ALTICE USA, INC. All dollar amounts and customer metrics, except per customer and per share data, included in the following discussion, are presented in thousands. The preparation of our consolidated financial statements requires us to make estimates that affect the reported amounts of assets, liabilities, revenue and expenses. For a complete discussion of the accounting judgments and estimates that we have identified as critical in the preparation of our consolidated financial statements, please refer to our Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . Overview Our Business We principally provide broadband communications and video services inthe United States and market our services primarily under two brands: Optimum, in theNew York metropolitan area, andSuddenlink , principally in markets in the south-centralUnited States . We deliver broadband, video, and telephony services to more than 4.9 million residential and business customers. Our footprint extends across 21 states through a fiber-rich broadband network with approximately 8.9 million homes passed as ofJune 30, 2020 . Additionally, we offer news programming and content, and advertising services. InSeptember 2019 , the Company launched Altice Mobile, a full service mobile offering, to consumers across its footprint. Key Factors Impacting Operating Results and Financial Condition Our future performance is dependent, to a large extent, on the impact of direct competition, general economic conditions (including capital and credit market conditions), our ability to manage our businesses effectively, and our relative strength and leverage in the marketplace, both with suppliers and customers. For more information, see "Risk Factors" and "Business-Competition" included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . InMarch 2020 ,the United States declared a national emergency concerning the outbreak of the coronavirus ("COVID-19"). There have also been extraordinary and wide-ranging actions taken by federal, state and local governmental authorities to contain and combat the outbreak and spread of the virus. We have continued to provide our telecommunications services to our customers during this pandemic. We expect that our future results may be impacted, including if residential or business customers discontinue their service or are unable to pay for our products and services, or if advertising revenue continues to decline. Additionally, in order to prioritize the demands of the business, we may continue to delay certain capital investments. Due to the uncertainty surrounding the magnitude and duration of business and economic impacts relating to COVID-19, including the effort to contain and combat the spread of the virus, and business impacts of government actions, we currently cannot reasonably estimate the ultimate impact of COVID-19 on our business. See "Risk Factors - Our business, financial condition and results of operations may be adversely affected by the recent COVID-19 pandemic." We derive revenue principally through monthly charges to residential customers of our broadband, video, and telephony services. We also derive revenue from digital video recorder ("DVR"), video-on-demand ("VOD"), pay-per-view, installation and home shopping commissions. Our residential broadband, video, and telephony services accounted for approximately 37%, 39%, and 5%, respectively, of our consolidated revenue for the six months endedJune 30, 2020 . We also derive revenue from the sale of a wide and growing variety of products and services to both large enterprise and SMB customers, including broadband, telephony, networking and video services. For the six months endedJune 30, 2020 , 15% of our consolidated revenue was derived from these business services. In addition, we derive revenues from the sale of advertising time available on the programming carried on our cable television systems, digital advertising and data analytics, and affiliation fees for news programming, which accounted for approximately 4% of our consolidated revenue for the six months endedJune 30, 2020 . Our mobile and other revenue for the six months endedJune 30, 2020 accounted for approximately 1% of our consolidated revenue. Revenue is impacted by rate increases, changes in the number of customers to our services, including additional services sold to our existing customers, programming package changes by our video customers, speed tier changes by our broadband customers, and acquisitions and construction of cable systems that result in the addition of new customers. Our ability to increase the number of customers to our services is significantly related to our penetration rates. 