Q3 2021 Altice USA Inc Earnings Call
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And everyone at Snake Brown here from LTE CSA. Thank you for joining and apologies for the slight delay we had a technical difficulty of operator in a moment I'll hand, you over to Altice Usa's fee.
Next to Gary and I'll CSI might grow it would take you through the presentation and then we'll have time at the end for Q&A.
As today's presentation may contain forward looking statements. Please read the disclaimer on page two.
Thanks <unk>.
Hello, everyone I'm going to start today by summarizing the Q3 results.
And then provide an update on our strategy and accelerated investment plan.
Starting on slide three revenue growth in the third quarter was five 8% year over year with continued strong recovery news and advertising and business services.
Adjusting for anticipated regional sports network credits.
Which impacted revenue last year revenue growth was two 3% this quarter.
Further adjusting for an incremental $69 million of air stride revenue, which is recognized in Q3 for early termination of our backhaul contract revenue growth would have been closer to flat for the quarter.
Rocco and customer net losses were 13000 in Q3, which is a bit better than I previewed in September as we finished the quarter better than expected and puts us approximately flat for the year.
I will go deeper on our plans to return to growth later in this presentation I do want to reiterate here. What we believe is just a temporary customer loss driven by a couple of reasons.
First we're still operating in an unusual environment, where the effects of the pandemic have not yet fully normalized particularly in our unique optimum footprint surrounding NYSE.
Second going forward, we will see some more benefit from our accelerated pace of footprint expansion optimum fiber upgrades and additional suddenly network upgrades.
That's the numbers adjusted EBITDA grew three 4% year over year with a margin of 45, 2%.
We delivered another strong quarter of free cash flow at $389 million and just over $1 3 billion year to date.
And as I previously flagged, we reduced the pace of share repurchases in Q3 to $79 million as we are shifting to invest more aggressively for growth now targeting up to 1 billion of share repurchase for the year.
We have also update our financial outlook for 2021, we still expect to grow revenue and EBITDA for Capex. We now expect to be at the low end of our prior guidance range of $1 3 billion, which is consistent with the free cash flow for the year of approximately $1 6 billion and net leverage of five four.
Looking at our Q3 revenue growth in more detail on slide four you can see the adjustments I mentioned for the quarter and year to date more clearly.
Call last year, we booked our sudden revenue credits of $79 million in Q3, and a further $19 million in Q4.
Leading to rebates from the <unk>, primarily due to a shortened baseball season during the pandemic.
Residential revenue grew two 2% in Q3, but declined one 9% adjusting for <unk> credits.
Services grew 21, 7% in Q3 on a reported basis, however, excluding the Orissa and credits and $69 million of Air Strand revenue I mentioned business services was up 2% note, we expect to record approximately $30 million of additional extra in revenue in the fourth quarter related to the same contract.
Finally news and advertising grew strongly again up 15, 7% in Q3 supported by strong recovery across local regional and national advertising.
On slide five now focused on our residential business we.
We reported a net loss of 25000 residential customer relationships in Q3, and a broadband net loss of 13000 as.
As I flagged in September we saw fewer gross additions unusual in the back to school period and move churn remain elevated in our footprint during the quarter.
If the level of gross additions and move churn was more in line with the third quarter of 2019, we estimate we have shown positive broadband net additions much closer to 2018 in 2019 levels.
Additionally, in the quarter, we disconnected about 3000 customers that were previously affected by the prior hurricanes in the Gulf Coast as some customers here have never returned.
I want to highlight that we have seen growth year to date at optimum and non <unk> areas and across sudden link which has been consistent with 2018 and 2019 levels.
Where we're seeing losses is only an optimum areas, where we overlap with <unk>. So we're focused on addressing this isolated issue.
As things stand, we still expect to return to broadband customer growth in Q4, and therefore grow slightly for the full year.
Turning to slide six.
On business services revenue trends continued to recover as SMB customer growth has been stronger this year reporting at plus two 6% growth in Q3, excluding <unk> revenue.
You can see we're building back up to pre pandemic levels of growth.
Business reopening activity has been accelerating as vaccination rates increase in community restrictions continue to relax.
We are also seeing retail and commercial office space vacancy rates continued to improve as well as schools reopening.
With respect to Lightpath, we saw a slight decline in the quarter of less than 1% as the company saw some one time legacy contract renewal impact.
