Altice USA(ATUS) - 2022 Q4 - Annual Report

Part I Business Altice USA provides broadband, video, and telephony services to approximately 4.9 million customers across 21 states, actively upgrading its network with FTTH technology - Altice USA provides broadband, video, and telephony services to approximately 4.9 million residential and business customers across 21 states, primarily under the Optimum brand[8] - The company is executing an ongoing fiber-to-the-home (FTTH) network build, which passed over 2.1 million homes and businesses as of December 31, 2022, enabling the delivery of multi-gigabit broadband speeds[8][11][35] Key Financial and Customer Metrics (2020-2022) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Customer Relationships (thousands) | 4,879.7 | 5,014.7 | 5,024.6 | | Revenue (billions) | $9.65 | $10.09 | $9.89 | | Adjusted EBITDA (billions) | $3.87 | $4.43 | $4.41 | | Net Income (millions) | $194.6 | $990.3 | $436.2 | Our Products and Services The company's offerings are segmented into Residential Services, Business Services, and News and Advertising, providing broadband, video, telephony, and mobile services, alongside enterprise fiber connectivity and various news channels Residential Customer Relationships (thousands) | Service | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total Residential Customers | 4,498.5 | 4,632.8 | 4,648.4 | | Broadband | 4,282.9 | 4,386.2 | 4,359.2 | | Video | 2,439.0 | 2,732.3 | 2,961.0 | | Telephony | 1,764.1 | 2,005.2 | 2,214.0 | Residential Revenue | Service | 2022 (billions) | 2021 (billions) | 2020 (billions) | | :--- | :--- | :--- | :--- | | Broadband | $3.93 | $3.93 | $3.69 | | Video | $3.28 | $3.53 | $3.67 | | Telephony (millions) | $332.4 | $404.8 | $468.8 | - The company offers a mobile service delivered over a nationwide network through an MVNO agreement with T-Mobile, utilizing its own core network for control over data offloading and product flexibility[18] - Lightpath, the enterprise fiber business, serves approximately 13,500 locations with a network of about 20,200 route miles, with Altice USA retaining a 50.01% controlling stake after selling a 49.99% interest in December 2020[21] Competition Altice USA faces intense competition across all service lines from fiber, satellite, wireless, and internet-based providers, impacting customer retention and market share - The company faces intense competition from fiber-based providers, with Verizon's Fios network covering over two-thirds of households in its New York metropolitan service area and other fiber providers serving over one-quarter of households in its south-central US markets[46] - Video services compete with direct broadcast satellite (DBS) providers and a growing number of internet-delivered streaming services like Netflix, Hulu, Disney+, and YouTube TV, adversely affecting demand for traditional video packages[47] - Mobile broadband providers like T-Mobile and Verizon are increasingly offering 5G Fixed Wireless Broadband (FWB) services that can substitute for the company's fixed broadband service[81] Regulation The company's services are subject to extensive federal, state, and local regulations, including franchise agreements, net neutrality debates, and comprehensive privacy laws - Cable operators must obtain non-exclusive franchises from state or local authorities, typically requiring franchise fees of up to 5% of cable service revenues and imposing various service quality and operational requirements[29][58] - The regulatory classification of broadband internet access service remains a key issue, reclassified as a less-regulated 'information service' in 2017, but subject to change with states enacting their own 'net neutrality' rules[64][118] - The company is subject to comprehensive privacy laws like the California Consumer Privacy Act (CCPA) and similar legislation in other states, which increase disclosure requirements and consumer rights regarding personal data[73] Risk Factors The company faces significant business risks including intense competition, rising programming costs, and high leverage of approximately $26.6 billion, alongside regulatory and concentrated stock ownership risks - The company operates in a highly competitive environment, facing pressure from fiber, satellite, wireless, and internet-based providers, which affects customer retention and pricing[80] - Programming and retransmission costs are a large and increasing expense category, and disputes with programmers can lead to channel blackouts and customer losses[83] - The company is highly leveraged, with total aggregate indebtedness of approximately $26.6 billion as of December 31, 2022, which exposes it to risks related to debt service, refinancing, and interest rate fluctuations[87] - The tri-class stock structure concentrates approximately 95% of voting power with Next Alt, controlled by Patrick Drahi, limiting public stockholders' ability to influence corporate matters[123][124] Properties The company's principal assets include its cable operating plant, fiber optic and coaxial distribution systems, and customer premise equipment, with headquarters leased in Long Island City, NY - The company's main physical assets are its cable operating plant, including headend facilities, fiber and coaxial networks, and customer premise equipment like set-top boxes and modems[130] - Headquarters are leased in Long Island City, New York, with an owned administrative office in Bethpage, New York, alongside various other owned or leased properties for operations[130] Legal Proceedings The company's legal matters include a $112.5 million patent infringement settlement with Sprint and an ongoing copyright infringement lawsuit regarding internet subscriber activity - The company settled a patent infringement lawsuit with Sprint for $112.5 million, with $47.5 thousand remaining payable as of year-end[476] - In December 2022, BMG and other music companies filed a complaint alleging contributory and vicarious copyright infringement related to the actions of Altice USA's internet subscribers[476] Part II Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Altice USA's Class A common stock trades on the NYSE under 'ATUS' with no current plans for cash dividends, and the stock significantly underperformed market and