Ladies and gentlemen, thank you for standing by, and welcome to the Altice USA Q2 Results 2020 Presentation. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Nick Brown.

Please go ahead..

Thank you. Hello, everyone, and thank you for joining. In a moment, I'll hand you over to Altice USA's CEO, Dexter Goei; and CFO, Mike Grau, who will take you through the presentation, and then we'll move to Q&A. As today's presentation may contain forward-looking statements, please read the disclaimer on Page 2.

Slides are available on the company's website, and a replay of the call will be made available. And now I'll hand over to Dexter..

Thanks, Nick. Hello, everyone. Why don't we just jump right into the presentation. Starting on Slide 3; I'd once again like to take the opportunity to thank the Altice USA team. Our world has been greatly disrupted over the past few months, and I'm very proud of the ongoing dedication displayed by our employees.

Collectively, we have been incredibly nimble to respond to the surge in demand that we've seen for our services. In summary, we delivered an exceptional quarter with total revenue growth of 1%, driven by broadband revenue growth of 14% year-over-year.

We saw record demand for our broadband services and achieved the best ever quarterly subscriber results with 70,000 broadband net additions. We also delivered the best ever quarterly customer net additions of 53,000.

We continue to see strong trends in speed upgrades and network usage, which we are supporting with the expansion of 1 gig availability, which is now available in over 3/4 of our entire footprint and our ongoing FTTH network rollout.

We saw resilience in business services across both our SMB and enterprise customers and delivered business services revenue growth of 2.2% for the quarter. As the quarter progressed and local and regional lockdowns began to ease, we also saw a recovery in advertising, exceeding our expectations. We grew adjusted EBITDA 2.5% year-over-year.

Excluding mobile, our adjusted EBITDA would have grown 3.7% year-over-year. This translates to a margin expansion of 160 basis points year-over-year to 45.8%. We saw another very strong quarter of free cash flow growth, up 50% year-over-year, driven by our growth of EBITDA, reduction in CapEx and reduced interest costs.

We continue to take advantage of the dislocation in our share price to buy back shares, completing over $630 million in share repurchases or nearly $1.4 billion year-to-date against our $1.7 billion target. We are reinstating guidance for revenue and adjusted EBITDA as we now have more visibility into the back half of the year.

And based on strong year results year-to-date, expect growth for the full year.

We announced this week the sale of a minority stake in our Lightpath fiber enterprise business at a multiple of 14.6x EBITDA and 25.7x EBITDA less CapEx, which should generate gross proceeds of $2.3 billion and net proceeds of $1.1 billion after taxes and initial debt paydown.

We are maintaining our year-end target leverage range of 4.5x to 5x on the last two quarters annualized basis for the business ex-Lightpath. Going forward, Lightpath will be financed independently, which I'll come back to in a moment.

We also completed our Service Electric of New Jersey transaction on schedule in spite of the pandemic, and are pleased to be able to offer our services to 30,000 new customers.

We also took advantage of the low interest rate environment to refinance $1.7 billion in debt, locking in record-low coupon rates, which should generate run rate incremental annual interest savings of $33 million a year.

To wrap up this slide, I want to say that we're optimistic about the future of our company and are confident we can take this unique time to transform and to reshape our business into one that is even stronger. Moving over to Slide 4. Our top line revenue growth remains solid in this environment, demonstrating the defensiveness of our business.

We achieved 1% total revenue growth, excluding our News and Advertising segment, our telecoms business grew 1.8% year-over-year in Q2. Residential revenue growth was driven by exceptional broadband revenue growth of 14.2%.

We are especially happy to announce our business services revenue grew 2.2% in the quarter despite the pandemic, with Enterprise revenue growing 3% and SMB growing 1.7%. The News and Advertising revenue declined 15.6% year-over-year with some recovery in the business exiting the quarter.

All in all, we're very pleased with our results, although there remains some uncertainty for the rest of the year given the pandemic. We believe our core connectivity business remains well positioned in this environment. Turning to Slide 5. We once again achieved a record-breaking quarter.

We saw the best ever residential customer relationship net additions of 53,000 and broadband net additions of 70,000, compared to Q2 2019, where we saw a loss of 1,000 customer relationships and a gain of 13,000 broadband customers.

This is on the heels of a very strong first quarter with unique residential customer net additions of 35,000 and broadband additions of 50,000.

We have also presented our subscriber results here to exclude customers who were, if not for the FCC Pledge and New Jersey Executive Order requirements, would have otherwise been disconnected in adherence with our normal disconnect policy of greater than 90 days nonpayment, which we show in detail on the next slide.

Making these adjustments, we would have reported 35,000 customer net -- relationship net adds and 53,000 broadband net adds, which still represents our best ever quarterly performance. In this environment, we're seeing reduced churn and increased market share gains, including from DSL and mobile-only customers.

This is great news as we believe customers are increasingly requiring better performance and more value for money from our core fixed broadband service, a trend which may persist for some time. On video, we continue to see an accelerated pace of declines compared to the prior year, mostly due to lower gross ads of video attachments.

With 35,000 losses in Q2 or 43,000 losses adjusted for the nonpaying customers, which is in line with Q1 performance. Remember that we exclude our complementary student broadband customers under the Altice Advantage offer from our reported net additions.

We added another 8,000 of these customers in the quarter and are excited about the opportunity to convert them to paying customers. Through July, we signed just over 20,000 customers to the Altice Advantage program and up to date, converted approximately 7,500 of those to paying customers.

