Good afternoon, everybody. Our next speaker is Marc Sirota, CFO of Altice USA. Marc joined, I think, about a year ago from Comcast, taking what I think of as a pretty bold step given some of the struggles that the business is facing and the size of the balance sheet, all things that land squarely on the CFO's shoulders. Marc and Dennis have begun a transformation of the business. We're sort of a couple of years into the transformation at this point. The two big factors impacting the securities for Altice, at least in my view, the first is how the business can be returned to consistent, dependable growth. The second is how the balance sheet can be returned to a sustainable position. I think those are the two of the themes that we'll focus on with Marc over the course of this conversation.
Marc, thank you so much for joining us. We really appreciate it.
Thank you for having me. I'm looking forward to our conversation today.
You're a year in to the role. Give us some perspective of sort of what drove you to take this role given what must have looked like sort of a steep uphill climb from the starting point.
When I was looking at the company from the outside, it was clear to me that a turnaround was very achievable based on my past experience. So fundamentally, I just have a belief that we could turn the company around. Additionally, having the opportunity to work with Dennis again was very exciting for me. I've worked and known Dennis for over 20 years. He's an incredible leader. He just simply inspires the team, and he drives results. So that was very exciting. The company had this incredible fiber network, and I knew that was an opportunity to drive growth. And lastly, which was really important for me, was the company actually has a very family feel, which I was very accustomed to in my past. And so I felt like it was going to be a good fit.
And so, kind of thinking about my past and my experiences, I've been actually pretty fortunate to work and really help lead a few multi-billion dollar turnarounds in my past roles. And they were actually very similarly situated to what Altice USA was. So I've had the experience to do that. And really, the formula for me for success in those turnarounds was really surrounded about kind of three or four things, if you will. One is just a complete cultural growth mindset. You really just have to have a belief that you can win and then just back it up with the operational chops and the rigor to make it happen, number one. Two, you just have to have the right team on the bus in the right seats and that there is trust and just a willingness to kind of push through and beyond the status quo.
Three, it's really what gets measured gets done, that old adage. So there is just a complete focus on data and knowing everything you possibly can about your customers. And then really, the fourth one is you have to really strategically invest still in the business to drive long-term sustainable growth. So you just can't cost-cut your way out of growth. You have to invest in the business and really invest in the most important things. So, Jonathan, that's exactly the formula we're deploying here. So the first step has been transforming every aspect of this organization. I mean, everything: culture, the operational execution, the go-to-market strategy, the quality, the technology, product development, financial discipline. I mean, literally, the list goes on and on. We are literally transforming every part of the business. And honestly, I'm excited about the progress today.
Over the past year, we've challenged ourselves to enhance our customer experience. We're delivering more value. We refined our operational practices. We're strategically strengthening our capital structure. We proactively refinance our near-term maturities. That really gave us a runway to just focus on the business and operating. There's a few examples I would like to call out that really support this. It really started with transforming the culture. To do that, we have brought on over 100 new VPs and above. That is no small task, from sourcing, vetting, onboarding. There is a real excitement to come to the company and really be a part of this transformation. We've introduced a new regional leadership model. We have local leadership in our markets that are going to drive the business locally. They're just interacting like they never have before. Then we're really listening to our employees.
We really have improved our employee engagement. We're taking action, and we're finding solutions for our teammates to really empower them to better serve our customers. We also go ahead.
No, no. You go ahead. I didn't interrupt you. Sorry.
Over the last 18 months, we knew customer experience had to be our most important product. The competition is fierce. So there's just this renewed focus on quality like never before. That's quality products, quality network, quality service. And so we're committed to first-time right. We're seeing double-digit improvements in NPS. We're seeing lower call-in rates. We're seeing lower truck roll rates. We have more self-service tools. So super proud of what we've done and where we are, but there's still a lot more work to go in 2024. So we have a solid foundation, and we're still at it.
So, your first step is transform everything. That's an interesting what are you going to do for a second step? Second step will be sit back and relax once everything's transformed.
I don't think that will happen. Transform it all again. Every three months, you got to transform yourself.
