Altice USA Inc (ATUS) 2018 Q1 法說會逐字稿

Good afternoon.

My name is Tim, and I'll be your conference operator today.

At this time, I'd like to welcome everyone to the Altice USA First Quarter 2018 Results Conference Call.

(Operator Instructions)

Mr. Nick Brown, Head of Investor Relations, you may begin your conference.

Hello, everyone.

Thank you for joining.

In a moment, I'll hand over to Dexter and Charlie, who would 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 for the next month.

And with that, it's my pleasure to hand over to Altice USA's CEO, Dexter Goei.

Thank you, Nick.

Good afternoon, everyone, and why don't we just jump straight into presentation on Slide 3?

In Q1, revenue grew 1.2%, with 4% growth in EBITDA and 5.4% growth in operating free cash flow.

Residential growth was very limited -- was I'm sorry, was relatively limited in the quarter as we said it would be last quarter, with one-off headwinds at Optimum on subscriber growth from Starz dispute and multiple snowstorms, particularly with the nor'easters at the end of the quarter disrupting subfield services.

And as I mentioned last on our year-end earnings call, we delayed a rate event until the end of the second quarter.

However, Suddenlink Residential trends strengthened on a more fundamental basis, particularly video subscribers, reporting an overall improvement in video losses for Altice USA, reflecting investments we have made at Suddenlink in the last several months.

We saw solid growth of Business Services revenue, up 4.3%, with both SMB and enterprise trending very well, also impacted by a delay in the rate event.

Our Advertising business is still growing strongly supported by our investment in multiscreen targeted audience capabilities, which was integrated into a new business, a4.

And as margins continued to improve year-over-year with further cost-efficiency realization, we are seeing strong free cash flow generation and deleveraging.

Our new entertainment platform, Altice One, has seen a successful launch at Optimum, and we are only just starting with this new service in the Suddenlink footprint.

And lastly, the announced spin-off of Altice USA is expected to be effective from early June 2018.

We have received U.S. regulatory approvals for the split and are just waiting for the Dutch AFM approval now before the Altice N.V. shareholder vote next week on the 18th of May to finalize everything.

Turning to Slide 5 (sic) [Slide 4].

We show a breakdown of the components of total revenue growth.

Our Residential business, which is just over 80% of total revenue, grew 0.6% year-over-year in Q1, with Optimum, as I mentioned, impacted by the Starz dispute, multiple storms and the delay of a rate event.

All of the disruption we saw during the Starz blackout was in more competitive areas where other providers capitalized on this dispute.

Suddenlink revenue at 3.4% is being supported by improved customer trends through -- though offsetting the headwinds at Optimum.

Business Services at 4.3% is still growing mid-single digits with decent customer growth, although the delay in rate event also meant slightly slower growth here.

And our Advertising business remains a growth driver, with revenue up 5.1% in Q1.

Moving to Slide 6 (sic) [Slide 5], shows how we have been -- seen ARPU growth of 0.5% with stable residential customer base year-over-year in Q1, contributing to the overall residential revenue growth of 0.6%.

Specifically, in Q1, Altice USA saw total unique residential B2C customer relationship net additions of 8,000, with growth at Suddenlink offsetting a small loss at Optimum, and overall ARPU of $139.60.

We remain focused on growing residential ARPU through higher broadband speed tiers and the Altice One experience.

And our strategy is still to drive further customer service improvements with network upgrade, new innovative services and simplification.

Moving on to Slide 7 (sic) [Slide 6].

This is a summary of our Residential RGU trends.

On the top left, you can see, in spite of the Optimum, Starz and weather issues, Altice USA's overall video trends were better than last year with 30,000 pay TV net losses in Q1, driven by Suddenlink doing much better since we introduced more focused marketing, including more localized pricing, and added back Viacom content in Q4.

We're really pleased to see this better performance at Suddenlink even before the launch of Altice One, which should make us more competitive in this area.

On the bottom left, you can see we had 26,000 broadband net additions in Q1 2018, below the 40,000 additions in Q1 2017, again, due to the slower growth at Optimum, 3,000 -- who showed 3,000 in Q1 as we saw less broadband video bundle sold during the Starz dispute and weren't able to connect as many customers during the storms.

Altice One fully launched in January across the Optimum footprint, and we're getting good traction with this service you can see on the next slide, Slide 7.

Moving on to Slide 7. Recall, Altice One is our new entertainment platform with an all-in-one box, including 4K TV, internet, WiFi, phone service, integrated streaming and absolute voice-activated remote control.

We have connected over 100,000 customers already, which is our first milestone achievement since we launched at Optimum.