While Q3 will see an impact from the loss of these customers that were on the FCC Pledge, particularly on the video side, we feel very good about the underlying momentum in our customer growth matrices. Turning to Slide 6, provides more detailed breakdown of the moving pieces in our subscriber count.

As many of you are familiar by now, the FCC Pledge was a program for customers who faced financial hardship during the pandemic. The pledge concluded at the end of June, and we ended the quarter with a total of 40,000 residential customers on the pledge, including the 10,000 who were past 90 days overdue that we normally would have disconnected.

In addition to the pledge, a portion of our customers also fall under the similar New Jersey Executive Order, which is ongoing and will end 30 days after the New Jersey state of emergency is lifted. In the quarter, approximately 8,000 customers in the state of New Jersey were overdue on their payments by 90 or more days.

It's important to note that the pledge and New Jersey cohorts that were limited in using many of the normal retention policies in Q2. Following the conclusion of the pledge, we have been working diligently on various retention initiatives, including customer payment plans and balance forgiveness.

Of those, approximately two-third of our customers under these programs remained current on their payments as of this week.

We do anticipate that we have material P&L impacts from our retention efforts in Q3, as the related balances were either never recognized as revenue or have already been reserved for us in bad debt allowances, consistent with our historical policy in these areas.

While these programs create some uncertainty for subscriber growth in the back half of the year, we feel cautiously optimistic about our retention capability, especially in broadband, and continue to see strong underlying demand for our services and favorable churn dynamics. Going to Slide 7.

Before I turn to a discussion of recent network trends, I want to spend a minute highlighting our organic EBITDA growth trajectory.

Although our BSS -- OSS/BSS transition presented a brief operational challenge for the business in Q4 last year, this was a one-off, which is very much in the rearview mirror, and it's already bringing us numerous benefits in terms of cost savings and the way we manage our customer base.

In Q2, we grew adjusted EBITDA 2.5% year-over-year on an as-reported basis or 3.8% year-over-year on an organic basis, excluding both mobile and Cheddar.

As we acquired Cheddar in June 2019 and launched our mobile services in September last year, we will lap both events in Q3 in terms of the related step-up in costs from the second half of 2019, so the year-over-year comparisons to reported EBITDA growth will be easier in the second half of this year.

Together, with better customer growth and deliberate actions we have taken, we remain very confident in our ability to grow EBITDA this year and deleverage, despite some of the revenues headwinds, which we have incoming.

Our costs, excluding direct programming, mobile and Cheddar expenses, are down 8.6% year-over-year on an organic basis as well as down 3.3% on a headline basis. This includes savings from reduced churn and marketing expenses being lower in the quarter as well as some permanent other cost reductions.

Our total cost per customer interaction has had in the past 4 years, driven by many initiatives that we've been focused on growing our costs, while simultaneously improving customer care, including contract negotiations with some of our third-party customer care operations.

We have seen a proportion of online gross additions increased sharply, which drives down customer acquisition costs. Our digital customer interactions have doubled in the past six months alone. What we are most excited about is the fact that we are only scratching the surface of the digitalization opportunities.

For example, this quarter, we rolled out our digital omnichannel presence to simplifying how customers can interact with our care reps. And just in the past week, we rolled out business chat capability online through both the Apple and Android operating systems.

In summary, we still feel very good about our opportunity to continue to drive margin expansion in our business, especially with the continuous upgrades we're making to our networks and customer premise equipment and the continual drive towards more digitalization, including the self-install opportunity. Turning to Slide 8.

We continue to see our network performing very well even with heavier usage than normal, having supported peak stay-at-home traffic loads in the early part of the quarter. We continue to see exceptionally strong demand for our broadband offerings, underpinning our customer and revenue growth.

As I mentioned before, our broadband speed upgrades remain elevated, up 40% year-over-year. Average data usage per customer was up 59% year-over-year, averaging over 440 gigabytes per customer in Q2. Our broadband-only customers were using nearly 550 gigabytes of data or about 24% more than average.

Streaming traffic is also up 46% year-over-year, which remains the biggest driver of data usage growth. 24% of our gross additions took 1-gigabit broadband speed in areas where it was available compared to 13% in the first quarter, and we remain very excited about the 1-gig opportunity.

Again, we're very pleased with our network performance and remain focused on continuously monitoring and upgrading our network to support demand. Slide 9 shows great progress in our deployment of 1 gig broadband services.

We more than doubled 1 gig deployment year-over-year, which is now available in 76% of our consolidated footprint as we accelerate our reach in the Optimum footprint this quarter, up sizably from 63% at the end of the first quarter.

We are pleased to offer one gig in three quarters of the Optimum footprint and still expect to reach 100% in the next few months.

Our 1 gig customer penetration increased to 3.7% in Q2, up from 2.4% in Q1, and we continue to see a lot of room to drive penetration; increasing the 1 gig availability across the rest of Optimum's footprint through the rest of 2020 increases our broadband opportunities to continue to upsell to higher speeds.

Our average download speeds continue to increase to 242 megabits. But it's important to say only two-third of our base still only have Internet speeds of 200 megabits or less, representing a meaningful opportunity for us to continue to deliver faster speeds to our customers. Turning to Slide 10.

We want to zoom out for a moment and recap our long-term network investment strategy. We have an ROI-focused, multifaceted approach, upgrading our existing network with FTTH, new build edge-outs and pursuing additional footprint expansions where available.

