Altice USA, Inc. Class A (ATUS) Q3 2020 Earnings Call Transcript

Altice USA, Inc. Class A (ATUS 0.52%)
Q3 2020 Earnings Call
Oct 29, 2020, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Altice USA Q3 2020 results presentation.[Operator instructions]. I would now like to hand the conference over to your speaker, Mr. Nick Brown.

Thank you. Please, go ahead sir.

Nick Brown -- Senior Vice President, Corporate Finance and Development

Hello everyone. And thank you for joining. In a moment, I'll hand you over to Altice USA's CEO, Dexter Goei; and CFO, Mike Grau, who would take you through the presentation, and then we'll move to Q&A. As today's presentation may contain forward-looking statements, please read the disclaimer on page 2.

Dexter, please go ahead.

Dexter Goei -- Chief Executive Officer

Thanks, Nick. And hello everyone. Before we begin, I once again want to thank -- to take the opportunity to thank the Altice USA team. I'm very proud of the ongoing commitment displayed by our employees in navigating this uniquely difficult time, and we delivered another great quarter together.

Starting with a summary on Slide 3. Total revenue was flat year over year, due to the adjustments for anticipated nine-months of regional sports network credits. If not for this revenue adjustment, we would have grown 3% in Q3. I'll come back to this in a moment.

Separately, this quarter, our business was impacted by Hurricane Isaias in the New York tri-state area, and Hurricane Laura which mostly hit Louisiana and the Gulf Coast. We mainly saw disruption from downed power lines and damaged cable strength interrupting service for some of our customers for which we have issued customer credits. Further, adjusting revenue for the storm credit underlying revenue growth would have been a strong 3.7% in the third quarter, a significant acceleration from growth in the first half of the year. Our revenue outperformance was driven by broadband revenue growth of 15.6% year over year.

We saw strong demand for our broadband services with net additions of 26,000, even with the storms disruptions, or 32,000 adjusted for storms. Our acquisition of service Electric which closed in July contributed to another 30,000 additional customers in the quarter. Contributing to this growth was the successful completion of the 1 Gig rollout at Optimum, making 1-gig service available across the entire New York tri-state area. In Business Services, we continue to see resilience among both our SMB and Lightpath enterprise customers.

In News and Advertising, we have a strong recovery helped by political revenue and improved local advertising. Our strong performance led to an acceleration in adjusted EBITDA growth to 5.5$year over year, or 6.3% year-over-year ex-mobile, and up to 7.7% further adjusting for the storm's impact. Our free cash flow of $458 million was up 176% year over year, helping us delivered $1.46 billion in free cash flow year to date, which is already well ahead of the $1.2 billion generated for the full-year 2019. We continue to take advantage of the attractive valuation in our share price completing approximately 450 million in share repurchases in Q3, totaling just over $1.8 billion years to date through the third quarter.

We have raised our target guidance to $2 billion or higher share repurchase for the full year from $1.7 billion previously. On the outlook more broadly we'll continue to expect revenue and adjusted EBITDA growth this year. We maintain our capex guide of less than $1.3 billion in the target year and net leverage of four and a half times to five times. To wrap up the summary, I wanted to say, we remain incredibly optimistic about the strength of our core business, and we continue to focus on opportunities to drive value for shareholders.

Turning to Slide4. You can see our underlying revenue growth remains strong in this environment demonstrating the defensiveness of our business. Total revenue was flat at minus 0.2% year over year. The RSN revenue credits of $79 million booked this quarter represent an estimate of what we expect to refunds to customers when we realize rebates from the RSNs, due to fewer games being delivered year to date because of Major League Baseball's decision to shorten the season.

These RSN credits did not impact reported EBITDA, nor cash flow, since we will have a corresponding reduction in programming costs. In Q4, we anticipate further RSN credits to reflect a corresponding impact on the last three months of the year, which we expect to be approximately one-third of the amount we recorded in Q3, and the Q3 number again was a year-to-date number for the entire year. Excluding these RSN credits, we achieved 3% of total revenue growth in the third quarter. Further excluding the impact of storm credits which totaled about $16 million this quarter, total revenue growth would have been3.7%.

Residential revenue declined 1.6% year over year, including the RSN credits that would have grown 2.3% adjusted for that, or 3% further adjusted for the storm credit. Business services grew at 1.3% year over year but would have grown 1.8%, adjusting for the RSN credits and 2.4% further adjusted for the storm credits. We are also extremely pleased with the recovery in News and Advertising where revenue grew 5.2% year over year. All in all, we are very pleased with the results, and we continue to believe that our businesses are well-positioned in this environment.

Turning to Slide 5. We once again delivered strong subscriber results. Altice USA added 8,000 new residential customers in the quarter including 26,000 residential broadband customers, compared to a year ago when we reported flat unique customers and 15,000 residential broadband additions. The storms had a negative impact on about 6,000 subscribers so in the absence of these storms who would have grown customer relationships by 14,000 with over 32,000 broadband net ads.

The impact of Hurricane Delta in October which hit the Louisiana area right after Hurricane Laura is likely to have a similar customer impact in Q4, given the severity of the damage in the region of Delta compounding on Laura. Note that these figures exclude Service Electric which added another 34,000 customers to our base, including 30,000 broadband customers in the quarter. The adjusted subscriber results are shown here to exclude customers who would have otherwise been disconnected in adherence to our normal disconnect policy of greater than 90-days. In the absence of the FCC Pledge and NJ executive order.

