Q4 2020 Altice USA Inc Earnings Call
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And.
Yes.
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Ladies and gentlemen, thank you for standing by and welcome to the Altice USA Q for 2020 results presentation. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session and you ask a question during the session you will need your for star one on your telephone.
If you require any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today, Nick Brown. Thank you. Please go ahead Sir.
Hello, everyone and thank you for joining and invite.
And then I'll hand, you over to outpace the USA.
<unk> and our CFO, Mike <unk>, who will take you through the presentation and then we'll make the Q&A.
Today's presentation may contain forward looking statements. Please read the disclaimer on page two.
Thanks for that please go ahead.
Hello, everyone.
Before we begin I once again want to thank and take the opportunity.
Thank the Altice USA team.
Extremely proud of the ongoing commitment displayed by our employees navigate the pandemic.
The other delivering superb results for 2020, including very strong financials and electric customer growth.
Starting with slide three we grew reported revenue of one 4% for the full year of two 6% adjusted for the impact of art and and storm credits.
And the fourth quarter, we grew reported revenue by two 5%.
And three 6% adjusted for all of a sudden and storm credits.
We grew adjusted EBITDA of three 5% on a reported basis for the full year.
For 8%, excluding mobile and storm costs Q.
Q4 saw an acceleration and EBITDA growth to six 1% year over year on a reported basis or six 6% ex mobile and forms the.
Dennis highlighted the importance of connectivity for both homes and businesses.
And we set a record for both customer and broadband net additions and we continue to see very strong demand for higher broadband speeds.
We added 81000 residential customers more than five times for 15000 customers. We gained in 2019 and the 142000 broadband customers about double that of 2019.
We also delivered our highest ever free cash flow of $1 9 billion for the full year.
And 2020, we also took advantage of market volatility and demonstrate our commitment to delivering attractive shareholder returns.
Delivering a record $4 8 billion and share repurchases, including a $2 3 billion and tender offer we completed in December with.
And we successfully completed the sale of the minority stake and a lightpath business the mortgage and infrastructure partners in Q4 and acquired service electric of New Jersey earlier and the year.
We also continued to proactively manage and strengthen our balance sheet refinancing and $4 4 billion and debt achieving our lowest ever average cost of debt at four 7%.
All of this positions us incredibly well for 2021.
Mike will provide you more color on the outlook I just wanted to say that while we face the ongoing uncertainty around the resolution of the pandemic.
And very confident and our ability to continue to deliver revenue and EBITDA growth as we have done in 2020.
We can expect to Capex and the one three to $1 $4 billion range as we reaccelerate on fiber build and expect leverage to fall below five 3% at CSC holdings, even with the target of one 5 billion and share repurchases for the year.
Turning to slide four we just wanted to take a moment to highlight some of the corporate commitments. We've made of the company to support our customers our employees and the broader community as well as opportunities for us on a go forward basis.
We provided free of student broadband to customers during the pandemic participate and the FCC keep Americans connected pledge and provided many connectivity solutions for the broader community.
And create a $10 million can you the relief program and of partnering with numerous philanthropic organizations like the owners choose and the boys and girls The club of America.
Also implemented numerous measures to keep our employees and customers safe and and.
Addition to the pandemic 2020 was also a year of significant social unrest and environmental disruption.
On both fronts, we are extremely committed to doing our part.
Remain committed to the diversity and inclusion, including a recent recognition with the perfect 100 score for the third year in a row on the human rights campaign's core.
Corporate equality index.
We were also named the best place to work for.
And the LGBTQ equality.
Separately, we continue to focus on environmental stewardship and of numerous renewable energy projects and a pipeline that will reduce emissions and will also drive down cost savings.
Turning to slide five you can see our underlying revenue growth remains strong in this environment again, demonstrating the strength of our business.
Total revenue grew two 5% year over year, and the fourth quarter, and one 4% and the full year.
We booked $19 million and <unk> revenue credit this quarter and $97 million and the full year due to fewer games and delivered during the MLB shortened season.
As a reminder, these are some credits do not impact reported EBITDA or cash flow since they are pass through.
In addition to the RF and credits we issued storm credits for affected customers totaling about $10 million this quarter and $27 million for the full year.
Excluding both Rs and and storm credits total revenue growth would have been three 6% this quarter and two 6% for the full year of very strong results given the pandemic.
Residential revenue grew two 2% and the quarter and one six per cent for the full year, excluding both all of a sudden and storm credits.
Is the services grew <unk>, 6% and the quarter and two 3% and the full year, excluding RCM and still and credits were extremely.
Really pleased with the recovery and news and advertising, where revenue grew 29, 7% year over year and the quarter and nine 1% for the full year EPS.
Even without political news and advertising revenues only declined by about 3% and 2020 and grew three 5% and queue for a very strong result, given the broader backdrop.
Turning to slide six we want to highlight the record breaking customer and broadband growth. We had in 2020, the best way to describe the momentum is through a full year of 2020.
On the reported basis, we gained 81000 residential customers organically more than five times 2019 net additions.
415000, including service electric compared to only 15000 customer net additions in 2019.
For a member in the fall we were impacted by a combination of three hurricanes Delta Flora and ASEAN.
