Q4 2024 Altice USA Inc Earnings Call
and the University of Queensland.
Speaker Change: Greetings and welcome to the Altice USA Q4 and full year 2024 results conference call and webcast.
At this time, all participants are in a listen-only mode.
Speaker Change: If anyone should require operator assistance, please press star zero on your telephone keypad.
Speaker Change: A question and answer session will follow the formal presentation. You may press star 1 on your telephone keypad to be placed into question queue at any time. We ask that you please ask one question and then return to the queue.
As a reminder, this conference is being recorded.
Speaker Change: It's now my pleasure to turn the call over to Sarah Freedman, Investor Relations.
Please go ahead, Sarah.
Sarah Freedman: Thank you and welcome to the LTCUSA Q4 and full year 2024 earnings call.
Speaker Change: We are joined today by Altice USA's Chairman and CEO, Dennis Mathew, and CFO, Marc Sirota, who together will take you through the presentation and then be available for questions.
Marc Sirota: As today's presentation may contain forward-looking statements, please carefully review the section titled Forward-Looking Statements on slide 2. Now turning over to Dennis to begin.
Dennis Mathew: Thank you, Sarah, and thank you, everyone, for joining us today.
Dennis Mathew: 2024 was a transformative year for Optimum, and I'm incredibly proud of how much we achieved. As we look back on the year, our efforts, performance, and progress were all anchored in our clear focus on transforming the business through several foundational elements.
We'll review these on slide 3.
Dennis Mathew: First, our Phase I transformation was driven by an experienced team of executives with deep, hands-on expertise in day-to-day operations and transformation.
Dennis Mathew: These are operators, not just executives, bringing decades of experience in strategizing, competing, and executing at the highest levels. They are data-driven, results-oriented, and relentlessly focused on improving every aspect of our business.
from Optimizing Sales Channels and Enhancing Customer Experience.
Dennis Mathew: To leveraging automation and refining cost structures, our operational and financial discipline is delivering measurable improvements.
Dennis Mathew: We've streamlined processes and improved decision-making through real-time data insights, which have strengthened efficiency, reduced costs, and positioned us for sustainable revenue and subscriber growth.
Dennis Mathew: Next, we continued accelerating our award-winning networks and delivering best-in-class products and services.
Dennis Mathew: Fueled by innovation and advanced tools, by prioritizing customer-first solutions, we enhanced value for our customers by elevating our network quality, transforming our customer experience, and delivering the products and packages with the value our customers want.
Dennis Mathew: Our networks are more powerful than ever, and in 2024, we developed a strategic network roadmap, which includes fiber expansion and a multi-gig rollout across our footprint through network innovations and disciplined investments.
Dennis Mathew: In 24, we also achieved growth in key strategic areas like fiber and mobile, paving the way for additional top-line opportunities in 2025.
Dennis Mathew: With a disciplined approach in operational and capital efficiency, we remain free cash flow positive, reinforcing our financial strength and flexibility. And despite higher cash interest in 24, we were able to grow free cash flow.
Dennis Mathew: We've reduced CapEx from recent multi-year highs and continue to expand network capacity at more efficient and sustainable spending levels.
Dennis Mathew: And at the heart of our transformation is a dynamic and forward-thinking culture that empowers our team to innovate and implement change. We have fostered collaboration at every level and built a culture that drives strategic growth and inspires excellence.
Dennis Mathew: Our ability to operate as one optimum allows us to put the customer at the center of every decision and positions us for long-term growth.
Dennis Mathew: During our last earnings call we discussed how we are building on this foundation as we embark on phase two of our transformation, which includes executing on business acceleration opportunities that will deliver maximum value for our customers, communities, and shareholders.
Dennis Mathew: Now turning to slide 4, we will review key milestones showcasing that our efforts to improve our financial and operational trajectory remain on track.
Dennis Mathew: Q4 marked our best ever quarter for FiberNet additions of 57,000.
Dennis Mathew: A 22% increase year-over-year driven by more than double the pace of fiber migrations.
Dennis Mathew: and mobile growth of 40,000 line net additions is our best performance in the last five years.
Dennis Mathew: rounding out an impressive 24 for our mobile business, which saw the pace of mobile line net additions grow by almost 70 percent.
Dennis Mathew: And we expect mobile line growth to continue to accelerate in full year 25.
Dennis Mathew: We ended the year with a strong base of 4.3 million broadband subscribers and 460,000 mobile lines.
Dennis Mathew: Broadband subscriber net losses in the quarter were $39,000 which reflected the impacts of the hurricane in North Carolina and various go-to-market and base management pilot programs.
Dennis Mathew: Overall, move volume remained low, with home sales falling to the lowest levels in nearly 30 years. This continued to pressure gross ads due to low overall connect volumes, particularly in the income-constrained segments.
Dennis Mathew: We also saw many positive trends that we are leaning into more strategically as we head into 2025. Specifically in Q4, churn remained low as we focused on implementing strong base management strategies.
Dennis Mathew: In fact, churn improved year-over-year in the East footprint, comprising of our New York tri-state markets, which contributed to improved Q4 trends in the East, representing the best quarterly performance of the year within this footprint.
Dennis Mathew: And we saw stronger wind share rates against established ILEC and overbilled fiber operators in mature markets across our footprint.
Dennis Mathew: The West footprint remain more challenged by incremental fiber over builders as well as fixed wireless. We also have a greater proportion of income constrained households in our West markets which remains pressured.
Dennis Mathew: In 25, we are launching a new income-constrained program featuring unique offers designed to attract and retain customers with worry-free pricing, easy sign-up, flexible payment options, and meaningful perks and add-ons, and a mobile offer as well.
Dennis Mathew: Overall, we are focusing on strong base management tactics, quality network enhancements, and improved go-to-market strategies to compete with new market entrants.
