Altice USA Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 1, 2024

There are 10 speakers on the call.

Operator

Hello, and welcome to the Altice USA Q2 2024 Results Conference Call and Webcast. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Sarah Friedman, Investor Relations. Please go ahead, Sarah.

Speaker 1

Hello, and welcome to the Altice USA Q2 2024 Earnings Call. We are joined today by Altice USA's Chairman and CEO, Dennis Mathew and CFO, Mark Seroda, who together will take you through the presentation and then be available for questions. As today's presentation may contain forward looking statements, please carefully review the section titled Forward Looking Statements on Slide 2. Now turning over to Dennis to begin.

Speaker 2

Thank you, Sarah, and thanks, everyone, for joining today. As you've heard me say before, our mission at Optimum is to be the connectivity provider of choice in every community that we serve. To do that, we are putting the customer at the center of every decision, providing the best customer experience, best networks, best customer relationships and best products, all supported by the best team here at Optimum. Our focus on the customer underpins our strategy of returning the business to sustainable subscriber, revenue, EBITDA and cash flow growth over time. Q2 was another quarter of progress in our transformation journey.

Speaker 2

We continued to deliver improved operational metrics, increased customer satisfaction, growth in our fiber, mobile and B2B businesses, elevated product quality and refreshed go to market strategies. And we are continuing to use artificial intelligence and data to enhance our capabilities and improve the customer experience. We are executing with financial discipline across every area of the business. And we are just getting started. We have an exciting, innovative and robust roadmap of future product and experience enhancements that we cannot wait to bring to our current and prospective customers this year and beyond.

Speaker 2

Before we get into the details, I do want to say thank you. Thank you to our customers for choosing us as their provider for one of the most essential services in their lives. And thank you to our teammates across the country. It is your dedication to our customers that is driving the current and future success of our business. So now let's turn to Slide 3 to get into some of the specifics.

Speaker 2

We delivered $2,200,000,000 in revenue and 867,000,000 in adjusted EBITDA in Q2 2024. Revenue and adjusted EBITDA declines continue to improve compared to the prior year over year trends. This reflects our disciplined operational and financial execution as we continue to face competitive and macro pressures, including higher interest rates, higher inflation and increased competition. We've invested in people, data and analytics and are starting to see returns in those investments. Looking back 12 to 24 months ago, we had limited understanding of our customers.

Speaker 2

Through the formation of our centralized data and analytics teams and implementation of AI tools, we now have a robust understanding of our customers and their individual customer lifetime value managing these relationships to benefit our customers and our business. The use of AI tools extends across the business and we'll continue to scale them to transform our operations, drive inbound sales performance and improve processes at all touch points. On our subscriber trends, we saw impacts from both competitive and macro pressures, which were more pronounced in our West footprint as the East had relatively stable trends. In addition, we saw gross addition pressure in our low income customer segment, partially attributed to the sunset of ACP and aggressive pricing from ILEX, Fiber Overbuilders and FWA. Our hyper local strategy, network quality and value combined with robust offerings across our base enables us to effectively compete over time.

Speaker 2

Overall, we remain well positioned with a healthy broadband customer base of 4,400,000 customers and we continue to see growth in fiber subscribers and mobile lines, which are key drivers to strong and profitable long term customer relationships. We also saw positive B2B subscriber growth in Q2, momentum that we are excited to build on in the second half of the year. Overall, our focus on delivering better experiences for our customers is paying off. According to both internal and external customer satisfaction benchmarks, Optimum is on a significant climb, outpacing the NPS improvements of peers over the last 2 years. Specifically, transactional NPS or customer satisfaction levels when interacting with Optimum has grown 34 points over the last 2 years.

Speaker 2

Additionally, relationship NPS customer sentiment toward the Optimum brand has grown 18 points over the same period. This marks significant progress in stabilizing our business and establishing the Optimum brand is one that customers can rely on and trust. Importantly, our focus on improving NPS scores helps us to enhance profitability while protecting ARPU and sustaining low churn. In Q2, we also saw brand awareness among prospective customers grow by 8 percentage points year over year in the East and by 13 percentage points in the West supported by our customer experience improvements, brand platform launch and go to market strategies. We also continue to see 3rd party validation.

Speaker 2

Optimum Fiber was once again recognized for having the fastest and most reliable Internet speeds in New York and New Jersey according to Ookla Speed Test. And most recently, we were named the best internet service provider in the mid Atlantic region, inclusive of our New York and New Jersey footprint by technology publication PCMag. In addition, in 2024, we were named the best Internet provider by CNET in areas across our footprint. It is tremendous and validating to see the superiority of our product set and networks recognized across the industry. Let's dive into a few key programs that are driving these improved experiences and a positive impact on our brand speed.