First, in our Optimum footprint, our main focus, as many of you know, is the rolling out a fiber-to-the-home network, upgrading and migrating customers to a best-in-class technology that will seamlessly deliver symmetric down and up capabilities, ultimately getting us to 10 gigabits of higher symmetrical speeds.

Upgrading to fiber will future-proof our network while delivering customer service enhancements at a much lower fixed cost. We also have opportunities in the Suddenlink footprint to upgrade homes for 1 gig service that we have not previously addressed with high speed broadband.

The second aspect of our network strategy is a fiber and coax-based network edge-out strategy, focused primarily in our Suddenlink market, where we have seen extremely strong traction in capturing market share as soon as we roll out new build.

On average, we reach about 40% penetration within 12 months of a new build, a remarkable result that gives us a lot of optimism and comfort in our strategy.

In 2019, in part due to very favorable trends that we're seeing with our build-out activity, we significantly accelerated our network edge-outs with 130,000 new build homes reached in the last 12 months. Finally, our third area of focus is on additional footprint expansion opportunities beyond edge-outs.

We completed our purchase of service electric of New Jersey and continue to look for other cable opportunities to expand our footprint.

We have also filed for the upcoming FCC Rural Digital Opportunities Fund option, where we look for opportunities to invest in network builds in rural areas with partial subsidy by the government that should return -- should the return on investors be attractive. Turning to Slide 11.

To support our network strategy discussion, I want to take a longer-term view on CapEx. Excluding our growth initiatives of fiber, new build, mobile and also CPE, our baseline on maintenance CapEx has been very low, roughly at 5% to 7% of capital intensity.

The remainder of our capital spending has been focused on improving and expanding our network, which has grown over time in terms of both fiber-to-the-home and network edge-outs. We continue to think that we can comfortably operate in the $1.3 billion to $1.4 billion CapEx envelope and complete our various network upgrade and edge-out initiatives.

Longer term, we think there remains significant opportunity for reduction in capital spending to below $1 billion annually, particularly once we have completed with our fiber upgrade in the Optimum footprint.

There is also the additional opportunity of further reducing OpEx as well as we improve customer experience with a more resilient network, reducing customer and network operations costs further. Turning quickly to the quarter on the right, you can see the total capital intensity was 9% in Q2.

But without fiber and new home build investment, this would have been 7%. We remain impacted by permitting delays due to the pandemic, but are focused on reaccelerating all of our network initiatives and continue to invest in our network, anticipating that we will see some permanently changed consumption behaviors in some of our markets.

In summary, we feel very good about the long-term potential of our network to deliver superior connectivity solutions to our customers. Slide 12 provides an update on our mobile business. Our momentum in the second quarter was slowed by retail store closures as we anticipated and flagged last quarter.

As of this week, approximately 1/3 of our stores are back open. However, we still achieved another 34,000 subscriber net additions in the quarter, reaching 144,000 total lines since we launched in September last year.

We have reached almost 3% penetration as a percentage of our total unique customer base, and we are still achieving approximately double the penetration of our peers three quarters post launch.

We remain focused on improving customer experience and broadening our product offerings with a continued expansion of our handset lineup and preparations well underway for a 5G service launch.

We're also pleased to note we are seeing an early indication of churn reduction in mobile during stay-at-home and remain excited about the opportunity for churn reduction from bundling with our cable offerings. On Slide 13, turning to business services, we saw resilience in both our SMB and enterprise businesses during this time.

Like in many of our other businesses, we believe this pandemic creates an opportunity for us to grow our market share. We saw the business segment recovery into June with revenue up 3% year-over-year, exiting the quarter. Our SMB gross additions recovered the month of June, leading to total SMB revenue growth of 1.7% in Q2.

Our e-commerce sales activities increased there, which lowers our cost of customer acquisition and is an attractive to economics. In enterprise, revenue increased 3% in the quarter. We saw increased sales in customer engagement in education, health care and government verticals.

For example, school districts and universities are expanding on their telecom platforms to prepare for more online learning. Similarly, in the health care space, we have seen a large number of customers from clinics and private practices to hospitals, all preparing for more telemedicine doctor visits.

Although our overall commercial business is rebounding, there are still segments that still have a long way to go, namely in the hospitality, travel and entertainment space. These present some added uncertainty for a second wave of shutdowns, especially in some of our Suddenlink markets where the virus is seeing some resurgence.

However, overall, we remain very pleased with the business services performance and are cautiously optimistic about the rest of the year. Turning to Slide 14 and the announcement of our sale of a 49.99% interest in Lightpath this week, the Morgan Stanley Infrastructure Partners.

We are very excited to partner with Morgan Stanley Infrastructure Partners who will provide investment to support ongoing and new growth initiatives at Lightpath and enable us to work together to create even more value in the fiber enterprise space.

The transaction values Lightpath at an enterprise value of $3.2 billion, representing a multiple of 14.6x 2019 adjusted EBITDA and an operating free cash flow multiple of 25.7x. We are retaining 50.01% in the Lightpath and will remain in control the company, so we will continue to consolidate the earnings from Lightpath at the Altice USA level.

We expect to close the transaction in Q4 2020. On Slide 15, we present the new Lightpath partnership structure in more detail. Upon closing, Lightpath will be financed independently outside of the CSC Holdings LLC debt silo.

We already have underwritten financing in place, which will result in leverage on the Lightpath debt silo of approximately 6.5x Lightpath EBITDA, and we will receive 100% of those debt proceeds.

