Q2 2020 Altice USA Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the L. T.
Say Q2 results 2020 presentation.
At this time all participants are in listen only mode. After the speakers presentation from your question and answer session to ask a question. During this session you only the press star one in your telephone if you require any further assistance. Please press star Zero I would now like to hand, the conference over to your Speaker Tonight, Nick Brown. Please go ahead.
Thank you Hello, everyone and thank you for joining in a moment I'll hand, you back that out seats USA see a text guy and see if I might grow who would take you through the presentation and then we'll move to Q and <unk>.
Today's presentation may contain forward looking statements. Please read the disclaimer on page two.
Slides are available in the company's website and a replay of the goal will be made available.
Now I know, but that's it.
Thanks, Nick Hello, everyone and why don't we just jump right into the presentation.
Starting on slide three and once again like to take you to think the LTC must see team.
Our world isn't great disrupted over the past few months I'm very proud to be ongoing dedication display bar employees.
Collectively we have we have been incredibly nimble to respond to the surge in demand.
The core services.
In summary, we delivered exceptional quarter with total revenue growth of 1% driven by broadband revenue growth of 14% year over year.
We saw record demand for broadband services.
And she is the best ever quarterly subscribers opened 70000 broadband that division.
We also delivered the best ever quarterly costs were net additions of 53000.
We could you just see strong trends and speed upgrade network usage, which we are supported with expansion of one gigabit availability, which is now available over three quarters of Bar chart.
And our ongoing refuge network rollout.
We saw resilience and because it seems to be across both our SMB and enterprise customers and deliver business services revenue growth of 2.2% for the quarter.
As the quarter progressed, and local and regional walk down again, HM. We also saw recovery in advertising exceeding expectations.
We grew adjusted EBIT da 2.5% year over year, excluding mobile our adjusted EBITDA would've grown 3.7% year over year. This translates to a margin expansion of 160 basis points year over year to 45.8%.
We saw another very strong quarter free cash flow growth up 50% year over year, driven by cost would be a reduction capex and reduce interest cost.
We continue to take advantage of the dislocation or share price the buyback shares completing over 630 million in share repurchases nearly 1.4 billion year to date against the 1.7 billion target.
We are reducing guidance for revenue adjusted EBITDA as we now have more visibility into the back half of either and based on strong geared results year to date expect growth for the full year.
We announced this week the sale of a minority stake life's outside the enterprise business at a multiple of 14.6 times EBITDA.
25.7 times EBITDA less capex.
Should generate gross proceeds of 2.3 billion net proceeds of 1.1 billion after taxes, and I mentioned that pretty though.
We are maintaining our yearend target leverage range of 4.5 to five times.
On the last two quarters, then month basis for the business ex like though.
Going forward like path will be forget independently, which I'll come back to enrollment.
We also completed our surface electric of New Jersey transaction on schedule inside it depends on mix and that seems to be able to offer services to 30000 new customers.
We also took advantage the low interest rate environment to refinance 1.7 billion isn't that locking in record low coupon rates, which should generate runrate incremental annual interest savings of $33 million a year.
To wrap up this slide I want to say that we're optimistic about the future of our company and they're confident we can take this week time to transform into reshape our business.
One that is even stronger.
Moving over to slide cohort.
Our topline revenue growth remains solid and Bobby demonstrating sensitivity of our business.
We achieved 1% total revenue growth, excluding or do some advertising segment or telecoms business grew 1.8% year over year in Q2.
Residential revenue growth was driven by exceptional broadband revenue growth of 14.2%.
We are especially happy to announce our business services revenue grew 2.2% in the quarter. Despite depends on mix with enterprise revenue growing 3% S&P growing 1.7%.
He was an advertising revenue declined 15.6% year over year with some recovery in the business exiting the quarter.
All in all we're very pleased with our result, although they remain seven turret uncertainty for the rest of the year given dependent Nick we believe our core connectivity business remains well positioned this environment.
Turning to slide five we once again achieved a record breaking quarter.
We saw the best ever residential customer relationship net additions of 53000 and broadband. Net addition of 70000 compared to Q2 2019, where we saw a loss of 1000 customer relationships and the gain 13000 broadband customers.
This is on the heels of a very strong first quarter unique residential customer acquisitions of 35000 and broadband additions of 50000.
We have also present your subscriber results year to exclude customers, who were who were it not for the FCC pledge and New Jersey Executive order requirements would have otherwise been disconnected in difference with their normal disconnect policy of greater than 90 days non payment, which we show in detail in the next crop.
Making these adjustments we would have reported 35000 customer relationship net ads and 53000 broadband net adds which still represents our best ever quarterly performance.
In this environment, we're seeing reduce churn increased market share gains, including from DSL and mobile only council.
This is great news as we believe customers are increasingly requiring better performance and more value for money, our core fixed broadband service, a trend, which may persist for some time.
On video, we continue to see it accelerated pace of declines compared to prior year, mostly due to lower gross adds video attachments with 35000 losses in Q2 for 43000 losses adjusted for the non paying customers, which is in line with Q1 performance.
Remember that we exclude our complimentary student broadband customers entered the L. cheese advantage offer from a reported net additions.
We added another 8000 these customers in the quarter and are excited about the opportunity to convert them to paying customers.
Through July besides just over 20000 customers to be L. piece advantage program and that could be converted approximately 7000, if those are paying customers.
Well Q3, we'll see it impacts and the law.
These customers.
On the FCC pledge, particularly on the video side, you feel very good about the underlying momentum and our customer growth metrics sees.
