Altice USA : Q2 2020 Results Presentation PDF 591 KB

Altice USA

Q2 2020 Results

July 30, 2020

Disclaimer

FORWARD-LOOKING STATEMENTS

Certain statements in this presentation constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including the information under the headings "2020 Outlook" and "Full Year 2020 Outlook Update". These forward-looking statements include, but are not limited to, all statements other than statements of historical facts contained in this presentation, including, without limitation, those regarding our intentions, beliefs or current expectations concerning, among other things: our future financial conditions and performance, results of operations and liqui dity; our strategy, plans, objectives, prospects, growth, goals and targets; and future developments in the markets in which we participate or are seeking to participate. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "anticipate", "believe", "could", "estimate", "expect", "forecast", "intend", "may", "outlook", "plan", "project", "should" or "will" or, in each case, their negative, or other variations or comparable terminology. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or bel ief will result or be achieved or accomplished. To the extent that statements in this presentation are not recitations of historical fact, such statements constitute forward-looking statements, which, by definition, involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements including risks referred to in our most recently filed Annual Report on Form 10-K and in our most recently filed Quarterly Report on Form 10-Q. You are cautioned to not place undue reliance on Altice USA's forward-looking statements. Any forward-looking statement speaks only as of the date on which it was made. Altice USA specifically disclaims any obligation to publicly update or revise any forward-looking statement, as of any future date.

NON-GAAP FINANCIAL MEASURES

We define Adjusted EBITDA, which is a non-GAAP financial measure, as net income (loss) excluding income taxes, income (loss) from discontinued operations, 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 su bstitute 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 ("OpFCF"), and Free Cash Flow (defined as net cash flows from operating activities, less cash capital expenditures) as an indicator of the Company's financial performance. We believe these measures are two of several benchmarks used by investors, analysts and peers for comparison of performance in the Company's industry, although they may not be directly comparable to similar measures reported by other companies.

For an explanation of why Altice USA uses these measures and a reconciliation of theses non-GAAP measures, please see the Second Quarter 2020 earnings release for Altice USA posted on the Altice USA website.

2

Altice USA Q2 2020 Summary Review

Q2 revenue growth of +1.0% led by broadband revenue growth of +14.2% YoY

Best-ever quarterly residential broadband and customer relationship net additions (+70k and +53k respectively) Business Services resilience and early signs of Advertising recovery during pandemic

Net income of $111m, Adjusted EBITDA(1,2) up +2.5% YoY (+3.7% YoY ex-mobile), Free Cash Flow +49.8% YoY(1) $631m in share repurchases in Q2, with year-to-date total of $1.4 billion (target remains $1.7 billion for 2020) 2020 outlook: Revenue and Adjusted EBITDA growth, capex < $1.3 billion, 4.5-5.0x leverage target ex Lightpath

Sale of 49.9% stake in Lightpath fiber enterprise business for an EV of $3.2 billion (14.6x Adjusted EBITDA(3))

Completed Service Electric of New Jersey acquisition on schedule; refinanced $1.7 billion in debt

1. Adjusted EBITDA and Free Cash Flow are non-GAAP measures. For a reconciliation of these non-GAAP measures to net income (loss) and net cash flows from operating activities, respectively, please see the Second Quarter Altice USA earnings release posted to the Altice USA website.
2. Adjusted EBITDA growth of 3.7% in Q2 2020 excluding approximately $18.8m of losses related to Altice USA's mobile business in the current period and $5.3m in the year-ago period.
3. This Enterprise Value (EV) multiple is being provided to provide context for the purchase price for the stake being sold and is based on Adjusted EBITDA for Lightpath, which is a non-GAAP measure, and which has been prepared

3	on a pro forma basis to reflect Lightpath General and Administrative (G&A) expenses allocated in accordance with the agreement between the parties, as future G&A expenses at Lightpath are expected to be higher than historical
	allocations. As such, this non-GAAP measure cannot be reconciled to the nearest GAAP measure of Lightpath which is prepared on the historical basis of allocation.

Revenue Growth

Strength in core business and resilience in Business Services, with Advertising recovering in June

Q2-20 vs. Q2-19		Revenue growth YoY - Q2-20

($m)
				+1.0%	2,475
	2,451			23 Other(1)
News & Advertising				4
114		97
Business Services	358			366

Residential

1,975

1,990

Q2-19Q2-20

YoY Growth	Q2-20
Total Revenue	+1.0%
Total Revenue ex N&A	+1.8%
Residential	+0.8%
Broadband	+14.2%
Business Services	+2.2%
News & Advertising (N&A)	-15.6%

(1) Other includes mobile revenues of $19.9 million in Q2-20.

