Dennis Mathew; Chairman of the Board, Chief Executive Officer; Altice USA Inc

Marc Sirota; Chief Financial Officer; Altice USA Inc

Hello, and welcome to the Altice USA Q4 and full-year 2023 earnings results conference call and webcast. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Sarah Freeman, Investor Relations. Please go ahead, sir.

Sarah Freeman

Hello, and welcome to the Altice USA Q4 and full-year 2023 earnings call. 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.

As today’s presentation may contain forward looking statements, please carefully review the section titled forward-looking statements on slide 2.

Dennis, please go ahead.

Dennis Mathew

Thank you, Sarah.

I’m pleased to be here with all of you to review our Q4 and full year performance before we start, I want to express my gratitude to our dedicated teams and their families. In 2023, Optimum began a transformative journey marked by the introduction of a new mission and strategic priorities to deliver improved customer and employee experiences. It’s only because of their dedication and support that we were able to deliver on the commitments we set forth. We did what we said we were going to do and it took everyone to do it. I remind you that in the beginning of the year, we established our new Optimum mission to be the connectivity provider of choice in every community that we serve. And we introduced the four strategic priorities that would position us to return to sustainable customer revenue and cash flow growth. They are to delight with the best customer experience grow with the best customer relationships, connect with the best networks and inspire with the best people throughout this year, we took steps to lay the foundation against these pillars. And while we were in we are in the very early innings of our turnaround, I’m incredibly proud that we achieved our full year objectives and began transforming every area of the business, which has set the stage for 2024.

Let’s review some of the achievements beginning on Slide 3. Priority number one was to transform the culture. And we did just that we brought in amazing talent to complement our teams and to lead through operational financial and cultural transformation. The successful integration of a new CFO and a new telecoms executive leadership team, including more than 100 new leaders across our organization, has equipped optimum with a best-in-class team with decades of global and US broadband, mobile and video experience. We introduced a regional operating and leadership model with a localized go-to-market approach, paving the way for a hyper local presence in the communities we serve and we drove employee engagement by listening and acting. So all of our employees are empowered to represent optimum at its best.

Second, we acted with financial discipline. We changed how our finance organization works with our operational teams, embedding a culture to help drive the business and make smarter decisions. And as a result, we have seen stabilization in our adjusted EBITDA margins with full year 2023 EBITDA margin of 39.1%. We drove capital intensity down throughout the year from the recent peak in Q1 of over 25% down to under 13% in Q4 of 2023. We committed to being positive free cash flow in the full year and delivered $122 million of free cash flow through improved top line EBITDA and CapEx trends. In the back half of this year, we were proactive in our debt maturity management clearing out the 2024, 25 and 26 maturities, giving us one way to focus on operating the business with no maturities until 2027. And we manage our operations and financial profile with a focus on our core growth businesses. As evidenced by the recent sale of Cheddar news, we will continue to strategically evaluate our operations to maximize our focus on the core business, positioning ourselves for sustained growth and success.

Next, we introduced an improved base management strategy that will enable us to profitably evolve the price-value equation for our base. Specifically, you saw a few weeks ago, we announced changes to our fiber and HFC rack rates for everyday pricing and began right-sizing speeds for customers as part of our efforts to simplify and normalize pricing and packaging. We also introduced artificial intelligence and machine learning capabilities, leveraging customer lifetime value models to advance our Frontline’s ability to more effectively manage our base.

Looking ahead, we will continue to take a disciplined approach to profitability while ensuring we offer the best value for each customer so we can reduce churn and grow RPU over the long term.

On the customer front, I’m pleased that we meaningfully accelerated mobile and fiber growth. We set a new mobile strategy this year that enabled mobile line net additions of 34,000 lines in the fourth quarter, an acceleration of more than eight times in our pace of mobile growth compared to Q4 of the prior year. We also sustained improvements in fiber penetration now reaching over 12% at the end of 2023. Growth in both mobile and fiber are supported by our sales optimization efforts, driven by a new winning sales culture, stronger channel performance, a clear retail strategy, improved compensation models, disciplined performance management and attractive clear offers like optimum complete. And finally, we made significant improvements in the customer experience, advancing CX as our best product at optimum. We prioritize delivering top tier network quality and providing exceptional experiences for our customers precisely when they depend on us, the most feared for school work, health care for family moments this year, we also launched eight gig symmetrical speeds on our fiber network to more than 2.7 million customers, making us the nation’s largest eight gig provider This continues to be a strong competitive advantage everywhere we overlap with a fiber competitor in the Northeast. We successfully implemented new self-service tools such as the my optimum app, and we advanced other self-service options like chat and a more customer-friendly portal. We also placed greater emphasis on self-installed, and we’ve seen the number of self installations nearly double in the full year 2023 compared to the prior year. Everything we have improved in terms of quality products, quality, network quality, service and quality teams is translating into better NPS. Furthermore, it’s resulting in significantly fewer service calls and truck rolls, which are leading indicators of improved performance, giving us confidence that our strategy is working and we will return to broadband customer growth over time.