Turning to slide six provides more detail book breakdown, the moving pieces and our subscriber count.
As many of you are familiar by now the EPS you keep flush with the program for customers, who face financial hardship during the pandemic.
The pledged concluded at the end of June and we ended the quarter with a total of 40000 residential customers on the pledged including the 10000, who were past nine <unk>, who are past 90 days over do that we normally would have disconnected.
In addition to the pledge a portion of our customers also fall under the similar New Jersey Executive order, which is ongoing and <unk> and 30 days after New Jersey state of emergency is lifted.
In the quarter approximately 8000 customers in the state of New Jersey overdue on the payments by 90 or more days.
It's important to note that the pledge and new Jersey cohorts that were limited.
And using many of the normal retention policies in Q2.
Following the conclusion of the pledged we've been working diligently on various retention that's initiatives, including customer payment plan and balance forgiveness.
Of note approximately two thirds of our customers under these programs remain current on their payments this week.
We do not anticipate material pay no impact from a retention efforts in Q3 as it related balances were other never recognized as revenue or already been reserved for us.
Bad debt allowance is consistent with historical policies in these areas.
Well these programs creates some uncertainty for subscriber growth in the back half of the year, we feel cautiously optimistic about tension capability, especially in broadband and continue to see strong underlying demand for services and favorable trend dynamic.
Going to flat slide seven before I turn it to a discussion of recent network trend I want to spend a minute highlighting your organic EBITDA growth trajectory.
Although our BSS true Ellis Spss transition presented a brief operational challenge the business in Q4 last year.
With a one off which is very much in the rearview mirror and it's already bring this numerous benefits in terms of cost savings and the way, we manage our customer base.
In Q2, we grew adjusted EBITDA of 2.5% year over year on an as reported basis or 3.8% year over year on an organic basis, excluding both mobile and cheddar.
As we car Cheddar in June 2019, and launched or mobile services in September last year, we will let both events in Q3 in terms of relate to step up and calls from the second half of 2019. So the year over year comparison, two important you'd be good growth will be easier in second half of this year.
Together with better customer growth and deliberate cost actions. We've taken we remain very confident in our ability to grow degree this year and be leveraged despite some of the revenue headwinds, which we are coming.
Our costs, excluding direct programming mobile and Cheddar expense.
Down 8.6% year over year on an organic basis, as well down 3.3% on the headline basis.
This includes savings from reduced churn and marketing expenses being lower in the quarter as well some permanent.
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Our total cost per customer interaction has had in the past four years driven by many initiatives that we've been focused on Boeing or cost.
Our final simultaneously improving customer care, including contract negotiations with some of our third party customer care operations.
We have seen a proportion of online gross additions increased sharply which drives down customer acquisition cost.
Our digital customer interactions have doubled in the past six month alone.
What we're most excited about is the fact that were only scratching the surface of the digitization opportunities.
For example, this quarter, we rolled out our digital omni channel presence and simplifying how customers can interact with their care reps.
And just in the past week, we rolled out business chalk capability online through both the Apple and Android operating systems.
Summary, we still feel very good about opportunity continue to drive margin expansion or business.
Especially with the continuous upgrades, when making toward networks and customer premise equipment.
And the continual drive towards more digitization, including the self install opportunity.
Turning to slide eight we continue to see our network performing very well, even with heavier usage than normal having supported peak stay at home Tropic loads in the early part of the quarter.
We continue to see exceptionally strong demand for broadband offerings underpinning our customer and revenue growth.
As I mentioned before our broadband speed upgrades remain elevated 40% year over year.
Average data usage per customer was up 59% year over year, averaging over 440 gigabytes per customer in Q2.
Our broadband only customers, we're using nearly 550 gigabytes of data or about 24% more than average.
Streaming traffic is also up 46% year over year, which remains the biggest driver data usage growth.
24% of our gross additions took one gigabit broadband speed in areas, where it was available compared to 13% in the first quarter and we remain very excited about the one gig opportunity.
Again, we're very pleased with our network performance and remain focused on continuously monitoring and upgrading their network to support demand.
Slide nine shows great progress in our deployment of one gig broadband services, we more than doubled one gig deployment year over year, which is now available and 76% to reconcile these footprint as we accelerate our reached an optimum footprint this quarter upsides at least from 63% at the ended the first quarter.
We are pleased to offer one gig in three quarters of the operating footprint and still expects to reconfigure sense in the next few months.
I wouldn't get customer penetration increased to 3.7% in Q2.
From 2.4% in Q1, and we continue to see a lot of room to drive penetration.
Increasing one gig availability across the rest of up in footprint through the rest of 2020 increases their broadband opportunities to come to the upsells to higher speed.
Our average download speeds continue to increase the 242 megabit.
But it's important to say only two thirds of our base still will be up internet speed at 200, megabits or less representing a meaningful opportunity for confuses Berger.
Faster speeds to our customers.
Turning to slide 10, we want to zoom out for a moment in recap our long term network investment strategy.
We have an ROI focused multifaceted approach upgrading or just in that worked with ft th new build a job and pursuing additional footprint extensions were available.
First in our optimal foot footprint, our main focus as many of you know, it's rolling out of fiber to home network upgrading and migrating customers to a best in class technology that will seamlessly deliver symmetric down and capabilities ultimately getting up to 10 gigabit.
Higher symmetrical speed.
Upgrading to fiber will future proof or network, while delivering customer service enhancements at a much lower fixed costs.
