Altice USA Reports First Quarter 2023 Results

Altice USA (NYSE: ATUS) today reports results for the first quarter ended March 31, 2023.

Dennis Mathew, Altice USA Chief Executive Officer, said: "Altice USA’s first quarter results reflect a continuation of the strategy we introduced in February centered on growing our broadband and mobile businesses to set a path to return to sustainable customer, revenue, and cash flow growth. The Company made significant progress in driving key initiatives to increase the reliability and performance of our networks and enhance our products and customer experience, which contributed to an exceptional quarter in terms of broadband network construction as well as the best ever fiber net additions. As we move through 2023, we will continue to build on our go-to-market strategies to provide customers with seamless connections, flexibility and simplicity as evidenced by this week’s introduction of Optimum Complete, which combines our powerful internet and mobile products into one bundle to deliver the full portfolio of Optimum connectivity solutions at a great value. We have a relentless focus on providing the best customer experience through the most advanced networks, and we are optimistic that we will be able to leverage our investments to grow our business and become the connectivity provider of choice across all the communities we serve."

Key Financial Highlights

• Total Revenue declined -5.3% YoY in Q1 2023 to $2.29 billion, including Residential revenue decline of -5.6% YoY, Business Services revenue decline of -1.1% YoY and News & Advertising revenue decline of -13.9% YoY.
• Net income attributable to stockholders was $25.9 million in Q1 2023 ($0.06/share on a diluted basis) compared to $196.6 million in Q1 2022 ($0.43/share on a diluted basis).
• Net cash flows from operating activities were $416.8 million in Q1 2023, compared to $600.2 million in Q1 2022.
• Adjusted EBITDA⁽¹⁾ declined -12.4% YoY in Q1 2023 to $868.4 million, with a margin of 37.9%.
• Cash capital expenditures of $582.9 million in Q1 2023 represented 25.4% of revenue and were up 48.6% YoY mainly driven by accelerated fiber-to-the-home (FTTH) rollout and new builds (14.1% of revenue excluding FTTH and new builds). FY 2023 guidance for cash capex of approximately $1.7 billion to $1.8 billion reiterated.
• Operating Free Cash Flow⁽¹⁾ decreased -52.4% YoY to $285.5 million in Q1 2023.
• Free Cash Flow⁽¹⁾ was ($166.1) million in Q1 2023.

Key Operational Highlights

• Total unique Residential and SMBcustomer relationships⁽²⁾⁽³⁾declined -2.8% YoY in Q1 2023. Quarterly unique customer net losses were -26k in Q1 2023, compared to -20k in Q1 2022.
  • Total Broadband Primary Service Units (PSUs): Quarterly broadband net losses were -19k in Q1 2023, compared to -12k broadband net losses in Q1 2022.
  • Total Fiber Broadband PSUs: Quarterly Fiber (FTTH) broadband net additions were +38k in Q1 2023, our best quarter for fiber net adds and more than three times the growth compared to Q1 2022 (+11k). Fiber broadband net adds were driven by both higher fiber gross additions and increased migrations of existing customers. Total fiber broadband customers reached 210k as of the end of Q1 2023.
• Optimum Mobile has approximately 248k mobile lines⁽⁵⁾ as of March 31, 2023, adding +8k mobile net additions in Q1 2023 (+15k net additions excluding customers receiving free service), reaching 5.4% penetration of the Company's total broadband customer base.
• Residential revenue declined -5.6% YoY in Q1 2023 to $1.81 billion.
  • Residential revenue per customer relationship declined -2.7% YoY in Q1 2023 to $134.16, mostly due to the loss of higher ARPU video customers.
• Business Services revenue of $363.5 million was down -1.1% YoY in Q1 2023. SMB / Other revenue was down -0.8% YoY in Q1 2023. Lightpath revenue was down -1.9% YoY in Q1 2023. Lightpath revenue decline is driven by Sprint early termination revenue in the prior period of approximately $3.2 million; excluding this early termination revenue Lightpath revenue would have grown +1.4% in Q1 2023.
• News and Advertising revenue was down -13.9% YoY to $98.7 million in Q1 2023, or down -11.0% excluding political revenue.