Making these adjustments, we still would have reported 5,000 customer relationship net adds, and 23,000 broadband net adds. We continue to benefit from increased market share gains, including from DSL and mobile-only households. In summary, we feel extremely good about the underlying momentum in our customer growth mattresses. Slide 6, provides a more detailed breakdown of the bridge between a reported and adjusted cut from mattresses.

We have been really pleased with our progress in retaining Pledged customers, and as of the end of Q3, we only had a small number of customers remaining on the Pledge. Recall that last quarter, we had about 10,000 customers on the Pledge for past due on their payment by greater than 90 days. We are now below 3,000 as we had successes in various retention initiatives implemented to retain the customers and begin receiving payments again. In the video, we saw an accelerated pace of disconnect compared to the prior year.

This was mostly due to lower growth Ad video attachments, as well as disconnecting the video products for some of our customers associate with the Pledge and the NJ executive order as we work through our various retention programs. Turning to Slide 7. We continue to see our network performing very well even with heavier usage during the pandemic. Our broadband speed upgrades remain elevated up 45% year over year.

Average monthly data usage per customer was up 44% year over year, averaging approximately 420 Gigabytes per customer, per month in Q3. And abroad with only customers use nearly 530 Gigabytes of data per month. 29% of our gross additions took 1-gig abit broadband speeds in areas where it was available, up from 24% in the second quarter. And we remain very optimistic about the 1-gig opportunity.

And following the commercial launch of our fiber double and triple offerings, I'm pleased to say our fiber selling rates the portion of gross additions taking fiber-to-the-home in areas where it's available is already at 44%, up from 28% in Q2, 2020. Ending the quarter with just over 16,000 customers and representing an enormous growth and cost-saving opportunity. Additionally, 60% of our fiber gross adds are taking the 1-gig product, which is a higher proportion of customers taking the 1-gig on our HFC plant, representing a great monetization opportunity. To summarize, we're very pleased with our network performance, and we remain focused on continuous monitoring and upgrading our network to support demand.

Turning to Slide 8. We are pleased to announce that we complete our 1-gig rollout this quarter with 1-gig services now available across 100% of the Optimum footprint. We're more than doubled to 1-gig availability year over year, to 92% of our consolidated AlticeUSA footprint, up from 76% at the end of the second quarter. Our 1-gig customer penetration increased to 5.7% in Q3, up from 3.7% in Q2.

And we continue to see a lot of room to drive penetration, upselling customers to higher speed tiers. Increasing 1-gig availability across the rest of the Optimum footprint to the rest of 2020, increases our broadband opportunity to continue to upsell to higher speeds. Our average download speeds continued to increase to 262 megabits. But about 60% of our base today still only have internet speeds of 200 megabits or lower, representing a meaningful opportunity for us to continue to deliver faster speeds to customers.

Turning to Slide 9. We want to remind you once more of our long-term network strategy. We are focused on upgrading our existing network, new build edge-outs, and pursuing additional footprint expansion opportunities. In addition to completing our 1-gig DOCSIS 3.1 upgrade across for Optimum footprint, we have now passed over 900,000 homes passed today, ready for service for FTTH.

And we're targeting upgrading the entire Optimum footprint which totals about 5 million homes passed. To further improve the customer experience, significantly reduce costs for the longer-term, and drive revenue growth as we upsell. In Suddenlink, about 80% of our homes are 1-gig enabled over HFC, but that means we have a sizable upgrade opportunity remaining with approximately 400,000 homes which can be upgraded for 1-gig capacity cost-effectively and further increase our penetration from approximately 30% today on those 400,000 homes. Our network edge-out strategy is focused primarily on our Suddenlink footprint where we have seen extremely strong traction in capturing market share as soon as we roll out new builds.

On average, we reach about 40% penetration within 12 months of a new build, a remarkable result that gives a lot of optimism and comfort in our strategy. We are currently adding 150,000 plus homes passed annually and our focus on increasing the level of new-build activity going forward, which will help drive future customer and revenue growth. Finally, an additional footprint expansion up to his beyond edge-outs, we completed our purchase of Service Electric which added another 70,000 homes passed to our footprint. As I've shared before, we continue to look for other cables [Inaudible] opportunities to expand.

We have also filed for the upcoming FCC RDOF auction which starts this week, while we'd look for opportunities to invest in a network built in rural areas with the partial subsidy by the government, should the return on investors be attractive. Turning to our Mobile business on Slide 10. We launched flexible data plans this quarter offering our consumers the flexibility to choose any of our three very affordable tiered data plans at 1-gig for $12, 3-gigs for $20, or unlimited at $40 per month. Our mix and match capability will accommodate customers and families with all types of data usage needs.

We added 18,000 mobile net additions for the third quarter, ending the quarter with 162,000 lines. Our momentum remains slowed by retail store closures due to the pandemic with nearly half of our stores still closed. But we have managed to reach 3.5% penetration as a percentage of our total unique residential customer base. We remain focused on improving customer experience in broadening our product offerings with a continued expansion of our handset lineup and launching our 5G service.

We continue to see an early indication of churn reduction in mobile during a stay-at-home and remain excited about the opportunity for further churn reduction from bundling with our cable offerings. On slide 11. Turning to Business services. We saw resilience and recovery in both our SMB and Lightpath businesses.

Total Business services revenue grew1.3%, or 1.8% adjusted for 2 million in RSN credits, and 2.4% if we further adjust for the storm credits. Lifepath grew 2.6%, and SMB and other grew 0.8% year over year. At Lifepath, we continue to see increased sales and customer engagement in education, healthcare, and government verticals, and its benefits from shorter sales cycle students to work from home. We also launched our SD-WAN product suite which helped contribute to nearly 49% revenue growth in our managed services offerings year over year.