43 -------------------------------------------------------------------------------- We operate in a highly competitive consumer-driven industry and we compete against a variety of broadband, video and telephony providers and delivery systems, including broadband communications companies, wireless data and telephony providers, satellite-delivered video signals, Internet-delivered video content and broadcast television signals available to residential and business customers in our service areas. Our competitors include AT&T and its DirecTV subsidiary, CenturyLink, DISH, Frontier and Verizon. Consumers' selection of an alternate source of service, whether due to economic constraints, technological advances or preference, negatively impacts the demand for our services. For more information on our competitive landscape, see "Risk Factors" and "Business-Competition" included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . Our programming costs, which are the most significant component of our operating expenses, have increased and are expected to continue to increase primarily as a result of contractual rate increases. See "Results of Operations" below for more information regarding our key factors impacting our revenues and operating expenses. Historically, we have made substantial investments in our network and the development of new and innovative products and other service offerings for our customers as a way of differentiating ourselves from our competitors and may continue to do so in the future. We are constructing a FTTH network, which will enable us to deliver more than 10 Gbps broadband speeds in areas where FTTH is deployed. In addition, we launched Altice Mobile to consumers across our footprint inSeptember 2019 . We may incur greater than anticipated capital expenditures in connection with these initiatives, fail to realize anticipated benefits, experience delays and business disruptions or encounter other challenges to executing them as planned. See "Liquidity and Capital Resources" for additional information regarding our capital expenditures. Certain Transactions The following transactions occurred during the periods covered by this Management's Discussion and Analysis of Financial Condition and Results of Operations: InJune 2019 , the Company completed the acquisition ofCheddar Inc. , a digital-first news company and the operating results of Cheddar were consolidated as ofJune 1, 2019 . Non-GAAP Financial Measures We define Adjusted EBITDA, which is a non-GAAP financial measure, as net income (loss) excluding income taxes, 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, 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 Operating Free Cash Flow (defined as Adjusted EBITDA less cash capital expenditures), and Free Cash Flow (defined as net cash flows from operating activities less cash capital expenditures) as indicators of the Company's financial performance. We believe these measures are one 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. 44 --------------------------------------------------------------------------------
Results of Operations -
Six Months Ended June
Three Months Ended June 30, 30,
2020 2019 2020 2019
Revenue:
Residential:
Broadband $ 920,363 $ 806,250 $ 1,805,892 $ 1,581,823
Video 952,526 1,018,426 1,899,587 2,035,756
Telephony 117,322 150,232 242,352 304,696
Business services and wholesale 365,564 357,806 730,094 708,495
News and advertising 96,631 114,450 202,171 209,188
Mobile 19,866 - 38,222 -
Other 2,707 3,917 6,917 7,690
Total revenue 2,474,979 2,451,081 4,925,235 4,847,648
Operating expenses:
Programming and other direct costs 860,875 818,994 1,725,389 1,631,979
Other operating expenses 542,637 569,459 1,124,946 1,133,891
Restructuring and other expense 40,966 11,465 48,260 26,709
Depreciation and amortization (including
impairments) 521,794 568,620 1,069,363 1,130,048
Operating income 508,707 482,543 957,277 925,021
Other income (expense):
Interest expense, net (350,874) (380,613) (714,426) (767,077)
Gain (loss) on investments and sale of
affiliate interests, net 197,597 103,146 (257,876) 357,871
Gain (loss) on derivative contracts, net (152,061) (49,624) 287,800 (226,653)
Loss on interest rate swap contracts,