Over 80% of video gross additions are now taking the Altice One with at least $10 higher video bundle gross add ARPU.

We have great feedback that enables us to confirm our feature choices, launch new features and apps and continually improving its performance.

And we have now soft launched at Suddenlink, and we'll expand across the footprint during Q2 and Q3.

We have seen high initial adoption key features such as voice control, with 40% of the Altice One installed base using it daily.

Netflix is one of the most watched OTT apps.

It's being used through Altice One by more than 30% of its base.

And customers are seeing a much improved WiFi experience as our advanced WiFi router has a 4 by 4 antenna and 1 watt of power as well as providing WiFi mini repeaters around the home.

We will take this further later this year with the launch of Smart WiFi, which will optimize performance by allocating frequency to customers dynamically.

Moving to Slide 8 is a summary of our Business Services division.

Overall Business Services revenue grew 4.3% year-over-year in Q1, boosted by strength in Enterprise & Carrier segment, up 4.8%, with large wins in Education and Carrier verticals.

This includes services like fiber-to-the-tower connectivity, while we have a competitive advantage with our own core network position.

SMB growth was slightly slower in the quarter at plus 4%, with the delay in rate event but we continue to see decent customer growth and sell-in of more services such as higher-speed tiers and hosted voice products.

We are allocating growth CapEx to the Business Services division to expand the network and portfolio of new products and services.

Moving on to Slide 9. We want to highlight our focus on improving the quality of the broadband service we offer as well as boosting broadband speeds.

First, on the left, we've summarized the initial upgrade we made to our legacy hybrid fiber coax network, including digitalization of the Suddenlink footprint as well as the plant and CMTS upgrades across the whole Altice USA footprint.

This has involved upgrading some active equipment such as transmitters, lasers, specifically amplifiers, and nodes that were causing service disruptions and limiting speeds.

This has taken our coverage up to 400 megabit speed availability to 87% of the Altice USA footprint, with over 70% of the Suddenlink footprint being able to receive 1 gig of speeds.

We will continue to expand the 1 gig availability as we go forward.

But the major upgrade we have initiated is video QAM to IP transition on our legacy cable network.

In anticipation of this IP transition, Altice One has been enabled for both QAM and IP video.

This upgrade will enable us to get benefits of IP delivery, which is optimal for unicast and multicast video, access network technology agnostic in the way multiscreen devices are offered to consumers.

In other words, it can deliver the same high-quality service over fixed and wireless networks, whether it's linear or nonlinear video.

And it allows continuous user interface improvements as well as reducing our CPE cost and allowing for additional network cost efficiencies.

On the right is the reminder that we're continuing with our new fiber FTTH build, which has a native IP architecture, with the first commercialization of FTTH services still expected in the second half of this year.

This strategy will bridge the time gap between legacy and FTTH networks without losing out on the advantages of an all-IP delivery, which is where the video industry is trending, so that we can be more innovative and develop new products and services that will be available on both networks while they coexist.

Moving over to Page 10, we highlight a couple of other areas where we think we are able to differentiate our investment and our approach.

First on the full MVNO agreement we have signed with Sprint.

Our core network development has begun with investment into our WiFi networks and IT platforms.

And we are connecting to Sprint's microsites to support Sprint's network specification, which will benefit Altice USA's MVNO service.

We are confident this will be a new area of growth allowing us to expand the bundle of services we offer customers at very economic cost to us compared to our peers.

Regarding the integration of our OSS and BSS platforms, this will result in one fully integrated billing system and further cost efficiencies.

It will give us more flexibility in the way we serve and target customers, allow for bill simplification and enable the streamlining of back-end processes.

On Page 11, we outline, on the left, our new a4 business, which is the next-generation advertising platform.

We have integrated TV and digital advertising into a single buy, including the acquisitions of Audience Partners and Place Media, with Audience targeting a national reach across multiple devices.

We have introduced an automated self-serve model for advertisers which allows them to order online in a customized way and repeat purchases easily.

This will allow us to expand our customer base and offer a more tailored and unique solution to our clients.

We have enhanced this service with robust data analytics and attribution so customers can really monitor the success of their campaigns.

We saw 5.1% Advertising growth in Q1, which includes this a4 business as well as the new New York Interconnect business, which we launched recently, and our News content business.

We have acquired i24 news as part of split with Altice N.V., which adds the local News 12 business we have and see good growth prospects there.

And now, I'll hand this over to Charlie for the financial review.

Thanks, Dexter, and hello, everyone.

Looking at the slide called Margin Progression, we summarize here Altice USA's margin progression, where you can see that we were at 42.1% adjusted EBITDA margin in the quarter with the operating free cash flow margin, that is to say EBITDA less CapEx, at 31%.