Speaker 2

Almost half of these customers were previously on legacy lower speed plans. This initiative enables us to phase out speed tiers, deliver improved service experiences and leaves considerable room for future upgrades. And we have seen improved churn with our Speed Right Size population as well as higher satisfaction. Speed Right Sizing demonstrates how we are passing the benefits of our network enhancements directly to our customers and it is just one component of our overall base management strategy aimed at creating more engaged, satisfied and stickier customer relationships. We are also increasing customer satisfaction through the broader availability of self setups or self install, creating a better customer experience and reducing truck rolls.

Speaker 2

This quarter, we saw 50 6% increase in eligible customers choosing self setup and we will continue to improve this process. Across our base, we have seen 235,000 fewer truck rolls in the last 12 months as well as 1,700,000 fewer service calls. As we deliver better customer experiences, total contact rates per customer have declined by almost 10% and repeat customer service visit rates have declined around 30% compared to the prior year. Our completion rates are approaching all time highs and our repeat rates are approaching all time lows. This is driven by our focus on quality, quality products, quality network and quality service.

Speaker 2

We are resolving product issues faster, driving first time right on every interaction, expanding self-service tools such as MyOptimum app and proactively communicating with our customers like never before. Last quarter, I talked about the launch of Optimum's where local is big time brand platform, which emphasizes our ability to bring innovative best in class technology and products to our customers delivered with the approach and trust of a local business. This platform is backed by our hyper local go to market strategy, which is a town by town approach to how we serve and support our customers. Optimum size, scale and local leadership teams put us in a unique position to operate at a hyper local level and we are already seeing the benefits of this tailored approach with subscriber stabilization in nearly 100 markets where we focused our hyper local segmentation efforts. In addition, residential customer wins per losses on competitive switching improved slightly compared to Q2, 2023 levels.

Speaker 2

We are performing better amongst non movers in the East footprint as well as in the West generally. Our hyper local go to market strategy is just gaining momentum, and we are confident that it will enable us to be more competitive in every market we serve. Next, on Slide 4, I will review some of the exciting developments our teams are diligently working to deliver over the medium term. With our operational transformation well underway, we are excited about the upcoming evolution of the Optimum product and solutions portfolio, which focuses on driving innovation, flexibility and value for our customers. Let's start with value added services, a new set of offerings that will bring our customers add ons to help get them the most out of their experience with Optimum, while expanding our opportunity to capture additional revenue per customer beyond our core products.

Speaker 2

We recently launched Total Care, which provides premium support for customer services and connected devices in the home at $15 per month for residential customers. Since the product soft launch in Q2, we've seen several 1,000 customers take this add on and marketing hasn't even started. We also offer device protection for our fixed services and just recently launched device protection for mobile. As consumer needs evolve, we are also exploring partnerships with 3rd party OTT app providers to resell services as part of the Optimum product suite. This is an untapped area for us, enabling us to meet changing customer behaviors while creating greater financial flexibility in managing content rights.

Speaker 2

On broadband, both our fiber and HFC footprints continue to be recognized for speed and reliability coming in ahead of our peers in several key categories. In areas where we have fiber, we are focused on growing penetration through both customer additions and a renewed focus on migrations, a process that is now faster, easier and more cost effective. We anticipate accelerating fiber migrations in the second half of the year. Performance on our HFC network continues to improve as well as we make the right investments to provide best in class speeds, reliability for the durable network lifespan. Today, we have 1 gig or higher speeds available to 95% of our total footprint and we are actively testing our ability to deliver 2 gig speeds using mid and high split technology and are reclaiming capacity from our video system as we expand our Optimum Stream product.

Speaker 2

Next, we'll continue our speed rightsizing program as part of our broader base management strategy, identifying and upgrading qualified customers on an ongoing basis. And we're continuously enhancing our in home Wi Fi experience with software and hardware improvements to expand coverage and optimize performance. Our roadmap includes wireless backup, smart Wi Fi solutions and next generation gateways. Overall, our broadband strategy remains focused on delivering the best highest quality service to our customers at a great value. We are well positioned with our current and future product roadmap to continue to improve that experience.

Speaker 2

On mobile, we'll continue to extend mobile sales to more channels and we'll expand our mobile device selection. We added tablets and mobile device protection to our portfolio in Q2 and expect to introduce wearables next year. And we recently started selling mobile in B2B, which will support future growth. On B2B, we are beginning to see more traction, reporting positive SMB broadband net additions in the quarter and we have plans to add more managed services such as SD WAN, network as a service, LTE backup and richer security features in the coming months. In addition, our LightPath Enterprise business continued to see healthy revenue growth in Q2, driven by an increase in net install.

Speaker 2

LightPath continues to expand its footprint through tuck in acquisitions. In June, LightPath announced that it had entered into an agreement to acquire United Fiber and Data. UFP owns and operates high fiber count networks between New York City and Ashburn, Virginia. If completed, this acquisition is expected to expand the serviceable market in Manhattan by over 20% and should align well with the existing footprint. And last, a moment on video, turning to Slide 5.