In our SMB business, Q3 represents the first quarter this year that we saw positive net additions in the SMB space. Our e-commerce sales activities have increased which lowers our cost of customer acquisition. Obviously, there is still uncertainty from a potential second wave of shutdowns in our markets. However, we remain very pleased with this business service performance and recovery throughout this challenging year performing better than we expected.

We continue to expect a close to our Lightpath transaction in the fourth quarter following regulatory approval. Turning to our News and Advertising business on Slide 12. We're extremely pleased to report revenue growth of 5.2& year over year in Q3. Even without the incremental contributions from political ad sales this quarter on a year-over-year basis, the trajectory of recovery on our News and Advertising business has improved.

Advertising revenue ex-political declined only 6.6% year over year in Q3, compared to a decline of 15.6% in Q2. In addition to the boost from political, we saw a recovery in local advertising from its trough in April. October has seen a further increase in advertising revenue to the highest monthly level year to date. We continue to benefit from positive viewership trends with a 42% increase in Cheddar website traffic since pre-pandemic, and increase in users of 64%, and a 35% increase in News 12 TV viewership on a year-over-year basis.

Sports are starting to come back as well which is a positive for advertising spend. However, we still anticipate pressure in the national branded segment of our business and continue to assess market conditions. Year to date, our News and Advertising business is now flat, and we are cautiously optimistic that we can achieve flat revenue for the full year but this continues to depend a lot on many factors including whether we can see a full comeback of sports the remainder of this year, and avoid further protracted lockdowns. And with that, I'll turn this over to Mike, to discuss the financials in more detail.

Mike Grau -- Chief Financial Officer

Thank you, Dexter. Good afternoon, everybody. Thanks for joining us. We certainly hope everyone is doing well.

I want to spend a minute highlighting our EBITDA growth trajectory on Slide 13. For starters in Q3, we grew adjusted EBITDA of 5.5% year over year were 6.3% year over year excluding mobile. In the quarter, we had an additional impact of approximately $16 million to adjusted EBITDA through the Hurricanes Isaias and Laura. Excluding mobile and excluding storms, we grew EBITDA at 7.7% year over year.

And you can see that our rate of growth has accelerated each quarter this year. We continue to benefit from a combination of strong customer growth and deliberate cost actions, and remain very confident in our ability to grow EBITDA this year and deleverage. We also feel very good about our opportunity to continue to drive margin expansion in our business, which I'll turn to now on Slide 14. On Slide 14, you can see that we posted an adjusted EBITDA margin of 46.3% up 200-basis-points year over year.

Some of the margin improvement in this quarter is driven by the adjustment to decreased revenue and programming costs for regional sports network credits, due to expected rebates from sports programs. Excluding these RSN credits, the adjusted EBITDA margin would have been 44.8% still up 100-basis-points year over year. Excluding mobile EBITDA losses, our 3Q EBITDA margin was 47.5%, or 46.3% further adjusted for both RSN credits and storms, which is the best ever margin results ever achieved by our Cable business and compared to 44.3% a year ago or a 200-basis-points improvement year over year. In Q3, with our EBITDA less capex operating free cash flow margin of 38% was up nearly 1,000-basis-points year over year due to a combination of EBITDA margin growth, and lighter capex due to some delays in fiber products.

Adjusted for RSN credit, we would still have seen an increase of 840-basis-points during the year. Turning now to Slide 15. We continue to underspend on capex this year relative to prior periods. Our total capital intensity for the quarter was 8.3% in Q3, but without fiber and new homebuilder growth investments, this would have been 6.5%.

This quarter, we did complete our 1-gig rollout in Optimum. As I noted earlier, we remain impacted by permitting delays due to the pandemic, but I focused on reaccelerating all of our network initiatives and continue to invest in our network anticipating that we will see permanent changes in consumer behaviors, of course, much of our customer base. Furthermore, the combination of Hurricanes Isaias, Laura, and Delta has led to some onetime capital outlays in the third and fourth quarters to repair storm-related damage, including replacing a fiber ring in Louisiana. However, we continue to expect cash capex for the full year to come in below $1.3 billion.

For the next few years, as we build our fiber and optimum, we continue to think that we can comfortably operate in the $1.3 billion to $1.4 billion capex envelope and complete our various network upgrades and agile initiatives. Longer-term, we think there remains a significant opportunity for a reduction in capital spending to below $1 billion annually. Particularly once we are completed with our fiber upgrade and the optimal footprint. In summary, we continue to feel very good about the long-term potential of our network to deliver superior connectivity solutions to our customers at a reasonable cost.

Turning to Slide 16. I'm very pleased to report another very strong quarter of free cash flow performance. With our results in the first three quarters, we have already delivered more free cash flow year-to-date 2020 than any prior [Inaudible]. We generated $458 million in free cash flow in the third quarter, up 176% year over year, and generated $1.46 billion in free cash flow year to date.

Our free cash flow per share year over year on the last 12 months basis has increased 72% to $3.06, representing a significant yield relative to our current share price. In the quarter, our cash flows from investing activities including a $150 million outlay for the acquisition and Service Electric. Our cash flows from financing activities reflect the number of transactions in the third quarter. We saw a cash outlay of $433 million in Q3 for share repurchases.