As we've announced <unk> entry into several new markets recently, we expect our newly expanded sales team to deliver an acceleration of growth here in the coming quarters.
On our news and advertising business on slide seven we saw strong growth again, this quarter up 16% or almost 22% ex political revenue as we continue to annualize the negative impacts from the pandemic last year.
Local regional and national advertising markets, all continue to recover which we expect to continue.
One notable exception is the auto segment, where there is some market pressure next autos, our news and advertising revenue was up 37% versus Q3 2019 levels.
While we continue to expect advertising revenue to decline in Q4, given the tougher political comparisons. We now expect revenue for the full year will be slightly up on a year over year basis, given our performance to date has been ahead of our initial expectations.
On slide eight is an overview of strategic measures. We are announcing today to enhance the company's network network product portfolios and customer experience on an accelerated basis.
First we are significantly accelerating our fiber network rollout.
With a more differentiated broadband service, we expect to drive higher gross additions and help reduce churn given the reliability of the fiber network service.
So our long term network maintenance and technical service costs should also fall.
We are further accelerating our newbuild activity edging out that suddenly footprint to drive customer growth.
In the near term to support the return to broadband customer growth ahead of getting the full benefit of our accelerated network benefits. We have rolled out new more competitive offers recently, where we're starting to see traction.
We are accelerating investments in mobile and converged offerings, which will be available from early next year and will help improve broadband customer churn as well.
On the customer experience side, we're looking to expand sales and distribution channels to pre pandemic levels to support additional customer growth.
And more generally we're making investments to improve the customer experience, including reorganizing our call center set up.
Lastly, as we start seeing more material improvements in our operational performance based on the above initiatives, we will pull the trigger on rebranding sudden linked to optimum to drive a consistent marketing message and customer experience across the country.
Before digging into some of these strategic initiatives in more detail I want to give an updated snapshot of our footprint on slide nine.
We have a total of $9 2 million pass things across 21 states with optimum legacy Cablevision businesses in the New York Tri State area, representing about two thirds of our total footprint.
We compete with fires across the majority of our optimum footprint.
This is where our ft th rollout has been focused so far and you can see from the zoomed in lens, we've covered about 25% in the optimum footprint with fiber now.
We have upgraded the rest of optimum to DOCSIS three one hybrid fiber coax that offers up to one gig speeds and the plan is to expand the FTE th rollout to many of these areas as well.
Furthermore, within this footprint in New York, and New Jersey, which are our largest states from a customer perspective remember we were disproportionately impacted in the last year by the respective executive orders, which were pandemic related regulatory programs.
<unk> us from normal disconnect policies, but we're back to business as usual here now.
Texas is our third largest state and also represents the majority of sudden link business here.
Here, we have been focused on newbuild activity, including expanding into three of our top five fastest growing communities in the country.
Household broadband penetration across a sudden link states is also below the national average at about 80% versus just over 90% in the New York Tristate area. So this is our biggest growth opportunity today.
Finally, it's worth noting that North Carolina is now our sixth largest state following the Morris broadband acquisition, which is making way for much more new home build opportunities as well.
Turning to slide 10, I first want to summarize how our prior network upgrades since we've owned the optimum suddenly businesses over the last five years to six years have significantly widened availability of higher broadband speeds.
When we started very few customers that have access to speeds greater than 100, megabits per second but as of today, one gigabit speeds are available to 92% of our footprint.
This has helped drive an increase of more than seven fold in the average broadband speed taken by our customers from less than 50 Megabits per second at the end of 2015 to just under 350 Megabits per second today.
Our one gig penetration has now reached 13%, but given that our one gig sell into new customers, where it is available is almost 50% right. Now this represents a significant growth area for us.
Half of our customer base still only take speeds of 200 megabits per second or lower so we have a lot of runway here too.
And clearly as our F T th coverage expands on an accelerated basis and we make multi gig services available. We expect the average speed taken by customers to continue to step up materially beyond what our competition can offer today.
On the left of this slide you can see we are on track to reach one and a half million F. Dth pass things by the end of this year, which is an increase of over 500000 year over year with customer fiber penetration right now at about 5%.
Remember, we saw a slowdown in our ft th rollout last year due to pandemic related restrictions, but we're looking to significantly catch up next year with a target for an additional 1 million new fiber pass things to reach two 5 million fiber passing by the end of 2022.
