Special Advisor & Director, ALTICE USA INC
Altice USA CEO on growth, cord-cutting, competition
Altice USA CEO Dexter Goei discusses why the company's stock is down nearly 20 percent year to date as well as the impact of ...
About Charles Stewart
In a September 2018 interview, Altice USA CEO Dexter Goei discussed the company's performance and strategy. He noted that while the stock had declined nearly 20% year-to-date, he attributed this to technical factors such as the company's split from Altice Europe and selling pressure from Disney's divestiture, rather than operational issues. Goei stated that the company felt good about its numbers, citing a 73% increase in free cash flow in the last quarter, and mentioned a $2 billion authorized share buyback program. He described consolidation in the industry as "inevitable" over the medium term, saying "size does matter," but emphasized that the company's current focus was on operations and delivering on projects like its Altice One product, fiber-to-the-home expansion, and a mobile launch planned for early 2019. Goei also addressed content and video trends. He stated that Altice USA did not view content companies as a good use of its cash, saying "we think that content companies arguably with our size should be run separately than us." He described retransmission fees as "the single largest cost item in our P&L" and noted that the company had seen improved video subscriber trends over the previous three quarters, with viewing minutes up about 10% year-over-year. Goei expressed cautious optimism about video trends, attributing some of the improvement to content and operational decisions.
Transcript (22 segments)
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Interviewer0:00
Altice USA, one of the largest cable and internet providers in the United States, has brands like Optimum and Lightpath. The company continues to push its streaming TV, internet, Altice One, and the expansion of 5G. It forecast strong growth last week, but the stock has struggled since the company went public, down about 20% so far this year. Some went public right here in June 2017. Joining us now for a CBC exclusive is Altice USA CEO Dexter Goei. It's been a while, good morning, nice to have you.
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Dexter Goei0:31
Good morning. Thanks for having me.
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Interviewer0:32
I want to talk about the company going public. You know, it's funny, I was a skeptic early on when you and Patrick Drahi bought Cablevision and Suddenlink and argued that you could take the EBITDA margins up substantially, but you've done that. The last quarter your adjusted EBITDA margin was 42.5% compared to 42.7% from a year ago, and it keeps moving in the right direction. But the stock doesn't. I mean, why the difference? You did what you said you would do despite many skeptics, and yet it's down 45% this year.
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Dexter Goei1:03
Well, listen, I think it's a whole host of factors, mostly things that we don't control, which is technical factors relating to the split of our company from Altice Europe. You know, we spent the first six months of this year part of Altice, a very disjointed story versus our European story and our US story. Very difficult to see clarity on the Altice USA earnings and profitability and momentum. And we've only been separated for the better part of the last six to eight weeks. So we're getting back in front of them, focused on the story itself here in the US. We continue to feel very good about our numbers, very good about momentum. Free cash flow numbers were good, up 73% in the last quarter. So we're focused on at the minimum returning shareholder money to our shareholders through share buybacks. But if anything, we think that the stock will take care of itself over time.
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Interviewer2:00
Right. And as you point out, you are now a pure play, which really it was a somewhat confusing situation not that long ago. But the concerns still are that when people think cable, they think video, they think cord cutting. We just had Anthony Wood on from Roku. Things seem to be moderating a bit, but what are you seeing on the ground in terms of video subs and what do you expect?
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Dexter Goei2:21
Well, we've seen the last three quarters where we've gotten better video subscriber numbers and trends relative to the former years. We don't look at it in any specific way other than to say that we continue to execute well. We do have a very particular market for Altice USA, which is the Optimum market. It's a high penetration of video cable video. It has nine live professional sports teams, three RSNs, multicultural, high demographics in terms of wealth demographics, so cable performs extremely well. The video bundle add-sell rates continue to be 60% plus on video, so we're not seeing any large change in our video trends. And on the Suddenlink side, where we had under penetration of video, we think there's opportunity where satellite is starting to falter relative to other alternatives. Satellite has given up a lot of subs between Dish and DirecTV or AT&T, and that is our number one competitor in that market. So we've got an opportunity with the Altice One box, with better content, as you know we put Viacom back on, and that all has boded well for our Suddenlink numbers over the last three quarters.