Speaker 2

Over the last few years, we have learned a lot about our customers' TV viewing habits and have been preparing as a company to address these changes. We are evolving and expanding our product set to provide our customers with the choice, flexibility and the advanced connectivity experience they demand. First, we launched Optimum Stream, our Android based streaming video platform and we continue to enhance its functionality. We plan to introduce pause and rewind for live TV and a new user interface in the months to come. Optimum Stream is available to all our New York Tri State area customers and this year we expect to bring our premier video service to nearly 1,500,000 more homes across our West footprint.

Speaker 2

In July, we announced the launch of Entertainment TV, a new Internet TV package and the first of several new video bundles to be rolled out by Optimum with a variety of content options. This TV package is priced at $30 per month and features over 80 top rated channels, available both live and on demand only through Optimum Screen. Entertainment TV customers also have access to Optimum's News 12 service, the preeminent hyper local news source across the New York Tri State area. Entertainment TV is coming at a time when we continue to see the landscape of sports and TV content changing dramatically. Roughly 1 in 5 of our video customers do not engage with broadcast, cable news, sports or premium channels regularly, and we are now able to provide these customers with optionality.

Speaker 2

Additionally, programmers continue to mandate bundles and raise prices for all customers regardless of whether they watch the content, while also moving premium content to direct to consumer platforms without giving equal access to linear partners who pay a majority of their costs. This results in high TV bills for consumers and fragmented and confusing viewing options. Consumers should have the choice to pay fair and reasonable prices for the content they want and how they want it without being forced to pay for what they don't want. Therefore, we will approach every renewal discussion with the customer at the forefront and we will collaborate with partners who are committed to providing flexibility, choice and value for our customers. As we look ahead to the rest of this year and beyond, we have a lot of exciting innovations and opportunities to continue to evolve the Optimum business.

Speaker 2

We are confident that our strategy is positioning us well and will lead to long term customer revenue and cash flow growth. With that, I'll now hand it over to Mark to review our Q2 performance in more detail.

Speaker 3

Thank you, Dennis. Turning to Slide 7. Total revenue was $2,200,000,000 in Q2 and declined 3.6% year over year, a notable improvement from the Q2 2023 trend, which was down 5.6%. Residential revenue declined 4.4% year over year, driven by a smaller customer base and continued losses of video subscribers. Despite this volume pressure, the 4.4% decline is a marked improvement from the Q2 2023 trend of down 5.7% year over year.

Speaker 3

Of note, within our residential revenue trends, residential mobile service revenue saw its 3rd consecutive quarter of over 50% year over year growth. As we continue to ramp up on mobile, this should contribute to more of our residential revenue trends over time. As we assess sales opportunities across our footprint, we have observed fewer shoppers across sales channels, especially among our low income segments. Although we have improved our channel conversion rates, the top of the funnel opportunities are lower due to increased competition in recent quarters and a challenging macroeconomic backdrop. Despite these challenges, we see underlying strength and stable churn, stable ARPU and growing customer satisfaction.

Speaker 3

However, the current market dynamics are limiting our ability to grow subscribers and consequently top line growth in the near term. Over the long term, we are confident that our superior network, product suite and customer experience will outperform both fixed wireless and fiber over builders. We expect this competitive advantage will enable Optimum to achieve sustained growth over time. In Business Services, we grew revenue 1.3%, which was driven by growth in our LightPath Enterprise business, and we continue to grow customer relationships and sell in ancillary services to our base. News and advertising revenue declined 7.2% in the quarter, primarily tied to non recurring prior year one time items.

Speaker 3

We expect political revenue to become more of a tailwind in the second half of this year and anticipate double digit full year growth. In Q2, despite pressures on our video base, we continue to maintain a relatively stable and healthy residential ARPU of $135.95 Recall when we began implementing new card pricing for cohorts across our base at the beginning of this year, we signaled that this would not impact residential ARPU and this has proven to be the case. This trend is tied to continued selling of incremental services like mobile and fiber as well as enhancements in our base management and discipline around rate erosion. Notably, all of our operational improvements we have made in the last few quarters are translating into higher customer satisfaction, as Dennis mentioned. With already low churn rates, we've been able to keep churn near all time lows and have maintained better rates per customer retention through tailored offers at the customer level using new advanced AI, data and tools.

Speaker 3

In addition to sales and retention, we are now introducing our AI tools for use by our care agents, consolidating dozens of legacy capabilities into 1 user friendly interface. This enhances efficiency and equips our team with the insights needed to swiftly resolve issues and suggest offers and actions tailored to each customer based on the specific reason for contacting us. Turning to Slide 8, total adjusted EBITDA declined 5.9% in Q2 year over year, a marked improvement from the trend of Q2 last year, which was down 8.5%. Adjusted Adjusted EBITDA margins were 38.7 percent in Q2, which was just down under 1 percentage point from the prior year. Adjusted EBITDA decline was primarily the result of low single digit revenue declines and elevated sales and marketing and transformation expenses in the quarter.