In summary, 2023 was about people, strategy and process. I’m pleased that we have vastly more capabilities, more operational rigor, more tools and more execution discipline to be able to drive a more effective go-to-market strategy, deliver high-quality experiences, enhance our base management and stabilize our business. With all of this in place, we have strong levers to pull in 2024 as we pave the way to return to long-term sustainable growth.

Let’s turn to slide 4 to review them. First, we will continue to evolve our connectivity portfolio and value proposition to meet changing customer demands while driving improved RPU trends across our residential and business divisions.

Broadband and Mobile remain our anchor products supported by an attractive bundle offer with optimum complete as we move to 2024, we will better leverage assets like fiber as we sell in gig and Multi-Gig speeds combined with mobile to give customers the best connectivity experience for the best value on the video side, in 2023, we launched optimum stream as our main video product, which blends the streaming experience with a linear video viewing experience through the optimum TV app. We will continue to carefully evaluate how we go to market with our video product to maximize both customer experience and profitability and have plans to launch new video package options later this year, giving our customers greater flexibility and choice.

With respect to our Business Services segment, I previously mentioned that we have significant potential on the horizon. In Q4, we saw B2B revenue grow 1% year over year. We launched optimum mobile for SMB last month, and we will continue to expand the B2B portfolio over the year, which will give us additional runway to support RPU expansion in our B2B segment, we are confident we will continue to see improvement with additional products and a new dedicated team led by our President of Business Services, Mike Parker, who joined the organization in December. As we continue to evolve our operational approach, we are working in parallel to infuse innovation across the business. For example, we’re exploring a host of digital engagement and generative AI tools to better engage and interact with our customers. Our aim is to emerge as industry leaders dedicated to seamlessly embedding innovation into every aspect of our business. This commitment extends across customer experience, product development, operations and beyond.

Next, as I shared earlier, in 2023, we took initial steps to introduce a more thoughtful approach to pricing and packaging. In 2024, we will drive this new strategy even further with a base management program focused on retaining profitable customers, improving RPU trends, strengthening our competitive position and reducing churn. Mark will review this in more detail shortly.

Third, we are focused on fiber penetration growth and strategic network expansion in 2024. We continue to see positive trends in churn, reduction RPU and increased satisfaction scores amongst our fiber customers. Given the trends and performance, we will continue to increase penetration of our fiber network and strengthen the experience of fiber migrations for our customers. Our current footprint today covers some of the fastest growing cities in the country that combined with our more proactive approach in how we go to market in new communities, sets us up well to drive growth by expanding our footprint through new build and agile. This brings us to our fourth lever, which is our segmented local go-to-market approach and a new brand strategy in support of these plans.

In Q4, we hired an experienced Chief Marketing Officer to elevate our go-to-market and brand strategy. We also brought on a new leading advertising agency of record and plan to end reintroduce our brand and a new platform, new values and evolved creative positioning to enhance our brand image in the market. This new Optimum brand and marketing approach, combined with our newly formed regional optimum market structure, will ensure that we are resonating with customers and that we are competing for every jump ball to drive growth.

Next, we will continue to simplify customer interactions and experiences. We made great progress in 2023 on this front and continue to upgrade tools, processes and technology to simplify how our customers interact with us and how we communicate with them. We remain focused on enhancing our reputation as a company that’s easy to do business with and one that will solve issues, right? The first time every time and this customer-centric approach will contribute to us structurally reducing operating expenses CX remains foundational to all the work we do across the Company and is embedded in our company culture. And last as we continue to focus on fiber upgrade, Docsis upgrade and total passings expansion. We are committed to doing so with financial discipline, aiming to keep capital intensity stable year over year in line with 2023 levels.

So before I hand it over to Mark, I want to reiterate that the strategy we put in place one year ago is already driving operational improvements and positioning us for growth. We will continue to operate with financial discipline with deliberate capital allocation and balance sheet management. We are focused on execution and efficiency as we continue to take the actions necessary to improve our performance and strengthen the business. This includes a heightened focus on our core operations and a strategic effort to maximize our total asset portfolio. I am extremely proud of the goals we accomplished in 2023 and building off this foundation, I am fully confident that we are on the right path to return to sustainable long term customer revenue and EBITDA growth over time.

And in 2024, we will take another step in the right direction.

With that, I’ll turn it over to Mark to review our Q4 and full year performance in detail.