The EBITDA margin expansion in the quarter was really driven by Optimum at 41%, while our Q1 Suddenlink EBITDA margins were impacted year-over-year from adding back the Viacom content in the fourth quarter as well as a less capitalization of our CPE as we had more deployment of refurbished set-top boxes ahead of the launch of Altice One in that footprint.

Altice USA's total programming expense for video customer increased 6.4% year-over-year, and we're still guiding to expect high single-digit unit increases here going forward, although as you saw with Starz, we're certainly fighting hard to contain this as much as possible.

We continue to focus on simplifying the organization, and Dexter mentioned some examples just now with the network upgrades and the new unified billing system, which should allow for our margins to increase further while maintaining investment in all the new growth areas as well as sales and marketing.

Turning to Page -- Slide 13 shows an overview of our cash CapEx, which was in line year-over-year, although it was higher at Suddenlink given that we have increased the pace of new home build, which extends our existing network plant and our addressable market there.

We do still expect CapEx to ramp through 2018 related to the fiber network rollout as well as to -- as well as the expansion of our Altice One rollout.

But we do remain very disciplined on our overall CapEx budget.

I'd just note that we present here our CapEx on a cash basis.

On an accrued basis, you would see an increase year-over-year in the quarter, primarily driven by our Altice One CPE spend, our fiber network build and our new build plant cost especially at Suddenlink as I mentioned.

Turning to the next slide, we show here a view of our underlying free cash flow.

In the first quarter, on the left, you can see that we generated $173 million of free cash flow in the quarter, which does include $43 million of cash restructuring costs.

It's worth noting that cash interest costs are normally higher in the first and third quarters due to the timing of our coupon payments, so they'll be lower in the second and fourth quarters by approximately between $150 million to $200 million.

Other investing activities here includes M&A, which, in this case, was mostly the Audience Partners earn-out payment.

We had a very small cash tax rebate of $1 million in the quarter.

Recall, following tax reform, Altice USA is not expected to be a significant cash taxpayer until 2020, all of which means that free cash flow growth should accelerate with revenue growth through the remainder of 2018.

Financing activities and change in cash reflects the debt that we raised for the $1.5 billion dividend we expect to pay immediately prior to the spin-off of Altice USA in June.

And remember that we have authorization for up to $2 billion of share buybacks following the spin-off.

So as we see further deleveraging from EBITDA and free cash flow growth, we have opportunities for further shareholder returns.

On Slide 15, you could see on the right, Altice USA's leverage has come down rapidly to 5.1x on a reported LTM basis as of the first quarter from a starting point of approximately 7x when we closed the Optimum acquisition.

With the upcoming additional $1.5 billion dividend, pro forma leverage at the end of the first quarter was 5.5x, which were likely to fund partially from cash on hand at Suddenlink as well as from the financing that I just referenced at Optimum.

Our leverage target remains 4.5 to 5x, which we're very comfortable with given our pace of cash flow growth, and we intend to be within this range by the end of the year even including any potential share repurchases.

We have a strong liquidity position of $2.5 billion pro forma for the dividend, and our current weighted average cost of debts of around 6.3%.

Turning to Slide 16, we show a summary of our debt maturity profile.

This is, again, pro forma for the $1.5 billion dividend and our recent refinancing activity.

And on this basis, our weighted average life of debt is 6.4 years.

We have no major maturities at Suddenlink until 2021, and our near-term maturities at Optimum are covered by our $2.3 billion revolving credit facility as well as our free cash flow generation.

On Slide 17, we thought it would be helpful to summarize some of the other financial impacts from the spin-off and related corporate activity as well as the recent GAAP accounting changes which we've implemented as of the first quarter.

Firstly, on the left, recall that Altice USA acquired Altice Technical Services US from Altice N.V. at a de minimis cost.

This is the recombination of a business which we only separated in the second quarter last year, and this process of establishing ATS has allowed us to achieve efficiency savings and -- as well as drive our network build.

So our activity costs are lower than before, and they're focused on delivering further productivity gains as we scale our fiber build and also add [Suddenlink] to the ATS organization.

We see our cost profile in this area as a competitive advantage for us.

In terms of financial impact, operating free cash flow impact, or EBITDA less cash CapEx, would have been $4 million higher in 2017 if we had fully consolidated the business then.

Then the transfer of i24, the international news and current affairs network, is currently expected to generate a modest loss on an EBITDA basis in 2018 due to the setup of the U.S. business, which we're expanding rapidly.

In addition to Altice USA, we have also added i24 carriage at Charter and Mediacom, and there's more to come there.