This includes continuing to upgrade areas, where we overlap with files as well as completing the vast majority of Connecticut by the end of next year.
Additionally, we plan to expand our fiber investments into areas of sudden link with approximately 100000 homes targeted for fiber upgrades next year.
On the right you can see we're on track for at least 150000, new homes built this year, mostly edging out around sudden link footprint with Morris broadband inorganically, adding another 90000 passengers.
We are still achieving above 40% penetration after the first year of expanding our network into new areas. So it makes sense to push harder here in adjacent areas. That's a great driver of our new customer growth.
Right now we're targeting an additional 175000 plus passing in 2022.
Separately, we are continuing to upgrade existing HFC homes, and the suddenly footprint in areas where customers previously only received a maximum of 150 megabits per second taken.
Taking this up to either 400, megabits or one gig we're on track to deliver over 300000 upgrade homes here by the end of the year.
At the higher end of which we were targeting and we have already commenced additional upgrades, which will complete next year.
Moving to slide 11 last month, we announced a new sales approach with their optimum flexibility offers.
New and existing optimum and suddenly customers now have the freedom to pick and choose the internet speed.
TV package or mobile data plan they want with it.
Selecting a single service or adding together multiple services customers can change their services at any time with a need to adjust their internet speed TV lineup or mobile data plan.
We've also simplified the pricing and bill with no extra fees and no annual contracts.
And most recently, we've been bundling free streaming services, such as HBO, Max with our optimum screen product and offering more generous gift cards on promotion to be more competitive.
These new offers may weigh on our proved growth near term. We believe this will improve our product positioning value proposition and customer growth optimum mobile has approximately 181000 mobile lines as at the end of September reaching three 9% penetration of <unk> residential customer base with revenue in Q2.
<unk> up three 9% year over year.
We expect to Reaccelerate growth here were materially from the beginning of next year as we launch more integrated converged offers and deploy more marketing dollars.
Slide 12 illustrates clearly how we pulled back on sales distribution channels during the pandemic necessitated by stay at home orders and social distancing protocols, but in retrospect, we've been too slow in getting back to pre pandemic levels here.
We estimate this does cost us about 60000 gross additions this year when you compare to what these channels delivered for us in 2019, which likely means we could have grown customers. We could have seen growth in customers instead of losses this quarter and mitigate the various headwinds we've seen on.
On the left you can see we're targeting approximately the double number of door to door sales representatives, we have in 2020 to up to 400 to 500.
And on the right you can see we're looking to add approximately 50 to 75, new retail stores in 2022, which is also a key driver of mobile sales in the U S.
Speaking more broadly about customer experience improvements, we're making additional investments into our call centers and field services to reduce friction points and customer interactions.
Once we are happy and seeing significant improvements in our operational performance and customer experience. We will move ahead with the rebranding of sudden link to optimum.
Yeah.
We expect to give more granularity here with a full year results as we are just finalising our budget right now, but we are taking measures to mitigate the impact on 2022, EBITDA and leverage to support this higher investment as we believe it's the right thing to do for the business.
On Slide 14, you can see our capital intensity was 12% this quarter at 11, 2% year to date.
Without fiber a new home builds growth investment this would have been closer to 7% in Q3.
Next to outline the main components of our increased capex target in 2022, which totals between $1.7 billion and $1.8 billion on a cash basis <unk>.
Including $300 million of additional FTE th capex and $150 million of additional new build capex.
For $50 to 75, new retail stores. This will cost approximately $50 million of additional Capex next year.
We still see the same opportunity to reduce capex longer term once a fiber build is complete we just trying to get there quicker now.
Slide 15 highlights the annual free cash flow trend.
We had another strong quarter of free cash flow generation in Q3, a $389 million, reaching over $1.3 billion year to date, and we've given a new free cash flow target of $1.6 billion for this year.
Remember, we have exhausted our tax Nols, so cash taxes have been higher this year and our capex increased year over year, given the restrictions we had in 2020.
Looking forward it is likely free cash flow will be lower again in 2022 with the accelerated investments that we're planning to drive growth.
But thereafter, we remain confident in our ability to grow free cash flow again through EBITDA growth reduce capex and lower interest costs.