Marc Sirota

Thank you, Dennis. Turning to slide 6, I’d like to begin with a review of our financial performance in Q2 for 2023, reported total revenue down 2.9% or down 2%. Excluding the News and Advertising segment. This was driven by 2.8% year over year decline in our residential business, a 1% growth in our business services segment at 15.7% decline in our news and advertising. It’s worth noting, however, that excluding political ad revenue, news and advertising revenue grew 8.9% in the fourth quarter. Total revenue trends were mainly driven by decreases in our residential subscriber base over the last 12 months, but notably in the second half of 2023 we showed significant improvement in the rate of revenue decline across segments. This was driven by successfully implementing a disciplined approach to rate and volume, preserving more art to as well as tactfully employing AI tools, better base management strategies and maximizing profitability in our retention centers. We also saw significant improvement in our year-over-year declines in EBITDA with Q4 23 adjusted EBITDA down just down over 1% in the fourth quarter. In comparison, we reported an adjusted EBITDA decline of 15.7% in Q4 of 2022 versus 21 demonstrating a significant moderation in the rate of year-over-year adjusted EBITDA decline in 2023, we stabilized our operating expenses compared to the prior year, which peaked in Q4 of 2022 at 680 million, excluding share-based compensation. In comparison, our operating expenses for Q4 of 2023 were 653 million, a 4% decline in OpEx year over year. Improved adjusted EBITDA trends yielded better free cash flow trends in the back half of 2023. In the full year, we generated 122 million of free cash flow and 322 million in the second half of the year, offsetting the losses from the first half.

In addition to improved adjusted EBITDA trends. Free cash flow is supported by a step-down in cash CapEx. In the fourth quarter, cash CapEx declined to $295 million, marking a consistent quarterly decline in our capital spend throughout the year.

Turning to slide 7, we saw stable adjusted EBITDA margins, a step down capital intensity and a corresponding step up in our operating free cash flow margin. Adjusted EBITDA margins in Q4 2023 were 39.2% and 39.1% for the full year. Our goal in 2024 is to keep margins relatively stable compared to 2023.

Turning to capital intensity, you can see that at peak this year in Q1 at over 25%, and I’m pleased to report that we nearly half of this to 12.8% in the fourth quarter. This is a result of fewer fiber passings constructed and a more disciplined approach to capital spending through the thoughtful governance practices around capital project prioritization. Full year capital intensity was 18.5%, which we believe is the right level to efficiently run the business today, while also continuing to invest in upgrading the network to support future growth.

Our outlook for the full year 2024 capital is to moderate versus 2023 in the range of 1.6 to $1.7 billion. We are strategically investing capital in the best growth areas for the business to drive both near term improvements and long-term sustainable growth. We are taking a more disciplined approach to our fiber construction by targeting markets that yield the best ROIs, recognizing we have a low move environment, which limits how quickly we can grow on this front. To that end, we will expand fiber passings to about 3 million homes by year end and focus more on driving migrations of customers to this incredible network. Additionally, we will add a total of 175,000 new passings compared to 165 new passings in 2023. And we will continue to invest in network quality improvements and best-in-class product developments across the business within our CapEx envelope.

Last on our operating free cash flow margins or EBITDA less CapEx margins. Q4 23 margins were 26.4% or 20.6% for the full year. Again, we saw a significant step up over the course of 23, driven by stable adjusted EBITDA margins and a notable step-down in CapEx.

Turning to slide 8, I’d like to review our recent RPU trends and base management strategy that Dennis previewed, Q4 2023 RPU grew 0.1% year over year or $0.15 higher than Q4 of two of the prior year. Even with the headwinds of continued losses of video subscribers. We’ve been able to offset RPU declines by driving mobile penetration, reducing churn and implementing AI into our care and retention centers to maximize profitability with advanced customer lifetime model. Clearly, as we’ve mentioned during the last earnings call, we’ve been evolving how we price and package services as well as how we strengthen our customer relationships. By providing the best price and value packages. Our overall goal is to provide clear, transparent pricing while driving meaningful increases in profitable customer relationships. A few weeks ago, we introduced new rational everyday pricing as our new rack rates resulting in offer and build transparency for broadband services, new everyday prices will be lower than prior rack rates across most speed tiers. It’s worth pointing out that historically, less than 10% of our customers were paying full rack rates and specifically on broadband, less than 5% were paying full rack rates. We also began speed rightsizing provide more value to our customers. Specifically in Q4, we reached more than 100,000 subscribers in the Northeast with this approach. Overall, the receivables received well by customers with very few requesting downgrades. Additionally, we saw both churn reductions and lower contact rates and customers who are upgrading comparative measure control group. These results underscore that moving customers to higher speed tiers, strengthens the price value equation, leading to lower churn and improved customer satisfaction, which will ultimately translate to stronger customer lifetime value for the business at the core of our current and future base management strategy is the integration of artificial intelligence and machine learning capabilities to create sophisticated models and customer programs. This will allow us to make smarter customize data-driven decisions in how we interact with our customers. We have been testing the deployment of AI capabilities and some of our retention centers using data to predict churn propensity based on specific retention offers. As a result, we have seen an increase in the profitability of customers who engage within our retention centers. This work will continue and will expand across the care centers in other areas of the business. And last, we will continue to drive self sell-in and connectivity products. The broadband and mobile at the forefront with 7% mobile penetration of our broadband base, we have significant opportunity to drive additional mobile, take rate within our existing customer base and sell into new customers. Overall, this transformation of our base management strategy will lead to long-term benefits to churn, customer satisfaction and customer lifetime value and will have a de minimus impact on our near term revenue and residential RPU trajectory with a more disciplined and thoughtful approach to how we implement these changes, we are better positioned to improve RPU trends over time.

