Altice USA Reports First Quarter 2019 Results

Altice USA ATUS today reported results for the first quarter ended March 31, 2019.

Dexter Goei, Altice USA Chief Executive Officer, said: "Altice USA has made a great start to 2019 as we continue to realize the benefits of our ongoing investments to improve the customer experience and deliver state-of-the-art connectivity services, advanced business solutions and high-quality content. Altice One is delivering the best ever video customer performance for Altice USA. With our focus on network investment we continue to see improved broadband customer growth and significant growth in the demand for higher speeds and data usage. Finally, we are on track with all our new growth initiatives including the launch of our wireless service this summer, accelerating our fiber-to-the-home deployment and enhancing the growth of our advanced advertising and news platforms, now including Cheddar."

Altice USA Key Financial Highlights

• Revenue growth +2.9% YoY in Q1 2019 to $2.40 billion, driven by Residential revenue growth of +2.4%, Business services revenue growth of +5.3% and advertising revenue growth of +6.8%.
• Net loss reduced to $25 million in Q1 2019, or $0.04/share (from $129 million in Q1 2018, or $0.17/share).
• Adjusted EBITDA grew +5.3% YoY to $1.03 billion, an Adjusted EBITDA margin of 43.1% in Q1 2019 (+6.7% YoY Adjusted EBITDA growth and 43.7% Adjusted EBITDA margin excluding the impact of consolidating i24NEWS and mobile losses)⁽¹⁾.
• Free Cash Flow⁽²⁾ declined -5.6% YoY in Q1 2019 to $164 million mainly reflecting higher investment in key growth initiatives including Altice One, fiber (FTTH), new home build expansion and mobile.
• 2019 guidance reiterated including $1.5 billion of share repurchases ($600 million in Q1 2019).

Altice USA Key Operational Highlights

• Altice One is delivering the best ever video customer performance for Altice USA, including growth at Suddenlink for the second consecutive quarter. Altice USA's ongoing network investment is supporting continued strong growth in data as well. Optimum also benefited compared to the prior year quarter where performance was impacted by multiple snowstorms and a programming dispute.
• Total unique Residential customer relationships grew +0.4% YoY with quarterly net additions of +22k in Q1 2019; significantly improved compared to prior year (vs. +8k in Q1 2018):
  • Video RGU quarterly net losses of -10k in Q1 2019 were significantly better than the prior year (vs. -30k in Q1 2018) and represent the best ever video customer performance for Altice USA;
  • Residential broadband RGU quarterly net additions of +37k were also ahead of the prior year (vs. +26k in Q1 2018);
  • Residential ARPU per unique customer increased 2.1% YoY to $142.6 in Q1 2019, supporting Residential revenue growth of +2.4% YoY.
• Business services revenue growth of +5.3% YoY in Q1 2019 with continued strength in Enterprise & Carrier segment +6.0% YoY and SMB +4.8% YoY.
• Advertising revenue growth of 6.8% YoY in Q1 2019 supported by the growth of local and national multi-screen advertising solutions provided by a4.
• Continued network investment is supporting an increased demand for higher speed tiers and significant growth in data usage; the average broadband speed taken by Altice USA's customer base increased 29% YoY to 191 Mbps at the end of Q1 2019 and average household data usage reached over 280GB (continuing to grow over 20% YoY).
• Altice USA has reached approximately 400k unique Altice One customers⁽³⁾ (approximately 12% of total video customers) with the highest ever net promoter scores for video and broadband; successful launch of the new Altice One Operating System 3.0 in April 2019.

Altice USA FY 2019 Outlook Reiterated

For the full year 2019 Altice USA expects:

• Revenue growth of 2.5-3.0% YoY.
• Adjusted EBITDA margin expansion (ex-mobile).
• Increased investment for the continued rollout of Altice One, FTTH, and new mobile network with annual capex within a range of $1.3 billion to $1.4 billion.
• Free Cash Flow growth (compared to $1.35 billion in FY 2018) including mobile related costs.
• Year-end leverage target unchanged at 4.5x to 5.0x net debt / Adjusted EBITDA (L2QA basis).
• Share repurchases of $1.5 billion (ex-M&A).

