Q4 2022 Altice USA Inc Earnings Call
Greetings and welcome to the Altice USA fourth quarter and full year 2022 results at this time, all participants on a listen only mode.
Brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
A reminder, this conference is being recorded.
It is now my pleasure to introduce your host Nick Brown.
You. Please go ahead.
Hello, everyone and thank you for joining we're joined today by our T. USA see Dennis Matthew and C. S. I might grow it together would take you through the presentation and then be available for questions. As today's presentation may contain forward looking statements. Please read the disclaimer on slide two Denis. Please go ahead.
Thank you, Nick and Hello, everyone I'm pleased to be here to discuss altice Usa's results for 2022 and share what we've been working on since I joined the company in October as well as give a preview of what's ahead in 2023, but before we get started I want to take a moment to address the management changes, we announced alongside our earnings.
Afternoon.
Core to driving our culture and delivering against our plan is ensuring that we have the right leadership structure and team who can sharpen focus on our customer centric strategy and drive growth.
To that end, we announced the addition of several talented senior executives, who bring decades of industry experience to the organization, but first Mike Ross, whom you all know and who is with US today has made the decision to step down as CFO on March 1st Mike has been with the company for over 20 years and at both cable vision and I'll teach.
U S. A has been a steadfast and passionate leader I am incredibly thankful to him for his partnership over the last few months can appreciate but he will be staying on as an adviser until early July to help our new CFO , Mark <unk> and his transition to the role on behalf of the entire team at Altice USA, we thank him.
For us the mens contributions and his leadership.
On that note I am pleased to welcome Mark as CFO effective March 1st he most recently served as CFO of Comcast business and the company's Central Division, which spans more than 22 million passing and he brings a tremendous amount of industry and financial experience to this role.
Known Mark for many years and I'm confident that he will help drive discipline in the organization as we execute against our growth strategy and deliver value to our shareholders.
I'd also like to recognize and thanks, Matt Rover, who announced he is retiring from his role as Chief revenue Officer.
We appreciate that he will also be serving as an advisor through June .
In light of this I'm pleased to welcome our new Chief Revenue Officer, David Williams, Chief growth Officer, Leroy Williams, and Chief customer experience officer shoe ROI to complement our very talented executive leadership team.
With a sharp operational and financial focus deep technical and industry experience and proven leadership capabilities. The team is collectively focused on partnering to accelerate our growth strategy now.
Now, let's get into our 2022 full year results summary on slide three.
To start I want to thank all of our employees and share how incredibly proud I am of their accomplishments from the acceleration of our fiber and Newbuild construction, which now makes us one of the top fiber builders in the country. So ramping up our sales distribution channels and improving our customer service metrics, all while continuing to find.
Our footing in the wake of the pandemic.
The early days of the pandemic certainly taught us the immense value of our optimum connectivity services in 2022, we saw our business begins to normalize but also be impacted by new condition competitors and behaviors that we are confident we are going to address as part of our 2023 strategy and.
Which will again prove the strength and resiliency of our services.
Of course, the secret sauce to what makes a connectivity company great has a few different ingredients from our talented people to the quality and value of our product and network to the service and support that we delivered in the past year. We've invested in all of these areas and we continue to do so in 2023, we are seeing signs of recovery.
But the need to remain focused and disciplined in our strategy and capital allocation is critical so let's walk through a brief snapshot of our full year 2022 performance.
Full year revenue declined four 4% year over year, mainly driven by pressure in our residential and advertising businesses as well as the loss of air Strand revenue in the prior year. After the termination of our legacy sprint contract excluding air Strand revenue. The revenue decline would have been three 2% year over year.
Year.
Adjusted EBITDA declined 12, 7% year over year with a margin of 41% or down 10, 3%, excluding air strand revenue, reflecting both the revenue decline and the higher opex to drive future growth.
Free cash flow remains solid even with our elevated fiber investment as we generated 453 million of free cash flow. In 2022. This would have been over 500 million without the impact from a legal settlement payments of multi modal of approximately $65 million in Q4 from a law.
<unk> sprint Voip patent dispute.
Residential broadband customer net losses totaled 103000 for 2022 with a significant improvement in the quarterly trend in Q4 with broadband net losses of just 8000 like others in the industry, we continue to be impacted by relatively low market activity and increased competitive pressures.
But we are very pleased to be able to say that we're starting to see the benefits from our investment initiatives, which I'll expand on later in this presentation.
We ended the year with nearly $2 2 million optimum fiber homes passed adding just under 1 million new passengers in the year.
We also accelerated fiber broadband customer net additions, adding more than 100000 net new fiber subscribers in the last year.
Additionally, we continue to advance the pace of our Newbuild, adding 200000 organically in the last 12 months.
And we have meaningfully expanded our sales distribution channels, almost doubling head count in our door to door sales team and increasing the number of optimum branded stores across the country by about 50% to strengthen our reach to close out. The summary, I wanted to highlight that in December we successfully extended our <unk>.
<unk>, 50% of our term loans due in 2025 and 2026 out to 2028 as we continue to proactively manage our debt maturity schedule.
