ATUS - NYSE

Greetings, and welcome to the Altice USA First Quarter 2023 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Nick Brown, EVP of Corporate Finance and Development. Thank you. You may begin.

Hello, everyone. Thank you for joining. We are joined today by Altice USA's CEO, Dennis Mathew; and our new 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 read the disclaimer on Slide 2. Dennis, please go ahead.

Thanks, Nick, and hello, everyone. I'm pleased to be here to discuss Altice USA's Q1 2023 results. But before we begin, I want to take a moment to thank our employees across the entire organization. During the last 60 days, we've welcomed a new telecoms management team, and we continue to attract strong leadership talent across the organization. We introduced a new mission and strategy and accelerated a culture of teamwork and accountability by putting the customer at the center of everything we do. And while we certainly have more work to do, I'm incredibly proud of how the team has rallied around our strategy to be the connectivity provider-of-choice across all the communities that we serve. And I thank everyone for their endless commitment, teamwork and energy. So let's jump into the results, starting on Slide 3 with a summary of our first quarter performance. Last quarter, I shared that we were looking deeply into our go-to-market packages and that mobile would take on a more meaningful role. While I'm pleased to share that as you may have seen this week, we launched Optimum Complete, our exciting new internet and mobile-converged bundle offer. This is an important milestone for us and something I've been heavily focused on with the team to ensure we bring to market a differentiated and customer-friendly offer that delivers real value and transparency. I'll go into more detail on this later in the presentation, but I'm pleased that even ahead of this launch, we started to see an acceleration in our mobile customer growth in Q1. Turning to our network. We were fortunate to have very mild weather this winter, and that played into our advantage. We strategically pulled forward some of our budgeted annual spend to deliver network upgrades and accelerated passings earlier in the year so that we can begin to see customer benefits and accelerate our go-to-market strategies in these areas sooner. This led to the delivery of an exceptional quarter in terms of broadband network construction, which is a key pillar of our growth strategy, setting us up really well for the rest of the year. Specifically, we expanded our fiber passings by 214,000 homes in Q1, ending Q1 with just under 2.4 million fiber passings and we're on track to deliver a record number of incremental fiber passings in Q2. In light of this, we saw a corresponding acceleration in fiber customer growth with net additions of 38,000 in the quarter, which was our best fiber net add quarter ever. We ended the quarter with 210,000 fiber customers and expect this will continue to step up as we broaden the availability of multi-gig services and have Optimum Complete as our primary offer. Our goal is to meaningfully accelerate our fiber and mobile customer growth and penetration, and I'm very focused on this with the team. These are key metrics against which I will be measuring our success as they will be critical to getting our overall broadband customer relationships, revenue and cash flow back to growth. We also delivered 48,000 new build passings in Q1, well ahead of schedule for the year, which will also help us drive new customer growth. Turning to subscriber metrics. Total broadband customer net losses were 19,000 in Q1, which was broadly in line with Q4 when we normalize for the benefit from the New York City Housing Authority program, also known as NYCHA, despite some incremental macro pressures that I'll come back to shortly. On our financials, Q1 revenue declined 5.3% year-over-year mainly driven by continued pressure in our Residential and Advertising businesses. Adjusted EBITDA declined 12.4% year-over-year with a margin of 37.9%, reflecting both the revenue decline and the step-up in OpEx the company made last year to drive future growth. As Marc will outline later, I'm pleased to say that we've now stabilized OpEx, and we see many opportunities to drive efficiencies from here while executing against our growth strategy. And cash flow was impacted mainly by a peak in CapEx as we accelerated network investments in the past couple of quarters, but we fully expect this to reverse later in the second half so that we will be positive free cash flow for the year. Specifically, our annual CapEx target is unchanged, as Marc will outline in more detail later in this presentation. To close out the summary, we are pleased to announce that last week, we successfully closed on the issuance of a new $1 billion senior guaranteed notes. The main use of proceeds is to refinance existing debt, and following the earlier term loan refinancing we did in December, we're now in a strong position to manage all of our near-term maturity. Let's turn to Slide 4 for a recap of our Optimum strategy and review the significance of Optimum Complete. As I outlined last quarter, our mission is to make Optimum, the connectivity provider-of-choice across all our communities. The 4 pillars of this strategy focus around the best customer experience, the best customer relationships, the best network and the best people. And I'm pleased to say that we've begun to make progress against all of these areas and many of the key initiatives I previewed with you in February. First, on customer experience. We're seeing significant improvements, thanks to our heightened focus on elevating quality and end-to-end CX. We had a 24-point NPS improvement in customer care during Q1 year-over-year as our teams performed better at addressing customer needs at the first attempt. As we continue to drive network improvements and enhancing troubleshooting tools, we have also seen service visit rates decreased 15% year-over-year in Q1. In addition, technical troubleshooting call rates also decreased 15% year-over-year in Q1 as customers experienced fewer technical issues related to our devices and network. This reduction in transaction rates has a direct correlation on field, care and overall customer experience improvements. As I said last quarter, we are particularly committed to these initiatives as they will lead to both cost and growth optimization and will continue to drive CX improvements in everything that we do. Second, our customer relationships. We have been deeply analyzing our go-to-market strategy to drive profitability, long-term customer value and customer growth. As I said earlier in my summary, I'm pleased that this week, we launched Optimum Complete. With Optimum Complete customers have access to our award-winning Optimum Internet plus Optimum Mobile services, delivering fast, fiber-rich internet and WiFi in the home and 5G nationwide wireless coverage on the go with 1 simple, transparent price point providing complete connectivity, simplicity, peace of mind and exceptional value. But Optimum Complete is more than just an offer, there's a new value proposition to meet evolving customer needs by bringing them a full lineup of connectivity solutions through 1 provider. It marks a shift in how we position and communicate about our products and packages and will help us foster deeper relationships with our customers as they rely on us for all their connectivity needs and choose to stay with us for the long term. Given our increased investments over the last 12 to 18 months in better customer experience, enhanced network, expanded distribution channels and more progressive sales plans and 1 unified Optimum brand now is the right time to launch this offering and utilize our customer-facing channels to promote and market Optimum Complete without significant incremental investment. This is truly our greatest offer of all time, and you should see a lot of GOAT related marketing in the coming weeks to underline this point. Third is delivering the best network. As I noted in the summary, we had a best-in-class network expansion quarter given our strategic decision to expedite our build and investments in plants and network upgrades across our whole footprint to ensure every market we serve has reliable and quality broadband. Our network is our foundation, and we believe these investments will be a major catalyst for broadband and customer growth. And finally, a moment on our people. We've made great strides in opening new feedback channels to give our employees the opportunity to share escalations and suggestions against our 4 pillars. Thanks to their