NEW YORK – Altice USA today reports results for the second quarter ended June 30, 2020.
Key Financial Highlights
- Total Revenue grew +1.0% YoY in Q2 2020 to $2.47 billion, driven by Broadband revenue growth of +14.2% YoY. Residential revenue grew +0.8% YoY, Business Services grew +2.2% YoY, and News and Advertising revenue declined -15.6% YoY.
- Net income attributable to stockholders was $111 million for Q2 2020, or $0.19/share (compared to a net income of $86 million, or $0.13/share, in Q2 2019).
- Adjusted EBITDA(2) increased +2.5% YoY in Q2 2020 to $1.11 billion with a margin of 44.7% (growth of +3.7% YoY and a margin of 45.8% ex-mobile(2)).
- Cash capex of $229 million in Q2 2020 represented 9.2% of revenue, down -27.8% YoY partly due to delayed permitting in the company's FTTH rollout.
- Operating Free Cash Flow(2) for Q2 2020 increased +15.1% YoY to $877 million, primarily reflecting lower capital spending on a YoY basis.
- Free Cash Flow(2) of $707 million in Q2 2020 increased +49.8% YoY.
- Share repurchases were approximately $631 million in total in Q2 2020 and $1.4 billion year-to-date.
- FY 2020 Outlook Update: The company is reinstating guidance for revenue (ex-mobile) and Adjusted EBITDA growth for 2020, and maintains guidance for capex of less than $1.3 billion for the year. The company retains its year-end leverage target of 4.5-5.0x (L2QA net debt to Adjusted EBITDA) for its CSC Holdings, LLC debt silo excluding Lightpath (Lightpath will be financed independently with its own debt silo following the completion of the sale of the minority stake) and continues to expect to complete $1.7 billion in share repurchases in 2020.
Key Operational Highlights
- Total unique Residential customer relationships grew +1.8% YoY in Q2 2020, or +1.4% YoY adjusted to exclude customers greater than 90 days delinquent (">90 days") associated with the pandemic-related FCC Pledge and New Jersey Executive Order ("NJ Order")(3). Residential revenue per customer relationship declined -0.4% YoY to $144.38 (vs. $145.02 in Q2 2019), although was broadly in line with the prior year adjusted for the customer impact of the FCC Pledge and NJ Order non-pays (-0.2% YoY to $144.66). Overall, Residential revenue grew +0.8% YoY in Q2 2020.
- Residential Broadband RGUs: reported best-ever quarterly net additions of +70k in Q2 2020 (vs. +13k in Q2 2019). Including the complimentary Altice Advantage Internet (AAI) customer net additions, residential broadband net additions were +79k in Q2 2020. Adjusted for FCC Pledge and NJ Order non-pays (and excluding AAI), residential broadband net additions would have been +53k in Q2 2020, which still represents the best-ever quarterly broadband RGUs performance for Altice USA.
- Residential Video RGUs: reported quarterly net losses of -35k in Q2 2020 (vs. -21k in Q2 2019). Adjusted for FCC Pledge and NJ Order non-pays, video net loss would have been a loss of -43k in Q2 2020.
- Business Services revenue grew +2.2% in Q2 2020 with growth in Enterprise & Carrier revenue growing +3.0% YoY and SMB revenue growing +1.7% YoY. Business Services saw recovery in SMB customer gross additions exiting the quarter. Similar to the Residential business, SMBs have seen an increase in demand for broadband speed upgrades, and enterprise customers are upgrading service to support remote work with managed services like secured Internet and conferencing solutions. The company's Enterprise & Carrier business continues to gain momentum in the education, government and healthcare verticals, driven by elevated connectivity needs during the pandemic. Altice USA continues to have success with its managed services suite of products including security, Smart WiFi, and hosted voice services for both SMB and mid-market enterprise customers.
- News and Advertising revenue decreased -15.6% in Q2 2020, driven mainly by a decline in national branded and linear advertising associated with the COVID-19 pandemic, but with some recovery in local and regional advertising as the quarter progressed. Cheddar traffic was up 72% in June (relative to February, prior to pandemic-related stay-at-home restrictions), and its user base was up 86% over the same timeframe given strong appetite for news flow in the current environment. News 12 viewership is up 16% in the same timeframe.
- Altice Mobile now has more than 140k mobile lines since the commercial launch in September 2019 (+34k net additions in Q2 2020, generating revenue of $19.9 million for the quarter), reaching 2.9% penetration of Altice USA's unique customer relationship base.
- Increased network usage and demand for higher broadband speeds during "stay-at-home" restrictions: In Q2 2020, the company saw an increase of 59% YoY in average data usage per customer to approximately 440 GB per month (approximately 550 GB per month for broadband-only customers). The pace of broadband speed upgrades remains elevated, up 40% year-over-year. The average broadband speeds taken by Altice USA's customer base has now increased nearly threefold in the past three years to 242 Mbps at the end of Q2 2020. Approximately two-thirds of our Internet customers remain on plans delivering 200 Mbps or less, representing a sizable opportunity to continue to upgrade speeds. As one of the main drivers of increased data usage, Optimum video streaming increased 46% year-over-year.
- FTTH strategy and introduction of fiber double- and triple-play: In July 2020, Altice USA introduced its triple-play fiber offering, delivering symmetrical broadband speeds up to 1 Gigabit per second as well as video and voice services over its all-IP fiber-to-the-home (FTTH) network, further differentiating its product set and delivering against our long-term fiber strategy. At the end of Q2 2020, Altice USA covered approximately 900,000 homes with FTTH technology available for service. The company remains positive on the future of its FTTH deployment initiatives and confident in delivering both capex and opex efficiencies following the completion of its FTTH build.
- Expansion of 1 Gig broadband speed coverage: Ongoing network investment and the continued deployment of cable DOCSIS 3.1 and fiber technologies have enabled the company to make available 1 Gig broadband service in more than 75% of Altice USA's footprint. In Q2 2020, 1 Gig sell-in to new customers increased to 24% where 1 Gig services are available, up from 13% in Q1 2020. Less than 4% of the company's total customer base currently take Gigabit speeds, representing a significant growth opportunity for the company.
- Increase in new-builds: Altice USA has been accelerating the pace of its network edge-outs, adding another 130,000 homes passed in the last-twelve-months (LTM) period ended Q2 2020, across its entire footprint. The company is seeing strong momentum in growing customer penetration, typically reaching approximately 40% within a year, and this remains a focus area for growth.
FY 2020 Outlook Update
In Q1 2020, the company temporarily withdrew revenue and Adjusted EBITDA guidance due to uncertainty from the ongoing COVID-19 pandemic. This quarter, the company is reinstating revenue and Adjusted EBITDA guidance given increased visibility into 2H 2020. For the full year 2020, the company now expects:
- Revenue (ex-mobile): Growth
- Adjusted EBITDA: Growth
- Capital expenditures: Less than $1.3 billion
- Year-end leverage target (ex Lightpath):4.5x to 5.0x net debt / Adjusted EBITDA (L2QA basis)
- Share repurchase: $1.7 billion
Read the full announcement here.