Altice USA Inc (ATUS) 2018 Q4 法說會逐字稿

Good afternoon.

My name is Kelly, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Altice USA Fourth Quarter 2018 Earnings Conference Call.

(Operator Instructions)

I would now like to turn the call over to Mr. Nick Brown.

Please go ahead, sir.

Hello, everyone.

Thank you for joining.

In a moment, I'll hand 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 in 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.

Thanks, Nick.

Hello, everyone.

Maybe just moving over to Slide 3. Today, we again presented great financial performance for Altice USA, meeting all of our guidance targets for 2018 and hitting many more operational milestones.

Throughout the year, we drove improved subscriber trends and accelerated revenue growth, achieved our highest ever margins and generated material growth in free cash flow.

Summarizing, in the fourth quarter, revenue growth was 4%, supported again by improvements in all business segments.

This growth was helped by improved Residential customers trends year-over-year and would point out video trends were actually better at Altice USA every quarter in 2018 as well as in the fourth quarter.

Our investments to improve the customer experience continue to pay off.

Quarter-after-quarter, we see increased demands for faster broadband speeds, better quality WiFi and enhanced video services.

We're really starting to see now the benefits of upgrading our cable network and the rollout of Altice One.

As we've outlined before, we're not stopping here.

We are continuing to rollout fiber-to-the-home to future proof our network with 10-gigabit-plus services capable as well as getting ready for the launch of Altice Mobile later this year and expanding the scope of our advanced Advertising platform.

EBITDA growth was 6.9% on a reported basis, achieving our highest ever margin at 45.1%.

Adjusting for the $10 million of losses from the consolidation of i24 news, EBITDA growth would have been even higher at 7.8% with a margin of 45.5%.

For the year, we saw very strong growth in free cash flow, up 27% to a total of $1.35 billion.

This supported $2 billion of total shareholder returns in 2018, which includes the $1.5 billion special dividend paid with a spinoff and $500 million of share repurchases.

This is at the high end of what we were targeting.

Even with this high level of shareholder returns, we successfully brought leverage down to a target range at 4.9x net debt-to-EBITDA.

Also, I want to highlight our recent refinancing activities successfully extending maturity and reducing annual cash interest costs by over $80 million, demonstrating again the prudent and proactive nature in which we manage the balance sheet.

As a side note, it's clear that we've been very active across the company to drive all of our initiatives, so I want to stop here and take the moment to recognize and thank all of our dedicated employees who work so hard to make this year so successful.

Turning to Slide 4, we show a breakdown of the components of total revenue growth, which, as I mentioned, was up 4% in Q4 and 2.8% for the full year.

This is in line with the guidance we gave a year ago for 2018 of 2.5% to 3%, showing how we have very high degree of visibility on our revenues.

Our Residential business grew 2.1% year-over-year in Q4 and 1.5% for the full year.

Business Services revenue grew -- growth grew 5.3% in Q4 and 5% for the full year, with both the Enterprise and SMB segments still trending well.

And we saw very strong growth in Advertising again, up 33.2% in Q4 and 23.2% for the full year.

Remember, the growth in 2018 was more second half weighted, mostly related to later and normal timing of our annual rate event as well as the boost from political advertising around the midterm elections.

We are getting back on to a more normal time line this year with our annual rate event taking effect in February and March, so the growth should be more first half weighted this year, but we still expect to be in the range of 2.5% to 3% for 2019, as Charlie will come back later.

On Slide 5, on the left-hand side shows Altice USA Residential ARPU growth of 1.9% to $142 with slight growth in the Residential customer base year-over-year in Q4, contributing to the overall Residential revenue growth of 2.1%.

The total number of unique Residential customer relationships increased by 7,000 this quarter, improving compared to 6,000 net additions in Q4 2017.

On the top right, you can see Altice USA's overall video trends were again better in Q4 than last year with 15,000 net losses driven by improvements at both Optimum and Suddenlink.

Suddenlink actually grew video customers for the first time in 4 years, as we believe we are taking market share from the major satellite operators that seem to be having some issues at the moment.

We had 22,000 broadband net additions in Q4 2018, broadly in line with the 25,000 net additions in Q4 2017, with Suddenlink better than -- better and Optimum slightly worse.

Remember last year, Optimum benefited from Verizon's dispute with Univision, as we're able to sell more broadband bundles, which explains all the slight variation in the trend year-over-year.

This will be more than made up in Q1 2019 with a more favorable comparison since last year we had our own dispute with Starz in Q1 2018.

Note, following the credit silo combination, this will be our last quarter to report subscriber KPIs split between Optimum and Suddenlink, but we still intend to give additional color and call out if there are any significant variations between the footprints going forward.

