Optimum Communications, Inc. (OPTU) Earnings Call Transcript & Summary

Okay. Good morning, everybody. Welcome to the Goldman Sachs Communacopia and Technology Conference. My name is Jim Schneider. I'm the telecom analyst here at Goldman. It's my pleasure to welcome Altice USA and CEO, Dennis Mathew. Welcome.

Thank you so much. Happy to be here.

Maybe just start off with a very high-level strategic question to get started. It's been about 2 years since you've joined as CEO. I want to spend a little time to kind of talk about some of the operational and culture actions you've been taking to drive better results. Maybe talk about 2 or 3 of the most important ones that you see and how those are translating to some hard operational metrics in terms of improvement.

Yes, absolutely. Well, I can't believe, one, that it's been almost 2 years. Time flies, and it's been an incredible journey. And we started that journey knowing we needed to transform the culture. And that included bringing on new leaders, putting existing leaders into new and expanded roles. So 130-plus folks across every part of the organization to help us drive transformation. And we put the customer at center. And we said, "Hey, customer experience is going to be primary in all decisions that we make." And when we think about customer experience, customers want quality, and they want value. And so those were 2 elements of the equation that we were absolutely getting wrong, and we needed to fix it quickly: Quality products, quality network, quality service. And so we really started to put operational rigor and discipline across every part of the organization, and it's translating into real metrics. One is, of course, we had to rebuild trust with the customer. And we had to rebuild consideration because we had lost trust because we were not executing. We were not delivering the fastest speeds and the best quality and reliability. And now we see -- and we're being recognized by companies like Askey and New Street to have the highest improvement in NPS. And we're delivering a level of service that customers demand. We're not there. We're not done. But NPS is at the highest level it's been ever, quite frankly. And then other critical metrics that we had to get it right the first time. So first time right is the highest it's ever been. Completion rate; when somebody wants an install, we need to show up, and we need to get it done and we need to get it done right. Repeat rate, for example, again, if they have a service issue, they don't want to have to have multiple visits. And so there's been a lot of rigor around just making sure that we're delivering the right quality from a product, network and service perspective and then really driving our channels to perform and making sure that we have the highest level of performance. Jump balls are fewer and fewer, just because moves are down and the macroeconomic headwinds are there, but we are improving channel performance in terms of productivity and yield. And so those channels are becoming more efficient and delivering at a more efficient pace. And then ultimately, that's translating into stabilized churn and really helping us make sure that we hold on to our existing customers and starting to see wins in some of the markets where we had lost considerable share.

Yes. And maybe at this point, do you think you have kind of all those resources and organizational changes in place to drive that success? And if we're sitting here in 2 or 3 years from now at the same conference, what are the kind of 1 or 2 key metrics investors should be focused on to determine whether you achieved that success?

One, I'll never say we're done, but we are at 90%, 95%. We've got an incredible team across the board. When I look at my direct report team and our SVPs and VPs; all the way down, we've got incredible people, people that are helping us drive this transformation from every part of the organization, all in on that. And I'm excited about what the next couple of years hold. When I look at broadband, of course, we need to stabilize performance and get back to growth. And I am confident as I look at across the different markets. We've set up a new regional leadership structure. We have hyperlocal go-to-market playbooks, and that is going to allow us to compete much more effectively. We're going to see all-time highs in terms of quarterly performance on mobile, on fiber, growth of B2B, both in terms of subscribers and net adds and we are going to deliver against our goals in a much more efficient manner from an OpEx and CapEx perspective. And so these are areas that I know that we can deliver. They're -- many within our control, and we are firmly focused on delivering on those to ultimately deliver value for our teammates, our customers and our shareholders.

Great. And then maybe just another high-level question for you. AI has been a huge topic at this conference. No surprise. Just kind of curiosity mainly, I think there's been a lot of discussion about how it impacts the telecom and cable landscape. And clearly, you can say AI [indiscernible] can say automation of customer service and other kind of related functions on the administrative side. Maybe just kind of give us your personal view about AI, the role it's going to play in the industry and whether it's more hype than reality at this stage? And more specifically, relative to your own business, do you see it as kind of like a revenue opportunity or a cost opportunity or both?

