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Edited Transcript of ATUS.N earnings conference call or presentation 2-May-19 8:30pm GMT

Q1 2019 Altice USA Inc Earnings Call

BETHPAGE May 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Altice USA Inc earnings conference call or presentation Thursday, May 2, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Charles Fyfe Stewart

Altice USA, Inc. - Co-President, CFO & Director

* Dexter G. Goei

Altice USA, Inc. - CEO & Director

* Nick Brown

Altice USA, Inc. - Head of IR

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Conference Call Participants

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* Andrew Charles Robert Beale

Arete Research Services LLP - Senior Analyst

* Brett Joseph Feldman

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Craig Eder Moffett

MoffettNathanson LLC - Founding Partner

* Gregory Bradford Williams

Cowen and Company, LLC, Research Division - VP

* James Maxwell Ratcliffe

Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst

* Jason B Bazinet

Citigroup Inc, Research Division - MD and U.S. Cable & Satellite Analyst

* John Christopher Hodulik

UBS Investment Bank, Research Division - MD, Sector Head of the United States Communications Group and Telco & Pay TV Analyst

* Jonathan Chaplin

New Street Research LLP - US Team Head

* Michael L. McCormack

Guggenheim Securities, LLC, Research Division - MD & Telecommunications Senior Analyst

* Philip A. Cusick

JP Morgan Chase & Co, Research Division - MD and Senior Analyst

* Stephan Edward Bisson

Wolfe Research, LLC - Research Analyst

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Presentation

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Operator [1]

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Good afternoon. My name is Emily and I will be your conference operator today. At this time, I would like to welcome everyone to the Altice USA First Quarter 2019 Earnings Conference Call. (Operator Instructions) Thank you.

Nick Brown, you may begin your conference.

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Nick Brown, Altice USA, Inc. - Head of IR [2]

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Hello, everyone, and thank you for joining. In a moment, I'll hand you over to Dexter and Charlie, who will take you through the presentation, and then we'll take questions.

As today's presentation may contain forward-looking statements, please read the disclaimer on page 2. The slides are available on the company's website and a replay of this call will be available through the next month. And with that, I'll hand over to Altice USA's CEO, Dexter Goei.

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Dexter G. Goei, Altice USA, Inc. - CEO & Director [3]

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Thanks, Nick and hello, everyone. Altice USA has made a great start to 2019 as we continue to realize the benefits of our ongoing investments to improve the customer experience and deliver state-of-the-art connectivity services, advanced business solutions and high-quality content.

Summarizing on slide 3, in the first quarter, revenue growth was 2.9%, supported again by growth in all business segments. EBITDA growth was 5.3% on a reported basis, achieving our highest ever Q1 margin at 43.1%. Adjusting for $10 million of losses from the consolidation of i24 and minor mobile losses ahead of our launch, EBITDA growth would have been even higher at 6.7% with a margin of 43.7%.

Operationally, 1 key highlight is that Altice One is now the best ever video customer performance for Altice USA. This makes us very pleased we decide to invest in our own proprietary video set-top box and broadband router, including the integration of linear and non-linear programming, vastly improved user interface and new features such as voice control.

We continue to see increased customer demand for higher broadband speeds and significantly growing data usage. And Altice One has also contributed to a big enhancement in Wi-Fi performance. And we are facilitating this data usage growth with our continuous network upgrades, underpinning our broadband customer revenue and cash flow growth.

We remain laser-focused on our new growth initiatives to diversify our revenues and maximize the potential of our core network assets and installed base of broadband and video customers. First mobile, where we're on track for a launch of some -- of services this summer; second, the acceleration of fiber-to-the-home and new-build activity; third, our differentiated advanced advertising business where we continue to deliver strong growth; and last, our latest initiative is our news business where we just this week announced the acquisition of Cheddar to fuel growth in news and advertising.

Today, we reiterate all of our financial guidance for 2019, and would note we already bought back $600 million of shares in Q1 against our share repurchase program of $1.5 billion, which is approximately 16% of the free float since we started the buyback in Q3 2018. So we bought back about [1.1 billion] of shares as Charlie will come back to later.

Remember, we also recently engaged in a lot of refinancing activity reducing interest cost significantly and lengthening average maturity, putting us in a very strong balance sheet position. And finally, I couldn't be more proud of everything the company is achieving right now for, which I'd like to thank again all of our dedicated employees. The type of work environment we've created is now being recognized externally as Forbes recently named us as one of the Best Employers for 2019, and separately, we were recognized as the Best Place to Work For LGBTQ Equality for a perfect score of 100 on the Human Rights Campaign Foundation.