Zooming out on Slide 6 with a multiyear view of our customer trends, you can see how we are managing the transition from video to broadband really well.

We have consistently seen slight growth in the number of unique Residential customer relationships, as growth in broadband RGUs have offset declines in video RGUs.

And in any case, as I just explained, the pace of video declines we're seeing has been slowing for us this past year.

To explain this, we see the pace of cord shaving slowly helped by Altice One as it supports the convenient aggregation and seamless integration of OTT services as well as all OTT players recently putting up prices and seemingly suffering from elevated churn levels.

We do not view this as a one-off since all of these OTT services are facing increased competition and increased programming costs annually.

And as I'm about to show you in a minute, video streaming is actually driving the majority of broadband data usage and the usage growth of our network.

Broadband revenue has consistently been growing in double digits annually at significantly higher margins in our legacy video business, which is supportive of our cash flow growth.

But we are still committed as always to our video business, especially given the favorable trend dynamics of our bundled customers.

And as we continue to enhance the video customer experience, we believe, we still can make good cash flow here.

We are not finished yet either in enhancing the capacity for our broadband network further, enhancing the quality of our WiFi service and diversifying into new product areas and revenue streams, both with mobile and other in-home applications and services you will see from us in the next few quarters.

On 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.

Over the last 2 years, the percentage of customers taking over 100 megabits speeds has risen to over 80% of our total customer base.

Actually, 80% of gross additions and now over half of the base are taking 200 megabits speeds or higher from less than 10% just 2 years ago.

Over the same period, the average speed taken has increased from 64 megabits to 101 -- 181 megabits and this continues to grow every quarter.

Recall, we are currently upgrading our cable plant for DOCSIS 3.1 and we'll launch up to 1-gigabit services over coax at Optimum in the next few months.

Our fiber FTTH network will take this to the next level.

We have already began to introduce 1-gig symmetrical services with smart WiFi in parts of Long Island, New Jersey and Connecticut, and this rollout will enable us to offer 10 gigs plus broadband services across our Optimum footprint in the future.

Note, DOCSIS cable networks are typically at least 10x the capacity and 4x the density of 4G mobile networks, making it much easier to deliver these kinds of speeds on a consistent and high-quality basis.

Our fiber network, on the other hand, will be at least 10x the capacity and 4x the density of any 5G network deployment currently being planned.

Although, we don't see anyone rolling out 5G in our footprint right now anyway.

Moving on to Slide 8. On the left-hand side, you can see how we are satisfying rapidly increasing data usage demands with average data usage now over 200 gigs -- 250 gigs per household per month and going consistently about 25% per year.

This means in the last 5 years, data usage on our network has increased about 5x.

And we expect this to continue, especially as it tops 10% of customers in terms of usage are already close to 1-terabyte per month.

We are positioning ourselves to continue to benefit from the secular growth with our DOCSIS 3.1 and fiber upgrades, and we don't see any other network technology keeping pace with this trend.

And this growth and usage, as I said, is partly driven by the proliferation of OTT video services with streaming accounting for 2/3 of our customer usage.

In fact, our broadband-only customers are using twice the amount of data as our video broadband bundled customers and doing twice the amount of video streaming.

Separately, we continue to gain traction with Altice One, reaching over 300,000 Altice One unique customers, which is over 10% of our video customer base.

The recent update to Altice One operating system 2.0 has gone done very well with lots of new features like our other home DVR.

And we're seeing consistently higher NPS for Altice One compared to our legacy set-top boxes, helped by features, such as voice control, seamless OTT integration, including Netflix and the 40% improvement we're seeing in WiFi throughout throughput and attenuation.

On Slide 9, I want to illustrate again our differentiated advanced Advertising solutions, which are driving growth beyond linear TV.

Our total Advertising revenue growth was 33.2% in Q4 and about half of this was from political as we saw in Q3.

But the other half was organic growth from a4, a multiscreen addressable advertising company.

The recent launch of Athena by a4 has also gone very well.

This is an audience-based multiscreen advertising marketplace with household targeting capabilities for campaigns across TV, digital, OTT and social media.

It is a self-serve application for end-to-end campaign management, offering both local and national advertising solutions for both agencies or advertisers directly.

Athena also provides in-depth reporting, measurement and analytics, making it a one-stop shop for advertisers.

Separately, i24 now has carriage over the majority of the largest MVPDs, which was required for us to start driving more meaningful Advertising revenues to reduce the loss as we saw in 2018.

And lastly, News 12 remains the most viewed network by Optimum customers and TV ratings continue to grow, outperforming the broader industry as well as seeing strong digital growth.