We had about 11000 disconnects from the storms and still have about 9000 customers and our customer counts that were hoping to attain who's built are currently past due 90 days.
And on an adjusted basis, excluding non current customers affected by storms that we normally would have disconnected, we still gained 72000 customers organically 83000.
Customers, excluding the impact of storm related disconnects for 117000 inclusive of service electric.
And the reservoir of broadband we gave the record 142000 and organic net additions in 2020 close to double what we achieved in 2019.
Adjusted to exclude the 9000 non current.
And the affected customers, we still added a record 133000 broadband customers organically for 144000 and excluding the impact of storm disconnects include.
Including service electric we added a total of 172000 residential broadband customers on a reported basis.
Overall, this extraordinary customer growth sets us up very well for 2021.
Turning to slide seven and the fourth quarter, we saw reported net customer loss of 15000 residential customers, which includes customers associated with the FCC pledge and New Jersey Executive order.
As you May recall, we ended Q3 with about 22000, and pledge and New Jersey customers for late underpayments by more than 90 days.
All of those customers have been brought current and the fourth quarter two of combination of balance forgiveness payment plans for cash payments. So far we are seeing positive.
Trends payment trends and that cohort and early 2021.
Recall that the pledge the FCC pledge ended in June.
A significantly amended New Jersey order has been extended through March 2021, but we don't anticipate there to be any additional risk to our customer base for that extension.
Adjusted for the retention of the subscribers as well as excluding non current subscribed as affected by the storms Q for residential customer losses were minus 2000 on adjusted basis for.
Further adjusted for storm related disconnects and Q4 for residential customers would've shown and net gains of three thousands rather than the minus 5000 customer loss and Q4 2019.
Residential broadband net additions were positive 9000, and Q4 2020 adjusted for the retention of past two subscribers formula covered by the FCC pledge and the New Jersey Executive order and.
And excluding the non current customers affected by the storms broadband net additions would have been 14000 further adjusted to exclude the 5000 additional storm disconnects, which would of been double the levels of Q4 2019, when we reported 7000 broadband net additions.
For 2021, and we think the appropriate benchmark for broadband customer growth in 2019 and expect to be at least in line for better with this level as we continue to return to more normalized levels.
Once we get past any residual noise from the storms and New Jersey order and the first half we expect more of a tailwind for customer growth and the second half of the year, especially as you see more of a benefit from our accelerated pace of hedge out build outs.
Again, we remain very well positioned for 2021 with the much bigger base of customers and we anticipate acquiring a year ago and rapidly expanding and upgraded network and with broadband penetration at only 48%.
Turning to slide eight we continue to see our network performing very well, even with heavier usage during the pandemic of.
Broadband speed upgrades remained elevated up 70% of year over year.
These higher upgrade volumes continuing to refine and enhance connectivity needs from the switch to work from the switch to work from home and remote learning.
Average monthly data usage per customer was up 40% year over year, averaging approximately 468 gigabits per customer per month and Q4.
And our broadband only customers nearly 600 gigabytes of data per month.
And 41% of our gross additions to one gig broadband speeds and areas, where it was available up from 29% and third quarter and we remain very optimistic about the one gig opportunity.
Following the commercial launch of our fiber.
<unk> and Triple play offerings in the third quarter I'm very pleased to say our fiber selling rates are already at 58% of.
Up from 44% and the third quarter ending the year with just under 26000 customers and representing an enormous growth and cost saving opportunity.
Additionally, two thirds of our fiber gross adds are taking the one gig product, which is higher than the proportion of customers, taking one gig on our HFC plant, representing a great opportunity to differentiate our fiber offerings and increase our revenue for.
To summarize we are very pleased with our network performance and we remain focused on continuously monitoring and upgrading our network to support demand.
Turning to slide nine the completion of one gig availability across the 100% of the optimum footprint earlier in 2020 increase the opportunity to continue to upsell customers to higher broadband speed tiers.
Our one big customer penetration increased to 70, 878% and Q4 up from five 7% and Q3.
Our average download speeds of more than doubled in the past three years to 283 megabytes.
We ended the year with over 55% of our base still only taking broadband speeds of 200, megabits or less which represents a meaningful opportunity for us the continued to deliver faster speeds to our customers.
Turning to slide 10.
We wanted to remind you once more of our long term network strategy.
And 2020, we were able to meaningfully accelerate our organic homes past growth the highest ever level and bolted on additional homes with the acquisition of service electric.
We are extremely committed to expanding our footprint organically and inorganically on a go forward basis as the key growth driver.
Our build plans include a combination of accelerating on newbuild deployment, particularly around the edges of the suddenly footprint and fillings and the op, Inc. Footprint with the goal of being over 150000, new homes constructed in 2021 and with further acceleration from there.
Remember, we hit approximately 40% penetration within 12 months of of arriving in the market a very positive result.
We are also continuing to upgrade of about 400000 homes and the suddenly footprint through full of good grades of RF equipment, including the amplifiers and additional nodes splits to be up to one gig capable.
Finally, we continue to advance of fiber to the home plan ending 2020 with about 1 million homes passed and ready for service.
<unk> average one gig sell in of 41% two thirds of our fiber customers are taking one gig we have.
We're confident that accelerating fiber deployment because of many opportunities to deliver and not only capex and opex efficiencies.
