Filing and business context
This is Altice USA, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2022, filed November 2, 2022. The request identifies Optimum Communications, Inc.; that name does not match the filing registrant. Altice USA provides broadband, video, telephony, business, advertising and mobile services, primarily under the Optimum brand. Suddenlink services began transitioning to the Optimum brand on August 1, 2022. The company reported one operating segment.
Financial performance
Amounts below are in millions of dollars except per-share data and customer metrics.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $2,393.6 | $2,574.9 | $7,278.5 | $7,569.7 |
| Operating income | $467.3 | $690.6 | $1,501.5 | $1,925.8 |
| Operating margin | 19.5% | 26.8% | 20.6% | 25.4% |
| Adjusted EBITDA (non-GAAP) | $954.4 | $1,164.8 | $2,953.2 | $3,344.2 |
| Net income attributable to Altice USA | $85.0 | $266.9 | $387.7 | $738.6 |
| Diluted earnings per share | $0.19 | $0.58 | $0.86 | $1.59 |
| Operating cash flow | $629.2 | $698.3 | $1,905.7 | $2,177.5 |
| Cash capital expenditures | $493.6 | $309.2 | $1,371.1 | $845.1 |
| Free cash flow (non-GAAP) | $135.6 | $389.1 | $534.7 | $1,332.4 |
Adjusted EBITDA margin was 39.9% in Q3 2022 versus 45.2% a year earlier; the nine-month margin was 40.6% versus 44.2%. The company defines free cash flow as operating cash flow less cash capital expenditures.
Liquidity and debt
- At September 30, 2022, cash and cash equivalents were $250.6 million. Total debt carrying value was approximately $26.35 billion, including $2.06 billion classified as current; long-term debt was $24.29 billion.
- The balance sheet included $1.26 billion of Comcast shares pledged as collateral and a related $1.74 billion collateralized borrowing classified as current and maturing in May 2023. The company intends to settle it through new monetization contracts, but may have to deliver Comcast shares or cash if those contracts are unavailable.
- Approximately $1.04 billion remained undrawn and available under the CSC Holdings revolving facility, subject to covenant limitations. The company reported compliance with applicable financial covenants.
- Management said cash, operating cash flow and revolver availability should fund the operating plan, planned capital expenditures and debt service for the next 12 months. It also cautioned that longer-term funding depends on operating performance and access to capital markets.
- Cash increased by $54.9 million from the start of 2022. Financing cash outflow was $474.8 million, including $1.94 billion of debt repayments, partly offset by $1.57 billion of debt proceeds.
Material changes and management commentary
- Revenue declined 7.0% in Q3 and 3.8% for the first nine months. Q3 operating income fell 32.3%; nine-month operating income fell 22.0%. Adjusted EBITDA declined 18.1% and 11.7%, respectively.
- Residential customer relationships fell to 4.51 million from 4.65 million a year earlier. Broadband customers fell to 4.29 million from 4.39 million; video customers to 2.49 million from 2.80 million; and telephony customers to 1.82 million from 2.06 million. Residential penetration was 52.0%, versus 54.6% a year earlier.
- Broadband revenue was nearly flat for Q3, as higher average revenue per customer partly offset customer losses. Video and telephony revenue fell 7% and 17%, respectively, in Q3, primarily reflecting subscriber declines. Mobile revenue grew 12% in Q3; mobile lines reached approximately 236,000 versus 181,000 a year earlier.
- Business services and wholesale revenue fell 17% in Q3, largely reflecting a prior-year contract termination and deferred revenue recognition. News and advertising revenue fell 16%, primarily due to lower digital advertising.
- Other operating expenses rose 18% in Q3, with higher labor, repairs, rebranding, marketing, share-based compensation and bad-debt costs. Programming and other direct costs fell 7%, primarily due to fewer video customers, partly offset by contractual rate increases.
- Q3 net income included a $425.7 million investment loss, partially offset by $323.7 million of derivative gains and $105.9 million of interest-rate-swap gains. These fair-value items are volatile and do not represent the underlying operating trend.
- Cash capital expenditures were $1.37 billion for the first nine months, versus $845.1 million a year earlier. The company expected fiscal 2022 cash capital expenditures of $1.7–$1.8 billion and targeted 6.5 million fiber passings by the end of 2025. FTTH passings reached 1.91 million at quarter-end, up from 1.03 million a year earlier.
- Management cited intense competition, programming-cost increases, economic conditions, customer affordability, supply-chain and labor constraints, cybersecurity and network disruptions, substantial debt, and capital-market access among key risks. It provided no specific full-year earnings or revenue guidance in the supplied filing text.
Contingencies and unusual items
- A Sprint patent lawsuit concerning VoIP services was scheduled for trial in December 2022; the company said Sprint could seek up to $250 million in damages and that it would defend the case. The filing said the outcome and financial impact could not be reasonably estimated.
- Music-rights holders alleged inadequate action against copyright infringement on the company’s networks; the company intends to defend the claims.
- A stockholder derivative lawsuit concerning executive equity awards was settled, with court approval on November 1, 2022, after quarter-end. The filing also describes other ordinary-course litigation and investigations.
- Commitments and contingencies not reflected on the balance sheet were approximately $8.5 billion at September 30, 2022, down from approximately $10.31 billion at year-end, primarily due to programming payments and reduced programming commitments.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is for Altice USA, Inc., not Optimum Communications, Inc.
- Track broadband and total customer losses, residential penetration, and whether FTTH expansion and mobile growth offset declines in legacy services.
- Assess whether rising operating costs, capital spending and lower Adjusted EBITDA continue to pressure margins and free cash flow.
- Verify the refinancing or settlement plan for the $1.74 billion collateralized borrowing due in May 2023, and review upcoming debt maturities and interest-rate exposure.
- Monitor the Sprint and copyright matters, capital-expenditure execution, and any changes to management’s liquidity assessment or outlook.
- Distinguish GAAP earnings from non-GAAP Adjusted EBITDA and from volatile investment, derivative and swap fair-value effects.