We also opportunities and suddenly footprint to upgrade homes for one big service that we have not previously addressed with high speed broadband.
The second aspect of our network strategy is a fiber and collect space network a job strategy focused primarily in our suddenlink market, where we have seen extremely strong traction in capturing market share as soon as we roll out new build.
On average would reach about 40% penetration within 12 months of a new build remarkable result that gives us a lot of optimism and comfort in our strategy.
In 2019 in part due to very favorable trends, you're seeing with their build up activity, we significantly accelerate our network have jobs with 130000, new build homes reached in last 12 months.
Finally, our third area focus is on additional footprint expansion opportunity beyond edge out.
We completed our purchase of service electric of New Jersey, and continue to look for other cable opportunities.
To the extent our footprint.
We have also filed for the upcoming FCC Rural digital opportunities fund auction, where we look for opportunities to invest in network builds in rural areas with partial sub sea by the government that should return should the return on investment be attractive.
Turning to slide 11 to support our network strategy discussion I want to take a longer term view on capex.
Excluding our growth initiatives, the fiber Newbuilds mobile and also CP.
Our baseline on maintenance Capex has been very low roughly at 5% to 7% of capital intensive.
The remainder of our capital spending has been focused on improving expanding our network, which has grown over time in terms in terms of both fiber to the home and network a jobs.
We continue to think that we can comfortably operate in the 1.3 to 1.4 billion Capex envelope and complete our various network upgrade and edge out initiatives.
Longer term, we think there remains significant opportunity production capital spending to below $1 billion annually, particularly once we have completed with a fiber upgrade and often footprint.
There's also the additional opportunity a further reducing opex as well as an improved customer experience with a more resilient that work, reducing customer and network operations costs further.
Turning quickly to the quarter.
On the right you can see the total capital intensity was 9% in Q2, but without fiber and new home build investment this would have been 7%.
Remain impacted by permitting delays due to the pandemic, but our focus on reaccelerating older network initiatives, we continue to invest in our network anticipating that we will see some permanently changed consumer consumption behaviors and some of our markets.
In summary, we feel very good about the long term potential of our network to deliver superior connectivity solutions to our customers.
Slide 12 provides an update on our mobile business.
Momentum in the second quarter was slowed by retail store closures as we anticipated and flags last quarter.
As if this week approximately one third of our stores are black open.
However, we still achieved another 34000 subscriber net additions in the quarter, reaching 144000 total line since we launched in September last year.
We have reached almost 3% penetration as a percentage of our total unique customer base and we're still achieving approximately double the penetration of our peers three quarters post launch.
We remain focused on improving customer experience and broadly a product offerings.
Continued expansion of our handset lineup and preparations well underway for Fiveg service launch.
Also pleased to know we're seeing an early indication of churn reduction mobile during stay at home and remain excited about the opportunity for churn reduction.
From bundling with our cable offerings.
On slide 13, turning to visit services.
We saw resilient through both our SMB and enterprise businesses. During this time.
Like in many of our other businesses. We believe this pandemic creates an opportunity for us to growing market share.
We saw the business segment recovery into June with revenue up 3% year over year exiting the quarter.
Our SMB gross additions were covered the month of June.
Oh, beating could total SMB revenue growth of 1.7% in Q2.
Our E commerce sales activities increased their which lowers our cost of customer acquisition and as an attractive to economics.
In enterprise revenue increased 3% in the corner.
We saw increased sales and customer engagement education healthcare and government verticals.
For example school districts universities are expanding on their telecom platforms to prepare for more online learning.
Similarly in the health care space, we've seen a large number of customers from clinics in private practices to hospitals, all preparing for more tele medicine Doctor visits.
Although our overall commercial business is rebounding, they're still segments. That's still have a long way to go namely in the hospitality travel and entertainment space.
These present, some added uncertainty for a second wave of shutdowns.
Especially in some of our Suddenlink markets, where the virus is seeing some resurgence.
However, overall, we remain very pleased with the business services performance and our cautiously optimistic about the rest of the year.
Turning to slide 14, and the announcement of our sale of a 49.99% interest in Lightpath. This week, the Morgan Stanley infrastructure Clark infrastructure partners.
We're very excited to partner with Morgan Stanley infrastructure partners, who will provide investment to support ongoing and new growth initiatives that lightpath and enable us to work together to create even more value in the fiber enterprise space.
The transaction values, Lightpath and enterprise value of $3.2 billion, representing a multiple of 14.6 times 2019, adjusted EBITDA and operating free cash in multiple of 25.7 times.
We are retaining 50.01% in the light path and when they control. The company. So we will continue to consolidate the earnings from Lightpath LPC lets say level, we expect to close the transaction in Q4 2020.
On slide 15, we present, the new like that partnership structure in more detail.
Upon closing like that there will be financed independently outside of the CSC holdings LLC that sorry, though.
We already have underwritten financing in place, which will result in leverage unlike past that cycle of approximately six and a half times like path LPTA and we will receive 100% of those that proceed.
However, we will use some of those proceeds to pay down the debt at CST holding.
Kind of such that the transaction is expected to be up nice leverage neutral excluding like Pat.
On a gross basis, we will receive a total of 2.3 billion in gross cash proceeds.
Including about 1.4 or 5 billion, if that's an 867 million of equity for the 49.99% stake sale.
Net both taxes and initial debt pay down to keep leverage neutral CSC holdings, We love approximately 1.1 billion of remaining cash proceeds.
Which maybe use for it either additional debt pay down and or repurchase of LTC USA shares.