Now, let's turn to slide four to review our strategy and the company's renewed mission.
It has been clear to me since my first day as CEO that we needed to redefine a clear mission and strategy for the company one that will drive all our actions and that mission is to make optimum the connectivity provider of choice across all of our communities.
We are starting with a strong foundation given our various increased investments over the last 12 to 18 months, notably around our fiber network expansion accelerated new build activity in our western footprint.
The optimum rebrand and incremental investments in both customer care and in growing our distribution channel.
With this renewed mission by priority has been to cement our strategy that will set us on a path to return to sustainable customer revenue and cash flow growth. This strategy is centered around growing our broadband and mobile businesses by delivering best in class customer and employee experiences.
We are rallying around four tenants.
The first is customer experience in a world of 24 by seven connectivity, we know how much our customers rely on us and it is the quality of the experience paired with the value of that experience that matters. Most so we're going back to basics with a heightened focus on elevating quality and end to end customer experience.
We are putting programs in place to simplify how our customers interact with us and experience our services to make US a company that is easier to do business with and we will measure this by advancing a culture that focuses on driving improved net promoter scores across all channels I want to emphasize that this does not necessarily require a.
Higher level of investment in many cases this work centers around modifying antiquated processes, and redirecting resources and energy into areas such as digital transformation self installation and improved customer tools. This will pull transactions and cost out of the system, having a direct correlation.
On field care and overall customer experience improvements we.
We are particularly committed to these initiatives as they will lead to both cost and growth optimization.
Second we are accelerating our go to market strategy with a broadband first focus to grow broadband customer relationships.
We are digging right now into evolving our bundle and speed tier strategies to instill more rigor around pricing packaging offers and marketing to drive profitability long term customer value and customer growth mobile will take on a more meaningful role and we are looking at our overall product roadmap as we.
Formulate a new bundled offer to take advantage of our capabilities in this regard.
Additionally, we are employing a more hyper local engagement strategy to give us greater visibility into the uniqueness of our distinct market and drive more relevant local level marketing, while we now benefit from one national optimum brand. We believe this new simplified and hyper local approach to how we go to market will help to.
Improve our competitive position and ensure that we are optimizing our sales channels more strategically to drive win back and accelerate penetration in newbuild areas most effectively.
Next our network as you know we've been investing in building and maintaining the fastest and most reliable broadband network and I am very proud of the progress to date in fact last month <unk> released its 2022 Q4 speed test results, which ranked optimum ahead of two of our largest competitors for broadband.
Load speed demonstrating the results of our investments in strengthening network quality.
In 2023, and will continue to advance our fiber expansion strategically and to support my comment earlier on quality will continue to invest in plant and network upgrades across our whole footprint to ensure every market. We serve is reliable and quality broadband.
We are taking a balanced approach here as we strategically deploy fiber and work with our growth product sales and marketing team to drive value from our fiber network. So we can realize the benefits of our investments I'll talk more about our fiber approach shortly.
And finally, a moment on our people since joining the company I've had the pleasure of traveling across the footprint and meeting with our teammates and what I've observed is that our employees are passionate driven and want nothing more than to deliver on our mission of becoming the connectivity provider of choice in all of our communities and I'm proud to have the opera.
Attunity to lead this team and I'm working with by leaders, including the new leaders, we announced today to ensure our employees are engaged and are supported to be the best and feel proud of the progress that we are making in conclusion I took this position because I believe in this company and have confidence that we can.
And drive improved performance.
What I just laid out will not happen overnight I believe that with a clear growth strategy and customer centric mindset. Our team is collectively focused on disciplined execution and operational excellence to maximize our investments and see a return to sustainable growth.
With that let's move on to look at our results in more detail starting on slide five.
Total reported revenue for the full year declined four 4% year over year on a headline basis or down three 2%, excluding ers brand revenue in the prior year.
Total revenue declined 6% year over year for Q4 were down four 4%, excluding <unk> strand revenue, whereas.
Residential revenue was down 4% for the full year driven by the lower subscriber base with a decline of 5% in Q4.
Business services revenue declined seven 1% year over year, but was up 6% excluding air Strand revenue for Q4 business services revenue declined nine 3% and was down 4% excluding air Strand revenue.
News and advertising revenue was down five 5% year over year in the full year and down 10, 8% in Q4 as the pickup in political revenue wasn't sufficient to offset the impact from the market slowdown in AD spending into the end of the year with quite a few campaign cancellations.
The macro environment.
Excluding political advertising revenue declined 10, 5% year over year in the full year and was down 25% in Q4 <unk>.
Turning to slide six on recent quarterly customer trends in our residential business in.
In Q4, we reported a net loss of 16000 residential customer relationships and our broadband net loss of 8000 supported by a return to growth in broadband customers in our west footprint.
This is a significant improvement compared to the past couple of quarters, where we lost over 40000 broadband customers in each of Q2 and Q3.
Well, we tend to see an underlying improvement in Q4 sequentially. The additional improvement is driven by a number of factors.