Turning to Slide 9, I’d like to review our balance sheet position and recent proactive management. In January of this year, we issued 2 billion of senior guaranteed notes due January 2029 at a rate of 11 and three quarters to pay down the outstanding Term B loan and the incremental term loan, the three which were due in 2025 and 2026. In conjunction with this transaction, we announced that we would pay down the $759 million senior note due in June of 2024 with a draw from our revolving credit facility for which we had previously earmarked capacity. These two proactive refinancing activities has successfully cleared out all near-term maturities until 2027, giving us the runway to continue to operate and drive the business toward growth. Our weighted average cost of debt pro forma for these transactions is 6.5% and our weighted average maturity is 5.1 years. Our fixed rate to total debt is 86% inclusive of floating to fixed interest rate swaps and pro forma at the end of 2023, we have 1.2 billion of liquidity providing us with flexibility in daily operations. We will continue to be proactive in managing our debt maturities and evaluate how our capital structure and best supports our operating goals.

Next, on Slide 10, I’d like to review our subscriber trends highlighting by the acceleration of our fiber and mobile growth. In Q4 2023, we added 46,000 fiber customers through both new net additions and migrations of existing customers. We previously said we would have more focus on migrations. And by doing that, we achieved penetration of over 12%, which is an increase of almost five percentage points from the end of the prior year. Plus with a more disciplined focus on growing our fiber penetration, we have identified opportunities to improve processes and systems related to fiber migrations, which we believe will allow us to accelerate our rate of penetration even further in the coming months.

Regarding mobile, we continue to accelerate the pace of net adds each quarter, adding 34,000 lines in the fourth quarter. This growth is over eight times better than Q4 of 2022 when we added just 4,000 lines. We are pleased with the trends we are seeing in mobile. For example, when customers take mobile, in addition to our broadband product, we see a 20% annualized churn reduction compared to the fixed only customer base. This presents a significant opportunity to further reduce churn as we expand mobile penetration in our customer base and drive higher take rate.

Next on our total broadband subscriber trends. As we mentioned last quarter, similar to our peers, we saw heightened competition around the holiday season in Q4 that in addition to continued challenging macroeconomic environment, and a low move activity impacted our broadband performance reported a loss of 27,000 total broadband subscribers. Although we saw some incremental headways headwinds in Q4, which may carry over into the beginning of 2024. We are confident that we have the right strategy in place with broadband and mobile, combined with enhanced base management programs, a strategic region, regional and hyper-local go-to-market approach, network upgrades, dedicated customer care focus and financial discipline. We are well positioned to return to positive broadband subscriber trends over time.

Before we turn to the next slide, I would like to touch on our participation in the federal affordable connectivity program. We remain committed to bridging the digital divide by providing affordable and accessible Internet and mobile services to our customers, and we are fully supportive of continuing funding for the program. At the end of Q4, we had 125,000 customers receiving a subsidy on their broadband or mobile services through ACP. Given our limited exposure, we do not foresee a significant impact if the federal funding concludes. Additionally, we will be proactive in our efforts to engaging with these customers and providing compelling retention offers. We also see this as a potential tailwind and opportunity to attract new customers with plans in place to go after every jump ball.

Turning to slide 11, I’d like to wrap up with some of the key performance drivers that gives us confidence that we can have the right long-term plan and that underscores our commitment to delivering the best network experiences and services to our customers. Nps scores across our base continuing to improve with TMPS. growing 21 points in Q4 2023 year over year. We also continue to drive increased usage of self service tools across technical support, customer care and onboarding. In fact, self installation has grown 68% year over year in Q4. Furthermore, self service tools, improve customer communications and enhanced network quality experiences led to 1.7 million fewer inbound calls in 300,000 fewer truck rolls in full year 2023 compared to the prior year. While a portion of these improvements are driven by fewer customers in our base, more notably, the rates for customers continue to improve on our network achievements. We launched eight gig symmetrical speeds in 100% of our East fiber footprint in the early part of 2023. And our customers can take speeds of one gig or higher and 96% of our total footprint. Additionally, as of Q4, we had upgraded 93% of the West to Docsis with plans to reach nearly 100% by the end of 2024.