On the right at the slide we presented some your comparison to financials revenue growth at like path is considered to LTC lets say recently that lightpath has higher EBITDA margins and higher capital intensity.
Imply transaction multiples represent a significant premium to where LPC with phase trading at nearly double the EBITDA and operating free cash in multiples.
In summary, we're extremely pleased to Chris plans the value of what we think it's been a previously underappreciated assets and we're very excited about the future growth opportunities for like that together with our new partners Morgan Stanley infrastructure partners.
For news an advertising business on slide 16, like many of our peers, we saw at cancellation pressuring the business this quarter.
How are the business still exceeded expectations relative to how we were trending at the beginning of the quarter and we sell recovery in local and regional advertising from the trough in April as shown by the monthly revenue trends given here with sales in June achieving pre pandemic levels.
Sports are starting to come back as well, which is a positive for advertising spend.
Although traffic trends for our news channels are down from peak levels from the height of the stay at home. We continued to benefit from positive Bueter ship trends with a 72% increasing cheddar website traffic since the pre pandemic and 86% increase in users and 16% increase in used 12 TV viewership.
In the second half political advertising remains a tailwind to the business.
However, we still anticipate pressure in the national branded segment of our business and there continue to assess market conditions.
We will caution that are filled your expectations for the business continues to depend a lot on for a lot of factors.
Including what do we see a full come back a sports.
The remainder of the year or further protracted lots right.
But based on the visibility we have today, we do not expect us to impair our ability to grow total revenue for the whole company. This year, given the strength and resilience of our core telecoms business.
With that I'll turn it over to Mike to discuss financials.
Thank you Dexter and good afternoon, everybody. Thanks for joining us and we certainly hope everyone is doing well and staying healthy.
On slide 17, we underscore the strength of our underlying margin trajectory.
As Dexter already noted earlier on an as reported basis, we posted an adjusted EBITDA margin of 44.7% and expansion of 70 basis points year over if you.
Excluding mobile we grew margins 160 basis points year over year to 45.8%.
Remember this is now we're 10 percentage points higher than when we first acquired suddenly get cablevision.
We've been able to continue to expand margins from these elevated levels, while investing in all of our growth new growth initiatives, which had been supporting additional revenue growth.
In the quarter, we incurred just under 20 million in one off costs related to the pandemic from a combination of facilities expense premium pay and bad debt.
Clearly, we had a number of tailwinds in our residential business and took all the cost actions in the quarter, which more than offset this.
Our EBITDA less capex or operating free cash flow margin reflects added capital outlays related to our fiber investments from the end of 2018 as extra outlined suggesting we have more room to grow here as we achieve further opex efficiencies and longer term capex normalizes to below $1 billion.
In Q2 operating free cash flow margin was up 430 basis points year over year.
Driven by a combination of EBITDA margin growth and letter Capex due to some of the delays and permanent.
Turning to slide 18, you will see our free cash flow on more detail.
We generated $707 million that free cash flow in the second quarter up 50% year over year and have generated just over $1 billion year to date.
We repurchased $631.
In the quarter to $631 million and shares in the quarter with a cash outlay of 655 million, including payments a shares repurchased at the end of Q1.
Year to date, we bought back approximately $1.4 billion of our stock and for the full you know, we still expect to complete $1.7 billion in share buybacks.
In the quarter you also issued $1.1 billion of sworn one is guaranteed notes due 2030, and another 625 million a four and five its senior notes due 2013.
In order to refinance our 500 guaranteed notes due 2023 and seven in three quarters senior notes due two to 2025, respectively.
The refinance debt was redeemed on July 15th.
Right on this slide we've included the pro forma net change in cash impact here of the aggregate $1.7 billion of refinancing activity.
The new issuances represent the lowest coupons ever achieved in our debt stack and will generate run rate annual interest savings of $33 million per year.
Later this year, we would highlight again that a $1.7 billion tenant seven eight notes due 2025 become callable, which means we may refinance on an opportunistic basis as we do with all of us.
Refinancing just 10 seven days notes, we can achieve annual interest savings of over 100 million per year should be pricing levels, we achieved in june or close to where the demonstrating today.
Overall, we remain confident that we will be able to deliver on free cash flow growth in 2020.
I'd 19 presents a recap about debt maturity profile following the refinancing activity I mentioned earlier with the to the with the new 2030, new shown.
Our weighted average cost of debt fell to 5.4% in second quarter from 5.6% in Q1, and the weighted average life about debt was extended to 6.5 years. Following the refinancing activity that we undertook in the core.
About 82% of bad Daddys at fixed rates, and we retain $2.5 billion of liquid not including the net cash proceeds will receive from the like that stake sale.
There's no annual bond maturity greater than $1 billion before 2025.
All of which could be covered by either free cash flow generation or our undrawn revolver.
We will continue to proactively manage our balance sheet same way going forward I remain very comfortable with the strength and resilience of our balance sheet.
Finally on slide 21, we provide our updated financial outlook for 2012.
We are reinstating guidance for revenue ex mobile and adjusted EBITDA growth this year, given increased visibility and confidence in our current operating performance.
We delivered 0.8% revenue growth ex mobile and 1.2% total adjusted EBITDA growth in the first half of 2020.
We continue to guide to capital spending of less than 1.3 billion unexpected achieved year end leveraged at 4.5 to 5.0 times last two quarters annualized basis, excluding like.
And we continue to expect a complete 1.7 billion in China in share buybacks as I noted earlier.
To the extent that I like that transaction gives us opportunities.