And with that, I'll hand this to Charlie to review the financials and guidance in more detail.

Thanks, Dexter, and hello, everyone.

Turning to Page 10, we summarize here Altice USA's margins, where you can see on the right-hand side that we were at 45.1% adjusted EBITDA margin in the fourth quarter on a reported basis, that's our highest-ever level with our operating free cash flow margin that is EBITDA-less CapEx at 32%.

Those numbers include the impact of consolidating $10 million of i24 losses following the acquisition, which we completed in the second quarter of 2018.

Looking at it on an annual basis, on the left-hand side of the page, you can see pro forma for the acquisitions of Suddenlink and Optimum that EBITDA margins have gone up almost 12 percentage points and operating free cash flow margins have almost doubled during the period.

These substantial margin and cash flow improvements are supporting higher investments for growth and all of the initiatives that Dexter has just described.

We're consistently showing that we can drive our margins higher than our larger peers, with improved subscriber trends and sustainable growth in revenue and free cash flow.

And turning to the next page, this looks at our free cash flow in a bit more detail.

On the left, you can see that we generated $417 million of free cash flow in the fourth quarter.

On the right side, you can see that on a full year basis, we generated a total of $1.35 billion of free cash flow and that's up 27% year-over-year.

Note that, that was after $120 million of cash restructuring costs in the year.

Our cash tax was less than $2 million in the fourth quarter and $14 million for the year, and we still don't expect to be a significant cash taxpayer through 2020.

Cash interest, we expect, will come down with some of the recent refinancing activities, as I'll come back to it momentarily.

And financing activities and change in cash includes the $269 million (sic) [$259 million] of share repurchases in the fourth quarter that makes -- making up $500 million for the second half at an average price per share of under $18 a share.

Turning to Page -- to Slide 12, you can see that our leverage has come down rapidly.

Our target range -- we've achieved our target range of 4.9x on a reported L2QA basis at the end of the fourth quarter.

That's down from a starting point of 6.7x when we closed the Optimum acquisition in the second quarter of 2016, and our year-end target leverage remains 4.5 to 5x net debt-to-EBITDA, as I'll elaborate momentarily.

On the next slide, a bit more color and summary of our well-distributed debt maturity profile at the end of the fourth quarter.

This is pro forma for the recent $5 billion of refinancing activity that we've completed over the last several weeks.

And the result of these refinancings is that our average -- our weighted average life of debt has been extended from 5.9 to 6.6 years, our weighted average cost of debt has reduced from 6.5% to 6.1% and that represents over $80 million of annual cash savings, that's mostly from having taken out the $1.8 billion 10 8% notes, which become callable in January as well as taking out the 8% and 5 8% notes, which matured in February.

We refinanced that paper with the new $1.75 billion 6.5% 10-year guaranteed notes and a new $1 billion 8-year Term Loan B with the margin of LIBOR plus 300.

And to be prudent, given recent rate uncertainties, we've also recently increased the amount of fixed rate debt we have from 2/3 to approximately 75% through additional swap transactions.

We have no further maturities in 2019 and nothing significant until 2021 and certainly, all near-term maturities are covered by our $2.56 billion revolving credit facility if desired.

We also extended the majority of our RCF to 2024 and reduced the margin on it by 100 basis points to LIBOR plus 225.

As always, you should continue to expect us to be proactive and opportunistic with refinancing going forward to amend and extend our debt.

And as we have certainly just demonstrated, remember, the 10-plus percent notes that we put in place at the time of the Cablevision acquisition, when the company's leverage was closer to 7.5x, we had not yet delivered on the efficiency savings in the way that we've now demonstrated as possible as well as the debt market environment was less supportive at that time, so we still have an opportunity to take out the 10 7/8% notes which become callable next year, and that's just as an example as a way is given that our debt cost was normalizing at a much lower level.

The recent credit silo combination is proven to be a great simplification of our debt in organizational structure.

And with lower leverage and continued delivery on our operational and financial results, we believe that we'll continue to have positive credit ratings momentum.

And lastly, on Slide 15 (sic) [Slide 14] is a recap of our prior 2018 financial guidance, which we have achieved as well as the new 2019 outlook that we've announced today.

Firstly, as Dexter outlined, we grew revenue 2.8% in 2018.

And for 2019, we expect to grow again in the same range of 2.5% to 3%.

We grew adjusted EBITDA margin by 0.7 percentage points in 2018.

And for 2019, we expect EBITDA margin expansion again, that's on ex-mobile basis.

CapEx, we expect in the range of $1.3 billion to $1.4 billion.