feedback, we are enhancing our frontline tools and processes, driving deeper engagement and prioritizing communication to connect our people to our mission. These changes are driving tangible improvements in our customer experience and helping us lay the foundation for sustainable growth. No one knows our customers and communities more than our people do, so employee engagement and employee experience continues to be a key focus area for us. Now I want to go into more detail on the network pillar of our strategy on Slide 5. First, on the right-hand side, you can see we've executed on about 1/3 of our targeted new build network extensions in the first quarter with 48,000 additional passings. So we are well on track to hit 150,000 for the full year. This remains a great source of new customer growth as we consistently are reaching 40% plus penetration in the first year of marketing to new homes. With our fiber network, you can see on the left-hand side that we ended Q1 2023 with just under 2.4 million fiber passing, adding 214,000 in the quarter, which is up about 50% from the same period last year. We remain on track to deliver over 900,000 fiber passing this year and expect a meaningful pickup in incremental fiber passings next quarter. We should add more than 321,000 we reached in the third quarter of last year. So our current pace of fiber construction is at record high levels. The majority of these fiber upgrades have been focused in Optimum East across the New York tri-state area given the competitive landscape and conditions. As noted last quarter, across our Optimum West footprint, we will continue to be more opportunistic about where we upgrade for fiber in the near term. Focusing on areas that give us the best return on investment as we have many levers to pull here to drive growth, including our new converged offer and speed increases through the network upgrades without an immediate need for fiber. Turning to Slide 6. I want to dive deeper into fiber. As our network construction engine works hard to deliver the upgrades and expansion that we just discussed, we are hyper-focused on commercializing and maximizing these investments to drive growth. As I said before, I'm a big believer that fiber is the best broadband technology for the long term, and that belief is reinforced by signs of performance benefits we've seen from fiber customers in Q1. For example, we are consistently seeing gross add ARPU for customers taking our fiber product about $10 to $15 higher compared to HFC, including 7% higher internet-only ARPU as of Q1, especially as new fiber customers are typically taking higher symmetric speed tiers right now. Tracking customer cohorts of the same tenure, we are now seeing over 10 percentage point improvement in customer stickiness or survivability in the first 12 months on fiber compared to HFC on an annualized basis, which translates to better churn rates across our fiber base. Remember, last year, the improvement we were seeing here was about 5 percentage points annualized. So we're now over double this level. And even though our overall customer NPS scores are increasing as we improved the experience for all customers, it's important to call out that we're still seeing fiber broadband NPS about 50% higher than HFC. We have also seen a significant increase in fiber net additions to a record 38,000 in Q1, which is almost 4x higher than the same period last year as we're seeing both higher gross adds and migration. We have a lot of opportunity to extract value out of our network upgrades in a way we haven't in the past. And our growth, product, sales and marketing teams are working diligently so we can start to realize the benefits of our network investments and drive even faster fiber broadband growth. This includes long-term reduced network operations, customer operations and maintenance costs that will allow us to structurally reduce our OpEx and CapEx. Recall, fiber is an all-passive network, and when you take out all the active pieces of equipment, which is normally where things may go wrong, with legacy networks, you end up with a much more reliable, resilient network service and a much better customer experience. which, for example, will lower the number of required technical service visits, calls into our call center, and help us significantly reduce churn. In the HFC world, we have about 750,000 active pieces of equipment, including nodes, amplifiers and other pieces of equipment. In our network, we need to upgrade almost all of them every time we want to increase frequency on the network to move to a new DOCSIS generation. In the fiber world, we will have less than 10,000 active pieces of equipment that need upgrading when we want to move to the next generation. So it's a lot more scalable and a lot more cost effective to maintain. On the left-hand side, you can see how we're bundling our fiber multi-gig Optimum Complete bundles with unlimited mobile with really attractive offers available to both new and existing customers. Our approach is up tier customers to higher symmetrical Internet speeds and combine that in-home connectivity experience with mobile service positions us to take more share. In light of this new converged strategy, our focus is on driving improved average revenue per account and customer lifetime value rather than individual product ARPU. You can expect to see more on this in the quarters to come. We currently offer up to 5-gig symmetrical speeds across 65% of the Optimum East fiber footprint, where we are the fastest residential broadband operator. That's 5x faster than Fios across the majority of where we compete with them. But with this Optimum fiber network, we have tremendous runway. In the second half of this year, thanks to our recent accelerated investments, we will unveil 8-gig symmetrical speeds across 100% of the East fiber footprint. With this launch, we will leapfrog other broadband providers as we are expecting to have the widest availability of 8-gig symmetrical speeds in the country, cementing our position as by far the fastest residential broadband operator in our service area across the New York tri-state region. This will give us a huge marketing advantage, and we're positioning ourselves to be at the forefront of technological innovation for many years to come. This again demonstrates the power of the XGS-PON fiber network that we've built, as it's very easy for us to step up the highest speed tier like this without a huge incremental capital spend. I was just in Portugal last week with our Altice Europe partners, and I can tell you that we're already significantly advanced in our plan to take this to a 25GS-PON network that can offer 25-gig symmetrical speeds as soon as the equipment is commercially practicable. This is our current 25-gig plan, which will deliver true fiber 25 gig speeds both on the upstream and downstream once again highlighting the superiority of our fiber network. We have a 50-gig and 100-gig plan we're working on as well via channel bonding and using time and wavelength division multiplexing with the critical point being that we can very easily leverage our existing fiber network infrastructure that we're building today. So it's really future-proofed. And really scalable in a way that legacy network technologies are not, but I'll save that for a later date. Looking ahead, we have a long runway to extend our market leadership in delivering the best network and a truly differentiated and reliable broadband service. Turning to Slide 7. In Q1, we reported a total customer broadband net loss of 19,000 and residential broadband losses were also 19,000. Note this number and the charts here includes our SMB broadband customer adds, which were flat in Q1. I want to note that going forward on earnings, we will combine Residential and SMB in our headline figures as I see opportunity to drive penetration across our entire network, not just on the residential side. Our fiber network and MVNO relationship are also extremely valuable marketing tools in the SMB market, and I want to use this much more to deliver better customer trends in aggregate. We see B2B as a significant opportunity for us with more disciplined execution. That's an area where we are dedicating more management attention by expanding the product portfolio, leveraging best practices across both our SMB and Lightpath businesses and enhancing our mid-market and enterprise business in the West. But to summarize on overall trends similar to the last quarter and in line with our peers, we continue to be impacted by relatively low market activity with moves declining further given the rate environment and current housing market conditions.

