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

Good day, everyone. Welcome to the Optimum Communications Conference Call. [Operator Instructions] This call is being recorded. If you have any objections, please disconnect at this time. I'd now like to turn the call over to Sarah Freedman, Vice President of Investor Relations. Please go ahead.

Thank you, and good morning. Welcome to the Optimum's Second Quarter 2026 Earnings Call. I am joined today by Optimum's Chairman and Chief Executive Officer, Dennis Mathew; and Chief Financial Officer, Marc Sirota. Dennis and Marc will walk you through our second quarter results and then be available for a question-and-answer session. Before we begin, I'd like to remind everyone that today's presentation contains forward-looking statements. Please take a moment to review the cautionary language regarding forward-looking statements included on Slide 2 of our presentation. We will also reference certain non-GAAP financial measures today. Reconciliations to the most directly comparable GAAP measures can be found in our earnings release, which is available on the Investor Relations section of our website. With that, I'll turn the call over to Dennis.

Thank you, Sarah, and good morning, everyone. Our second quarter results reflect disciplined execution. We generated total revenue of approximately $2 billion and adjusted EBITDA of $786 million. Broadband subscriber net losses improved sequentially to 40,000. We added approximately 50,000 mobile lines and convergence ARPU grew year-over-year. We expanded gross margin and adjusted EBITDA margin, including operating expense improvement of approximately $30 million year-over-year. We continue to operate in a challenging environment, but we are encouraged by our progress and remain focused on what we can control, maintaining disciplined cost management while continuing to invest in initiatives that support long-term growth and position the business for sustained success. As we disclosed in our 8-K in June, we have a clear strategy in our long-range plan to do exactly that. While the transformation will take time and will require a meaningful reset of our balance sheet, we are actively executing against the strategic pillars that we believe will improve performance, delivering simple broader offers with clear value propositions, richer customer experience, simplifying service delivery through operational improvements and investing thoughtfully in our network and capabilities. In the second quarter, we delivered against these pillars. We continue to execute on a simplified go-to-market strategy, strengthen customer retention efforts and sharpen base management to build high-value customer relationships and compete more effectively in the current environment. We advanced our customer experience transformation as we continued our rollout of Google CES, AI-powered network management, frontline tools and new billing solutions. We improved productivity through stronger cross-functional execution, disciplined cost management, deeper use of data and AI-powered performance management and workforce optimization. And finally, we continue to invest in fiber expansion and network modernization across our footprint. Alongside these actions, we took steps to enhance our financial flexibility and strengthen our capital structure. Last month, we successfully completed the previously announced tender offer, representing another important milestone in that process, which Marc will discuss in greater detail shortly. We also published our long-range plan providing stakeholders with greater transparency into our strategic priorities, operating objectives and long-term financial outlook. Collectively, these actions reinforce our commitment to strengthening the business, advancing our capital structure and increasing flexibility to continue investing in long-term value creation. In addition, we simplified our operations by divesting noncore businesses. In early Q2, we completed the divestiture of an advertising agency services business that generated approximately $100 million of revenue in full year '25 and had an immaterial impact to adjusted EBITDA. We made the decision to exit a small number of low-density noncore markets within our West footprint, and we expect those customers to transition to other service providers during the third quarter. Additionally, in the coming months, we expect to wind down operations of New York Interconnect, an advanced advertising joint venture that allows marketers to purchase TV and digital ad space across multiple MVPDs in the New York DMA. Going forward, Spectrum will expand their advertising business to provide many of the products and services of New York Interconnect, including continued representation of portions of Optimum's advertising inventory. Taken together, these actions support our strategy to simplify the business and focus on our highest priority growth opportunities. Next, I'll turn to our focus on strengthening high-value customer relationships on Slide 4. Our strategy is centered on strengthening customer relationships by delivering a more integrated and converged experience across broadband, mobile, video and value-added services. By leveraging the breadth of our portfolio, we're making it easier for customers to choose, connect and stay with us while driving stronger acquisition, retention and engagement, which creates a stronger foundation for long-term value and growth. Broadband remains the cornerstone of this strategy. While the competitive landscape continues to evolve with the expansion of fiber overbuilders and fixed wireless providers across our footprint, we are executing targeted initiatives to improve performance and reinforce our competitive position. These efforts are helping improve customer acquisition rates and gross add performance while providing insights that are shaping a broader evolution of our go-to-market approach. As we scale these learnings, we are delivering simpler, more compelling offers that better reflect market dynamics and evolving customer needs. Demand for our broadband product remains healthy and more than half of new broadband customers continue to choose our 1 gig or higher offerings, reinforcing the value customers place on higher speed connectivity