Business context and reporting period
The supplied filing is Altice USA, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2021—not a filing under the name Optimum Communications, Inc. Optimum is one of Altice USA’s consumer brands; the company also operates Suddenlink and business brands. It provides broadband, video, telephony, mobile, enterprise and advertising services across 21 states, with approximately 9.2 million network passings.
Financial performance and position
Amounts below are in millions of dollars except per-share data and customer metrics.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $2,574.9 | $2,434.0 | $7,569.7 | $7,359.2 |
| Operating income | $690.6 | $549.3 | $1,925.8 | $1,506.6 |
| Net income attributable to Altice USA stockholders | $266.9 | $(4.7) | $738.6 | $105.7 |
| Diluted earnings per share | $0.58 | $(0.01) | $1.59 | $0.18 |
| Adjusted EBITDA (non-GAAP) | $1,164.8 | $1,126.7 | $3,344.2 | $3,263.8 |
| Operating cash flow | $698.3 | $659.1 | $2,177.5 | $2,188.7 |
| Capital expenditures, cash basis | $309.2 | $201.6 | $845.1 | $729.4 |
| Free cash flow (non-GAAP definition in filing) | $389.1 | $457.5 | $1,332.4 | $1,459.3 |
Operating margin was approximately 26.8% in Q3 versus 22.6% a year earlier, and 25.4% for the nine months versus 20.5%. Adjusted EBITDA margin was approximately 45.2% in Q3 versus 46.3%, and 44.2% for the nine months versus 44.3%. Revenue and operating income improved, while higher capital spending weighed on free cash flow.
At September 30, cash and cash equivalents were $232.5 million; current assets were $844.7 million and current liabilities $3,668.9 million. Debt carrying value was approximately $26.77 billion, including $1.89 billion classified as current; long-term debt was $24.88 billion. Total stockholders’ deficiency was $1.13 billion. The CSC Holdings revolving facility had $2.19 billion undrawn and available, subject to covenant limitations. The company reported compliance with applicable debt covenants.
Material changes versus comparable periods
- Q3 revenue increased 5.8%; nine-month revenue rose 2.9%. Broadband and business services were major growth sources, while video and telephony revenue declined over the nine-month period.
- Broadband revenue increased 5% in Q3 and 7% year to date, primarily from rate increases and service-level changes. Business services and wholesale revenue rose 22% in Q3 and 8% year to date; about $69.3 million of the increase reflected recognition of deferred revenue and termination fees from an amended backhaul contract. A further approximately $31.1 million was expected to be recorded in Q4.
- Video customers fell to 2.803 million from 3.035 million a year earlier; residential telephony customers declined to 2.057 million from 2.280 million. Broadband customers were 4.388 million versus 4.364 million. The company cautions that customer counts include some customers not disconnected under pandemic-related policies.
- Q3 net income improved from a loss, but results include sizable fair-value gains and losses on investments and derivatives. Nine-month 2021 results also included a $51.7 million debt-extinguishment loss; 2020 included a $250.5 million debt-extinguishment loss.
- Nine-month operating cash flow was broadly flat year over year, while cash capital expenditures rose 15.9%. Nine-month free cash flow decreased to $1.33 billion from $1.46 billion.
Outlook, commentary, risks and unusual items
- No specific numerical revenue or earnings guidance is provided. Management said cash balances, operating cash flows and revolver availability should fund the current operating plan, planned capital expenditures and debt service for the next 12 months. It targets a 4.5x–5.0x year-end leverage ratio for the CSC Holdings debt silo over time.
- The FTTH network build is underway, with a stated aim of supporting broadband speeds above 10 Gbps. Management warns that investment plans may exceed expected costs, be delayed or fail to deliver anticipated benefits. Programming costs are expected to increase, primarily because of contractual rate increases.
- May 2021 debt issuance of $2.0 billion in notes was used mainly to redeem $1.50 billion of 5.5% notes due 2026, with remaining proceeds used for general corporate purposes, including revolver repayment and share repurchases. The refinancing generated the $51.7 million extinguishment loss.
- The company repurchased 23.6 million Class A shares for approximately $804.9 million in the first nine months. Approximately $1.19 billion remained authorized under the repurchase program. No common dividends were declared.
- Capital spending and acquisitions contributed to cash use: the company paid approximately $312.2 million for Morris Broadband cable assets and approximately $28.3 million for a Lightpath acquisition. Nine-month acquisitions totaled $340.4 million.
- Commitments and contingencies not reflected on the balance sheet were approximately $8.40 billion, up from $6.78 billion at year-end, primarily due to renewed multiyear programming agreements.
- Risks include intense broadband and video competition, programming-cost pressure, substantial debt and refinancing needs, customer nonpayment, COVID-19 impacts, severe weather and network disruptions. Management states that pandemic effects remain difficult to estimate.
- Legal matters include an IPO-related stockholder class action settlement awaiting court approval, a derivative suit regarding equity awards, and Sprint patent litigation. Management does not expect the stockholder matters to materially affect financial position, but says Sprint litigation could be material to results or cash flows in an individual period; loss ranges are not clearly estimable.
Most important facts for investors to verify
- Confirm the intended issuer: the provided filing identifies Altice USA, Inc., while the request names Optimum Communications, Inc.
- Review debt maturities, refinancing plans, covenant headroom and the availability conditions on the revolving credit facility; current debt is substantial relative to cash.
- Assess whether broadband revenue growth and business-services gains can offset continued video and telephony customer losses, including the nonrecurring timing of backhaul termination revenue.
- Track capital expenditures, FTTH deployment progress and free cash flow, which declined despite higher revenue and EBITDA.
- Evaluate the impact of programming commitments, the pending legal matters and the company’s extensive share repurchases on liquidity and shareholder value.