Moving on to slide 4, we show the components of total revenue growth, which was up 2.9% in Q1. This is at the high-end of the guidance range which we gave for the year of 2.5% to 3%. Our residential business grew 2.4% and business services grew 5.3%, consistent with recent trends. Advertising remains a strong growth business, up 6.8% in Q1. Recall our annual rate event too -- took effect at the end of Q1, so we are likely to have elevated revenue growth in Q2 for residential and business services.

Moving on to slide 5, on the left-hand side, shows residential ARPU growth of 2.1% to $143 with slight growth in our residential customer base year-over-year in Q1. The total number of unique residential customer relationships increased by 22,000 this quarter, which is a significant improvement compared to 8,000 net additions in Q1 2018. On the top right, you can see we had our best ever video trends in Q1 with just 10,000 net losses, including video customer growth at Suddenlink for the second consecutive quarter.

Optimum did benefit compared to the prior-year quarter where performance was impacted by multiple snowstorms and a programming dispute. But even adjusting for this, we saw good underlying improvement in customer trends. This confirms what we started seeing last year as Altice One is helping to reduce churn, take market share from major satellite operators and the relative value proposition of virtual MVPDs and other streaming services has reduced, as they have been [raising] prices. We added 37,000 broadband net additions in Q1 2019, also demonstrating a significant improvement from 26,000 in Q1 2018. The rate event so far is going according to plan although, given the different timing this year, we would just be a little cautious about extrapolating the subscriber trends fully into Q2, which remember is also the seasonally weakest for Suddenlink.

Slide 6 focuses on Altice One where we now have about 400,000 customers, representing about 12% [translation] of video customer base. With this product upgrade, we saw our highest ever video and broadband net promoter scores in Q1. This is supporting all of our churn statistics moving in the right direction, including early churn and survival rates relative to the legacy customer premise equipment. And the usage trends remain supportive with a significant number of customers using features such as voice control and over 40% using Netflix through our box.

We continue to innovate the user interface and add additional features just like last week launching our 3.0 operating system, including personalized sports content and faster content navigation. Our core broadband service in Altice One product positions us very well as a cost effective and convenient TV content aggregator for customers, which is now really coming through in our results.

Moving on to slide 7, we show again, how we've been able to consistently provide higher and higher broadband speeds for customers following our network and CPE upgrades. On the left, you can see the average speed taken by customers has increased from 70 megabits to 191 megabit over the last 2 years, consistently growing every quarter. We are currently upgrading our Optimum cable plant to DOCSIS 3.1 and we're still on track to launch up to 1 gig services over coax at Optimum later this year, as well as we're adding more gigabit capacity at Suddenlink.

Separately, we are also accelerating the rollout of our fiber network expanding gigabit symmetrical broadband services and smart Wi-Fi across Long Island, New Jersey, and Connecticut. This will put us in the position to offer 10 gigabit for 10G residential and SMB broadband services next year.

On the right-hand side, you can see the average data usage is now over 280 gig per household per month and growing over 20% per year. We would note that broadband customers that do not take our video service are almost using twice the amount of data showing video streaming is still a massive growth driver for our broadband business. And the number of connected devices in the home is now 12 on average, with the top 10% of data consuming households having 26 connected devices on average. We still don't see any other network technology keeping pace with these broadband usage trends in the way that we are and with a high-quality cable and next-generation fiber plant. To be clear, we have seen no 5G fixed wireless launches in our footprint. We don't expect to see them anytime soon, given technical and economic constraints for mobile network operators, particularly because of the requirement for dense small cell deployments and as our revenue per gigabyte of usage is on average, so much lower and attractively priced.

On slide 8, moving on to our mobile strategy. We're on track for a full commercial launch this summer. Our full infrastructure-based MVNO approach has a number of benefits. With our partnership with Sprint, we deployed over 19,000 small cells in less than 1 year, representing the fastest rollout of its kind in the US and this has led to significant network performance improvements in our footprint. In return, we have relatively attractive wholesale economics compared to other MVNOs. Our core network infrastructure is ready to go, giving us full access control over the customer experience and allows us to better manage traffic.

We have major mobile handset partnerships in place and have developed our IT platforms for digital-first experience. All this positions us to provide a great value proposition to our customers and the market. We are in a phase of heavy testing right now and have all the necessary tools and expertise in-house to make our mobile business a success.

On slide 9, I want to highlight Altice USA's news business service -- news business since we announced the acquisition of Cheddar this week. News 12 remains our most watched channel on Optimum and continues to grow ratings and advertising revenues. News 12 is also the main source of local news among adults in the tri-state area according to a recent third-party study. We also brought i24NEWS into Altice USA last year, which focuses on international news and is now carried by almost all of the major MVPDs.

Cheddar is a digital-first business news, general news and college network focused on young professionals and millennials. Cheddar has distribution of approximately 40 million households and records over 400 million video views per month with a significant presence on all of our major vMVPDs and social platforms. So with this combination of assets, we now have a full suite of hyper local, national business and international news offerings across both linear and non-linear formats.