We wanted to acquire this business and combine it with our local News 12 business as we're excited about the growth prospects in our news content area.

The cost will be -- that I've just mentioned, will be partially offset by the elimination of the $30 million annual management fee paid to Altice N.V. as of the time when the split is effective next month.

On the right, we've summarized the impact of the GAAP accounting standard changes.

The first change, ASC 606, relates to revenue recognition standards, which has 2 primary effects.

The first is a reallocation of bundled product discount.

It has no total revenue impact but does change some of the revenue -- product revenue splits on a historical basis.

And the second is the change in accounting for our gift with purchase incentive, which has a $19 million negative effect on 2017 total revenue, but we get that back on the cost side, so it's neutral to EBITDA.

And then lastly, ASU 2017-07 relates to a reclassification of the nonservice pension cost at Optimum, which has a positive impact on the 2017 historical EBITDA of $12 million.

Turning to the final slide, our guidance for Altice USA for 2018 and our medium-term outlook, which we're reiterating here, we expect total revenue growth of around 2.5% to 3% compared to 2017.

So the first quarter will prove -- will prove to have been a low point as we expected.

This is more likely to be second half weighted given the timing of rate events.

But the mid-term elections this year will also mean a more favorable political advertising comparison as we get further in the year.

Over the medium to long term, we can further expand Altice USA's adjusted EBITDA and cash flow margins, but we're still unable to give more specific profit guidance for 2018 at this time due to our current regulatory processes.

And lastly, our annual CapEx, we expect to be around $1.3 billion for 2018.

And with that, I'll turn it back over to Nick and believe we're going to Q&A.

Yes.

Please open the lines, operator.

(Operator Instructions) Your first question comes from the line of Phil Cusick with JP Morgan.

First, procedurally, what's the timing on the Dutch approval?

And once you get past that and the shareholder vote, how should we think about the timing of the spin?

And then second, fundamentally, reports have your rate event coming in the next month or so at about 3% across the consumer base.

Can you talk about how quickly that will come into the consumer and business spaces?

Sure, Phil.

On the first one, I don't think we're in -- know exactly when the Dutch AFM will respond to it.

But we think that it's circa 2 weeks after the shareholder vote, which will be next Friday at the EGM.

So -- if the AFM approves.

So I think that's kind of what we're thinking about in terms of timing, but we still don't have a full AFM approval, so that's why we weren't precise on the closing date in June, nor do we have a view as to when the ex-dividend date is on the spin nor on the cash dividend on the U.S. So those will hopefully become a lot more clear over the next week, we're hopeful.

But today, the precision on the days is not there.

We just -- we know, roughly speaking, what the timing and it should be in early June, when everything happens.

In terms of the rate event, you're correct.

We have just over 3% rate event on the B2C side.

We do have a B2B rate event as well.

That will be filtering into the whole month of June depending on the 30-day notification we have with our clients.

So it will be mostly a little bit in June, let's call it, half of June, and then a full quarter coming in -- in the third quarter of this year.

Your next question comes from the line of Jason Bazinet with Citigroup.

I just had a quick question on your Sprint MVNO.

If the transaction ends up closing between Sprint and T-Mobile, is everything just sort of unchanged as it relates to your agreement with Sprint?

Or there's something -- is there sort of an exit or some something, some option that Sprint has or you have?

No, no.

Obviously, we don't have to use it if we don't want to, would be one of the answers for you, Jason.

But clearly, we would benefit from any incremental positive things that could happen in the merger.

And I think we would benefit from the roaming agreement that Sprint has with T-Mo irrespective of the closing of the transaction.

So I think it is business as usual, but expectation's that, if anything, it will be net positive.

Your next question comes from the line of Jonathan Chaplin with New Street Research.

Just a follow-up on Jason's question.

I'm wondering if you could give us a little bit more detail on where you are in the integration process with Sprint.

And you sort of mentioned in the prepared remarks, with investment in the WiFi infrastructure, that would be required.

I'm assuming in conjunction with that -- I've always thought of you guys as having among the most robust WiFi deployment, certainly in the CBC footprint and would love to just get some more insight into how -- what's required to augment that, to get the most out of the Sprint relationship.

Yes, there's 2 points that you've correctly noted there, Jonathan.

One on the WiFi side.

This is all about the seamless offloading of traffic.

And as you've seen from some of our peers who have publicly said how much the outflow traffic has been, we expect similar, if not higher, levels of outflow traffic.

So that's really where the improvement on the WiFi network is.

And obviously, trying to make sure that we get more throughput throughout the WiFi network as well as we anticipate the increase in traffic coming for mobile.

In terms of where we are on the Sprint, let's call it densification of their network side, we have -- we're probably ahead of where we thought we would be relative to when we signed the MVNO agreement.