Dennis Mathew: Optimum's unique attributes of size, speed to market, ability to act locally, and a robust expanding product set
Dennis Mathew: position us to act with greater flexibility and execute innovative strategies that will allow us to maximize both rate and volume based on the competitive landscape. We have run several small pilots in the West which have yielded positive results.
Dennis Mathew: For example in Q4 we introduced new competitive pricing and select markets where we face intense competition leveraging a hyper local approach
Dennis Mathew: Comparing the month before and after these pilot market launches, we saw growth in penetration, sales, connect rates, and market level revenue.
Dennis Mathew: Building on this success, we plan to scale these hyperlocal tactics in the coming months, tailoring strategies to the unique competitive dynamics of each market to drive further growth.
Dennis Mathew: Our performance is highlighted by revenue achievements in key areas. Specifically, Residential Mobile Service Revenue and LightPath both achieved their highest-ever revenue in full year 24, showcasing strong growth and market momentum.
Dennis Mathew: Next, we continue to evolve our product portfolio and enhance our customer experience. In 2004, we grew our mobile portfolio to include tablets and device insurance, and we expanded the availability and functionality of our optimum stream TV experience.
Dennis Mathew: We launched new value-added services, including total care, premium support, wireless backup solutions, as well as pre-new video offerings that provide customers more choice and flexibility.
Dennis Mathew: We are seeing early success with these new products, from growing attachment rates to creating stickier customers with a higher customer lifetime value. And these are just starting to scale.
Dennis Mathew: We also continue to enhance our customer experience and have launched new digital and self-service solutions, which have reduced the total volume and rates at which customers contact us.
Dennis Mathew: In full year 24, truck rolls and service calls each declined double digits by 11% year-over-year.
Dennis Mathew: Next, central to our success is our continued investment in our networks.
Dennis Mathew: I'm incredibly proud of our network and technology teams for their dedication to strengthening and expanding our networks.
Dennis Mathew: making significant strides in 24 to enhance connectivity across the communities we serve and demonstrating unwavering commitment to recovery efforts in the wake of Hurricane Helene.
Dennis Mathew: In Hendersonville, North Carolina, and surrounding communities, our team worked tirelessly to restore service, provide free Wi-Fi in hard-hit locations, and support recovery efforts with donations to local relief organizations.
Dennis Mathew: These achievements reflect our commitment to keeping communities connected no matter the challenge.
Dennis Mathew: On network expansion, in full year 24, we grew our total footprint by over 2%, adding 210,000 passings.
Dennis Mathew: We closed the year with a total of 9.8 million total passings and achieved our target of 3 million fiber passings.
Dennis Mathew: We surpassed the milestone of 500,000 Fibre customers, ending the year with 538,000 Fibre customers, or over 18% penetration of our Fibre network.
Dennis Mathew: Strengthening our networks has been a key priority of ours since I joined the company.
Dennis Mathew: and I'm pleased to share that our investments are paying off. Optimum Fiber was recently ranked once again as having the fastest and most reliable internet speeds in New York and New Jersey, and now also ranked the lowest latency and best gaming experience in New York, New Jersey, and Connecticut.
Dennis Mathew: This is an addition to awards we've received for both our fiber and HFC network superiority from other various third parties across the country.
Dennis Mathew: We've also made progress in optimizing our pricing and packaging strategy, growing our mobile base, improving video attachment rates, and launching value added services which are resulting in residential ARPU trends stabilizing.
Dennis Mathew: For context, in full year 22, residential ARPU declined by over 2%. In full year 23, we improved this to down 1.5%, and in full year 24, we improved this again to down 1%.
with a strong reported full-year residential ARPU of 135.44.
Dennis Mathew: This figure is inclusive of customer credits related to Hurricane Helene and other one-time credits. Excluding these credits, full-year 24 residential ARPU would have declined less than 1%.
Dennis Mathew: Contributing to these trends in Q4, our residential growth set ARPU was higher by $4.50 year-over-year.
Dennis Mathew: through more disciplined and hyper-local pricing and growth in value-added services like mobile.
Dennis Mathew: implied broadband ARPU would have been relatively flat in full year 24 and would have grown 1.2% year-over-year in Q4, highlighting our continued strength in maintaining broadband ARPU despite macro and competitive pressures.
Dennis Mathew: by approximately 480 million dollars in the last two years and by 270 million dollars in the last year while continuing to fully deliver on our strategic growth objectives.
Dennis Mathew: And last, in full year 24, free cash flow grew by 23% year-over-year to $149 million despite the continued step-up in cash interest.
Dennis Mathew: On page 5, we outline our 25 priorities as we enter the next phase of our transformation journey. These key priorities will help us to stabilize adjusted EBITDA, enhance capital efficiency, and increase free cash flow in 2025.
Dennis Mathew: First, on revenue opportunity, we are committed to improving broadband subscriber trends by delivering exceptional value to our customers.
Dennis Mathew: In addition, we are focused on increasing value-added services, growing mobile penetration, and expanding our B2B product portfolio to unlock new revenue streams, improve ARPU trends, and enhance customer stickiness and loyalty.
Dennis Mathew: Our roadmap for value-added services in 2025 includes launching whole-home Wi-Fi solutions with service protection add-ons.
Dennis Mathew: Advanced Wi-Fi, including enhanced Internet security for businesses, and billing on behalf of partnerships with third-party OTT app providers and subscription services to sell in optimum packages.
Dennis Mathew: Our new pricing approach uses data analysis that balances rate and volume based on market conditions.
Dennis Mathew: Our approach to rate actions, base management, and acquisition pricing now enables us to better align with customer trends and drive top-line improvements, which is expected to deliver up to an incremental $100 million in revenue in 2025.
Second, we are focused on driving efficiency across our operations.