Every purchases, we plan to be tactical and thoughtful and our capital allocation decisions regarding either debt pay down and or additional share buybacks using proceeds from the transaction will be opportunistic and dependent on market.
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And to conclude I would just like to Echo Dexter's thoughts that I'm extremely proud of the team it out ses for their dedication and resilience. During this time, which has resulted in a very strong second quarter.
And with that we will now take any questions.
At this time I'd like to remind everyone in order to ask a question. Please press star and the number 100 telephone keypad. Your first question comes from a line have Craig Moffett from Moffettnathanson. Your line is open.
Hi, Thank you.
I Wonder if you could just drill down a bit into the different broadband trends that you're seeing in the optimum footprint and the suddenlink footprint.
I'm interested in particular, just given how low the penetration historically has been.
In Suddenlink markets.
Whether that the work at home phenomenon is leading to the same kind of uptake and has that changed your your expectations for how quickly you can close the penetration gap in those markets and then in optimum where you're competing against fire.
How much different does the fiber to the home strategy make and if you could.
Tell us a little bit more about how the FTT age program is working competitively.
Sure Craig Thanks for that.
By the way I'm I understand your birthday, so happy birthday.
I was hoping I need to him I need to embarrass you in front of a couple of hundred people.
Listen on the broadband trend you know we flagged a lot of this in the first quarter, which we were seeing.
A a higher penetration of a new wins in the optimum footprint of of DSL and and mobile only homes, which has shown very very strong performance on the broadband side and continue to push our penetration levels.
Higher.
I think we then saw US we flagged in the first quarter earnings that we were starting to see similar trends in and the suddenly footprint given that the locked down stay at home directives, we started a little bit later than in our operating footprint.
I think it is our our belief that we will continue to see.
Strong trends continue to push higher and higher penetration levels and suddenly footprint.
There's no reason in our minds that there should be a large discrepancy in penetration levels.
Between suddenly footprint and the up from footprint and have Suddenlink will continued to catch up particularly as the overall quality of our network and we do have pockets of our network, which are under invested in or have been left.
To be I'm, not very focused on because some of the demographics, but they lie or where they are not connected interconnected with with a broader network and so as we continue to invest in not only edge out technology.
But also in upgrading those so those households, and we'll see.
Increased penetration levels than somebody footprint I.
I think on your second question I think it's too early to tell.
It's probably the first answer a word about 900000 ft th homes passed today I ready for service.
We have about a 10 15000 f. TPH customers today.
But the most important thing, which we're very bullish about is clearly the performance of the network.
With the symmetric speed up and down.
That we're delivering up one gig today, and we will be delivering at much higher speeds going forward.
It's really going to be a very large differentiator.
For our customer base and the Optum footprint.
Where upload speeds have been challenging in d. stay at home environment.
As a video conference calls pick up a big big big amount that capacity.
And ER and show some quarters in network performance. So we really feel that the symmetric five with a home.
Technology is going to be a big differentiator.
And we are going to.
Upgrade the entire I'll can put print. So 40, 45% is a non files area and we also believe that in me in the files area. Our technology is gonna be vast 50 or two.
Defiance technology, which is on older [laughter] fiber to home technology.
Your next question comes from the line have Brad Feldmann from Goldman Sachs. Your line is open.
Yeah. Thanks for taking the question I'm just a question about the at the late past transaction you notice that you noted that the person's are net of taxes, which means you are pulling some degree attacks I'm wondering how do you fully utilized you're in a wells at this point in time once you have any update on the timeline to being a cash taxpayer once you've closed the transaction. Thanks.
Mike Jones.
Sure. So I think you know coming into the year we.
We share that we expect will be a little tax there really in the beginning of 2021.
So to the cares actually fleets, but much interest that was otherwise hung up on our balance sheet for tax purposes, and we push that out about 12 to 15 months of the beginning of 22 by virtue of the life that transaction, what kinda back where we started the so we would expect to be a full federal cash tax there really pretty early in 2021 based on our current profile and the the game that will realize on that trends.
Sure.
I am I just just one quick follow up question about the infrastructure. Since you are finance unit, it's going to have it sounds financing silo. Once the deal has been completed and you noted that the leverage is already higher is going to be higher than your current level of leverage [laughter] total corporate leverage is gonna be higher pro forma for this deal and are you expecting.
Being more aggressive with capex in the late past footprint since you are going to be able to finance it separately.
I think you answered that it is we will be slightly higher in terms of overall consolidated leverage.
Probably to the 2.1 turn if we stay at six and a half times leverage at the Lightpath level.
And secondly, yes, one of the growth drivers of like path going forward is finding more opportunities to invest and light light up the more network.
And so we'd expect for for Capex, which has been averaging probably more like $90 million to $95 million year to edge up going forward at the lifetime level.
Thank you.
Our next question comes from a line.
So let me take from JP Morgan.
Hi, guys. Thanks, Dexter I understand your guide as to EBITDA growth. This year. Thank you, but can you update your thoughts on the 4% to 5% in the back half that you discussed at our conference in May one of the puts and takes since then and also can you dig into cost cutting opportunity.
From here through the year. Thank you.
Sure I'm you know, it's not the back of the envelope math as we had released first quarter earnings.
In order for us to do 1.7 billion or share repurchases and ending year at five times LTP way leverage was 4% to 5% EBITDA growth.
Based on our results here in Q2.
And year to date, that's that's pretty much more like 4% or maybe even slightly lower in the second half the year.