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Interviewer3:31
It's funny, I want to ask you about your business, but there are so many others you're connected to. I also want to get to, you mentioned sports teams and RSNs. There's going to be a huge sale of RSNs coming from Disney's divestiture when it completes the Fox deal. Do you have any interest in some of those?
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Dexter Goei3:47
Not at all. That's not really our focus today. We think that content companies arguably with our size should be run separately than us. There are some synergies between distribution and content, but we don't think that's a good use of our cash. We're not going to play at all in that.
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Interviewer4:04
And you mentioned Viacom going back on Suddenlink. We got Viacom earnings this morning; they're talking turnaround. What are you seeing in terms of viewing? Are you happy with that deal and are you seeing what they seem to be saying?
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Dexter Goei4:17
Well, listen, I think that ultimately we can't pinpoint as to why our video RGUs are doing better than expected, but viewing minutes are up about 10% year-over-year and our sell rates on bundles and video RGUs are up 10% year-over-year. So some of it has to do with content, some of it has to do with some of the operational decisions we've made, and that's all ahead of a strong launch on the Altice One product in the Suddenlink footprint. So I'm cautiously optimistic as to our video trends overall.
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Interviewer4:49
And what about when it comes to the Viacom properties?
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Dexter Goei4:52
I think Bob and his team are doing a good job on the turnaround, very focused on their brands. I'm not close enough to what they're doing, but we like what they're doing, and it seems like our customers like what they're doing, so we root for them.
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Interviewer5:07
People may not realize so much of their video spend is for the retransmission of local stations, whether it be national broadcasters such as CBS or ABC, but Sinclair and Tribune as well. Any thoughts on the failure of that deal and what it may mean?
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Dexter Goei5:24
Well, we're not close enough to the details. We can just read what's out there. But fundamentally, we're not a big fan of some of the independent retrans operators getting a lot larger because retrans is the single largest cost item in our P&L, going up high double digits in many respects depending on what the operator is. So arguably it's a good thing that the deal is stuck. Sinclair have been trying to get even higher rates for retrans. We have a good relationship with them; we go through regular hassles around contract renegotiation. So I'm certain they would have wanted to push for higher rates going forward with Tribune as well. But we'll see if that ever comes back. Stuff we all used to get for free.
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Interviewer6:11
Absolutely. We had antennas. Back to Altice itself. You mentioned buybacks. You've got a leverage ratio that's come down from I think seven and a half times when you finished the Suddenlink and Cablevision deals, closer to around 5.9? Exactly. How many, what kind of buybacks can you conceivably do?
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Dexter Goei6:27
Well, we've got a two billion dollar authorized program. If you look at what the market thinks our numbers are developing over the next couple of years, arguably we're getting close to four times leverage by the end of 2019. So if you want to stay at five times and I've got EBITDA numbers that are out in the market, you're probably doing something around three to four billionish of buybacks over the next 15 to 18 months.
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Interviewer6:55
I mean, given your market cap, that's significant. It's very large. So at today's price levels?
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Dexter Goei7:01
At today's price levels, but fundamentally we think we can return a massive amount of capital to our shareholders given the difficulty the stock has had over the last year.
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Interviewer7:08
We haven't talked at all about consolidation, even though there was a period when you were viewed as a consolidator. Charter even, I reported on your interest in that at one point, at least when SoftBank seemed to be also interested. Do you think that there will come a day again where you can talk or think about doing another big deal?
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Dexter Goei7:28
Well, listen, we're very focused on our operations today post the spinoff from our parent company. But we're deleveraging so quickly, we continue to have great growth initiatives. We've doubled the top-line growth since we've taken over the business from what we inherited, and we think we've got real momentum with Altice One, with fiber to the home, with the mobile launch at the beginning of next year. So we'll be there should somebody be interested in talking to us at some point. But today, it's all about operation and delivering on our projects.
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Interviewer8:00
Is that going to be enough though? I mean, so much of this thesis that surrounded you was continuing to do deals. That was sort of the Altice way for a while, taking these companies and then getting those EBITDA margins up.
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Dexter Goei8:12
Well, you know, consolidation by and large over the next, I don't know what the timeframe is, medium-term, is inevitable. Size does matter in these businesses. And so we'll see what happens. We're either do something, team up with someone, I can't even think about all the different possibilities.