That's consistent with our prior medium-term guidance to accommodate accelerated investment in fiber, new home builds, Altice One and our mobile strategy.

We expect to grow free cash flow in 2019 off of the base of $1.35 billion in 2018, including any mobile-related costs.

We feel very comfortable that our EBITDA growth and free cash flow growth from this level supports our new share buyback target of approximately $1.5 billion for 2019 and that doesn't take into account any potential merger, asset sale or acquisition activity.

All of that is consistent with the target I mentioned for year-end leverage in a range of 4.5x to 5x L2QA net debt-to-EBITDA once again.

And with that, we'll now turn it back over to the operator and open it up for any questions.

Thank you.

(Operator Instructions) Your first question comes from the line of Jason Bazinet from Citi.

I just had one maybe longer-term question.

Regarding the fiber build that you guys are pursuing, can you just spend a few minutes and talk about how you're thinking about that?

In other words, is it about future proofing?

Is it about ultimately using fiber for video and data and maybe using the coax for facilities-based mobile?

Is it about retaking market share in video and data?

And then any early lessons, I guess, this is the first time I've heard that you started to roll it out in small areas among Island, New Jersey and Connecticut.

Are there any certain early lessons?

Jason, listen, I think, we've been relatively consistent that the decision to make this investment in fiber-to-the-home was very much driven about enhancing the customer experience and providing a network for the future that would be able to enable future services and throughput in larger scale.

We kind of -- as we run the math here internally, we really look at just the benefits of the reduction in OpEx and the improved customer experience as the driver for the investment.

We don't look at any of the future revenue opportunities or whether or not we're going to bifurcate our networks between the coax for small cells and fiber for the existing services today.

Be it, as to me, those clearly are things that we're thinking about.

There's a lot of opportunities for us to use all the infrastructure to monetize additional services and to drive additional revenue and free cash flow growth.

But the real impetus of our decision to make the investment was really driven by the free cash flow characteristics of savings on maintenance CapEx and OpEx going forward, and then eventually as we complete the rollout of fiber-to-the-home, our CapEx -- our annual CapEx number will fall down materially as there's going to be very, very little maintenance and upgrade required on the fiber-to-the-home network.

And if I can just ask one follow-up.

As the CapEx and OpEx savings come in from that fiber investment, does it sort of happened in piecemeal?

Or is it more sort of this tsunami of savings that comes in year 4 or 5...

No, it's more piecemeal, I would say.

Very little in the early days and starts creeping up and accelerating as we get larger volumes of fiber-to-the-home ready for service.

Clearly, the incidence rates and the maintenance CapEx, the reduction of incidence rates and the reduction of maintenance CapEx, those come immediate.

It's really just volume based, right?

As you get subscribers on boarded and as you deploy more capital on the infrastructure, you will still start savings.

So it will really follow the trends of the build out.

Then the question of the reduction and maintenance-related CapEx related to our coax network, that is more of a -- more medium- to longer-term event as we start moving subscribers or they start proactively migrating off of our coax network on to the fiber network.

Your next question comes from the line of Philip Cusick from JPMorgan.

I'm trying to think about the EBITDA and free cash flow drag of wireless.

Can you talk about this?

And is it significant enough to impact shareholder returns, why else would shareholder returns be down in '19 given that you're entering the year at 4.9x?

Yes.

I mean, listen, maybe it's a backward way of trying to discuss our guidance, which we've been conservative as you may suspect.

And what we've done with our revenue guidance and our EBITDA margin and our free cash flow guidance is the guide you toward a very benign effective mobile.

It is clear that if we were -- as we've said before, to run a somewhat me too look-alike model as some of our friends over in cable end do with mobile, that we would have a marginal revenue impact and would be EBITDA positive out of the gate.

To the extent that we decide to do a different type of model with slight variations to that, we would expect to see better revenue performance and very little impact on EBITDA.

And so we're just being prudent with our guidance to allow ourselves flexibility around our business model, and hopefully we would be able to beat the share buyback returns.

As you rightly point out, it would be lower than last year.

We also, as you know, Phil, have had lots of questions about the leveraging, right?

So we're keeping our flexibility between share buybacks and potential deleveraging as well.

Okay.

And if I can follow up on Jason's question.

Are you testing the new DOCSIS evolution with the 10G?

And any thoughts on changing the pace of your fiber build out?

No, on first question.

And secondly -- and obviously, we're part of CableLabs.

So as part of the whole CableLabs experience, we're part of that.

But we are more focused on our fiber-to-the-home GPON technologies than we are on coax 3.1 10G technology.

And on your second question, I'm sorry?

No, that was kind of it.