Dennis Mathew: By streamlining processes and enhancing product margins, we are positioning ourselves to operate more efficiently while delivering superior value to our customers.
Dennis Mathew: As an update to our Phase 2 transformational goals, we are completing enterprise benchmarking and have identified efficiencies which are expected to moderate our other operating expense line by 4-6% by the end of 2026.
Dennis Mathew: We will provide more detail on these plans in future calls.
Third, we remain committed to strengthening our networks.
Dennis Mathew: We expect to continue to grow our total passings in 25, of which the majority is expected to be fiber bills.
Dennis Mathew: And we plan to increase the availability of multi-gig speeds across our footprint by growing our fiber network, which offers 8-gig symmetrical speeds and through upgrades to portions of our HFC network using mid-split technology to deliver up to 2-gig download speeds.
Dennis Mathew: We will continue to maximize the value of our fiber network by accelerating the pace of fiber migrations and penetration, which will allow us to realize benefits such as improved churn and lower costs to serve fiber customers.
Dennis Mathew: And last, we are focused on a sustainable capital structure in 2025.
Dennis Mathew: Let's turn to slide 6 to review our video strategy evolution in greater detail.
Dennis Mathew: In 2025, we will continue to drive value by leveraging data, customer insights, and consumer research to make informed decisions that prioritize customer expectations while maximizing enterprise value.
Dennis Mathew: We kicked off 25 with actions that support that we are doing just that.
Dennis Mathew: by addressing programming partnerships to ensure we provide the best content and experiences to our customers based on what they want.
Dennis Mathew: And we know the content landscape has changed dramatically over the last few years.
Dennis Mathew: While video remains an integral part of our value-added services portfolio, playing a role in reducing churn and adding to overall residential ARPU,
Dennis Mathew: An important part of this strategy involves rationalizing our programming agreements to ensure we can deliver the content that customers value most at an affordable price.
Dennis Mathew: With that in mind, we have been navigating various programming renewals by putting the customer at the center of our discussions and making decisions based on viewing data and customer demand.
Dennis Mathew: By doing this, we have been able to thoughtfully mitigate disruption, while ensuring we drive value, maintain competitiveness, and improve customer choice and value.
Dennis Mathew: As TV viewership has become increasingly fragmented across cable, streaming platforms, and other services, the nature of the video industry has been evolving, and so have we.
Dennis Mathew: That is why in late 2024 we launched three new video offerings Entertainment TV, Extra TV, and Everything TV Offering content that aligns with customer needs at compelling price points
Dennis Mathew: Notably, these offerings integrate seamlessly with streaming services available on our Android-based platform, Optimum Stream.
Dennis Mathew: The launch of these new video offerings supported by enhancements to Optimum Stream, such as the new user interface, have resulted in improvements in our video attachment rate.
Dennis Mathew: Specifically, the rate at which new customers choose video at sign-up has been on the decline in recent years.
Dennis Mathew: However, in Q4, we saw this trend begin to inflect by over 200 basis points quarter over quarter, with approximately 20% of new customers in Q4 choosing to include video in their service bundle.
Dennis Mathew: We have seen a consistent decline in our programming cost inflation per video subscriber.
Dennis Mathew: with full-year video cost inflation per sub of approximately 4%, which has improved in the last two years from the average inflation of 6% to 8% in the years prior. We expect this trend to continue into 2025.
Dennis Mathew: Over the last few months, we have engaged with thousands of customers who are embracing our new video products, packages, and options.
Dennis Mathew: These results reaffirm that our video strategy is delivering value for both our customers and our business.
In summary, 24 was a year of remarkable transformation.
Dennis Mathew: We laid a solid foundation that positions us to continue to enhance our operations and deliver sustained value to our customers, communities, and stakeholders.
Marc Sirota: I will now turn it over to Marc to review our performance in more detail. Thank you, Dennis. Turning to slide 7, I'll begin with a review of our financial performance in 2024.
Marc Sirota: Total revenue of $9 billion declined 3.1% year-over-year. An improvement from prior year declines.
Marc Sirota: Our full year 2024 revenue trend was driven by mobile service revenue growth of 52%, news and advertising growth of 8.6%, business services growth of 0.3%, and growth and other of 22.5%, primarily driven by growth in mobile equipment revenue.
offset by residential revenue decline of 4.6 percent.
Thank you.
Marc Sirota: On news and advertising, we experienced a strong political cycle in early Q4, which tapered off in the latter half as the campaign activity slowed, leading to full-year results coming in below our initial projections.
Marc Sirota: Despite this, news and advertising still delivered a solid 23% year-over-year growth rate in 2004, or 5% growth excluding political.
Marc Sirota: News and advertising revenue in 2025 will reflect the impact of a non-election year.
Marc Sirota: Adjusted EBITDA of 3.4 billion dollars declined 5.4 percent in full year 2024 versus a 6.7 percent decline in the prior year.
Marc Sirota: To note, in 2024, we had one-time storm-related and other customer credits, as well as one-time costs related to storm repair and other non-recurring transformation expenses.
Marc Sirota: such as consulting fees. Excluding these impacts, underlying adjusted EBITDA trends would have been down approximately 4.4% year-over-year.
Marc Sirota: Gross margin of 67.7% grew approximately 50 basis points year-over-year as we target 70% gross margins by 2026.
Marc Sirota: Adjusted EBITDA margin in the full year is 38.1%. Excluding non-recurring EBITDA impacts, normalized adjusted EBITDA margins would have been 38.7%.
Marc Sirota: Our cash capital expenditures were $1.4 billion in full year 2024, representing a 16% improvement year-over-year and a 25% improvement over full year 2022. Likewise, capital intensity of 16% in 2024 is down approximately 250 basis points.