I am so excited about AI and the potential it has to help us in our transformation. First and foremost, we needed to stand up a world-class data and analytics organization. We hired a new Chief Data Analytics Officer and really helping us ensure that we understand our customers. When I came in, we just didn't have a good understanding of who our customers were? What products did they have? How long were they with us? What's the ARPU? What's the tenure? We have all of that mapped out across all of our customers now. And now we're also combining that with competitive data so that we understand who are we competing against town by town, whether it's a fiber overbuilder or a fixed wireless competitor or any other mature fiber provider. And we have much more clarity, and that is all now translating into recommendations for our frontline teammates in care and in retention. And this is a great example where it's driving employee engagement because historically, they had to peck through spreadsheets and 5 different screens to figure out when somebody called, who are they? And how do I solve their problem? And how do I give them an offer that meets their needs? And now rather than having them choose through 100, we give them a recommendation of 2 or 3 or 5. And then they can present that to the customer, which would include pricing and products and promotions and offers that are specific to that customer's needs. That is directly translating into helping us stabilize ARPU erosion and also helping us in terms of our go-to-market strategy. Because when I joined, it was one size fits all. And that's not the way it works from an acquisition offer perspective. We need to have the ability to compete town by town and ultimately, honestly, street by street and house by house. And AI is helping us evolve our offer strategies as well, both from an acquisition and a retention perspective so that we can maximize what we are providing to our customers, but then also maximize the value to the business so that we can be a bit more aggressive in those markets that are more competitive and a bit less aggressive in these other markets. The other thing I'm excited about AI is that it's going to transform the way we just deliver service. And it's going to help our teammates, both in the call center and the field, solve issues faster and just elevate that CX, which will ultimately translate into efficiencies for the organization.

Both revenue and costs?

Yes, revenue and costs. I didn't say that specifically.

Yes, revenue and cost. Got it.

Revenue and costs.

So you mentioned the competitive dynamics, and you compete against fiber companies for a long time. More recently, we've seen some incremental actions by some of your competitors. T-Mobile has talked about some JVs to get more aggressive, not that it's different -- change in environment, but we've got the Verizon acquisition of Frontier that's been announced. So maybe just talk about kind of the incremental competition within your -- various parts of your footprint from these players that you've actually been seeing?

Yes. So in the East, it's fairly stable. We have about 70% overlap primarily with Verizon, a little bit with Frontier. So I guess it's now all going to be Verizon. And so that's been stable, but fixed wireless has come on to the -- seen obviously in the last couple of years. In the West, since I've joined, it's continuing to increase. It's gone from mid-teens to up to 40% now. And I see it continuing to increase as we go forward. And so that's the world that we live in, increased competition. But I feel really good that we have a robust product portfolio so that we can compete very effectively against either fiber overbuilders, who typically only have one product. And so we have opportunities to bring the full product portfolio to bear and be able to provide customers with incredible value with a full set of products, including broadband, mobile, video and new products that we've just launched. And so that's really what we're focused on. These folks are coming in very aggressive, especially as they enter markets. They're competing at the low end. And so we do see pressure from an income-constrained perspective. And so we're not going to do a race to the bottom. We are going to be very disciplined in the way we go to market. And I don't think that, that kind of a strategy is long term sustainable. And so we have a plan. We're going to deliver great quality service. We're going to deliver great value, and I'm confident that, that's going to translate into broadband stabilization as it's already translating into mobile growth and fiber growth.

Does the Frontier acquisition change the competitive environment in your view at all?

We know Verizon very well, and our ability to compete against Verizon is improving as we've stabilized our ability to deliver great service and rebuild consideration and rebuild trust with our customers. I do think there's a level of potential rationalization that will occur. We've seen Frontier in the market, very aggressive, competing on price. And so we'll see what that evolution looks like because that's not the way that we've seen Verizon compete.