And when we look at how we fared versus our cable peers compared to Q1 last year, we also take some comfort that we're doing relatively well given the additional macro headwinds and seeing more benefits from our recent investments than maybe the headline numbers imply on first look. I want to remind you that Q2 is normally seasonally weaker for broadband trends because of our college town exposure in the West. But when we get past this, I remain optimistic that we'll be able to show you a more meaningful improvement in our customer trends given all of the positive forward indicators we're seeing right now. Finally, on the right side of the slide, we highlighted our accelerated Mobile line net adds of 8,000 in the quarter on a reported basis, ending Q1 with 248,000 mobile lines. However, if we adjust for the loss of some free 1-gigabyte customers who are rolling off after the promotion we ran last year, Recall that we disclosed, we added about 36,000 of these free customers in the first quarter and second quarters of last year, our mobile net adds would have been 15,000 in Q1. So you can see the underlying growth of paying customers is accelerating. Going forward, I will be focusing on the paying mobile customer trends and how we use mobile as a tool to reduce broadband churn as this is what is going to have the biggest impact. And although we are having some success now in converting some legacy customers to paying status, our promotional focus now is going to be around Optimum Complete, as we expect this new value proposition will help us accelerate mobile growth by driving stickiness and greater customer lifetime value. Before turning it to Marc to walk you through our financials in more detail, let me close by saying that I remain optimistic and encouraged by the trends that we're seeing and the work being done by our teams against our 4 key strategic pillars. By continuing to drive disciplined execution centered around the best network, best customer experience, best customers and best people, we will return to long-term sustainable customer revenue and free cash flow growth. With that, I'll hand it over to Marc to walk you through our financials in more detail.