Marc Sirota: and 380 basis points compared to full year 2023 and 2022, respectively.
Marc Sirota: We continue investing in high-quality upgrades and footprint expansions while leveraging tools, process improvements, and optimized partnerships to maximize the return on every dollar we invest.
Marc Sirota: In 2024, most of our fiber expansion focus on upgrading existing passings to fiber. In 2025, however, fiber net growth is expected to be driven primarily by new fiber builds, with a small portion dedicated to fiber overbuilds.
Marc Sirota: This shift should enhance our capital profile by directing construction investments toward overall footprint expansion and fiber network growth.
Marc Sirota: Therefore, we expect to moderate our capital spent again with a full year 2025 cash capital target of approximately $1.3 billion, which includes maintaining our rate of footprint expansion and rolling out our multi-gig upgrade plan.
Marc Sirota: Our cash interest reached $1.6 billion in full year 24, which has stepped up over the last four years.
Marc Sirota: Despite these step-ups, we have maintained positive free cash flow and grew it in 2024.
Marc Sirota: In the full year, we generated $149 million of free cash flow, representing growth of 23%.
excluding cash restructuring of severance related payments
Facility realignment and transaction costs.
Marc Sirota: In addition to cash received in connection with the termination of CSE Holdings interest rate swap agreements in the third quarter, full year free cash flow would have been $192 million or 28% growth.
Marc Sirota: Next, on slide 8, I'd like to take a moment to highlight the growth and opportunity within our LightPath Fiber Infrastructure business.
Marc Sirota: As a reminder, in 2020, Altice USA sold a 49.99% stake in LightPath to Morgan Stanley Infrastructure Partners, forming a strong partnership to drive growth.
Marc Sirota: Today, LifePath's fiber network consists of approximately 11,000 route miles and approximately 16,000 connected locations.
Marc Sirota: and customers include enterprise clients from hyperscalers to companies in healthcare, finance, education, professional services, as well as public sector and communication providers.
Marc Sirota: Full year 2024 was LightPath's best performance with the revenue accelerating to 414 million dollars on a consolidated reported basis growing 5.5% year over year.
Marc Sirota: This revenue growth is driven partly by footprint expansion as well as increase in net bookings.
Marc Sirota: We're incredibly excited by LightPath's established presence in the hyperscaler customer segment, which brought in almost $110 million in contract value in 2024.
Marc Sirota: At the end of 24, LightPath's AI-related Infrastructure Connectivity Sales Pipeline totaled nearly $1 billion across 10 markets, which we expect to continue to grow.
Marc Sirota: In addition, LightPath has closed on its acquisition of United Fiber and Data's assets.
Marc Sirota: adding a wholly owned 323 route 5 mile of high fiber count network between New York City and Ashburn Virginia in the 79 route mile metro network in New York City and New Jersey.
Marc Sirota: This acquisition connects LightPath's existing network in New York with one of the largest data center markets in the world through geographically diverse long-haul fiber and increases the serviceable market in Manhattan by 20%.
Marc Sirota: Within our broader capital envelope, we anticipate LIHPAP's capital spend in full year 2025 to be between $200 to $250 million, of which we expect that LIHPAP will receive 20 to 25 percent in upfront payments from customers in 2025.
Marc Sirota: And in 2024, about 80% of LightPath's capital spend was driven by success-based growth capital, driven by customer contracts.
Marc Sirota: We are excited about the growth and recent major wins at Light Path and view this as a strategic asset to drive growth in the years ahead.
Marc Sirota: Turning to slide 9, I'd like to review our footprint evolution.
Marc Sirota: Our multi-year network roadmap includes further advancements to our network quality, including a plan to enable multi-gig speeds across a portion of our HSD network and adding to multi-gig availability already on our fiber network.
Marc Sirota: Today, we have multi-gig speeds of up to 8 gigabits per second enabled in almost 30% of our footprint through the availability of our fiber network.
Marc Sirota: At the end of the year we had 96% of our footprint enabled with speeds of 1 gig or higher.
Marc Sirota: We see the demand for higher speeds continuing to grow, with over 50% of new customers choosing 1GB or higher download speeds, partially driven by price promotions in the quarter.
Marc Sirota: This brings our ending customer base to over 30% on 1 gig or higher speed tiers. In 2025, we'll begin mid splits to expand and reallocate spectrum on our DOCSIS 3.1 network to enable download speeds of up to 2 gigabits per second.
Marc Sirota: Through a combination of building fiber and HFC mid-split upgrades, we have a path to achieve multi-gig services.
Marc Sirota: and approximately 65% of our network by the year end 2028.
Marc Sirota: This enables us to compete even more effectively in our West footprint.
Marc Sirota: On our total footprint, in full year 2024, we grew our passings by over 2%, and expect to maintain near this level of growth by adding over 175,000 new passings
in 2025.
Marc Sirota: As mentioned, we are edging out our footprint in a fiber-rich manner, with a majority of fiber passings in 2025 contributing to total new passings.
Marc Sirota: In 2024, we expanded fiber in areas like Texas and Louisiana, and we will build upon expanding fiber in both our east and west footprints in 2025, focusing on strategic areas that maximize returns.
Marc Sirota: Our leverage ratio was seven three times the last two quarters annualized adjusted EBITDA, we remain focused on exploring opportunities that ensure our capital structure supports our long term operating goals, while we are well positioned in the near term. We continue to actively assess all options to maintain a capital structure that.
Marc Sirota: Imports are long term strategic objectives.
Marc Sirota: In conclusion, we have the right strategy in place that will guide us towards sustainable long term revenue subscriber adjusted EBITDA and free cash flow growth.
Marc Sirota: With that we will now take any questions.
Marc Sirota: Thank you, we'll now be conducting a question and answer session.