peer indices from 2017 to 2022 - Class A common stock is listed on the NYSE under 'ATUS'; Class B common stock is not listed[134] - The company has no current plans to pay cash dividends and did not repurchase any equity securities in the fourth quarter of 2022[135][137] Stock Performance Comparison ($100 Investment on 12/31/2017) | Index | 12/31/2017 | 12/31/2018 | 12/31/2019 | 12/31/2020 | 12/31/2021 | 12/31/2022 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Altice USA Class A | $100.00 | $86.74 | $143.55 | $198.84 | $84.96 | $24.15 | | S&P 500 Index | $100.00 | $93.76 | $120.84 | $140.49 | $178.27 | $169.45 | | 2022 Peer Group Index | $100.00 | $90.71 | $120.40 | $125.01 | $118.46 | $100.72 | Management's Discussion and Analysis of Financial Condition and Results of Operations Altice USA's 2022 revenue decreased by 4.4% to $9.65 billion and Adjusted EBITDA fell by 12.7% to $3.87 billion, driven by customer losses, increased operating expenses, and a significant rise in capital expenditures for FTTH network build Consolidated Results of Operations (2022 vs. 2021) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue (billions) | $9.65 | $10.09 | (4.4%) | | Operating Income (billions) | $1.80 | $2.52 | (28.6%) | | Net Income (millions) | $220.9 | $1,010.9 | (78.1%) | | Adjusted EBITDA (billions) | $3.87 | $4.43 | (12.7%) | Cash Flow and Capital Expenditures (2022 vs. 2021) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities (billions) | $2.37 | $2.85 | (17.1%) | | Capital Expenditures (cash, billions) | $1.91 | $1.23 | 55.4% | | Free Cash Flow (millions) | $452.6 | $1,622.4 | (72.1%) | - The company experienced a net loss of 135,000 total customer relationships in 2022, driven by declines in residential video (-293.3k) and telephony (-241.1k) customers, and a modest decline in broadband customers (-103.3k)[158] - FTTH passings nearly doubled, increasing by 987,800 to reach 2,158,700 homes, with FTTH customer relationships growing by 102,100 to 171,700, representing a penetration rate of 8.0%[158] Results of Operations In 2022, total revenue decreased by $443.2 million due to customer losses and lower business services, while operating expenses rose significantly, leading to a $722.0 million decline in operating income - Video revenue decreased by $244.9 million (7%) in 2022 compared to 2021, primarily due to a decline in video customers[164] - Business services and wholesale revenue decreased by $112.2 million (7%), with $121.6 million of the decline attributed to the recognition of deferred revenue and termination fees from a contract termination in 2021[166] - Programming and other direct costs fell by $176.5 million (5%), mainly due to a $117.2 million reduction in programming costs from having fewer video customers[171][172] - Other operating expenses increased by $355.7 million (15%), driven by higher labor costs ($157.9 million), share-based compensation ($61.7 million), and repairs, maintenance, and marketing costs related to the rebranding of Suddenlink services to Optimum[175][176] - Restructuring and other operating items increased to $130.3 million from $17.2 million, primarily due to a $112.5 million litigation settlement with Sprint[177][178] Liquidity and Capital Resources The company maintains liquidity through cash and credit facilities, with total debt of $26.6 billion as of year-end 2022, and significantly increased capital expenditures to $1.91 billion for FTTH network build Debt Outstanding as of December 31, 2022 | Debt Category | Carrying Amount (billions) | | :--- | :--- | | Credit facility debt | $9.06 | | Senior guaranteed notes | $7.64 | | Senior secured notes (millions) | $443.0 | | Senior notes | $7.32 | | Collateralized indebtedness | $1.75 | | Other (Finance leases, etc., millions) | $372.2 | | Total Debt | $26.59 | Capital Expenditures (Cash Basis) | Category | 2022 | 2021 | | :--- | :--- | :--- | | Customer premise equipment (millions) | $316.2 | $227.3 | | Network infrastructure (billions) | $1.15 | $642.5 | | Support and other (millions) | $270.1 | $235.3 | | Business services (millions) | $174.1 | $126.6 | | Total Capital Purchases (billions) | $1.91 | $1.23 | - The company targets a year-end leverage ratio of 4.5x to 5.0x for its main debt silo, CSC Holdings[201] - As of December 31, 2022, the company had approximately $1.19 billion of availability remaining under its share repurchase program, with no shares repurchased during the year[222] Quantitative and Qualitative Disclosures About Market Risk The company manages equity price risk from Comcast stock holdings, fully settled in January 2023, and mitigates interest rate risk on variable-rate debt through interest rate swap contracts - The company's exposure to equity price risk from its Comcast stock holdings was fully settled in January 2023 through the delivery of shares and related derivative contracts[228] - To manage interest rate risk, the company uses interest rate swap contracts, with a total notional amount of $3.3 billion as of December 31, 2022[232][433] - At December 31, 2022, the estimated fair value of the company's fixed-rate debt was $12.54 billion, which was $4.73 billion lower than its carrying value of $17.28 billion[231] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[235] - Management's assessment concluded that the company's internal control over financial reporting was effective as of December 31, 2022, a conclusion audited and affirmed by KPMG LLP[237][238] Part III Directors, Executive Officers, Corporate Governance, Compensation, Security Ownership, and Accountant Fees Information for these items, covering directors, executive compensation, security ownership, related transactions, and principal accountant fees, will be incorporated by reference from the company's definitive proxy statement - Information for Items 10 through 14 is incorporated by reference from the company's forthcoming definitive proxy statement[240] Part IV Exhibits and Financial Statement Schedules This section provides an index to the financial statements and a comprehensive list of exhibits filed with the report, including corporate governance documents and material contracts - This section provides an index to the financial statements and lists all exhibits filed as part of the Form 10-K report[241]