In July, we redeemed the sum total of $1.7 billion of our5.38% guaranteed notes due to 2023, and seven and three-quarter percent senior notes to 2025 that we refinanced in June which we discussed in our Q2 call. And in September, we received proceeds of $865 million from bond issuances from our Lightpath financing, which is being held in escrow until the transaction completes. And which appears as restricted cash on our balance sheet this quarter. 517% an overview of our pro forma capital structure, inclusive of the new Lightpath site.

Pro forma for the Lightpath transaction the consolidated Altice USA net leverage on the last two quarters annualized EBITDA basis is 4.9 times. Cablevision Lightpath LLC is now an unrestricted subsidiary of CSC Holdings LLC. In September, Lightpath raised new debt at $1.465 billion which is held within a separate debt silo and is non-recourse to CSC Holdings LLC. This includes $600 million in a term loan facility priced at LIBOR plus 325-basis-points which has not yet been funded.

$450 million in the new seven-year senior secured note, price notes -- priced at 3.78%, and $415 million of new eight-year unsecured notes priced to 5.58%. This represents a blended average cost of debt of 4.3% of the life of our debt level, and proceeds from the notes of 860 -- from the notes of $865 million are reflected as restricted cash on our balance sheet this quarter. The cable is a life that has pro forma net leverage is approximately 6.9 times on the last two quarters annualized basis. Lastly, CSC Holdings LLC is reporting that leveraged pro forma for debt and equity proceeds from the Lightpath transaction, a 4.8 times net debt to EBITDA on an LQ2 basis.

On Slide 18, we provide an update on our interest savings initiative. 2020 will be similar in cash interest expense to 2019, due to the timing of our recent refinancing activity. However, our current run rate implies that we expect to realize over $200 million in cash interest savings relative to 2019 cash interest expense on a run-rate basis going forward. And zooming out, we are very happy to illustrate that since 2017, we have taken out approximately $600 million, and $2 million annual interest savings.

In Q3, we refinanced our $1.7 billion 1078 notes the M&A offering to our 458 unsecured note we had priced in June. For an effective yield of 4.16%, we also refinanced $1billion of 658 senior guaranteed notes into a new 10 and a half year note and achieved a record low coupon of 3 and 3x percent. This further lowered our cost of borrowing by 4.9% in Q3, from 5.4%t last quarter for CSC Holdings LLC. If we were to refinance our entire CSC Holdings LLC debt stack at similar levels leaving the Lifepath entity unchanged, our annual interest expense would come in less than $900 million.

Additionally, through the refinancings, we extended our weighted average life of debt to 6.9 years this quarter at CSC Holding debt silo. With no annual bond maturities greater than $1 billion before 2025, all of which could be covered by the free cash flow generation or our undrawn revolver. We will continue to proactively manage our balance sheet, in the same way, going forward, and remain very proud of the progress we have made and comfortable with the strength and resilience above of our balance sheet. Finally on Slide 19.

We provide our updated outlook for 2020. We are maintaining guidance for revenue ex-mobile and adjusted EBITDA growth this year. We delivered 0.2% revenue growth ex-mobile year to date on an as-reported basis, but this growth would be 1.3% excluding the RSN credits. Total adjusted EBITDA growth year to date is 2.6%, and we still expect faster growth in Q4 compared to the first half of the year.

We continue to guide to cash capex of less than $1.3 billion, including some temporarily elevated capex to address storm damage. Our leverage target remains four and a half to five times on the last two quarters annualized basis at CMC Holdings LLC which is a level at which we are very comfortable. Given the favorable financing environment, we are likely to remain toward the higher end of this range in the short term. We have raised our share buyback target to reflect the fact that we have already completed $1.8 billion in share repurchases as of the end of Q3, and now target at least $2 billion this year, up from $1.7 billion previously.

This level of share buybacks is consistent with our leverage guidance of around five times. And to conclude, I just want to echo Dex -- Dexter's remarks that we remain incredibly proud of the Altice team for their dedication and resilience during this time, which has once again resulted in a very strong quarter. And with that, we will now take any questions.

Questions & Answers:

Operator

[Operator instructions]. And your first question is from Phil Cusick of JP Morgan.

Phil Cusick -- J.P. Morgan -- Analyst

Hey guys, thanks. So a couple of things if I can. First, Mike, you just talked about guidance for a second. Let's go back to that.

At this point, your guidance for growth in revenue and EBITDA at the strip leaves a lot of room. Can you say again, how you think about the sustainability of growth in both of those in the fourth quarter? And anything you can give us for 2021 at this point. And then second. Can you dig into how we should think about taxes in 2021.

Have you run through your NOLs with the Lightpath.

Mike Grau -- Chief Financial Officer

So on the guidance. You're right. We are a little open-ended and that we're guiding toward growth. And I think we mentioned that we do continue to anticipate accelerated growth in the fourth quarter at least in terms of adjusted EBITDA, relative to the first half of the year.

So I don't think we're going to get any more specific than that. So that's where we are. On revenue growth, we will have some headwind in the fourth quarter. I think we alluded to the fact that the RSN credit adjustment we made as of 930 will have an additional element in the fourth quarter.

But as you -- even given the RSN credits in 3Q and anticipated in 4Q, we still guiding toward revenue growth for the year. On taxes, we entered 2020 saying that we would be a full federal cash taxpayer at the beginning of 2021. We got a lot of benefit from the Cares act in terms of enhanced deductibility of some of our interest expense, and we pushed that out to the beginning of 2022. Now with the Lightpath transaction, we're back where we were when we started the year.