And in terms of fixed wireless, which is technology you mentioned before, what are you seeing in terms of kind of incremental competitive intensity? Is it getting more intense, less intense than it was? And how have you adapted to sort of compete better against fixed wireless?

Yes. Fixed wireless, we see as a competitor that's here to stay for years to come. It's clear that they are taking kind of the DSL switching segment, and they've continued to win that segment over the course of -- what we can see, over the last few years. And they are also taking a portion -- movers are down, moving activity is down, but they are taking some portion of that switching activity. That being said, we have high-quality products and services and the ability to compete very effectively. Historically, we have not done a great job of telling our story. And so as folks are trying that product, they're finding that it's not meeting all of their needs, and we're making it easy for them to come back and try our products at a great value. I think fixed wireless historically has made it very simple and has provided some price consistency that's made it effective in terms of competing. And we have the ability to do all of those things, make it very simple with our self-install kits now. Now we're providing self-install at a much higher rate than we have historically. We've grown that by 100% since I've joined. And we're going to continue to grow that and make it easy for customers that just want to be able to do it themselves and then provide much clearer and simpler pricing. This was also a challenge. When I joined, it was very -- a bit more art than science in terms of the pricing and how roles were happening. We've used our data analytics team to make sure that we have much more science so that we're providing great value to the customer while also being disciplined about our pricing.

Yes. One thing I'd love to understand is just a little bit more about your network strategy. Maybe talk a little bit about the competitive dynamics, you see them, but really, what's the level of urgency you see for building fiber today? And how does the kind of local dynamics affect whether you decide to drive fiber or DOCSIS 3.1 into those markets?

Yes. When I joined, there was an aggressive push on fiber, and the plan was to build fiber across the entire footprint. And we wanted to take a pause and really pause that program in the West and then really assess the program in the East. And what I would tell you is that, that fiber or not fiber for us was not the linchpin to what it would take to win in the local market. First and foremost, we had to deliver great quality and great value to be able to compete effectively, and we weren't doing that. We weren't doing that where we had fiber. We weren't doing that where we didn't have fiber. So it didn't matter. The results were all the same. And so the first and foremost, we had to rebuild the trust with the customer and rebuild the performance of the network. And you're seeing that we are doing that as Ookla and PCMag and CNET and others have recognized that we are delivering the fastest speeds in a reliable fashion. And that was all about really making sure that we were managing the network in the right way and investing in the right spots to deliver and maximize the performance of both the fiber network and the HFC network. And we're doing that in a much more effective way where customers are experiencing that speed and that quality that's allowing us to compete. And then, of course, we had to deliver the right quality of service, which wasn't happening. And so we've rebuilt our operational teams, teams that are providing care and field across the entire spectrum. So that if there is an issue, we get it right the first time, and we're able to do that in a much more consistent fashion. And so as we look at going forward for our new build, we do like fiber a lot. And where it's cost effective to do so, we're going to lean in on having a fiber-rich build-out, fiber-to-the-prem were available. And then when we look at the overbuild in the East, we're going to do that in a very surgical fashion. We're on a path to having 3 million fiber homes by the end of this year. And we'll continue to invest where we think we need it to be able to compete most effectively, but we are finding the ability to compete with our product portfolio and the networks that we have.

Got it. And then maybe just -- I think last year at this time, your fiber penetration was, I believe, 9.4% to it has gone to 15% now, if I'm not mistaken. How do you think you're kind of executing relative to your medium- to longer-term goals? And I guess as we see more penetration, what is the impact on your overall kind of subscriber base going to be? Is it going to be showing up in new customers, gross additions? Is it going to be translating to lower churn in your existing base or some other way...