However, we will use some of those proceeds to pay down the debt at CSC Holdings such that the transaction is expected to be at least leverage-neutral, excluding Lightpath. On a gross basis, we will receive a total of $2.3 billion in gross cash proceeds, including about $1.45 billion of debt and $867 million of equity for the 49.99% stake sale.

Net of both taxes and initial debt paydown to keep leverage-neutral at CSC Holdings, we will have approximately $1.1 billion of remaining cash proceeds, which may be used for either additional debt paydown and/or repurchase of Altice USA shares. On the right of the slide, we present a summary comparisons of financials.

Revenue growth at Lightpath has been similar to Altice USA recently though Lightpath has higher EBITDA margin and higher capital intensity. The implied transaction multiples represent a significant premium to our Altice USA's trading at nearly double the EBITDA and operating free cash flow multiples.

In summary, we're extremely pleased to crystalize the value of what we think has been a previously underappreciated assets, and we're very excited about the future growth opportunities for Lightpath, together with our new partners, Morgan Stanley Infrastructure Partners.

For our News and Advertising business on Slide 16, like many of our peers, we saw ad cancellations pressuring the business this quarter.

However, the business still exceeded our expectations relative to how we were trending at the beginning of the quarter, and we saw a recovery in local and regional advertising from the trough in April, as shown by the monthly revenue trends we've given here, with sales in June achieving pre-pandemic levels.

Sports are starting to come back as well, which is a positive for advertising spend.

Although traffic trends for our news channels are down from peak levels from the height of the stay-at-home, we continue to benefit from positive dealership trends with a 72% increase in Cheddar website traffic since the pre-pandemic and an 86% increase in users and a 16% increase in News 12 TV viewership.

In the second half, political advertising remains a tailwind to the business. However, we still anticipate pressure in the national branded segment of our business and are continuing to assess market conditions.

We will caution that our full year expectations for the business continues to depend a lot -- on a lot of factors, including whether we see a full comeback of sports for the remainder of the year or further projected lockdowns.

But based on the visibility we have today, we do not expect this to impair our ability to grow total revenue for the whole company this year, given the strength and resilience of our core telecoms business. With that, I'll turn this over to Mike to discuss financials..

Thank you, Dexter, and good afternoon, everybody. Thanks for joining us, and we certainly hope everyone is doing well and staying healthy. On Slide 17, we underscore the strength of our underlying margin trajectory.

As Dexter already noted earlier, on an as-reported basis, we posted an adjusted EBITDA margin of 44.7%, an expansion of 70 basis points year-over-year. Excluding mobile, we grew margins 160 basis points year-over-year to 45.8%.

The remember, this is now over 10 percentage points higher than when we first acquired Suddenlink and Cablevision, and we have been able to continue to expand margins from these elevated levels while investing in all of our growth -- new growth initiatives, which have been supporting additional revenue growth.

In the quarter, we incurred just under $20 million in one-off costs related to the pandemic from a combination of facilities expense, premium pay and bad debt. Although clearly, we had a number of tailwinds in our residential business and took other cost actions in the quarter, which more than offset this.

Our EBITDA less CapEx or operating free cash flow margin reflects added capital outlays related to our fiber investments from the end of 2018, as Dexter outlined, suggesting we have more room to grow here as we achieve further OpEx efficiencies and longer-term CapEx normalizes to below $1 billion.

In Q2, our operating free cash flow margin was up 430 basis points year-over-year, driven by a combination of EBITDA margin growth and lighter CapEx due to some of the delays in permitting. Turning to Slide 18; you will see our free cash flow in more detail.

We generated $707 million of free cash flow in the second quarter, up 50% year-over-year and have generated just over $1 billion year-to-date. We repurchased $631 in the quarter -- $631 million in shares in the quarter, with a cash outlay of $655 million, including payments for shares repurchased at the end of Q1.

Year-to-date, we've bought back approximately $1.4 billion of our core stock, and for the full year, we still expect to complete $1.7 billion in share buybacks. In the quarter, we also issued $1.1 billion of 4.125% guaranteed notes due 2030 and another $625 million of 4.625% senior notes due 2030.

In order to refinance our 5.375% guaranteed notes due 2023 and 7.750% senior notes due to 2025, respectively. The refinance debt was redeemed on July 15. To the right on this slide, we have included the pro forma net change in cash impacts here of the aggregate $1.7 billion of refinancing activity.

The new issuances represent the lowest coupons ever achieved in our debt stack and will generate run rate annual interest savings of $33 million per year. Later this year, we would highlight again that our $1.7 billion 10.875% notes due 2025 become callable, which we may refinance on an opportunistic basis as we do with all of our notes.

Through refinancing these 10.875% notes, we can achieve annual interest savings of over $100 million per year should be priced at the levels we achieved in June or close to where the debt is trading today. Overall, we remain confident that we will be able to deliver on free cash flow growth in 2020.

Slide 19 presents a recap of our debt maturity profile following the refinancing activity I mentioned earlier, with the two -- with the new 2030 notes shown.

Our weighted average cost of debt fell to 5.4% in the second quarter from 5.6% in Q1, and the weighted average life of our debt was extended to 6.5 years, following the refinancing activity that we undertook in the quarter.

About 82% of our debt is at fixed rates, and we retained $2.5 billion of liquidity, not including the net cash proceeds we received from the Lightpath stake sale. We have no annual bond maturity greater than $1 billion before 2025, all of which could be covered by either free cash flow generation or our undrawn revolver.