But drive long term top line growth as well.
On slide 11, turning to the business services, we saw resilience and both of our SMB and white cap businesses. During this time and still of sheet achieved full year and fourth quarter adjusted revenue growth.
Business services revenue grew two 3% year over year in 2020.
Excluding our ascend and storage credits for up plus one 8% on a reported basis.
And the fourth quarter reported business services revenue was flat for up to 0.6% adjusted for all of Us and and storm credits as.
We previously flagged the lower customer growth and the earlier part of 2020 following the Lockdown did lead to a slowdown and revenue growth for my usual for years to 5% range and is likely to remain at this lower level for 2021 sales and the install activity remained relatively subdued subdued before re accelerating into 2022.
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However, we are seeing some unique growth opportunities. During this time from corporations rethinking their real estate needs and upgrading productivity at the corporate headquarters to increased demand for remote learning.
And Q4, we also completed the sale of the minority stake and a lightpath fiber enterprise business, the Morgan Stanley infrastructure partners and.
And are excited to have appointed the new dedicated management team to accelerate my profit growth.
And the SMB space, although we're seeing vacancies and some ongoing uncertainty regarding the pandemic. We are seeing strong activity through our call center and E commerce channels as well as ongoing demand for higher speed tiers.
Turning to our news and advertising business on Slide 12, we are extremely pleased to report full year revenue growth up nine 1% year over year and down only three 3% excluding political.
And Q4, we posted revenue growth of up 29, 7% year over year and Q4.
Or up three 5%, excluding political compared to a decline of six 6% and Q3 and <unk>.
Clear improvement sequentially.
In addition to the boost from political which was peaked in October we saw continued recovery and local advertising from the pandemic related through.
For the pandemic related trough in Q2, including after the November elections, when linear spot inventory became more readily available and.
We continued to benefit from positive viewership trends with the 90% increase and share the website traffic year over year and the 112 per cent decrease and users year over year News 12, TV viewership is up 6% on a year over year basis.
While there was some negative impact from shifting collegiate sports schedules sports and ancillary sectors for covered in the fourth quarter as the autos and program Retuning spend with the new season launches.
We anticipate this recovery to continue into 2021 and remain cautiously optimistic about our news and advertising business.
Turning to our mobile business on slide 13 for them and.
I'm pleased with our performance after a full year of service.
The ongoing momentum with our new tier data plans for two thirds of our gross adds and not taking our one gig and three gig plan at the end of 2020.
The top priority for our mobile business and ongoing focus on profitability and we continue to refine our plans based on that target and broader market environment.
We are also pleased to announce that as of the end of January approximately 90% of our devices have been migrated to the new T mobile network delivering of premium network experience.
We have already seen the reduction in dropped calls of about 15% since prior to the migration and encouraging trend.
This is another step towards a greater goal of continuing to improve customer service and broadening our product offerings, including the expansion of our handset lineup and launching our <unk> service.
About 40% of our retail stores remain closed which continues to impact of volumes.
But we still managed to reach three 6% penetration as a percentage of our total unique residential customer base.
To summarize we remain excited about the opportunity for further growth and churn reduction from bundling with our cable offerings and with that I'll turn it over the Mike to discuss the financials in more detail.
Thank you Dexter and good afternoon, everybody. Thanks for joining us, we certainly hope everyone's doing well.
I'd like to start by spending a minute highlighting our EBITDA growth trajectory and on slide 14.
And Q4, we grew adjusted EBITDA of six 1% year over year of five 8% year over year, excluding mobile that's true.
The last the launch of this business just over a year ago.
The very strong results and capped off an unusual year.
And the quarter, we had an additional impact of approximately $9 million to adjusted EBITDA because of the hurricanes and excluding mobile and including storms and we grew EBITDA of six six percentage.
We continue to benefit from a combination of strong customer growth and cost efficiencies and we remain very confident and our ability to continue to grow EBITDA in 2021.
We also feel very good about our opportunity to continue to drive further margin expansion and our business, which I'll touch and now on slide 15.
On Slide 15, you can see and we felt we posted an adjusted EBITDA margin of 45, 4% and Q4 of 150 basis points year over year.
Some of this margin improvement and in the quarter was driven by the pass through of adjustment for the decrease in revenue and the commensurate decrease of programming costs.
And credits due to expected rebates for sports programs.
Excluding the same credits the adjusted EBITDA margins would've been 45, 1% still up 120 basis points year over year.
Excluding mobile EBITDA losses for Q EBITDA margin was 46, 5%.
146, 3% further adjusted for the resi credit cycle.
Compared to 45 zero percent of year ago for 130 basis point improvement year over year.
And in Q4 of our EBITDA less capex the operating free cash flow margin of 31, 8% was up 100 basis points year over year and with the combination of EBITDA margin growth and light of Capex because of some delays and fiber.
And.
Turning to slide 16, we underspent on Capex this year relative to prior years for full year spending under $1 1 billion.
Our capital intensity was 10, 9% for the full year, but without fiber and new home build growth investment this would've been eight 7%.
As I referenced earlier, we were impacted by permitting delays due to the pandemic but are for.
Just on Reaccelerate and all of our network initiatives we.