4

Residential Services

Best ever broadband and unique customer relationship performance

Q2-20 vs. Q2-19

Residential customer relationship net adds(1)

('000)

Residential broadband net adds(1)

('000)

Residential video net adds(1)

('000)

79

61

8

AAI

61

8

AAI (2)

8

AAI

(21)

43

(35)

(43)

8

AAI

70

53

35

13

53

(1)

Q2-19

Q2-20

Q2-20

Q2-19

Q2-20

Q2-20

Q2-19

Q2-20

Q2-20

Reported

Adjusted

Reported

Adjusted

Reported

Adjusted

+53k

(Pledge + NJ

+70k

(Pledge + NJ

-35k

(Pledge + NJ

>90 days

>90 days

>90 days

excl.)

excl.)

excl.)

1. "Q2-20Adjusted" figures shown remove 18k residential customer relationships (including 18k broadband subscribers, 8k video subscribers) at the end of Q2 2020 in accordance with the company's ordinary disconnect policies of 90 days or more non-payment for customers who either opted into the FCC Pledge or were covered by the New Jersey Executive Order.
2. AAI refers to complimentary "Altice Advantage Internet" student broadband customers. Approximately 3k AAI customers converted to paying customers by the end of Q2, of which ~2k upgraded to faster tiers of service (broadband- only) and the remaining took additional products and/or in combination with speed upgrades.

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Impact of Pledge, NJ Order, and Altice Advantage on Subscribers

Opportunity to convert more AAI customers and retain legacy FCC Pledge Customers

FCC Pledge, New Jersey Executive Order ("NJ Order"), Altice Advantage detail of impact on Q2-20 reported customer figures

Subscribers ('000s)	Customers	Broadband		Video	Phone
Net additions	+53.0	+70.4	(34.6)	(22.7)
Net additions less: FCC Pledge customers(1) >90 days	(10.1)	(9.9)	(7.6)	(5.5)
Net additions less: NJ Order customers(1) >90 days	(8.0)	(7.9)	(0.3)	(3.5)
Net additions adjusted for FCC Pledge, NJ Order >90 days	+34.9	+52.6	(42.6)	(31.6)
Revenue per Customer Relationship		YoY Growth
Revenue per customer relationship, reported	$144.38	-0.4%
Revenue per customer relationship, adjusted for FCC Pledge, NJ Order	$144.66	-0.2%

(1)

(2)

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Altice Advantage Detail	('000s)	Comments
Total Altice Advantage Internet (AAI)(2) customers, Q2	17.8	Excludedin reported unique customer count
Converted complimentary AAI to paying, Q2	2.7	Included in reported unique customer count
Of which: broadband speed up-tiering	1.9	Included in broadband customer count
Of which: additional product	0.8	Included in video and/or voice customer count

As of June 30, 2020, an aggregate of approximately 54,800 Residential customers (24,900 Pledge, 29,900 NJ Order) with past -due account balances requested protection pursuant to the Pledge or are protected pursuant to the NJ Order. ">90 days" refers to customers under the FCC Pledge or covered by the New Jersey Executive Order that otherwise would have been disconnected due to non-payment according to the company's ordinary disconnect policies.

AAI refers to complimentary "Altice Advantage Internet" student broadband customers. Approximately 3k AAI customers converted to paying customers by the end of Q2, of which ~2k upgraded to faster tiers of service (broadband-only) and the remaining took additional products and/or in combination with speed upgrades.

Adjusted EBITDA Growth Driven by Strong Operating Leverage

Improving organic Adjusted EBITDA growth through core business strength, ongoing cost management

Adjusted EBITDA Growth YoY excluding Cheddar and Mobile(1)

7.8%

7.3%

3.8%

2.5%

1.5%

Adjusted EBITDA YoY

Adjusted EBITDA YoY ex Cheddar and Mobile

Q2-18Q3-18Q4-18Q1-19Q2-19Q3-19Q4-19Q1-20Q2-20

Non-Programming Cost Growth YoY excluding Cheddar and Mobile

-1.3%

-0.8%

-2.5%	-3.3%

-8.6%

Non-Programming Expense YoY

Non-Programming Expense ex Cheddar and Mobile YoY

Q2-18Q3-18Q4-18Q1-19Q2-19Q3-19Q4-19Q1-20Q2-20

(1) Adjusted EBITDA is a non-GAAP measures. For a reconciliation of this non-GAAP measure to net income (loss), please see the Second Quarter Altice USA earnings release posted to the Altice USA website.