Speaker Change: As a reminder, we ask you. Please ask one question and return to the queue, if you'd like to be placed in the question queue. Please press star one on your telephone keypad you May press star two if you'd like to remove your question from a Q1 moment. Please while we poll for questions.
Marc Sirota: First question is coming from Michael Rollins from Citi. Your line is now live.
Michael Rollins: Thanks, and good morning, I'm curious if you could talk a little bit more about broadband performance in the different regions.
Speaker Change: Is there still an <unk>.
Speaker Change: <unk> penetration opportunity in the west.
Speaker Change: And if you can give us an update on the underlying competitive environment. Thanks.
Speaker Change: Hey, Michael Happy too. So if we look at the east and the West we continue to see overbuild in the west.
Speaker Change: It's gone up about five percentage points in the last six months, so we're up to about 45%.
Speaker Change: It's a little bit under 70% in the east which has been what it's been historically.
Speaker Change: We continue to see competition with fixed wireless as well and there is a bit more availability of fixed wireless, particularly in the west but.
Speaker Change: But we feel really good that we have the right products and the right go to market to be able to compete effectively.
Speaker Change: In both of these regions, we're seeing some really nice improvements.
Speaker Change: In the east in particular, as we've improved upon churn year over year.
Speaker Change: Our go to market strategies, and our offers and our base management strategies are really helped.
Speaker Change: Helping us bend the curve.
Speaker Change: And in the West we've started to run some market tests. We've done four of these tests and we've seen improvements in sales, 20% improvement in sales and install and that's really all about.
Speaker Change: Elevating our acquisition strategies, where there is elevated competition and being able to do that in a surgical fashion.
Speaker Change: When I joined a couple of years ago. Unfortunately, there was just a one size fits all and we know that that's not long term sustainable and so the teams have done an incredible job, helping us build pricing and packaging and models and leveraging AI. So that we can be a lot more surgical.
Speaker Change: Unfortunately prior to joining we just did not have the right go to market when.
Speaker Change: Other overbuild as we're coming in to our footprint and so we had lost anywhere from 510 15 20 points of share.
Speaker Change: And these market tests are helping us really navigate what it's going to take to be able to start winning that share back and so.
Speaker Change: We're confident that we've got the right products, especially as we've.
Speaker Change: We've rolled out.
Speaker Change: As you've heard our multi gig strategy. We brought we've made incredible improvements in terms of being able to deliver one gig across the footprint. This year, we're going to be.
Speaker Change: Starting to enhanced multi gig across the west we now have a very compelling product packaging construct with mobile and people are absolutely resonating with that folks are looking for quality and value and so our network is now winning awards across the east and the west and we're providing that value with <unk>.
Speaker Change: <unk>.
Speaker Change: We're expanding stream and we've.
Speaker Change: Launched stream across the eastern we're launching it across the west as well and the new video packages are really resonating.
Speaker Change: For the first time.
Speaker Change: <unk> that video attaches growing from a gross add perspective up to now 20%.
Speaker Change: Attach on gross adds so I do think that there is opportunity and we're going to start to really bring that to life here in 2025.
Speaker Change: Yes.
Speaker Change: Thank you. Your next question is coming from Sebastian <unk> from Jpmorgan. Your line is now live.
Speaker Change: Alright. Thank you for taking the question I just wanted to see if you can help us unpack some of the.
Speaker Change: I guess some of the pressure on the EBITDA in the fourth quarter I think Mark you did kind of outlined there were some one timers.
Speaker Change: As we're thinking about the fourth quarter exit rate.
Speaker Change: And is there any correlation perhaps to your hyper local approach and will that perhaps pressure SG&A and other direct costs as we look out into 2025, just trying to understand maybe if there was any one timers, specifically in <unk> or if we might expect a higher run rate costs as.
Speaker Change: We move into 2025.
Sebastian: Hey, Sebastian at all.
Mark: I'll add some commentary there and then I'll throw it over to Mark, but as you know in the last call.
Mark: We announced our phase III plan and to drive transformation, and we're very bullish on being able to deliver that incremental $400 million that we committed to.
Mark: But we did need to invest and we needed to create a holistic robust strategy to really ensure that we have the right.
Mark: Plans and programs to be able to deliver that and so we did invest.
Mark: In that in Q4, and I'll be sharing more of those details in calls to come.
Mark: But it will really outline an incredible detail.
Mark: The opportunities both in terms of revenue and in terms of Opex transformation and how we're going to get there. So.
Mark: That is a part of the one time investment, but I'll throw it over to mark to unpack a bit more.
Speaker Change: Yes, I mean, just overall on the trends on EBITDA, we're pleased with where we're heading and certainly coming out of 2022, and now where we stand when you normalize down four 4% for the full year and down 5% normalized in the fourth quarter itself for those one time items things like the storm.
Speaker Change: And other transitional costs that we talked about our own transformation.
Speaker Change: So we're pleased on the trajectory we expect that.
Speaker Change: Trajectory improvement to continue into 2025, so we're feeling good about where things stand.
Speaker Change: Our revised base management strategy improved pricing as you heard our launching our new low income strategy.
Speaker Change: Accelerating fiber and mobile improvements in the network.
Speaker Change: So that gives us all confidence that will continue to improve upon the <unk>.
Speaker Change: EBITDA trends that we've already established.
Speaker Change: Yes, overall, we see EBITDA stabilizing in 'twenty five.
Speaker Change: Thank you next question is coming from cooking Tomorrow from Evercore ISI. Your line is now live.
Speaker Change: Good morning, and thanks for taking the question I wanted to ask about the balance sheet and I was hoping you could expand on your efforts to improve the capital structure.
Speaker Change: Meaningful debt maturing in the next two years by 2027 isn't that far away. When you talk about phase two of your transformation efforts. There are a lot of encouraging initiatives to support operational and financial metrics and I was hoping to get a little bit more color on where deleveraging pits.