Saying that we anticipate being a full federal cash taxpayer at the beginning of a very early in 2021. The actual tax burden in that year, I mean, I think yes.

Phil Cusick -- J.P. Morgan -- Analyst

I was going to interrupt. Just continue, please. The actual tax burden in that year.

Mike Grau -- Chief Financial Officer

Yes. It's somewhere in the neighborhood of 400 million to 450 million. I think is a reasonable place on the number. We continue to always have room for strategy and some efficiencies in that area.

We're certainly pursuing a number of channels in that regard.

Phil Cusick -- J.P. Morgan -- Analyst

That's, helpful. Thank you.

Operator

Your next question is from Craig Moffett of MoffettNathanson.

Craig Moffett -- MoffettNathanson -- Analyst

Hi. A couple of questions. First on broadband ARPU, just given how complicated the allocations within the bundle get and with the RSN discounts and that sort of thing. Can you break down how we should think about broadband ARPU growth now and going forward in its components of upgrades, and then unbundling the bundled discounts and that sort of thing? And then just a broader question if I look out further, given how high margins have gotten.

I think he once said, you didn't think 50%t margins. Dexter was out of the question for this business. I wonder if you'd revisit that, and what do you think the ceiling on margins might be as you lookout. Now that you're actually getting reasonably close to 50% margins.

Dexter Goei -- Chief Executive Officer

Yes. Hey, Craig. Just on the broadband ARPU. So broadband ARPU grew by about 11.2%, and I think broadband revenue was 15%, 15.5%.

So the 11.2% breaks down very much like in our previous quarters when we called this out about one-third of its accounting, one-third of it is growth, and one-third of it is upselling. Right. So that's pretty much what we're seeing consistently here quarter over quarter. So, if you exclude the accounting allocation, you're looking at an 8%ish type cash on cash growth in broadband ARPU.

In terms of how we're thinking about margins, I mean as you know, we were running probably in certain parts of our businesses north of 50% today. Clearly, the shift here away from video and more focus on broadband, broadband upselling, and higher broadband ARPU is going to help accelerate that margin growth. And what we continue to do. Obviously, in terms of our capital expenditures in infrastructure which we think are going to help us drive lower customer interactions.

And also, continue to drive higher gross margin products. Yes. I mean, let's first get to 50% and then, ask me the question when we get there, and I'll hopefully give you some more guidance going forward.

Craig Moffett -- MoffettNathanson -- Analyst

Ok. Thank you, Dexter.

Operator

Your next question is from Brett Feldman of Goldman Sachs.

Brett Feldman -- Goldman Sachs -- Analyst

Thanks. At this point, we've seen that some of your chief competitors FiOS and AT&T fiber business. Obviously, we had very good quarters. And clearly, that did not impact your ability to put together a solid quarter as well, so we know that.

The question we keep getting is what is the competitive dynamic in your markets between you and your fiber competitors. And are you seeing them in some way step up their efforts. And have you had to make any adjustments. And I think we're really trying to understand what's the run rate been like as we move past the third quarter.

And look into this quarter and into 2021. Thank you.

Dexter Goei -- Chief Executive Officer

Yeah. Brett, I think -- listen, we've had through all of disclosed all mattresses just outstanding go out KPIs across the board from customer acquisition to broadband growth. The numbers as I saw also on FiOS and AT&T were good, very strong numbers in Q3. And we haven't seen anything particular from either of them in terms of over-aggressiveness on the marketing side.

But it's -- I think there's business back to usual. We saw FiOS be less present in Q2, given some of their labor issues in terms of installations. And so I think they're catching up a little bit there. But we're still up to date, 80,000, about 125% higher than we were last year to date.

In terms of broadband subs, and so we're very focused on continuing to grow our customer accounts and our broadband RGUs. And so, we've been able to nicely defend all the gains that we got at the end of the Q1, and the balance of Q2 that we're not seeing anything outrageously different from the competition out there. Despite the fact that they've got strong results.

Operator

Your next question is from Doug Mitchelson from Credit Suisse.

Doug Mitchelson -- Credit Suisse -- Analyst

Thanks, so much. Dexter, I was hoping you could remind us of some of the facts around fiber because the 44% sell in the marketing footprint for gross adds is pretty interesting. Are you -- now you're scaling gross adds is the cost to connect fiber as you expected. Can you remind us what the timing is for when opex savings from a fiber network happens.

That happens when you connect to customers. That when you connect lots of customers, or when you were all over to fiber and turn out to connect network, and are you starting to see fiber build in fiber connect costs and customer reactions successful enough to the point that you think parts of Suddenlink makes sense for fiber. And then for Mike, I just wanna make sure I heard it right. You said 400 million to 450 million was a reasonable placeholder for cash taxes in '21 because I'd be -- I think something like a 33% tax rate.

I want to make sure I heard you right.

Dexter Goei -- Chief Executive Officer

So, I want to hit the fiber question first. We're still in the early days of the rollout. What's obviously, very nice to see is how the selling rate has some -- has picked up very rapidly for the quarter over quarter. I think we're still in what I would see in terms of efficiencies, on connections and installations not anywhere near where we want to be.

In terms of the time it takes, and the cost it takes to connect our fiber subscribers, which is absolutely normal as expected. In terms of training, our field techs as well as just getting customers very comfortable with the newer technology. So this is going to be -- we're going to continue to monitor this very closely. Put a lot of resources on the training side.

To improve on the efficiencies of the connections. But we see just a very huge runway ahead of us in terms of the pent up demand for this product, particularly, as people work from home, upload speeds become more and more relevant here. And so I think this is more of a story that I think we'd like to continue to have interaction with you guys on from quarter to quarter as we grow the base and start having some data points that we can share. I think it's a little too early today.