Speaker 3

Of note, we have continued to act with discipline, controlling what we can control, and we have maintained stable operating costs, slightly down from the Q1 of this year. As we continue on our journey of improving operations, bringing the best in class talent and rolling out advanced tools, our overall costs have remained stable. We have achieved savings in some areas of the business through operational and process improvements. This efficiency allows us to reinvest in other areas such as data analytics and sales and marketing, which are expected to drive positive subscriber growth and top line results over time. Q2 free cash flow was negative $41,000,000 which includes $57,000,000 of higher cash taxes compared to the prior year quarter due to timing of first half estimated taxes.

Speaker 3

We anticipate cash taxes will be significantly lower in the second half of the year, and we expect full year cash taxes to be in the range of $250,000,000 to $300,000,000 And we continue to target positive free cash flow for the full year. Next on Slide 9, we'll review our subscriber trends. We added 40,000 fiber customers in the quarter, on pace with the prior year quarter and grew fiber customer appreciation to over 15%, representing growth of 1.1 percentage points in the quarter. Approximately 60% of our fiber net adds were from migrations of existing customers. If you recall, we mentioned there would be a bit of a slowdown in the pace of migrations this quarter as we continue to refine the operational process.

Speaker 3

And I am pleased we expect to accelerate migrations in the back half of the year. In Q2, mobile line net additions were 33,000, more than double the pace of mobile additions year over year, and we increased penetration of our broadband base to 5.8%. We have a lot of runway to continue to grow the mobile attachment rate and penetration to create stickier customers. We anticipate accelerating mobile growth in the second half of the year through sales productivity and exciting new offerings. Total broadband subscriber net losses were 51,000 in the quarter, driven by seasonal university disconnects, continued competitive and macro pressures and the impact of ACP sunsetting.

Speaker 3

Specifically, the difference in Q2 broadband net add performance versus the prior year can mainly be attributed to pressure in our low income segment. Contributing to this is the sunset of ACP, which has temporarily impacted both gross adds and disconnects in this segment on a year over year basis. We continue to manage these customers with tailored offers to repax them into best value products and services that fit their connectivity needs and price sensitivity, from low income offerings for qualified customers to adding mobile to save more on their bills, plus added discounts. As Dennis mentioned earlier, we have seen green shoots throughout our hyper local go to market efforts, and these efforts are just starting to take form. Aside from our low income segment, we see improved gross ad activity year over year.

Speaker 3

Further, in July, we see stabilizing broadband subscriber trends compared to the prior year July. We continue to see pressure from the low income segment, but we are pleased with the underlying stabilization of the business, which gives us confidence that we are well positioned to return to long term growth. Overall, as we continue to enhance our base management strategies, such as improved customer communication and speed rightsizing, we have the opportunity to deepen our customer relationships and maximize CLV by retaining long tenured customers and selling additional products. We have a strong base of broadband customers, the majority of whom have been with us for 5 years or more, take multiple products and churn less compared to early tenured customers. Turning to Slide 10, we will review our capital expenditures and network investments.

Speaker 3

Cash capital expenditures were $348,000,000 which was down 27% year over year in Q2. In capital intensity, our cash CapEx as a percentage of total revenue in the quarter was 15.5%, down about 5 percentage points versus Q2 last year. Recall in 2023, our capital spend was weighted more towards the first half of the year. Therefore, we are comparing to higher CapEx, which included a greater investment in fiber passing construction. In Q2 2024, we added 62,000 additional fiber passings, and we expect to end the year with around 3,000,000 fiber passings.

Speaker 3

Additionally, we expanded our total passing footprint by 67,000 in the quarter, and we expect to add over 175,000 total passings this year. As Dennis mentioned, our HFC plant continues to perform well, and we are maximizing this network with quality enhancements in a capital efficient manner. For example, we are increasing broadband capacity for over 2,500,000 customers by allocating bandwidth more efficiently to improve both upload and download speeds. We continue to split nodes to create more capacity on our network, and we are doing this at a lower cost. We have strengthened our efforts around proactive and preventative network maintenance with enhanced processes and tools to identify and fix network and equipment issues before a customer would ever notice.

Speaker 3

All of these enhancements regarding recognition from improved customer experience to 3rd party published awards and improved Google review scores, validating that we are making the right investments strengthen our networks. We remain focused on network enhancements with capital efficiency to prioritize the highest returns and benefits to our customers, while remaining disciplined around capital intensity. Please note, we expect capital intensity to increase slightly in the back half of this year as we migrate more customers to fiber and continue to invest in our network. As we have remained disciplined in the first half of this year, we now anticipate full year CapEx to come under $1,600,000,000 which is slightly lower than the range of our initial guidance. And finally, on Slide 11, I would like to review our debt maturity profile.

Speaker 3

We are well positioned with a clear runway of maturities until 2027. At the end of Q2, our weighted average cost of debt is 6.5% and our weighted average life is 4.6 years. 85% of our total debt stack is fixed, inclusive of floating to fixed interest rate swaps. Our leverage ratio is 7.2x the last two quarters annualized adjusted EBITDA. We will continue to be proactive in managing our debt maturities and evaluate how to best ensure that our capital structure supports our long term operating goals.