net (33,735) (26,900) (88,567) (50,572)
Loss on extinguishment of debt and
write-off of deferred financing costs - (1,194) - (159,096)
Other income, net 669 212 1,592 292
Income before income taxes 170,303 127,570 185,800 79,786
Income tax expense (58,826) (41,160) (75,861) (18,574)
Net income 111,477 86,410 109,939 61,212
Net loss (income) attributable to
noncontrolling interests (213) (43) 467 156
Net income attributable to Altice USA ,
Inc. stockholders $ 111,264 $ 86,367 $ 110,406 $ 61,368
45--------------------------------------------------------------------------------
The following is a reconciliation of net income to Adjusted EBITDA:
Six Months Ended June
Three Months Ended June 30, 30,
2020 2019 2020 2019
Net income $ 111,477 $ 86,410 $ 109,939 $ 61,212
Income tax expense 58,826 41,160 75,861 18,574
Other income, net (669) (212) (1,592) (292)
Loss on interest rate swap contracts,
net 33,735 26,900 88,567 50,572
Loss (gain) on derivative contracts, net 152,061 49,624 (287,800) 226,653
Loss (gain) on investments and sales of
affiliate interests, net (197,597) (103,146) 257,876 (357,871)
Loss on extinguishment of debt and
write-off of deferred financing costs - 1,194 - 159,096
Interest expense, net 350,874 380,613 714,426 767,077
Depreciation and amortization 521,794 568,620 1,069,363 1,130,048
Restructuring and other expense 40,966 11,465 48,260 26,709
Share-based compensation 34,318 16,535 62,264 30,325
Adjusted EBITDA 1,105,785 1,079,163 2,137,164 2,112,103
Capital expenditures (cash) 228,723 316,867 527,805 657,253
Operating Free Cash Flow $ 877,062 $ 762,296 $ 1,609,359 $ 1,454,850
Net cash flows from operating activities $ 935,976 $ 788,970 $ 1,529,541 $ 1,292,964
Capital expenditures (cash) 228,723 316,867 527,805 657,253
Free Cash Flow $ 707,253 $ 472,103 $ 1,001,736 $ 635,711 The following table sets forth certain customer metrics, excluding Altice Mobile customers, for the Company:
June 30, March 31, June 30,
2020 (f) 2020 (f) 2019 (g)
Homes passed (a) 8,880.1 8,834.8 8,750.4
Total customer relationships (b)(c) 4,997.1 4,950.1 4,923.2
Residential 4,621.4 4,568.4 4,538.9
SMB 375.7 381.7 384.4
Residential customers:
Broadband 4,307.8 4,237.4 4,165.4
Video 3,102.9 3,137.5 3,255.3
Telephony 2,337.1 2,359.8 2,485.8
Penetration of homes passed (d) 56.3 % 56.0 % 56.3 %
ARPU(e) $ 144.38 $ 143.39 $ 145.02
(a)Represents the estimated number of single residence homes, apartments and
condominium units passed by the broadband network in areas serviceable without
further extending the transmission lines. In addition, it includes commercial
establishments that have connected to our broadband network. Broadband services
were not available to approximately 30 homes passed and telephony services were
not available to approximately 500 homes passed.
(b)Represents number of households/businesses that receive at least one of the
Company's fixed-line services.
(c)Customers represent each customer account (set up and segregated by customer
name and address), weighted equally and counted as one customer, regardless of
size, revenue generated, or number of boxes, units, or outlets. In calculating
the number of customers, we count all customers other than inactive/disconnected
customers. With the exception of free Altice Advantage customers, free accounts
are included in the customer counts along with all active accounts, but they are
limited to a prescribed group. Most of these accounts are also not entirely
free, as they typically generate revenue through pay-per-view or other pay
services and certain equipment fees. Free status is not granted to regular
46
--------------------------------------------------------------------------------
customers as a promotion. In counting bulk residential customers, such as an
apartment building, we count each subscribing family unit within the building as
one customer, but do not count the master account for the entire building as a
customer. We count a bulk commercial customer, such as a hotel, as one customer,
and do not count individual room units at that hotel.
(d)Represents the number of total customer relationships divided by homes
passed.
(e)Calculated by dividing the average monthly revenue for the respective quarter
(fourth quarter for annual periods) derived from the sale of broadband, video
and telephony services to residential customers for the quarter by the average
number of total residential customers for the same period.