And we will continue to invest and our network and anticipating that we will see permanent changes in consumption behaviors across much of our customer base.
We did have some onetime capital outlays, and the third and fourth quarters to repay of storm related damages, including replacing of fiber ring and the Gulf Coast range, but this is now complete.
For the next few years as we build out fiber and optimum. We continue to think that we can comfortably operate and the $1 $3 billion for $1 4 billion cash capex envelope and cause.
Fleet of various network upgrade and edge out of initiatives.
Longer term, we think there remains significant opportunity for reduction of capital spending for below $1 billion annually, particularly once we were completed without fiber upgrade and the optimum footprint.
In summary, we continue to feel very good about the long term potential of our network and deliver superior connectivity solutions for our customers at a reasonable cost.
Slide 17 highlights the strength of our free cash flow generation in 2020, which grew 59% for about $800 million year over year for a total of $1 9 billion.
This is the highest ever level of annual free cash flow and almost double the level of 2017, when we IPO of the business.
The combination of higher free cash flow on a shrinking share based and the buybacks has enabled us to more than double free cash flow per share the $3 27, and 2020 upfront of $1 53 and 2017.
We achieved this record free cash flow for a combination of topline growth.
And disciplined cost management as well as lighter than anticipated capex for the temporary slowdown and our fiber builds due to permitting permitting delays during the pandemic.
And 2020, we pay just over $80 million and cash taxes.
As I've mentioned and the path, we expect to become close to a full federal cash taxpayer this year, and 2021, which should bring our total cash tax payments of about $400 million and 21.
Although we expect higher taxes, and capex to step up as we reaccelerate the fiber builds in 2020 and what.
We also expect growth and EBITDA and savings from refinancing activity to partially offset the impact of free cash flow year over year.
Turning to slide 18, Q4, and was also a very strong quarter of free cash flow performance and contributed to the fully the strength and I just discussed.
We generated $447 million and free cash flow and the third quarter up 12, 5% year over year.
Our cash flow from financing activities include the $3 billion outlay related to our share repurchase program, partially offset by proceeds from the life of that transaction.
On slide 19, we highlight our consistent track record of attractive capital returns to shareholders since Altice USA IPO, Jim one of them cumulatively, having delivered $9 3 billion.
And combined share repurchases and dividends.
This past year, just take advantage of what we found to be of significantly undervalued share price, we repurchased a record $4 $8 billion of shares including a $2 $3 billion tender off of we completed in December.
Our share repurchases have allowed us to reduce our total shares outstanding by 35% of since the IPO.
Going forward, our capital allocation objectives remain unchanged.
And we remain opportunistic and plan to take advantage of the difference between and a free cash flow yield and the low cost of debt for further repurchase additional shares given the current market conditions.
We also remain interested and potential M&A opportunities to further expand our cable footprint.
On slide 20, we provide and update on our interest rate savings initiatives.
And 2020, our cash interest expense was just under what we spent in 2019.
But we would've reported significantly more and year over year savings, except for double coupon payments in 2020 from the timing of some of our refinancing activities.
However, our current run range implies that we expect the realized nearly $200 million and and.
Additional cash interest savings relative to 2019.
And zooming out we're very happy that illustrates that since 2017, we have realized approximately $550 million and cumulative annual interest savings.
In 2020, we refinanced for 4 billion and debt.
And Julian we refinanced $1 1 billion for.
The guaranteed five and three 8% notes to four and one 8% guarantee notes and 625 million of seven and three quarter percent unsecured notes to new four and five 8% 10 year unsecured notes.
And in August we refinanced $1 7 billion of 10, and seven 8% of votes via and head out offering trough for and five 8% unsecured notes price in June for and effective yield of $4, one and 6%.
Also in August we refinanced $1 billion.
Of six and five 8% senior guaranteed notes into a new 10, and a half year note and achieved a record low coupon of three and three 8%.
We achieved a four 3% cost of debt for financing and an additional one for $6 billion for the life of that transaction.
This further and further lowered our total cost of borrowings of $4 <unk>.
7% down from five 9% last year.
As of year end 2020 total company leverage on the Enel <unk> basis was five four times and leverage for the CSC Holdings debt silo was five three times on the same basis.
And 2021, we have additional opportunities to refinance and leased another $2 $5 billion of debt.
Which we plan to do Opportunistically based on market conditions.
The strength of our balance sheet can also be demonstrated by referenced our maturity schedule.
We have no annual bond maturities greater than $1 billion for 2025.
All of which could be covered by either free cash flow generation for our revolver.
As further evidence of the strength of our balance sheet standard and Poors announced last night. The faith placed the rating on Altice USA on credit watch positive for a potential upward and to our credit ratings.
We will continue to proactively manage our liabilities and the same way going forward and we remain extremely comfortable with the strength and resilience of our balance sheet.
And 2020, despite market volatility and throughout the whole panned out of it we've still been able to refinance debt at advantageous rates to secure future savings on the short payback periods.
Finally on slide 21, and we provide our financial outlook for 2021.
But before doing so I want to recap and in 2020, we delivered against all of the financial guidance targets that we set managing to grow revenue and two 6% adjusted for storms in resi and credits and <unk>.
We grew EBITDA by four 1% adjusted for the storms.