I think there's a tremendous amount of goodwill amongst ourselves and our colleagues over at Sprint to deliver the best and most dense network that we can before we launch, let alone helping our friends over at Sprint to deliver a better product to their existing customers.

So I would say, ahead on our densification, significantly improving our WiFi capabilities for the offload.

And we have signed up with a core network provider as well, so we are in already a deployment stage there, both on the IT side as well as on the core network side.

So more full sprint ahead here, no pun intended.

And the goal was, I think we said in last quarter, that we would be launching in the first quarter of next year.

Your next question comes from the line of Craig Moffett from MoffettNathanson.

I guess, 2 questions, if I could.

One just a broader philosophical one, which is, where do you think EBITDA growth can get to in this business?

You've obviously seen, as you've gotten a lot of the cost reductions under your belt, the EBITDA growth rates have slowed quite a bit.

And I'm just -- how confident are you that you can still manage sustainable EBITDA growth in this business?

And then a more technical question, you talked about the plant upgrades, including having done the amplifiers and now having pretty much 1G availability.

Does that make you -- I guess, I'm just wondering where the -- in that need, does replacing the transmission medium itself to fiber come in?

And how much of the plant do you see requiring a fiber drop, having now made the upgrades that you've already made?

Well, I think you asked 2 questions, Craig, that maybe somewhat interlinked, right, which is, I think, on the EBITDA growth side, clearly, we're seeing a slowdown in the first quarter, really driven by rate event issues and the Optimum, Starz and storm.

But if you -- as we've been relatively clear over the last couple of quarters, we've delivered on our announced OpEx synergies, which we thought we could deliver in 4 to 5 years, and we delivered in 1.5 years, 2 years.

Now it's more about project-related efficiencies.

And obviously, continuing to grow the top line to drive not only EBITDA and gross margin growth, but take advantage of the operating leverage in our business.

I think on the first point relating to key projects, we have a big BSS/OSS integration this year, which will happen towards the end of this year, where we will go to a single billing system.

This will be not a hybrid in any shape or form, this will be a full integration of the Altice USA platform under one single billing platform, will allow us to drive significant synergies in our business and allow us a lot more flexibility in being able to drive our targeting and our customer interface.

And I think then there are multiple pockets of different other large projects, real estate-related, G&A-related.

But to your point about plant upgrades, one of the key big projects relating to FTTH is not only driven by what we anticipate the continued desire for larger broadband speeds going forward, over 1 gig over time.

But secondly, to continuously drive more efficiencies in our business, both on the OpEx and CapEx side as we transition away from an HFC network to FTTH and also be able to implement best-in-class customer interfacing services that will work that much better or will be much better applied over an FTTH network than it is under the current HFC coax network that we have, right?

So our goal is to roll out FTTH across the entire Optimum footprint and then a selective amount of Suddenlink footprint, depending on where it makes a lot of sense from an economic standpoint in terms of the size of the populations and the homes passed clusters.

But we're -- sorry, go ahead.

No, -- just to make sure I understand, but it sounds like from what you said though, most of what you've done so far has been in the feeder plant rather than in the actual fiber drops.

And so is that right?

You haven't really started that in earnest?

No, we've dropped into homes already.

We just haven't been public about the numbers.

We'll get -- We're effectively looking to get to a decent amount of scale before we launch a commercial product, which will probably be in the third quarter of this year.

Your next question comes from the line of Kannan Venkateshwar with Barclays Capital.

Just a couple.

First on the impact of the storm, so Charlie or Dexter, if you can quantify what impact it had roughly in terms of net adds as well as any cost impact that it may have had in the quarter.

And also, in terms of the Starz dispute, if you can quantify for us what the impact of that was.

And then going into the Altice One system, when you think about the rollout of that if you could give us some update in terms of how deep it is and what your targets are with respect to that product, that'll be very helpful.

Sure.

I mean, listen, I think it is -- it's clear in our mind that there are 2 impacts of the Starz effect and the storms.

And they are somewhat interlinked.

One is a churn number, which is higher than normal as people moved away from Optimum and went to FiOS primarily.

And secondly is the lack of gross adds on the connectivity relating to storms, but also related to the Starz impact as the negative marketing impacted our incoming flow of customer inquiries into our call centers and our websites, right?

So if you look just broadly speaking at the differences between the first quarter of last year in net adds that we've published and the first quarter of this year, that is the overall quantity and probably several thousand above that, that impacted both between Starz and the storms.

It's a little bit difficult to pinpoint what specifically you allocate to one versus the other because just in terms of the reduced call volumes and the gross adds, you don't know whether it was storm-related or Starz-related specifically.