and the quality of our network. We also see encouraging signs in several of our larger markets, where our execution and competitive positioning continue to improve. This drove improved win share and year-over-year growth in gross add performance in the second quarter in key markets. At the same time, we remain focused on reducing churn across our footprint, particularly in our West footprint, where competitive pressure remains the most intense. Our base management and acquisition strategy is centered on multiproduct relationships, which drive stronger, healthier and longer tenured subscribers. Leveraging our converged and data-driven approach, we are seeing a higher percentage of new customer additions, taking multiple products and services compared to the portion of customers taking only broadband. On mobile, we saw our best ever second quarter mobile trends, which increased mobile and broadband convergence penetration to approximately 9% at the end of the second quarter. Mobile is central to how we manage and grow our base. We're driving higher penetration through targeted upsell and cross-sell, simplifying our offers and expanding multiline adoption, taking a customer-first, data-driven approach to streamline device financing, improve quality of sale and strengthen network quality. This week, we advanced that strategy further, expanding our multiyear agreement with T-Mobile to access its 5G stand-alone network, delivering faster, more reliable service, a broader device lineup, including wearables and stronger roaming business and rural connectivity. By extending mobile connectivity beyond smartphones to wearables and a growing universe of connected devices, this capability substantially expands our addressable market, multiplying the number of devices and revenue streams we can serve per household and business and positioning us to capture a greater share of connectivity spend over time. Paired with our fiber network, this converged offering is expected to be a durable competitive advantage and a meaningful driver of long-term profitable growth. Similarly, we are increasing the penetration of our newer and more profitable E-tier video offerings as customers respond to their simpler and more compelling value proposition. The E-tier offerings now represent approximately 18% of our residential video base, up from 10% a year ago. Importantly, customers of these newer packages continue to demonstrate meaningfully lower churn than legacy offerings, reinforcing the role video plays in strengthening customer relationships and broadband retention. We're also continuing to thoughtfully expand our streaming offerings, giving customers direct access to popular streamers like Netflix and HBO Max alongside targeted promotions like our Disney+ Hulu offer. The majority of customers who take these services keep them well past the promotional period. pointing to durable engagement and a growing base of recurring value. Beyond a la carte, we continue to enhance the value of our TV subscriptions, giving subscribers direct-to-consumer app access to services like FOX One, Paramount Plus and Starz when those channels are in their packages. Moving to Slide 5. Throughout the organization, we continue to identify opportunities to simplify processes, enhance productivity, leverage AI and automation and expand digital capabilities so that we can execute efficiently while providing a better experience for our customers. Operating expenses, excluding share-based compensation, declined approximately 5% year-over-year in the year-to-date period and by 4% year-over-year in the second quarter. This reflects our continued focus on improving operational efficiency across the business and was driven in part by a few key areas. First, we lowered sales acquisition cost by approximately 10% by optimizing our channel mix, managing media more efficiently and improving sales yield, allowing us to acquire customers more efficient. Second, we reduced customer activity with fewer truck rolls and lower call volumes as we continue to improve network reliability, expand digital self-service and simplify the end-to-end customer journey and experience. The total volume of truck rolls and service calls collectively declined by over 20% year-over-year in the second quarter. Many of these improvements are enabled by AI capabilities embedded throughout our organization. As I mentioned earlier, one example is our deployment of Google CES, Google's Customer Engagement Suite, an AI-powered customer service platform that provides agents with real-time assistance during customer interactions alongside AI virtual agents powered by Google Gemini. Together, these capabilities help improve the customer journey, deliver a more personalized experience and resolve issues more efficiently. This work directly influences point number three. By operating more efficiently, we have optimized our workforce and reduced both internal and external resources. These structural and sustainable efficiencies have improved our operating expense profile, while we maintain strong operational execution and deliver a consistent customer experience. In conclusion, we remain pragmatic about where the business stands. Broadband continues to face pressure and the competitive environment remains intense, but our focus is on the areas we can control and execute against every day. Importantly, we did what we said we were going to do. We delivered on our commitments by growing mobile, improving efficiency expanding margins and simplifying the business. Those results demonstrate our ability to execute consistently, even in a challenging environment, and they have strengthened the foundation of the business. That same disciplined approach gives us confidence in the path ahead. We are applying the same focus and execution to stabilizing broadband and strengthening the overall business. We believe we can make meaningful progress but we also recognize that these improvements will take time and will not happen overnight. We are building a simpler, more efficient and more customer-focused company for the long term, and our team remains committed to executing that strategy every day. With that, let me turn the call over to Marc, who will walk through our second quarter subscriber and financial results.