We feel really good about our ability to hit a crack that EBITDA growth. We've got strong momentum as you saw in the B to C.
We think that's the political advertising tailwind is going to be helpful. Obviously as well.
The Opex initiatives as you saw a in a slide deck, which were down 8.6% a year over year I'd say, that's in the second quarter, we probably.
Did about $50 million of Opex savings.
Of which.
30 million or so maybe 30 35 million.
Permanent.
And so and we continue to look at and Opex opportunities going forward and so the combination.
Those.
Plus you know just some some lapping the acquisitions of Cheddar and the launch of mobile in the second half of the year, we feel very good about being able to deliver that 4% EBITDA growth in order to reach our leverage does share buyback targets.
Okay. So aside from hitting hitting that target, which would imply now a 4% or so in the back half.
Is there any reason you would be less optimistic on that that growth in the back half than you were eight weeks ago.
No.
Not from what we see today, obviously, we can't without the perfect Crystal ball.
But based on our revenue trends in our core telecoms business.
I'm, an expectation of some uptick in the advertising business and the initiatives that we've put in place.
On the cost side and feel good about our ability to move it up.
Thanks very much.
Your next question comes on line.
Mitchell.
Chris Your line is open.
Oh, thanks, so much thanks for all the detail in in the slide show in the call Dexter I'm, just I want a follow up on Craig's question around fiber and they go to market strategy I really went to your to web site to try to order it I can't find.
Fiber Ah mentioned anywhere so.
I'm just curious you can put marketing muscle behind that and was the process to that customer no no about the fiber and try to start selling that in and then separately I have had some inbounds over the last bunch of weeks with people wondering you know how [noise].
Fewer college students attending this fall might impact broadband net adds of people stay in the Hamptons, perhaps you know how that might impact broadband ethane threeq was swing factors on broad band that we should be thinking about that that'd be helpful. Thank you.
Yeah listen on the first point, we've had a fiber or on a one p. basis broadband only.
Out there for the for the past couple of quarters.
We have not put any marketing muscle behind it at all in anticipation of waiting for our ability to deliver triple play.
And let alone even double play and so we are just in that phase right now where we're starting to go to market slowly on the double play in Triple play fiber the home. So the marketing muscle is really going to be more of a back to school.
And thereafter, and so you we're not.
Putting on the blinkers right now until until we start see.
Coming back and back to school periods.
So that that that'll be I'm much more obvious to you on your second question.
I mean.
We do have exposure to.
Ah two universities.
I don't think it's it's its a we have a view yet.
Based on all the different types of programs that universities are putting in place and I'm I don't think most university is actually know exactly what they will be doing a yet until coming to fall, even though it's very very close to now.
You know some of the activity that we're seeing is a lot of the people who are students are supposed to be online only.
Actually be going.
To their campus towns and moving in.
And trying to have the college experience that way so I.
I think it's a little bit too early to tell whether we can have a negative impact from from the online schooling.
Mantra.
For a full collections.
But we clearly, we'll probably see some softness there relative to what we've seen the previous years.
You had that you added another.
Well it also to that but I know you folks staying in a hamptons you no longer than they normally would so I just wasn't it was more or there are multiple swing factors for the core I well, that's yeah. I mean, yes, I think thats clearly the case with with the exited that we are seeing currently anticipates, particularly in Manhattan and the great in New York City.
And a lot of those people are moving out to the suburbs switches optimum territory.
So that's a good that's a good swing factor or where we won't be seen people shutting down.
Post summer.
And we've seen the activity levels in terms of housing rentals and housing sale.
In the suburbs tick up significantly right so that is.
A tailwind factor for us.
Going forward or through the rest of year.
Thanks, so much.
Your next question comes on line.
Oh no.
Yeah.
Great. Thanks.
That's a maybe following up first on broadband obviously strong numbers or anything you can tell us about trends in July and do you guys think that you benefited during the quarter. If I was territories based in fact that horizon wasn't going into homes and installing fiber connections and an apology may have changed so that's that's number one.
And then on the edge out strategy, you were talking about that as a potential sources of growth and the applying for our Dod funding. So no I can you give us a sensor how big that that could be or have you done like some kind of you know any sort of study on how many homes sort of bordering the Suddenlink territory you could eventually address.
And what kind of opportunity that could be for you. Thanks.
Sure.
Trends in July listen they continued to be a strong obviously not as strong as we saw in from the end of March going into April and May.
But we've seen very very good.
Certain reduction numbers.
And continue to see a year over year growth and it goes bad numbers in July.
And so I think last year in July just from memory, we were minus.
4000, approximately a customer net ads for the month of July we will clearly beat that number. This month of July we'll see where we end up for August and September and end up for the quarter, but I'm cautiously optimistic that we'll have we'll have another growth year over year relative to last year's performance.
In this quarter.
In terms of rising it's rice and you know.
Back installations affecting our ability and I'm not sure I don't think so as I flagged in Q1.
Less than 20% of our net subscriber activity was coming from the a that rising footprint and LTC USA. So it is not the the largest driver.
Of our performance is or counter performance isn't buys and footprint.
On the edge out strategy within last year, we did about 90000 new homes built.
Ah this year, we should do.
More than 100, and probably 100 1000 20000.
Around there we would have hoped to do more if it weren't for the pandemic.
Yeah, it's clear that we believe that we've got a a a roadmap of doing 150000, plus a year.
We also have about three to 400000 homes and suddenly footprint.
Which currently or our suboptimal in terms of network performance.
