Business Context and Reporting Period
This is Altice USA, Inc.’s unaudited Form 10-Q for the three months ended March 31, 2022. The company provides broadband, video, telephony, mobile, business communications, news and advertising services, primarily under the Optimum and Suddenlink brands. The filing names Altice USA, Inc.—not Optimum Communications, Inc.—as the registrant.
Financial Results
Amounts below are in U.S. dollars; figures have been rounded to millions unless otherwise noted.
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $2,421.9 million | $2,478.8 million |
| Operating income | $512.5 million | $608.5 million |
| Operating margin | 21.2% | 24.6% |
| Net income | $202.1 million | $278.5 million |
| Net income attributable to Altice USA stockholders | $196.6 million | $274.1 million |
| Adjusted EBITDA (non-GAAP) | $991.7 million | $1,074.8 million |
| Operating cash flow | $600.2 million | $749.6 million |
| Cash capital expenditures | $392.4 million | $212.8 million |
| Free cash flow (non-GAAP measure as defined by company) | $207.8 million | $536.8 million |
Adjusted EBITDA margin was approximately 40.9%, versus 43.4% a year earlier. Interest expense, net, was $303.4 million, down from $316.3 million. Cash and cash equivalents were $195.6 million at quarter-end. Total debt carrying value was approximately $26.4 billion, including $1.7 billion of collateralized indebtedness; current debt was $969.4 million and long-term debt was $25.5 billion. The company reported a stockholders’ deficiency of $626.6 million.
Material Changes Versus Prior Comparable Period
- Revenue declined 2.3%. Broadband revenue rose 2% to $985.5 million, but video revenue fell 7% to $841.9 million and telephony revenue fell 20% to $85.2 million. Business services revenue was nearly flat; news and advertising rose 9% to $114.7 million; mobile revenue rose 25% to $24.0 million.
- Residential customer relationships fell to 4.612 million from 4.647 million a year earlier. Broadband customers were 4.373 million, video customers 2.659 million, and telephony customers 1.952 million. Average residential broadband, video and telephony revenue per customer (ARPU) was $137.92, down from $142.24.
- Operating expenses increased $39.1 million overall. Other operating expenses rose 11% to $641.9 million, reflecting higher labor, repair and maintenance, share-based compensation and marketing costs. Programming and other direct costs declined 3% to $828.8 million, primarily due to fewer video customers.
- Adjusted EBITDA declined 7.7%; operating cash flow decreased 19.9%. Capital expenditures increased approximately 84%, contributing to a 61.3% decline in free cash flow.
- Net income included a $150.8 million loss on investments, substantially offset in part by a $101.1 million gain on related derivatives and a $123.1 million gain on interest-rate swaps. These fair-value changes are volatile and are not equivalent to recurring operating performance.
Outlook, Risks and Unusual Items
- Management announced plans to accelerate fiber construction, targeting 6.5 million fiber passings by the end of 2025. It estimated 2022 cash capital expenditures of approximately $1.7 billion to $1.8 billion; Q1 cash capex was $392.4 million.
- The company stated that cash balances, operating cash flows and available revolving credit were expected to fund its current operating plan, planned capital expenditures and debt service for the next 12 months. It also cautioned that longer-term funding depends on future cash generation and continued access to capital and credit markets.
- At March 31, the CSC Holdings revolving facility had $740 million outstanding and $1.601 billion undrawn and available, subject to covenant limitations. The company reported compliance with applicable debt covenants. Management targets a CSC Holdings year-end leverage ratio of 4.5x to 5.0x over time.
- Programming costs are expected to increase as contractual rates change. Principal risks include competition, customer losses, high indebtedness and refinancing needs, interest-rate and credit-market conditions, execution of fiber investment plans, supply-chain and labor constraints, cybersecurity and network disruptions, COVID-19 impacts, and regulatory or legal matters.
- A shareholder derivative suit concerning equity awards to Patrick Drahi was settled under an agreement dated April 27, 2022, subject to court approval. A patent-infringement case brought by Sprint was scheduled for trial in December 2022; the company said Sprint could seek up to $250 million in damages. The company also disclosed copyright claims. Management said outcomes were uncertain and not reasonably estimable, while not expecting the matters to have a material adverse effect on operations or financial position; individual-period results or cash flows could nevertheless be affected.
- Commitments and contingencies not reflected on the balance sheet were approximately $9.63 billion, down from approximately $10.31 billion at year-end, primarily due to programming commitment payments and fewer customers receiving programming.
Important Facts for Investors to Verify
- Confirm the registrant and security being analyzed: this filing is for Altice USA, Inc. (NYSE: ATUS); Optimum is one of its brands.
- Review the drivers and durability of broadband revenue growth against continued video and telephony customer declines and falling overall ARPU.
- Assess whether the planned fiber build and 2022 capital expenditure estimate can be funded while free cash flow is lower and debt remains approximately $26.4 billion.
- Check debt maturities, refinancing progress, covenant headroom and exposure to floating rates; the debt schedule lists $810.7 million of principal maturities in 2022 and $1.9 billion in 2023.
- Distinguish operating trends from fair-value movements in Comcast shares, related derivatives and interest-rate swaps when assessing reported earnings.
- Monitor the Sprint litigation, the court approval status of the shareholder settlement, and other legal and programming commitments.