First we have been seeing an increase in gross adds driven by the investment in growing our sales channel, including door to door and retail stores as I mentioned at the onset.
The rebrand has been a success, we have seen increased awareness and consideration of optimum as well as improve brand perceptions across our customer surveys with optimum being perceived more positively than southern link on key perceptual measures, including speed service reliability quality and price and third our.
Customer experience and Karen investments are beginning to make an impact for example, T. NPS scores across all frontline teams and care and technical support retail stores and sales all improved 5% to 20 points compared to 2021 as our teams got better at addressing customer needs.
The first attempt on the care side, the number of customers contacting us for technical troubleshooting decreased 14% year over year as customers experienced fewer technical issues related to our devices and network.
And as we continue to drive improvements in IV, our proactive customer notifications troubleshooting tools and self service capabilities customer repeat calls for care and technical support have declined by almost 10% year over year.
And fourth we continue to gain 40% plus penetration in the first year, we rollout the newbuild areas.
Lastly, our trends across the New York price stayed area have also improved as we gained traction with our fiber investment, which is now more meaningfully helping our broadband net adds.
It's also worth noting that we launched a partnership with the New York City housing authority to provide services to several housing units in the city, which brought in around 9000 customers in the fourth quarter, while we're cautious about extrapolating from one quarter's performance, we're optimistic about what we're seeing at the moment.
Slide seven is an overview on our fiber and newbuild growth.
We added just under 1 million, new <unk> th path things for the full year, including 251000 in Q4, bringing our total fiber pass things to to one 6 million at the end of the year. The majority of these fiber upgrades have been focused in the New York Tri State area. Although we did complete our first few.
<unk> thousand fiber, passing and the west footprint in Q4.
As I said last quarter I'm, a big believer in fiber and the best broadband technology for the future.
Extensively reviewed our multiyear fiber strategy with the team over the last few months and we will continue to take a balanced and measured approach as we strategically deploy fiber and evolve the corresponding go to market strategy to drive value from this network. So we can realize the benefits of our investments and so it's.
To that end in 2023, we will press ahead with the fiber build across the Tri State area as we've made great progress here and it's a relatively low cost for us to upgrade.
Across the western footprint, though we're going to look to be more opportunistic about where we upgrade for fiber in the near term focusing on areas that give us the best return on investment as we've shown in Q4 broadband results. We have many different levers to improve performance across this part of our footprint without needing to immediately upgrade everywhere.
PTH. This includes all things I described earlier, including a more hyperlocal approach taking advantage of our new brand and expanded sales distribution channels completing our DOCSIS three one upgrade across the rest of the footprint to enhance quality everywhere and continuing to edge out our network to drive new.
Customer growth.
We are updating our overall FTE th passing as target for full year 2023 to add at least another 900000 fiber passing so that we end the year with more than $3 million. This is more than half of the tristate network and nearly one third of our entire Altice USA network.
Thereafter, we will review the pace of our fiber build annually as we want to make sure. We're allocating capital in the most efficient way, while continuing to drive a healthy level of free cash flow on the customer front, we accelerated our fiber net additions again in the fourth quarter to add 36000 fiber subscribers through a combination of gross adds.
Migrations of existing customers or.
Our fiber broadband customers continue to exhibit favorable churn trends and we expect that this will become a more meaningful driver as we continue to market and deliver high quality multi gig data speeds on the right side of this slide Youll see we beat our full year target for Newbuild, passing adding 200000 as we've hedged out.
<unk> our footprint for 2023, Newbuild remain a significant driver of growth and we plan to deliver at least another 150000, passing as we balance the pace of rollout against the volume of fiber pass things we want to achieve.
With that I'll now hand, it over to Mike to go over our business services segment and walk you through our financials in more detail.
Thank you Dennis and good afternoon everybody.
First let me say, it's been a pleasure serving as CFO for the last three and a half years, leading the finance team at Altice USA.
I'm very grateful for the partnership and friendship of the countless colleagues I've worked with.
Over more than 20 years here.
It has also been great getting to know all of you.
While this was a difficult personal decision to make I have no doubt that you will be in great hands with mark and the team.
Getting back to our results and picking it up on slide eight.
Business services revenue declined seven 1% year over year for the full year, although grew 0.6% excluding <unk> strand revenue.
Within this SMB and other revenue was down nine 3% year over year, while grew 1%, excluding <unk> strand revenue and.
On Lightpath revenue growth was essentially flat.
Note that lightpath growth in Q4 was impacted by the loss of one time contract termination revenues from the prior year.
But we still expect an acceleration of growth here given our recent network in sales force expansion across New York, Boston and Miami.
We have seen some increased competition in the SMB market in the last few quarters, which is impacting both customer and <unk> growth.
However, we expect all of the initiatives and investments that Denis mentioned in relation to the residential business will also positively impact our SMB trends.
This includes our fiber upgrade the rebrand expanded sales distribution customer care improvements and new bundled propositions.
We're also focused on developing additional products and services specifically designed for the SMB market.
Slide nine is an overview of our Capex our.
Cash Capex was up approximately 55% year over year, mainly driven by increased investments in fiber upgrades and new builds.