The entrepreneurial management of Cheddar is a great fit with Altice USA and will now oversee our entire news business. Our strategy here is to provide quality content, grow distribution and as a result, enhance our advertising revenue growth. Cheddar also fits really well with our advanced advertising business, as we can plug it into our multi-platform one-stop shop for advertisers with national reach. We expect to close the Cheddar acquisition in the next 2 months following regulatory approval.

And now, I'll hand it over to Charlie to review the financials and guidance in more detail.

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Charles Fyfe Stewart, Altice USA, Inc. - Co-President, CFO & Director [4]

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Thanks. Dexter and hello, everyone. On slide 10, we summarize Altice USA's continued margin progression where you can see on the right-hand side that we were at 43.1% adjusted EBITDA margin in the first quarter on a reported basis. Just want to note that, that included the impact of consolidating $10 million of i24 losses, following the acquisition in April of 2018. Excluding i24 as well as just $3 million of mobile costs, neither of which were in last year's first quarter numbers, our EBITDA margin would have been 43.7% which is over a 1,000 basis points higher than 3 years ago on a pro forma basis.

This substantial margin improvement is really helping support higher investments for growth and all the initiatives that Dexter just described and we're certainly not done yet. Every quarter, we are demonstrating that we can sustain a high level of operating efficiency with improved subscriber trends and sustainable growth in revenue, which is dropping through to free cash flow and which supports our tax-advantaged levered equity returns.

Turning to slide 11, we show a breakdown of our CapEx, which increased year-over-year due to our growth in -- growth investments in fiber, our new home build, our DOCSIS 3.1 and mobile spending. Our total CapEx intensity was 14.2% of revenues in the first quarter of 2019, but it's worth noting that if you strip out mobile, fiber and new home build investment , it would have been just 10% or even somewhat less which is where we see our long-term recurring CapEx level.

In particular, in addition to driving additional medium-term operating efficiencies, our fiber network will help us reduce longer-term CapEx. The fiber network is completely passive and so it will be more resilient with significantly less service outages and incidents. This will drive fewer customer interactions and lower technical service visit requirements, as well as lower maintenance and power costs. Our recent DOCSIS upgrades at Optimum are already helping us in the same way, but we expect the fiber upgrade to have an even larger impact in that regard. And all that is without mentioning the consumer benefits of having an all-IP superfast broadband experience well beyond anything that's available today.

And separately as Dexter mentioned, our mobile network is now close to ready for launch. The cash outflow in the first quarter that we show here, really just reflects payments for prior equipment and IT platform development costs. Even though we have an infrastructure-based mobile strategy, it is really CapEx light as we're able to leverage a lot of our existing fixed infrastructure.

Turning to slide 11, we've got a view of our free cash flow in some more detail. We generated $164 million of free cash flow in the first quarter, which was broadly in line with last year where our growth in adjusted EBITDA was offset by the increase in CapEx for the quarter. Remember that typically EBITDA is seasonally the lowest in the first quarter with our programming costs that usually reset in January. We also expect cash interest to come down with the recent refinancing activity, as I'll come back to you momentarily, and first quarter will be the peak this year from a financing cost perspective as we paid the last coupon on the 10.125% notes in January before we refinance them.

Cash tax was zero in the first quarter. We still don't expect to be a full cash taxpayer until 2021. Other operating cash flows included $17 million of restructuring costs, which was less than half the level from the prior year and the financing activities and change in cash includes the $600 million of share repurchases in the quarter that Dexter highlighted.

Turning to slide 13. We continue to feel very comfortable with our balance sheet and even more so following the recent $5 billion of refinancing activity in the first quarter, as well as the debt silo combination that we completed at the end of 2018. Our weighted average cost of debt is now 6.2%, achieving savings of over $80 million per year going forward. Our weighted average life of debt has increased to 6.4 years, which is an increase of almost a year. And we only have maturities really of less than $600 million over the next 2 years and significant liquidity of $2.5 billion. We fixed out about 75% of our debt in terms of rate at the moment. And lastly, S&P recently upgraded our corporate credit rating to BB minus. We'll continue to proactively manage maturities and opportunistically reduce interest costs going forward.

And then lastly, on slide 14, we're recapping our financial guidance for 2019, which we're reiterating and as you can -- and you can see as of the first quarter, we're certainly on track. We expect to grow revenue in the range of 2.5% to 3%, we expect EBITDA margin expansion excluding mobile costs; for reference, Q1 EBITDA margin ex mobile was up 1.1 percentage points.