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Increase in Network Usage During Stay-at-Home

Our network is performing well during a time of increased demand for higher speeds and greater usage

Network consumption trends during COVID-19

Broadband speed	Increase in average
upgrade volume(1)	data usage per
	customer(1)

1 Gig sell-in(2)	Increase in Optimum
	video streaming traffic(1)

1. Growth rates comparing Q2 2020 to Q2 2019.
2. Q2 2020 1 Gig Internet gross additions as a percentage of total Internet gross additions in areas where 1 Gig is available.

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Network and Broadband Speed Upgrades

Significant runway for continued broadband speed upgrades and rapid 1 Gig rollout

Altice USA - 1 Gig availabilityAverage download speeds taken by customers (Mbps)(1)

242

			76%		204
				162	~3x
		33%			increase
	29%		93
24%

Q2-17

Q2-18

Q2-19

Q2-20

Q2-17

Q2-18

Q2-19

Q2-20

Approximately 2/3 of broadband customers have 200 Mbps or less

1. Average speed taken at the end of each quarter.

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Three Pillars of Network Strategy: FTTH, New-Build, Expand

ROI-focused,multi-facetedlong-term approach to upgrade and expand best-in-class network

Network strategy

FTTH	New-Build	Footprint
Expansion

• Future-proofedFTTH deployment in dense Optimum markets delivering symmetric up and down speeds and customer experience improvements

FTTH Available

Homes Passed

~900k

in Q2

1. Last twelve months through June 2020.

• Fiber- and coax-based network edge- outs seeing strong penetration growth in new-buildmarkets
• Accelerating pace of network edge-outs will continue to provide tailwind to subscriber growth

New-Build	New-Build
Penetration	Total Homes
~40%	+130k
within one year	LTM(1)

• Additional footprint expansion opportunities such as Rural Digital Opportunities Fund (RDOF)
• Cable M&A (e.g. Service Electric of New Jersey) opportunities allow for additional expansion

Service Electric

of New Jersey

~30k

customers acquired

10

Capex to Support Network Evolution

Network investments focused on FTTH and new build capex, with potential for long-term efficiencies

Annual capital expenditures by category, 2016 to 2019 ($m)	Capital expenditures, Q2 2020 ($m)

				1,355
			1,154				229
			211
956	951		157	121			23
49	78		92				27
	56			309
301						46
		369
	309
606	509		523	655			120
2016(1)	2017		2018	2019			Q2-20
Other	CPE	New Build	FTTH	Mobile	Other	CPE	New Build	FTTH	Mobile

• Medium-term opportunity for annual capex less than $1 billion per	• 9% total capital intensity in Q2-20 (7% ex-FTTH / New Build)
year post-FTTH deployment

(1) Capital expenditures for 2016 are presented on a pro forma basis as if Cablevision Systems was acquired effective January 1, 2016.

Altice Mobile Update

Reduced volume in tandem with lower costs during COVID-19 from retail store closures

Mobile penetration as % of total unique customers

2.9%

• Reached 144k total mobile lines (34k net adds in Q2-20):

• Return of $20 pricing as a temporary promo due to better digital onboarding economics

• Continued focus on improving customer experience and broadening product offerings (including upcoming 5G service)

0.3%

Q3-19	Q4-19	Q1-20	Q2-20
Net	+54k	+41k	+34k
Additions +15k

• Early indication of churn reduction during stay-at-home a positive for customer lifetime economics
• Lower sales & marketing spend during COVID-shutdown

12

Business Services Update

Resilience in both SMB and Enterprise businesses in Q2 with rebound in customer gross additions

Monthly Business Services Revenue Growth (YoY), 2020				Business Services highlights
									• Q2 Business Services revenue growth of 2.2% YoY
									• SMB revenue growth of 1.7%
									• Enterprise revenue growth of 3.0%
						3%			• Recovery in monthly SMB customer gross additions throughout Q2
									• Increase of e-commerce digital sales during pandemic
									• In Enterprise, increased sales and customer engagement in
									education, government, and healthcare vertical markets
									• Benefiting from shorter sales cycles due to work-from-home
									initiatives
					1%				• Some uncertainty from second round of closures in Suddenlink
								markets
	Jan	Feb	Mar	Apr	May	Jun