That we are going to be upgrading to be able to perform and provide a true broadband speeds.
And those those those parent those levels of penetration in those three to 400000 homes.
Tends to be in that 10% to 20% level, so very low penetration.
So we expect to see a strong broadband growth going forward in those love in those areas.
As we upgrade them.
On the the rural opportunity you know, we'll see what what's available and whether we think the economics are attractive.
But we will continue to.
To push on our edge to edge up buildouts here, and and try and be thoughtful and capitalizing those opportunities as well. So I think they've been the overall sentiment here is that we will be accelerating in terms of our footprint and our ability to market to new homes.
Got it thank you.
Your next question comes from the line Michael Rollins from Citi. Your line is open.
Thanks, and good afternoon.
Really the topic of residential ARPU is getting complicated by those that are I'm bundles versus those that are on Standalone services like broadband I was wondering though if you could unpack what you're seeing on the ARPU side overall in residential and maybe specifically for broadband and video whether it's around the cheers customers or take.
Looking as well as the impacts of any price increases that you're passing through thanks.
Sure.
Maybe to focus on broadband video ARPU just to give you a sense of the numbers because accounting as you know.
Placed tricks on the numbers a every quarter here.
In terms of the broadband ARPU growth, which was up 11.3% year over year.
Two thirds of that came from subscriber activity, which means people coming in and subscribing to higher tiers.
Up tiering of a of speeds as well as right now.
Yeah, and only one third of it comes from accounting allocations.
In terms of in terms of video ARPU.
Yeah, that's declined 2% year over year.
70% of that is accounting and so that that doesn't surprise.
I mean, given that one third of the broadband ARPU is accounting so for the inverse.
And 30% of its related to the subscriber activity, which is really down tiering.
Of of packages so.
So the overall trends are very similar I guess in terms of the subscriber trends.
Which is a very strong acceleration in broadband.
Connectivity and net ads and and the inverse with a with video, which I've seen some some slight acceleration disconnections or really about gross adds attachment rates coming down as well down tiering in terms of video packages.
That's that is the overall.
Picture that we're seeing that we've seen for the last two or three quarters, a very clearly.
I don't think there's a a very clear other way to think about things because as you say it does get a little murky as you try and get a really really deep into the detail.
And do you see any inflections in a way under that he is tied your customers are behaving, which the tears engagement and how the rising availability of these escalade options and Avon options might influence their video purchasing.
Well I think it's really driven I think that the number one statistic is really driven by our attachment rates on gross add.
I mean, our attachment rates on gross adds or have fallen to about 40%.
Our gross adds numbers.
And they tended to be closer to 50, 560%.
Of course ads were taken video and you know given that most of the gross adds.
On video are on promo.
They tend to be taking out let's call. It you know basic to core packages and not premium packages.
Which also is not surprising given that S fog, particularly.
Net flicks as of the World HBIO Max's.
Amazon primes, and and I, such or are the premium alternatives that subscribers are taking and so there's a mix and match there.
As a as those subscription levels.
Go higher on the no T T direct to consumer basis, you'd expect that if people are taking cable.
It probably taking more basic a core packages than much then very premium packages.
Thanks.
Your next question comes from the line.
Andrew.
Research Your line is open.
Hi, I'm I was just wondering if you could dig into some of.
The new a sustainable cost opportunities, but you've got a bit more confidence about in the last few months with per se I am experience.
I'm just wondering if you can give us a you know the potential magnitude or size order or something like much of the top ones.
Sure I mean.
Oh, the 50 million ish.
From an opex savings in Q2.
Where we say 30 to sort of 5 million of it is arm our permanent.
You know the there's a whole host of different things that come into that.
From a personnel related numbers.
To advertising expenses to customer care experience.
Oh, all those played into into those numbers.
I think going forward.
There are some discrete buckets to be thinking about.
But one real estate as you may imagined.
I wouldn't I would assume every single corporate America is reviewing your real estate.
Portfolio given the a the work at home dynamics, and we Didnt post pandemic I think the expectation.
The commercial real estate will be less penetrated than it is today or that it was pretty pandemic.
Secondly is obviously, the the customer digitization efforts, which relates to.
Online ordering a self install a as well as.
As a more auto pay.
Which has been a nice benefit that we've seen over.
Over the past three to four months and we expect it to continue going forward.
And then lastly, it's all about the customer care experience as well, which is becoming a lot more automated.
And we continue to see a large upticks in online versions of customer care and remote.
Customer care.
And so I think that the combination of those three or four buckets there.
Make us feel very good about our abilities to continue to push.
Margins.
The the knock knock on effect to those Digitization efforts is obviously a probably overhead.
And certain personnel divisions.
Probably become leaner as well given that there's less customer a person to person activity.
Great.
Where all your themselves into the momentum what do you think you can get too.
It's a 2021 initiative, which I fly couldn't care how Q1.
Our earnings.
When you go through the math, we do about 1.1 million of gross adds a year.
We probably on a net basis.
Between the cost of installs and what we subsidized what we make.
Customers pay.
Our net.
Cost is probably somewhere around $50 50 to $60 per.
Per install.
So you know you have to think about just how much up to 1.1 million.
Gross adds will eventually become self install.
That's probably the opportunity there.
I think more importantly.
Network enhancements and better CB equipment also is going to drive a lot of the opex savings not just self installed, but obviously the whole lot of the categories I just mentioned around customer care.
Less incident rates.
Online functionality in remote functionality.
Is it a probably a much larger opportunities and just self install.
But in principle.