We do know a number that has the impact relating to specifically Starz churned there.

I think in terms of the numbers on Starz, (inaudible) I don't think we're in a position to talk about that publicly.

I think all you -- we can say is that we think we got an attractive transaction with our partner.

We've moved on.

We've got a great deal with them in place where we're both incentivized to continue to push and distribute their product, which is very much liked by our customers.

So but from our standpoint, the decision was the right decision to drive for longer term impact on our cost structure, but we did go through a onetime effect that was compounded by this -- by the bad weather on our net adds and gross adds.

All right.

And on Altice One, could you help us?

Altice One, listen, today, we've got 100,000 customers on the Optimum footprint.

80% of our video gross adds are connected to the Altice One on a daily basis.

The 20% shortfall really has to do, most of the time, with the quality of the home equipment that our customers may have.

You'd be surprised on how many older televisions sets there are, whether they'd be SD related or no HDMI connection.

So there are certain amounts of customers who cannot receive the Altice One today until they upgrade their home equipment.

The goal here is to be consistently on the front foot.

We have started proactively migrating our clients as well.

Those who are asking for it, we're migrating them to it, and we're also proactively have been migrating to certain customer bases and certain clusters.

So this is still early days.

We launched in January.

We're just about a little over 4 months into it.

The feedback has been great.

There obviously has been bugs in the system, which is normal.

It is, in my experience, the best launch that we've ever had of a new box, but we are continuously looking to upgrade not only the stability of it in the middleware, but also the features regularly.

So as it gets launched now on the Suddenlink footprint, they are getting a much better product than our first customers in January were getting in the Optimum footprint.

And that will continue throughout the second and third quarter across the Suddenlink footprint.

The reason why it goes at that pace is, obviously, there are different architectures and technologies on the Suddenlink footprint, which was a roll up of many different acquisitions relative to the Optimum footprint, which was pretty homogenous in terms of the network quality and equipment that has been used.

Your next question comes from the line of Bryan Kraft with Deutsche Bank.

I had two questions.

First, some investors are concerned about a flood of supply of shares hitting the market after the spin due to N.V. shareholders in Europe selling their U.S. shares.

I understand that you want to delever the balance sheet before getting aggressive with share repurchases, but the stock is obviously down a lot already.

Just curious as to what your willingness is to take advantage of further weakness after the spin by putting your share repurchase authorization to work.

And then I have a follow-up after that.

Sure.

I mean, Bryan, it's -- I think our view here is that we are targeting an annual 4.5 to 5x leverage ratio.

How we navigate to get there by year-end will be we'll keep -- we'll maintain the flexibility to be thoughtful about our capital allocation, all right?

I think if you look at any metric out there today on the valuation standpoint, it looks like Altice USA is quite cheap relative to our peers on a stand-alone basis in every single, probably, metric you can think about, right?

So I think that's as much as we can comment at this stage relative to our intentions.

I think on the flowback comment that you mentioned, I don't know the answer to that given how much volatility there has been in our stock.

There's a view that, I think, a lot of people have already positioned themselves ahead of the spin because effectively, as of the ex-dividend date, that's when tax liability for U.S. shareholders would get crystallized.

So people are already positioning themselves ahead of that.

So potentially, there may be less flow back than we anticipate because people already positioned themselves ahead of the ex-dividend date on this.

But I'm not smart enough to understand all the different machinations between the stock trading at Altice USA and the NV and how those correlate, because there's been a lot of weird things happening, and we're just looking forward to after the split and I think these stocks will start trading very independently, which have actually as of the ex-dividend date, and we'll see what happens to that point in time.

And Dexter, just following up on that.

I mean, we estimate that you could do 1 billion in share repurchases by the end of this year and still end the year at 4.9x net debt-to-EBITDA.

Do you think that math is reasonable?

Well, I'd love to comment on that, but we can't talk about our 2018 profitability based on our regulatory limitations here.

So we weren't being cute on our guidance last quarter and this quarter.

It really is that if we talk about our profitability matrices, then I think we've got to publish things at the N.V.'s side that would be kind of torturous to do that.

So and we could delay the process.

So I think you're a lot smarter on that than I am.

So your math I'm sure works out to the right [about] numbers that you're mentioning.

Okay.

And then my last question is, can you just talk about what's happened to gross trends and churn in the Optimum footprint after getting past the Starz disruption the nor'easters?

Have you seen sub-trends return to healthy levels?

And would you expect 2Q to be a clean quarter that's more representative of the broadband growth that the company is capable of generating?

Yes.