In summary, we are pleased with our achievements in 2023 and our capital investment plans for 2024 are strategically designed for both near term and long-term returns for the business, ensuring we sustain excellence in our network customer experience and business growth.

With that, we will now take questions.

Thanks and good afternoon. Curious if you can or what you’re seeing in terms of broadband volume in some of the head carryover Irl 2024 and then just secondly, if you could discuss a bit more about the pricing strategy and maybe some additional details on how you’re managing the change in price relative to the.

Dennis Mathew

Yes, hey, Michael, I hope you are well in terms of the broadband headwinds, as we had mentioned early in the last early in the quarter last year, we expected to see some headwinds and that’s exactly what we saw. We saw some of the competition early in the quarter really outspending us in advertising and marketing, particularly in that October and November timeframe, effectively reducing our share of voice in the market. And we also saw some more aggressive promotions during our key mobile switching windows and really a more aggressive offers driving from existing mobile customers to low end data plans, particularly when you look at some of the fixed wireless providers, we also saw some impact on the West as we think about the fiber overbuilders in the back half of the year, more fiber build activity. I think the last time I commented on this, we were at about 30% to 35% overbuilt. Now we’re at about 40% and some fairly aggressive offers in the market that all being said, I’m very excited about our optimum market structure and local leadership that we’ve put in place and these teams are just coming online and really starting to share some insightful feedback with us in terms of competitive land landscape and really informing how we can compete much more effectively at a hyper local level, I think we’re very well positioned. Optimum complete continues to perform very well. We’ve seen a three times increase in mobile attach since we’ve launched optimum complete We are really excited about the new chief marketing officer that we brought onboard, and she is helping us with the hyper local go-to-market playbook so that we can compete more effectively in our new Optimum market areas that we’ve established. And so these team, you’re going to see more of that for those playbooks come online. And we’re also planning to really do a better job of telling our story from a brand and just overall marketing perspective.

On the pricing side, as you saw, we’ve made some adjustments and we’ve talked about this pricing evolution and the pricing strategy is really to address what our customers are telling us. They’ve told us they want simplicity, transparency, predictability. They want the right value for what they’re paying and we believe that the new structure will do just that. And I think Mark mentioned some of it is tied to just rightsizing folks. Our over 100,000 customers received a speed upgrade tied to this evolution. And we’re seeing improved churn, fewer calls from those customers. And that journey is going to continue. And we’re also leveraging AI so that we can equip our teams in our call centers, both care and retention so that when an existing customer calls, we can rightsize them and put them into the right packages and make sure that they’re getting the right value. And this is actually helping us reduce our pool erosion while not sacrificing our ability to save customers. And so we’re continuing to drive that strategy forward. And we believe that long term, this will help us actually grow our pool and really help in our mission to stabilize and ultimately drive customer revenue and cash flow growth.

Thank you, Dennis. Thanks for all the commentary around the base management and pricing stuff. Very helpful. I guess I was wondering if you could talk a little about how far along you are in getting your customer base to a place where you don’t have a back-book front-book issue anymore and your price increases yield RPU growth. It seems like you’ve been working a lot on this over the past year and the ARPU is definitely stronger than expected in Q4. So I’m curious if you could give us a little more of a sense of timing and sort of what’s ahead four for that project and then I guess on the fiber build for 24. And I guess I’d be curious, one where that’s focused is at all Optimum East, I think you said 3 million homes by the end of the year and you guys consider slowing it down more just to prioritize the balance sheet and sell more into the existing footprint. Just wondering if you could talk about your thought process there.

Dennis Mathew

Ben, thanks. I hope you’re doing well, let me take the fiber question and then I’ll throw it back over to Mark to expand a bit more on the front book back book and the pricing. But our fiber strategy, we remain committed to fiber. As we mentioned, we’re going to deliver a 3 million homes passed primarily in the East. And we’re excited about having these homes and the performance of the customers that we’re able to add onto that network, improved RPU trends, improve churn, improve customer satisfaction. You know, we have customers that are just incredibly excited and thrilled with the performance of that network. And so we want to lean in and focus on driving more customers to that network. And that’s going to be the mission for this year. We’re prioritizing migrations in particular. We’ve been on that journey. We’ve been able to if you look year over year in terms of fiber additions, we’ve accelerated by one dot seven X and there’s more room to grow. We’ve been doing an exhaustive audit of the migration process. And as we brought on as my new CTO organization and field organization, they’ve identified a whole host of opportunities to improve the process, make it more efficient and help us accelerate our fiber migrations and so there are some process of systems and process issues that we need to resolve over the next couple of months. But I’m confident as we enter into late Q2 in the second half, we’re going to be able to accelerate. And then we’re excited about new business as well. And so as we think about just capital intensity and how we’re going to spend capital and where the best return is. We’re really fortunate to have four of the fastest growing markets in our footprint, and we’ve had to do some work in terms of streamlining our ability to identify, approve and execute newbuild. And I think we’re going to start seeing some of the benefits of that and be able to go faster as we enter into this year. And so that’s going to be a huge priority for us as well. And we’re going to look to prioritize migrations and new build while continuing to have a balanced approach in building fiber in the East.