Thank you, Dennis. It's a pleasure to be here this afternoon for my first earnings call as CFO of Altice USA. I look forward to getting to know you all more in the days and weeks to come. Let me begin with a financial overview on Slide 9. Total reported revenue in Q1 declined 5.3% year-over-year, driven by declines in Residential and News and Advertising. Residential revenue was down 5.6% year-over-year, mainly driven by the impact of the cumulative video and broadband subscriber losses we've seen over the last year. As Dennis highlighted, we are focused returning to broadband customer growth with our new Optimum Complete converged bundles. We believe we are striking the right balance between volume and rate. Business Services revenues declined 1.1% year-over-year, although excluding about $3 million in onetime Sprint early termination fees from the prior year in the Lightpath business, this would have been closer to flat. Our SMB division, excluding enterprise and carrier revenue was flat year-over-year on a flat customer and ARPU growth. But as Dennis mentioned earlier, we are heavily focused on accelerating growth here. News and Advertising was down 13.9% year-over-year in Q1 or down 11%, excluding political revenue. We are seeing some overall softness in the advertising market and less political spend. But on top of this, remember, this time last year, we saw strong growth in gaming revenue tied to legalization in New York, which has slowed down. We've also seen less COVID-related spend in the Healthcare segment. Now turning to Slide 10. Our cash CapEx was up approximately 47% year-over-year at $583 million in Q1, mainly driven by increased investments in fiber upgrades and new builds as we really stepped on the gas here since Dennis joined to try and bring forward the customer benefits. We are reiterating our guidance for a range of between $1.7 billion and $1.8 billion of cash CapEx for 2023, but it will clearly be more front-end loaded this year as we've had fewer delays in our fiber and new build construction plans than we typically see during the first quarter due to favorable weather. Without fiber and new builds, capital intensity would have been about 14% of revenue. More broadly, if you include B2B and customer premise equipment, our total growth capital represented about 72% of total CapEx. I wanted to just show you a breakout of CapEx categories here. And as you can see, it's predominantly growth in expansion-related capital that drives the recent increases, as well as a higher network infrastructure spend on the HFC side as we look to complete our DOCSIS 3.1 upgrade of the West footprint. We've invested to upgrade an incremental 50,000 passings in the West to DOCSIS 3.1 in the fourth quarter, reaching 86% of this footprint. So we are on track for about 200,000 DOCSIS upgrades this year to strengthen the network everywhere we can to compete more effectively and win back share. Recall, we are already 100% upgraded to DOCSIS 3.1 in the East. So our focus here is on fiber upgrades. We've also seen a step-up in LightpathCapEx within the Business Services segment as we're building out in Miami and Boston from which we should see a greater revenue benefit next year. As a reminder, the fiber build we're targeting for this year will include more MDUs in the East and more [R-Pod] conversions in the West at a lower cost per passing. So while we expect to add similar numbers of new fiber homes in 2023, as we did in 2022, our full year CapEx still will come down below 2022 levels. Slide 11 shows a bridge of free cash flow for the first quarter. In alignment with goals that Dennis mentioned earlier, our focus is returning to consistent customer revenue and free cash flow growth that will enable us to return to our targeted leverage levels. Free cash flow for the quarter was negative $166 million due principally to higher CapEx spending in the quarter and the working capital outflow related to higher crude capital in the prior quarter. However, I want to reiterate that we expect positive free cash flow for the full year anticipating much stronger performance in the second half. To be more specific, the increased spend in capital is timing-related, and we expect it will continue to decline throughout 2023. I want to emphasize that this is a peak in CapEx for us in the year and not a new run rate. Without the additional $200 million of fiberCapEx in the first quarter, free cash flow would have been positive $34 million. We do view the overall fiber build as a fixed time-based spend. And clearly, when we get to the end of this upgrade program, we could realize significant overall savings. Not just from reduced plant build costs, but we expect plant maintenance and legacy HFC capacity investments to drop significantly. Second, I want to also remind you typically the first quarter is seasonally our lowest quarter for EBITDA, given programming step-ups at the beginning of the year before we pass through any related rate increases, but this will step up through the year as CapEx steps down. In the first quarter, we're also annualizing all of the additional growth in customer experience OpEx investments we made last year. So the year-over-year trends should also improve as we go throughout the year. Lastly, we're heavily focused on OpEx control right now and removing transactional volumes, as Dennis discussed earlier. To that end, we've already taken down run rate spend from the fourth quarter levels, which is a good start, and we should expect those trends to continue throughout the year. Separately, it's worth noting our cash interest costs are up year-over-year with recent rate increases in refinancing activities, but we should see some stabilization now around this level. Finally, Slide 12 is an update of our debt maturity profile pro forma for recent refinancing activities. Last week, we successfully closed the issuance of a new $1 billion senior guarantee note due May 2028 issued at CSC Holdings. With the proceeds, we have temporarily repaid outstanding borrowings drawn under our revolving credit facility, but our intention is to use the additional liquidity to help cover the senior notes we have maturing in 2024 Since they are non-callable today. Recall in December, we successfully extended the maturity of approximately $2 billion or 50% of our shorter-dated term loans to 2028 within an incremental Term Loan B-6. Pro forma for this $1 billion guaranteed notes offering, we will have sufficient liquidity to address the 2024 maturity and together with expected future free cash flow generation, we'll be in a strong position to manage the remainder of the '25 and '26 maturities. Pro forma for this recent transaction, net leverage remains unchanged. The weighted average life of our debt pro forma for this transaction will be 5.5 years since the revolving credit facility balance has been reduced, although this will increase once we repay the '24 notes. As we again demonstrated recently, we will continue to proactively manage our debt maturity profile. And with that, we will now take any questions.