Our year-over-year numbers starting in kind of the second half of March have improved, and so they're up, both on a customer basis and on RGU trends, both on the Optimum and Suddenlink side.

Your next question comes from the line of James Ratcliffe with Evercore.

Two, if I could.

First of all, coming to the Starz topic.

Can you give us an idea of how much impact that had in your programming costs in the quarter in terms of the benefit?

And secondly, you mentioned on the FTTH launching later this year and with a product, how do you think about differentiating that product versus the services delivered by the traditional coax network and what are the additional opportunities beyond presumably somewhat higher broadband speeds that brings to you?

I think on the first one, I don't think we're at a liberty to comment given the privacy of our contract.

Needless to say, I don't think we would've gone through that exercise and being offered 2 months if we didn't extract what we thought was an attractive transaction.

And by the way, I think our partners over at Starz probably felt ultimately good about where they ended up as well.

So that's probably as much as we can talk about.

I think our programming costs up just over 2% in the quarter.

So I think we are punching above our weight relative to the sector on the growth of our programming costs because of, I think, our exclusive position, really here in the New York DMA, allows us to punch above our weight on a size basis on the programmers.

On the FTTH, again, we are not trying to necessarily reinvent the wheel here.

We're not saying that we have a product that is so differentiated out there.

We are preparing ourselves for a world where speeds continue to go up, where we want to have a much better customer experience, which would include self-install as an example, where the fiber network will allow us to be a lot better on the self-install, if not seamless on self-install and reduce really the customer interfacing requirements of our OpEx and our CapEx on the maintenance side of our business.

I think it's clear that as we rollout FTTH today, we're going to be delivering [Mi 2] type of speeds, if not, maybe slightly higher.

But as we start moving to NG-PON2, I believe, going into next year, we'll be setting ourselves up to be delivering even higher speeds, which won't be Mi 2 speeds anymore relative to HFC.

And just a follow-up, if I could, on the speed question.

Are you seeing a difference in performance competitively in areas where Verizon has done the files upgrade to gigabit speeds versus where they're still in the 150- to 300-megabit area?

I mean, the issue here is more a question of mindshare, right?

People -- we see a lot of our buy through coming through our call centers and our e-commerce sites that are driven by a desire for a specific product.

And so we don't see people churning off of our products to go to a 1-gig product in a limited area at FiOS where it's available.

It's more about the gross adds when they are aggressive on the marketing of the 1-gig product where the mindshare may move away from coming to us to them because that's the new toy in town.

And so we're mindful of that, which is why our rollout of FTTH is focused on the FiOS areas as well as any upgrades that we have on the HFC network on the Optimum footprint.

But we, are excluding the Starz effect, not seeing any material changes in customer behavior or market shares when we're normalized in product even though they have a 1-gig product.

Your next question comes from the line of Marci Ryvicker with Wells Fargo.

I kind want to take the other side of what Bryan was talking about, because we've seen the market not appreciate companies levering up to buyback stock.

And I feel like a lower leverage target might be more helpful at some point.

What do you think about the risk to the strategy?

And have you -- how did you come to the 4.5 to 5x?

I know you're confident in your cash flow, but the market does not seem to be rewarding stocks for this.

Well, listen, I appreciate that comment, but we look at our cash flow numbers regularly pretty much on a daily basis.

We have a lot of confidence in our cash flow numbers over the next -- the year or 2 as we start delivering on sizable projects and improvements in top line growth that when you look at our stock that under most calculations is in double-digit free cash flow fully taxed, levered yield, it's very difficult to sit there and say that it's better for us to be aggressively deleveraging and lowering our free cash flow targets, right?

If you look at our peers who are trading in low single-digit free cash flow yield numbers and have maybe slightly lower leverage targets, that doesn't really make a lot of sense.

I think if you're concerned about leverage in the absolute, then our EBITDA minus CapEx at 31%, 32% is significantly higher than anyone out there on the street, and they are running very levered balance sheet.

So we -- the math would suggest that if you're comfortable with their leverage target, then we should be significantly higher on our leverage targets, right?

But at the end of the day, we're looking to run a business where we sleep very well at night.

I think what we've spoken about, 4.5 to 5x makes us and allows us to sleep very well at night.

And if you run your math, we're deleveraging almost a whole point a year, right?

So whether we do share buybacks today or tomorrow, there is a reallocation of shareholder capital, a policy that needs to be talked about in very short order.

So if we have a view that there's softness in our free cash flow profile, then we will make the steps necessary, and we'll absolutely never put our equity at risk.

I appreciate that response.

And quickly, I don't know if you've addressed this.

How many billing systems do you have now?

Well, we currently have 2 billing systems on the B2B side, one at Suddenlink and one at Optimum, and very similar one in each over at -- on the B2C side.