We will continue to proactively manage our balance sheet in the same way going forward and remain very comfortable with the strength and resilience of our balance sheet. Finally, on Slide 21, we provide our updated financial outlook for 2020.

We are reinstating guidance for revenue ex-mobile and adjusted EBITDA growth this year, given increased visibility and confidence in our current operating performance. We delivered 0.8% revenue growth ex-mobile and 1.2% total adjusted EBITDA growth in the first half of 2020.

We continue to guide to capital spending of less than $1.3 billion and expect to achieve year-end leverage at 4.5 to 5.0x on the last two quarters annualized basis, excluding Lightpath. And we continue to expect to complete $1.7 billion in share buybacks, as I noted earlier.

To the extent that our Lightpath transaction gives us opportunity to put additional share repurchases, we plan to be tactical and thoughtful in our capital allocation decisions regarding either debt pay down and/or additional share buybacks using proceeds from the transaction will be opportunistic and dependent on market conditions.

And to conclude, I would just like to echo Dexter's thoughts that I'm extremely proud of the team at Altice for their dedication and resilience during this time, which has resulted in a very strong second quarter. And with that, we will now take any questions..

[Operator Instructions] Your first question comes from the line of Craig Moffett from MoffettNathanson..

I wonder if you could just drill down a bit into the different broadband trends that you're seeing in the Optimum footprint and the Suddenlink footprint. I'm interested in particular, just given the -- how low the penetration historically has been in Suddenlink's markets, whether the work-at-home phenomenon is leading to the same kind of uptake.

And has that changed your expectations for how quickly you can close the penetration gap in those markets? And then in Optimum, where you're competing against FiOS; how much difference does the fiber-to-the-home strategy make? And if you could just tell us a little bit more about how the FTTH program is working competitively..

Sure, Craig. Listen, on the broadband trend, we flagged a lot of this in the first quarter, which we were seeing a higher penetration of new wins in the Optimum footprint of DSL and mobile-only homes, which has shown very, very strong performance on the broadband side and continue to push our penetration levels up higher.

I -- we then saw, as we flagged in the first quarter earnings that we were starting to see similar trends in the Suddenlink footprint, given that the walk down, stay-at-home directives started a little bit later than in our Optimum footprint.

I think it is our belief that we will continue to see strong trends and continue to push higher and higher penetration levels in the Suddenlink footprint. There's no reason in our minds that there should be a large discrepancy and penetration levels between the Suddenlink footprint and the Optimum footprint.

And that Suddenlink will continue to catch up, particularly as the overall quality of our network, and we do have pockets of our network, which are under-invested in or have been left to be not very focused on because of some of the demographics where they lie or where they are not connected -- interconnected with our broader network.

And so as we continue to invest in, not only edge-out technology, but also in upgrading those households, we'll see increased penetration levels in the Suddenlink footprint. I think on your second question, I think it's too early to tell. It's probably the first answer. We're at about 900,000 FTTH homes passed today, ready for service.

We have about 10,000, 15,000 FTTH customers today.

But the most important thing, which we are very bullish about is clearly the performance of the network with asymmetric speeds up and down that we're delivering at 1 gig today, and we will be delivering at much higher speeds going forward is really going to be a very large differentiator for our customer base and the Optimum footprint where upload speeds have been challenging in the stay-at-home environment as video conference calls take up a big, big, big amount of that capacity and show some flutters in network performance.

So, we really feel that the symmetric fiber-to-the-home technology is going to be a big differentiator. And so we are going to upgrade the entire Optimum footprint.

So 40%, 45% is in non-FiOS area, and we also believe that in the FiOS area, our technology is going to be vastly superior to FiOS' technology, which is an older, let's call it, fiber-to-the-home technology..

Your next question comes from the line of Brett Feldman from Goldman Sachs..

Just a question about the Lightpath transaction. You noticed that -- you noted that the proceeds are net of taxes, which means you are paying some degree of tax.

I'm wondering, have you fully utilized your NOLs at this point in time? And do you have any update on the time line to being a cash taxpayer once you've closed the transaction?.

Mike, do you want to take that?.

Yes, sure. So I think coming into the year, we shared that we expect to be a [indiscernible] taxpayer really in the beginning of 2021, pursuant to the Cares Act, we feed a whole bunch of interest that was otherwise hung up on our balance sheet for tax purposes, and so we pushed that out about 12 to 15 months in the beginning of '22.

By virtue of the Lightpath transaction, we're kind of back where we started the year. So we would expect to be a full federal cash taxpayer really pretty early in 2021 based on that current profile and the gain that we'll realize on that transaction..

Got it. And if you don't mind, just one quick follow-up question about the structure. Since you are financing it, it's going to have its own financing silo once the deal has been completed. And you noted that the leverage is already higher. It's going to be higher than your current level of leverage.

Is total corporate leverage going to be higher pro forma for this deal? And are you expecting to be more aggressive with CapEx in the Lightpath footprint since you are going to be able to finance it separately?.

I think the answer to that is we will be slightly higher in terms of overall consolidated leverage, probably to the tune of 0.1 turn if we stay at 6.5x leverage at the Lightpath level. And secondly, yes, one of the growth drivers of Lightpath going forward is finding more opportunities to invest and light up more network.

And so we'd expect for CapEx which has been averaging probably more like $90 million to $95 million a year to edge-out going forward at the Lightpath level..