Speaker 3

While we are well positioned in the near term, we are looking at all to maintain our capital structure that supports our long term strategic objectives. In conclusion, we have the right strategy in place with a focus on profitability, financial discipline and enhancing the customer experience with a segmented go to market approach, all of which positions us on a path to sustainable long term growth. With that, we will now take any questions.

Operator

Thank you. We'll now be conducting a question and answer session. Our first question today is coming from Frank Louthan from Raymond James. Your line is now live.

Speaker 4

Great. Thank you. Can you give us an idea of the current run rate savings from the truck rolls and the call center inbounds? And then as a follow-up, where do you think you are as far as integrating AI in your business for efficiencies and so forth? What kind of give us an idea kind of what inning you're in or something like that?

Speaker 4

Thank you.

Speaker 2

Hey, Frank. We're really excited about the improvements that we're seeing in our operations. As I mentioned, 1,700,000 fewer calls, 235,000 fewer truck rolls. And there's more opportunity. We're leaning into self installs.

Speaker 2

We're leaning into just more proactively communicating with our customers. 56% increase in self installed this past quarter and we're sending messages proactively when folks are having outages or service interruptions, service visits, installs and this is all driving savings. This is all driving fewer calls, fewer truck rolls, just less noise in the system and that's translating into improved customer experience. We are taking those savings and optimizing our OpEx structure and I'll let Mark talk to that a bit in a second. But then we're investing as well and we're being disciplined about that investment.

Speaker 2

We talked a bit about AI and our first step in that direction was launching a tool in our retention queues to help our agents more effectively manage call volumes coming in based on the customer's lifetime value, the product set and really provide them offers that were accustomed to their needs. And it also takes into consideration the competitive intensity in the market, so that it's not a one size fits all when we're taking those calls and that is allowing us to have drive better save rates and drive ARPU drive improvements in ARPU erosion. And so we're continuing on this journey. We're running pilots in our care centers. We're running pilots with our field teams and we're seeing real opportunity to just help us elevate our customer experience, make it simpler for our employees to have easier tools, find the solutions faster, solve the issues faster to ultimately deliver a more effective experience and drive even further efficiency as we go into the second half of the year and into 2025.

Speaker 2

Mark?

Speaker 3

Yes, Frank, I would just add, you see it in our OpEx costs, we've been able to make these investments that Dennis had mentioned and keep our operational costs flat. We were down sequentially quarter over quarter, which we were pleased about. And so while we drive out the truck rolls and the phone calls, we're able to reinvest in this type of technology. I would characterize it Frank as early innings with AI. As Dennis mentioned, we have it in front of all of our retention agents today.

Speaker 3

By the end of the Q3, we'll have it in front of all of our care agents, again, tailored actions at the individual customer level. So really excited about where AI is going to take this company and it's really helping us guide the operations and you see it in the stable ARPU despite the video pressures that we see, we're able to maintain our video ARPU. So really pleased on our progress, but still early innings.

Speaker 4

All right, great. Thank you very much.

Speaker 2

Thank you.

Operator

Thank you. Next question today is coming from Kukhnin Morel from Evercore ISI. Your line is now live.

Speaker 5

Good morning and thanks for taking the questions. 1 on the outlook for EBITDA and 1 on the strategic value of legacy Optimum. First on EBITDA, I appreciate that you don't provide explicit guidance and that there are a number of moving pieces across what you can and cannot control. But can you talk to some of the moving pieces we should be mindful of for the back half and how we should think about the full year? And second, on the strategic value of the legacy Optimum footprint, there have been some headlines recently around fiber assets and various partnerships.

Speaker 5

I know the focus for the management team and the Board has perhaps shifted over the years more towards improving underlying operations of the business as opposed to asset monetization. But given legacy Optimum is in the top DMA with meaningful progress on the fiber build, are you now at a point where maybe there's any interest or willingness to engage in monetizing it in some capacity? Thank you.

Speaker 2

Thanks, Khutva. And I'll take the second question first and then I'll throw it over to Mark. But we are continuing to be laser focused on transforming this organization and we're really excited about the progress that we're making and the legacy Cablevision or the East footprint is one that we're laser focused on. We've launched our new hyper local go to market 100 of the markets that we've launched, which includes the East. And we're seeing improved performance, particularly in our fiber footprint and particularly where we overlap with Verizon.

Speaker 2

We are seeing our ability to compete improve and we're going to continue to lean into that. We're still in the early innings. I'm really proud of what the team has accomplished. We have won award after award by 3rd party independent organizations. As I mentioned, Hoopla named us the fastest and most reliable in New York and in New Jersey in that DMA that you're discussing.

