if I could. Is there anything in your newly negotiated debt deals that would sort of complicate doing an ABS deal or prevent you from doing a structure like that?

Marc Sirota: Yes, Jonathan, there is not anything that would preclude us from doing an ABS deal.

Jonathan Chaplin: Amazing. Thanks very much.

Dennis Mathew: Yeah.

Operator: Thank you. Our next question is from Kutgun Maral with Evercore ISI. Please proceed with your question.

Kutgun Maral: Good afternoon. Thanks for taking my questions. One on broadband ARPU, and one on the balance sheet. So if I could just first follow-up on the broadband ARPU discussion. You’re consistently adding on faster broadband speed tiers, perhaps more so than your peers. Last year, you began rolling out 2-Gig and 5-Gig fiber, now you have 8-Gig fiber available across nearly 2 million passings. When do we start to see the benefits in broadband speed up tiering drive a more positive inflection and trajectory with broadband ARPU? Dennis, your commentary earlier about maybe starting with tweaking the pricing on fiber in the first half of next year suggests maybe any meaningful improvement may not occur until the back half of 2024, I know you’re not guiding to any anything, but is that the right way to think about it?

And then on the balance sheet. Net leverage is elevated. Free cash flow remains pressured. I think you have about $750 million of debt coming due next year and $1.6 billion in 2025. I know you’ve been proactive with extending some of your maturities and have a decent amount of liquidity. But can you expand on how you’re thinking about the balance sheet at this point? What’s your comfort level operating at these levels, and are there any levers you might be looking at to strengthen the overall position? Thank you.

Dennis Mathew: Great. Thank you for the question. On the broadband ARPU piece, we’re just getting our feet under us in terms of starting to sell gig and multi-gig in a more meaningful way. Optimum Complete is helping us in that regard. From a 1-Gig sell in perspective in Q2, we were at 29%, and on Fiber, it was at 34%. When you talk about 2 and 5, it was still in the single-digits in terms of mix. And so I feel like we’re just getting started. We’re working with the teams on really starting to improve in terms of channel performance, yield, productivity, providing the training, providing the tools, being able to sell the value, and helping our teams understand how to most effectively sell the value of gig and multi-gig.

And we’re starting to see the improvement as we look at it quarter-over-quarter. And we’re not going to provide guidance on specifically some of those elements, but we’re very optimistic about the momentum, and we’re going to continue to build on that. Marc?

Marc Sirota: I can just add to that, Dennis, although we are down year-over-year on broadband implied ARPU, I do turn your attention to the sequential improvements. So we have, as you saw in the first quarter, moderated our ARPU loss and the second quarter here, we’ve actually accelerated we’re up almost over $1 in ARPU expansion. So I think some of the things that Dennis just mentioned is helping us drive a better outcome on the ARPU side. As it relates to liquidity and the debt, as I mentioned earlier, we have $1.8 billion of liquidity. Right now, we feel like we’re in a very good spot to address our upcoming maturities, but as Jonathan asked, we are certainly looking at all options around different vehicles to help our debt load.

Kutgun Maral: That’s great. Thank you both.

Dennis Mathew: Yeah.

Operator: Thank you. Our next question is from Bryan Kraft with Deutsche Bank. Please proceed with your question.

Bryan Kraft: Hi. Thanks for taking the question. I had a couple, I guess, for Marc. Marc, can you help us to think through the outlook for CapEx beyond 2023, in other words, maybe 2024, 2025 and 2026, just in broad strokes? And any time period in mind for returning to your target leverage range? And maybe just one more, with all the progress that you guys have been making to improve really every aspect of the business, do you feel that you’ve got visibility yet into when you might be able to stabilize EBITDA? Thanks.

Marc Sirota: Thanks, Bryan. Yeah, we’re not going to specifically give guidance on 2024 or beyond that on specific targets around capital EBITDA or exactly when we’re going to hit our targeted ratios. What I will say is, we’re very optimistic around the progress we’ve made, but there’s still work to be done and we’re very much focused on returning to consistent revenue, customer and EBITDA and free cash flow growth. And that’s really where we’re focused. But unfortunately, we’re not going to give specific timelines around that.

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

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

Bryan Kraft: Okay. Thank you.

Operator: Thank you. There are no further questions at this time. I would like to turn it back to the company for any closing comments.

Dennis Mathew: Great. Thank you all and have a good evening. Thank you.

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