(4)Customer metrics for the 2020 periods include customers that have not been
disconnected pursuant to the Keep Americans Connected pledge ("Pledge") that the
Company made in response to the COVID-19 pandemic and customers that have not
been disconnected pursuant to the New Jersey Executive Order No. 126 ("NJ
Order") enacted in April 2020 that protects New Jersey residents from
disconnection of internet and voice services for non-payment. However, the
metrics exclude new customers with students in the household that are receiving
broadband services for free until the end of the 2019-20 school year ("Altice
Advantage"). The following table provides details of these COVID-19 related
offers and programs:
June 30, 2020 March 31, 2020
Pledge and NJ Altice Advantage Altice Advantage
Order (i) Customers Pledge Customers
Included (Excluded) Included (Excluded)Total customer relationships 18.7 (17.8) 0.0 (9.3) Residential 18.1 (17.8) 0.0 (9.3) SMB 0.6 - - - Residential customers: Broadband 17.9 (17.8) 0.0 (9.3) Video 8.0 - 0.0 - Telephony 8.9 - 0.0 - (i)Represent customers who would have been disconnected as a result of non-payment under our normal policies, but were not disconnected pursuant to the Pledge and the NJ Order. As ofJune 30, 2020 , an aggregate of 56.1 thousand customers (54.8 thousand residential and 1.3 thousand SMB) with past-due account balances requested protection pursuant to the Pledge or are protected pursuant to the NJ Order. (f)Customer metrics for prior periods have been adjusted to conform definitions betweenSuddenlink and Optimum in connection with the migration ofSuddenlink customers to the Optimum billing system in 2019. The following table summarizes the adjustments made to previously reported amounts. As of June 30, 2019 Homes passed (38.2) Total customer relationships (19.0) Residential (23.7) SMB 4.8 Residential customers: Broadband (2.7) Video (21.2) Telephony (1.0) ARPU$ 0.75 Altice USA - Comparison of Results for the Three and Six Months EndedJune 30, 2020 compared to the Three and Six Months EndedJune 30, 2019 Broadband Revenue Broadband revenue for the three and six months endedJune 30, 2020 was$920,363 and$1,805,892 , respectively, while broadband revenue for the three and six months endedJune 30, 2019 was$806,250 and$1,581,823 , 47 -------------------------------------------------------------------------------- respectively. Broadband revenue is derived principally through monthly charges to residential subscribers of our broadband services. Revenue is impacted by rate increases, changes in the number of customers, including additional services sold to our existing subscribers, and changes in speed tiers. Additionally, revenue is impacted by changes in the standalone selling price of each performance obligation within our promotional bundled offers. Broadband revenue increased$114,113 (14%) and$224,069 (14%) for the three and six months endedJune 30, 2020 compared to the three and six months endedJune 30, 2019 . The increase was due primarily to higher average recurring broadband revenue per broadband customer, primarily driven by certain rate increases and service level changes, and an increase in broadband customers. Video Revenue Video revenue for the three and six months endedJune 30, 2020 was$952,526 and$1,899,587 , respectively. Video revenue for the three and six months endedJune 30, 2019 was$1,018,426 and$2,035,756 , respectively. Video revenue is derived principally through monthly charges to residential customers of our video services. Revenue is impacted by rate increases, changes in the number of customers, including additional services sold to our existing customers, and changes in programming packages. Additionally, revenue is impacted by changes in the standalone selling price of each performance obligation within our promotional bundled offers. Video revenue decreased$65,900 (6%) and$136,169 (7%) for the three and six months endedJune 30, 2020 compared to the three and six months endedJune 30, 2019 . The decrease was due primarily to a decline in video customers and lower average revenue per video customer. Telephony Revenue Telephony revenue for the three and six months endedJune 30, 2020 was$117,322 and$242,352 , respectively. Telephony revenue for the three and six months endedJune 30, 2019 was$150,232 and$304,696 , respectively. Telephony revenue is derived principally through monthly charges to residential customers of our telephony services. Revenue is impacted by changes in rates for services, changes in the number of customers, and additional services sold to our existing customers. Additionally, revenue is impacted by changes in the standalone selling price of each performance obligation within our promotional bundled offers. Telephony revenue decreased$32,910 (22%) and$62,344 (20%) for the three and six months endedJune 30, 2020 compared to the three months endedJune 30, 2019 , respectively. The decrease was due to lower average revenue per telephony customer and a decline in telephony customers. Business Services and Wholesale Revenue Business services and wholesale revenue for the three and six months endedJune 30, 2020 was$365,564 