We ended 2020 with cash cash Capex of just $1 1 billion lower than expected due to fiber permitting delays.
Yes, the share repurchases of $4 8 billion.
We ended the year with leverage of five three times net debt for the last two quarters annualized EBITDA of CSC Holdings LLC.
For 2021, we continue to expect to grow both revenue and EBITDA.
We acknowledge ongoing uncertainty from the pandemic, but also feel confident that we can continue to deliver solid top and bottom line growth as we just demonstrated during the very strong 2020.
We expect cash capex to step back into the one three to $1 $4 billion of envelope, which we have long discussed spending annually of drawing out fiber builds.
We expect the naturally delever to EBITDA growth and repurchased $1 $5 billion and shares this year.
To conclude I do want to Echo Dexter remarks, and take a moment to thank Plc's USA, Inc. For a fantastic 2020 and media.
Reiterate that we are incredibly well positioned for 2021.
And with that we will now take any questions.
As a reminder to ask the question here on the the press Star one on your telephone to withdraw your question press the pound or hash key please standby, we compile the Q&A roster.
Yeah.
And your first question comes from the line of Phil Cusick from Jpmorgan. Your line is open.
Hey, guys. Thanks.
Maybe start with the revenue drivers broadband adds you're guiding to I think still better than the 18 19 run rate help us understand the confidence there and I know you talked about some of the build out plans, but could you just take us through that again for this.
Sure Hey, Phil.
Listen in.
In 18, and 19, where and kind of that.
70 to 80000 broadband net adds.
And so we feel really good about those numbers and being able to do at least as well if not better.
You talked a little bit about our capex plans.
Historically.
And have been delivering about 100 to 125000 over the last couple of years of new homes build.
We expect that number to 150000 and hopefully more this year.
As we ramp that up and then that will accelerate in 2022 and 2023.
On top of that.
We've got 400000.
Suddenly and homes out of 700 5800, thousands that we want to upgrade.
The ones that were first upgrading or very underpenetrated.
And in many respects, we're providing broadband speeds of less than 100, megabits and those areas and.
And and so we're freeing up a lot of capacity and upgrade those and those will get done probably throughout the year up until the Q3. So we expect to see some good activity.
On on those subscribers.
The subscribers.
And then lastly on the fiber to the home we continue to see very very good activity. There as you see our selling rates of two thirds one gig.
And the fiber product is starting to get some good traction in terms of of market share and we.
We'll continue to accelerate.
Net growth.
I think the other thing to just take a step back is as we.
I spoke about in previous quarters, only about 25% of our activity in our footprint is and the five zones.
Right. So we have discovered the brand new zone, which of the non files optimum zone.
Where we saw a tremendous amount of activity.
In the Q2, Q3, Q4 timeframe and the suddenly footprint continues to be underpenetrated and showing very very good growth.
On the broadband net adds so all of those things put together.
A little bit of Capex here, a little bit of upgrade there a little bit of fiber there.
Some renewed zones, where we're seeing.
A lot of increased activity plus the continued.
Outperformance of the suddenly and footprint from a penetration standpoint really makes us feel good about 2021 and onwards on the broadband subscribers.
That's helpful. Thanks.
The dial out for for one last quick one I.
And I know the outlook is for growth and revenue and EBITDA. This year do you think that the business can grow better than the two six and $4 one sort of normalized numbers in 2020.
It's throughout.
We're cautious only because.
You just don't know, what's going to happen and the advertising market, which number one we're going to lose about $60 million of <unk>.
Advertising revenue $60 million to $70 million of political advertising revenue.
This year.
Given how how big the 2021 was on the political side, which was a lot bigger than historically has been and political years.
We expect the news and advertising business to be pretty much flat, which would be a fantastic result, which means.
We're taking up that $60 million to $70 million of.
Political revenue that we're losing and we're getting it from somewhere else.
So I think we're just being cautious on that.
Can we get back to two five per cent and 4% EBITDA growth I think we can absolutely.
I, just think net because I think from a guidance standpoint, so we want to be cautious here.
And news and advertising and also on the F&B side as we just don't know how the next kind of few.
A few quarters are going to rollout on the SMB side, but on the residential side we are seeing.
Back to business continued very good activity in January and February So I think we feel good about.
And good about the guidance, obviously given its conservative.
But just don't want to pinpoint and ourselves at this point.
Thanks, guys for that helps.
Your next question comes from the line of Craig Moffett from Martha and.
Nathan Your line is open.
Hi.
Let's turn to your buybacks for a minute.
You may be and I think it was October you've made the bid for Cogeco and Atlantic broadband and.
Okay.
I presume you've been looking for other acquisition targets and I Wonder if you could just talk about that search of a little bit and.
And and what Youre thinking is now with respect to potentially finding other targets and is it appropriate to read the pace at which you were buying back shares as and acknowledgment that there just aren't willing sellers out there at the moment.
[laughter].
Listen Craig we definitely wanted to go out there and find attractive mvpds to acquire right.
And just focusing on the on our residential business.
I would say that there is.
A handful of smaller operators.
That are available to acquire.
We eliminate a lot of them given the geographic reasons or for competitive reasons.
And narrow it down to a couple of debt, we find very attractive right. So.
The bite size.
Service electric type of acquisitions are very attractive for us. So we'll continue to do that and hopefully we will we'll be able to.