CapEx we expect in the range of $1.3 billion to $1.4 billion supporting all of the growth initiatives we've discussed and we expect to grow free cash flow in 2019 off of the base of $1.35 billion in 2018, including any mobile-related costs. And we're targeting year-end leverage in a range of 4.5x to 5x. Our share buyback target for 2019 is $1.5 billion, and that's not considering any potential merger asset sale or acquisition activity. The Cheddar acquisition will be funded with a little under $200 million of cash, but has no impact on our planned share buybacks.

We are opportunistically front-loaded our repurchases with $600 million in the first quarter at an average price equivalent to $20.51. And as Dexter mentioned, we've now bought back 1.1 billion of shares since we started the program in Q3 last year, which represents about 16% of the free float of the company in the past 9 months.

And with that, I think we'll open it up for questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Philip Cusick, JPMorgan.

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Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [2]

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Let's talk about the mobile launch. I appreciate telling us it's going to come in the summer of '19. Any updated views on how you're thinking about that roll-out in terms of relative price to the market and willingness to subsidize or finance devices? Are you ready with BYOD and should we expect wireless CapEx to be similar in 2Q as you get ready for the launch? Thank you.

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Dexter G. Goei, Altice USA, Inc. - CEO & Director [3]

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Just on the mobile launch, we are completely focused on our launch product and our marketing plans. We have our price points, we know how we are going to distribute the product, we're just not going to disclose that until we get closer to actual launch. In terms of the CapEx, no, we don't expect to have the CapEx in Q2 similar to Q1. That really was a roll-off from accrued CapEx in Q4 of last year, where payments came in from a cash CapEx standpoint to Q1 this year.

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Operator [4]

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Brett Frank, Goldman Sachs.

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Brett Joseph Feldman, Goldman Sachs Group Inc., Research Division - Equity Analyst [5]

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Brett Feldman with Goldman Sachs. But thanks for taking the question. Two, if we could get an update on your strategic review of Lightpath, that would be helpful, especially if there's anything you might say about how you would apply proceeds if you could do something. And then just following up on Phil's question about mobility, your peers in cable are still in sort of net loss positions in many cases, a year-and-a-half. And having launched these products, I know you're not giving specific guidance around this, but just some way we could think about the framework for what it takes to get to the point where this would be a good accretive product to you, that would be really helpful as we think about modeling it out. Thank you.

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Dexter G. Goei, Altice USA, Inc. - CEO & Director [6]

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Sure. I'd love to help you with your model, Brett. On the strategic review on Lightpath, we've been very open that this is something that we wanted to review closely. There have been multiple news reports that this process has been launched, so I can confirm that. And I think we're not close to having results there, but as you know these M&A processes do take some time, so I suspect that sometime towards maybe the end of the second quarter or maybe the beginning of the third quarter, we'll have something more to say about that.

I think in terms of use of proceeds to the extent that we do sell or find some liquidity, whether it's partial or full, our first instinct is to probably buy back more shares. But clearly, depending on the size of the proceeds, some may be used to deleverage the balance sheet as well.

In terms of your mobile question, we've been also pretty upfront that we think that the infrastructure-based MVNO allows us to have better control of the economics, not only in terms of our price points with our agreement with Sprint, but also in terms of the managing of the traffic.

I said the last time that if we were doing a similar MVNO price point to other MVNOs out there, that would be profitable right out of the box. I think the question here is, if we are more aggressive, what could be the cash flow utilized to do that. We said that it would be a marginal impact in the first 12 months if we were to be a lot more aggressive on price points.

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Operator [7]

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Craig Moffett, MoffettNathanson.

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Craig Eder Moffett, MoffettNathanson LLC - Founding Partner [8]

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I'm going to ask the obligatory video question. You talked about some of the investments you've made in video. Can you just talk about the role that you think video plays and there's a lot of talk obviously from different operators about how important video is or isn't in reducing broadband churn and in overall economics. I wonder if you could just talk about your own views for video in the bundle?

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Dexter G. Goei, Altice USA, Inc. - CEO & Director [9]

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Sure. I mean, I think we've been asked this question pretty regularly, Craig. So we continue to believe that video is a core product. We will continue to offer it in multiple sizes and shapes to our customers. It has a lot of benefits to our customer base in terms of retention and churn, but it continues to be a profitable business for us. We are and we've highlighted a little bit of a differentiated video market. One, we have a very high penetration of video pay TV subscribers in the Optimum footprint. We continue to see very, very high selling rates on our video product, and we're under-penetrated in the historically Suddenlink footprint, so that becomes an opportunity for us to grow our video subscribers if anything stemmed the losses that we have seen historically. And so, we have seen that specifically on Suddenlink. I think this is the sixth quarter in a row we've outpaced our year-over-year numbers. In the last 2 quarters, we have seen positive net video RGU. So with a better content and we've highlighted that the adding of Viacom, we think that was a positive impact to our subscriber base.