Thank you, Dennis. Starting on Slide 6, I'll review our subscriber trends. First, on broadband. Net subscriber losses were 40,000 in the quarter, and we ended with approximately 4 million broadband subscribers. Our MDU or multi-dwelling unit property footprint represents about 20% of our total footprint. We have remained focused on strengthening our MDU subscriber business by shifting from individual customer relationships to more bulk agreements with property owners under long-term contracts. From these efforts, in the second quarter, we saw an additional 9,000 broadband connects and 8,000 video connects driven by a bulk relationship portfolio conversion. Including this bulk deal, overall broadband subscriber gross adds were broadly stable year-over-year reflecting our ability to attract new customers and reinforce the strength of the Optimum brand. At the same time, we continue to experience elevated churn primarily driven by heightened promotional activity from competitors. While the competitive environment remains intense, we are focused on the levers within our control, staying agile with our go-to-market strategies ensuring our offers remain compelling, continuously improving the customer value proposition and accelerating our base management initiatives to deepen customer relationships. In mobile, we continue to build momentum in the second quarter. We added 50,000 net lines, marking our best second quarter results to date and growing mobile lines by approximately 33% year-over-year. In the second quarter, we surpassed the 700,000 milestone, ending the quarter with 724,000 mobile lines. Looking ahead, we plan to build on this momentum through ongoing targeted incentives and simplified offers while further supporting mobile customer retention. Video subscriber net losses were 46,000 in the second quarter. Included in this is a benefit from the bulk agreement I just mentioned. The second quarter represented our best quarterly video subscriber performance in 6 years. We continue to see encouraging underlying trends demonstrating the impact of our enhanced customer choice and flexibility. Finally, on fiber, we added 20,000 customers in the quarter, bringing our total to 749,000 fiber customers, up over 13% year-over-year. As expected, net addition trends moderated compared to the prior year, reflecting our intentional and disciplined approach to customer migrations over the last few quarters. Sequentially, however, fiber net additions increased modestly, driven by incremental net new customer growth on our fiber network. We continue to view fiber as a meaningful long-term value driver and remain focused on deploying capital where we see the strongest returns. Overall, while competitive conditions remain challenging, the quarter reflected momentum across several of our key subscriber metrics, including sequential broadband trend improvement, continued mobile growth, strong video results and improving fiber additions. Moving to Slide 7. I will review our Q2 financial performance. Total revenue of approximately $2 billion declined 5.8% year-over-year. Excluding the previously mentioned advertising agency services business divestment, revenue would have declined 5.1% year-over-year. Consistent with recent quarters, residential video and our video-related News and Advertising business remain the largest driver of year-over-year revenue declines. Those businesses accounted for $92 million or approximately 75% of our revenue decline. Our focus with these businesses continues to be on improving profitability while looking to slow the rate of secular declines. Despite revenue pressure, we delivered an all-time high gross margin of 71% in the quarter, up 180 basis points year-over-year. This improvement was driven by the concentration of revenue declines in lower-margin areas of the business, helping to mitigate the revenue impact of declining video volumes. Residential connectivity and all Other, which includes residential broadband, mobile and telephony as well as other revenue declined year-over-year by 3.6%, reflecting broadband subscriber pressure partially offset by mobile revenue growth. Business Services revenue of $366 million grew 1.2% year-over-year, driven by Lightpath revenue growth of 7%. Excluding the divestment of the advertising agency services business, News and Advertising revenue would have declined 4.7% year-over-year, reflecting an underlying softer advertising environment driven by the macroeconomic uncertainty. As we expect total subscriber volumes to continue to impact our top line performance, we continue to anticipate total revenue to decline mid-single digits in the full year when excluding the divestiture in News and Advertising. Turning to ARPU. Residential ARPU declined by 1.1% year-over-year or by $1.46 and driven primarily by product mix shift away from video. Video's contribution to year-over-year decline was just over $3, which was partially offset by non-video ARPU growth of $1.57, mainly tied to convergence. As Dennis mentioned, convergence remains central to our strategy. In convergence ARPU, a metric we introduced last quarter, grew 2.4% year-over-year to $79.80. Convergence ARPU is calculated by dividing the average monthly revenue from broadband and mobile services by the average number of residential broadband relationships and excludes mobile-only customers. We expect convergence ARPU to become an increasingly important metric on how we evaluate the business, providing a more meaningful view of customer value by capturing the combined economics of the relationship and the impact of bundling on unit economics. As we look to the second half of the year, we expect tougher ARPU comparisons, particularly in the fourth quarter as promotional pricing held relatively steady as we benefited from rate actions at the end of 2025. That said, we will continue to evaluate our go-to-market and promotional strategies and the opportunities to optimize pricing and rates, while remaining agile as market conditions evolve, throughout the second half of the year. Continuing on Slide 8. Our results this quarter reflect operational improvement and cost discipline Dennis mentioned earlier. Gross margin reached 71%, expanding 180 basis points year-over-year. As I just discussed, this