Mark Monane, Ben, to your question around how far along we are. As you see, we’re pleased with the trajectory that we’ve been able to put on the board here in the second half of the year around slowing the rate of rate erosion. And really for the first time in nine quarters, we had a positive quarter on RPU. So really pleased about that. But I would still say that we are very much in the very early innings of this transformation around pricing. We are launching our advanced AI capabilities to each of our call center reps and field sales reps. And that’s going to take a little bit of time over the course of this first half of the year. And so we still have work to do and we do think that will ultimately close any potential issues we have on factual for front book and we feel like we can compete with the right offers with optimal, complete and provide real value to acquire customers and then also provide the right value for our existing customers as well so still early early days, but optimistic on the trends that we see.

Your next question is coming from could go morale from Evercore ISI.

Good afternoon and thanks for taking the questions. I appreciate that you’re not providing explicit guidance for EBITDA or free cash flow for 2024. But I was hoping you could help us think about some of the moving pieces. First, on EBITDA, given the top line trends and your outlook for relatively stable margins, it sounds like 2024 will be another transition year with EBITDA declines.

Is that the right way to think about it?

Or can we see some of the positive momentum you’ve shown at the end of last year, maybe carry into 2024 and manifest in more flattish to perhaps positive EBITDA trends.

And relatedly, on free cash flow, it’s certainly encouraging that you’ve cleared up all the maturities until 2027. So now we’ll see a bit more of an interest burden. Your CapEx guidance implies it will be flat to perhaps perhaps down a bit, not really sure how cash taxes shake out. So just going through all these puts and takes, can you talk about your confidence in keeping free cash flow maybe relatively steady year over year or at least having it be positive again, thank you.

So I’ll take that. One could hear from you from an EBITDA perspective. Again, we’re pleased on the stabilization that you’ve seen in the margin over the course of the back half of this year, really excited about how we are being disciplined around up operating costs and then the rate discipline that we just talked about. So that does give us optimism around how we’re performing going into 2024. I would expect EBITDA to be slightly down year over year, but we’ll continue to moderate our capital spend as we talked about. And so from a free cash flow perspective, we are still optimistic that we will be positive for the full year of 2024. And despite the higher interest rate costs, some of the cash timing on that should have to be more and later into 2025 actually. And so we should feel like we are in a good position to be positive free cash flow for 2024.

Understood. Thank you.


John Hodulik from UBS. Your line is now light.

Yes, great. Couple of follow-ups, if I could. First of all, just the commentary on everyday pricing and the pressure on RPU. I you guys sort of suggesting that we could go back to sort of the sum of the 2% to 3% declines where we were just a few quarters ago. And after that, after the moderate growth that we saw today.

And then on the mobile big ramp in net adds, I guess if you boil it down, what’s what’s really driving that ramp? And do you expect it to continue?


Thanks, John. I’ll take the mobile piece and then Marc, welcome to chime in on the pricing and RPU elements. But the mobile, we’re very pleased with the transformation and the acceleration. This has really been inspecting and optimizing every area of the business. We’ve transformed our retail centers into sales centers, and we’ve really prioritized as we’ve said to be the connectivity provider of choice, which includes broadband and mobile. And so we’ve updated our compensation plans. We’ve updated our sales goals. We’ve transformed performance management and participation optimum complete and including that as an offer and a package has been really well received both by our frontline teams as well as our customers. And so as I think about this year, I think about continuing to drive acceleration and growth in that space. I think we’ve seen others some of our peers set the standard in terms of net add net additions per quarter and customer penetration of their base. And I think those are all achievable long term, and that’s the journey that we’re on.

And so the ADAX. acceleration we’re going to continue to drive that across the business. And I think we’re at 7% mobile penetration of our base today. I think there’s more opportunity. I’m particularly excited as Mark, I believe mentioned 20% annualized churn reduction with mobile. And so there’s lots of reasons to continue to drive mobile, and we’ll continue to drive acceleration throughout the year.