and$730,094 , respectively. Business services and wholesale revenue for the three and six months endedJune 30, 2019 was$357,806 and$708,495 , respectively. Business services and wholesale revenue is derived primarily from the sale of fiber based telecommunications services to the business market, and the sale of broadband, video and telephony services to SMB customers. Business services and wholesale revenue increased$7,758 (2%) and$21,599 (3%) for the three and six months endedJune 30, 2020 compared to the three and six months endedJune 30, 2019 , respectively. The increase was primarily due to higher average recurring broadband revenue per SMB customer, primarily driven by certain rate increases and service level changes and an increase in revenue related to an indefeasible right of use contract recorded in the second quarter of 2020, partially offset by a decrease in SMB customers. News and Advertising Revenue News and advertising revenue for the three and six months endedJune 30, 2020 was$96,631 and$202,171 , respectively. News and advertising revenue for the three and six months endedJune 30, 2019 was$114,450 and$209,188 , respectively. News and advertising revenue is primarily derived from the sale of (i) advertising inventory available on the programming carried on our cable television systems, (ii) advertising on over the top ("OTT") platforms, (iii) digital advertising, and (iv) data analytics. News and advertising revenue also includes affiliation fees for news programming. News and advertising revenue decreased$17,819 (16%) and$7,017 (3%) for the three and six months endedJune 30, 2020 , respectively, compared to the three and six months endedJune 30, 2019 . The decrease was primarily due to a decline in advertising spending, partially offset by growth in national and political sales and higher affiliate revenue for News 12. 48 -------------------------------------------------------------------------------- Mobile Revenue Mobile revenue for the three and six months endedJune 30, 2020 was$19,866 and$38,222 , respectively, and relates to sales of devices and mobile services. Our mobile service launched to consumers inSeptember 2019 . As ofJune 30, 2020 , we had approximately 144,000 mobile lines. Other Revenue Other revenue for the three and six months endedJune 30, 2020 and 2019 was$2,707 and$6,917 , respectively. Other revenue for the three and six months endedJune 30, 2019 was$3,917 and$7,690 , respectively. Other revenue includes revenue from other miscellaneous revenue streams. Programming and Other Direct Costs Programming and other direct costs for the three and six months endedJune 30, 2020 amounted to$860,875 and$1,725,389 , respectively. Programming and other direct costs for the three and six months endedJune 30, 2019 amounted to$818,994 and$1,631,979 , respectively. Programming and other direct costs include cable programming costs, which are costs paid to programmers (net of amortization of any incentives received from programmers for carriage) for cable content (including costs of VOD and pay-per-view) and are generally paid on a per-customer basis. These costs typically rise due to increases in contractual rates and new channel launches and are also impacted by changes in the number of customers receiving certain programming services. These costs also include interconnection, call completion, circuit and transport fees paid to other telecommunication companies for the transport and termination of voice and data services, which typically vary based on rate changes and the level of usage by our customers. These costs also include franchise fees which are payable to the state governments and local municipalities where we operate and are primarily based on a percentage of certain categories of revenue derived from the provision of video service over our cable systems, which vary by state and municipality. These costs change in relation to changes in such categories of revenues or rate changes. Additionally, these costs include the costs of mobile devices sold to our customers and direct costs of providing mobile services. The increases of$41,881 (5%) and$93,410 (6%) for the three and six months endedJune 30, 2020 , as compared to the three and six months endedJune 30, 2019 are primarily attributable to the following: Three
Months Six Months Increase in programming costs due primarily to net contractual rate increases, partially offset by lower video customers
$ 19,718 $ 47,899 Costs of mobile devices 14,581 25,646
Increase in call completion and transfer costs primarily related to
our mobile business (
8,132 13,724
Increase (decrease) primarily relating to costs of digital media and linear advertising spots for resale
(828) 6,759
Other net increase (decrease) 278 (618)
$ 41,881 $ 93,410
Programming costs
Programming costs aggregated $702,674 and $1,413,264 for the three and six
months ended June 30, 2020 and $682,956 and $1,365,365 for the three and six
months ended June 30, 2019 , respectively. Our programming costs in 2020 will
continue to be impacted by changes in programming rates, which we expect to
increase, and by changes in the number of video customers.