Speaker Change: And maybe relatedly.
Speaker Change: Lightpath seems to be very attractively positioned with Hyperscale and AI I. Appreciate that you are very bullish on the opportunity there, but is there any interest in monetizing its growing strategic value to help with your efforts to strengthen the balance sheet. Thank you.
Speaker Change: Yes.
Speaker Change: Again as we've talked previously we are well positioned for the near term.
Speaker Change: We're not resting.
Speaker Change: Arresting there we're certainly looking at all options to address our debt maturity profile and maintaining a capital structure that supports our long term objectives.
Speaker Change: Nothing new to add at this point around that.
Speaker Change: But we are exploring all options actively.
Speaker Change: As it relates to Lightpath very pleased with their financial performance will continue to maximize growth they're excited about what they're doing.
Speaker Change: AI opportunity is a big one.
Speaker Change: I'm really excited to see them winning awards and that continues into 2025.
Speaker Change: Nothing to share as far as <unk>.
Speaker Change: Looking to monetize that asset we will just continue to try to grow that asset.
Speaker Change: Put in asbestos spot for volume.
Speaker Change: Thank you. Our next question is coming from Bryan Kraft from Deutsche Bank. Your line is now live.
Bryan Kraft: Thank you and good morning.
Bryan Kraft: Two if I could I guess first at this point how would you expect capex to trend. After 2025 is one 3 billion the right level to think about at this point or or might it trend down further and then secondly can.
Bryan Kraft: Can you elaborate on the Hyperscale business Youre doing are these 25 year argues how's the contract value being amortized as revenue how much opex and capex is tied to it.
Bryan Kraft: And then lastly can you can you just remind us how much access you have to lightpath cash, how that's being distributed or whether it's staying at lightpath for deleveraging and investment. Thank you.
Bryan Kraft: Sure.
Bryan Kraft: Certainly Brian on capital.
Bryan Kraft: Our.
Bryan Kraft: Feeling optimistic around the trends that you've seen around capital deployment, certainly we've made meaningful progress on driving efficiency without sacrificing quality, we expect those trends to continue.
Bryan Kraft: But no specific guidance today.
Bryan Kraft: Outside of what we've already provided on the call and again, we're excited about the hyperscale opportunity, we won't disclose the specific details of those contracts.
Bryan Kraft: But we're excited.
Bryan Kraft: We're connecting large data centers and the connectivity providers and so we're excited for what that opportunity brings for us.
Speaker Change: A lot of those transactions.
Speaker Change: Our essentially self funded through the contract itself. So we feel optimistic around the growth trajectory in those those revenues will come in on an amortized basis over time.
Speaker Change: And then light path right now the focus is.
Speaker Change: Just driving that operation.
Speaker Change: And that's what we'll do to cash sustained there for now.
Speaker Change: Thank you. Your next question today is coming from Frank Louthan from Raymond James Your line is now live.
Speaker Change: Yeah.
Speaker Change: Great. Thank you can you walk us through you characterized the fiber as new fiber builds versus overbuild is this greenfield activity that you are taking outside of your plant or maybe maybe discuss that and then can you give us some color on sort of the cost per passing and is any of this using subsidy and then I have a follow up.
Frank Louthan: Hey, Frank Yes, we're excited for the first time ever we have a multi year network strategy.
Speaker Change: Joining there was a lot of questions on fiber and how are we <unk>.
Speaker Change: <unk> fiber one we're very happy that we have 3 million homes passed now have fiber passing.
Speaker Change: In the east and as we think about the future we want to continue to grow our passing that we've done so at about 2% a year historically so we're on track this year to do.
Speaker Change: Deliver.
Speaker Change: Another 175000, and the majority will be fiber, we do view that as a very.
Speaker Change: Competitive product and a great use of Capex and the right return on investment when we think about growing our path things and so we're going to lean into growing our passing.
Speaker Change: Via fiber that being said HFC as a very robust product and network and we've seen that we've been able to.
Speaker Change: Invest there in a very efficient manner, using <unk> and <unk> I think historically.
Speaker Change: We're over dialed to node splits which are very expensive 30.
Speaker Change: Tens of thousands of dollars versus being able to upgrade that network for hundreds of dollars and so.
We're going to continue to upgrade and provide multi gig speeds through mid split as we move forward in terms of the cost per passing.
Speaker Change: The fiber Newbuild, it's about 800 to $900 per passing.
Speaker Change: But we are excited that we can we already have 70000, passing now in Texas, and Louisiana and it is helping us compete effectively there and we will continue to grow that as we go forward and then.
Speaker Change: Make sure that we continue to invest in the right way and our and our HFC plant to provide multi gig across the footprint as well.
Speaker Change: And then just trying to add on them.
Speaker Change: Emphasis on the mid splits we can do that very efficiency on a per passenger basis, just over $100 per passing.
Speaker Change: So it is a very capital efficient way.
Speaker Change: To drive network performance. So you can see our long term roadmap.
Speaker Change: Round, how we get to 65% multi gig speeds over time, we can do that in a very capital efficient manner, yes, Im really proud of the team that we're able to achieve all of our business objectives and do it in a much more efficient manner and the team has just continued to do that and deliver on that goal year after year for the last.
Speaker Change: Couple of years.
Speaker Change: Okay, great and maybe.
Speaker Change: Quick question for Mark can you give us a ballpark of the potential benefit to free cash flow if bonus depreciation and the interest expense deduction limits kind of go back to where they were before they got changed any ballpark idea of what that would do for free cash flow.
Speaker Change: Yes.
Speaker Change: And again, we're excited about the trends that we've improved on in free cash flow certainly coming out of 2022 than what we've been able to do and for the first year grow free cash flow here.