Thanks, Dexter.

Are we accelerating fiber-to-the-home?

Yes, we are accelerating fiber-to-the-home.

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

I would like to dig into the revenue guidance just a bit more.

You're basically guiding to the same range that you ultimately achieved in 2018.

And as you noted, one of the key tailwinds you experienced last year was 23% growth in your ad revenues.

I got to imagine that -- and I think you'd previously said they would be closer to flat this year that they wouldn't necessarily go down just because there wasn't political and yet you're still targeting the same range.

That implies other parts of your business are accelerating.

So I was hoping you can maybe help us understand if that's the right interpretation of it, where would that come from?

And then just to be clear, do you have any mobile factored into your revenue guidance for the year?

Yes.

So Brett, good call out.

I mean, the key here, as you remember, is that we had a price increase in July of last year, whereas we're doing a price increase this year in February and March.

So that more than offsets the impact from the loss of political advertising.

To be specific again and to reiterate, we expect our Advertising platform to grow in 2019 because of the success of what we're seeing on a4 and the Athena platform.

So it's a little bit differentiated relative to some of our peers and the impact of Advertising on our overall revenue.

But we think that we've put in place the mechanisms to see consistently this type of a revenue growth range.

And then it does include mobile in there.

But as I mentioned on Phil's question previously, we've run a very benign mobile case as part of our guidance and giving us the flexibility to play around our business model before launch, right?

So we will update people materially with any changes if our mobile business assumptions change once we launch.

And what's the time line for when you currently expect to have mobile in the market?

We've been about -- just saying 2019, obviously, we'd like to do it sooner rather than later.

But we're in test phase on all the elements of our business model, BSS/OSS, our bi -- flow through in terms of our e-commerce site and all the other distribution channels, our discussions with our handset partners, everything, right?

So we are in beta testing right now, and we'll continue to the beta test and make sure that's 100% ready to go when we launch.

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

Just a couple.

First on Altice One.

Now that you have it in 10% of the base, could you talk about what the plan is over the course of this year in terms of trying to market that more widely?

And what kind of churn affect this had so far in the small sample that you have?

And then secondly, in the CapEx side, if you could just -- if I look at some of the historical capital intensity numbers that you guys have had overall as a business, once the fiber rollout is more or less done, is it fair to think about historical benchmarks more than the 10% to 11% kind of a range as the right intensity number?

Sure.

Listen, on the Altice One question, we haven't talked about it broadly because we still think it's too early to tell to be very proactive in our commentary.

We did want to start highlighting that we're seeing better NPS scores on the Altice One platform than we are seeing relative to legacy set-top boxes.

You've also seen the improvement in video RGUs quarter-over-quarter throughout 2018.

We don't want to attribute that yet to Altice One.

So it's too early to tell whether that is a churn impact or whether there are things that are happening in other video technologies out there that are helping our video trends.

But I do think that we see positive momentum in Altice One.

We expect to continue to see positive momentum going there as we continue to deliver all of our bundled growth ads that can receive the Altice One are receiving the Altice One box today, right?

So maybe in a couple of quarters, we may have some more detail there to talk about.

But all the trends are pointing in the right direction.

On the CapEx side, I think, directionally, you're correct.

I mean, we think we could hopefully improve even more than the 10% to 11% range post fiber-to-the-home.

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

Dexter, you've talked about in the past the possibility of either selling IRUs or even strategic options with respect to Lightpath.

Can you update us on that?

And if you were to sell Lightpath, I mean, its entirety, would the growth rate of what's left in commercial services accelerate or decelerate, that is, is Lightpath growing faster or slower than the small business segment -- than the small and medium business segment of commercial in your footprint?

So on your first question, Craig, I think, we've been pretty open that we are reviewing the Lightpath asset and doing work internally to see whether anything makes sense strategically to do with that asset as we basically do with all of our assets on a continuous basis.

So that's just a normal course of business review.

It's clear that there are a lots of questions that were being asked about it by not just you, but third parties out there that are interested in being part of that asset base.

In terms of your question on growth, our overall business services top line would grow further because Lightpath is currently not growing at 5.3%.

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

Charlie, I was doing some simple math on the free cash flow outlook for 2019.

So there's $84 million of cash interest savings, $120 million that you don't have for restructuring versus the $1,355 million.

Is there any other swing factors we should be thinking about?

Well, just to be clear, I mean, there is -- we do -- we will still have some restructuring cost because those are commitments we made in the past play out.

It will be lower than 2018.

And there's certainly cost -- financing cost associated with our refinancings as well that had played out in 2019.

But I think -- and then we've got just working capital fluctuations, but nothing particular to call out.