And to unlock one of those this year, if not more but we'll continue to try to mark as many of those as possible.
But yes, and the absence of doing attractive M&A.
The best use of our capital right now for us to continue to buy back shares we continue to see.
And a high single digit free cash flow yield.
And this year and.
And with.
For financing our debt at the kind of 335% level. So.
And we still seeing a very good 500 of 600 basis point spread.
We are cognizant of taking down our leverage back down to the $4 five to five times, so that will naturally occur with the EBITDA growth but.
But wed like to redeploy our capital to the extent that we don't have M&A to buy.
To buying back shares.
If something like an Atlantic broadband comes for the sale or and.
Anything even though the larger size of the Max we definitely continue to believe that M&A is the best use of our capital.
And if anything is available.
Thank you.
Your next question comes from the line of Doug Mitchelson from Credit Suisse. Your line is open.
Thanks, So much question for Dexter.
And on the broadband theme from earlier I, just want to make sure we sort of fully flesh this out.
Any change and competitor behavior that you're seeing of responding to any sort of commentary on the onshore and and non pay disconnect trends and then lastly, the first quarter historically has been the biggest quarter for broadband net adds and you mentioned in your formal remarks that.
Might be a little bit more backend weighted this year because of the timing of the build out and growth initiatives that you've talked about and is this a year, where we should expect <unk> isn't for seasonally the strongest quarter because of the the dynamics, we're talking about COVID-19 the trends flowing through or is it normal, but still stronger and the back half of the year.
Yeah, I think on from competitive standpoint, we are all with.
Seasonal right. So that question I think we get asked pretty regularly.
And the standard operating answer is we don't really see any change because they don't want promotional competitive promotional offers don't don't last for long periods of time.
Specifically in our optimum files footprint.
We did see very aggressive tactics from files as they were off sites for a little bit of time, given up there they were not installing and I believe and the second quarter of.
Of the year.
But other than that it was pretty it's pretty normal across the board.
We haven't seen anything.
Substantive from the competitive standpoint.
The same thing with the non pay disconnects nothing.
Nothing out of the ordinary.
The whole kind of.
So let's call it net related related to.
To the pandemic with the FCC pledge the the New Jersey Executive order of the new Ultra and New Jersey, the executive order and.
Three storms that hit three different areas.
Of our of our footprint.
It creates a little bit of a mess from following seasonal trends and accounting and those types of things.
But I don't think we see anything in particular out there that makes me anything concerned around our targets for 2021 in terms of broadband net adds and we clearly expect to beat meet or beat our historical numbers pre 2020.
And.
In terms of Q1.
Q1 is pretty much going to be for us of pretty ordinary.
Q1 it is.
And is very much more back ended but we're not seeing anything abnormal.
In January and February to date relative to our historical numbers, obviously pre COVID-19 historical numbers because March was a blowout quarter.
And last quarter in 2020 and.
And we saw obviously renewed activity through Q2, and the beginning of Q3 that became debt that makes the comparison is very difficult, but yes, we will see a little bit more back ended this year give.
Given given the build outs and the continued investment and the network.
Alright, thanks, so much.
Your next question comes from the line of Michael Rollins from Citi. Your line is open.
Thanks, and good afternoon, two questions that credit first apps in terms of the guidance for adjusted EBITDA growth versus revenue growth is there.
Brad.
You would suggest that EBITDA.
EBITDA growth could grow faster than revenue.
In 2021, and then secondly, just curious how you're approaching the video business with respect to the pricing strategy and what impact that can have on the subscriber and video revenue performance as you think about 2021. Thanks.
Yes listen on spread.
Sure hope so theres a spread between the revenue and EBITDA growth for sure.
We've been trending.
Historically, I don't know 200 basis points, maybe and it depends on the year, two and 300 basis points difference.
Between two and.
Now I don't think there'll be anything different obviously with the mix shift that's occurring and the industry from.
For broadband from video to broadband.
It gets a little bit skewed in terms of some of the historical trends depending on what's happening on the video side.
But by and large I think thats, probably good good rule of thumb with us two to 300 basis points.
Spreads and maybe more and maybe less depending on on the year on the video strategy and we continue to be.
The focus on profitability.
The attachment rates as you know have fallen.
And the industry and particularly with US given that we had a very high penetration of video attachment.
And the op and footprint.
So we're seeing attachment rates two years ago that were close to 60% and <unk>.
Bundled and now it's closer to 40% right. So, we're losing unprofitable subscribers or not signing up unprofitable subscribers, which is great.
But continuing to maintain.
A very keen focus on are are very attractive and profitable subscribers that have been with us.
For more than three to five years.
And.
In terms of pricing.
We continue to to provide the bundle.
We continue to focus very much on the broadband net adds.
And we continue the focus on being profitable on the video business.
The gross add video business is something that we are.
Less excited about.
And so we're not that much focus on that product as much to the bundle.
And on trend.
I think we lost about seven percentage points and video subs this year and 2020.
And I suspect we're on the same rates right and 2021.
Thank you.
Your next question comes from the line of Jon <unk> from UBS. Your line is open.
Okay. Thanks.
Quick question on the.
The mobile strategy is this a good run rate and terms of the growth Youre seeing there and then could you give us an update on.