Speaker 2

PCMag named us the top ISP in the Mid Atlantic, which includes New York and New Jersey. But there's more work to do. And we know that the competitive pressures continue to ramp up, but we have the products, we have the service, we have the tools to compete effectively in the East and we want to continue to drive improvements and continue to accelerate our transformation. So that's what we're focused on today. Mark, you want to talk about the EBITDA piece?

Speaker 3

Yes, Kakin. On a full year basis, we expect our year over year EBITDA declines to moderate versus the prior year. This is really driven by all the operational improvements that we've talked about that we've made over the past year. This includes all the investments we made in our customers, such as the speed rightsizing activities, all the investments in our network, and you see that really transforming our truck rolls and our service calls, which we just talked about. And then just really pleased on the stabilization of ARPU and we do see a path for growth there.

Speaker 3

And again, that's mainly tied to discipline and use of AI to drive each conversation with our customers. So these investments that give us confidence that we will drive EBITDA improvements over this year and then in the long term. And that's really what we're focused on as long term sustainable EBITDA growth. And so that's where we feel things are heading and feel good about it.

Speaker 5

Perfect. Thank you both.

Speaker 2

Thank you.

Operator

Thank you. Next question is coming from Michael Rollins from Citibank. Your line is now live.

Speaker 6

Thanks and good morning. I'm just curious if you can provide more specifics on how ACP impacted broadband performance in the second quarter and your expectations for how it may specifically impact the performance in the second half? And then just taking a step back, can you share where you are today on the percent of the broadband base that now has that simplified rate card and the timing to get to the rest of the customers? Thanks.

Speaker 2

Thanks, Michael. On ACP, as Mark mentioned, just broadly, as we look at the low income segment, we did see a bit of a slowdown and some headwinds as it relates to that segment in particular, both from a gross add and from a disconnect perspective. ACP specifically, we're really happy with our performance. Performance. We saw a very nominal increased churn from our baseline.

Speaker 2

And I think that's really attributable again to the incredible work the team did to prepare and to and in and in terms of their needs, getting them into packages that right size their speeds, right size their package with the Optimum Mobile and really making sure that they had the right products that they needed. So incredible performance on the disconnect side, but we have seen that the subsidy and just generally a bit of a slowdown in terms of gross adds. And when I look at our general performance, that is where I see our headwinds that occurred in the second quarter. But we feel that we do have the right products and the right services to compete long term. We have incredible value.

Speaker 2

Our focus remains quality and value. And when we look at value and we look at Optimum Complete, we now have Optimum stream that is launching across the footprint. Entertainment TV is an incredible value. As I mentioned, a new video package, we believe that long term we do have now the right products and the capabilities to be able to compete across every segment. In terms of our broadband retail pricing, I'll throw that over to Mark to just provide a little bit more color.

Speaker 3

Yes, Michael. We're pleased with overall ARPU trajectory and our stabilization that we've talked about. From a rate card perspective, all of our fiber rate card is now fixed and reset. And then we'll over time, and this will be a multi year journey, we will set the HFC rate card. So it's still fairly early days on that side of the house.

Speaker 3

Again, we did not see any material impact from the change here and we'll continue to manage ARPU on an individual customer basis and feel that there's a path for real growth as we continue to accelerate selling in more products like fiber, like mobile and other ancillary services.

Speaker 2

Yes, I'll just continue to reiterate that our the philosophy or strategy around our pricing strategy has been providing transparency, predictability and just eliminating a bit of confusion that existed with the old rate cards and promo roll strategy and we're seeing real benefits from that. We're seeing that we're able to continue to implement that strategy and provide the clarity that our customers are looking for.

Speaker 5

Thank you.

Speaker 2

Thank you.

Operator

Thank you. Next question today is coming from Craig Moffett from MoffettNathanson. Your line is now live.

Speaker 5

Hi, good morning. Let me ask about some of the green shoots that you've pointed to. Can you quantify for us a real change in the trajectory of, in particular, broadband, I guess, broadband retention and net adds. In any of these kind of green shoot cohorts, whether it's the customers who've had the pricing rightsized that you just talked about, the customers who are in your fiber markets, the customers who are in your mobile converged bundles or even just in your hyper local segmented market so that we can kind of do something a little more tangible so that we can see once this is done and that as it rolls out that we can have more confidence in the trajectory of broadband in particular?

Speaker 2

Yes. Craig, what I'll say is that we're really excited about the stabilization of churn. We were really prior to me joining and launching these playbooks, we were really struggling as fiber over builders came into our footprint, the impact that those folks were having was fairly outsized in terms of taking share. And these local playbooks have stabilized that. And when I look at our performance in Q2, we saw meaningful stabilization and improvement in churn and really the headwinds when we look the performance was on the gross ad side and really tied to the low income segment.

Speaker 2

And so, when I look at the speed rightsizing and I'll let Mark add a bit of color across these tactics, we are seeing improvements in churn. 50% of those folks are just being moved off of legacy speeds and we're seeing their satisfaction improve. We're seeing call volumes decrease and we're seeing a level of loyalty and stickiness tied to that improvement. Similarly for those customers that are taking mobile, their churn profile is also better. And then as we go market by market and we're able to compete and we're able to drive our base management strategies, we're seeing that we are able to stabilize and even see a record level of improvement in churn.