Well, I'm really excited because we have solved a whole host of technical issues that will allow us to accelerate the migration strategy. We had a whole host of technical challenges that made installing fiber and migrating fiber, existing customers over to fiber very challenging. Even with those challenges, we were able to see some acceleration. In the first quarter, we did over 50,000 fiber net adds. Last quarter, we did pause a little bit to fix these issues and did about 40,000. But I'm confident that we will eclipse those levels in the quarters to come. And we are embedding this as part of our base management strategy so that every time we have a conversation with our customers, whether it's in our retail centers, in our care centers, in retention; we talk about fiber and the benefits of fiber and the speeds and the product portfolio and really get folks moved over to fiber in a much more accelerated fashion as we move forward. And the business benefits really speak for themselves. We see higher ARPUs, higher customer satisfaction, less calls, less truck rolls, better churn. And we want to take advantage of this incredible network that we've built that is winning awards. We need to get our customers -- new customers there and existing customers there as well, and that will be a big focus of ours as we move forward.

Yes. And I guess on your last earnings call, you talked about the fact that you're overbuilding one of your cable competitors in a few places like Montclair, New Jersey. I can't recall myself any historical examples where you've actually done that. So maybe what drove that change? I mean, I'm assuming it's a quite purposeful change. So I mean, how do you think you benefit the most? Can we expect you to do that in more places or more places across your footprint? And what kind of competitive response do you expect to see?

Yes, this is very opportunistic. When we looked at the return on investment, we have infrastructure nearby, and so the capital cost to be able to extend that into those towns was efficient. And we're excited to continue to expand our footprint into New Jersey. We looked at those demographics and higher ARPU opportunities. And so we feel very comfortable that we can compete very effectively. And we imagine that there will be a competitive response, but we have a great go-to-market strategy and product portfolio and an incredible team on the ground. And so we're going to compete hard. This isn't a wholesale shift in our strategy but an opportunistic -- was opportunistic, and so we're going to move forward and launch in the next several weeks.

Great. Now on the smartphone side of things, we had the iPhone launch yesterday. I think a lot of people were excited about the AI features that they enabled new customer features. And at the same time, we've seen smartphone upgrade rates about as low as they've ever been for the industry. So how do you think about this as an opportunity for Altice? Do you think there's a potential opportunity for you to sort of pick up switchers in the market and be a little more aggressive potentially in subseas to kind of get there? Or how are you thinking about this particular cycle?

Yes, this is a great opportunity for us. We are in a little bit of a different position where we launched mobile about a year ago, and awareness is still low. And so switching is a great opportunity to have this conversation. And folks are -- 90% of the traffic in retail is existing customers. And this is a great way to have that conversation as they are already in that mode. The buying cycle for mobile is very different than broadband. And so we have to understand what that journey looks like and make sure we're having those conversations at the right time, and this is one of those times. And so this is an opportunity for us to, one, continue to drive awareness, but drive awareness at a point in time where there are folks that are looking for making a switch. This is literally when they make the switch, literally when I'm looking at making the switch. Okay, that iPhone 16 looks pretty interesting. And so people are just more apt to have that discussion in this season, and we're going to have -- we had offers that were as aggressive as the major carriers last year, and we're going to do the same this year. We're going to compete hard, and it's just a great way for us to continue to raise awareness and drive mobile into the base.

Maybe just will ask about some core trends in your core business. I think on your Q2 call, you referenced that you expect some negative seasonality to occur in Q3 due to some specific headwinds you're seeing. Can you give us any color on how gross additions and activity levels have been tracking so far this quarter?

Yes. To be quite frank, they look flattish to Q2. When we look at where we see the pressure -- continues to be in that income-constrained segment. And as I mentioned, the fiber overbuild activity continues, and they're coming in at a very aggressive price point. And so that level of aggressive price point has caused some headwinds in terms of gross add activity. The good news is our churn continues to remain stable. And as we continue to deploy our hyperlocal playbooks, it's allowing us to blunt some of that initial loss that occurs in the West, in particular, when a new entrant comes in. And we're seeing much more rapid stabilization, and now we're starting to see some wins across these towns where we're starting to win back some customers as we're showing up in a different way. In the East, again, we are competing better, particularly in the nonmover segment. When we look at how we're competing against Verizon, we're competing better against fixed wireless. But we have been on a journey of reestablishing ourselves as a trusted provider, and I believe the stabilization is going to yield even stronger results as we move forward.

