Business context and reporting period
Altice USA, Inc. (NYSE: ATUS) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2022. The filing describes a broadband, video, telephony, mobile, business-services, news and advertising provider operating primarily under the Optimum and Suddenlink brands; the company began marketing Suddenlink as Optimum on August 1, 2022. It reported approximately 4.9 million customer relationships and 9.4 million network passings. The filing identifies Altice USA, not “Optimum Communications, Inc.,” as the registrant.
Financial performance and position
Amounts below are in U.S. dollars; financial statement figures are rounded to millions. Comparisons are with the corresponding 2021 periods.
| Metric | Q2 2022 | First half 2022 | Change versus 2021 |
|---|---|---|---|
| Revenue | $2,463 million | $4,885 million | Down 2.1% and 2.2%, respectively |
| Operating income | $522 million | $1,034 million | Down 16.8% and 16.3% |
| Operating margin | 21.2% | 21.2% | Versus 24.9% and 24.7% |
| Net income attributable to Altice USA stockholders | $106 million | $303 million | Down 46.3% and 35.8% |
| Diluted EPS | $0.23 | $0.67 | Versus $0.43 and $1.00 |
| Adjusted EBITDA (non-GAAP) | $1,007 million | $1,999 million | Down 8.8% and 8.3% |
| Operating cash flow | $676 million | $1,277 million | First half down 13.7% |
| Free cash flow (non-GAAP) | $191 million | $399 million | First half down 57.7% |
Q2 Adjusted EBITDA margin was 40.9%, versus 43.9% a year earlier; first-half margin was 40.9%, versus 43.6%. First-half cash capital expenditures were $877 million, up from $536 million. The company ended June with $233 million of cash and cash equivalents (plus $0.3 million restricted cash), and $26.37 billion of debt at carrying value. Stockholders’ deficiency was $475 million.
Changes and operating drivers
Residential revenue fell $59 million in Q2 and $130 million in the first half. Broadband revenue grew 1% in both periods, primarily from rate increases and service-level changes, but broadband customers declined. Video revenue fell 6% in both periods as video customers continued to decrease; telephony revenue fell 18% in Q2 and 19% in the first half, reflecting customer losses and lower revenue per customer. Mobile revenue rose 28% in Q2 and 27% in the first half, with approximately 231,000 mobile lines at June 30.
Other operating expenses increased 14% in Q2 and 12% in the first half, with higher labor, repairs, marketing, share-based compensation and bad-debt costs. Programming and other direct costs declined, largely reflecting fewer video customers, partly offset by contractual programming-rate increases. Lower Adjusted EBITDA and increased capital spending drove the substantial decline in free cash flow.
Reported net income also reflected volatile fair-value items: first-half Comcast investment losses were $476 million, partly offset by $320 million of gains on related equity derivatives; interest-rate swap gains were $163 million. These items are distinct from the company’s operating performance measures.
Liquidity, debt, outlook and risks
Management said cash, operating cash flows and revolving-credit availability should fund the current operating plan, planned capital expenditures and debt service for the next 12 months, while cautioning that future funding depends on operating results and capital-market access. At June 30, $1.668 billion was undrawn and available under the existing CSC revolving facility, subject to covenant limitations; $132 million was restricted for letters of credit. A July 13, 2022 amendment, after quarter-end, established $2.325 billion of new revolving commitments with extended maturity terms and left $150 million of existing commitments maturing in January 2024.
The company targets a CSC Holdings net leverage ratio of 4.5x–5.0x over time. It estimated 2022 cash capital expenditures of $1.7–$1.8 billion and aims for 6.5 million fiber passings by the end of 2025. No specific revenue or earnings guidance is provided. Management cited competition, customer demand, programming costs, economic conditions, supply-chain and labor constraints, interest rates, substantial indebtedness, and execution of the fiber build and other investments as risks.
Debt due within one year included $1.726 billion of collateralized indebtedness associated with Comcast stock monetization contracts, maturing in May 2023. Management intended to refinance through new monetization contracts; absent that, settlement could require delivery of stock or cash. The company was in compliance with applicable financial covenants at June 30. Legal matters include a Sprint patent lawsuit in which Sprint may seek up to $250 million at a trial scheduled for December 2022, copyright claims, and a stockholder derivative action settlement subject to court approval. Management stated that outcomes were not reasonably estimable and did not expect the matters, individually or together, to materially impair operations or financial position, though they could materially affect results or cash flows in a period.
Investor verification priorities
- Confirm whether broadband and total customer losses continue, and whether broadband revenue growth offsets declines in video and telephony.
- Track operating expense growth, Adjusted EBITDA, and cash-flow conversion as the fiber investment program accelerates.
- Verify actual 2022 capital spending against the $1.7–$1.8 billion estimate and progress toward the 2025 fiber-passing target.
- Assess refinancing or other settlement plans for the May 2023 collateralized debt and the terms and availability of the amended revolving facility.
- Monitor leverage, interest-rate exposure, covenant headroom, and access to capital markets.
- Follow the Sprint litigation, the stockholder settlement approval, and other legal contingencies; assess potential cash-flow impacts.
- Separate operating trends from potentially volatile Comcast securities and derivative fair-value movements when evaluating earnings.