Speaker Change: Certainly it's hard to opine on what will happen none of the New administration certainly we're optimistic.
Speaker Change: Overall, we are focused on driving incremental free cash flow growth.
Speaker Change: We can do that.
Speaker Change: <unk> based on the current environment, but certainly welcome any.
Speaker Change: Any assistance from the new administration as well.
Speaker Change: Okay.
Speaker Change: Thank you. Your next question is coming from Jonathan Chaplin from New Street Research. Your line is now live.
Speaker Change: Okay.
Speaker Change: Just to follow up on Sebastiano question on direct costs specific need they were up.
Speaker Change: 20% in the fourth quarter.
Speaker Change: Do you expect those two to stabilize at this level.
Speaker Change: In 2025.
Speaker Change: And then on EBITDA you said you expect stabilization in 2025 is that mean sort of flattish with 2024 levels or during 2025, youll sort of finding a floor.
Speaker Change: And if.
Speaker Change: If that's the case can you give us a sense of where you think that the flooring EBITDA is.
Speaker Change: Certainly so.
Speaker Change: From a direct cost perspective again, most of the cost growth you see there is really tied to the acceleration you see out of our mobile business.
Speaker Change: And so.
Speaker Change: But we're pleased when you look at overall direct cost the efficiency and you saw in the.
Speaker Change: In the earnings deck around how we are managing programming and driving that inflation down to its lowest levels and we expect those trends to also continue.
Speaker Change: And then from a stabilization around EBITDA, where we are feeling good around again, our multi year trajectory around EBITDA.
Speaker Change: We won't give specific guidance, but we feel optimistic.
That we're on a path here to return to long term sustainable EBITDA growth and we think we'll continue to make meaningful strides within 2025 related to that.
Speaker Change: Thank you. Your next question is coming from Mario <unk> from Morgan Stanley. Your line is now live.
Speaker Change: Good morning, Thanks for taking the question first on the video side, just wondering if youre seeing any video churn pressure from.
John: MSG networks John.
Speaker Change: And then second.
Speaker Change: Just general broadband change until one Keith can you just talk to any.
Speaker Change: Customer churn.
Speaker Change: Okay.
Speaker Change: In January and Henry Thank you so much.
Speaker Change: Thanks, Marianne we're not going to provide guidance on Q1 as of yet we are still early obviously coming into the year. There were some headwinds as we've decided we've had these programming negotiations. We also took our rate event in December.
Speaker Change: But we are just super proud of the team we're operating as one optimum.
Speaker Change: We started this journey, we said we were going to put the customer at the center of every decision that we make and that means we have to deliver the right level of quality and the right level of value.
Speaker Change: And we've spoken to our customers and they're looking for that particularly in the video space and so we are.
Speaker Change: Crystal clear that we want to work with partners that.
Speaker Change: And customers.
Speaker Change: When they put the customer at the center and we do not believe customers should be forced to pay for content that they don't watch and so we are making.
Speaker Change: Our products and packages and offers to our customers that they are resonating with.
Speaker Change: And so we've had a chance to engage with over $1 million of our customers and they.
Speaker Change: Over 50% of not even tuned into.
Speaker Change: Some of these programs and so we've decided to put the customer at the center and we're having great conversations now that we have our new entertainment extra and everything packages, we're able to continue to drive our video business. We are seeing that we're able to grow video attach.
Speaker Change: <unk>.
Speaker Change: For the first time in a long time folks are migrating to these packages we're saving customers.
Speaker Change: Average $25, a month by being able to provide them.
Speaker Change: The offers and packages that they want and that they demand.
Speaker Change: Looking for flexibility.
Speaker Change: <unk> flexibility and value and so.
Speaker Change: We're very happy with the conversations we're having with our customers.
Speaker Change: Thank you. Our next question is coming from Craig Moffett from Moffett Nathanson Your line is otherwise.
Speaker Change: Alright, thank you.
Speaker Change: So.
Speaker Change: As I think about that.
Speaker Change: The transition from a largely fiber built fiber overbuild strategy to more of a.
Speaker Change: Hi, Mitch.
Mitch: And I presume DOCSIS four <unk> strategy.
Speaker Change: Are you, giving something up there what have you learned in the fiber market with respect to.
Mitch: Market share penetration performance.
Mitch: But.
Mitch: That might give us some insight into whether there was any falloff in expected performance can you compare Europe.
Mitch: Fiber footprint at this stage now two year non fiber footprint in terms of.
Mitch: Competitive dynamics.
Craig Moffett: Craig what I'll say is that.
Craig Moffett: What we've learned is that we brought in an incredible team and they've unlocked.
Craig Moffett: At a new level and a new gear the power of HFC and so.
Craig Moffett: That was what was lacking I think there was this assumption that the only way that we could compete.
Craig Moffett: With fiber I'm very happy with the fiber that we have to have 3 million homes and to have such incredible network, particularly in the east where we're competing with a large fiber provider that has a full suite of products. That's the right approach, we're seeing better customer lifetime.
Craig Moffett: We're seeing better satisfaction, we're seeing better stronger our pools, we're seeing stronger churn, we're seeing less calls we're seeing less truck rolls.
Craig Moffett: And we're driving fiber penetration at the highest levels and so we are laser focused on continuing to drive fiber fiber migrations that being said there is a lot of power that we're unlocking and the HFC side.
Craig Moffett: As I mentioned the historic strategy was to do these incredibly expensive node splits for tens of thousands of dollars and it just was very expensive and not delivering the level of quality demanded by our customers and that we're able to leverage <unk> and <unk> to be able to <unk>.
Craig Moffett: Gig level speeds across the footprint.
Craig Moffett: We're able to do that in a very cost efficient manner, we're able to leverage mid splits as well in a cost efficient manner to provide multi gig.