Awesome. And the roles that you had in transforming organizations before, this was inside of Comcast turning around underperforming units or in user roles before Comcast?
This was at Comcast. Just great experience, great team over there. But I went to some of the hardest operating markets where we were up against steep competition. And so it's really empowering the team, having the right team. And once you do that, they do the rest. So it's all about teamwork. The power of teamwork is powerful. And that's how we won. And that's how we're going to win here.
Yep. Yeah. I think one of the things that's powerful from the perspective of an outsider looking in is the fact that we think of Comcast as an exceptionally well-run business in aggregate. But of course, there are pieces in it that don't perform as well as some of the best-performing pieces. And when you've got a team that has seen what perfection looks like and has managed underperforming businesses towards that perfection, their ability to kind of replicate that success in a new very similar asset at its core, it's much easier to bet on a turnaround with a team like that than it is in other situations.
We are very excited about what we can do. We've assembled an incredible team. Honestly, from all over the industry, it's been a lot of fun putting together this incredible team. The cool part about it is all the egos are checked at the door. These folks have a lot of experience, and they're just rolling up their sleeves, and we're just getting stuff done.
Diving into the specifics a little bit, when we sort of look back at 4Q 2023, our sense is that for the cable companies in aggregate, net adds are a little bit disappointing. It looks like the industry slowed, and fixed wireless and fiber sort of held steady. So the slowdown in the industry, cable really bore the brunt of that. Does that sort of thematically map to what you guys saw internally at Altice as well?
Yeah, it is. I mean, the industry, as you know, continues to face challenges. I mean, just due to the macroeconomic factors, right? High interest rates, literally a record low housing formations and moves. We've never seen such low levels. And as you mentioned, competition is really at an all-time high with overbuilders, fixed wireless. And so even as we look at the fourth quarter and as we turn to 2024, I mean, we see these challenges remain in place. And so for first quarter, we expect broadband losses to be fairly consistent with what we saw in the fourth quarter. However, and I think we mentioned it last quarter, we're going to continue to remain very disciplined and focused on profitable growth. And we're looking to maximize customer lifetime value. So that's key. And we think over the long term that there is a path to return growth.
And to that end, we've introduced a lot that will help us get there, but in a profitable manner. I mean, just to give you a few examples, we added new pricing, which I know we'll talk about, packages. We've added advanced technology across all of our channels that will support improve ARPU trends over time. We just recently hired our new CMO, and we brought on a new agency here in the first quarter, which will unlock a new go-to-market strategy. It's going to be hyper-local, I mean, truly a true local ground game. We're going to play offense. We're going to do it with optimized marketing and really messaging. We're going to continue to do what we've been doing, which is investing in CX and NPS and customer base management. We're going to engage with our customers like we've never had before.
We're going to continue to make the investments into the network because quality really matters. Then we're just going to continue to focus on expanding our footprint too, right? We serve some of the fastest-growing markets in the U.S., and we want to seize those opportunities.
Yep. Marc, are the trends and the pressures and the challenges that you're seeing the same in the East markets as in the West markets?
They actually are a little bit different in each footprint. I would say in the East, it's really more driven by the low move activity for us. In the West, we see incremental fiber overbuilds mainly.
And the overbuilds, I think, are up to 40% in the West, which is up quite a lot, actually. Where do you think that settles out?
Yeah, we see it growing. It was 30% probably a year ago. Now it's 40%. We expect this will continue to grow. And our strategic plans kind of incorporate that growth. However, our job, number one, is to make it really hard for them to continue. And so we're going to compete harder like we've never done before. And we're going to do that with end-to-end solutions that really improve the value equation for our customers, both new and existing. And we're going to continue to invest in strengthening our HFC network. And so for us, it's about quality, kind of regardless of technology. And we think we can deliver a reliable product at a valuable price.
You'd mentioned a moment ago that you ultimately think this business will return to growth, by which I think you mean positive subscriber growth, broadband subscriber growth. Can we get there by the end of this year, Marc?