Slide 16 shows are CSC holdings leverage trend since the acquisition of cable vision completed in mid 2016, when net debt to EBITDA was closer to seven times.
You can see we've been training to our four and a half to five times leverage target in the last few years with a couple of a couple of exceptions being the $1.5 billion dividend. We paid in mid 2018 in conjunction with the spinoff of Lt's USA and the $2.3 billion tender offer at the at the end of last year following the Lightpath menorah.
Steak sale.
We remain committed to reduce leverage to this target range, even as we are accelerating investments to support all of our key strategic initiatives.
This will include reducing the pace of share repurchases and paying down debt in the next year as we showed in Q3.
That said it is worth noting that our balance sheet right now is in really good shape.
As of today are $2.5 billion revolving credit facility is completely undrawn. So we have a huge amount of liquidity on top of a very healthy level of free cash flow generation.
The weighted average of our debt is currently six four years and a weighted average cost of that remains a 4.7%.
We have no annual bond majorities greater than $1 billion before 2025, all of which could be covered by either free cash flow generation or capacity from a revolver.
We will continue to proactively and opportunistically manage our liabilities and the same way as we've done in the past and still see plenty of additional refinancing opportunities.
Lastly on slide 17, we summary, we summarize our updated financial outlook.
We still expect to grow both revenue and adjusted EBITDA for the full year.
A medium term leverage target as I was just highlighting remains unchanged at between four and a half and five times. However in light of our slower than expected customer growth. We are now likely to land at five four times at the end of this year in line with the current level.
We expect cash Capex for 2021 to come in at the lower end of our prior guidance range at $1.3 billion before increasing to between 1.7 and 1.8 billion in 2022 to support our accelerated investments.
A free cash flow target for 2021 is $1.6 billion.
And we've reduced our share repurchase target to less than 1 billion in 2021, having acquired just over $800 million a year to date to accommodate higher near term investments in the business.
As Dexter commented previously we will look to be opportunistic as it relates to use of excess free cash flow, including in the way, we evaluate any perdition potential additional share repurchases.
And with that we will now take any questions.
Yeah first question comes from the line of John Holiday.
B S.
Okay. Thanks.
Two two questions if I could purchase I guess Dexter I know you want to hold off on giving guidance. So fourth quarter, but just that may be at a high level could you talk about the ability of the companies grow EBITDA next year.
A lot of spending in front of you and obviously, it's going to take time for those revenues to restart. So just if you can and you could say that would be great and then to your point on <unk> I think.
At a recent conference you talk about the changing ARPA trends, where we've seen the high speed data <unk> slowdown over the last couple of quarters in with the new pricing do you expect that trend to continue and there was actually a cyclic sequential decline in high speed data or who do you think we're going to see if you're looking at.
Fourth quarter of 2022 high speed data are actually go negative on a year over year basis.
Hey, John on the first question.
We are going to give a lot more guidance right in the middle of our budget process.
Right now as we talk about four fourth quarter earnings.
Opportunity for the market to sort of revisit.
How it's looking at the stock.
But Mike as you pointed out that the company still has a lot of liquidity and a lot of flexibility in the balance sheet. Dexter previously you had indicated that you were also thinking about ways to use that balance sheet to drive shareholder value other than just through executing our strategic initiatives. So I was wondering if you could maybe give us a little more insight into how youre thinking about that and cleaning some specific things like maybe.
The going private which you had alluded to before.
Whether it makes sense over the long term for this collection of assets to stay together or whether you think you might be able to open up shareholder value by revisiting that thank you.
Brent I think listen I think the management team and the board is singularly focused.
On an operations right now.
And making sure that we're being thoughtful around our balance sheet.
No matter, what and so to the extent, we need to reinvest more of our free cash flow into into investments and capital allocation decisions that makes sense for the business, we will do that.
If that means putting putting to the back burner some of our share repurchase.
Initiatives, so be it as long as we're focused on doing the right thing for the business will do that and making sure that we're operating as a standalone business.
Across the board.
<unk>.
We're of the opinion that you never say never to anything so to.
To the extent that there was something interesting that came up or some type of transaction that made a lot of sense.
We're always willing to listen to to outside parties and pick up the phone.
But there is no initiative here to split up the assets to try and and highlight.
The underappreciated value of certain of our of our footprint.
Here.
In order to try and maximize value in the very short term.
This business.
It has gone through a.