We're not a meaningful taxpayer, as I've already suggested, so no meaningful change there either.

So I think you've -- you are on the right track there.

And then a follow-up for Dexter.

I think there's, obviously, a lot of interest in this call on the fiber-to-the-home build-out.

Is there any other metrics you're willing to share with us, percentage of CapEx this year that's been spent on fiber or percentage of a home-marketed target by year-end or some future dates, anything helps you on the share?

No, I think.

Listen, I think, we've been very clear about our intention.

We also called out that in 2018, we were slower out of the blocks than we would hope because of the permitting process there, which is why you could see the CapEx numbers for 2018 came in probably lower than expectation.

I think we flagged that in Q3 earnings.

And you see kind of the numbers that we are guiding to for 2019 to be higher because we're looking to accelerate fiber-to-the-home and new homes build, which is something else that we flagged in terms of our public statement and in public forums.

So that's pretty much...

But let me try -- sorry, let me try it this way, this -- now that you're sort of at a better run rate, sort of, post permits this year, is this like, sort of, a good run rate that we should think about in terms of spending on fiber going forward?

Listen, I think, we -- the process on fiber is continuously growing and accelerating year-over-year until we hit a stability of rollout based on resources, timing and execution.

So 2019 will probably be a materially better than 2018 on fiber-to-the-home rollout, and hopefully, we'll plateau in 2020 in terms of a much larger run rate.

But we, again, are managing our CapEx flow to maintain that $1.3 billion to $1.4 billion range that we've consistently talked about unless we decide to materially accelerate because for whatever reason we're able to find the resources to do it or we decide to push on the accelerator to try and accelerate that 5- to 6-year time frame.

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

Just digging into the margin expansion a little bit.

I would imagine that the Advertising -- incremental Advertising revenue, $80 million or so that you had, '17 to '18 was very high-margin revenue.

So if that's going to be more flattish this year, can you talk about how the mix of, first, the margin expansion change from '18 to '19?

Actually, no.

The advertising margin -- the incremental margin for 2018 was actually slightly dilutive to -- just to highlight, when you are reselling your own inventory, that's a very high-margin product.

When you are out there reselling third-party inventory, that's a lower-margin product.

So overall, we would have expected probably our telecoms-only margins to be higher in 2018 if we did not have that incremental Advertising revenue.

So for 2019, to your point, is we're guiding to higher-margin growth ex-mobile, which is a dilutive product relative to our existing margin.

And so I think that should just give you some more clarity on the Advertising business, which we expect to grow.

Give us any color on how much of the 2017 to '18 ad growth was organic versus adding in other sources of [mobile].

Meaning us buying third-party inventory versus our existing inventory?

Yes.

No, that's something we're just -- we're not giving a lot of clarity on.

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

I want to ask you 2 things.

First, Suddenlink has a very limited portion of footprint that competes with telco fiber.

Penetration of broadband is only about 40%.

What do you think has been holding it back?

Why do you think you haven't seen faster growth in Suddenlink broadband subs?

And do you see that changing going forward?

And then on another topic, I wanted to ask you, does the share repurchase guidance assume that some of the former investors in Suddenlink or sellers or could that entirely be threw up in market purchases.

I ask because it's obviously a pretty large percentage of the public float, I think, close to about 25%?

On your question regarding to Suddenlink, there's -- we believe, there's about 20% overbuild.

We're pretty -- we're closer to 50% penetrated on broadband than 40% penetrated.

And so if you kind of take that 20% plus 50%, you're in that kind of 70% penetration without talking about small -- the more DSL-related footprint out there or areas where demographics from the population in terms of wealth demographics are poor, right?

So I think we continue to take good market share.

We continue to grow our broadband RGUs very nicely in the Suddenlink footprint.

And if you look at our historical numbers, we're back to our kind of 2016 growth numbers on broadband RGUs when we, in 2017, had misallocated marketing spend in those areas.

So we don't see any slowdown there and we continue to see good pricing power in our Suddenlink footprint.

In terms of our share repurchase guidance, we're assuming -- we didn't make any assumptions what was the source of the shares.

Don't know whether the private equity shareholders are sellers are not, but we're very focused on shrinking the share count overall and where they could source from unclear.

Are you continue to be opportunistic on the share repurchases?

Or should we expect more of a systematic regular amount being deployed?

Well, we've been systematic in Q3 and Q4 as we were very much focused on managing also to our leverage target.

And as you know, we focused on year-end leverage target.

So intra-quarter or intra-year, we may be above the leverage targets, but we will always be within our leverage targets by year-end.

So I think we are systematic about it.