We're optimistic about where we see the trends moving in the long run. Like we just talked about, we're going to continue to focus on profitable growth, and we're going to do things that drive customer lifetime value. I mean, our strategy navigates really on two fronts in our minds: things that we can control, such as operational efficiencies, but there are certainly things that we can't control, and competition, the macroeconomic factors we talked about. Yeah, the timeline will be influenced by consumer behavior and kind of these other macroeconomic factors, the competitive landscape. But we're optimistic about our positioning and our ability to succeed in the long term. If you think about it, we're very excited about how mobile will drive improved broadband results. We're in the very early innings here.
So this is going to be actually a strong tailwind in our mind to drive growth, both from new acquisitions but also for retaining customers. Jonathan, we already see early on a 20% improvement in churn when customers take these products. We're also very excited about the early indicators we see on CX and EX. Like we talked about, our NPS scores are significantly improving. Our contact rates are coming way down. We're just becoming an easier company to do business with. We're more digital. So the channels are performing better. The yield is performing. So all I can really say is, look, we're going to control what we can control. And over the long term, we think with this renewed go-to-market strategy, we will grow. We'll grow revenue. We'll grow subs. We'll grow EBITDA. That is the mission.
Yep. Is your competitive position markedly different in markets where you've got fiber versus where you're competing with HFC?
Fiber is a pretty powerful value proposition for us. But to tell you, it's just one component of our network strategy. It's really all about quality of the network. So it doesn't matter if it's fiber or HFC. We're investing to make sure all of our network is a superior network. Certainly, fiber is a great tool when we're competing against a mature fiber operator here up in the Northeast. But we have other tools in the toolkit to compete across the footprint. I mean, our DOCSIS 3.1. We're almost complete with that program: high-value and high-quality network. And we see here in the East, on the fiber asset itself, move activity is certainly down. So we see the benefits in churn. And just even these early days, within the first year, we see 10% improvement in churn versus HFC versus fiber.
So it is different, but we feel like we can compete on both fronts.
Marc, what do you think drives that difference in churn? Sort of a couple of stats that we picked up today from the meeting. One is that Verizon is saying their Fios customers don't actually consume more than 100 Mbps. There's nothing that their customers are putting over the networks that require more than 100 Mbps, which is a stunning stat. It sort of explains why fixed wireless broadband is able to do as well as it can. But the implication for you is that the HFC isn't really an inferior product in a way that matters to end users. Why are you saying that?
I think it's important when we compete against a mature fiber operator, we want to have a fiber product that competes. I think the reason why is because the network works. We see it in our transactional volumes. They don't need to call. The product really works. There's less components. And so it's a great asset. But again, we feel like we can compete where we need to compete, fiber versus fiber. But to your point, the HFC network is just as strong, and we can continue to compete elsewhere.
And so it sounds like if resources weren't constrained, you'd build out fiber everywhere where you're competing against fiber in the East. You'd build it to 40%+ of the footprint in the West. It's really sort of a function of resources that determines how quickly you upgrade to fiber.
No, and I think you saw it in 2023. A slightly different view. I mean, we have other levers, I think, to pull to drive sustainable growth. Fiber is just one of them. And so we look at a full, holistic assessment of the business. And to us, right now, it's really more about operational execution, our go-to-market strategy, the CX improvements we've been talking about. I mean, just the introduction of AI and data. We have leapfrogged where we were historically. These are all the things that I think will support stabilized trends. The other exciting thing is we have this incredible network. It passes 2.7 million homes. And so I think you'll see more of our focus will be on driving more customers onto the actual network where we see the benefits. And then we'll, over time, continue to expand. But we can moderate them.
I think we're three months into when you overhauled pricing. What's the impact been so far on ARPU churn and, I guess, gross ads as well?
We are pleased with the progress on ARPU. Our churn rates are actually near an all-time low. As we talked about gross ads, it's really about just having less jump balls right now than pricing because we remain actually very well positioned against the competition on price. As it relates to just ARPU holistically, we were just simply managing ARPU differently than we have historically. I think you really started to see that trend in 2023. Specifically, you look at fourth quarter. We grew residential ARPU year over year for the first time in nine quarters. So I fundamentally believe we have the opportunity to improve residential ARPU trends over the long term. We'll do that consistently, but on a rational basis. We're going to take a balanced approach to rate and volume.