Other Operating Expenses
Other operating expenses for the three and six months ended June 30, 2020
amounted to $542,637 and $1,124,946 , respectively. Other operating expenses for
the three and six months ended June 30, 2019 amounted to $569,459 and
$1,133,891 , respectively. Other operating expenses include staff costs and
employee benefits including salaries of company employees and related taxes,
benefits and other employee related expenses, as well as third-party labor
costs. Other operating expenses also include network management and field
service costs, which represent costs associated with the maintenance of our
broadband network, including costs of certain customer connections and other
costs associated with providing and maintaining services to our customers.
Customer installation and network repair and maintenance costs may fluctuate as
a result of changes in the level of activities and the utilization of
contractors as compared to employees. Also, customer installation costs
fluctuate as
49
--------------------------------------------------------------------------------
the portion of our expenses that we are able to capitalize changes. Costs
associated with the initial deployment of new customer premise equipment
necessary to provide broadband, video and telephony services are capitalized
(asset-based). The redeployment of customer premise equipment is expensed as
incurred.
Other operating expenses also include costs related to the operation and
maintenance of our call center facilities that handle customer inquiries and
billing and collection activities and sales and marketing costs, which include
advertising production and placement costs associated with acquiring and
retaining customers. These costs vary period to period and certain of these
costs, such as sales and marketing, may increase with intense competition.
Additionally, other operating expenses include various other administrative
costs, including legal fees, and product development costs.
The decreases in other operating expenses of $26,822 and $8,945 , offset by an
increase of $12,365 and $25,100 relating to our mobile service, for the three
and six months ended June 30, 2020 , respectively, as compared to the three and
six months ended June 30, 2019 was attributable to the following:
Three Months Six Months
Net decrease in labor costs and benefits (offset by an increase in
costs related to Cheddar of
$ (33,584) $ (42,286) Decrease in sales and marketing (14,455) (13,148) Decrease in billing costs, primarily due to systems integration (3,160) (8,810) Increase in share-based compensation 17,783 31,939 Increase in bad debt expense 2,254 7,043 Increase in rent and property taxes 3,100 7,520 Other net increases 1,240 8,797$ (26,822) $ (8,945) Restructuring and Other Expense Restructuring and other expense for the three and six months endedJune 30, 2020 amounted to$40,966 and$48,260 , as compared to$11,465 and$26,709 for the three and six months endedJune 30, 2019 . Restructuring and other expense for the 2020 periods primarily includes$40,128 related to contractual payments for terminated employees. The amounts for the three and six months endedJune 30, 2019 primarily related to severance and other employee related costs resulting from headcount reductions, facility realignment costs and impairments of certain ROU assets, related to initiatives which commenced in 2016 and 2019 that are intended to simplify the Company's organizational structure. We currently anticipate that additional restructuring expenses will be recognized as we continue to analyze and make modifications to our organizational structure. Depreciation and Amortization Depreciation and amortization for the three and six months endedJune 30, 2020 amounted to$521,794 and$1,069,363 , respectively. Depreciation and amortization for the three and six months endedJune 30, 2019 amounted to$568,620 and$1,130,048 , respectively. The decreases in depreciation and amortization of$46,826 (8%) and$60,685 (5%) for the three and six months endedJune 30, 2020 , respectively, as compared to the three and six months endedJune 30, 2019 are due to certain fixed assets and intangible assets becoming fully depreciated or amortized, partially offset by the acceleration of amortization expense related to certain customer relationship intangible assets and an increase in depreciation as a result of asset additions. 