Mark and then John, on the ARPU declines. Now we feel like we’re in a good position as you saw with the trends. Certainly there’s going to be continued pressure from video losses on RPU. But despite that, our more disciplined approach in leveraging AI tools, we do feel like we have a path to stabilize our tune and grow it over time.

If you look at 2023 for the full year, we were down just 1.5% year over year, relatively flat, especially coming out of the back half. We expect to improve on this in 2024. So we feel like we have the right tools in front of our agents to drive the right outcomes and feel good about that.

Thanks again.

Your next question today is coming from Jessica Reif Ehrlich from Bank of America. Your line is now live in two questions, if that’s okay.

And one, and he love your views on this important JV that was announced with Disney Warner Brothers discovery and on Fox. And just how that you think that impacts your business of video and broadband and how it might affect renewal conversation? And then separately, you said good growth ex your own advertising, ex-political and news. And could you talk about where that’s coming from and your outlook on the I guess, couple of quarters ahead.

So I hope you’re well, I’ll say first Ford JV question and then, Mark, if you want to talk a little bit about news and advertising. I think I’ve said this before, but unfortunately, I I’ll reiterate that. I really do think that the model is broken and it’s really challenging when you think about the fact that viewership is at all-time lows on linear traditional video and yet know rates are at all-time highs. And so I think we as distributors really do need to work with our partners too put the customer back in the center and make sure that they’re getting the right value. And so as we have these conversations and negotiations, that’s exactly what we’re trying to do. We’re trying to really push hard and make sure that we’ve got we’re fighting for our customers in terms of rate, historically for a legacy process has been to include channels with extremely low viewership bundled in with channels with high viewership is just not the right approach in flexible packages. And so we’re fighting for more flexibility as well. So that our consumers can ultimately have the types of bundles and packages that they’re looking for. And then now as these direct-to-consumer solutions continue to become available and having those conversations, making sure that they are available to our customers and that they can be leveraged as part of the portfolio of solutions that we are making available. And so these are the conversations that we’re having. It really does come back to putting the customer at the center and making sure that we’re we have the right pricing, the right packaging, the right channel lineups, the right, direct-to-consumer offerings. But then ultimately, for all these solutions, you need broadband. So it does strengthen the value of broadband and we want to be able to provide the highest quality broadband in quality and price. And one of the top applications leveraged on broadband is video. And so we want to be able to make the right video solutions available, and that’s what’s driving the consumers as they have some want to watch traditional linear video, others, what streaming we need to be able to bring that to our consumers at the right price and at the right value. And those are the conversations we’re having.


Then on advertising, certainly 2023 was a challenging year for for all of us in the ad space side, really pleased with how the segment operated this year and managed through that we were able to offset some of those declines by just expanding actually our customer base and so having more customers and then really some thoughtful investments in our advanced advertising agency businesses really were the accelerant to drive the growth that you have seen over the past few quarters. So as we look ahead to 2024, we feel positive about where we’re trending. And certainly going into the new political year, it should be a pretty good tailwind for our news and advertising segments.

I could.

Sarah Freeman

Thank you.

Next question is coming from Craig Moffett from MoffettNathanson. Your line is now live.

I thank you. And I’m going to see if I can squeeze in two as well. And first, I know you guys especially Tony, you’ve spent a lot of time talking about RPU. I wonder if I could just again one last time, maybe on just broadband RPU specifically. So even though it’s growing year over year, it took a about a 1.6% sequential decline. I granted that bundling allocations and that sort of thing can fuzz that up a little bit. I wonder if you could just talk about whether that is indicative of anything that’s happening with respect to the base management program that you described.

And then second, if you could just talk a little bit about your mobile economics and we don’t know much about your MVNO and the larger MVNO in the industry is shrouded by a lot of secrecy. I wonder if you could just share some at least directional guidance on the kind of margins you have expect to be able to make in that business at least at the gross margin level?

Craig, hope you’re well, let me let Mark jump in on the broadband RPU question, and I’ll talk a little bit about mobile.

Yes, hi, Craig. From a Q4 perspective, this is usually a low point for the year as far as customer rolloffs and promotional roll-off increased promotional activity happens typically in the fourth quarter. So this is usually a seasonally low quarter for us in this space from pleased to see that we were able to moderate the fourth quarter seasonality that we’ve seen traditionally pretty meaningfully. And so although down, I would say it’s not indicative of the price changes that we announced here at the beginning of the year. So I feel good we have the right tools in place to manage through that.