[Operator Instructions] Our first questions come from the line of Phil Cusick with JPMorgan.

A few on the same theme. Dennis, you said your goal is to meaningfully accelerate fiber growth and penetration to return to overall revenue and growth. When do you expect to get there? Can this business return to subscriber growth by year-end? Also, how do you expect seasonality this year? I think you mentioned some of your 2Q challenges in terms of colleges. And then finally, if you can talk about the sales initiatives you've implemented in the last few months since you got there and the potential timing of the impact from those.

Phil, thank you for your questions. I remain very optimistic that we are going to continue to see improvements in the business. We're heading in the right direction. As I look at the underlying trends, we continue to see improvements in terms of year-over-year reductions in key operational metrics like call-in rate, 15% less year-over-year; service visit rate, 15% less year-over-year; our NPS year-over-year, up by 24 points, and so that's why I am optimistic that we are laying the right foundation to ultimately get us to subscriber growth. And then as I look at the fiber trends, in particular, and I see that our ARPU trends are $10 to $15 ahead of HFC as I look at churn, 10 points better. And I'll also call out the West. Our tactics in the West are working. The last 3 out of 5 months, we have been positive broadband. And so I remain very optimistic that we have made the right investments. We've increased our door-to-door channels -- channel. We've continued to expand retail, and we're seeing strong output from these channels. We've also been very focused on driving performance in these channels. Our call center, for example, we've improved yield by 20% in the first quarter. And so we are still laying the foundation. We are still driving execution discipline, which is going to help us achieve ultimately growth. But I don't want to speculate on exact timing at this right now, but I do expect seasonally lower Q2. I think it will be better than historic seasonality, but there is going to be a bit of a seasonally lower Q2. You asked about the sales initiatives. Our #1 initiative is Optimum Complete. We launched that on Monday, and we're already seeing the benefits. We had 2 of our best days selling mobile on Monday and Tuesday. And so that is all pointing in the right direction.

Our next questions come from the line of Brett Feldman with Goldman Sachs.

Obviously, we've seen your other cable peers have a lot of success with their converged offers. So it may seem like a bit of a naive question, but what gives you confidence that leading with the converged offer is what the market wants and that the incremental customer really is most likely to gravitate towards someone who can give them multiple services as opposed to maybe just a much better deal on broadband? And then as investors and analysts, what are we going to be monitoring to see that Optimum Complete is having the desired impact on your financials. Are we mostly looking to see an improvement in broadband subscriber trends? Or are there other metrics that may stand out sooner than that?

Brett, thank you for the question. I'm confident that the market is looking for converged offers because we asked the market. We did the consumer research, and we found that customers are looking for converged offers, simple, transparent pricing, and we are providing that to our customers. We have the power of our fixed network, fiber and DOCSIS and then we have the power of our MVNO relationship with T-Mo that gives us the largest 5G network. And we're seeing it. I mean it's early days, and so I can't give you too much detailed information. But even before the Optimum Complete, as you can see, we started to see improvements in our mobile trends even in Q1. And that was just by sheer discipline and focus of presenting broadband and mobile together in our sales channels and starting to get that muscle flexing. And now with Optimum Complete, we have not just -- we have now the marketing, the offers, the sales channels, and a simple, transparent pricing strategy for our customers. And so our focus going forward is household ARPU. We are going to be driving household ARPU. And I know there's lots of questions on broadband ARPU, but our focus is household ARPU and then driving profitability, leveraging the new customer lifetime value model that we're implementing that will allow us to manage the base much more effectively going forward so that we can drive upsell of faster speeds so that we can sell in mobile so that we can ensure that the highest value customers are getting offers that are specific to them so that we can move them up the chain and fill out the product portfolio in their homes. And so that is kind of some of the metrics that you should be looking for, and that's our desired impact.

Our next questions come from the line of Craig Moffett with MoffettNathanson.

I'll stay with the topic that Brett raised, which is pricing. So your Optimum Complete pricing does seem much more competitive for the bundle. But -- the -- your pricing for stand-alone broadband in particular, especially in year 2 and beyond is still quite high relative to competitors. Is there a scenario where you bring ARPU down faster or it looks like ARPU -- broadband ARPU is coming down about 0.5%. Is that fast enough to sort of really reverse the competitiveness of your what is actually a pretty good broadband product for customers that aren't ready for the bundle or for that large base of customers who are still stand-alone.

Craig, thank you so much for the question. I am very confident that we will be able to compete effectively and drive growth. We have the best network with the best products and services. We're investing in quality, we are investing to have the best go-to-market strategy and sales channels, in particular, to drive performance. We're investing in the best customer service. As I've mentioned previously, we're leaning into digital. We're leaning into communicating and providing simple tools for our customers. And now we have the best packaging and value propositions and leveraging some of the new tools that we're implementing with customer lifetime value, we are laser-focused on improving average revenue per account and that will allow us to continue to grow and be competitive. And so I do believe that we have the tools that we need to drive growth, and we're starting to see that in the core business.

