Altice USA, Inc. — FY 2022 Form 10-K
Entity and period: The supplied filing is for Altice USA, Inc. (NYSE: ATUS), which markets services primarily under the Optimum brand; it is not filed under the name Optimum Communications, Inc. It covers the fiscal year ended December 31, 2022, not a standalone fourth quarter. Amounts below are in U.S. dollars.
Business context
Altice USA provides broadband, video, telephony, business connectivity, mobile, news and advertising services across 21 states. At year-end it reported approximately 9.46 million network passings and 4.88 million fixed-line customer relationships. Its FTTH network passed approximately 2.16 million homes and businesses; the company continued FTTH construction and HFC upgrades. On August 1, 2022, it began rebranding Suddenlink services as Optimum.
Financial and operating metrics
| Metric | FY 2022 | FY 2021 | Change / context |
|---|---|---|---|
| Revenue | $9,647.7 million | $10,090.8 million | Down $443.2 million (4.4%) |
| Operating income | $1,802.6 million | $2,524.6 million | Down $722.0 million; operating margin 18.7% vs. 25.0% |
| Net income attributable to Altice USA stockholders | $194.6 million | $990.3 million | Down $795.7 million; net margin approximately 2.0% vs. 9.8% |
| Adjusted EBITDA | $3,866.5 million | $4,427.3 million | Down 12.7%; margin 40.1% vs. 43.9% (non-GAAP) |
| Cash from operating activities | $2,366.9 million | $2,854.1 million | Down $487.2 million |
| Capital expenditures, cash basis | $1,914.3 million | $1,231.7 million | Up $682.6 million |
| Free cash flow | $452.6 million | $1,622.4 million | Down $1,169.7 million; defined as operating cash flow less cash capex |
| Total debt, carrying value | $26,587.7 million | — | Includes collateralized debt, finance leases, notes payable and supply-chain financing |
| Cash and cash equivalents | $305.5 million | $195.7 million | Year-end balance |
Revenue trends were mixed: residential broadband revenue was nearly flat at $3,930.7 million; video fell 7% to $3,281.3 million and telephony fell 18% to $332.4 million. Business services and wholesale revenue declined 7% to $1,473.8 million, partly reflecting a prior-year backhaul contract termination benefit. Mobile revenue rose to $97.7 million; mobile lines increased to approximately 240,000 from 186,000. Fixed-line relationships fell by 135,000, penetration declined 2.5 percentage points to 51.6%, and reported residential ARPU decreased to $134.76 from $137.79.
Year-end current assets were $2,568.4 million and current liabilities $4,039.7 million. The company reported $769.0 million undrawn and available under its revolving credit facility, subject to covenant limitations, and stated that cash, operating cash flows and revolver availability were expected to support its operating plan, capital expenditures and debt service for the next 12 months. Total liabilities exceeded total assets, leaving stockholders’ deficiency of $503.9 million.
Material changes and unusual items
- Revenue and Adjusted EBITDA declined while cash capital expenditures rose substantially, primarily reflecting accelerated network investment. Operating free cash flow (Adjusted EBITDA less cash capex) fell to $1,952.3 million from $3,195.5 million.
- Other operating expenses increased 15% to $2,735.5 million, including higher labor and benefits, share-based compensation, repairs and maintenance, rebranding costs, marketing and bad debt. Programming and other direct costs decreased 5%, mainly with fewer video customers.
- Restructuring and other operating items included a $112.5 million Sprint litigation settlement. The company had paid $65.0 million by year-end; the remaining $47.5 million was due by June 30, 2024.
- Net loss on investments was $659.8 million, mainly reflecting the decrease in fair value of Comcast shares; a $425.8 million gain on related equity derivatives partly offset it. The company also recorded a $271.8 million gain on interest-rate swaps. These non-operating fair-value items affected reported earnings.
- Income tax expense was $295.8 million, with a 57% effective rate. A $157.3 million cumulative tax expense followed a New York tax decision concerning the qualified emerging technology company rate and the company’s prior tax treatment.
- Debt carrying value was approximately $26.6 billion. In December 2022, the company issued a $2.0 billion incremental term loan to refinance portions of existing term loans; it also extended the revolving facility maturity, subject to specified earlier-maturity conditions. In January 2023, it settled Comcast-share collateralized debt by delivering shares and related derivatives, receiving approximately $50.5 million in cash.
Outlook, risks and contingencies
The filing provides no numeric revenue, EBITDA, free-cash-flow or customer guidance. Management expects programming rates and costs to continue increasing and anticipates significant capital spending as it expands FTTH and upgrades HFC. Management targets a CSC Holdings year-end leverage ratio of 4.5x–5.0x over time and expects to use free cash flow, revolver availability and refinancing transactions to address debt maturities. These statements are subject to market and operating risks.
Principal risks include intense fiber, fixed-wireless and streaming competition; customer losses, particularly in video and telephony; programming and retransmission-cost inflation; high leverage, variable-rate borrowing and refinancing needs; execution, cost and supply-chain risks in the FTTH build; regulation and franchise renewal; cyber incidents and network disruptions; and labor, inflation and macroeconomic pressures. Two major video franchises—Brookhaven and New York City—were expired at year-end; the company said it was operating under temporary authority in those areas. A copyright infringement complaint filed in December 2022 alleges subscriber infringement and seeks to hold the company liable; management intends to defend it and said the outcome could affect a single period’s results or cash flows. The filing reports compliance with applicable debt covenants at year-end. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Investor verification priorities
- Reconcile the reported decline in EBITDA and free cash flow against customer losses, rising operating costs and the sharp increase in capital expenditures.
- Review debt maturities and refinancing terms, variable-rate exposure, covenant headroom and the conditions attached to revolver availability.
- Assess FTTH build pace, capital intensity, take-up and returns; year-end FTTH penetration was 8.0%.
- Check whether broadband customer retention and ARPU stabilize amid competition, and whether video and telephony attrition continues.
- Track the Sprint settlement payment, the copyright case, franchise renewals and the effect of the New York tax position.
- Distinguish recurring operating performance from investment and derivative fair-value movements and other non-GAAP adjustments.