The unification of our marketing products and on top of that the launch of the Altice One platform as of September of last year, has really had a positive impact as that area of the US has seen quite a lot of losses in the satellite pay TV space, and as well as no longer seeing as aggressive of vMVPD penetration there. So that's a net positive for us on video. That may be different than other operators out there, but we're seeing a tremendous amount of opportunity in the Suddenlink footprint on video. And on the Optimum side, we continue to see very strong performance of the video product and that really helped our advertising platform as well.

That's a big plus in terms of what we've done from a data analytics standpoint to a very targeted, addressable linear and digital advertising product that we've excelled out from the local and regional standpoint, and now are looking to do more national, particularly with the Cheddar product out there as well.

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Operator [10]

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John Hodulik, UBS.

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Dexter G. Goei, Altice USA, Inc. - CEO & Director [11]

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John?

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Operator [12]

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John if your line is on mute, please unmute.

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Dexter G. Goei, Altice USA, Inc. - CEO & Director [13]

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Operator, maybe we can come back to John and we can get to the next question please.

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Operator [14]

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Jason Bazinet, Citi.

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Jason B Bazinet, Citigroup Inc, Research Division - MD and U.S. Cable & Satellite Analyst [15]

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I just had a quick question. Maybe 2 years ago, during your IPO, the idea to sort of consolidating cable was a big part of the narrative and all of that has sort of faded to the background. And without talking about names, could you just qualitatively sort of describe what you see the supply of cable assets are looking like, if any? Could this -- in other words, could this re-emerge as a narrative for your stock going forward? Thanks.

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Dexter G. Goei, Altice USA, Inc. - CEO & Director [16]

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Yes, I mean, Jason, you know that if there is interesting, I'm ready to do. We will be the first people to raise our hands and look at it. We think that we do a very good job of buying companies and integrating them within Altice USA. So it's not for lack of appetite today. But today, we've been focused so much on the organic platform that we have. We have so many great initiatives for organic growth today. That's going to continue to drive great free cash flow growth, great top-line growth and really great experiences for our customers.

So I think on a standalone basis, we feel great about our future for the next -- a very long time out there as we continue to roll out new products, I think in terms of the supply, that's no hidden secret. Everyone knows the other assets that are out there, the different shareholders that control and the management team, and I think you have to take your view as to there if there is an appetite for consolidation. This is a sector and we've said it repeatedly that we will consolidate and that will potentially include other infrastructure-based telecoms companies. I think we are all awaiting for our merger decision to occur in the next couple of months and that may change or dampen expectations. But I think that is something that everyone is waiting for before anyone decides to do or think about more consolidation in the sector.

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Operator [17]

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John Hodulik, UBS.

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John Christopher Hodulik, UBS Investment Bank, Research Division - MD, Sector Head of the United States Communications Group and Telco & Pay TV Analyst [18]

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I guess, following up on the Cheddar deal, anything can you guys tell us on the sort of return characteristics of that $200 million investment that maybe sort of compared to another $200 million in share repurchases. I mean how should we think of sort of the growth rate of the advertising business and maybe any synergies you get from putting together with your existing news businesses? And then at last -- and as I said lastly, is this sort of a one-off deal or should we think that you guys are sort of in the market for, sort of other media or content assets? Thanks.

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Dexter G. Goei, Altice USA, Inc. - CEO & Director [19]

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Let's start with the second one first. This is a one-off. We're not interested in acquiring more media assets. This is a very targeted acquisition to help underscore the asset value and drive more value in the news and advertising divisions of our business. I think on Cheddar itself, I mean all M&A that we do, we always find it more accretive than doing anything else. This one's got a little bit of a longer tail in terms of financial performance because the underlying financial statistics are not similar to, let's call it, other cable businesses, where you've got an immediate cash flow potential return. But we think that this is going to be a significantly accretive acquisition for us as it's going to drive, I mean, the business itself. Cheddar is what's called a break-even business this year going into hopefully significant cash flow growth next year with significant top-line growth. But just as importantly, other than the standalone Cheddar business, there's a tremendous amount of operational synergies on the top line and some on the cost side for the integration of Altice news with Cheddar.

So this is really a win-win acquisition for us not only strategically in terms of complementarity of skill sets, in terms of the content that we're going to create. We've got a full suite of news content, hyper local, national business and international, linear and digital, but on top of that, what Jon Steinberg and his team brings to the table is a tremendous amount of experience and success in the national advertising market, which is something -- which is just nascent over at a4 here at Altice USA. So it ticks all the boxes in terms of shareholder returns and far outpaces what we think we could have done just in terms of buybacks.

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Operator [20]

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James Ratcliffe, Evercore.

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James Maxwell Ratcliffe, Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst [21]

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Two, if I could. First of all, any further refinancing opportunities you see beyond what you had done in 1Q? And secondly, within the competitive environment and particularly the strength at Suddenlink on video, how much of that do you attribute to any strategy changes by DIRECTV in particular? Thanks.