A slight flutter for three or four quarters.
On its gross add numbers.
Thats. It so we feel very comfortable and the ability for us to.
Two to recover those losses.
Got all the initiatives in place to do that.
Our October numbers.
We're in line with our 2018 in 2019 October numbers.
It's early days, our November numbers look good as well.
It's just about executing so we're very focused on execution here and.
We'll see about any of the other noise that may come into the system. When it comes to our relative to our balance sheet or strategic initiatives.
Thank you.
Your next our next comes from.
Comes from the line of Jonathan Chaplin.
Thanks, guys.
Wondering if we can.
Talk about the aspiration for the fiber build beyond next year would you still would you continue building at that million homes.
A year clip.
Until you get all of.
All of the optimum footprint done or are you just trying to get to the.
The areas covered by <unk>, which I think correct me if I'm wrong is about is about $3 million.
And I.
I guess to add to that.
Is there no opportunity to go faster on the builds next year given that you are sort of pulling back on on share repurchases. We're looking at guys with much less experience than you and deploying fiber.
In markets that are much more scattered than yours.
Scaling up too.
A million a year next year and.
Wondering if you could go faster or is it a capital allocation decision is it because of labor constraints out there.
Jane constraints what.
What might be holding you back.
Lift.
Jonathan on on 2023, I don't want to.
Close to that or even meaningful around those numbers, yeah, well, maybe revisit our our capex and think about doing more but right now very very focused on getting to that three and a half to 4 million homes as quickly as possible.
Getting the benefits of the Opex savings better customer experience.
And and and longer term Capex savings.
And thereafter will look at it from there in terms of our ability to go faster. It really is a question of how much money you want to spend and resource constraints right. So with a lot of people fighting for the same resources.
You can just get into a bidding war for resources, because it's critical for you to spend no matter, what you want to spend.
On building out faster homes and there is in certain areas, it's really just resource constraints. So.
You are talking about scattered homes all over the place, but there are suddenly footprint is very scattered.
And so we're not looking to upgrade to fiber all over Suddenlink today, it's really about the Tri state area here and it tries to area. We compete against a lot of resources right there as ourselves there's charter theirs.
There is <unk> there is.
Mm mm frontier.
So.
There's quite a bit there's a couple of other operators out there. So there's quite a few operators fighting for resources plus.
Plus all the enterprise businesses that are in this in this area. They are fighting for fiber resources. So.
It's a little bit of a food fight from a resource standpoint, but we've got our internal resources that do a big part.
Of our construction and maintenance and installation process and we've got.
Two or three longer term, serving sub contractors, which are rearing to go here, we feel very good about our ability.
Putting permit the side of being able to deliver 1 million homes next year.
Got it thanks Dexter.
Your next question comes from the lineup Phillips Cusick from J P. Morgan Your line is open.
Yeah.
Hey, guys. Thanks, a couple of again.
Potentially in 2022 you.
Youll see some more flattish <unk> on the data side.
And then on the T Mo side.
<unk> decision to reposition some of its mid band spectrum here for fourth.
Four I am anticipating for its <unk> strategy.
This was part of the contract to the extent.
I wanted to take take down the <unk>.
We were contracted to do that for them at these levels.
And we've already been Rehomed on the TMO network since the beginning of this year.
The performance has been great or very happy.
And the service levels have been great. The customer experience has been great and they know hence our churn levels are pretty much halved in in.
In 2021 and look to continue what it does for a wholesale deal our wholesale deal remains intact.
We've been in discussions I think have previewed this before.
With our partners at T Mo for a more flexible deal both for both sides.
When we when we get there if we get there we'll announce something but we are confident that ourselves and T. Mo will find something that's attractive for both of US and we will continue our long term partnership.
Okay.
Next question.
Your next question comes from the line of Craig Moffett from Moffett Nathanson. Your line is open yes.
Yes, hi, thanks.
So I wonder if you could add a little color to your your thoughts on the broadband market last quarter, you talked about weakness in market growth.
And I think what a lot of people are trying to sell.
So not just for you, but for the whole cable sector is.
What here is competitive and what here is a function of whether it's low end consumers dropping off whether it's slower new household formation, whether it's something in the college market.
What are your thoughts looking across your footprint and the differences that you're seeing in competitive markets versus noncompetitive markets that give you insight into what's happening in broadband.
