Altice USA(ATUS) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides a comprehensive overview of the company's financial performance and position Item 1. Financial Statements Unaudited consolidated financial statements for Altice USA, Inc., covering balance sheets, operations, cash flows, and comprehensive notes Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at specific reporting dates Consolidated Balance Sheet Summary (in thousands) | Account | Sep 30, 2020 (Unaudited) | Dec 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Total current assets | $1,606,886 | $1,381,356 | | Total assets | $33,900,012 | $34,108,122 | | Liabilities & Equity | | | | Total current liabilities | $1,961,707 | $1,978,479 | | Long-term debt, net | $25,476,051 | $24,249,603 | | Total liabilities | $33,138,659 | $31,720,309 | | Total stockholders' equity | $745,343 | $2,279,262 | - Total assets slightly decreased, while total liabilities increased, primarily due to a rise in long-term debt, leading to a significant reduction in total stockholders' equity from $2.28 billion to $745 million, driven by share repurchases and changes in paid-in capital[10][12][13] Consolidated Statements of Operations This section outlines the company's financial performance, including revenue, operating income, net income, and diluted EPS Consolidated Statements of Operations Summary (in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $2,433,986 | $2,438,662 | $7,359,221 | $7,286,310 | | Operating Income | $549,293 | $471,515 | $1,506,570 | $1,396,536 | | Net Income (Loss) | $(2,729) | $77,396 | $107,210 | $138,608 | | Diluted EPS | $(0.01) | $0.12 | $0.18 | $0.21 | - For the nine months ended Sep 30, 2020, revenue increased slightly year-over-year, and operating income grew by 7.9%; however, net income decreased from $138.6 million to $107.2 million, impacted by significant losses on extinguishment of debt and derivative contracts during the period[16] Consolidated Statements of Cash Flows This section details cash flows from operating, investing, and financing activities over the reporting period Consolidated Statements of Cash Flows Summary (in thousands) | Cash Flow Category | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,188,661 | $1,833,987 | | Net cash used in investing activities | $(874,665) | $(1,202,741) | | Net cash used in financing activities | $(1,030,308) | $(753,967) | | Net increase (decrease) in cash | $282,165 | $(123,686) | - Cash from operations increased by 19.3% YoY for the nine-month period, while investing activities saw reduced cash use due to lower capital expenditures ($729 million in 2020 vs $1.03 billion in 2019), and financing activities used more cash, driven by significant share repurchases ($1.81 billion) despite net positive debt issuance activity[37][38] Notes to Consolidated Financial Statements This section provides detailed explanations of accounting policies, significant transactions, and other financial disclosures - In July 2020, the company agreed to sell 49.99% of its Lightpath fiber enterprise business for an implied enterprise value of $3.2 billion, expecting to receive approximately $2.3 billion in gross cash proceeds and retain a 50.01% controlling interest[58] - For the nine months ended September 30, 2020, the company repurchased 73.9 million shares of Class A common stock for approximately $1.83 billion, with approximately $2.98 billion remaining available under the share repurchase program as of September 30, 2020[57] - The company engaged in significant debt refinancing activities during the quarter, including issuing new senior notes and using proceeds to redeem higher-coupon notes, resulting in a loss on extinguishment of debt of $250.5 million for the nine-month period[87][88][92] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses operational and financial performance, including revenue trends, Adjusted EBITDA, liquidity, and capital resources Results of Operations This section analyzes revenue and expense trends by segment, highlighting key drivers of financial performance and Adjusted EBITDA Revenue by Segment - Nine Months Ended Sep 30 (in thousands) | Revenue Segment | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Residential: Broadband | $2,747,129 | $2,396,151 | 14.6% | | Residential: Video | $2,766,608 | $3,028,914 | -8.7% | | Residential: Telephony | $358,347 | $452,927 | -20.9% | | Business services & wholesale | $1,092,309 | $1,066,123 | 2.5% | | News and advertising | $326,348 | $327,255 | -0.3% | | Mobile | $57,944 | $3,174 | 1725.6% | | Total Revenue | $7,359,221 | $7,286,310 | 1.0% | - Broadband revenue growth of 15% for the nine-month period was