Altice USA(ATUS) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Altice USA, Inc. and CSC Holdings, LLC's unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and detailed accounting notes Altice USA, Inc. and Subsidiaries Consolidated Financial Statements Altice USA's consolidated financial statements show a slight increase in total assets, significant improvements in revenue and net income, and strong net cash from operating activities for the nine months ended September 30, 2021 Altice USA, Inc. Consolidated Balance Sheet Highlights (in thousands) | Metric | September 30, 2021 (Unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $844,729 | $976,566 | | Total Assets | $33,432,700 | $33,376,660 | | Total Current Liabilities | $3,668,895 | $3,098,103 | | Long-term Debt, net | $24,881,833 | $25,476,629 | | Total Liabilities | $34,565,387 | $34,554,036 | | Total Stockholders' Deficiency | $(1,132,687) | $(1,203,139) | Altice USA, Inc. Consolidated Statement of Operations Highlights (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Revenue | $7,569,711 | $7,359,221 | | Operating Income | $1,925,834 | $1,506,570 | | Net Income | $750,222 | $107,210 | | Diluted Income Per Share | $1.59 | $0.18 | Altice USA, Inc. Consolidated Statement of Cash Flows Highlights (in thousands) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $2,177,479 | $2,188,661 | | Net Cash Used in Investing Activities | $(1,187,796) | $(874,665) | | Net Cash Used in Financing Activities | $(1,035,513) | $(1,030,308) | | Net (Decrease) in Cash | $(45,970) | $282,165 | CSC Holdings, LLC and Subsidiaries Consolidated Financial Statements CSC Holdings, LLC's supplemental financial statements, nearly identical to Altice USA's due to its primary operational role, show strong net income and cash from operations, with minor differences from intercompany and tax items - Altice USA operates as a holding company, with no independent business operations apart from its CSC Holdings subsidiary; their consolidated financial statements are essentially identical, differing only in minor cash, deferred tax, and intercompany balances[57] CSC Holdings, LLC Statement of Operations Highlights (in thousands) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Revenue | $7,569,711 | $7,359,221 | | Operating Income | $1,925,834 | $1,506,570 | | Net Income | $752,519 | $120,921 | CSC Holdings, LLC Statement of Cash Flows Highlights (in thousands) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $2,147,335 | $2,191,803 | | Net Cash Used in Investing Activities | $(1,187,796) | $(878,873) | | Net Cash Used in Financing Activities | $(1,007,442) | $(1,025,165) | Combined Notes to Consolidated Financial Statements These notes detail key financial aspects, including share repurchases, revenue composition by segment, debt structure, derivative usage for hedging, and ongoing legal proceedings - The company repurchased 23.6 million shares for approximately $804.9 million in the nine months ended September 30, 2021, with $1.19 billion remaining available under the authorized program[62] Revenue by Category (in thousands) | Category | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Broadband | $2,952,136 | $2,747,129 | | Video | $2,675,861 | $2,766,608 | | Telephony | $310,298 | $358,347 | | Business services and wholesale | $1,180,039 | $1,092,309 | | News and advertising | $380,462 | $326,348 | | Total Revenue | $7,569,711 | $7,359,221 | - In May 2021, CSC Holdings issued $1.5 billion of 4.500% senior guaranteed notes and $500 million of 5.000% senior notes, both due 2031, using proceeds to redeem $1.5 billion of 5.500% notes due 2026, incurring a $51.7 million loss on extinguishment[97] - The company is involved in legal proceedings, including a stockholder class action lawsuit with a settlement reached in February 2021, and patent infringement lawsuits from Sprint concerning VoIP and VOD services[144][146] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial performance, highlighting revenue and Adjusted EBITDA growth driven by broadband and business services, while detailing segment revenue trends, liquidity, capital resources, debt structure, and increased capital expenditures Results of Operations This section details the company's operational results, showing revenue growth driven by broadband and business services, despite declines in video and telephony, alongside increases in operating income and Adjusted EBITDA Key Performance Indicators (Customers in thousands) | Metric | Sep 30, 2021 | Sep 30, 2020 | | :--- | :--- | :--- | | Total Customer Relationships | 5,027.6 | 5,040.9 | | Residential Broadband Customers | 4,388.1 | 4,363.5 | | Residential