So we are going to be integrating those billing systems into one single billing system on the B2C side and simultaneously also doing one single billing system on the B2B side.

Do you know the timing of that?

And I only ask because we saw a lot of messiness in Charter's numbers as they went from a bunch of billing systems to smaller billing systems.

Yes, the goal was to do this towards the end of the second half of this year.

And I think what -- as I understand it, what our friends over at Charter have done was to not necessarily merge into a single platform, but to effectively put a wrapper, a billing system on top of their legacy billing systems.

So I think they're not necessarily reducing the amount of billing systems, I think they're increasing the number of billing systems they have.

And I think our view is and our experience historically was to merge the two whenever we go into integration and restructuring processes.

We are -- we've done this many, many times over.

We're going to be extremely cautious about it, but we definitely don't want to do something maybe in a gray area.

And I think I'm sure that our friends over at Charter have a reason for doing the way they did -- they're doing it.

But in our experience, we need to go the whole way on this.

But we've done this many, many times over, and we feel good about our ability to do this.

It's not without risk, obviously.

And by the way, it's not just a telecoms-related issue, it's a related issue with all IT platforms across the board in all businesses.

But we feel like we've got the tools, the people and the experience here to be able to deliver something here as seamless as possible.

Your next question comes from the line of Matthew Harrigan with Buckingham Research.

Actually, 2 questions.

One, the [fondness] of technology vendors, pretty recognizable global brand names.

They will obviously say, fiber deep and distributed access to architectures and all that are a bit of a some optimization issue from the vast point of the -- of some other cable companies, and it's more efficient to [seduce] somethings more on the forklift side.

And honestly, I mean, even some people who were involved with Verizon seeing a FiOS build-out, we're pretty effusive on where your OpEx and CapEx numbers are eventually going to go.

But they thought you might pretty readily blow through some of the CapEx numbers given their experience with FiOS, some other fiber builds internationally.

Can you comment on the risk on that?

And I guess, secondly as an adds on to Marci's question, when you look at share repurchases, Comcast, in particular, are trying to preserve a lot of optionality on the balance sheet.

They don't do that many buybacks and then they try to do a transitional or transformational deal rather.

And the street doesn't like it but sometimes there's a great ROI on it.

How do you feel about balancing buybacks versus doing something that's really strategically transformative, and how can you kind of preserve some of your latitude on that if you do buybacks from stock that just seems absurdly undervalued in the market right now?

Apologize for being verbose.

I'm sure you got the gist of it.

Nice to hear from you, Matt.

Listen, I think on the technology side, we feel comfortable given our last year of setting up our fiber-to-the-home build and starting to deliver actual drops into people's homes of our ability to execute within our budget constraints.

And you focused on what FiOS has seen, and other fiber providers here in the U.S. than what people on the international have seen.

As you may recall, Matt, we are rolling out fiber aggressively in France and in Portugal.

So we have the architecture, the know-how and the price points excluding labor adjusted and certain regulatory differences between countries, but there's nothing different between the snow in New York and the snow in the French Alps, right?

So we feel comfortable with our price point there.

You've got to remember that we have an advantage here in the Optimum footprint in terms of the amount that's aerial of our network as well as the density of our network here is actually a lot more dense than France's as an example.

So I think you put that all into the mixer, and we feel good about where we are heading from a CapEx profile and even better about where we're heading from a CapEx profile post the FTTH rollout because it's pretty much nothing we're going to need to do on the network itself going forward after that.

On the share repurchase program, listen, you raised a conundrum and I think every single company faces, which is how to balance capital allocation decisions properly.

I think today, it's clear that M&A is not our focus.

So we could single-handedly focus on capital allocation to delever or to buy back shares.

I think this is a question to be asked, maybe next year as we continue to delever at a rapid pace.

And depending on where the stock price is.

Maybe, there's a better use for our capital.

I don't think it is in our purview to sit around and delever significantly waiting for an M&A transaction to occur.

M&A is so fleeting in many respects.

It takes 2 people to dance and let alone may be more than that as people throw their hats in.

So we can't sit around and make our capital allocation decisions waiting on something to happen necessarily.

But point taken, we'd obviously like to continue to expand if the situation arises.

So we need to be ready when that occurs.

The snow in the French Alps is a lot better than the New York snow.

As I think you know better than me (inaudible) but got the right way.

They may be slight better, that's right.

This concludes our question-and-answer portion of the call.

I'd like to turn the call back over to the presenters.

Thank you very much for joining, and we look forward to catching up with you in the next few weeks.

Thank you.

This concludes today's conference.

You may now disconnect.