Additional Q1 2019 Highlights

Product & Service Enhancements

Altice USA continues to expand the presence of Altice One across the U.S., now with approximately 400,000 customers across the country. A major update to Altice One was introduced in April 2019 with the launch of the Operating System 3.0, which brings users a new sports hub, an enhanced home screen, and voice guidance, allowing for better search and discovery and an overall easier and more accessible experience.

Network Investments to Enhance Broadband Speeds, Video Services and Reliability

Altice Fiber symmetrical 1 Gbps (Gigabit) internet service over Altice's new FTTH network continues to be rolled out to residential customers in select areas of Long Island, New Jersey and Connecticut. Altice Fiber provides an unmatched experience to support the most data intensive activities, from streaming 4K ultra-high-definition (UHD) and high-definition (HD) video on multiple devices, enjoying multi-player gaming experiences, video chat, streaming music, high quality virtual and augmented reality experiences, and downloading large files simultaneously on dozens of devices at once.

As well as driving additional medium-term operating efficiencies, Altice USA's FTTH network is expected to reduce long-term capital intensity. The new fiber network will offer a better customer experience driving lower interactions and lower technical service visit requirements, as well as structurally reducing maintenance, power costs and customer premise equipment costs.

In addition to its fiber deployment, Altice USA continues to enhance broadband services on its existing hybrid fiber-coaxial (HFC) network in the Optimum service area, now delivering broadband speeds of up to 400 Mbps for residential customers and with plans to launch 1 Gbps service with an upgrade to DOCSIS 3.1 and smart WiFi capabilities over HFC in 2019. In addition, the company is adding further Gigabit capacity in certain areas in the Suddenlink service area, and continuing to expand the footprint through new home builds at an accelerated pace.

These upgrades are allowing the company to meet customer demand for higher broadband speeds. The average broadband speed taken by Altice USA's customer base growing 29% YoY to 191 Mbps at the end of Q1 2019 (from 149 Mbps at the end of Q1 2018 and just 70 Mbps at the end of Q1 2017).

Average household data usage has reached over 280GB per month at the end of Q1 2019 and grew over 20% YoY as customers are using Altice USA's broadband services more and more. Optimum customers are connecting 12 devices in the home on average. Altice One is also improving customers' broadband experience with an advanced WiFi router and WiFi mini repeaters, demonstrated by approximately 40% improvement in WiFi throughput and attenuation compared to legacy customer premise equipment.

Mobile

Altice USA has completed the development of its core network to support its infrastructure-based MVNO including upgrading and expanding its WiFi network. Approximately 19 thousand AirStrands have been deployed with the Sprint partnership in less than a year, representing the quickest and largest deployment of its kind in the United States to date, leveraging Altice USA's existing network infrastructure. As of the first quarter of 2019, Altice USA has signed major mobile handset partnerships and has also developed its IT platform focused on a digital-first experience. The commercial launch of a mobile service for Altice USA customers is on track for the summer of 2019.

Advertising

Altice USA's advanced advertising unit, a4, continues to deliver on its mission of simplifying the complex nature of digital advertising by adding OTT and connected TV set environments to its all-in-one media planning and delivery platform, Athena. This addition further enhances a4's existing ability to deliver advanced solutions for clients helping them identify and reach their desired audiences across all screens within a single household and in all formats. This offering extends the guarantee of measurability and analytics of reach and frequency among all devices inside the universe of targeted households available through a4.

Altice USA News and Cheddar Acquisition

Altice USA has reached an agreement to acquire Cheddar, the digital-first news company, for $200 million, subject to certain closing adjustments as set forth in the merger agreement. With this acquisition, Altice broadens its portfolio of high-quality news businesses by adding Cheddar's innovative digital-first, live business, general news and college network focused on young professional and millennial audiences. The transaction is expected to close in the next two months upon receipt of regulatory approval.

