Optimum Communications, Inc. Q3 FY2024 earnings call

• Transformation Phases: Phase 1 was stabilizing operations; now Phase 2 is accelerating business transformation. Achieved over $500 million in OpEx and CapEx improvements, reducing OpEx to ~$2.6 billion and CapEx to $1.5 billion.
• Q3 Performance: Reported revenue $2.2 billion, adjusted EBITDA $862 million, cash CapEx $359 million. Added 47,000 fiber net additions and 36,000 mobile lines, but broadband subs had a net loss of 50,000.
• Financial Discipline: Gross margin expanded 50 basis points year-over-year, free cash flow $100 million year-to-date, reduced revolver by $100 million.
• Go-to-Market: Launched new offers with 3-year price lock, new TV packages, and evolving B2B products like connection backup and upgraded Pro WiFi.
• Network Enhancements: Fiber passings to 3 million, improved network reliability, and implemented AI virtual assistant AVA to guide customer interactions.

In Q3, total revenue was $2.2 billion. Residential revenue declined 5.6% year-over-year primarily due to video subscriber losses, with residential ARPU at $135.77, down 1.9% year-over-year but flat sequentially excluding video. Residential mobile services revenue grew 50% year-over-year for the fourth consecutive quarter. Business Services revenue was relatively flat year-over-year, affected by carrier rate compression in the West footprint. News and Advertising grew 9.5% year-over-year driven by political advertising. Fiber had 2.9 million passings, with 45% of new fiber customers taking 1 gig or faster speeds, and convergence with mobile driving lower churn. Fiber objective is to reach 500,000 customers by end of 2024 and over 1 million by 2026.

• Fiber: Aim to reach 500,000 fiber customers by end of 2024 and grow fiber base to over 1 million customers or 30% penetration by year end 2026.
• Mobile: Anticipate acceleration in mobile line additions with new competitive offers and expanded sales channels into care and retention.
• Margins: Aim to achieve around 70% gross margin by 2026 and return to normalized adjusted EBITDA margins near 40%.
• CapEx: Full year CapEx $1.5 billion, with target to reduce annual capital spend to under $1.3 billion in 2025 while investing in fiber and HFC networks.

• Macroeconomic Factors: Continued pressure from video cord cutting, competition from fixed wireless and overbuilders impacting revenue and subscriber trends.
• ACP Program: Roll-off of the ACP program led to approximately 10,000 ACP-related disconnects in Q3, affecting gross adds and disconnects.
• Macro Environment: Low levels of overall activity in the footprint, slowdown in switching volume, and overbuilders launching in incremental markets with aggressive offers.

Q: Larger peers saw broadband improvement, any similar trends?

A: Saw decline in gross add activity across the industry but improved win loss percentage vs overbuilders, confident in product portfolio and evolving go-to-market strategies to compete effectively.

Q: Mobile margin drag and future targets?

A: Mobile margins expanding, AI and convergence with fiber driving lower churn and lifetime value, just starting with these platforms to drive further improvements.

Q: Subscriber growth and mobile targets?

A: Mobile on track to grow to over 1 million lines by 2027, scaling sales channels and new offers, broadband churn at all-time lows with fiber/mobile convergence benefits.

Q: CapEx reduction and prioritization?

A: CapEx reduction due to efficiency gains from multiyear network strategy, balancing new build activities and fiber migrations for maximum return.

Q: Video packages and fiber passings?

A: New video packages with streaming options, focus on increasing fiber penetration and migrations, with CapEx balanced for growth in fiber-rich markets.

Q: M&A outlook?

A: Open to value accretive transactions, but no current announcements, focus on internal growth through go-to-market and broadband business expansion.