Total capex for 2022 of $1 9 billion was about $100 million above our prior full year target as we brought forward some capital investments at the end of last year to accelerate pre construction on fiber and delivery of Newbuild testings.
Without fiber and Newbuild capital intensity would have been about 10% of revenue.
Recall, we previously indicated annual Capex could go up towards $2 billion in 2023, and 2024, if we materially accelerated fiber passing is across our western footprint.
However, we now expect capex could be up to $300 million lower than this level as the fiber builds we're targeting for this year will include more empty use in the east and more offline conversions in the west at a lower cost per passing.
So we are guiding a range of between $1 7 billion and $1 8 billion of cash Capex for 2023.
Slide 10 shows a bridge of free cash flow for the full year.
Free cash flow was $453 million, although as Denis mentioned this would have been over $500 million without the impact from a legal settlement payment to T mobile of approximately $65 million in the fourth quarter.
The total amount amount of the settlement was $112 $5 million and we will pay the balance in the first half of 2024.
This case dates back to 2018, when sprint filed a complaint alleging that we infringed their patents by providing Voip's services. Following similar litigation initiated by sprint against numerous other broadband and telecom providers, where they've also received settlements.
While the total amount of the settlement is less than half of what we previously disclosed might be at risk. We are looking to pursue indemnities from our equipment suppliers to recoup some of this amount.
Free cash flow for the fourth quarter was negative $82 million due principally to higher capex spending in the quarter.
It's worth noting that excluding our fiber to the home investment and the legal settlement free cash flow would have been closer to $1 2 billion for the year.
Our cash interest payments were $1 $25 billion for the full year and $334 million in Q4, which reflects recent rate increases although recall, 76% of our debt is fixed.
Our cash taxes were $254 million for the full year, which was broadly in line with the prior year, including $50 million in the fourth quarter.
Finally, slide 11 is an update on our debt maturity profile following recent refinancing activities.
In December we successfully extended the maturity of approximately 50% of our term loan b ones and <unk> from $2025 26 to 2028 with an incremental term loan b six.
The extended term loan has an interest rate of sofar, plus four 5%, which is 225 basis points higher than the unexpected loans.
This transaction was leverage neutral and extended our weighted average life of debt to five seven years as of the end of 2022 with a weighted average cost of debt of five 7%.
We continue to have a strong liquidity position at approximately $1 2 billion.
And expect free cash flow generation, and undrawn revolver capacity to be able to address the unexpected loan tranches at maturity.
That said, we will continue to monitor the market over the next 12 months to 18 months and potentially look to issue a new bond to free up additional revolver capacity and refinance the $750 million 2020 for maturity as market conditions have been improving in the last few months.
Separately I wanted to mention that last month, we unwound, the Comcast collar position elt's inherited with the Cablevision acquisition.
This will result in a gross debt reduction of about $1 7 billion.
As we delivered the Comcast stock, we held underlying the collar as settlement for the collateralized debt obligations, we had on our balance sheet.
Although do remember we have not historically included this in our reported net debt calculations, given the offsetting value of the equity.
We also monetize the related derivative positions, resulting in a net cash payment to us of over $50 million that you'll see reflected in our Q1 financials and we will get additional annual cash interest savings from this transaction of over $30 million.
We're very happy with these results, especially having previously benefited from being able to monetize the increase in the value of the stock efficiently over many years.
And with that we will now take any questions.
Thank you the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star key.
<unk>.
Again that start once you Register a question at this time.
Our first question today is coming from Philip Cusick of J P. Morgan. Please go ahead.
Hi, Thank you.
Dennis maybe you can just talk about the fiber plans in the network upgrade plan it seems like <unk> gone from a.
Sure very aggressive fiber plans on all T cells before to a more traditional Comcast like.
Sure.
Work upgrade path.
Talking about your philosophy on that.
Cable needs to have to compete with fiber.
<unk> fiber and with fixed wireless over time.
How we should think about.
Okay.
Fiber plan over the next five years and Capex plan.
Thanks very much.
Hey, nice to hear from you fill up as I look at the.
Optimum eastern optimum West I think we have very.
Very different competitive profiles as you know an optimum east we have Verizon who is.
70% are overbuilt in our footprint, we have frontier, who is also building fiber.
Our immature full product set and so I'm very bullish as Ive mentioned that I do think fiber is the best technology, we're seeing benefits of fiber from a churn perspective from an <unk> perspective, and so we're going to continue to drive fiber in the east and we're going to we're committed to driving a 900000 home.
<unk> next year 850000 in the east and so I feel really good about that strategy, we know that fiber from.
Operating perspective delivers incredible experience from a speed as well as from our network management and maintenance perspective.
And so I'm bullish there, but as I look at the optimum west its a different profile.
Optimum West is 25% overbuilt, 50% of that is AT&T.
And the other 50% is a fiber overbuild or is in different pockets of the footprint and so I think we have to take a different approach and we've seen already in Q4 that we're able to leverage our portfolio of capabilities.
And be able to be competitive and we've seen that the investments that we've made in our.