Our next question comes from the line of Doug Mitchelson with Credit Suisse.

I was hoping for a clarification on the fiber ARPU, the $10 improvement over non-fiber, is that just the new customer cohort or does that include the migrations into fiber? I just want to make sure we don't have a selection bias so really just want to understand if there is or isn't. And then -- on the wireless strategy, you'll correct me if I'm wrong, the base tier, the $45 offer is for a metered line and I think you've got availability where you have symmetrical fiber, but maybe less so in the HFC areas. Can you just clarify for me the strategy around the wireless bundling and how broad it is? Is it fiber-focused? And is it a mix of metered and unlimited? And what's the thought process there?

Doug, thanks for the question. On your first item, the $10 to $15 increase is for new gross add fiber connects. And so that is a new gross add number. Our number historically or in the last quarter has been about 50% gross adds and 50% migrations. And so we're going to continue to lean into our fiber go-to-market as we go forward. We're going to be leaning into our -- not just our gross add strategy, but also focusing on the base and driving migrations there. And so that goes back to the CLV model and making sure that we have a disciplined approach of managing the base and getting them on to our fastest speeds where fiber is available. I'll pass it over to Marc to talk a little bit more about the bundles.

Just on the fiber ARPU around the migrations versus new customers, we are seeing when customers do migrate, we're seeing significant lift upwards of $30 per transaction. And then in retention, we're actually seeing less dilution out of the retention transaction tied to fiber. And Den, do you want to take the wireless...

And the bundle is -- the Optimum Complete is offered across the footprint, both in fiber -- across the Optimum East, fiber and non-fiber and across the entire West. And we do have various options across depending on how many lines that you take.

This comes from the line of John Hodulik with UBS.

Great. I just want to follow up on some of the comments Marc had at the end of the prepared remarks. Just you guys have had -- it looks like about 3 quarters of EBITDA declines in the sort of 12% range. But it sounds like you guys think that, that gets better as we move through the year. If you could sort of sort of pull out the drivers of that? I think you said that you get a one-time -- you get a step up in your programming cost. There are some other issues, maybe some costs coming out. But if you could help us quantify how big of an improvement do you think we get as we move through the year and maybe where we exit the year in terms of EBITDA declines, that would be helpful.

Thanks, John. We won't get specific as far as exact numbers as far as where we think we'll land the full year. But as we've previously mentioned, certainly, prior year subscriber losses will continue to weigh on current year results. And we're optimistic about the improvements we've made, but we still don't want to commit to a specific number around EBITDA growth. I will say that we are very confident now though, we have the new team in place. We've launched Optimum Complete. As you heard, we have the best fiber network in the business and the accelerating trends in CX and OpEx mix just gives us really strong confidence that we have a path to improve EBITDA in the second half of the year compared to the first half.

I mean the only other thing I'll add, John, is that Q1 was the first quarter where we had a step down in OpEx sequentially since the pandemic. And so we do think that we are heading -- we've stabilized OpEx, and we're heading in the right direction.

Can that sequential decline in OpEx continue, Marc?

Yes. So as you look, we did drop $26 million of OpEx, excluding share-based comp. That gives us confidence that we'll have an annualized cost of about $2.6 billion. If you look at the fourth quarter, the annualized cost of that would be about $2.7 billion. So as we discussed, as we pull transactions out of the business, we do feel that there is potential to continue to drive cost out of the business, but we like where we're heading.

Our next questions come from the line of Ben Swinburne with Morgan Stanley.

A couple of questions. Maybe first, in Optimum West. You mentioned some of the tactics that are working. What's going on competitively in that market? I think a couple of quarters ago, you were -- at least my interpretation was that was a market you were seeing some pretty aggressive competition, I think both fixed wireless and fiber builds. Has anything changed there? Or is it all entirely changes that you guys have made to improve the trend line? I would love some more color on that.

Thanks, Ben. Thanks for the question. The competitive environment remains intense, as I've described in the previous calls, 25% overbuilt by fiber, 50% of that is AT&T, a very mature fiber provider and then the other 50% is the fiber overbuilders. Our overall footprint, we're estimating 40% fixed wireless competition. And so we have started to operate in a much more hyper-local fashion because the way we compete in Texas versus Arizona versus Oklahoma versus North Carolina, it has to be different. And so we are staffing up a little bit in terms of regional leadership teams that are laser-focused on driving performance, understanding the competitive landscape, driving customer experience, employee experience, and then developing hyper-local marketing strategies to give us a much more of a local impact to help us drive our go-to-market. And that is starting to show benefits, and that is allowing us to win. And now we think with Optimum Complete, we have even more tools in our toolkit to drive Optimum West.

And then a follow-up, if I could, just on broadband ARPU. I mean, if you guys could reverse the trend there of declining year-on-year, I think it was down like 3% this quarter, that obviously would do a lot for your goals around revenue. Can you just talk about what's happening in broadband ARPU to put pressure on that line? And do you have visibility into sort of stabilizing and improving that because obviously, that would help quite a bit on the revenue front.