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Charles Fyfe Stewart, Altice USA, Inc. - Co-President, CFO & Director [22]

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Hey. It's Charlie. To obviously answer the first one, in terms of re-fi opportunities, over time we think we can continue to bring our average financing cost down. There are some higher cost bonds out there, but nothing that's necessarily immediately actionable that meets our sort of return criterias for doing so. And as I said, we really have no actual maturities of any materiality. I think it's just a little over $500 million next April. That's all we've got in the next couple of years. So we look at it closely. When opportunities present themselves, we pull the trigger. And -- but nothing that's necessarily imminent currently.

On the Suddenlink video performance, I think there is obviously a positive impact from the performance of other pay TV operators in the sector. But I do think that it's -- we consistently have been repeating the same thing, which is, we have now a full suite of content, we're attractively priced and we have, what we believe, is the best customer experience through the Altice One platform available. So the combination of those 3 things, plus the fact that we have quite low penetration of video subscribers in the Suddenlink footprint, makes it a real opportunity for us to grow that platform hopefully going forward, if anything stem the losses or slow down the losses that we've seen historically.

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Operator [23]

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Marci Ryvicker, Wolfe Research.

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Stephan Edward Bisson, Wolfe Research, LLC - Research Analyst [24]

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It's Stephan on for Marci. So you guys came in at top end of the revenue growth guide in Q1 and will seemingly have accelerating growth from the price increase at the end of Q1. Is there reason why you are going to exceed it presumably, just the headwind from advertising or is there something else?

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Dexter G. Goei, Altice USA, Inc. - CEO & Director [25]

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Well, listen, I think we felt good about the guidance that we've given today. We, obviously -- there are going to be things in the second half this year, which we won't see relative to the second half of 2018 such as political advertising, but we continue to feel very, very good about our guidance. We're at the high end of the guidance right now and we're going to now focus on launching mobile, closing the Cheddar acquisition to the extent we have additional commentary, I think you're going have to wait 3 months, until we give additional commentary.

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Operator [26]

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Jonathan Chaplin, New Street Research.

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Jonathan Chaplin, New Street Research LLP - US Team Head [27]

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So I'd love to just delve into the Cheddar acquisition a little bit more. Is there a little bit of skepticism out there just given how poorly all the digital content investments and acquisitions that the cable companies and telcos have made over the course of the last couple of years have turned out? And so you've touched on a little bit Dexter, but I still would love a better understanding of what's unique about Cheddar? What is it exactly that you're buying, is it the 40 million households that they tapping into today, is it a unique content creating capability that you couldn't replicate yourselves, is this another play on tapping into millennials that seem hard to get that, what's the -- what's the unique asset here?

And then from a synergy perspective, I hear you say that the revenue and cost synergies are putting it together with your news business. If you could go into that in a little bit more detail, that would be great. And I'm assuming there aren't a whole lot of synergies between this asset and the cable business but -- yeah, that would be my other question.

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Dexter G. Goei, Altice USA, Inc. - CEO & Director [28]

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It's a lot of questions. Just on that, Jonathan, let's focus on what Cheddar is today, right. Cheddar's founding management team has identified a mousetrap, which is business news for millennial. And if you look at where businesses from a video standpoint as to assume today, it primarily is on CNBC and Bloomberg TV. Those demographics are much older demographics, I believe the statistic on CNBC is over 60 years old in terms of the average viewership. And the actual number of households that watch it is very small. However, it punches way above its weight and power ratings in terms of the revenues and cash flow it generates, because all the premium Fortune 500 CMOs advertise on CNBC going up that very lucrative demographic. What cheddar has been able to do in the last 2.5 years is recreate a more user-friendly, let's call it, business news platform for millennials and that's first on the digital-first basis, particularly with the success on Facebook and Twitter and Snap, and provide business news for people that are also growing their wealth assets at a very fast pace, but don't have the traditional attention span and brand loyalty to a CNBC. And so with that he has been able to drive those same national advertisers to drive revenue sponsorship and advertising revenue across Cheddar. And so, not only are we happy to be getting the 400 million video views we get every month, but on top of that, he realized if he was going to be even more successful, you need to pivot it back into the new world and drive a linear viewership to drive incremental advertising.

So on top of that now, there's 40 million households that he reaches. He has all of the major MVPDs and vMVPDs out there buying into the Cheddar product and on top of the Cheddar business product, he's been able to launch a Cheddar general news product as well. So the standalone economics of the business are exceptional in itself. He is growing revenue at a clip of close to triple digits a year and driving -- ease up the inflection points of profitability, which is going to be very interesting for us as we go into 2020, 2021 as the dynamics continues. So that's the standalone business. On a standalone business perspective, it's an attractive investment (inaudible) that we are actually invested in news space and we like the new space because it's lower cost content with very high impact and good advertising dollars, which is not the same for the other very anchor tenants to the bundle, which is sports, which is very high-cost content and a fickle in terms of where the rights go year-over-year.