It's a good question because theres so many different.
Let's call it geographic peculiarities, depending on where you are looking at but I think broadly speaking, it's fair to say competition is increasing.
Across the sector as as Overbilled risk pop up and as dumb as players such as AT&T.
Start aggressively.
Aggressively rolling out their own fiber networks.
I do think that there is less activity out there, which is driven by obviously one one.
Churn levels are lower.
Which is driving less competition for gross adds.
Which is leading to less gross adds in general so there's less activity out there, which is impacting numbers, but <unk>.
Net net.
The net numbers should be by and large in line with each other it's just gross add numbers are lower than historic levels and I'm not so sure that.
We're reverting back to.
Two as much activity on the gross add side as we have historically other than the fact that we are seeing more competition I think broadly speaking in the sector.
But our net numbers outside of the final stones are inline Bang in line with where we are in 2018 in 2019.
I don't think Theres any peculiarity.
And the college markets.
We're talking about yes, we had a peculiar 2021 back to school.
Obviously, the pandemic year was was you can't you can't read any trends into 2020.
I think campuses by and large if you.
<unk> got teenage kids, Craig you know I've been out their campus humping in.
It looks like back to normal.
I think I think we are going into a post COVID-19.
Lay out there and I do think some of the smaller player over builders are going to start some struggling here on the capital side given that.
Wage inflation there is construction inflation, there's permit delays.
Our pre levels are are.
Are more aggressive marketing spend in media dollars are going not as far as before.
Retail presence as in local market engagement are important and so a whole <unk> the whole cost structure of some of these smaller players, which we don't necessarily went into across the board.
Is.
It's something that's a little bit challenging for them relative to to some of the larger players who got economies of scale. So it will be interesting to see how the how.
Ah the market unfolds of next two or three years, but I don't I don't anticipate.
Some of those guys surviving in the current and the current format.
That's helpful. Thank you.
Your next question comes from the line of Jane's Ratcliff.
From Evercore your line is open.
Thanks to if I could first of all just some housekeeping.
Was there any costs associated with the strand contract cancellation.
On the double play there.
It was less of a focus that is Ah.
A priority on our list today and that will have something we will have something to show the market in.
In the first quarter of next year.
Outside of that listed and we think that building fiber puts us in a superior network position relative to them. They.
They are up and down just don't just under one gig on their existing fiber to what effectively as fiber to coax termination.
They need to fix their fiber to coax termination if they want to go to higher speeds.
And we're going to be 10 gig ready effectively by the second half of next year across our fiber footprints and have a longer runway here are a product advantage in mind share. So.
Or repositioning ourselves 222.
Be able to Duke it out on an equal if not a better product portfolio going forward.
And I don't think it's only going to be based on promotional offers but I think it's going to be on a customer experience then.
And ability to flexibility in terms of the things that you can do.
At our data customers are having and not pushing just right through them. So.
There will be there will be market does clear.
Competition will be coming in particularly.
Fiber competition coming in where we're going to be cognizant on on our approved rate actions.
Theyre going forward, but today.
We feel pretty good about where we are able to do things from a rate standpoint, and which markets and.
How.
We're not previewing.
A slowdown a material slowdown or.
Or degradation in data <unk> right.
Your next question comes from the line of Michael Rollins from Citi. Your line is open.
Thanks, and good afternoon, two topics first on the share repurchase topic. The guidance is for under a 1 billion. This year and you've done 800 million or so roughly a year to date I think you mentioned so does that mean that you could or would or have repurchase shares in the fourth quarter.
And then just the second topic, just taking a step back on.
To a box.
Or on our App.
That we need to go through a third party partner and we're always last in line to get the responsiveness from their respective teams and technical teams. There. So we're a little bit handcuffed. So.
We pick and choose.
Which partners to work with.
Carefully.
To maximize our flexibility do it at the quickest pace possible at the right prices right. So.
That's something that we're constantly reviewing.
I'll give you. An example, we obviously are looking to expand on our LTE saw optimum app experience on video and moving it onto more platforms.
Not just <unk>.
Our own kind of Android box, but.
We've got a development with Apple TV, that's coming on board very shortly and then looking to other platforms out there where we can start maximizing the availability of the optimum video app over IP.
In terms of dis aggregating our video from our broadband.