Our next question comes from the line of Phil Cusick from JP Morgan..

Dexter, I understand your guide is to EBITDA growth this year.

But can you update your thoughts on the 4% to 5% in the back half that you discussed at our conference in May? What are the puts and takes since then? And also, can you dig into cost-cutting opportunities from here through the year?.

Sure. The back-of-the-envelope math, as we had released first quarter earnings, in order for us to do $1.7 billion of share repurchases and end the year at 5x L2QA leverage was 4% to 5% EBITDA growth. Based on our results here in Q2 and year-to-date, that's pretty much more like 4% or maybe even slightly lower in the second half of the year.

So we feel really good about our ability to hit that EBITDA growth. We've got strong momentum, as you saw in the B2C. We think that the political advertising tailwind is going to be helpful, obviously, as well. The OpEx initiatives, as you saw in our slide deck, which were down 8.6% year-over-year.

I'd say that in the second quarter, we probably did about $50 million of OpEx savings, of which $30 million or so, maybe $30 million, $35 million are permanent. And so we continue to look at OpEx opportunities going forward.

And so the combination of those, plus just some lapping of the acquisitions of Cheddar and the launch of mobile in the second half of the year, we feel very good about being able to deliver that 4% EBITDA growth in order to reach our leverage and share buyback targets..

Okay.

So aside from hitting that target, which would imply now of 4% or so in the back half, is there any reason you would be less optimistic on that growth in the back half than you were eight weeks ago?.

No. Not from what we see today. Obviously, we can't, without the perfect crystal ball. But based on our revenue trends in our core telecoms business, an expectation of some uptick in the advertising business and the initiatives that we've put in place on cost side, we feel good about our ability to deliver that..

Your next question comes from the line of Doug Mitchelson from Crédit Suisse..

Thanks for all the detail in the slide show and the call, Dexter. I just -- I wanted to follow up on Craig's question around fiber and the go-to-market strategy. I immediately went to your website to try to order, and I can't find fiber mentioned anywhere.

So, I'm just curious are you putting marketing muscle behind that? And what is the process to let customers know all about the fiber and try to start selling that in? And then separately, I have had some inbounds over the last bunch of weeks with people wondering how fewer college students attending this fall might impact broadband net adds, people who stay in the Hampton's perhaps, how that might impact broadband adds? Any 3Q swing factors on broadband that we should be thinking about? That would be helpful..

Yes. Listen, on the first point, we've had fiber on a 1P basis, broadband-only, out there for the past couple of quarters. We have not put any marketing muscle behind it at all in anticipation of waiting for our ability to deliver triple play, let alone using double play.

And so we are just in that phase right now where we're starting to market slowly on the double play and triple play fiber-to-the-home. So the marketing muscle is really going to be more of a back-to-school and thereafter. And so we are not putting on the blinkers right now until we start to see coming back into the back-to-school periods.

So that will be much more obvious to you. On your second question, I mean, we do have exposure to universities. I don't think it's -- we have a view yet based on all the different types of programs that universities are putting in place.

And I'm -- I don't think most universities actually know exactly what they will be doing yet until coming into the fall, even though it's very, very close to now.

Some of the activity that we're seeing is a lot of the people, who are students, who are supposed to be online-only, will actually be going to their campus towns and moving in and trying to have their college experience that way.

So, I think it's a little bit too early to tell whether we're going to have a negative impact from the online schooling mantra for college students. But it -- we clearly will probably see some softness there relative to what we've seen in the previous years. You had another....

Well, and also for that matter, will be folks staying in the Hamptons longer than they normally would.

So I just wasn't -- it was more are there multiple swing factors to the quarter?.

Well, that's -- yes. Yes. I mean, yes, I think that's clearly the case with the exodus that we are seeing currently and anticipates, particularly in Manhattan and the Greater New York City. And a lot of those people are moving out to the suburbs, which is Optimum territory.

So that's a good swing factor where we won't be seeing people shutting down post summer. And we've seen the activity levels in terms of housing rentals and housing sales in the suburbs tick up significantly, right? So that is a tailwind factor for us going forward through the rest of the year..

Your next question comes from the line of John Hodulik from UBS..

Firstly, following up first on broadband. Obviously, strong numbers.

Anything you can tell us about trends in July? And do you guys think that you benefited during the quarter in the FiOS territories where -- based on the fact that Verizon wasn't going into homes and installing fiber connections and that possibly may have changed? So that's number one.

And then on the edge-out strategy, you were talking about that as a potential source of growth and applying for RCF funds.

Can you give us a sense of how big that could be? Have you done like some kind of a -- any sort of study on how many homes sort of bordering the Suddenlink territory you could eventually address? And then what kind of an opportunity that could be for you?.

Sure. Trends in July, listen, they continue to be strong. Obviously not as strong as we saw in the end of March going into April and May, but we've seen very, very good churn reduction numbers, and continue to see year-over-year growth in our gross add numbers in July.

And so I think last year in July, just from memory, we were at minus 4,000 approximately of customer net adds for the month of July. We will clearly beat that number this month of July.

We'll see where we end up for August and September and end up for the quarter, but I'm cautiously optimistic that we'll have another growth year-over-year relative to last year's performance in this quarter. In terms of Verizon, is Verizon back to installations affecting our ability to market share? I don't think so.

