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, 2019; it is not filed under the name Optimum Communications, Inc. Altice USA provides broadband, video, telephony, business services, news and advertising, primarily under the Optimum and Suddenlink brands. It reported approximately 4.9 million customer relationships and 8.8 million homes passed. Altice Mobile launched in September 2019.
Dollar amounts below are U.S. dollars. Financial statement figures are in millions unless otherwise noted.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $2,438.7 | $2,417.8 | $7,286.3 | $7,111.7 |
| Operating income | $471.5 | $505.6 | $1,396.5 | $1,153.7 |
| Adjusted EBITDA (non-GAAP) | $1,068.4 | $1,070.5 | $3,180.5 | $3,057.0 |
| Net income (loss) | $77.4 | $33.7 | $138.6 | $(193.2) |
| Net income (loss) attributable to Altice USA stockholders | $77.2 | $32.6 | $138.6 | $(194.3) |
| Operating margin | 19.3% | 20.9% | 19.2% | 16.2% |
| Adjusted EBITDA margin | 43.8% | 44.3% | 43.6% | 43.0% |
For the nine months, operating cash flow was $1,834.0 million, capital expenditures were $1,032.6 million and investing cash flow was $(1,202.7) million. Operating cash flow less cash capital expenditures was approximately $801.4 million, versus $937.4 million in the prior-year period. Cash and cash equivalents were $175.1 million at quarter-end, down from $298.8 million at December 31, 2018; cash, cash equivalents and restricted cash totaled $175.4 million.
Total debt carrying value was approximately $24.1 billion, including $1.4 billion of collateralized indebtedness, compared with $22.8 billion at year-end 2018. Current debt was $161.7 million. The revolving credit facility had $2.3 billion undrawn and available, subject to covenant limitations; $178.0 million was reserved for letters of credit. Management stated that cash, operating cash flow and revolver availability were expected to fund the operating plan, planned capital expenditures and debt service for the next 12 months. The company reported compliance with its debt covenants.
Material changes versus prior comparable periods
- Q3 revenue increased 0.9%; nine-month revenue increased 2.5%. Broadband revenue grew 12% in both comparisons, supported by customer growth, rate increases and service-level changes.
- Video revenue fell 6% in Q3 and 3% for nine months, mainly due to fewer video customers and lower average revenue per customer. Residential video customers declined to 3.22 million from 3.30 million a year earlier. Telephony revenue declined 8% in both periods.
- Q3 operating income fell 6.7% and Adjusted EBITDA fell 0.2%. Nine-month operating income rose 21.0% and Adjusted EBITDA rose 4.0%.
- Programming and other direct costs rose 4% in Q3 and 3% for nine months, primarily reflecting higher programming rates. Capital expenditures rose to $1.03 billion from $832.8 million in the first nine months, with network infrastructure spending increasing substantially.
- Nine-month net income improved from a loss to profit, but results included a $478.1 million gain on investments and affiliate interests, partly offset by $304.0 million of derivative losses and a $159.6 million debt-extinguishment loss. These items make net income less representative of underlying operating trends.
- The company repurchased 72.7 million shares for approximately $1.69 billion during the nine months. A new three-year, $5.0 billion repurchase authorization followed completion of the prior program; $4.81 billion remained available at September 30.
Outlook, commentary, risks and unusual items
No specific revenue or earnings guidance was provided. Management said programming costs were expected to continue rising and anticipated further restructuring expense. It described a year-end net leverage target of 4.5x–5.0x, measured against a defined Adjusted EBITDA calculation, and said future funding needs may require capital-market access or refinancing. The filing cautions that competition, economic conditions and credit-market access could affect results and liquidity.
Strategic investments include construction of a fiber-to-the-home network, intended to support speeds above 10 Gbps across the Optimum footprint and part of Suddenlink’s footprint, and the Altice Mobile launch. Management warned that these projects could cost more than expected, be delayed or fail to deliver anticipated benefits. Programming costs, customer losses in video and telephony, competition from wireless, satellite and internet-based providers, and customer demand are material risks.
Subsequent to quarter-end, the company raised $3.0 billion of incremental term-loan commitments and issued $1.25 billion of additional 5.75% notes due 2030, using proceeds in part to refinance existing debt. The transactions are expected to produce fourth-quarter debt-extinguishment losses of approximately $28 million and $65 million, respectively. The company also completed the Cheddar Inc. acquisition in June for approximately $200 million in cash and stock.
Legal matters include shareholder lawsuits alleging IPO disclosure violations and Sprint patent-infringement lawsuits concerning VoIP and video-on-demand services. Management said it intended to defend the matters; it did not believe the shareholder and Sprint cases would materially affect financial position, though Sprint litigation could materially affect results or cash flow in a single period. Outcomes and potential losses were not determinable from the filing.
Most important facts for investors to verify
- Confirm the registrant identity: this filing is for Altice USA, Inc., with Optimum and Suddenlink as operating brands.
- Track broadband growth against continuing video and telephony customer declines, and assess whether broadband gains offset those losses.
- Review debt maturities, interest costs, refinancing terms and covenant headroom; reported debt was approximately $24.1 billion and cash was $175.1 million at quarter-end.
- Assess whether elevated network investment and share repurchases remain supportable from cash generation, particularly given lower operating cash flow less capital expenditures year over year.
- Separate recurring operating performance from investment and derivative fair-value movements, debt-refinancing losses and restructuring costs; Adjusted EBITDA is non-GAAP.
- Monitor execution and returns from FTTH and mobile initiatives, programming-cost inflation, and the resolution of pending litigation.