We're going to optimize those two levers over the course of the year. Sometimes we may be a little bit more rate-focused versus volume and vice versa. But we'll take a balanced approach. I just fundamentally have a belief that we can drive sustainable, consistent ARPU growth. There's a couple of things that I think support this notion, right? We've taken a much more disciplined approach around video pricing that aligns better with programming cost inflation. We're continuing to drive our mobile business and drive more mobilized to new customers. We're driving them to existing customers. We're continuing to drive our new customers and existing customers up tier. We especially see that in fiber. Customers want a gig.
Honestly, we've launched new AI capabilities over the past six months, which have been incredible, to really better manage every single conversation we have with our customers. We started in retention. We just launched it here in the first quarter. We're going to expand that in the second quarter and beyond to all the channels. This is meaningfully driving a more profitable outcome for us while it's maintaining save rates. So we had historically a one-size-kind-of-fits-all approach to ARPU erosion. Now, with our advanced AI capabilities, we can literally tailor every conversation and action to an individual customer. It's really exciting. I really couldn't be more proud of the team, how quickly we stood it up, and excited for what that's going to bring. Then Dennis talked about it. We're improving our customer experience and increasing retention with the right speed sizing program.
We're seeing great early results there, but it's just getting started. And so there's a lot more to go there.
That growth in residential ARPU that you saw in the fourth quarter, is that sustainable? Do you think that?
Yeah, just like I said, I think, again, you'll see it kind of ebb and flow a little bit. But we feel like we have the levers that can control that. But we do think, over the long term, on an annual basis, we'll have consistent, sustainable growth. And I think it's important to know, certainly, we could try to drive volume at the cost of rate. That's not healthy for the business. Conversely, we could try to drive rate at the cost of volume. That's also not healthy. So we're just going to take a balanced approach.
So let's drill into that in a little bit more detail, Marc. I think the concern that investors have is that ARPU levels at the moment aren't sustainable, and they're standing in the way of your ability to drive volume. So I think, simplistically, people are looking at your ARPU being $10 higher than Comcast and Charter. And I guess what we really need to do is look at where your ARPU is relative to Verizon, except that they don't report it, or where your ARPU in the West is relative to AT&T and Frontier. How do those compare?
Well, we stand back. Our ARPU is unique to us, our footprint, right? What our customers take, products, tier mix, in the areas we serve. When you look at the other cable operators, we do feel you have to normalize for mix. Some operators may skew more towards lower-rate customers. We have pretty long-tenured customers. Those tend to skew to higher ARPU bands. So honestly, for us, we feel like we have the technology now and the capability to kind of manage rate on a consistent basis. So we see a path for both growth and both subs and ARPU over time. What customers want is quality and value. We believe we have attractive pricing in our markets to compete well. We're engaging with our customers in a way we just weren't in the past. So we're going to provide more trend than you saw.
We're providing more simple, transparent pricing. We think that gives us runway to grow ARPU, but it also supports better customer trends in the long term.
Got it. And so, I mean, I guess our concern is that something has to come out of RPU to get to a point where subscribers can sustainably grow. And we're trying to figure out how much that is to figure out sort of where the floor is in EBITDA. And I guess what you're saying is the opposite. You think you can grow RPU from these levels and return subscribers to growth simultaneously. And I think that's really important. That's sort of a big deal to how people think about the equity.
Yeah, we agree.
Okay. Switching to the balance sheet a minute. So in some respects, fiber is better. In other respects, you're able to compete very well with cable assets. Why not halt the fiber build entirely, bring the balance sheet back into sort of a more manageable state, and then put yourself in a position to reaccelerate fiber in the context of a healthier balance sheet?
We're pleased with how we've managed our debt profile. We've cleared the runway, as you saw. As I said in the kind of opening remarks, to grow sustainable cash flows and revenues in cash over time, you have to make strategic investments that will grow things over the long term. That's what we're focused on. Certainly, we could do short-term things. I think that would be at a detriment to long-term value creation. And so our focus is creating value in the long term. And we think continuing to make strategic investments is the way we're going to drive that. So it's things like the fiber network. It's the new build. It's a network enhancement. So it's all of those things.