reflects both product mix shift towards higher-margin products such as broadband, as well as disciplined execution to improve all product margins. Adjusted EBITDA of $786 million declined 2.2% year-over-year, and adjusted EBITDA margin expanded 140 basis points to 38.8%. Margin expansion reflects disciplined cost management, including lower programming and direct costs as well as continued operating expense efficiencies that partially offset lower revenue. Programming and direct costs declined by over 11%, driven by programming costs down over 14% year-over-year. Other operating expense excluding share-based compensation, was down over 4% year-over-year in the second quarter. Underlying OpEx efficiencies are driven by continued call volume declines, fewer service visits and salary cost reduction driven by workforce optimization. As we continue to advance these efforts, we are deploying additional tools and initiatives to further optimize operating expenses over time with a continued focus on enhancing the customer experience. Given the expected declines in revenues, partially offset by continued discipline on both direct costs and OpEx, we continue to expect adjusted EBITDA to decline low to mid-single digits in the full year 2026. Turning to Slide 9, I'll walk through our capital expenditures and the progress we are making across our network. Similar to last quarter, we've broken out our capital expenditures between growth, maintenance and Lightpath capital to provide greater transparency into how we are allocating capital. In the second quarter, capital expenditures of $320 million represented an approximately 16% capital intensity and declined almost 17% year-over-year tied to timing of capital spend. We continue to expect total capital expenditure between $1.2 billion and $1.5 billion in the full year of 2026 with higher second half spend compared to the first half. We ended the second quarter with approximately 10.1 million total passings and 3.2 million fiber passings with over 220,000 total new passings added over the last 12 months. We continue to expect total passing expansion in the full year 2026 to be consistent with prior year trends of 150,000 to 175,000 passing additions. This excludes decommission passings, which are expected to slightly reduce our total passing count in the third quarter. Looking ahead, our growth capital envelope remained focused on building fiber in new markets, simultaneously growing our fiber footprint and our total footprint as well as upgrading our HFC networks. Over the coming years, we plan to upgrade the majority of our network to multi-gig capabilities, enabling us to support growing bandwidth demand in the increased network usage driven by expanding adoption of AI-powered applications and connected devices. Today, our fiber network offers up to 8 gig symmetrical speeds and we began launching multi-gig capabilities to select HFC communities late last year, now offering download speeds of up to 2 gigabits per second in parts of our West Virginia HFC markets. Last month, Lightpath announced new fiber builds to support 2 hyperscale data center campuses in Michigan and Wisconsin as well as announce a second infrastructure tenant on its Pennsylvania AI-grade fiber infrastructure build. These projects further extend Lightpath's AI-grade network to meet the growing capacity demand driven by artificial intelligence. To support this growth, we continue to expect annual Lightpath capital expenditures in the range of $200 million to $300 million, primarily supporting construction tied to these recently announced hyperscale contracts. Overall, we are taking a disciplined and return-focused approach to growth capital, making strategic investments to support long-term top line performance while retaining flexibility to adjust the pace of investment as operating conditions evolve. And last, turning to our capital structure. We have no remaining maturities in 2026 and our next significant maturities will begin in 2027. Addressing those maturities remain a top priority. As we have said previously, we believe that a meaningful debt reduction and a balance sheet reset are essential to continuing our transformation, competing effectively and investing thoughtfully to maximize long-term value for all stakeholders. Our weighted average cost of debt is 6.8%. Our weighted average life of debt is 2.8 years and approximately 81% of our debt stack is fixed-rate. As of June 30, ending cash available for operations includes approximately $880 million within the restricted and unsub group debt silos and $90 million at Lightpath. Total ending cash includes $28 million at other non-debt silo subsidiaries and $300 million, which was earmarked for the settlement of the previously announced tender offer. Through the successful tender offer completion, we repurchased 120 million Class A shares at $2.50 per share for an aggregate purchase price of $300 million. Following the completion of the tender offer, we had approximately 273 million shares outstanding and 206 million shares held in treasury. At the end of the quarter, our leverage is 8x the last 2 quarters annualized adjusted EBITDA. As Dennis mentioned, in June, we published a long-range plan, providing stakeholders with greater transparency into management's long-term strategy and financial outlook. A core premise of that plan is a stronger balance sheet, is foundational to everything we are working to achieve. The actions we announced in June reflect another important step toward our objectives. Our goal is to pursue a consensual comprehensive restructuring of the CSC Holdings debt through negotiations with our lenders. We believe that the measures we have taken increased the likelihood of a consensual, comprehensive deal and mitigate the potential adverse impact of failing to achieve such a resolution. That work is ongoing, and we are approaching it deliberately with the goal of reaching an outcome that supports the long-term health of the business. Overall, this quarter reflects continued progress we are improving execution, strengthening our financial foundation and continuing to invest in the capabilities that will support stronger operational and financial performance over the long term. With that, we will now take questions.