Sales channels are starting to pay off we doubled our door to door sales channel and we see the benefits of that and I do think we have to operate a bit more hyper local where we our pricing and packaging.
<unk>.
We're really competing at the local level. So that we can drive sustainable growth the reality is that.
The cost profile is very different than the east versus west east as dense west.
As a bit is less dense and so the cost profile is different and so we think that we can continue to invest in DOCSIS in the west depending on the footprint, we're going to invest in three dot. One for example, we have 200000 plus homes that we're going to invest in and we believe that those investments will allow us to.
To be competitive and to drive growth and so we're going to take a balanced approach in terms of our capex spend over the next.
A few years and we're going to.
Really make investments in the west in fiber, where we think there is a appropriate return.
Thank you.
Yes.
Yes.
Thank you. The next question is coming from Brett Feldman of Goldman Sachs. Please go ahead.
Yes. Thanks for taking the question you mentioned I believe in your remarks that you are going to be looking to do more with your mobile offering and I was hoping maybe you could just talk high level about the level of importance you see in being able to offer a converged service in other words do you anticipate that that's going to be sort of the default products suite that your customers are.
Gonna want or do you think it's Nicky and then whatever the answer to the question is do you believe you have everything you need to be successful in the converged market, including the right partnership. Thanks.
Thanks, Brad I appreciate the question I do believe that to be the connectivity provider of choice in the communities that we serve that we have to have a very compelling broadband and mobile offering and so we're actively working right now to looking at our pricing packaging. It offers with the goal of launching a.
Evolution of our broadband and mobile offering later this year, which I'm very excited about I think that we have a lot to offer there.
Really do think we have a great partner in T. Mo from an <unk> partnership perspective.
We've made the investments in retail we've grown our retail presence to 137 stores then that retail.
Facility is really these facilities are the best place to showcase mobile and to be able to drive mobile sales, particularly into our base as we have our existing customers. Visiting US then we have a chance to showcase our products and so we.
We are going to be focused on evolving our go to market strategy by building a value proposition that is centered around broadband and mobile.
Im very excited about our <unk> relationship with T Mo and I believe that our investments in retail will allow us to showcase mobile and be able to drive mobile effectively as we move forward.
Thank you.
Yes.
Thank you. The next question is coming from.
Ben Swinburne of Morgan Stanley . Please go ahead.
Thanks, Good afternoon.
Two questions Dennis given the improvement in customer metrics, we're seeing here in the fourth quarter Whats your.
<unk> getting back to overall customer growth in 2023 is that realistic at some point during the year and.
Maybe talk a little bit about your pricing philosophy, given the competitive environment.
And then I was wondering if we could get any help from you guys on your expectation for cash interest and 23, given the change in interest rates that would be would be helpful. As well. Thank you Bob.
Thank you so much I'll, let Mike address the last question, but in terms of customer growth, but I'm not we're not going to commit to when we're going to get positive, but I'm very optimistic I'm very optimistic given the trends that we've seen we're going to continue to lean into the investments that we've made in our sales channel.
<unk> and.
We're seeing that.
The fruits of that we're also going to continue we've seen great reception receptivity in the west to our optimum branding and so we're getting great customer reception to the new brand.
We're also doing a better job in terms of churn we have started to see improvements in the customer experience investments that we've made as I mentioned earlier, 5% to 20 points of improvement on NPS, our contact rate is down 14% year over year service.
Visits rate has improved 10% and so this is all culminating into better customer experience, which we think will improve churn and as we evolve our pricing and packaging and go to <unk>.
Broadband and mobile strategy.
Am revisiting all of our pricing so as I look at the pricing approach I think that there were pockets where.
We were doing gift with purchase.
And we had some very aggressive offers and then there are other areas, where we had intense competition, where we may need to have revised offers and bundles with mobile and with broadband and so I don't think it's a one size fits all I think we have to as I mentioned really look at our different areas.
Has the competitive landscape and evolve pricing accordingly, I do know that our rack rates are a bit confusing only 10% of our broadband customers actually pay our rack rates and so I'm looking to and presenting it this way makes it confusing and so I am looking at is there a.
<unk> of that as we move forward as well.
On cash interest expense then.
Youre right, we are somewhat subject to the rising rate environment I would remind you that after after swap contracts and different hedges, we are about 76% fixed on our debt towers, but still a decent amount of exposure to the rate environment. I think I would I would guide you to something in the neighborhood of about $1 5 billion of cash interest expense in 2023.
Okay that makes sense. Thank you guys.
Yes.
Thank you. The next question is coming from Doug Mitchelson of Credit Suisse. Please go ahead.
Thanks, So much I think the follow on to Ben's question is.
You know with the commentary around <unk>.
Pricing and customer growth as well.
One of your strategies is return to sustainable cash flow growth. So when do the lines cross for returning to EBITDA growth is it relatively obvious that it's you know late in 'twenty, three or 'twenty four beyond what I've heard in this call as.
So still cycling through some investments, but there's some efficiencies coming in and rethinking pricing, which could be a little bit lower in some cases I imagine to be more competitive. So what does that all add up to on the bottom line and separately.