Yep. Yep. And so, yeah, I totally understand the opportunities. And in a resource-constrained environment, it wouldn't be a discussion you would do everything. I'm thinking more about sort of how you prioritize capital in a very resource-constrained environment. But I think the message is it's really about sort of balancing the opportunities. And I guess the message, ultimately, is you feel comfortable continuing to invest in infrastructure with the balance sheet that you've got. You're not worried about your ability to maintain these kinds of leverage levels, at least in the relatively near term.
Yeah. We've given ourselves a runway to just truly operate. So we feel like we have the right capital CapEx program in place that supports the level of growth that we want to sustain in the long term. It's focused on the highest ROI areas. So I'll give you an example. And you see it in the numbers. We're shifting more of our focus to driving more customers onto the fiber network. So we're pulling back on increasing our fiber passings and more focus around driving customers onto the network and driving penetration. We still fundamentally believe in growing the fiber network, but we're just going to take a balanced approach to that and expand over time. And so we want to be there to take advantage of new build. We want to make sure we have the best HFC network in the business.
We think we have the right balanced approach to do that.
Marc, we saw sort of interesting moves out of Altice France this week. Is that something that you're considering as a way to manage the sort of get leverage down more rapidly in the U.S.? Could you do discounted exchanges in the U.S. as well?
We're a separate company with separate capital structures, as we just talked about. Our priority is transforming the business here in the U.S. So we're pretty pleased on how we've cleared out our near-term maturities. So we can focus on just doing that, delivering the best customer and employee experiences. Beyond that, we're not going to comment on hypotheticals or speculation.
Yeah. Yeah. Okay. Fair enough. Yeah. I guess it's difficult to comment on in the abstract. Moving to something on the balance sheet side, a little bit more concrete, you were looking at ABS towards the end of last year. In our discussions with Fitch, and these were sort of back at the end of last year, it seemed like they were reasonably constructive about doing asset-backed securities on a hybrid of fiber and HFC assets. How did that process end up going? You ultimately didn't do ABS. You did something else instead. Were they just not willing to give you the leverage levels that would make it worthwhile, or was it the rate?
As we've learned, it's a process. It takes time in trying to get to a point where it does make sense to do a transaction like that. So that's why you saw, January, we cleared out all the maturities for the next couple of years. We have the runway. Honestly, that gives us more flexibility on timing, pricing, size to pursue an ABS. The good news is we don't have to do anything at the moment. So we like the fiber asset. The value of it is actually increasing daily. And so I think we have the flexibility to wait for the right pricing, the right structure, and we'll pursue it if it's an opportunity at the right time.
Marc, we've run out of time, unfortunately. But one last question for you, if I may, which is you've pushed out your maturity wall, which is great. You've given the team the space to really execute on the turnaround, which is obviously a critical win for the organization. When we get out a few years to the point where we're having to deal with those maturities, do you think the growth in EBITDA in the business by that point will make the balance sheet more easily refinanceable? Or do you have to consider transactions between now and then to bring the balance sheet into sort of a more sustainable position? Would you go back to thinking about maybe selling off assets between now and then to bring leverage down faster?
Yeah. Our focus is really on the core assets we have today across the east, the west. It's not to say you saw we sold Cheddar, right? It's an example of an opportunistic M&A transaction. And again, just giving us more runway to efficiently run the core business. So, I mean, we're always open to considering value-accretive transactions, but there's really nothing to update today. Yeah. So we like our position. Our focus is transforming the company. When we get to those points, we'll be better positioned. Hopefully, the interest rate environment will be better positioned as well. And it will be a win-win for all of us.
Any comment on the press rumors about Charter being interested in Altice?
We don't speculate or comment on rumors in the media, right, especially what the companies may or may not be doing. Just a point of emphasis, right, Dennis said it. We're a controlled company. Our job is to focus on operating the business and really get back to long-term subscriber EBITDA and cash flow growth. That's our focus.
Got the message loud and clear. Execute, execute, execute. This has been awesome. Really appreciate the time and the perspectives, Marc.
Thanks for having us. Really appreciate being here.
No worries.