Your next question comes from.
Right.
Okay.
Couple of questions protects our.
Discuss a little bit.
On an advertising do you think you're monetizing your news.
Greetings grew dramatically.
Do you think you're monetizing well or is there still upside and then you sounded a bit cautious on the outlook and I think it was national but it was just hoping give some color on that.
And then just on fiber fiber to home.
He said that once you complete the upgrade capex will come down to a billion or so.
What's the timing of.
Completing their fiber upgrade.
And.
Then just to kind of wrap up to question and Doug Mitchelson asked you about.
You know changes in dynamics, given Covance College kids Hamptons et cetera, how significant is your seasonal package you know, meaning if people stay in the Hampton, how much revenue slashing, but would you do not be up you know what would you be keeping.
A lot of questions [laughter] on the advertising side.
I listened ratings have been great as you as it may imagine.
But as you probably know Jessica the ability to monetize great ratings has been.
Probably for UNFI between particularly in the first.
First a two three months.
Of the pandemic. So no we're not seeing an outsized monetization of our great rating there.
But obviously doing very well relative to the other sectors in our advertising portfolio.
On the outlook for advertising I think we're cautious on the branded a advertising.
We havent tschetter today.
On the National side I think we're also cautious on national excluding political.
And but on the local side, particularly on the interconnect side with probably outperformed expectations relative to where we weren't April.
So we're cautiously optimistic as I somebody's economies, particularly the tristate area being our biggest exposure to advertising.
Has performed well through their reopening phases.
The pandemic relative to our settlement footprints, where we have less advertise exposure there.
So we feel cautiously optimistic about our ability to two to grow well at least for being flat on our advertising revenues relative to 2019.
[noise] honesty th listen, we're gonna ending year.
Probably around a million 2 million to homes ready for service.
We'd like to get to a run rate of a million plus homes built out per year.
So if you do the math, we're probably talking about four years.
Until until they have to ph.
Program, it's completely done on the Optum footprint and yes, then we believe that our Capex numbers will come sub 1 billion after that.
In terms of the dynamics I think I don't have that detail I think I'll get back to all estimate nickel Kathy get back to.
On the dynamics there.
It's clear that we are going to have some nice advantages of the exodus in in New York tries to area to the suburbs.
We will.
Maintain itself throughout the throughout the rest of year.
But we'll come back she was 2 million square the winter birds and tend to disconnect and those who are many of the subscribers who also a disconnect post summer.
Maybe try and quantify that for you.
Great and they can I just one last last one what are your thoughts on caring team Peacock at seems just like such a friendly consumer proposition of your pay TV sub <unk> or an attractive proposition if you're not.
I don't want to comment necessarily on on our friends at other or other places, but I do think that the whole world of OTA T. content is getting more cluttered [laughter].
There's a lot of option options out there.
You know a lots of different colors lots of different taste.
And so I do think that there are going to be a lot of hit or Miss is in terms of delivery of some of these companies platforms.
It's also difficult to see.
Which ones are successful which ones are just.
Having users that have a free access to the content.
And then from there you know how to be monetized.
Its going forward on an advertising basis indoor subscription basis, right. So I think the economics.
In many of these platforms still remain challenging relative to the affiliate fees.
But you know given that we've seen video losses accelerating I think from our standpoint, we're accelerating relative to the has been for the last two or three years.
Less less so or slower burn relative to some of our peers.
But you know it'll be interesting to see what happens the content world.
Given the dynamics going from affiliate fees. Please go to two platforms.
<unk>.
[noise] question comes from the line.
Frank.
Raymond James Your line is open.
Great. Thank you what kind of maintenance issues are you running into on the network with it running at such high levels of capacity for force for so long it and then I'm looking at the mobility product a you know getting just getting sales. There you know backup a little bit is that really just factor of getting folks.
Back into stores and what sort of in the trend in in Q3 of as a places of open back up little bit. Thanks.
Yeah listen the network performed extremely well.
During the surge of traffic that we saw on in the second quarter.
Clearly there were Oh, yeah incidences in terms of performance.
Where fundamentally we we just like celebrated a lot of notes but.
In the you know, particularly in the in the upcoming footprint and the suburbs, where the activity was extremely high and very very concentrated.
That's that's about it a you know I think a as we flies in the first quarter earnings. Our network was built to have you know double the capacity of the prepaid identical levels.
We saw surges of about 30% to 40% and network usage.
They were clearly, though pockets of usage neighborhoods, where we want to aggressively even dropped five which is a lot deeper.
In terms of mobility, yeah, clearly getting the a the retail side of the equation.
Back open is helpful.
Not really the main driver of everything I think for US is continuing to home the experience of our customers online.
And in their call centers.
But as wells being able to deliver them different flavors of products and services.
Which we won't be a delivered until the third and fourth quarter of this year.
So we're continuously.
And getting better at it.
Particularly on the churn level.
Which has been high in in a in the early days of a subscriber those numbers are coming down nicely not nice enough.
But we're very very focused on the after sale experience, particularly in the early early days.
Post side up which is where we see the heaviest churn.
But up outside of that we feel good about the project, where we continue to to push there and focus our efforts and and where we look forward to working very closely with with T mobile going forward here.
And so as we start and going onto their network.
Alright, great. Thank you very much.
[noise] there no further questions at this time.
I would just presenters.
Thank you everyone for joining do let US know if you got any follow up questions and look forward to catch you know eventually in the next few weeks. Thanks guys.
Thank you.
Thank you.
This concludes today's topic.
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