We’re very happy with our mobile MVNO and our partner and having access to the largest 5G network, our mobile margins. We’re also happy that we are gross margin positive, but I know we don’t break out additional detail, but we’re really happy with the performance. We continue to see acceleration, as I mentioned, meaningful acceleration and our sales activities. Also in terms of attaching lines, we’ve been able to grow that to now 1.5 lines, and there’s more upside as we just start continue to get our legs under us. We have about today about 50 50 in terms of BYOD and owned device attach. And so there’s opportunity there to continue to rightsize that and continue to lean in as we again get our sea legs under us. And so we’re in the early innings. We’re really just starting to sell accessories and insurance, but we’re excited particularly about the churn benefit, as I mentioned.

And we’re excited about continuing to drive mobile as there is a long term margin expansion opportunity and the only thing I would add is just on the RPU side, from a mobile perspective, we are seeing growth in that as well. One coming off the fact that we’re no longer selling free services. But then also with Optum complete, we’re really starting to see meaningful growth in the RPUs coming out of that bundled package, up $5 actually sequentially from the third quarter. So all signs of the go in the right direction.

Thank you.

Thank you.

Next question is coming from the Castle Rock from New Street Research.

Your line is live, I think so much for taking the question now that you bomb raise $2 billion in debt and how do we think about any potential ABS debt from?

Marc Sirota

Is that completely off the table or are you still working on that?

Sarah Freeman

And if you do, what would be the potential usage of those funds?

Dennis Mathew

And second one, if I could, could you give us a sense of what the IRRs are for the newbuilds versus fiber upgrades and how you sort of decide whether you go for additional newbuilds versus fiber upgrades during the I think that’s the case.

I can take both of these as it relates to the 2 billion refinancing, really pleased that we were proactive and we cleared the deck for the next three years for us to operate, especially given the uncertainty around the interest rate markets and where they’re heading into this year.

As it relates to ABS, we certainly have learned more about the process involved in an ABS transaction. And just this, as you may know, it just takes time. And so I still think it’s very much a possibility. But now that we’ve cleared out the near-term maturities. We have a little bit more flexibility in getting the timing and the sizing done properly. So still still out there, but it just takes time to do that.

So then as it relates to IRRs, we just have not historically disclosed those externally. But as you especially as you think about the fiber builds, we’re definitely seeing improved results coming out of that from churn reduction to RPU lift, all of which are better than our original base case scenario. But we’ll again, we’ll just remain disciplined around the level of capital intensity to drive ultimately free cash flow and invest the next dollar in the spot that’s going to give us the highest yield.

That’s right. The only thing I’ll add is that now as we’ve done with every part of the organization, we are revamping and evolving our ability to identify, deliver, execute, execute, deliver and drive penetration of new builds. And so as I mentioned, we have four of the fastest growing markets in our footprint. And so these are good, good problems to have in terms of driving and they’re making investment decisions.

Sarah Freeman

Thank you.

Our final question today is coming from Bryan Kraft from Deutsche Bank. Your line is now live with.

Hi, good afternoon. I wanted to ask you I guess the 16 to $17 billion CapEx guidance combined with the capital intensity guidance imply over double ordering, is it correctly 1.6 to 1.7 billion?

We’re not going to say, sorry, I just I just forgot that definitely point, just a point of clarity, but we don’t have a list situation, et cetera, that capital intensity implies a pretty wide range of 2024 revenue. If you combine that with the 18.5% capital intensity on guidance, I think that implies about 8.65 to 9.19 billion. I just wanted to ask, I guess, first, how much China revenue was in 2023, which would explain some or all of that revenue decline? And then whether you expect 2024 revenue to really be in that wide or if your expectations are really that wide of a range or if it’s more narrow than that Thank you.

Yes, we will get into the US to Mark. We won’t get into specifics around the shutter revenue and all that, but just say that it was a de minimus and not material to the financial results of the Company.

As we think about the capital intensity, again, we’ve stated that we’re going to remain disciplined around how we drive capital intensity we feel optimistic that we’re making the right strategic moves and have the right playbook in place to drive revenue. We won’t give specific guidance here today on the revenue outlook, but we feel like we have the right playbook in place to drive our revenue trajectory, and we’ll kind of just leave it at that today.

Mark, can I just ask one quick follow up on the 18.5% capital intensity. Is that a multiyear comment at this point? Should we think about that as being long-term guidance? Or is that more of a 2014?

Brian, that’s a great question. As we said and reiterate today, we will reevaluate capital intensity every year and really be disciplined around how the business is performing to really dictate how much we’re going to spend. And again, on the 18.5%, we are saying will we will moderate slightly from that to to drive those results.

Thank you.

Thank you.

We’ve reached the end of our question and answer session. I’d like to turn the floor back over to management for any further closing comments.

Thank you all for joining these, we have media relations or investor relations with any additional question.

Thank you.

Thank you.

That does conclude today’s teleconference and webcast. You may disconnect your line at this time and have a wonderful day, and thank you for your participation today.

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