And to your point about cost-effectiveness, I don't think we're there yet in any shape or form as to where we want to be. I think in terms of what we want to do on the Suddenlink footprint, we are laying fiber very, very deep into our new builds there which effectively allow us to adapt to a fiber-to-the-home technology, should we want to do that last drop or in-house wiring in terms of fiber. But today, I think we are going to continue to focus on the HFC plant by large on Suddenlink. But we will look at pockets where I'm certain that we're going to upgrade to full fiber-to-the-home given what we're doing in terms of edge-outs, and how we're positioning that.

Doug Mitchelson -- Credit Suisse -- Analyst

Thanks.

Mike Grau -- Chief Financial Officer

And then Doug in response to your question on taxes. and I was giving a rough estimate. I may have had a little analyzed over certainly now, we're not using a 33% rate. We continue to use a 27% effective rate inclusive of states.

And I did mention, we certainly have opportunities available to us to manage that number down a little bit.

Doug Mitchelson -- Credit Suisse -- Analyst

Terrific. Thank you, both.

Operator

Your next question is from Ben Swinburne from Morgan Stanley.

Ben Swinburne -- Morgan Stanley -- Analyst

Thanks. Good afternoon. Maybe Dexter for you. Two different topics.

One, you mentioned a video selling rate has continued to trend down. I'm just wondering if you could remind us of roughly where that sits, and maybe that's a good way for us to think about where penetration settles in the longer term. And then on the edge-out, 150,000 homes a year it gives you guys a nice kicker to sub growth. I'm wondering if you think there are opportunities to go bigger than that.

I know you're focusing on Suddenlink, but maybe there are opportunities and off to them which is obviously a pretty well built-out area. But I'm just curious if there is potential to maybe take that number even higher based on the economics and the returns you're sitting around broadband built.

Dexter Goei -- Chief Executive Officer

Yes. I mean listen, Ben, I'll just answer your first question. First, on the video selling rates, we're in the mid to high 30s. Now at the best in class when we were very, very high on selling rates, we were in the low 60s.

We were really seeing numbers in the mid to high 40s, as late as the second quarter of this year, and that's fallen off to the mid-30s to high 30s. And some of it is pandemic related as we look at some of the things that we're doing in terms of promos and roll off and forgiveness of debt when it comes to NJ executive order or Pledged people. So there's a big mumble jumble of stuff where we've disconnected people and reconnected people so that the numbers aren't super clean in the Q3, as it would be historically. But I think that the 40% number is probably a safe number, and it goes from there.

Right. So we'll see quarter over quarter where we're going from there as we get back to a more normal marketing period. But that's -- but we fall in. Obviously, significantly, from where it used to be in that mid to high 50s and even touching the 60 numbers In terms of edge-outs, the biggest thing, the biggest challenge we have is just getting the machine up and running all over again.

Given a lot of the work has been stopped during the pandemic. So extremely focused on lining up our crews toward the end of this year. Getting ready for the New Year, and delivering one hundred and fifty thousand plus. Do we think there is more to do? Yes.

Can we do them with a lot of confidence next year? Probably not. But we've looked really in a three-year trajectory if we're going to average 150,000 a year, 450,000 for next three years. Can we do more? Yes, we're definitely gonna try and push for more. We are going to see some opportunities on some RDOF, I can't tell you exactly how big that will be or how small that will be.

We're going to be very, very thoughtful. Obviously, return economics here. But there is going to be some opportunity here, particularly, for some areas that were just super contiguous to what we're doing already from a buildout standpoint. Even though the cost per home may be expensive post subsidies, it makes a ton of sense for us to do that.

So that will be a number I think we will be more open about once we know what the results are, and what the opportunities ultimately going to be.

Ben Swinburne -- Morgan Stanley -- Analyst

Got it. And those RDOF opportunities, I imagine a completely unserved, right. So it's your market to go after if you get it.

Dexter Goei -- Chief Executive Officer

That's exactly, right. So, we expect to get some subsets which are just us contiguous data we want to build out or not, and we want to build out is the basic answer even for four small communities. We'll continue to push that particularly for very contiguous properties.

Ben Swinburne -- Morgan Stanley -- Analyst

Yes. And then maybe just wrapping that up and then one last question then. Dexter, obviously, the election next week in case you weren't aware of. There's a lot of focus.

Dexter Goei -- Chief Executive Officer

[Inaudible] but I don't want to wait in the rain for three hours.

Ben Swinburne -- Morgan Stanley -- Analyst

Yes. twelve hours, right. A lot of focus on the implications for cable and you guys, fortunately, aren't going to be the targets in Washington at least among the cable industry. But it could affect you.

I'm just wondering how you think about the implications if any of the things like title two, maybe a greater political focus on affordability and access. I mean to me the ARDOF stuff seems like it works financially and politically, not to sound too cynical. But just wondering how you're thinking that all this stuff as you look out to a potential Democratic FCC.

Dexter Goei -- Chief Executive Officer

Yes. It's really difficult for Ben to lose any sleep over this. And to think to overthink it. Because you can take you can take a snippet of rhetoric from some debate six months ago and go crazy about it.

You just basically understand that the process of anything to do with something that could be overregulation relative to our sector is going to take a very, very long time to enact as we saw last time. And whether or not, any type of FCC administration is going to want to act on it. It's something else altogether. Right.