Dennis for the New York footprint are you able to give us a sense of how much of the northeast footprint excuse me the east you expect to build.
Build out so I get that you're over 50% now and I get the 2023 guide is there a kind of an end state for the east that you're willing to share for percentage covered with fiber. Thank you.
I'll, let Mike jump in on the first and then I'll address the fiber piece hi, Doug So in terms of return to EBITDA growth.
With apologies, we've consciously avoided giving concrete financial guidance outside of the Capex envelope. So I'm not going to give you a lot of clarity on that one I do think your overall take on the call is right. We are cycling through some additional investments, but I do think we have mitigating factors. So I think what youll see from us in 'twenty three from an Opex perspective, we will continue to.
Invest in the customer experience I think the sales distribution channel investments are in the later innings, but around digital transformation and what have you I think we will check the growth in opex and probably bring it down a little bit overall, but we're going to steer clear of giving any firm guidance on when a return to EBITDA growth will take place certainly you recognize that given the customer losses, we had in.
22, there will be pressure on revenue and EBITDA in 'twenty three on a year over year basis.
Doug I will say that from a opex and EBITDA perspective, we have we are looking at the business and digital transformation as one that.
We're excited about and leaning into so we're going to be leaning into a couple of different areas. One is self install.
Day, we do about 40% in terms of HFC broadband only.
Self install we see a path to growing that by 50%.
That one gives customers choice in terms of.
The options for install but then also gives us a lower cost profile from a truckload perspective.
We're also going to be launching later this year, a new cable box stream box, which will also facilitate video self install which we don't even we don't offer today. Additionally, we want we're going to be launching a new mobile app that mobile app will allow customers to more effectively manage their accounts.
Do basic troubleshooting chat with US again, all with the goal of driving down transactions in the system. So that we can more efficiently run the business, but also deliver a great customer experience because that's what customers want to do they want to be able to interact with us on the app they want that choice.
To be able to.
Do things like self install and so we're going to continue to drive and lean into that from.
From a fiber perspective in the east as I mentioned I think that fiber is the right technology in the east we're going to deliver another 850000 homes in the east this year and we're going to continue to look at our Capex intensity and drive.
Our build out in the east as we go forward.
Alright, Thank you yes.
Yes.
Yeah.
Thank you. The next question is coming from Michael Rollins of Citi. Please go ahead.
Thanks, and good afternoon in the past all pieces described some efforts to optimize the asset portfolio and Dennis just curious for your thoughts on whether you believe all of the markets that you have belong together under this current altice USA umbrella and if there are.
To streamline our optimize your markets or some of the assets that you continue to go.
Michael I'm very excited about the west I had a chance to visit tech.
Texas and spend some time with our friends in Plano and I'm continuing to learn about our worst markets that I continue to learn that we have tremendous opportunity.
In our Newbuild markets, we're seeing 40% penetration in year, one and we have more new build to do.
I'm seeing some great opportunity in terms of.
As we've now launched our door to door as we've scaled our door to door, we're seeing the returns there and we're also seeing.
Some really exciting opportunities with our retail channel as we look to drive mobile in the west and so right.
Right now my focus is how do we continue to drive growth, we've just gotten to.
Two months of modest data growth in the west and so we want to continue to lean into that and that's my focus right now.
We believe that the customer experience investments that we're making will allow us to compete more effectively where we are being overbuilt. There as I mentioned, we have 25% overbuilt in the west.
And I believe that the investments that we're making in DOCSIS three one or 200000, plus homes will allow us to compete more effectively the investments that we're making in digital the investments that we're making in quality are all going to allow us to continue to drive growth.
In the west in the long term as well.
Thanks.
Yes.
Thank you. The next question is coming from John Hodulik of UBS. Please go ahead.
Sure.
Follow ups first of all.
Do you think that the changes to pricing will put further pressure on residential aquilar, obviously, that's been down a bit for the last several quarters. Do you think you can do that in a revenue neutral way and then number two.
New York City housing contract is that.
More color you can provide us on that is that 9000 stop sort of a one time thing or is there more growth there and does that come at a lower <unk> than you traditionally see in the in the old Cablevision markets. Thanks.
Thank you John I appreciate the question on pricing.
We are as I mentioned looking at pricing and we are very I want us to be very focused on customer lifetime value and so as I look at some of our offerings in the last year I do believe that we need to be a bit more disciplined in terms of our gift with purchase in terms of.
Our save offers in terms of our repackaging and upsell offers and so I believe that there's opportunity there I think that the broadband and mobile value proposition will help us to drive gross adds from a subscriber perspective and that we have opportunity to sell into the base in ways that we have.
Got done effectively.
Yes, as we look at <unk> and we look at opportunities there we want to drive mobile we want to drive speed upgrades, we want to bring people over to fiber in the east and we believe that we can do that.
Profitably and we can bring people into packages that.
During the best of our products, but then also deliver great value.
<unk> contributed 9000 customer.
Customers in Q4, there is more opportunity.
This year there is more.