And so going pivoting to the second point, which is outside of it being a great standalone business, today we have a hyper local business, which is the #1 rated local news channel in the choiced area, but which is nowhere on the digital side, absolutely nowhere. And so bringing in experts on the digital side to drive and help drive that business, because the moment you are this side we do exceptionally well. But there is also a brand in News 12 that probably has been under-utilized because we think that we can do more with that News 12 brand. And Jon Steinberg and his team have been able to show that he can expand on good brands.

And then lastly, we have i24 business which is nascent. It's very small today, it is a product that is very unique and advertisers like unique products. But it locks distribution and scale, because the product that is going to get monetized in the national advertising market and not the local advertising market. And what Cheddar bring to table is probably the -- some of the best national advertising salespeople out there and (technical difficulty) confident that he can add into the i24 platform at a much more cost-effective basis.

You add all those things which is all of a sudden we have a better mousetrap on News 12, a better mousetrap on i24 and a great growing digital and linear presence in Cheddar, and that provides even better fuel for a4 platform out there, which is if you can remember we took a data analytics and local ad sales business and turned it into a digital local -- digital and linear local, regional and national targeting business today, with better user interface to allow for the distribution and penetration of more clients on a local basis and on a national basis. And where we lack expertise let's call it, an experience is on a national basis. And that's exactly where Cheddar and its management team are experts on. That is a mouthful for you, so hopefully that makes further sense.

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Jonathan Chaplin, New Street Research LLP - US Team Head [29]

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Yeah. No, that was really helpful.

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Operator [30]

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Mike McCormack, Guggenheim Partners.

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Michael L. McCormack, Guggenheim Securities, LLC, Research Division - MD & Telecommunications Senior Analyst [31]

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Dexter, really just to elaborate on your comments regarding the vMVPD competitive landscape, I know you can frame that in your comments regarding the price points. We wrote recently about the price uptick there making that synthetic broadband standalone plus a vMVPD product much more expensive than your promotional double play pricing. So maybe what you think about that on a going forward basis? Ad then secondly, just on the fiber-to-the-home build, what dictates the pacing of that? Thanks.

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Dexter G. Goei, Altice USA, Inc. - CEO & Director [32]

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So on the first question, (inaudible) we're like you guys, which is we're watching the statistics that are being published by our peers in the vMVPD world. And so that slowed down and some even losses by certain vMDPDs subscribers, but we are seeing the fruits of that. I can't tell you that 1 subscriber who is going to go to vMVPD land is now staying with us. But it's clear that the addition of what we're seeing statistically as a slowdown in vMVPD penetration and a reduction in the subscribers subscribing to satellite TV, is helping MVPDs like ourselves. But to get to your point on the synthetic bundle, today we have a double play offering of Internet and video at [$64.99 to $69.99] right. With taxes and set-top boxes, we're onboarding people in the $100 to $110 range for that product.

And if you look at the -- if we look at the vMVPDs today, which let's call it, YouTube TV $50 to $55, DIRECTV now anywhere from $50 to a lot higher than that. The average single play ARPU is $55 to $65. So you add that to the vMVPD, you are in that $110 to $125 range depending on what you are having for less content and what we believe to be a less, not as good as a user experience and the Altice One user experience today. So that is -- the reality of it is, it makes very little sense for many people to go on to a vMVPD plus a single data product relative to the cable bundle.

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Michael L. McCormack, Guggenheim Securities, LLC, Research Division - MD & Telecommunications Senior Analyst [33]

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Okay and just on the pace in the fiber-to-the-home, Dexter?

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Dexter G. Goei, Altice USA, Inc. - CEO & Director [34]

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Yes, listen, we think that all of the fiber build-out and the new homes build that we're driving to is very accretive from an MVPD standpoint perspective. So what's really driving the pace is authorizations and opportunities. Authorizations on the fiber-to-the-home side and opportunities on the new homes build side. We think that things that are contiguous of the new homes built side to our existing platforms and footprints are -- is a very accretive investment. And as we've spoken about on fiber-to-the-home, we think that the OpEx and CapEx savings mid-to-longer term are significantly accretive before we even talk about potential churn reduction or revenue opportunities we have on fiber itself.

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Operator [35]

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Greg Williams, Cowen & Company.

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Gregory Bradford Williams, Cowen and Company, LLC, Research Division - VP [36]

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I just had 2. One question was on fixed wireless. I know you mentioned you are rather dismissive of the technologies, but I think that's alluding to the millimeter wave small cell type. I want to touch on the T-Mobile solution specifically, their traditional macro towers are using the (inaudible) fixed wireless. On their call, I think they said they could reach [$66 million] pops. It seems like it could have a niche rural suburban fringe play, because here your thoughts pertains to the Suddenlink territory.