[Operator Instructions] Our first question of the conference, Sam McHugh with BNP.

I have three questions, if you don't mind. The first one on the footprint decommissioning. It sounded like it could be maybe 30,000, 40,000 passings. I wonder if you could just help us on subscriber penetration and what kind of impact we should expect for Q3? That's one. Second question on the bulk agreement. Just wondering if the [ 9,000 ] is like a net new number, was that MDU footprint already on that? And how should we think about kind of the ARPU for those customers? And then the third question was on the share repurchases, tender offer. You didn't cancel the shares. I just wondered if you could give us some context on why? And then on the shares outstanding, I think they only went down about 84 million. Can you just help us technically understand why it's certainly an 84 million reduction in shares outstanding and what that definition is, maybe...

Thanks, Sam. On the footprint, it was 48,000 passing, very nominal penetration we've been laser-focused on making sure we're honed in on the core business and where we can drive maximum impact. Our focus this year is to deliver get back to broadband growth, and we're prioritizing the initiatives and the efforts that are going to help us as a team, focus and execute operationally at the highest level. So over this next quarter, we'll be going through that process, but we're confident that ultimately, this will help us really accelerate our ability to execute and drive growth and prioritize the geographies and the initiatives to really help us get there. On the bulk agreement, MDU is a meaningful opportunity for us. Since I joined, this is an area that we've been focused on and really making sure we've got the right team, the right structure. One of the big issues, obviously, 30% of our footprint and so meaningful opportunity. One of the big issues that we had when I joined was that we were signing agreements that were nonexclusive. And so we had no protection, no real ability to drive long-term value through these arrangements. And so starting about 12, 18 months ago, we started to prioritize redoing existing agreements as well as all new agreements and converting them from nonexclusive and retail to bulk. This is a meaningful opportunity for us as I look at the next 18 to 24 months. This was a relationship we had that the team did an outstanding job in terms of working with that, the building and converting that from retail to bulk. And this is a funnel that we're laser-focused on -- as we optimize our products, as we optimize our go-to-market in MDU, clearly, the bulk ARPUs are a bit different than retail ARPUs, but ultimately, we think long term, we can deliver much better long-term value by having these bulk agreements, and that's our -- that's what we're prioritizing as we move forward. I'll pass it over to Marc to talk a little bit about your last question.