Very difficult given our programming contracts and how those are set up to kind of separate those businesses.
And clearly when we lose the video product.
As part of our direct control.
<unk>.
It creates havoc relative to our subscriber base in terms of the <unk> bundle and the stickiness of our customers and the entire customer experience. So.
I would not be in favor of trying to disaggregate services that could create.
Cary experiences and technical experiences that are sub optimal for our customers.
Thank you.
Your next question comes from the line of Andrew Beale from Arete Research. Your line is open.
Hi can you talk about the network upgrade policies and your next GTH market.
Two our product mix will have the return equation.
My screen up greater customer connection to fiber.
When do you keep them on DOCSIS three one.
This is trey.
Along with the primaries.
Mobile product improvements.
We're thinking about.
Right.
For the balance.
Of your future massage with files in the Americas.
That said market.
Fiber footprint that will most likely accelerate but.
But today the policy is.
Don't don't touch what works and people will migrate at their own paces.
In terms of promos today when were Promoing.
Fiber in your area and you've got coax it for whatever reason you can't get.
Ah fiber or for whatever reason your configuration of your household makes it difficult relative to coax to get the best connectivity on your Wi Fi.
The promos are equivalent on fiber versus they are in cable in terms of the price points per speed tiers.
In terms of cash versus accrual capex, there's probably a $3 million to $400 million difference between cash and accrued capex in 2022.
Okay. Thank you.
Your next question comes from the lineup Keenan Bangkok from Barclays. Your line is open.
Okay.
That's not just one.
One question.
Broadly on your next bill plant growth screens.
When we look at the industry as a whole lot I mean, it looks like a customer relationship growth is for the most part driving top line growth because overall.
Overall revenue apart Saab declining due to video.
And therefore, when you look at your top line growth screened in the past I mean, you know the 1% to 2% kind of a range of abandoned residential.
In order to get to that you're a residential relationship Grove would have two activities quite significantly as you go into next year and beyond so.
Which will drive both back into revenue and EBITDA growth.
Got it thank you very much.
Your next question comes from the lineup Doug Mitchelson. Your line is open.
I'll make so much let me echo breath comments. Thank you for all the transparency in detail Dexter. So a couple of clean ups and then a question on a mobile just to confirm you you don't you don't need new terms with T mobile to launch where you're planning to launch early next year I assume that's the case, but just to confirm.
No we don't need new terms, we do we both want new terms.
To have about your wireless ramp in 'twenty, two I know you <unk> youre going to be opening new stores.
That takes time.
You got to obviously get the product and pricing right.
What should we be thinking and is that a is that a tailwind to broadband net adds in 'twenty, two where do you think it takes a little bit longer I was just wondering if you could talk a little bit about your expectations. So we think about it the right way and then.
You guys have been running above your leverage target since you IPO Tonight.
I saw it again in the release today and so I.
I figured I'd ask.
This time or are you guys planning to get down to that level.
And we should and that's more of a priority than maybe it's been in the past where you are obviously very comfortable living above it I figured I'd take a swing at that one since clearly the buybacks have slowed recently.
On the first question.
We.
We've got the product offering in place.
We've held back on the marketing on mobile.
And we'd anticipate that dragging.
Mobile along with it as well in terms of our ability to drive further mobile growth.
Okay.
Swinging for the fences on our leverage maybe I'll just hand, it over to Mike because it's been so silent.
Yeah.
Thanks for the question.
Listen we've reiterated our leverage target and we've always pursued that there were as we noted in some of our prepared comments.
Full of opportunities we've had over the past couple of years to do material transactions around shareholder returns, meaning the dividend in 2018, and then the tender offer with the Lightpath proceeds.
At the beginning of at the end of 2000 excuse me. So I wouldn't describe it as more of a priority going forward, we've always been mindful of it theres just been some circumstances.
Market conditions that have led us to kind of live at the high end of the target range or maybe to your point a little above the target at the high end of the target range. So we will continue to be mindful of all our stakeholders as we always have been historically and we will look for opportunities to get back into that that leverage target range over the medium term that really I don't think there is a.
Material change in that regard.
Got it okay. Thank you.
Your next question comes from the line of Frank Louthan from Raymond James Your line is open.
Great. Thank you I just wanted to step back and just ask kind of conceptually.
People are able to execute large fiber builds in like Texas.