If there's an opportunity to get volume in one go at a very attractive price, I think we'll be thoughtful about it.

I don't think we're going to rule out any type of transaction at this stage.

We just would like to maximize shareholder value.

Your next question comes from the line of Ben Swinburne from Morgan Stanley.

I was wondering, Dexter, on the content side, when you look at dealing behavior on the Altice One subs, I know it's, I think, just 10% of the base.

But is it informing at all how you think about your programming contracts and your relationship with the networks?

And I know again, it's a small piece of the base, but you highlighted the Netflix viewership and other sort of bringing your own content options.

Just curious those are impacting your programming costs or your early philosophy on content?

And then maybe just for Charlie, on the guidance.

I apologize if you quantified it, but I don't think I heard it.

Is the rate adjustment in February, March and other 3% type adjustment and do you expect a similar yield to what you got in the July of last year?

Ben, on the first question, listen, we've been very active in the data analytics business.

So the legacy set-top boxes and Altice One have been very informative on usage pattern of our customers.

I don't think we are seeing a degradation, let's call it, of our linear viewership, because there is access to OTT apps in an easier format.

I think it's really a question of a much, much better user experience and being able to access all the direct-to-consumer options that are out there in a very easy way, in a very kind of aggregated way as you're not switching between your HDMI 1, 2 and 3 on a regular basis on your television set.

So I think it's really about the whole customer experience.

And I think you've seen it, Ben, it's a material enhancement for our customers as well as the performance of the WiFi has been 40% better than what we've had on our individual modems that we were -- that were deployed previously to the Altice One platform.

On guidance, Charlie?

Yes, I'll just -- Ben, to your question on the price increase, it's -- our process this year is very much in line with what we did last year, both in terms of what we're going out with and how we expect to see it managed?

Got it.

Dexter, can I just ask a quick follow-up on Altice One?

At what point does that become the default box for every gross video connect if not already there?

It is already.

It's actually there for every bundled subscriber gross ad.

Since we have less than 5%, taking the single video product, it's really the majority of all our gross ads.

It's available on over 80% of our footprint.

The 20% of our footprint or less than 20% of the footprint where it's not available is in Suddenlink areas, which the network is just not upgraded enough to be able to deliver the Altice One platform.

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

You've made a few filings with the SEC on the T-Mobile-Sprint merger, particularly about -- around your MVNO.

Just wondering how you think your full MVNO with Sprint transfers into new T-Mobile, should that get approved?

And if you've got any color on the reception that yours and others petitions to protect MVNOs getting from the antitrust authorities?

And then secondly, just returning to the Lightpath question, just wondering if you've got any learnings from your European cousins on fiber asset valuations versus to your own cable multiple.

And is there a viable options to maybe keep the Lightpath business itself and so just the fiber asset?

So on your full MVNO question, I think we've been public that the contract transfers to any surviving entity.

So we don't expect to see any impact from whether the transaction occurs or not to that MVNO contract.

In terms of reception from various agencies, we're not -- I don't think that we're in a position to comment on that.

On the Lightpath side, I think our European cousins have done an exceptional job of monetizing some of their network assets.

We clearly are keeping our ears and eyes open as to the trends on valuations and how people are thinking about pricing their capital in that space, which is one of the reasons obviously that if we were to look at monetizing some or all of Lightpath assets, it's because it becomes very attractive for shareholder value creation.

And it is an asset that is, call it, less core to the overall business today.

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

Recognizing that the commercial launches is might be later in the year and it's just still hardening out the BSS and the OSS, it feels like given that you have a thick MVNO, the economics and the cash burn characteristics will be different than the thin MVNOs, which your larger compatriots have with Verizon.

Would you expect the burn to actually accelerate in 2020?

And you kind of enlightened us on the cash burn characteristics of your approach of spread versus what Comcast and Charter are doing?

And then secondly, when you look at broadband consumption usage, Nielsen's Laws, not even a -- certainly not a physics law, not even like Moore's Law in terms of just empirical engineering advancements, it's more a behavioral thing.

But when you look at Altice One, how much larger is the data consumption?

You talked a little bit about WiFi.

And when you really move to all fiber, I mean, do you like expect to kind of spike above the 40% norm?

And is that something that recently translates to some more pricing power on broadband when you get further out, given how much more people are using?

So on mobile, yes, I think we've been very clear that we do not expect to see a heavy cash burn in our business.

Even if we want to be more aggressive on price points, we are not -- want to drive any significant cash burn.

So to your point, 2020, to the extent that we do have some cash burn in 2019 depending on what type of business model we launch, yes, we don't expect to see that going into 2020.