Yes, Ben, I'll take that one. Actually, when you look at implied broadband ARPU, we were actually down about 0.5% year-over-year, which was in line with the guidance we previously provided around flat to stable ARPU. But if you -- more importantly, if you look sequentially, we actually have stopped the erosion of broadband ARPU significantly. We're only down $0.05 quarter-over-quarter. Last quarter, that was a much larger over $1.20 sequentially in the fourth quarter decline. So we've pretty much stopped that. I'll say the way we've done that is just using a financially disciplined approach and having a balanced way of going to market with revenue and rate and that's really starting to pay dividends. Additionally, we're leveraging AI in our centers around how to treat customers differently. And that is -- that's yielding some favorableness in the rates. So we feel like we're on a clear path to stabilize the erosion of broadband ARPU.

Our next questions come from the line of Jonathan Chaplin with New Street.

Two sort of minutiae questions. I'm sorry to say. So on EBITDA, if we annualize 1Q, we come out at about $3.5 billion. It sounds like from your comments, you think the full year would be better than that because we get improvements in EBITDA dollars as we progress through the year. And I'm just wondering if you could confirm that. And then on ARPU, it's great to hear that trends are starting to stabilize sequentially. But when I look at where you're pricing your 1-gig product, which I assume is your flagship product, it's well below where your average ARPU is, your average ARPU is sort of well above where Comcast and Charter are. And I'm wondering if you can give us some insight into sort of the demographics and the difference in your go-to-market proposition that you feel allows you to sustain an ARPU above your peers and your competitors.

Jonathan, thank you. I'll let Marc take the first one, and I'll take the second question.

Yes, Jonathan, on EBITDA, although we're not providing specific guidance here for the full year EBITDA trends, but you said it correctly. We see that the second half of this year, we have a real flat to have improved EBITDA trends in the second half versus the first half, all tied to the things that we talked about, the new team, the best network, the CX and OpEx reductions that Dennis mentioned, so we're optimistic that there is a path for improvement in EBITDA. With that, let me just turn it over to Dennis.

Yes. And Jonathan, to your question, as I've mentioned, I'm very bullish on focusing on customer household ARPU. And so we're focused on selling in Optimum Complete. And we -- there's a lot of upside in terms of selling in lines as well. Historically, we've sold about 1.3 lines, and I know that we can do significantly better than that. And so as we drive customer household ARPU and then focused on profitability as we stabilize erosion in overall ARPU by just being much more sophisticated in the way that we go to market and being much more disciplined in the way that we go in the offers that we provide. We've pulled back on some of the gift with purchase and gift cards and are really driving sales performance and yield and performance management and aligning compensation so that we can execute better in the sales channels, we believe that we can continue to drive profitability in the business and growth.

Our next questions come from the line of Kannan Venkateshwar with Barclays.

Dennis, firstly, you talked a lot about fiber and the potential to upgrade further to 8-gig and 25-gig service and so on. Why do you think speeds is a limiting factor to growth, especially when gig speeds are way more than what most consumers use and fixed wireless today is successfully even with lower speeds. Why not instead take the opposite path of maybe slowing down fiber investments and reinvesting it back into customer support and building the brand back to some extent? And I have a follow-up after that.

Kannan, thank you for your question. We are investing in the future, and we're investing in this network. We know that as we continue to launch faster speeds, customers are taking those speeds, using those feeds. Our average usage now is over 600 gigs and our highest users are using a terabyte and they're taking the fastest speeds. And so as we think about the future, we're building a network for the future that will ultimately unlock applications as we think about AR, VR, Metaverse, other elements, more streaming, all of these use cases, we're building our fiber network to be able to support, especially as I look at our Optimum East footprint, we are competing against a very mature fiber provider. And so we need to have the best to go against the best. And then ultimately, that will -- if I look on the return on investment, well, we're not going to get into the details. We know, as I mentioned, the maintenance and the support of that network is apples and oranges versus a legacy HFC network. That being said, we're going to continue to invest in fiber strategically as we look at the competitive landscape as we look at the cost. And where it makes sense, we will continue to expand the fiber network. And so we believe that we are building for the future, and we're bullish on the network that we're building out, that it will allow us to compete effectively. We're also investing, you mentioned in a brand and things like that, that's our investments in customer experience. That's our investments in quality. That's our investments in making sure that we are, by far, providing the best service to our customers as we optimize our care centers as we optimize our field operations as we drive digital. And so we're doing both. We're building out the best network. We're also building out -- we're upgrading DOCSIS so that we can compete effectively there. And then on the brand side, we're investing in quality. And quite frankly, on fixed wireless, as I look at the usage, 600-plus megs, people that are taking the faster speeds using a terabyte, I'll wait and see how as capacity gets filled up on fixed wireless networks, how that performs.

Got it. And just as a follow-up on the guidance for net adds for Q2. I mean you did mention seasonality but when I look at Q1, seasonally, it tends to be stronger than Q4 sequentially, but it looks like net adds were basically the same across both quarters. And you attributed some macro pressure. Could you just help us understand what that impact was in the quarter? Because your bad debts are still quite low versus, I think, most of the cable and telecom folks.