And how do you feel about the kind of current trajectory of subscriber growth? And when do you think the changes you've talked about earlier across the organization are going to be enough to sort of pivot you to sort of positive subscriber growth again?

Yes. I feel really optimistic. I think our ability to compete at a hyperlocal level, deliver best-in-class quality, deliver a rich product portfolio is really going to enable us to be the connectivity provider of choice. Everything that we can control, we're going to continue to control, in terms of sales channel performance, in terms of being able to get it right the first time and make sure that we're delivering the absolute best speeds in the most reliable fashion. There are some things that we cannot control in terms of the macroeconomic headwinds and the move activity. But I'm confident, as we continue into the coming year, that we will get back to stabilization and be able to drive a different result. We're seeing that on mobile. We're seeing that on fiber. We're starting to see that on B2B. And I'm confident that we'll start to see that on our core consumer broadband business as well.

And then just -- I think ARPU has been a key variable in all this through the changes you've made, the speed up tiering, some rate adjustments through the back book and so on. How are you thinking about the overall landscape of promotions, readjustments over the rest of this year and going to 2025? And what does the shape of that look like?

Yes. The good news is, as I mentioned, we have a lot more science in terms of the way we're doing promo rolls and making sure that we're disciplined and delivering maximum value. We had a lot of value leakage that was occurring because there was much more art than science, and then we were seeing elevated levels of churn and obviously high dissatisfaction because there wasn't transparency and predictability. And so we're going to continue to deploy that strategy as we continue into the rest of the year, really a disciplined approach on promo roll and a disciplined approach in terms of our acquisition strategy and making sure that we have the right offers in the right market so that we can maximize ARPU. Historically, we were being too aggressive in some markets where we had less competition and not aggressive enough in other markets. And now we have complete visibility into 250 of our markets, and we know exactly what offers, what competition, where are we struggling, where are we gaining ground so that we can maximize volume and rate. Like that's ultimately what we're trying to do, right, maximize volume and rate. And we have now the tools to be able to do that in a much more surgical way as we move forward.

Yes. And Business Services is an area that's, I think, 16%, 17% revenue for you. That team saw some deceleration last year but I think it's because of some of the economic slowdown. But maybe since then, I think you've talked about seeing more traction in some positive SMB broadband net adds in the quarter. And you plan to do more in terms of manned services additions on top of that bundle. So can you maybe talk about -- give us an update on the latest trends you're seeing? And how do you think about Altice's growth opportunity in that business segment?

Yes. I think my team is probably sick of hearing me say it, but I am extremely bullish on the opportunity in B2B. When we joined, we were really just a connectivity provider, and we weren't selling a rich portfolio of products. We didn't have a national accounts team. We didn't have a focus on different verticals. So we've built a new team. We have a new leadership team that really knows what great looks like. And so they've been fixing -- and have done an incredible job just fixing the operational execution of -- from sale all the way to install and also doing a much better job in terms of customer retention and making sure that we're delivering the right level of quality. And then as we enter into the end of this year and early next year, we're going to be launching a much richer portfolio of products, everything from cybersecurity products, to LTE backup, to WiFi pro. We had a product in our portfolio that provided WiFi solutions. But by the way, 85% of the time when we installed it, it didn't work or we had an issue on the install. We cleaned all that up. We're going to relaunch that in the November time frame, and I'm confident that it's going to resonate much better, one, with the sales folks, because they'll have more confidence; the technicians, to install it; and the customers will see the value. We launched mobile earlier this year, and we're seeing great traction just by having that product in the portfolio. And we also expanded to ensure that we have voice in all of our market. I'm not sure how we can be in a market and not have voice in the B2B product portfolio. And so we filled that gap. So there's a whole host of gaps that we've had to fill, and we're continuing to plug those gaps. And I'm confident, in the quarters to come, it's going to really help us continue to drive growth of broadband, but also help us drive growth on the top line.

