Altice USA(ATUS) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company's unaudited statements show a reduced net loss of $1.5 million for Q1 2020 Consolidated Balance Sheets Total assets slightly decreased to $33.40 billion while stockholders' equity declined due to share repurchases Consolidated Balance Sheet Summary (in thousands) | Balance Sheet Item | March 31, 2020 (Unaudited) | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $33,396,480 | $34,108,122 | | Total Current Assets | $927,614 | $1,381,356 | | Goodwill | $8,142,309 | $8,142,309 | | Total Liabilities | $31,740,253 | $31,720,309 | | Long-term debt, net | $24,267,820 | $24,249,603 | | Total Stockholders' Equity | $1,590,415 | $2,279,262 | Consolidated Statements of Operations Q1 2020 revenue grew slightly to $2.45 billion, with net loss improving significantly to $1.5 million Q1 2020 vs Q1 2019 Statement of Operations (in thousands) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Revenue | $2,450,256 | $2,396,567 | | Operating Income | $448,570 | $442,478 | | Gain (loss) on investments, net | ($455,473) | $254,725 | | Gain (loss) on derivative contracts, net | $439,861 | ($177,029) | | Net Loss | ($1,538) | ($25,198) | | Net loss attributable to Altice USA, Inc. stockholders | ($858) | ($24,999) | | Basic and diluted loss per share | $0.00 | ($0.04) | Consolidated Statements of Cash Flows Operating cash flow increased to $593.6 million, while financing cash outflow grew due to share repurchases Q1 2020 vs Q1 2019 Cash Flows (in thousands) | Cash Flow Category | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $593,565 | $503,994 | | Net cash used in investing activities | ($297,743) | ($339,907) | | Net cash used in financing activities | ($752,803) | ($339,615) | | Net decrease in cash and cash equivalents | ($457,405) | ($175,773) | - The significant increase in cash used for financing activities was primarily driven by the purchase of Altice USA Class A common stock under a share repurchase program, which amounted to $726.0 million in Q1 2020 compared to $586.8 million in Q1 2019[27] Combined Notes to Consolidated Financial Statements Notes detail revenue sources, debt structure, share repurchases, and the tax impact of the CARES Act - The company operates principally through its Optimum and Suddenlink brands, providing broadband, video, and telephony services, and launched Altice Mobile in September 2019[44] - During Q1 2020, Altice USA repurchased 31,216,259 shares for approximately $750 million, with approximately $4.06 billion remaining available under its share repurchase program as of March 31, 2020[46] - The Coronavirus Aid, Relief and Economic Security (CARES) Act positively impacted income tax computations, resulting in a state tax benefit of approximately $10.5 million for Q1 2020[86][87] Revenue by Service (in thousands) | Service Line | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Residential: | | | | Broadband | $885,529 | $775,573 | | Video | $947,061 | $1,017,330 | | Telephony | $125,030 | $154,464 | | Business services and wholesale | $364,530 | $350,689 | | News and advertising | $105,540 | $94,738 | | Mobile | $18,356 | $0 | | Total revenue | $2,450,256 | $2,396,567 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Broadband revenue growth offset video decline, while Free Cash Flow increased significantly to $294.5 million - Management states that for Q1 2020, the company's results of operations were not significantly impacted by the COVID-19 pandemic, but future results may be impacted[112] - The company's strategic focus includes constructing a fiber-to-the-home (FTTH) network and growing its Altice Mobile service, which had approximately 110,000 mobile lines as of March 31, 2020[114][130] Key Performance Indicators | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Total Revenue | $2,450.3M | $2,396.6M | | Net Loss | ($1.5M) | ($25.2M) | | Adjusted EBITDA | $1,031.4M | $1,032.9M | | Operating Free Cash Flow | $732.3M | $692.6M | | Free Cash Flow | $294.5M | $163.6M | Results of Operations Revenue grew 2.2% YoY to $2.45 billion, driven by strong Broadband performance offsetting Video declines - Broadband revenue grew 14% YoY due to higher average recurring revenue per customer and an increase in the number of broadband customers[124] - Video revenue decreased 7% YoY, attributed to a decline in video customers and competition from Verizon, DBS providers, and internet-delivered content[125][126] - Programming and other direct costs increased by 6% YoY, primarily due to a $28.2 million increase in programming costs from contractual rate hikes[134] - The significant improvement in net loss was driven by a $439.9 million gain on derivative contracts, which largely offset a $455.5 million loss on investments[142][143] Liquidity and Capital Resources The company maintains adequate liquidity with $24.45 billion in debt and targets a leverage ratio of 4.5x-5.0x - The company targets a year-end leverage ratio of 4.5x to 5.0x, calculated as net debt to L2QA EBITDA[150] - In Q1 2020, the company repurchased 31.2 million shares for approximately $750 million under its authorized share repurchase program[176] Capital Expenditures (in thousands) | Category | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Customer premise equipment | $63,335 | $74,937 | | Network infrastructure | $140,063 | $139,978 | | Support and other | $60,626 | $93,777 | | Business services | $35,058 | $31,694 | | Total Capital purchases (cash basis) | $299,082 | $340,386 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from equity prices and interest rates through derivative contracts - The company's main equity price risk is from its holdings of Comcast common stock, valued at $1.48 billion as of March 31, 2020, which is managed through derivative contracts[178] - The fair value of the company's fixed-rate debt was $18.02 billion, which was $805.9 million higher than its carrying value of $17.22 billion as of March 31, 2020[182] - To manage interest rate risk, the company utilizes interest rate swap contracts with notional amounts totaling over $5.0 billion[183][184] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material internal control changes - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2020[187] - No changes in internal control over financial reporting occurred during the first quarter of 2020 that have materially affected, or are reasonably likely to materially affect, the company's internal controls[188] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company faces legal proceedings including IPO-related class actions and patent infringement lawsuits - The company is defending against class-action lawsuits filed by stockholders from its IPO, alleging that the Registration Statement and Prospectus misrepresented or omitted material facts[106] - Sprint Communications has filed two patent infringement lawsuits against the company concerning its Voice over Internet Protocol (VoIP) and Video on Demand (VOD) services[106] Item 1A. Risk Factors Key updated risks include the potential adverse effects of the COVID-19 pandemic and stock price volatility - A new material risk factor is the COVID-19 pandemic, which could adversely impact the business through declining demand and disruptions to suppliers[190] - The company warns that substantial sales of its Class A common stock by existing major stockholders could cause the stock's market price to decline[192] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 31.2 million shares in Q1 2020, with $4.06 billion remaining for future buybacks - As of March 31, 2020, the company had approximately $4.06 billion remaining under its authorized share repurchase programs[193] Share Repurchases for Q1 2020 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2020 | 5,178,537 | $28.36 | | February 2020 | 6,180,527 | $28.18 | | March 2020 | 19,857,195 | $21.60 | | Q1 2020 Total | 31,216,259 | N/A | Item 6. Exhibits This section lists all exhibits filed with the report, including certifications and award agreements