Speaker 2

And so now our job is to continue to drive that go to market in a more meaningful way across every town, across every market, both in terms of base stabilization as well as driving our acquisition and go to market. And we're seeing some improvements there as well. When we look at our wind share and our ability to drive wind share and bend the curve, town by town, we are seeing our ability to do that, particularly as I look at some of these towns where we're competing against these fiber over builders. Mark, anything you'd like to add?

Speaker 3

Yes, just around speed rightsizing in fiber in particular, we're seeing that these tactics are working. We see combined double digit churn improvements coming out of customers that take their fiber product or speed right sized. So we feel that these types of tactics in addition to our individual customer treatments that we're doing are stabilizing the base. And again, as Dennis mentioned, we do see acceleration in our non low income segments around gross ad performance. And so that gives us optimism around where the business is from a core basis heading, coupled with the investments we've made on customer experience and driving churns to all time lows, we feel like there's a real path to sustainable growth over time.

Speaker 2

Yes, and the other piece that we're leaning in to, as I mentioned, was the value added services where we have an opportunity, a real opportunity to further drive services into the base. We launched our new Total Care solution and within a few weeks without any marketing, we've already added several as we launch these new services and sell that into

Speaker 3

the base, we believe that

Speaker 2

that will further accelerate our transformation.

Speaker 4

All right.

Speaker 5

Thank you.

Speaker 2

Thanks, Craig.

Operator

Thank you. Next question is coming from Sebastiano Penni from JPMorgan. Your line is now live.

Speaker 7

Hi, thank you. If I could just maybe ask a quick follow-up to Mike's question earlier. Just thinking about the Q2, you talked about the majority of the decline, right, could be attributed to the low income segment. But help us perhaps think about in light of that, you talked about June, there was some stabilization there. As we think about the ACP impact, thinking about what your peers have messaged in terms of non pay disconnect as well pressure coming through.

Speaker 7

And would the expectation be considering June was stable on a year on year basis, do you expect to see additional non pay disconnects? Should we be thinking about the Q3 of 2024 looking something like 2023 in terms of losses, whereas perhaps maybe non pay disconnect pressure from an ACP could be offset by some of the base management and other strategies you just kind of articulated. Just trying to get a better sense on how we should think about the impact flowing through because messaging from peers and competitors has been there's probably still more to come in the back half of the year in terms of ACP headwinds?

Speaker 3

Yes, Sebastiano,

Speaker 2

the comment on stabilization was in July. We are seeing stabilization in July and we anticipate further stabilization in the second half of the year. We've launched our new local, hyper local playbooks in the Q2. And we do believe that they're going to continue to provide us meaningful acceleration as we look at implementing them town by town offers at the town level and having marketing tactics at the town level and being able to compete more effectively head on with these fiber over builders and fixed wireless. We're still in the early innings and we're seeing some benefit.

Speaker 2

We started to see some of those benefits, particularly in stabilizing churn and now it's helping us compete more effectively from an acquisition perspective. But I'll throw it over to Mark to add any color he'd like on ACP and the low income segment.

Speaker 3

Yes, in addition to some of the conversations we've already had this morning, we are launching AI tools within our non PAG segment as well. It's too early to tell exactly what's going to happen with the ACP population, but we feel confident that we have the right offers and the right strategy to manage these customers through that conversation. Again, too early to say, but we feel like we have the playbook in place to manage through it. Yes.

Speaker 2

Okay. Go ahead. No, go ahead.

Speaker 7

I was going to ask a quick follow-up on a different topic, then go ahead.

Speaker 2

Yes, please go ahead.

Speaker 7

Okay, sorry about that. So just thinking about the migration rate on the fiber side, can you perhaps help us think about what you'll or give us the migration rate this quarter and how we should perhaps think about how that could change as you perhaps accelerate migrations in the back half of the year? Thank you.

Speaker 2

Yes. In our fiber performance, we had 60% migrations. We had an all time high in Q1 and that really helped us understand some of the challenges that we were dealing with in terms of operational and technical issues tied to the migrations. As I had mentioned in earlier calls, we have purposely took a little bit of a slowdown so that we could solve those technical issues. And I'm pleased to report those technical issues have been solved.

Speaker 2

And so our goal is to integrate this now into all of our channels to drive a much more meaningful pace of migration in the second half of the year. Now that we have a much more seamless process to migrate customers, we're integrating strategies and tactics into our care channels, into our retail centers, into our retention channels. Every time we have an opportunity to interact with these with our customers, we will now be able to confidently present them with a migration option and get them into the best products. And we also feel very comfortable now that we have the right video solutions to pair along with our broadband fiber product. As I mentioned, we've launched Dream across the entire tri state.