And we're excited about that.
Nothing to announce today, but there are we're excited about that partnership.
We're going to continue to.
Growth from that in the first half of this year, maybe I'll, let Mike talk a little bit about the <unk> question that you had on nature.
Yeah sure so John you're right the op, who did start to tail off in the back half of 'twenty two I'm talking now about broadband offerings certainly customer <unk>.
<unk> declined year over year, and that's a function of lower video penetration of the customer base lower video attach rates and thats been a somewhat consistent trend for a couple of years on the broadband I think the pacing of the broadband <unk> growth in 'twenty two is largely a function of the manner in which we applied promo roles over the course of 'twenty. Two there was a lot more activity in that regard in the first half of the year.
Year and much less so in the second half of the year and so you saw some sequential <unk> growth in the first and second quarter and then it starts to tail off in the back half of the year very similar to what you saw in 2021, and I think it's probably reasonable to expect a pretty similar trend in 'twenty three as well as far as the quarterly pacing of <unk> growth I think net net ARPA growth. We told you would be somewhat flattish.
<unk> 22 at the beginning of the year and we delivered on that probably came in maybe 1% full year growth and I think 23 should look pretty similar in that regard.
Perfect. Thanks, guys.
Yes.
Thank you. The next question is coming from Craig Moffett of Moffett Nathanson Seb. Please go ahead.
Yes, hi.
Your peers have made.
Big commitments to wireless.
The center piece of their strategy.
Your strategy is obviously at this point much more focused on on fiber and the physical plant, but I wonder if you could just talk about.
Whether you think that the.
The wireless agreement that you have today is sufficient to get you to where you want to be.
With bundled service offering and and with your wireless strategy going forward.
Thanks, Greg I am excited about <unk>.
Wireless being a key product in our portfolio I'm excited about as I mentioned being the connectivity provider of choice in the communities that we serve so connectivity in the home and outside the home and I believe that with our <unk> relationship we can deliver.
Incredible value with our broadband and mobile services combined.
This is largely an untapped opportunity for us and so this is going to be.
Focus as we move forward, we are actively working on.
<unk> pricing packaging.
That brings broadband and mobile together with even more value and I think that's going to be critical to helping us win in this space. We've made the investments in retail as I mentioned, where we are.
We're at 137 retail stores and we're going to continue to grow that a bit this year and that will give us an opportunity to showcase mobile.
Effectively and so this is fairly untapped and I think we do have the right <unk> relationship and partner I think we have the right product set we just have to bring it all together and.
I'm focused on with our new leadership team, how we can continue to lean into training, how we can lean into.
Our commissions and incentives for our teammates.
So I think there is some work that we need to do internally and then externally we have to tell the story with our pricing with our packaging with our marketing.
And then also from a customer base management perspective.
We have a huge opportunity there to reach into our base make them aware and be able to have a more disciplined approach.
<unk>.
Presenting mobile to our existing customers.
Okay.
Thank you.
Yes.
Thank you. The next question is coming from Jonathan Chaplin New Street. Please go ahead.
Thanks.
Dennis I'm wondering if you can give us a little bit more color on the pressure you are seeing in the business services market.
Price is surprised by it looks like there's a.
Little bit of mounting pressure on the light path revenues I think you referenced some increased competition.
Love to get some more context on that and then.
Just a clarification for you did you say that.
Operating costs would come down in 2023 or that the growth in operating costs would come down in 2023.
Okay.
Thanks, Jonathan on the <unk> side, we are seeing pressure as we see increased fiber overbuild or is in the west.
As we see Verizon be very competitive in this space.
As you know from our <unk> SMB perspective, we're highly penetrated in the east and so we're very focused on churn management and making sure that we're doing all the right things blocking and tackling to be able to.
Mitigate churn in terms of quality of our network quality of our products service.
And value proposition and as I look at the West we have opportunities to expand our product portfolio and to continue to compete.
Especially in those areas, where we have fiber overbuild is to bring the full product portfolio to bear we do have some gaps in our product set in the west that need to be addressed.
And I believe when we address those gaps, particularly from a voice perspective in some pockets.
We have an opportunity to bring mobile to bear on the <unk> side I think this will allow us to compete more effectively and then there is future opportunity that we're looking at in terms of expanding the product portfolio. Even further from what we offer today today, we offer connectivity, but theres more solutions that we can be.
To bear that would allow us to.
Drive be more competitive drive our pool and so that's those are all things that we're actively focused on delivering and bringing to market.
So Jonathan just adding to what.
Okay.
Yes, sorry go ahead Mike.
No I was just going to add to what I'm, saying to address your specific question on Lightpath.
I think our comments noted in part D. The revenue growth or lack thereof in the fourth quarter was due to a one time early termination liability that took place in the fourth quarter of 'twenty, one which is fairly material in general I would say the Lightpath management team has had certain challenges around residual churn that they've had to confront the first cup.
The years I mean, certainly a lot of that had to do with the T. Mo sprint merger as they've pruned certain redundancies in their network and then different other customers.