As I flagged in Q1, less than 20% of our net subscriber activity was coming from the Verizon footprint at Altice USA, so it is not the largest driver of our performance is -- or counter-performance is the rise in footprint. On the edge-out strategy, listen, last year, we did about 90,000 new homes built.

This year, we should do more than 100,000, and probably 110,000, 120,000 around there. We would have hoped to do more if it weren't for the pandemic. It's clear that we believe that we've got a road map of doing 150,000 plus a year.

We also have about 300,000 to 400,000 homes in the Suddenlink footprint, which currently are suboptimal in terms of network performance, that we are going to be upgrading to be able to perform and provide true broadband speeds.

And those levels of penetration in the those 300,000 to 400,000 homes tends to be in that 10% to 20% level, so very low penetration. So we expect to see strong broadband growth going forward in those areas as we upgrade them. On the rural opportunity, we'll see what's available and whether we think the economics are attractive.

But we will continue to push on our edge-out build-outs here, and try and be thoughtful in capitalizing those opportunities as well. So I think the overall sentiment here is that we will be accelerating in terms of our footprint and our ability to market to new homes..

Your next question comes from the line of Michael Rollins from Citi..

I realized the topic of residential ARPU is getting complicated by those that are on bundles versus those that are on stand-alone services like broadband. I was wondering though if you could unpack what you're seeing on the ARPU side overall in residential.

And maybe specifically for broadband and video, whether it's around the tiers customers you are taking as well as the impacts of any price increases that you're passing through..

Sure. Maybe the focus on broadband and video ARPU, just to give you a sense of the numbers, because accounting, as you know, plays tricks on the numbers every quarter here.

In terms of the broadband ARPU growth, which was up 11.3% year-over-year, two-third of that came from subscriber activity, which means people coming in subscribing at higher tiers, up-tiering of speeds as well as rates, and only 1/3 of it comes from accounting allocation.

In terms of video ARPU, that declined 2% year-over-year, 70% of that is accounting. And so that doesn't surprise me given that 1/3 of the broadband ARPU is accounting, so it's reimbursed. And 30% of it is related to subscriber activity, which is really down tiering of packages.

So the overall trends are very similar, I guess, in terms of the subscriber trends, which is a very strong acceleration in broadband connectivity and net adds.

And the inverse with video, which have seen some slight acceleration in disconnections or really about gross adds attachment rates coming down as well as down tiering in terms of video packages. That is the overall picture that we're seeing -- that we've seen for the last two or three quarters very clearly.

I don't think there's a very clear other way to think about things because, as you say, it does get a little bit murky as you try and get really, really deep into the detail..

And do you see any inflections in the way, on the video side, your customers are behaving with the tiers engagement? And how the rising availability of these SVOD options and AVOD options might influence their video purchasing?.

Well, I think it's really driven -- I think the number one statistic is really driven by our attachment rates and gross adds. And our attachment rates and gross adds are -- have fallen to about 40% of our gross add numbers, and they tended to be closer to 55%, 60% of our gross ads were taking video.

And given that most of the gross adds on video are on promo, they tend to be taking, let's call it, basic to core packages and not premium packages, which also is not surprising, given that SVOD, particularly the Netflixes of the world, HBO Maxes, Amazon Primes, and as such, are the premium alternatives that subscribers are taking.

And so there's a mix and match there as those subscription levels go higher on an OTT direct-to-consumer basis. You'd expect that if people are taking cable, that they're probably taking more basic or core packages than much -- than very premium packages..

Your next question comes from the line of Andrew Beale from Arete Research..

I was just wondering if you could dig into some of the newer sustainable cost opportunities that you've got a bit more confidence about in the last few months with the stay-at-home experience. And I'm just wondering if you can give us the potential magnitude or size order or something like that of the top ones..

Sure. I mean, of the $50 million-ish of OpEx savings in Q2, where we say $30 million to $35 million of it is -- are permanent, there's a whole host of different things that come into that, from personnel-related numbers, to advertising expenses, to customer care experience, all those played into those numbers.

I think, going forward, there are some discrete buckets to be thinking about. Number one, real estate. As you may imagine, I would assume every single corporate in America is reviewing their real estate portfolio, given the work-at-home dynamics.

And even post-pandemic, I think the expectation that commercial real estate will be less penetrated than it is today or than it was pre-pandemic? Secondly, it's obviously, the customer digitization efforts, which relates to online ordering, self-install as well as more auto pay, which has been a nice benefit that we've seen over the past three to four months, and we expect it to continue going forward.

And then lastly, it's all about the customer care experience as well, which is becoming a lot more automated, and we continue to see large upticks in online versions of customer care and remote customer care.

And so I think that the combination of those three or four buckets there make us feel very good about our abilities to continue to push margins.

The knock-on effect to those digitalization efforts is, obviously, probably overhead and certain personnel divisions are probably becoming leaner as well, given that there's less customer person-to-person activity..

Great.

And where are you on self in-store at the moment? And where do you think you can get to?.

It's a 2021 initiative, which I flagged in Q1 earnings. If you go through the math, we do about 1.1 million of gross adds a year. We probably, on a net basis, between the cost of installs and what we subsidize and what we make customers pay, our net cost is probably somewhere around $50 -- $50 to $60 per install.

So you have to think about just how much of the 1.1 million of gross adds will eventually become self-install. That's probably the opportunity there.

I think, more importantly, network enhancements and better CPE equipment also is going to drive a lot of the OpEx savings, not just self-install, but obviously, the whole -- a lot of those -- the categories I just mentioned around customer care, less incident rates, online functionality and remote functionality, is a -- probably a much larger opportunity than just self-install..