driven by higher average recurring revenue per customer and an increase in the number of broadband customers[145] - Video revenue decreased by 9% for the nine-month period, primarily due to a decline in video customers and estimated customer credits of approximately $76.7 million related to undelivered sports programming[146] Reconciliation of Net Income to Adjusted EBITDA - Nine Months Ended Sep 30 (in thousands) | Line Item | 2020 | 2019 | | :--- | :--- | :--- | | Net income | $107,210 | $138,608 | | Adjustments (Taxes, Interest, D&A, etc.) | $3,156,624 | $3,041,863 | | Adjusted EBITDA | $3,263,834 | $3,180,471 | Liquidity and Capital Resources This section discusses the company's financial resources, leverage targets, asset sales, and capital expenditure plans - The company targets a year-end leverage ratio of 4.5x to 5.0x for its CSC Holdings debt silo, believing existing cash, operating cash flows, and credit facility availability are adequate to support operations, capital expenditures, and debt service for the next twelve months[178] - In July 2020, the company agreed to sell 49.99% of its Lightpath business, expecting gross cash proceeds of approximately $2.3 billion, which may be used for debt repayment, share repurchases, or other investments[181] Capital Expenditures (Cash Basis, in thousands) | Category | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Customer premise equipment | $127,667 | $267,408 | | Network infrastructure | $366,877 | $459,594 | | Support and other | $142,984 | $176,313 | | Business services | $91,849 | $129,240 | | Total Capital Purchases | $729,377 | $1,032,555 | Quantitative and Qualitative Disclosures About Market Risk The company is exposed to equity price risk from its Comcast common stock holdings, hedged with derivatives, and interest rate risk on variable-rate debt, managed with swaps - The company holds Comcast common stock with a fair value of $1.99 billion as of September 30, 2020, a position hedged with prepaid forward contracts to monetize value and limit downside price risk[207] - The company uses interest rate swaps with a total notional value of $6.85 billion as of September 30, 2020, to manage exposure to floating interest rates, with changes in fair value recorded in the statement of operations as these swaps are not designated as hedges[211][212] - A hypothetical 100 basis point (1%) decrease in interest rates would increase the estimated fair value of the company's fixed-rate debt by approximately $719 million[210] Controls and Procedures Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of September 30, 2020 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[214][215] - There were no changes in internal control over financial reporting during the period that have materially affected, or are reasonably likely to materially affect, the company's internal controls[216] PART II. OTHER INFORMATION This section covers non-financial disclosures such as legal proceedings, risk factors, and equity security transactions Legal Proceedings The company is involved in several legal proceedings, including class action lawsuits from IPO stockholders and patent infringement lawsuits by Sprint - The company is defending against class action lawsuits from IPO stockholders alleging misrepresentation in the Registration Statement, with a state court case on appeal and a federal case ongoing[126][127] - Sprint Communications has filed two patent infringement lawsuits against the company related to Voice over Internet Protocol (VoIP) and Video-on-Demand (VOD) services[127] Risk Factors This section updates the company's risk factors, highlighting potential adverse effects of the COVID-19 pandemic and future stock sales - The COVID-19 pandemic is identified as a significant risk that could materially impact the business through reduced demand, customer inability to pay, and potential delays in capital investments like the FTTH buildout[219] - A substantial sale of Class A common stock by existing major stockholders, or the perception of such a sale, could cause the stock's market price to decline[219][220] Unregistered Sales of Equity Securities and Use of Proceeds This section reports on the company's share repurchase activities and the remaining authorization under its buyback programs Issuer Purchases of Equity Securities (Q3 2020) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2020 | 2,274,781 | $24.15 | | August 2020 | 9,110,608 | $27.00 | | September 2020 | 5,583,599 | $26.49 | | Total Q3 | 16,968,988 | $26.53 (weighted avg) | - As of September 30, 2020, the company had approximately $2.98 billion remaining under its authorized share repurchase programs[222]