We're seeing some residual churn challenges I will say net installs on Lightpath has started to go positive as in the last half of 'twenty to the bookings the Ashland new sales bookings in Lightpath were pretty strong in 'twenty. Two they are actually quite strong we had record quarters in both the first and second quarter and we had a very strong fourth quarter as well. We've just started when the early innings of expanding into Miami.
Boston, So point being I think there are.
We returned to revenue growth of Lightpath.
Low to mid single digits that we were accustomed to seeing maybe say 10 years ago, I think that's very imminent and pretty encouraged by what we're seeing there.
On operating cost to clarify what I said earlier, but what I said or what I should have said what I meant to say we are going to temper the growth we've been seeing in Opex and I would expect it to flatten or even go down come down a little bit from the fourth quarter run rate.
Got it and that light path 10 that you're saying is eminent Mike is that a 2023.
<unk>.
<unk> returned to growth in bi at Lightpath.
I was speaking less specifically then that we are we are trying to steer away from providing concrete guidance of that nature.
Im simply saying that we're very encouraged by some of the underlying metrics, we're seeing a lightpath, which tend to be a foreshadow future revenue growth.
Thank you. The next question is coming from Greg Williams of Cowen <unk> Company. Please go ahead.
Great. Thanks for my questions just wanted to revisit the fiber to the home discipline that you are messaging is there a fear that fiber overbuild theres can encroach on your territories in the West you mentioned, 25% could that could that escalate.
Now that you're.
Taking a more disciplined approach.
Second question is just on media reports, saying that you are exploring fiber to the home jv's.
We saw a JV with AT&T and is that something you are exploring because the messaging I'm hearing today suggest maybe the opposite as you're investing less in fiber to home and not more.
Greg Thank you for the question.
The second item I don't want to address any speculation here I'm really focused on the core business and driving long.
A long term sustainable growth and so to your question on the west.
We do anticipate additional fiber overbuild to happen and so that's where I'm, saying, we're going to have to be very thoughtful and surgical as to where we need fiber to be most competitive I'm not saying that we need fiber in every one of those areas. We do have.
Some untapped opportunity as we bring broadband together with mobile and deliver a very compelling value proposition and as we make these upgrades the $3. One we can deliver gig speeds high quality network high quality speeds combined with a very.
Our strong value proposition with broadband and mobile and that we can be competitive by acting a bit more hyper locally as we look at the competitive landscape.
And bring to bear some pricing packaging and offers that would allow us to compete most effectively especially with the fiber overbuild. There is given that we have a broader portfolio of products to bring to bear, but we will look at are being thoughtful being measured in terms of.
Where we want to build fiber in the in the West we are planning.
For a build out of some homes this coming year and we'll continue to look at that on a case by case basis as we move forward as we look at density as we look at the return on investment we want to be measured in terms of how we make those investments and where.
Got it thank you.
Yes.
Thank you. The next question is coming from cutting moral of RBC capital markets. Please go ahead.
Great. Thanks for taking the question.
Wanted to follow up on the costs and maybe hone in on the programming cost outlook.
One of your peers have started to benefit from a fairly remarkable remarkable moderation in the growth of programming cost per video subscriber.
Historically, we've seen this growth to be in the mid to high single digit range is there a scope to have that get closer to low single digits or even maybe flattish in the coming years or is that just not as likely given how your video product is structured thank you.
Hey, Thanks for the question I'll address kind of at a broad level and then I'll, let Mike jump in on the programming piece, but we do.
I am also looking at our video.
Service and how that fits into the portfolio. We know that there continues to be a demand for legacy video we know that there.
The demand for streaming video and apps and so.
I do believe that there is an opportunity to right size. Our go to market strategy with video in terms of pricing packaging bundling.
As appropriate and so that is something that we're also looking at in terms of how it fits into the portfolio and how we may want to leverage it as we go forward. So that we can be most competitive particularly in areas, where we've got fiber overbuild or as in other competition.
We have this video product and an opportunity to bundle that in to be able to drive our go to market.
We move forward.
So on the overall question in terms of the inflation rate, we're seeing you're right. We have historically been seen numbers in the mid to high single digits I think I think thats tempered when we look at programming cost per sub per month and look at the inflation on that basis. So adjusting for volumes. We've had a couple of quarters over the last six quarters, we've had a couple at 5% or even.
Sub 5%, so I think it's nudging downwards anecdotally I will say when we go into renewal negotiations.
We often come out the other side with a result that is better than what we expected and probably couldnt have said that very often in the 10 years that preceded say the last two years. So I do think there is a little bit of a shift in favor of the distributor in this regard and we are seeing some tempering of the programming cost inflation, we've seen historically as far as whether that can evolve to be flattish.
In the near to medium future I mean that would be a great outcome for us, but I would hesitate to make that kind of commitment.
Thank you Bob.
Yes.
Thank you. Unfortunately, we have run out of time for questions today, I would like to turn the floor back over to management for any additional or closing comments.
No just thank you all for joining us and have a good evening I. Appreciate it. Thank you have a great day.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines at this time and enjoy the rest of your day.
Okay.
Yes.
[music].