Craig Moffett: We have incredible experience, we're the one of the only companies that have both we have experienced in HFC. We have experienced in fiber we have experienced competing against fiber for the last 20 plus years and so.
Craig Moffett: We've got the tools and we can leverage both of these incredible networks I think.
Craig Moffett: That's what we brought in the people that understand this technology and can leverage them most efficiently.
Craig Moffett: <unk> that being said as we continue to grow there is a great return on investment in new passing and leveraging fiber there and so we now have a multiyear strategy, where we're leveraging both of these assets and the experience and the technical know how to deliver a differentiated experience.
Craig Moffett: <unk> across both HFC in fiber.
Speaker Change: Thank you. Your next question today is coming from Jim Schneider from Goldman Sachs. Your line is now live.
Jim Schneider: Good morning, Thanks for taking my question I was wondering if you can maybe comment on the divergence and competitive trends youre seeing in the west and East that you mentioned is this simply a matter of price sensitivity in the west or something else and maybe talk about some of the tactics that you're using in the east.
Jim Schneider: What are the things that are resonating and working in the market.
Jim Schneider: And then maybe the second question.
Jim Schneider: If you think about your video strategy as you mentioned the gross margin trends in video has been better and the attach rate has been better as well. So how should we think about the sort of the contribution of video to margin trends over the next year or two thank you.
Jim Schneider: Thanks, Jim I'll, let mark talk about the video gross margins, but as we look at the east and the west the West is still under pressure, particularly as over builders are coming in and they're coming in at very low prices very low prices to grab market share and so historically, we challenge because we.
Jim Schneider: You had kind of a one size fits all we've been in terms of pricing and acquisition pricing and now we're able to via these market test do.
Jim Schneider: Turn up the intensity in these markets, where we're seeing these over builders come in for the first time, so that we can compete more effectively.
Jim Schneider: In the long term and so we do believe that we have the right value proposition and now the right go to market strategies. So that we can one ensure that we have the playbook ready.
Jim Schneider: 120 days prior to folks showing up in our footprint and then once the launch occurs we have the right tools in our toolkit to be able to compete.
Jim Schneider: So we are seeing some pressure there as the overbuild continues but we are building, our toolkits and our <unk>.
Jim Schneider: <unk> to go to market in a hyper local fashion to compete more effectively and I do and I'm confident that we're on the right path. The challenge the other challenge or the interesting dynamic is when we look at income constrained.
Jim Schneider: It's 18% in the east, but it's 38% in the west and so we do need to evolve our income constrained strategy and we now have a plan and we're going to be launching that.
Jim Schneider: This year first half of this year it'll be simplify as we talk to our customers and we've looked at what.
Jim Schneider: Their needs are they are looking for simplicity, they're looking for transparency theyre looking for predictability and we're going to deliver all of that we're going to deliver that in a way that will resonate and ensure that we can compete and so we're going to I am excited that we will now have a formal.
Jim Schneider: Income constrained strategy that will allow us to compete more effectively in that demographic and that's particularly important in the west where we have a greater proportion and we have the headwinds of these fiber overbuild in the east.
Jim Schneider: We're continuing to compete very effectively as we go out to market we've equipped our.
Jim Schneider: Retention agents with incredible offers and we're leveraging AI for the first time.
Jim Schneider: And really making sure that we're leveraged we understand our customer their customer lifetime value and providing them the right offers.
Jim Schneider: Gross adds are under pressure across the east and the west, but we're able to.
Jim Schneider: Continue to innovate there in terms of pricing and packaging are optimum complete package with broadband and mobile is really starting to resonate we've evolved our mobile strategy a bit simplifying the pricing and that's really helping us compete.
Jim Schneider: Effectively in the east.
Jim Schneider: Mark and then Jim just on video gross margins really pleased on our trajectory and the improvements that you mentioned were doing that on two fronts. We're doing it from a rate perspective.
Jim Schneider: And we're also doing it from a cost perspective on the rate side really pleased.
Jim Schneider: To see how we have taken a much more disciplined approach to passing along the annual programming cost increases our video <unk> is up over 7% year over year.
Jim Schneider: We're also doing that just through the new packaging and driving customers to the right options around stream and entertainment TV extra and everything.
Jim Schneider: And then on programming cost.
Jim Schneider: Also very pleased 200 over $200 million decline year over year in programming costs. Some of it is certainly tied to.
Jim Schneider: To volume, but also right as we mentioned lowest level of rate inflation to date, historically that was around 6% to 8%, we've been able to bring that down to about 4%.
Jim Schneider: All of those things plus the other things we've talked about.
Jim Schneider: <unk> gives us confidence that we will drive to our approximately 70% gross margin by 2026.
Jim Schneider: So we feel like we're on a good path there and it will be.
Jim Schneider: Key contributors to EBITDA growth over time, yes, the only other thing I'll add is that what's really resonating is mobile. This is a huge opportunity for us and we're really just getting started our new offers are delivering 60% growth in the average number of lines that each customer takes.
Jim Schneider: On the <unk> side, we're really just delivering in selling to the small small business and so.
Jim Schneider: By Middle of this year, we will have solutions for mid sized and larger businesses.
Jim Schneider: And really our sales channels are just getting started today on the care side, we've got 40% of our team selling that was zero percent a year ago, and we grew that to 25% and we're going to have even more growth in scale by the middle of this year. So when you look at what's really working it's that convergence strategy.
Jim Schneider: And being able to bring broadband and mobile together and we're just getting started on mobile and I am excited for the growth both on the consumer and the <unk> side.
Speaker Change: Thank you we reached end of our question and answer session I would like to turn the floor back over for any further or closing comments.
Speaker Change: Thank you all for joining please reach out to Investor relations or media relations with any further question.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day.
Speaker Change: You for your participation today.