Fiber Rollout, Multi-Gig Fiber Internet and Network Expansion Update

• Fiber (FTTH) rollout update: As of Q1 2023, the Company has 2.37 million FTTH passings, adding +214k new FTTH passings in the quarter.
• Continued Rollout of Optimum 5 Gig and 2 Gig Fiber Internet Service, Planned 2023 Launch of 8 Gig service. In the last year the Company introduced both Optimum 5 Gbps (5 Gig) and 2 Gbps (2 Gig) Fiber Internet, with symmetrical data speeds up to 5 Gig and 2 Gig respectively in certain portions of its footprint. At the end of Q1 2023, 65% of the Company’s fiber passings in the East footprint had multi-Gig speeds available to them (1 Gig symmetric speeds are available to 100% of the Company's entire fiber footprint). The Company is planning to launch symmetric 8 Gig Optimum Fiber internet service in the second half of 2023 everywhere multi-Gig fiber is available (targeting 100% of East fiber footprint in 2H-23).
• 1 Gbps (1 Gig) broadband or higher speed sell-in to all new customers, where 1 Gig or higher services are available, was 36% in Q1 2023. Approximately 21% of the Residential broadband customer base currently take 1 Gig or higher speeds, representing a significant growth opportunity for the Company.
• Broadband speeds taken on average have nearly doubled in the past three yearsto 412 Mbps in Q1 2023. Approximately 37% of broadband customers remain on plans with download speeds of 200 Mbps or less, representing a sizable opportunity to continue to upgrade speeds. Broadband-only customer usage averaged 625 GB per month in Q1 2023, which is 25% higher than the average usage of the entire customer base (500 GB per month).
• New build activity update: The Company has been accelerating the pace of its network edge-outs, adding +48k passings in Q1 2023. This is about one third of the targeted new build network extensions for FY 2023; the Company remains on track to reach 150k+ passings for the full year. The Company continues to see strong momentum in growing customer penetration, typically reaching approximately 40% within a year of rollout in new-build areas.

FY 2023 Capex Guidance Reiterated

• The Company expects to continue to focus its investments in key growth initiatives including the FTTH rollout and new build expansion, with anticipated cash capex of approximately $1.7 billion to $1.8 billion in FY 2023.

Balance Sheet Review as of March 31, 2023

• Net debt for CSC Holdings, LLC Restricted Group was $23,072 million at the end of Q1 2023⁽¹⁰⁾, representing net leverage of 6.6x Adjusted EBITDA on a last twelve month (LTM) basis. The weighted average cost of debt for CSC Holdings, LLC Restricted Group was 5.8% as of the end of Q1 2023 and the weighted average life was 5.5 years. The Company expects to return to a leverage target of 4.5x to 5.0x net debt / Adjusted EBITDA on a Last 2 Quarters Annualized (L2QA) basis for its CSC Holdings, LLC debt silo over time.
• Net debt for Cablevision Lightpath LLC was $1,389 million at the end of Q1 2023⁽¹⁰⁾, representing net leverage of 6.1x LTM. The weighted average cost of debt for Cablevision Lightpath LLC was 5.5% as of the end of Q1 2023 and the weighted average life was 4.8 years.
• Consolidated net debt for Altice USA was $24,436 million⁽¹⁰⁾, representing consolidated net leverage of 6.5x LTM.

Successful Pricing of New Senior Guaranteed Notes

In April 2023, CSC Holdings issued $1.0 billion in aggregate principal amount of senior guaranteed notes that bear interest at a rate of 11.250% and mature on May 15, 2028. The proceeds will be used for general corporate purposes, which may include the opportunistic refinancing of certain existing indebtedness, and to finance capital expenditures. Following closing of the notes offering, the Company used the proceeds to temporarily repay outstanding borrowings drawn under the Revolving Credit Facility.