So this is a dialogue that's not even reached our screens yet as a sector even with. Obviously, the focus on potentially many regulatory elements that may come into a new administration. But I think this is a wait and see. We'll be reactive and well proactive in many respects on certain things.

But, I think the country is extremely focused on great broadband and continued improvement, and enlargement of access. And so continuing to incentivize people to do that. I think it's going to be the underlying criteria. After that can we do things for different subsets of demographics.

I'm sure there will be things that come up. But again there's nothing that we see that's imminently on the horizon that we need to be worried about.

Ben Swinburne -- Morgan Stanley -- Analyst

Thanks a lot.

Operator

Your next question is from John Hodulik from UBS.

John Hodulik -- UBS -- Analyst

Two quick things, I think. First, any updated thoughts on the use of proceeds from the Lightpath transaction just given the better than expected EBITDA growth you've seen in the second half-year. And then Dexter, you talked about M&A among smaller cable companies. Can you give us a sense of what the landscape looks like? Obviously, a lot of small cable companies out there is it a target-rich environment or you guys go a lot queued up, or any insight into what you look for.

And obviously, we know about the Atlantic Broadband situation. But are you looking for the contiguous region or under-penetrated assets, or lower margins, or any hints as to how you guys look at the landscape to be great.

Dexter Goei -- Chief Executive Officer

Sure. Listen, I think I'm going to use the proceeds of Lightpath. And you guys are probably doing your back of the envelope math. Our 2 billion-plus rig guidance is guidance based on non-Lightpath proceed.

Right. So given the EBITDA growth, we saw in Q2 and Q3 and some expectations that we see for Q4 we'll be able to do 2 billion or more of buybacks just on non-Lightpath proceeds. The $1.1 billion of net proceeds we're going to get to the extent we don't see any attractive M&A opportunities to deploy that. I think it's fair to say that that we'll probably use some more all of it to buy back shares.

On the M&A side. I like all of your criteria. Contiguous under-penetrated cable all that stuff sounds great. We are out there looking at a handful of things.

The smaller operators like Service Electric, there are those types of guys a little bit all over the place. And given that we're in 21 different states, 18 through Suddenlink there's a lot of contiguous smaller assets out there. It's not necessarily that easy to unlock all this stuff, but I do think given the environment, given the interest rate environment, given that size does really matter here in terms of getting operational synergies and investing heavily in technology. And customer service, it is starting to percolate that some of the smaller operators from the mom-and-pop guys are looking to deal here.

And I think it's very obvious to us when we picked up Service Electric even though it's very small in scale. That's been a network that has not been invested in a lot. There has not been any consistent marketing for the residential, and especially not on the SMB side of the business. And we're seeing a lot of low hanging fruit just by adding two or three additional salespeople both on the SMB side, and on the B2C side.

That's been very lucrative, but just increasing penetration out there bringing new products and we're upgrading. Obviously, the network as quickly as we can. So everything that we are able to get our hands-on in terms of how many opportunities will be the best use of our capital. In terms of return standpoint, but ups on that, I think we like buying 12%, 13% free cash flow yield equity when we're financing for 4.5% Right.

So that will continue to be the best use of our capital in the meantime outside of M&A.

John Hodulik -- UBS -- Analyst

Thanks, Dexter.

Operator

Your next question is from Peter Supino from Bernstein.

Peter Supino -- Bernstein -- Analyst

Hi. I just want to ask, curious just about Suddenlink in particular whether in September you provided some really helpful color on the profitability of Suddenlink. We'd love to know more about subscriber growth and/or ARPU levels and trends in the Suddenlink territories given the different customer demographics there. Thanks.

Dexter Goei -- Chief Executive Officer

Hey, Peter. We don't break out on the Suddenlink numbers, but it's been clear that a disproportionate chunk of our volume growth is coming from Suddenlink which is very similar to some of our other public peers out there in terms of the demographics. So the sub growth has been good. We benefit from a better programming cost lineup as our sense is not as prominent in the Suddenlink footprint as it is in the New York tri-state area.

And a lot of diversity channels as well, and the gross margins on video are worse in the Optimum footprint than in Suddenlink. Finally enough, and it makes a lot of sense from an ARPU broadband ARPU, we consistently see broadband ARPU on the Suddenlink side B, let's call it 5% to 10% higher than our average broadband ARPUs on the upside. And that's really driven by the intensity of competition that historically has been in the FiOS zones vs. the Suddenlink zones which are less penetrated by bike competitors there.

So the growth has been superior from the broadband net adds standpoint, but also ARPU numbers have been higher. And also historically, we've been upgraded to a 1-gig lot earlier on the Suddenlink side that we have on the upstream side which we just finished. So maybe that gives you some insights into it. One of the things that you don't see when you try and break out the two businesses is also the SMB side of the business.

It is a much stronger growing business on Suddenlink than it is on the Optimum side, given the penetration Optimum. However, the flip side is most of the advertising dollars and profitability and growth come from the Optimum side that it does come to Suddenlink outside. So that is a little bit of an equalizer in certain respects in terms of the overall consolidated numbers for each property one versus the other.

Peter Supino -- Bernstein -- Analyst

Thanks.

Operator

Your next question is from Jonathan Chaplin of News Street Research.

Jonathan Chaplin -- New Street Research -- Analyst

Thanks, guys. Can I follow up on Hodulik's questions? The -- would-be with the Atlantic Broadband process Dex, is that over at this point. And if not, is there a date at which point it will be over. And when we think about the use of proceeds from Lightpath is -- if there isn't another deal like Atlantic Broadband to do, would you do an accelerated shared repurchase program in the fourth quarter that would consume that or would the $1.1 billion be spread out over time.