Speaker 2

That was also a critical element of being able to accelerate. As you know, in the East footprint, we do have customers that take both broadband and video and have broadband and video. And so we needed to make sure we had a full solution set that we could confidently present our existing customers. And we do have that now. And so, our pace will accelerate.

Speaker 2

The goal is to accelerate our pace meaningfully in the second half.

Speaker 5

Thank you.

Speaker 2

Yes.

Operator

Thank you. Our next question today is coming from Mary Anne Zhao from Morgan Stanley. Your line is now live. Marianne, perhaps your phone is on mute. Our next question is coming from Jessica Reif Ehrlich from Bank of America.

Operator

Your line is now live.

Speaker 8

Thank you. I guess two questions. 1 on advertising. 2nd quarter was disappointing, down 7%, but you sound super optimistic about second half. Can you give us some color on expectations if you can parse out political, which clearly should be strong versus what you're seeing in the underlying advertising market?

Speaker 8

And then secondly, it didn't really come up on the call, but you are overbuilding a couple of markets. Can you give us an update on what you're seeing on both in your efforts to overbuild and then others who are also coming into your markets, what you're seeing?

Speaker 2

Hey Jessica, I'll cover the overbuilding and then I'll throw it over to Mark to talk about the advertising trends. We are building out in New Jersey and Montclair and West Orange and we're on track to launch later in Q3. We have when we look at that opportunity in particular, we look at the overall return on investment and we look at the cost and given our footprint, it was an opportunity for us to continue to build out our plants and offer incredible our incredible fiber network and fiber product to these customers and in these towns in a cost effective way, which we're excited about. We'll be launching broadband and mobile and the full product portfolio. We have teams and go to market strategies ready and the teams are actively working to prepare us for launch later in the quarter.

Speaker 2

We're continuing to see overbuild activities and build activities throughout the footprint. And we know that the competitive intensity is only going to continue to increase and that's why we have to control what we can control. We are looking at how we want to deploy capital in the most cost in the most effective way to provide the most meaningful return on investment. When we look at our opportunity, we're continuing to focus on new build, particularly within our footprint. We're on pace to deliver 175,000 passing.

Speaker 2

A lot of that is going to come in the West. When we look at we're privileged to be in some of the fastest growing towns in the West. And so we're laser focused on driving our new build strategy and making sure that we're doing that effectively and monetizing it more effectively as well. We've stood up a team to really ensure that that end to end process is working seamlessly. Mark, you want to talk about advertising?

Speaker 2

Yes, Jessica,

Speaker 3

for the quarter, certainly, as we talked about, we were hampered by one time items from the prior year that really do not recur. Excluding those one time items, we're actually growing just over 2% in the segment, and we do feel bullish. We see our national sales team is really operating at a high level. We have seen some pressure on our local sales teams, and I think that's really tied to the interest rate environment that we still find ourselves in. But from a political perspective, based on what we see coming in and the orders that have been placed today, we feel bullish about the strength of political this season and gives us confidence on a full year basis that the news and advertising group will be growing over double digit this full year.

Speaker 8

Thank you.

Operator

Thank you. Our final question today is coming from Mary Anne Zhao from Morgan Stanley. Your line is now live. Mary Anne, would you mind speaking louder? I cannot hear you.

Operator

Please proceed.

Speaker 3

I think we're having technical difficulties. Here we go.

Speaker 9

Are you able to hear me now?

Speaker 3

Yes.

Speaker 2

Yes.

Speaker 9

Okay. Sorry about the technical difficulties and thanks for taking the question. Just on the competitive landscape, can you please update us perhaps on what you're seeing on the pace of incremental fiber builds in both your Eastern and Western footprints? And then on fixed wireless, any difference in the competitive impact between your 2 footprints? Thank you.

Speaker 2

Thanks, Marianne. We continue to see in the East a little under 70% overbuilt by our fiber competitors, Verizon being the bulk of that and Frontier being a small portion of that as well. When we look at the West, we have seen an uptick over the last 6 months. We're now revising our approach, leveraging the BDC data, which has been very helpful. And so we do see about a 40% overbuilt by fiber overbuilders, AT and T and others.

Speaker 2

We think about a third of that is AT and T and 2 thirds of that are other fiber overbuilders. That grew about by about 5 percentage points in the last 6 months. And so we know that that is going to continue to grow, continue to increase. And so we need to have the best quality, the best value, the best products, so that we can compete most effectively town by town. Fixed wireless, we continue to see across the footprint availability varies again based on their network availability and capacity.

Speaker 2

We see T Mo primarily in the East as we think about the primary fiber competitor there. We are starting to see pockets of AT and T. We're not seeing as much Verizon given their presence with fiber. And then in the West, depending on the town, depending on where we are in the country, we see pockets of T Mo, AT and T and Verizon.

Speaker 9

Thank you.

Speaker 2

Thank you.

Operator

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

Speaker 1

Thank you all for joining. Please reach out to Investor Relations if you have any follow-up questions.

Operator

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

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Earnings Conference Call
Altice USA Q2 2024
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