13

Sale of Minority Stake in Lightpath

Strategic investment to support ongoing and new growth initiatives

Transaction

Structure and

Rationale

Use of

Proceeds

• Altice USA has agreed to sell a 49.99% interest in the Company's Lightpath fiber enterprise business to Morgan Stanley Infrastructure Partners for an implied enterprise value / purchase price of $3.2bn, representing a 2019 Adjusted EBITDA multiple of 14.6x and Operating Free Cash Flow (Adjusted EBITDA less capex) multiple of 25.7x(1)
• Altice USA to retain 50.01% interest and maintain control of Lightpath
• Upon closing, Lightpath will be financed independently outside of the CSC Holdings, LLC debt silo
• Investment to support ongoing and new growth initiatives at Lightpath, improve operational performance and provide strategic and financial flexibility, and will enable Lightpath to focus on the distinct opportunities for value creation
• Altice USA will receive total gross cash proceeds of $2.3bn from the 49.99% stake sale and related financing activity (approximately $1.1bn net cash proceeds after tax and debt repayment, as below)
• A portion of proceeds are expected to be used by Altice USA to repay existing debt such that the transaction is at least leverage neutral for CSC Holdings, LLC (i.e. leverage neutral for Altice USA ex-Lightpath)
• Remaining proceeds may be used for additional debt paydown and/or repurchase of Altice USA shares

Timing

 Q4 2020 expected completion following customary regulatory approvals

1. These Enterprise Value (EV) multiples are being provided to provide context for the purchase price for the stake being sold and are based on Adjusted EBITDA and Operating Free Cash Flow for Lightpath, which are non-GAAP measures, and which have been prepared on a pro forma basis to reflect Lightpath General and Administrative (G&A) expenses allocated in accordance with the agreement between the parties, as future G&A expenses at Lightpath are expected to be higher than historical allocations. As such, these non-GAAP measures cannot be reconciled to the nearest GAAP measure of Lightpath which are prepared on the historical basis of allocation.

14

Lightpath Partnership Structure and Financials

Crystalizing attractive valuation relative to Altice USA

Transaction structure

			Morgan Stanley		Acquisition of
	Altice USA		Infrastructure		equity stake
			Partners		for ~$867m
50.01%	49.99%
Ownership		Ownership

		External
Lightpath		Financing
		Sources
Equity Value:		~$1.5bn non-recourse
$1.7bn		debt financing raised

Financials and multiples comparison to Altice USA1

	Altice USA	Lightpath
2019A Revenue Growth	~2%	~1%
2019A Capital Intensity	~13%	~26%
EV / 2019A Adjusted EBITDA	8.6x	14.6x
EV / 2019A
12.6x	25.7x
Adj. EBITDA - Capex

EV computed as of July 28, 2020.

1. These Enterprise Value (EV) multiples are being provided to provide context for the purchase price for the stake being sold and are based on Adjusted EBITDA and Operating Free Cash Flow for Lightpath, which are non-GAAP measures, and which have been prepared on a pro forma basis to reflect Lightpath General and Administrative (G&A) expenses allocated in accordance with the agreement between the parties, as future G&A expenses at Lightpath are expected to be higher than historical allocations. As such, these non-GAAP measures cannot be reconciled to the nearest GAAP measure of Lightpath which are prepared on the historical basis of allocation.

15

News & Advertising Update

Early recovery in News and Advertising sales, with ongoing strength in viewership

News & Advertising monthly revenue		News & Advertising trends

($m)

50

30

10

• Q2 revenue of $97m down 15.6% YoY, with 1H 2020 revenue down 3.4% YoY

• Local & regional advertising rebounded from March-April lows due to loosening of COVID-19 restrictions

• Early political spending in June in Northeast markets, expected to ramp in 2H

• National branded and linear advertising recovering at a slower rate with advertisers continuing to assess market conditions

Increase in website traffic(1)

Increase in users(1)

Jan

Feb

Mar

Apr

May

Jun

Increase in TV viewership (1)

(1) Growth rate comparing the full month of June 2020 to February 2020.