Second question, just changing gears back in the Lightpath process, you mentioned it could take a while, late Q2 early 3Q. I'm wondering the complexity behind that? More specifically, the difficulty of unwinding Lightpath and I'm not even going to talk about the IR used to connect your cable Islands, but who owns what? The Cabinet supports the equipment. Is this work already done or is this part of the hurdle to process and why it might take so long? Thanks.

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Dexter G. Goei, Altice USA, Inc. - CEO & Director [37]

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On the fixed wireless service side, listen we're not dismissive of the potential challenge, challengers out there. I think what's clear is, we think it's a more of a niche product relative to the initial anticipation that it could be a much more broader, deeper product across a larger footprint in the US. So to your point, we actually do think that there are quite attractive potential applications of 5G whether with T-Mobile or someone else from a rural standpoint out there that could potentially impact some of our footprint over time. We are just saying today that the way we think about the world and we think about capital allocation, we just don't think that we are at the center of the attention from 5G. We don't expect that for us to be the center of attention for quite some time, given our footprint, one of the overbuild side on Optimum, but secondly, how dispersed we are in the Suddenlink side today.

On the Lightpath side, listen, it is a separate business. It's got its separate employees. It's got its identifiable, very clear financial and assets, and so the question really is, it's not the complexity of separating it, because the complexity of separating it is not so complex. Where there's a will, there's a way. I think it really is a question of who the buyer is, whether a buyer would like to acquire 100% or like to partner up with us. And then the question really is, is do we provide a very deep SLA or not. And that is probably the -- complexity is the wrong word, but probably the issue at hand...

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Charles Fyfe Stewart, Altice USA, Inc. - Co-President, CFO & Director [38]

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Variables.

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Dexter G. Goei, Altice USA, Inc. - CEO & Director [39]

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That we're going to have to do in terms of the variables on the transaction.

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Operator [40]

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Andrew Beale, Arete Research.

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Andrew Charles Robert Beale, Arete Research Services LLP - Senior Analyst [41]

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I'm just wondering if you can help us with the profile of taking i24 to profit? You've obviously got carriage on major MVPDs, but the losses haven't quite -- haven't come down quite yet. What is the timeline to scale the advertising revenues on top of carriage and get it to break even? And then what is the acceleration you might get from Cheddar? That's the first one. And then, second question, I mean, Cheddar spoke on their call testing a dual SIM approach. Will they combine that? They have broad MVNO and tradition MVNO (inaudible) at the SIM level. Could you just compare and contrast your full MVNO and what will in future, become a hybrid network approach with that alternative way of doing things? Thanks.

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Charles Fyfe Stewart, Altice USA, Inc. - Co-President, CFO & Director [42]

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It's Charlie. I'll start on the i24 question which is, we acquired it a little less than a year ago, and I will say over that time, we've been very pleased with the direction of growth, both in terms of distribution audience as well as revenue. So we're certainly headed in the right direction. We added some big distribution partners just in the last quarter and that started to come online. So we expect the trends to continue, and obviously, we are very -- we recognize it's a start-up. You have to have a high-quality product, which we believe we do. And so we're going to keep driving into that in that direction and we'll keep you apprised as we go.

Certainly, everything Dexter elaborated on in Cheddar I think is absolutely just as true as with regard to i24 as it is with News 12 or Cheddar itself. We're going to be very focused on exploring those opportunities to enhance it and we'll also update you once we get the acquisition closed and kind of have those plans developed and moving forward. But I think certainly the Cheddar acquisition will only accelerate the opportunity we have at i24.

I think on your comments regarding to dual SIM, I mean listen, first point -- first things first, we think the innovations is good -- good for everyone. I think the key comments that we have on dual SIM today relating to the difference between light MVNOs and infrastructure-based MVNOs, is we don't think that the dual SIM approach works for light MVNO today, one in terms of the authorization, with the existing partners that they have. But secondly, in terms of just the pure technology as we understand it today. But if it does work, fantastic right. We're all for it going forward, but today, it seems like, as we understand dual SIM, that does not help a light MVNO execute better today.

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Operator [43]

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We have no further questions at this time, I will now turn our call back over to the presenters for their closing remarks.

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Nick Brown, Altice USA, Inc. - Head of IR [44]

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Thank you everyone for joining and do let us know if you have any follow-up questions. We look forward to catching up with you in the next few weeks. Thank you.

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Dexter G. Goei, Altice USA, Inc. - CEO & Director [45]

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Thank you.

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Operator [46]

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This concludes today's conference. You may now disconnect. Have a great day.