Video Customers | 2,803.0 | 3,035.1 | | Residential Telephony Customers | 2,057.1 | 2,279.5 | | ARPU | $140.73 | $138.16 | - Broadband revenue increased 7% for the nine months ended September 30, 2021, driven by higher average recurring revenue per customer and an increase in broadband customers[165] - Video revenue decreased 3% for the nine months ended September 30, 2021, primarily due to declining customers and lower pay-per-view revenue, partially offset by prior-year RSN credits and higher ARPU[166] Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net Income | $750,222 | $107,210 | | Adjustments | $2,593,989 | $3,156,624 | | Adjusted EBITDA | $3,344,211 | $3,263,834 | Liquidity and Capital Resources The company targets a specific leverage ratio for its CSC Holdings debt, details its total debt structure, and outlines increased capital expenditures focused on network infrastructure and FTTH build, alongside significant share repurchases - The company targets a year-end leverage ratio of 4.5x to 5.0x for its CSC Holdings debt silo, planning to use free cash flow and its revolving credit facility to manage debt maturities[202] Capital Expenditures (Cash Basis, in thousands) | Category | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Customer premise equipment | $153,389 | $127,667 | | Network infrastructure | $430,811 | $366,877 | | Support and other | $171,595 | $142,984 | | Business Services | $89,272 | $91,849 | | Total Capital Purchases (Cash) | $845,067 | $729,377 | - Net cash used in financing activities for the nine months ended September 30, 2021, totaled $1.035 billion, comprising $3.31 billion in new debt proceeds, offset by $3.48 billion in debt repayments and $804.9 million in share repurchases[223] Quantitative and Qualitative Disclosures About Market Risk The company manages equity price risk from Comcast stock through hedging and addresses interest rate risk on its debt using interest rate swaps, with fair value sensitivities detailed - The company holds Comcast common stock with a fair value of $2.40 billion as of September 30, 2021, hedged with prepaid forward contracts to monetize value and limit downside risk[231][232] - The fair value of the company's $19.04 billion fixed-rate debt exceeded its carrying value by $241.2 million at September 30, 2021, with a hypothetical 100 basis point interest rate decrease increasing its fair value by $807.7 million[234] - The company uses interest rate swap contracts to manage exposure to fluctuating interest rates on its variable-rate debt, with fair value changes recorded in the statement of operations as these are not designated as hedges[235] Controls and Procedures Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[238] - No material changes occurred in the company's internal control over financial reporting during the nine months ended September 30, 2021[239] PART II. OTHER INFORMATION Legal Proceedings The company refers to Note 16 of its financial statements for detailed legal proceedings, including stockholder litigation, a derivative lawsuit, and patent infringement claims from Sprint - For information on legal proceedings, the report refers to Note 16 of the financial statements[240] Risk Factors The company faces key risks from the COVID-19 pandemic's potential impact on consumer behavior and operations, and from network and facility disruptions due to natural disasters, power outages, and climate change effects - The COVID-19 pandemic poses a business risk, potentially impacting customer demand, payment ability, and operations due to government mandates like service disconnection moratoriums[241] - The company's networks and infrastructure are vulnerable to disruptions from natural disasters and power outages, a risk exacerbated by extreme weather and climate change, potentially causing service interruptions and financial losses[242] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activity for Q3 2021, including the number of shares bought back and the remaining authorized amount for future repurchases Issuer Purchases of Equity Securities (Q3 2021) | Period | Total Shares Purchased | Average Price Paid per Share | Maximum Dollar Value Remaining for Purchase | | :--- | :--- | :--- | :--- | | July 2021 | 670,885 | $31.23 | $1,249,759,190 | | August 2021 | 1,921,894 | $30.42 | $1,191,302,219 | | September 2021 | — | — | $1,191,302,219 | Exhibits This section lists exhibits filed with the Form 10-Q, including a separation agreement, CEO and CFO certifications, and financial statements in XBRL format - Exhibits filed with the report include a separation agreement, CEO/CFO certifications under Sections 302 and 906, and XBRL data files[245]