16

Margin Trends

Improving margins driven by strong core business strength and ongoing cost management

Adjusted EBITDA and Operating Free Cash Flow (OpFCF) margins(1)

			+160bps
		44.2%	45.8%
	42.5%		ex-mobile(2)
42.7%	ex-mobile(2)

			44.0%	44.7%
36.2%			35.4%
33.8%
	32.4%
		31.1%
	25.3%

Q2-16(3)	Q2-17	Q2-18		Q2-19	Q2-20
		Adjusted EBITDA margin		OpFCF

1. Adjusted EBITDA and Adjusted EBITDA less cash capex ("OpFCF") are non-GAAP measures. For a reconciliation of Adjusted EBITDA and OpFCF to net income (loss), please see the Second Quarter Altice USA earnings release posted to the Altice USA website.
2. Adjusted EBITDA includes $18.8m of losses related to Altice USA's mobile business in Q2 2020 and $5.3m of losses in Q2 2019.
3. Pro forma for Cablevision

17

Free Cash Flow Generation

Over $1 billion in free cash flow year-to-date, with close to $1.4 billion in share repurchases

Q2-20 Free Cash Flow (FCF) and net change in cash bridge(1)

($m)

1,800										1,000	1,708	(1,754)
1,600
1,400
1,200		1,106
1,000				877
800			(229)				56	707	1
600					(199)	(27)				Share
								Repurchases:
400
									$655m(2)
200
0
(200)															(47)
	Adjusted	Cash	Operating	Cash	Cash	Other	Free Cash	Other	Financing	Net change in		July debt	Net change in
		EBITDA	capex	Free Cash	interest	taxes	operating	Flow	investing	activities & FX	cash	repayment (3)		cash, pro
				Flow			cash flows		activities							forma (3)

$707m FCF in Q2-20, growth of +49.8% YoY

1. Adjusted EBITDA, Adjusted EBITDA less cash capex ("OpFCF") and Free Cash Flow are non-GAAP measures. For a reconciliation of Adjusted EBITDA and OpFCF to net income (loss), please see the Second Quarter Altice USA earnings release posted to the Altice USA website.
2. $655m cash outlay for settled repurchases in Q2, $631m incurred in share repurchases.
3. On July 15, 2020, Altice USA's wholly owned subsidiary CSC Holdings, LLC, redeemed $1,096m of 5.375% Guaranteed Notes due 2023 and $620m of 7.75% Senior Notes due 2025, using proceeds from new debt issued in June

18 2020 ($1,100m of 4.125% Guaranteed Notes due 2030 and $625m of 4.625% Senior Notes due 2030). The net change in cash of -$47m shown is pro forma for this refinancing and related call premium costs.

Pro Forma Debt Maturity Profile

Long-dated maturities following proactive refinancing activity

Altice USA pro forma maturity profile(1) (in millions)

• Refinanced approximately $1,716m of debt in June/July 2020, achieving lowest-ever coupon at 4.125% for new $1,100m Guaranteed Notes and 4.625% for new $625m Senior Notes

• Run-rate$33m per year in incremental interest savings

	WACD: 5.4%					$5,502
	WAL: 6.5 years
	Fixed rate % of debt: 82%						$4,108			$3,975
	Liquidity: $2.5bn
							$2,718
									$2,050	$1,750
		$1,073	$722		$823
	$36			$73
	2020	2021	2022	2023	2024	2025	2026	2027	2028	2029	2030
				CSC Term Loans	CSC Senior Guaranteed Notes	CSC Senior Notes

New $625m Senior Notes(1)

New $1,100m

Guaranteed

Notes(1)

1. On July 15, 2020, Altice USA's wholly owned subsidiary CSC Holdings, LLC, redeemed $1,096m of 5.375% Guaranteed Notes due 2023 and $620m of 7.75% Senior Notes due 2025, using proceeds from new debt issued in June 2020 ($1,100m of 4.125% Guaranteed Notes due 2030 and $625m of 4.625% Senior Notes due 2030).

19

Full Year 2020 Outlook Update

Revenue (ex-Mobile)

Adjusted EBITDA

Cash Capex

Year-End Leverage ex-Lightpath (L2QA)

Share Repurchases (ex-M&A)

1H 2020 Actual

+0.8%

+1.2%

$528m

5.3x

$1.4 billion

FY 2020 Outlook

Growth

Growth

• $1.3 billion
  4.5x - 5.0x
  $1.7 billion

20

Q&A

21

Appendix

22

Altice USA, Inc. Financials

($m)	Q2-19	Q2-20	Growth YoY
Total Revenue	$2,451	$2,475	1.0%
Adjusted EBITDA (1)
$1,079	$1,106	2.5%
Margin (%)	44.0%	44.7%
Cash capital expenditures	$317	$229	(27.8%)
Capex % of revenue	12.9%	9.2%
OpFCF (1)
$762	$877	15.1%
Margin (%)	31.1%	35.4%

1. Adjusted EBITDA and Adjusted EBITDA less cash capex ("OpFCF") are non-GAAP measures. For a reconciliation of Adjusted EBITDA and OpFCF to net income (loss), please see the Second Quarter Altice USA earnings release posted to the Altice USA website.

23