Your next question comes from the line of Jessica [ph]..

A couple of questions for Dexter.

Can we discuss a little bit what's going on in advertising? Do you think you're monetizing -- your news ratings grew dramatically? Do you think you're monetizing well? Or is there still upside? And then, you sounded a bit cautious on the outlook, and I think it was national, but I was just hoping you can give some color on that.

And then the -- on fiber-to-the-home, you said that once you complete the upgrade, CapEx will come down to $1 billion or so. What's the timing of -- would you -- of completing that fiber upgrade? Then just to kind of wrap-up the question.

When Doug Mitchelson asked you about the changes in dynamics given COVID, college Kids, the Hamptons, et cetera, how significant is your seasonal package? Meaning if people stay in the Hamptons, how much revenue/EBITDA would you not be -- would you be keeping?.

A lot of questions. On the advertising side, listen, ratings have been great, as you may imagine. But as you probably know, Jessica, the ability to monetize great ratings has been probably far and few between, particularly in the first two to three months of the pandemic.

So we're not seeing an outsized monetization of our great ratings there, but, obviously, doing very well relative to the other sectors in our advertising portfolio. On the outlook for advertising, I think we're cautious on the branded advertising that we have at Cheddar today.

On the national side, I think we're also cautious on national, excluding political. And -- but on the local side, particularly on the interconnect side, we've probably outperformed expectations relative to where we were in April.

So we're cautiously optimistic as some of these economies, particularly in the Tri-state area, being our biggest exposure to advertising has performed well through their reopening phases of the pandemic relative to our Suddenlink footprints where we have less advertising exposure there.

So we feel cautiously optimistic about our ability to grow or at least remain flat on our advertising revenues relative to 2019. On FTTH; listen, we're going to end the year probably around 1 million to 1.2 million homes ready for service. We'd like to get to a run rate of 1 million-plus homes built out per year.

So if you do the math, we're probably talking about four years until the FTTH program is completely done on the ARPU footprint. And yes, then we believe that our CapEx numbers will become sub-$1 billion after that. In terms of the dynamics, I think -- I don't have that detail.

I think I'll get back to you -- I'll ask Nick or Cathy get back to you on the dynamics there. It's clear that we are going to have some nice advantages of the Exodus in the New York Tri-State area to the suburbs. And that will maintain itself throughout the rest of the year.

But we'll come back to you as to those who are the winter birds intend to disconnect. And those who are -- many of the subscribers will also disconnect post summer, maybe try and quantify that for you..

Great. And then, can I just ask one last one.

What are your thoughts on carrying Peacock? It seems just like such a friendly consumer proposition if you're pay TV support or an attractive proposition, if you're not?.

I don't want to comment necessarily on our friends at other places. But I do think that the whole world of OTT content is getting more cluttered. There's a lot of options out there, lots of different colors, lots of different tastes. And so I do think that there are going to be a lot of hit or misses in terms of delivery of some of these platforms.

It's also difficult to see which ones are successful and which ones are just having users that have free access to the content.

And then from there, how do they monetize it going forward on an advertising basis and/or subscription business, right? So I think the economics at -- in many of these platforms still remain challenging relative to the affiliated [ph] piece.

But given that we are seeing video losses accelerating, I think from our standpoint, we're accelerating relative to what has been for the last two or three years, but less so or slower burn relative to some of our peers.

But it will be interesting to see what happens to the content world, given that the dynamics going from the affiliate piece to these OTT platforms..

Your last question comes from the line of Frank Louthan from Raymond James..

What kind of maintenance issues are you running into on the network when they're running at such high levels of capacity for so long? And then looking at the mobility product, getting -- is getting sales there back up a little bit? Is that really just a factor of getting folks back in the stores? And what's sort of been the trend in Q3 as places have opened back up a little bit?.

Yes. Listen, the network performed extremely well during the surge of traffic that we saw in the second quarter. Clearly, they were instances, in terms of performance, where, fundamentally, we just accelerated a lot of node splits.

And particularly in the Optimum footprint in the suburbs where the activity was extremely high and very, very concentrated, but that's about it. I think, as we flagged in the first quarter earnings, our network was built to have double the capacity of the pre-pandemic levels. We saw surges of about 30% to 40% in network usage.

They were clearly the pockets of usage in neighborhoods where we went aggressively, and then dropped 5%, which is a lot deeper. In terms of mobility, yes, clearly, getting the retail side of the equation back open is helpful. It's not really the main driver of everything.

I think for us, it's continuing to hone the experience of our customers online and in our call centers, but as well as being able to deliver them different flavors of products and services, which we won't be delivering until the third and fourth quarter of this year.

And so we're continuously getting better at it, particularly on the churn level, which has been high in the early days of a subscriber. Those numbers are coming down nicely, not nice enough. But we're very, very focused on the after-sale experience, particularly in the early days post side up, which is where we see the heaviest churn.

But, outside of that, we feel good about the product, where we continue to push there and focus our efforts. And we're -- we look forward to working very closely with T-Mobile going forward here as we start going on to their network..

There are no further questions at this time. I'll turn the call back over to the presenters..

Thank you, everyone, for joining. Do let us know if you've got any follow-up questions and look forward to catching up with you virtually in the next few weeks. Thanks, guys..

Thank you..

Thank you..

This concludes today's conference call. You may now disconnect..