And your expectations for profitability in that segment. Thanks.
Yeah, I mean listen and we are.
We're focused very much on on the profitable mobile business and I think we've said that regularly.
And if you look at our EBITDA minus capex losses relative to our peers and adjusted for size for us.
Significantly more we've lost a lot less money lets call it.
And then than our peers.
And we're going to continue to try and do is a lot less money.
We could obviously spend a lot of money on media spend.
And marketing to go out there and the and.
Pushed the growth.
I think we want to make sure that we continue to push profitable growth and so as you look at our focus our one gig and our three gig product is actually penetrating very well.
Right now and so and those are very profitable products.
And so we're going to continue to push that we're going to open up for more retail stores, we're going to invest and more media, but we're going to do that and it cautiously and making sure that we're doing it and pushing profitable profit.
Products for all the time, which that gets down to when do we think where EBITDA breakeven I think sometime towards the end of next year, we should be EBITDA breakeven.
In terms of kind of in.
In terms of the business on a monthly basis.
And kind of expectation.
Your next question comes from the line of Brett Feldman from Goldman Sachs. Your line is open.
Yes, thanks for taking the question.
For your optimism that youll be able to deploy your full capex budget. This year are you actually get the point, where you are seeing the permitting process backup the speed or is it ramping up the speed and then if you are unable to deploy that full amount of capital this year because of the same logistical headwinds.
And what do you do the favor of that access debt.
Excess money last year, obviously buybacks was the next thing on the list is that still of the next thing on the list are you going to be able and more balanced with the delevering. Thank you.
Listen I think we are on.
On the Capex deployment.
We're full steam ahead on ramping up the fiber side and that is focused on the five zones.
And some sub.
<unk> zones, which are very wealthy areas.
And that's trending very well so we're not seeing.
And the inability on the permit side and the outcome footprint and on the edge outs as well.
Well on track.
Building up that steam.
And that so I'm feeling good about the ability to deploy the capital today and this.
Environment.
And so hopefully we are able to spend at one three and one for kind of that we've been talking about if we don't spend it.
I understand that leverage looks from a multiple standpoint, and a little bit above 5%.
It's something that people would like us to take down.
But we still believe our stock is still continues to be very very cheap.
And so I suspect that we will redeploy that capital to buy back stock as opposed to deleveraging I think we will take all of our free cash flow and buy back stock for the year.
Ex M&A.
Thank you.
Your next question comes from the line of Benjamin Swinburne from Morgan Stanley. Your line is open.
Thank you and good afternoon, I guess Dexter does that mean, you expect the 1 billion and five of free cash flow and 2021, just the follow up on your last comment.
The guidance is conservative.
Yes, I guess the the key point there right as you guys I just wanted to confirm have cash taxes and 21 right. I think you guys had talked about for 100 or something.
And that's the right. So we have probably about let's call. It 300 million more capex of of taxes, we have a.
A couple of hundred million dollars more of Capex.
And then you've got EBITDA growth and you've got interest savings of a couple of hundred million dollars right. So.
The mix put that all of the mixture of and you come up with your free cash flow number.
Yep.
For my.
The question is we're actually just around.
Speaking about the the sort of cadence through the year I just wanted to confirm.
And you guys get into Q3, and Q4, you should be benefiting from lapping the RSA and rebates and the storm credit. So we should see some sort.
The residential revenue growth that should be pretty healthy and maybe your highest quarter of <unk>.
Orders of growth and those and those are in the back half sort of limits to make sure. We had that right with the obviously the natural programming cost offset on the part of Suntrust.
Yes on the on a reported revenue basis year over year, we should start seeing and Q3 and Q4, just the natural accounting bump right yes.
Okay, and then just one more if I can I think you guys. Historically have had a pretty nice political benefit from the New York Mayor of race, which is I think this year.
Is that something that you think could be the source of potential upside as you think about just political spending and theres a lot of people running and maybe get to get you guys to grow that revenue line. This year. Yeah. I mean, we didn't you raised the good point, because theres a lot of and.
The money going into New York.
May of rates.
And we are budgeting this debt I really hadn't kicked off so maybe there is some downside there.
I'm hopeful and Ju Yang and all of the money. He had just comes and spend the ton of money, but the real mayor of race happens in June.
During the primaries.
So it's it's whoever wins the primary ones and there the.
And the Democratic primary rate so I believe it's in June.
And for those of you who Havent registered I believe you have to register for the.
The Democratic primary by now this weekend I think things like February 14th of something like that if youre not registered as of <unk>.
Democratic vote, or and the New York primary you're not voting of June.
And important PSA so thank you.
Exactly I've been I've been reminded by that by several candidates to tell people too.
Go out there get ready to vote, but you know that the real vote in June.
Great great great. Thank you very much.
Your next question comes from the line of Ken and then.
<unk> from Barclays. Your line is open.
Thank you.
Victor I guess I, just wanted to hone and a little bit more on the revenue growth algorithm that we've laid out.
The net debt to 5% kind of range.
If you look at it over the last maybe for a five year period.
I think and the early part of that you hear the bigger part of the growth fee income residential but more recently when we look at the <unk>.
Contributing the residential the growth that has dropped off of Lindbergh and other segments of the pickup.