Shares Outstanding

As of March 31, 2023, the Company had 454,668,624 combined Class A and Class B shares outstanding.

Reconciliation of Non-GAAP Financial Measures:

We define Adjusted EBITDA, which is a non-GAAP financial measure, as net income (loss) excluding income taxes, non-operating income or expenses, gain (loss) on extinguishment of debt and write-off of deferred financing costs, gain (loss) on interest rate swap contracts, gain (loss) on derivative contracts, gain (loss) on investments and sale of affiliate interests, interest expense, net, depreciation and amortization, share-based compensation, restructuring expense and other operating items (such as significant legal settlements, contractual payments for terminated employees, and impairments).

Adjusted EBITDA eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of our business and from intangible assets recognized from acquisitions, as well as certain non-cash and other operating items that affect the period-to-period comparability of our operating performance. In addition, Adjusted EBITDA is unaffected by our capital and tax structures and by our investment activities.

We believe Adjusted EBITDA is an appropriate measure for evaluating the operating performance of the Company. Adjusted EBITDA and similar measures with similar titles are common performance measures used by investors, analysts and peers to compare performance in our industry. Internally, we use revenue and Adjusted EBITDA measures as important indicators of our business performance and evaluate management’s effectiveness with specific reference to these indicators. We believe Adjusted EBITDA provides management and investors a useful measure for period-to-period comparisons of our core business and operating results by excluding items that are not comparable across reporting periods or that do not otherwise relate to the Company’s ongoing operating results. Adjusted EBITDA should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), and other measures of performance presented in accordance with GAAP. Since Adjusted EBITDA is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies.

We also use Operating Free Cash Flow (defined as Adjusted EBITDA less cash capital expenditures), and Free Cash Flow (defined as net cash flows from operating activities less cash capital expenditures) as indicators of the Company’s financial performance. We believe these measures are two of several benchmarks used by investors, analysts and peers for comparison of performance in the Company’s industry, although they may not be directly comparable to similar measures reported by other companies.

Consolidated Net Debt as of March 31, 2023

Net Leverage Schedules as of March 31, 2023 (in $m)

About Altice USA

Altice USA (NYSE: ATUS) is one of the largest broadband communications and video services providers in the United States, delivering broadband, video, mobile, proprietary content and advertising services to approximately 4.9 million residential and business customers across 21 states through its Optimum brand. The Company operates a4, an advanced advertising and data business, which provides audience-based, multiscreen advertising solutions to local, regional and national businesses and advertising clients. Altice USA also offers hyper-local, national, international and business news through its News 12, Cheddar News and i24NEWS networks.

FORWARD-LOOKING STATEMENT

Certain statements in this earnings release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, all statements other than statements of historical facts contained in this earnings release, including, without limitation, those regarding our intentions, beliefs or current expectations concerning, among other things: our future financial conditions and performance, results of operations and liquidity; our strategy, objectives, prospects, service availability targets, customer penetration rates, capital expenditure plans, fiber deployment and network expansion and upgrade plans, and leverage targets; our ability to achieve operational performance improvements; and future developments in the markets in which we participate or are seeking to participate. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “anticipate”, “believe”, “could”, “estimate”, “expect”, “forecast”, “intend”, “may”, “plan”, “project”, “should”, “target”, or “will” or, in each case, their negative, or other variations or comparable terminology. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. To the extent that statements in this earnings release are not recitations of historical fact, such statements constitute forward-looking statements, which, by definition, involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements including risks referred to in our SEC filings, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and reports on Form 10-Q. You are cautioned to not place undue reliance on Altice USA’s forward-looking statements. Any forward-looking statement speaks only as of the date on which it was made. Altice USA specifically disclaims any obligation to publicly update or revise any forward-looking statement, as of any future date.

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