The Cheddar networks are available in approximately 40 million pay TV homes through multichannel video programming distributors (MVPDs), all virtual MVPDs (YouTube TV, Sling, Hulu Live, DIRECTV NOW, etc.), leading free TV systems (Pluto, Roku Channel, etc.), and a campus network of 1,600 owned and operated screens on 600 campuses. Cheddar recently expanded distribution to millions of homes through various cable systems, reaching carriage agreements with Comcast, Charter and Altice USA. Cheddar is available on nearly all OTT subscription pay TV services in the U.S., and has a widespread presence across Facebook, Instagram, Twitter, LinkedIn, Snapchat and other social platforms generating over 400 million video views per month.

With the acquisition of Cheddar, Altice's full suite of news offerings now covers hyper-local, national, business and international content, reaching broader and more diverse audiences on both digital and linear formats. Cheddar Founder and CEO Jon Steinberg will join Altice USA to lead the news division inclusive of Cheddar, News 12 and i24NEWS.

Altice USA's News 12 Networks is the main source of local news among adults in the New York Tri-State area, according to a new study from Pew Research Center.⁽⁴⁾ News 12 recently received 51 New York Emmy® Award nominations (up from 34 the year before), was honored as a finalist in ten New York Associated Press Award categories, and won four regional Edward R. Murrow awards. Viewership continues to grow, as evidenced by Nielsen ratings. In Q1 2019, News 12 Networks achieved its sixth consecutive quarter of YoY growth in the M-F 5-9 AM daypart among adults aged 25-54, and saw a 20% increase in ratings over the prior year quarter among adults aged 25-54 during the M-F 6-9 AM daypart.

In addition, i24NEWS has now increased its distribution with carriage agreements with some of the largest MVPDs, highlighting the desire for high-quality independent reporting in the U.S.

Corporate Culture

Altice USA understands that to compete in the highly competitive businesses of media, telecommunications and technology that talent and culture are critical components of its present day and future success. To that end, Altice USA has focused on ensuring that it is a company that attracts and retains best-in-class talent across all areas of the company. In acknowledgment of the company's progress, Altice USA was recently named by Forbes as a Best Employer for 2019 - a distinction realized through a nationwide anonymous survey of working professionals. In addition, Altice USA was also recognized as a Best Place to Work for LGBTQ Equality after scoring a perfect 100 on this year's Corporate Equality Index - the Human Rights Campaign Foundation's prestigious national ranking that recognizes workplaces with policies and practices that create inclusive environments for lesbian, gay, bisexual, transgender and queer employees to thrive.

Share Repurchases

From January 1 through March 31, 2019, Altice USA repurchased an aggregate of 29,255,674 shares for a total purchase price of approximately $600 million, equivalent to $20.51 per share. The acquired shares were retired and the cost for these shares was recorded in paid-in capital in Altice USA's consolidated balance sheet. As of March 31, 2019, Altice USA had 679,784,612 combined Class A and Class B shares outstanding.

For the full year 2019, Altice USA is targeting $1.5 billion of share repurchases excluding any potential merger, asset sale and acquisition (M&A) activity. The acquisition of Cheddar will not impact this target.

Financial and Operational Review

For quarter ended March 31, 2019 compared to quarter ended March 31, 2018

• Reported revenue growth for Altice USA of +2.9% to $2.397 billion.
• Net loss reduced to $25 million in Q1 2019, or $0.04/share (from $129 million in Q1 2018, or $0.17/share)
• Adjusted EBITDA grew +5.3% to $1.033 billion with an Adjusted EBITDA margin of 43.1% (+6.7% Adjusted EBITDA growth and margin of 43.7% excluding impact of consolidating i24NEWS and mobile losses).
• Cash capex for Altice USA was $340 million in Q1 2019, representing 14.2% of revenue (10.0% excluding mobile and FTTH / new home build capex).
• Operating Free Cash Flow⁽⁵⁾ declined -4.3% to $693 million, mostly reflecting increased investment in FTTH, new home build, DOCSIS 3.1 and mobile.
• Altice USA saw significantly improved residential customer trends with total unique Residential customer relationship quarterly net additions of +22k in Q1 2019 (vs. +8k in Q1 2018). This included Residential broadband RGU net additions of +37k, video RGU net losses of -10k, and telephony RGU net losses of -20k in Q1 2019 (vs. +26k, -30k, and -8k, respectively, in Q1 2018). Altice USA Residential ARPU increased +2.1% to $142.57.
• Altice USA's Business services revenue increased +5.3% with the Enterprise & Carrier segment growing +6.0% and SMB revenue growing +4.8%. Altice USA continues to make progress with new initiatives including Business Hosted Voice for SMB customers and security / DDOS protection for mid-market enterprise customers. The overall SMB customer base grew by +1.4% due to improved value proposition with voice and data bundles and reduced churn.