When you look at that.
I think historically you guys have been about one 5% unit growth and one 5% pricing growth to get to that roughly through the 3% and of our growth algorithm and residential so.
Could you help us think through what that algorithm looks like specifically for residential and.
You can look at.
This year as well as the motive medium for notebook.
And sure that my friends, Nick and Mike can take the offline and walk you through this but just from a high level standpoint. The one thing that's difficult here is obviously the whole video side to it.
And that algorithm is very easy on rate versus volume.
And to do now the whole rate side that the little bit skewed.
Because of how video is performing and where you're losing the revenue on video.
So where we obviously see may be a headline slowdown on PTC revenue, we're seeing unbelievable value of increased profitability coming from deep sea right. So.
The algorithms of little bit trickier.
That way.
To get your arms around but today, you know assuming that the same kind of two 5% number is what you're looking for 2.5% to 3%.
We're really starting to see.
More of it we're expecting to come from volume and it is coming from rate.
Historically before 2020, you would've seen a lot more of that 3% skew more like 2% rates.
2% to 2.5% rates and zero to zero and the 5% from volume.
And we're really looking going forward at a more equilibrium and.
A lot more volume.
Waiting and there.
Got it for me to defense and then.
Mhm.
That's helpful. Thank you Victor.
Okay.
The next question comes from the line of Andrew Beale from Arete Research. Your line is open.
Hi, you touched on some of the growth opportunity there growth of appropriate amount.
And just wondering if you could give us a bit more background on broadband.
Broadband penetration level of them.
Increases in penetration you are putting in the and what I guess of the four main buckets, which are.
Starting from the growth of score from the current.
Good.
I was wondering non for ourselves versus foreign.
And then perhaps with the pharma for.
And there is different.
Different for Q4, and the destock share marketing.
The FTC H.
Yes.
And that's it.
Great question, I mean, basically if you take maybe a step back.
Where we're seeing let's call it broadband growth gross adds right, so and and.
And and uncouple of that way here.
You're basically seeing about half half between optimum and suddenly.
But the key thing here is you're only seeing 25%.
Of the in five zones in terms of our broadband gross adds.
And so 75% of it is coming from non file phones.
And where you historically would have seen it more like optimum was.
One third of our volume.
And two thirds coming from sudden link.
It's more much more now equal because of the non file zone on the optimum are very very active areas today when they have historically been less active.
And so that's kind of one of one of the backdrops that were seeing.
The second is.
The numbers and.
And.
In the.
And the spin the suddenly zones.
Has skyrocketed in terms of net adds coming from there right I think it's relative to 2019.
We probably have almost 300% increase coming from the suddenly footprint in net adds.
That should give you some some some backdrop in terms of what the activity and so less activity and the milestones.
Yeah, a lot more activities and non Firestone, the historically and just in absolute explosion and the suddenly and footprint.
Okay and those books.
Very helpful.
And as the market of PTH.
<unk> makes the difference and the finals of two zones.
Yeah, I think listen we are one of our Ping Pong match.
<unk> files and us over the last three or four years.
Plus or minus 10000 every year and net adds and that really doesn't change.
And what we what we love about the the Ft Th product is were really starting to get great mind share.
And the zones and will start marketing more aggressively as we start having bigger footprint, there and start delivering a lot more homes.
And we're starting to see pay.
People going straight up to symmetrical one gig two thirds selling.
One of the networks already 10 gig ready effectively right. So it's just the question of us pushing and pushing higher speeds, if we want to.
And with the overall backdrop of our entire footprints, 55% of our subscribers are still taking 200 megs of less right. So we feel really good about.
About the fiber project, we've always talked about it as a cost and capex savings exercise.
And we're starting to see the real benefits also early benefits of our revenue exercise as well theyre going to be they're going to be very fruitful we believe.
Okay. Thank you.
And just sneak one last one.
And as you've migrated the metabolic for T mobile.
Are there any material differences in the MD&A.
Aside from the longer term.
But we shouldn't think of debt not yet we're working on it with them, we clearly would like to do more with some.
With the T mobile so I think there's a lot of things that we're talking about.
Okay. Thank you.
Our last question comes from the line of Frank of the same from Raymond James Your line is open.
Yes, just wanted to touch base on.
Some of the regulatory issues.
How would you view the return of title, two and and possibly price regulation and in terms of your capital budget would you adjust your capital budget of if any regulations brought back in that regard.
Yeah, I mean I.
I can't say for sure of how we would react I don't think and.
The one today.
And the possibility of price regulation, and then everyone talks about potentially titled to being reclassified as title II as a possibility.
But to the extent that we are disincentivize.
To be spending money and getting the right capital returns on it.
I suspect we may reallocate capital, Yeah, that's that sounds like a reasonable.
Equation I just can't tell you.
That's what we would do because we.
And we don't know what it could look like.
Alright, great. Thank you very much.
That's all the time, we have for questions today, I'll turn the call back over to Nick Brown.
Thank you everyone for joining do the that's an area of you have any follow up questions. Otherwise, we look forward to catching up and be in the next few weeks. Thank you for joining.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Thank you.
And.
And.
And then.
And then.
For <unk>.
Okay.
Okay.
And then.
[music], Inc.