Yes, Sam, we really won't comment beyond what we published back in June related to the transactions we completed, the shares that were purchased by CSC investments, too, they're held in treasury, but we won't comment beyond that.

[ And I'll just ask here -- I don't know if -- a follow up. ]

Sure.

Yes. On the rural passing, you said nominal penetration. But was it always nominal or has it come down in the last 5 years due to competition? Like I just want to understand if this was always kind of just real low opportunity, whether it's changed in the last 4 or 5 years.

No, it's always been nominal. These are markets that are just quite frankly, very challenging to service relative to our core footprint. And so we have to prioritize where we can deliver maximum impact, where we can maximize awareness, consideration, provide the best service since I joined, we've done this a bit where we've looked at the footprint and looked at where we can show up best in terms of delivering great products, great service, great network, and we are committed to that. We remain committed to serving rural footprints where we're able to do that in a highly effective fashion, particularly across our West. And so as we think about new build and growing our passings, we're going to continue to do that in a thoughtful fashion. But this was simply -- these have been always low and just been challenging and we want to make sure that we're showing up the right way in the markets that we are servicing.

Our next question will come from Vikash Harlalka with New Street Research.

Three if I may, two sort of near-term questions and one on your long-term forecast. So in the near term, when I look at broadband losses for the year, losses have been higher by about 30,000 this year so far. You had a big step-up in subscriber losses in the back half of last year. When you sort of like think about the subscriber losses per year, do you think you can improve upon last year's subscriber losses?

Yes. So on broadband, I'm optimistic in terms of the initiatives that we're putting in place to prioritize our path back to growth. Earlier this year, as you know, we took some actions to evolve our pricing and our packaging and our go-to-market strategy. And this was all about simplifying the offers across our footprint. And we had a couple of very specific goals and objectives. One is we wanted to improve our ability to execute operationally across the footprint. And we're seeing that. We're seeing improved sales channel productivity. We were particularly focused on inbound sales, in e-comm, door-to-door, and even in retail with mobile, and we are seeing in some of those channels, all-time highs in terms of driving yield and driving productivity and it's really exciting for us to see. And we're also focused on improving call volumes into the center, improving shoppers into e-comm, just really rightsizing and accelerating top of the funnel. The good news is we're seeing that happen across large portions of our footprint. And so we're excited that, that strategy is working. We're continuing to optimize it and really make sure that we're showing up the right way. But we think that these offers help us compete most effectively and will continue to optimize as we go forward. But the reality is that there are certain markets where it's not just the offer. We need to do a better job in terms of improving customer service, the quality, the billing experience and really drive up awareness and consideration. And so we have a whole host of initiatives specifically focused on that, that are going to help us improve customer experience, help us improve base management which will ultimately help us reduce churn because there are some markets, as we know, we're seeing more fierce competition than ever, and customer expectations are high. And so we're in the early innings, but we're seeing strong -- we're optimistic as we implement solutions like Google CES that will help us elevate our customer experience really help us solve problems, customer issues faster, deliver self-service capabilities. We have a road map over the next couple of quarters to launch a new martech platform which we don't have today. Today, everything is manual in terms of how we drive acquisition, how we drive our base management, a lot of manual intervention and e-mails, but this will allow us to do a much better job communicating to our customers, upselling products. We have other solutions that we are just in the early innings of launching, like [ Brightbill ] to help us ensure that we provide the highest level of experience as it relates to billing accuracy and completeness and answer customer questions. And so all of these things together are helping us just improve our performance, both in terms of acquisition and then ultimately in terms of churn so that we can stabilize broadband. This is a journey. This is something that's going to take us a couple of quarters of -- many of these initiatives will take a couple of quarters for us to implement but we're seeing direct improvements as we implement these solutions. For example, we implemented Cresta to help us improve our top line performance in sales channels. And we're seeing that benefit, and we're going to be rolling that out into care and retention as well. And so all these initiatives will help us drive performance and get us back to broadband growth.

Very helpful. And then on broadband ARPU, it's been sort of flattish in the first 2 quarters of the year. How are you thinking about the rest of the year? Can you grow ARPU this year?