In terms of the Altice One, yes, data consumption is larger.

I don't think we are talking about how much larger it is today, because we don't have a big enough sample base out there, but it is significantly larger, and we hope it -- for it to continue as we deploy more and more customers.

Your next question comes from the line of Mike McCormack from Guggenheim Partners.

Dexter, a comment on the product being launched by Charter for $15 skinny streaming service, is it something you guys might entertain at some point?

Then also, in the past, you talked about low-band spectrum interest.

Any thoughts around that, any updated thoughts around that?

So, listen, I think, we -- on the Charter OTT offering, I think it's very interesting.

We continue to review regularly our products out there, have discussions with our programming partners.

I do think there is a fine line in terms of capital allocation and -- versus new services versus all the existing services that are out there.

And whether or not it's worth spending a lot of time trying to develop our own product or whether we already think the product lineup of DTC is pretty cluttered already, right?

And so I think, yes, that is something that we ask ourselves regularly, should we really allocate the resources doing something like that when there's a lot of me too look-alike products already out there.

But I think for someone of their size, it makes a lot of sense for them to have done what they've done.

On the low-band spectrum side, I think it really is a question of the success of our -- or not success of our mobile business.

We expect it to be successful.

And to the extent we reach certain volume target, then at some point, we'll start thinking about how we can enhance our economics.

Your next question comes from the line of Marci Ryvicker from Wolfe Research.

In terms of the margin expansion guide, can you just talk a little bit about the quarterly cadence?

Should we expect there to be more expansion in the first half, given the rate increase, than in the second half?

And then a corollary to that, is there anything you can talk about on the programming expense side for 2019?

Yes, I think on the -- I don't think we've been guiding on a quarterly basis.

And I think -- feel free to call Nick throughout the night and asking those questions.

On the programming guidance, I think we've been clear in the last quarter that we're pretty much done with all of our large programming contracts.

We don't have any significant programming contracts of any large size to renew.

And so the cadence in terms of the growth cost is in the high single digits in terms of cost per subscriber.

And then you need to adjust that for any perspective that you have in terms of video RGU growth or decline, right?

Your next question comes from the line of Emmanuel Carlier from Kempen.

I have one on broadband as a stand-alone product.

Could you quantify how much percent of your broadband customers are currently on a broadband-only pack?

And secondly, I was just thinking, how do you look at profitability between a broadband-only offer versus customers taking a double play or triple play bundle?

On the broadband-only question, it depends on each one-- each of our different assets both between Suddenlink and Optimum, but we have not disclosed that, and I don't think we're going to disclose that going forward in any granularity.

In terms of broadband-only versus the bundled, we still believe that the video RGU is a profitable business for us.

And so the profitability of the bundle continues to exceed just the stand-alone profitability of broadband.

And is there a big gap, because if you look at it on a free cash flow basis, for example, you also don't have the set-top box costs?

Yes -- no.

So I think there's -- you've got to break out that question to multiple pieces.

We believe that the video RGU on a free cash flow basis is breakeven in approximately 2.5 years.

But on a margin basis, it is EBITDA-positive contributor day 1 to the business.

So it just depends on what type of metrics you want to look at.

And I can understand that you don't want to provide the broadband-only customers, but is it still a very tiny part of the customer base?

No, it's -- well, let me try and reverse this a little bit for you.

We've spoken about that 60% to 65% of our growth ads at Optimum take a bundle product.

And if you look at the Optimum bundle, that's where about 60% of our subscribers are bundled.

In the Suddenlink footprint, 50% of our subscribers take a bundled product and the rest take a single data product, right?

So you are seeing a larger amount of data-only subscribers in Suddenlink versus, let's call it, 30% to 40% at the Optimum footprint.

So it's just a question of math, you can back into those numbers.

And your last question come from the line of Bentley Cross from TD Securities.

I just wanted to get your updated thoughts on M&A.

I know as the release called out, the buyback target ex M&A.

Just wondering what your capital allocation thoughts are with the stock at the current level?

Well, we don't really, through our budget process, allocate anything to M&A, because it really is a question of being opportunistic and whether or not there is a partner on the other side of the aisle.

I think that our guidance is pretty clear.

We obviously are being prudent, because we do know that there are things that we can do in small bites.

Obviously, any large M&A could change the share repurchase guidance in certain ways.

And obviously, we also highlighted it does not include any asset sales that we may do, which we may get some proceeds back from and we could increase the share buyback or use that to deleverage or do both.

And there are no further questions at this time.

I'll now turn the call back to management for closing comments.

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

Thank you.

Thank you.

This concludes today's conference call.

You may now disconnect.