In terms of share repurchases.

Dexter Goei -- Chief Executive Officer

I think on the -- just to answer on Atlantic Broadband. Our latest offer had an expiration date going to November 18th. So other than reiterating that, I don't there's anything safer for me to say there. In terms of the $1.1 billion, obviously, there's a lot of ways we could deploy that whether it is an accelerated share repurchase or just trying to be aggressive in open market repurchases, or doing some other type of structured offering.

But I do think that given where the price levels are today, we'll continue to try and be opportunistic today as opposed to trying to spread it over the next twelve months.

Jonathan Chaplin -- New Street Research -- Analyst

Got it. And just going back to the Atlantic Broadband process, the letter from [Inuadible] seems fairly definitive. Do you regard that as definitive, or is there still an opportunity for you there.

Dexter Goei -- Chief Executive Officer

Yes. Listen, I think we're very cognizant that the controlling shareholder needs to acquiesce to engage at a minimum. Let alone look to do a strategic transaction with two other strategies. So based on his rhetoric and his statements today, I think it's fair to say that there's little chance of us being able to collect and as Rogers being able to move forward on this project.

But I guess formally, we've got until November 18th to see if there's anything that shakes loose.

Jonathan Chaplin -- New Street Research -- Analyst

It seems like investors win either way we either get Atlantic more broadband or $1.1 billion of share repurchases. So that's awesome. Thanks, guys.

Dexter Goei -- Chief Executive Officer

Welcome.

Operator

Your next question is from Bentley Cross from TD securities.

Bentley Cross -- TD Securities -- Analyst

Quick question on capital intensity. I mean, 8.3% in the quarter and lower than that ex-newbuild. You have communicated that's going to be in the same range, 1.3%, 1.4% going forward. Just wondering when we get down to that dream scenario of sub 1 billion, and if you can put a time frame.

Dexter Goei -- Chief Executive Officer

Yes. I mean, I think a lot of it has to do with our fiber-at-the-home rollout. We obviously are not on a budget for this year given the permitting and construction restrictions that we've run into. Same thing on edge-outs that were definitely not going to hit the numbers that we budget this year.

So we are in the process of given what we see today in terms of the availability of resources, and the ability for us to go out and do stuff as aggressively and quickly as we can in the first half of next year. We're probably going to do 500,000 plus more fiber-at-the-home next year. And to the extent that we reach that milestone because the machine has gone up and running, we've got the permitting process moving at a quick pace. We'll probably be doing million, million-plus per year thereafter.

So, we're looking -- if you just do the math, you're probably looking at three and a half to four years before we complete the entire Optimum footprint on FTTH.

Operator

We have time for one last question. And your final question is from Michael Rollins of Citi.

Michael Rollins -- Citi -- Analyst

Thanks, and good afternoon. Curious if you could talk a bit more about the mobile strategy in terms of how you're looking at rolling into the T-Mobile network. And if you're looking at building some infrastructure in your market. And related to that, when you're building fiber-to-the-home, are you layering in a lot more strands or capability where you might be able to leverage your own fiber over time to either build or partner and offer a solution to another provider.

Thanks.

Dexter Goei -- Chief Executive Officer

So just to take your second question first, yes. As we are rolling up fiber across the Optic footprint, we're putting very high first-strand counts into that fiber so that we could multipurpose it going forward. Not knowing necessarily exactly what could happen, but that is clearly in our planning. In terms of the mobile strategy, we are in good dialogue with T-Mobile.

We are roaming on them right now. We are discussing a very near-term timetable in terms of rehoming ourselves off the Sprint network and on to the T-Mobile network. And that really is a function of their preparedness. Some to do with their SPSS, some other technical factors, but that is a very near term thing that we expect to happen.

And we're going to continue to look to develop additional products, services with our partners at T-Mobile, and look at other opportunities to grow the business. I think in terms of let's call it sizable capital allocations relating to building infrastructure. That's probably not something that we are going to do a lot of. I think we like the model more of looking to partner with people who may have some infrastructure or help people build out their infrastructure in exchange for capacity.

And those types of deals as opposed to focusing on a subset of a region where we could potentially buy a spectrum or build up some infrastructure. I think that is probably less economical given the fact that a lot of our subscribers are moving around and that probably doesn't drive the economics that attractively.

Michael Rollins -- Citi -- Analyst

Thanks.

Dexter Goei -- Chief Executive Officer

Thank you very much, everyone. Sounds like that's the last question. I appreciate your time. And obviously, Nick, Cathie, myself, and Mike are available for follow on questions, whenever.

Operator

[Operator signoff]

Duration: 60 minutes

Call participants:

Nick Brown -- Senior Vice President, Corporate Finance and Development

Dexter Goei -- Chief Executive Officer

Mike Grau -- Chief Financial Officer

Phil Cusick -- J.P. Morgan -- Analyst

Craig Moffett -- MoffettNathanson -- Analyst

Brett Feldman -- Goldman Sachs -- Analyst

Doug Mitchelson -- Credit Suisse -- Analyst

Ben Swinburne -- Morgan Stanley -- Analyst

John Hodulik -- UBS -- Analyst

Peter Supino -- Bernstein -- Analyst

Jonathan Chaplin -- New Street Research -- Analyst

Bentley Cross -- TD Securities -- Analyst

Michael Rollins -- Citi -- Analyst

More ATUS analysis

All earnings call transcripts