• Altice USA's Advertising revenue increased +6.8% due to an increase in targeted data and analytics revenue. Altice USA, through its data and analytics subsidiary a4, is seeing strong growth with Athena, a self-serve client application for end-to-end multi-screen campaign management with "one-stop shopping" for advertisers (now including a new OTT advertising solution). Athena is the main growth driver of a4 and is being used by more and more customers, providing local and national advertising solutions with in-depth reporting, measurement and analytics.
• Altice USA's programming costs increased +4.6% due primarily to an increase in contractual programming rates, partially offset by the decrease in video customers. Programming costs per video customer are still expected to increase by high single digits going forward (+7.4% in Q1 2019).
• Net debt for Altice USA at the end of the first quarter was $22.047 billion on a reported basis⁽⁶⁾, an increase of $639 million from the end of the fourth quarter of 2018 reflecting $600 million of share repurchases and redemption costs, accrued interest, fees and other expenses related to refinancing activity, partially offset by free cash flow generation of $164 million. This represents consolidated L2QA net leverage for Altice USA of 5.2x on a reported basis at the end of March 2019 (5.2x LTM). The year-end leverage target for Altice USA remains 4.5-5.0x net debt to EBITDA.
• Altice USA's blended weighted average cost of debt was 6.2% and the blended weighted average life was 6.4 years at the end of March 2019. There are no significant maturities until 2021 (none in 2019) and near-term maturities could be covered by ~$2.5 billion revolving credit facility.

Reconciliation of Net Loss to Adjusted EBITDA and Adjusted EBITDA less Cash Capital Expenditures:

We define Adjusted EBITDA, which is a non-GAAP financial measure, as net income (loss) excluding income taxes, other non-operating income or expenses, loss on extinguishment of debt and write-off of deferred financing costs, gain (loss) on interest rate swap contracts, gain (loss) on derivative contracts, gain (loss) on investments and sale of affiliate interests, net, interest expense (including cash interest expense), interest income, depreciation and amortization (including impairments), share-based compensation expense or benefit, restructuring expense or credits and transaction expenses.

We believe Adjusted EBITDA is an appropriate measure for evaluating the operating performance of the Company. Adjusted EBITDA and similar measures with similar titles are common performance measures used by investors, analysts and peers to compare performance in our industry. Internally, we use revenue and Adjusted EBITDA measures as important indicators of our business performance, and evaluate management's effectiveness with specific reference to these indicators. We believe Adjusted EBITDA provides management and investors a useful measure for period-to-period comparisons of our core business and operating results by excluding items that are not comparable across reporting periods or that do not otherwise relate to the Company's ongoing operating results. Adjusted EBITDA should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), and other measures of performance presented in accordance with GAAP. Since Adjusted EBITDA is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies.

We also use Adjusted EBITDA less cash Capital Expenditures, or Operating Free Cash Flow, as an indicator of the Company's financial performance. We believe this measure is one of several benchmarks used by investors, analysts and peers for comparison of performance in the Company's industry, although it may not be directly comparable to similar measures reported by other companies.

Consolidated Net Debt as of March 31, 2019, Actual

Altice USA Net Leverage Schedules as of March 31, 2019 M

About Altice USA

Altice USA ATUS is one of the largest broadband communications and video services providers in the United States, delivering broadband, pay television, telephony services, proprietary content and advertising services to approximately 4.9 million Residential and Business customers across 21 states through its Optimum and Suddenlink brands.

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