Business context and reporting period
This summary covers Altice USA, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2023. The filing identifies Altice USA as the registrant; it provides residential services under the Optimum brand and enterprise services under Lightpath and Optimum Business. The company operates one segment, principally providing broadband, video, telephony, mobile, business communications, news, and advertising services.
Unless stated otherwise, financial amounts below are in USD millions. The filing also includes supplemental statements for CSC Holdings, its principal operating subsidiary.
Financial results and key metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $2,317.2 | $2,393.6 | $6,935.5 | $7,278.5 |
| Operating income | $492.6 | $467.3 | $1,399.7 | $1,501.5 |
| Operating margin | 21.3% | 19.5% | 20.2% | 20.6% |
| Net income attributable to Altice USA stockholders | $66.8 | $85.0 | $171.0 | $387.7 |
| Diluted earnings per share | $0.15 | $0.19 | $0.38 | $0.86 |
| Adjusted EBITDA (non-GAAP) | $915.5 | $954.4 | $2,705.6 | $2,953.2 |
| Cash from operating activities | Not presented quarterly | Not presented quarterly | $1,330.2 | $1,905.7 |
| Capital expenditures, cash basis | $353.2 | $493.6 | $1,409.6 | $1,371.1 |
| Free cash flow (non-GAAP) | $121.3 | $135.6 | $(79.4) | $534.7 |
Q3 Adjusted EBITDA margin was 39.5%, compared with 39.9% a year earlier; nine-month margin was 39.0%, compared with 40.6%. Operating free cash flow, defined by the company as Adjusted EBITDA less cash capital expenditures, was $562.3 million for Q3 and $1,296.1 million for the first nine months.
Liquidity, debt, and balance sheet
- At September 30, 2023, cash and cash equivalents were $268.4 million; total current assets were $801.1 million and current liabilities were $3,128.3 million.
- Debt carrying value was approximately $25.1 billion, including $1.116 billion classified as current and $24.001 billion as long-term debt. Stockholders’ deficiency was $321.3 million.
- The CSC revolving credit facility had $1.491 billion undrawn and available, subject to covenant limitations; $133.5 million of the facility was restricted for letters of credit. The filing states that the company was in compliance with applicable financial covenants at quarter-end.
- In April 2023, CSC Holdings issued $1.0 billion of 11.25% senior guaranteed notes due in 2028, using proceeds to repay revolving-credit borrowings. Nine-month interest expense was $1,216.2 million, up $261.6 million year over year, primarily because of higher interest rates.
- Cash declined by $37.1 million from year-end 2022. Debt proceeds of $2.350 billion and repayments of $2.215 billion were reported for the first nine months.
Material changes versus the prior comparable period
- Q3 revenue declined 3.2% year over year; nine-month revenue declined 4.7%. Residential revenue fell 3.4% in Q3 and 4.9% year to date.
- Video revenue fell 4.9% in Q3 and 7.1% year to date; telephony revenue declined 11.4% and 10.1%, respectively. Broadband revenue declined 2.0% in Q3 and 2.9% year to date. Mobile revenue increased, while business services and wholesale revenue was broadly flat in Q3 and down slightly year to date.
- Customer metrics show continued fixed-line customer losses: residential broadband customers were 4.196 million versus 4.291 million a year earlier; video customers were 2.235 million versus 2.492 million. Total customer relationships declined to 4.773 million from 4.897 million. Mobile lines increased to 288,200 from 236,100.
- Operating income rose 5.4% in Q3 but fell 6.8% for the first nine months. Net income attributable to stockholders fell 21.3% in Q3 and 55.9% year to date. Higher interest expense and lower revenue weighed on results.
- Year-to-date operating cash flow decreased $575.5 million. Cash capital expenditures rose $38.5 million, contributing to the change in free cash flow from $534.7 million positive to $79.4 million negative.
- Comparisons of reported net income were affected by large, nonrecurring year-over-year swings in Comcast-related investment and derivative fair-value items. The company settled the related collateralized debt in January 2023 by delivering Comcast shares and associated derivatives, receiving approximately $50.5 million net cash including dividends and recording a $4.4 million debt-extinguishment gain.
Outlook, commentary, risks, and unusual items
- Management said existing cash, operating cash flow, and revolving-credit availability are expected to support the current operating plan, planned capital expenditures, and debt service for the next 12 months. It cautioned that longer-term funding may depend on continued access to capital and credit markets and that it intends to raise significant funding over the next several years. No specific full-year 2023 financial guidance is provided in the supplied filing text.
- Management expects programming contractual rates to increase. It also identifies competition, customer demand, advertising trends, high leverage and debt service, interest rates, refinancing access, and execution of the FTTH build and mobile offering as important risks.
- The FTTH network expansion continued: FTTH passings reached 2.720 million, up from 1.908 million a year earlier, and FTTH customer relationships reached 295,100, compared with 135,300. FTTH penetration was 10.8%.
- Nine-month restructuring and other operating items were $39.3 million, versus $10.1 million a year earlier, primarily reflecting $32.2 million of payments for terminated employees and $9.1 million of lease-asset impairments, partially offset by a $6.4 million contingent-consideration remeasurement gain.
- The company disclosed a copyright infringement lawsuit alleging subscriber infringement of more than 7,700 works; it intends to defend the claims. Management does not believe the resolution of individual ordinary-course legal matters will materially affect operations or financial position, although outcomes could be material to a particular period’s results or cash flows.
- Management reported effective disclosure controls as of September 30, 2023 and no material change in internal control over financial reporting during the nine-month period.
Important facts for investors to verify
- Confirm the registrant and security being analyzed: the supplied filing is for Altice USA, Inc. (NYSE: ATUS), not an entity named Optimum Communications, Inc.
- Track broadband, video, and total customer losses against mobile growth, FTTH buildout, and FTTH customer take-up.
- Assess whether operating cash flow and capital spending can sustain investment needs: nine-month free cash flow was negative, while management anticipates continued significant funding requirements.
- Review debt maturities, floating-rate exposure, refinancing needs, and the cost of the 11.25% notes; assess revolver availability and covenant conditions.
- Separate recurring operating performance from investment and derivative fair-value movements, restructuring charges, and other adjustments; compare GAAP results with the company’s non-GAAP measures.
- Monitor programming-cost increases, competitive pressure, advertising demand, and the outcome and potential financial impact of disclosed litigation.