I'm going to let Marc talk a little bit about non-pay and some of the macro trends.

Yes, Kannan. Good question. Yes, we have seen an uptick in non-pay disconnects, which we believe is really macro-related. The good news is we offsetting this pressure is really underlining improvements in other areas. So it's not had a material impact on our customer trust, thankfully. To be specific, we saw a churn of an additional about 9,000 additional customers related to non-pay in the first quarter compared to the same period last year. Again, this is just macro driven, and we feel this will subside.

Our next questions come from the line of Peter Supino with Wolfe Research.

I wondered if you would mind comparing churn and gross add trends in the East to the West. It was interesting to hear that you've had a few better months in Suddenlink. I think that's different than commonly perceived. I would love to hear you break down the different territories?

Peter, thanks for your question. We are seeing improvements in gross adds in the West, which is helping us drive overall performance. And as I mentioned, 3 out of the last 5 months, we've seen positive broadband growth, and that is on the back of stronger gross adds. We are seeing pressure on churn across the board as Marc just mentioned, non-pay is a challenge across the board. And there is overall gross add pressure across both the East and West as moves are down 6.5% and in both the East and the West as we looked at it. So that is providing overall pressure as well.

Please sneak in 1 more. I would love to ask you if you have thought at all about -- or how you think about the possibility of selling the portion of Lightpath that you still own as a way to pay down debt given the very high cost to borrow money these days.

Peter, thanks for the question. We are not actively pursuing, but it's -- we're always listening to opportunities, but we're not actively pursuing anything right now.

Our next questions come from the line of Michael Rollins with Citi.

I was curious if I could revisit the discussion on EBITDA and margin in 3 parts. The first part would be, Dennis, as you've operated and studied cable assets. What are the portfolio attributes that you have found that have the highest correlation to better EBITDA margin performance? Is it in broadband revenue mix, ARPUs, penetrations, the size of the footprint? Just curious, what's the most causal factor? And then secondly, as you look at where your margin is going to be for this year versus some of your public peers, do you have a bridge of where Altice is seeing the greatest variance? And then the final part of this is just your North Star. As you're looking at over the next few years, where can the margin get to over time?

Mike, thanks for your question. In terms of the first item, and then maybe I'll let Marc take number 2 and then we can tag team number 3. But I've been in the industry for a long time, and it's no secret that broadband is where we can drive the most margin and profitability. And so that's why we are now a connectivity company. When I joined in October, I wanted to set a North Star, and that was to be the connectivity provider-of-choice in every community that we serve. And so we lead with broadband. We want connectivity in the home, but then we also have an MVNO relationship that we are very excited about. And so we want to lead also with connectivity outside the home. And so we lead with broadband and we put together Optimum Complete to allow us to drive our go-to-market as we go forward. And we know that customers are looking for 2 things, quality and value, quality and value. And so for us to drive the highest opportunity of margin, profitability, we've got to be laser-focused on both of those elements. The value is there now with Optimum Complete. We have studied this, and we've done the research, and we're excited that this is an offer that we believe will allow us to compete and provide customers the value they're looking for. On the quality side, we now need to make the strategic investments to ensure that our products, our service, network are providing the level of quality to allow us to drive maximum profitability in this -- in our portfolio.

Yes, Michael, just on the margin this year, we're not going to give specific guidance. But as you see, our margins are compressed given the top line growth pressures in the video subscribers and the subscriber losses we've had over the past year. Coupled with that, we have made investments, as Dennis mentioned, in our sales teams and our CX teams to really improve the quality of what we can do as a company. But we're pretty optimistic with the new team and Optimum Complete, this network, which is yielding just incredible savings on truck rolls and volumes. We're pretty bullish that we can return to normal levels over time. Again, I call attention to the OpEx reductions we've had quarter-over-quarter, the first time since the pandemic, $26 million or 4% reduction. And we also see our gross margins are also improving 60 basis points year-over-year. So we're optimistic that there is a clear path to have a better second half EBITDA performance in the first half. And then in the longer term, again, we are focused on returning to sustainable customer revenue and cash flow growth, which will get us to where we need to be from a margin perspective.

And you asked a question about peers, I believe, in bridging. And ultimately, we don't have the same scale. So on the programming side, we have a bit lower margins. And we're looking at the video business. I know we haven't talked about it at all, but we are looking at that business as well and figuring out how that fits into the portfolio going forward. We know people are watching video, obviously, more than ever. We know that there is interest in linear. There's an interest in streaming. And so we're looking at rightsizing that product in our portfolio, and evolving that go-to-market going forward. And so that will be a focus of ours as well.

And just 1 quick 1 on that. Is it possible to consider outsourcing the video business? Is that an option for Altice?

Anything is possible. So we are looking at all of these options as we build out into new build territories, we're actively having conversations of should we build out video infrastructure or should we be looking at partnering as some of our others have done. And so those are all options that we're looking at as we evolve the portfolio.

That is all the time we have for questions today. I would now like to hand the call back over to management for any closing comments.

Thanks, everyone, for joining. Don't hesitate to reach out if you have any follow-up questions. Thank you. Thank you.

Thank you.

Thank you.