Is completely different than being able to roll them out in the state of New York, which now the Governor's office has a hand in the permitting process.
So we're very focused on.
On.
Putting in place the best infrastructure, which drives the best customer experience.
As quickly as possible.
And as many places it makes sense for us to allocate that capital.
So that's the only reason there's no if we had been able to execute on our plan as we had wanted to over the last three or four years, we wouldnt have to accelerate our capex. We've just spent a lot more historically.
And we would bid on.
Steady state over the next couple of years, but we need to ramp up over the next couple of years here to catch up with the under spend capex over the last three or four years.
So why not focus more of the build outside of the New York area. Then I think you said Europe, Yes, just a few hundred thousand but if its easier why not focus more there.
Well, it's easier, but it's in small pockets right. So one of the things about doing large scale infrastructure builds.
He is ramping up teams to do it economically and efficiently over large parts of your footprint is the best way to do things when you start hitting.
50000 homes here and there all over the place.
It becomes extremely costly and very very hard to manage.
And disruptive in many respects.
In terms of from an operational standpoint so.
Our biggest competitive threat today and has been always historically has been our competition with files.
We've historically always been good Ping Pong partners of back and forth 10000 subscribers back and forth.
They've got a product advantage today over us we want to right size our product advantage.
B <unk>.
Offensive in the near term and thereafter, we'll be thinking about where it is that we need to be offensive in other parts of our footprint as well.
But there is no.
There's no alarm bells.
Language, but we are going to look at certain markets and sudden link where we're going to sprinkle some.
Some fiber over the next couple of years, we'll probably do two to 300000 homes in the next couple of years and then figure out whether there is other smaller markets that we need to continue to drive fiber, but to your point.
We're not ignoring.
Our worst markets are suddenly markets.
They're just not the priority today relative to our east markets.
Alright, great. That's very helpful. Thank you.
Your next question comes from the line of Steve Keyhole. Your line is open.
Hi, This is Dan <unk> on for Steve.
On your accelerated fiber plans you have over 1 million fiber passing today with roughly 5% penetration I just wanted to know how fiber gross take rate such compared to your expectations and whether this is giving them confidence to drive lower churn and accelerating that as under plan built.
Yeah.
Listen I would have I would have I would have wished to have had more.
But there are two things that have slowed down our fiber take rates and where we haven't been pushing it aggressively from a marketing standpoint.
One is the install times.
When you go true fiber to the home.
Requires.
And effect of all effective engineering work into your home.
And that that is obviously materially different than a coax install process.
And the times have been.
Three to four times longer.
Than a traditional HFC install.
And we have clients, who don't have the patience.
And it materially changes.
The economics.
If you don't do it within three or four hours or theres repeat repeat installation.
Installation required and so there is a learning process.
That you have to go through to.
To do true fiber to the home.
And in.
And deliver a good customer experience, we believe we're there.
It's taken US a couple of years to get there.
And so 2022 I think we are prepared to have.
A much quicker ramp of our of our gross adds on fiber.
In terms of the customer experience that the customer experience has been great.
Other than one instance, where are were on gen. Eight in terms of our gateway, but our gen. Seven gateway, which was initially deployed it's been unstable.
On particularly on video and so we are upgrading that experience on the gen seven but the gen eight plus the Wi Fi six extend their experience.
Has been has been phenomenal.
On both <unk> and <unk> and so.
Our churn rates, if you look at our stats.
<unk> churn rates versus HFC on Gen eight.
Have rapidly caught up with HFC churn rates and I anticipate them to be much lower than HFC churn rates next year already.
And the Gen. Seven will have caught up on the churn rate statistics by the first quarter of next year as that stabilizes that platform. We're in the process of testing new codes.
And that's going to be implemented I've got no doubt successfully in the next couple of months so.
We've gone through all the teething pains on installations on permits on resources.
And now it's all about the customer experience, which is why we're starting to advertise.
<unk>.
In spots, obviously world series as high profile, but we're going to start blanketing.
The market on fiber optimum and.
We've got an aggressive budget in 2022 in terms of our penetration numbers.
Thank you.
There are no more questions at this time, turning the call back over to Mr. Nick Brown for closing remarks.
Thank you everyone for joining do let US know if you have any follow up questions otherwise how do you see a few of you in the next few weeks as we back in the office now. Thank you. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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