Yes. Financially, on your last conference call, you indicated that you think that the year-over-year EBITDA declines are going to start to moderate versus last year. In that quarter, Q2, you delivered pretty strong cost controls, improvements in operations, less calls, truck rolls, et cetera. Can you help us understand what inning we're in with respect to the additional cost actions you're taking to kind of eventually get to the EBITDA growth?

Well, maybe we're in a new game now, because the game that we've been playing or I don't know what analogy we want to use, but to date, we've been taking those cost savings and we've had to -- so my commitment when I joined was we're going to stabilize OpEx. OpEx was going up into the right. We had to stabilize it, and we did it. And we continued to drive down calls, 1 million less calls year-over-year, hundreds of thousands of less truck rolls. And we've been able to take those savings and reinvest them to continue to ensure that we deliver best-in-class customer experience and quality and all the things that I've talked about. As we move forward, we're going to drive further transformation of the business to lean into digital, lean into automation, lean into AI, which will help us now reduce our structural OpEx as we go into the years to come. And so it's a bit of an evolution. So what inning, we're making progress. And we're kind of in a new phase where we're going to now take those efficiencies and drive them into EBITDA growth.

Got it. Capital structure. I know your leverage is now still around 7.2x, I believe. You've previously talked about kind of being proactive in managing those debt maturities. How are you thinking about the options you have at your disposal to restructure debt load to help drive that sort of medium- to long-term operating goal you have?

Yes. Well, one, the team has done a great job of clearing out the maturities and giving us one way to operate the business. And we're going to be very disciplined of continuing to drive across every area of the organization to get back to long-term revenue, subscriber and EBITDA growth. And I think that gives us even more options and more ability to transform the capital structure. And we're going to drive fiber and drive adoption of fiber, and there's solutions that, that make available to us as we do that. It's good for the customer. It's good in terms of operating metrics and ARPU. And it also gives us options to look at when we want to transform the capital structure. And so -- that also, I'm a glass half-full person. I feel like the interest rate environment has been at a certain level to date and that there could be changes in the interest rate environment, that would give us even more options. And so we are -- to channel my inner Marc Sirota, we're looking at all options. And we're going to continue to drive disciplined execution of the business and then take action at the right time. But we have the runway to do that in a very thoughtful fashion versus having to take some reactive approach.

And last question really just is around your sort of CapEx profile and envelope. You've previously said that CapEx is going to start to go down in '25 and then more materially in '26. How should investors think about sort of the shape and duration of your fiber CapEx intensity? And have you started to see either OpEx or maintenance CapEx savings as a result of your fiber deployment you've done to date?

Yes. The good thing is on the CapEx side, you've seen us bring that intensity down year-over-year, and we're going to continue to do that. And that's really all been about deploying that capital in a much more efficient and effective manner. The team has done great work in terms of how we're able to deploy that capital to drive maximum value of our networks and products and services and just do that more efficiently. And so we're going to continue to do that. We're going to continue to look at what's the right number of passings that we need overall. And in the East, I don't think there's a magic number, but we are looking at what it's going to take to compete most effectively. And I want to, first, invest in driving penetration of our existing 3 million homes and then make sure that we're competing with all of our products and services and then we'll deploy at a much more moderated pace as we move forward. But we are seeing tremendous benefits: Less calls, less truck rolls and the fiber network is best in class as Ookla and others have stated. And so we have a lot of motivation to get people onto that network.

Very good. I think, unfortunately, we're out of time. That was a great tour de force of the business. So thanks so much for being with us today. We appreciate it.

Great. Thanks for having me. Great to speak to you today. Thank you. Awesome.