50 -------------------------------------------------------------------------------- Adjusted EBITDA Adjusted EBITDA amounted to$1,105,785 and$2,137,164 for the three and six months endedJune 30, 2020 , respectively as compared to$1,079,163 and$2,112,103 for the three and six months endedJune 30, 2019 , respectively. Adjusted EBITDA is a non-GAAP measure that is defined as net income (loss) excluding income taxes, income (loss) from discontinued operations, 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, interest expense, interest income, depreciation and amortization (including impairments), share-based compensation expense or benefit, restructuring expense or credits and transaction expenses. See reconciliation of net income to adjusted EBITDA above. The increase in adjusted EBITDA for the three months endedJune 30, 2020 as compared to the three months endedJune 30, 2019 was due to an increase in revenue and a net decrease in operating expenses (excluding depreciation and amortization, restructuring and other expense and share-based compensation), as discussed above. The increase in adjusted EBITDA for the six months endedJune 30, 2020 as compared to the six months endedJune 30, 2019 was due to an increase in revenue, partially offset by a net increase in operating expenses (excluding depreciation and amortization, restructuring and other expense and share-based compensation), as discussed above. Operating Free Cash Flow Operating free cash flow was$877,062 and$1,609,359 for the three and six months endedJune 30, 2020 , respectively, and$762,296 and$1,454,850 for the three and six months endedJune 30, 2019 , respectively. The increase in operating free cash flow in the 2020 periods as compared to 2019 is due to an increase in adjusted EBITDA and a decrease in capital expenditures. Operating Free Cash Flow is a non-GAAP measure that is defined as Adjusted EBITDA less cash capital expenditures. See discussion above under "Non-GAAP Financial Measures" for further information. Free Cash Flow Free cash flow was$707,253 and$1,001,736 for the three and six months endedJune 30, 2020 , respectively, and$472,103 and$635,711 for the three and six months endedJune 30, 2019 , respectively. The increase in free cash flow in the 2020 periods as compared to the 2019 periods is due to an increase in cash flows from operating activities and a decrease in capital expenditures. Free Cash Flow is a non-GAAP measure that is defined as net cash flows from operating activities less cash capital expenditures. See discussion above under "Non-GAAP Financial Measures" for further information. Interest expense Interest expense, net was$350,874 and$714,426 for the three and six months endedJune 30, 2020 , respectively, and$380,613 and$767,077 for the three and six months endedJune 30, 2019 , respectively. The decreases of$29,739 and$52,651 for the three and six months endedJune 30, 2020 , respectively, as compared to the three and six months endedJune 30, 2019 are attributable to the following:
Three Months Six Months Decrease due to changes in average debt balances and interest rates on our indebtedness, including our collateralized debt
$ (28,782) $ (48,129) Lower interest income 454 614
Other net decreases, primarily amortization of deferred financing costs and original issue discounts
(1,411) (5,136)
$ (29,739) $ (52,651)
Gain (Loss) on Investments and Sale of Affiliate Interests, net
Gain (loss) on investments, net for the three and six months ended June 30,
2020 , of $197,597 and $(257,876) , respectively and $103,146 and $357,871 ,
respectively, consists primarily of the increase (decrease) in the fair value of
Comcast common stock owned by the Company for the periods. The effects of these
gains (losses) are partially offset by the losses (gains) on the related equity
derivative contracts, net described below.
51
--------------------------------------------------------------------------------
Gain (Loss) on Derivative Contracts, net
Gain (loss) on derivative contracts, net for the three and six months ended
June 30, 2020 amounted to $(152,061) and $287,800 , respectively, and $(49,624)
and $(226,653) for the three and six months ended June 30, 2019 , respectively,
and includes realized and unrealized gains or losses due to the change in fair
value of equity derivative contracts relating to the Comcast common stock owned
by the Company. The effects of these gains (losses) are offset by losses (gains)
on investment securities pledged as collateral, which are included in gain
(loss) on investments, net discussed above.
Loss on Interest Rate Swap Contracts, net
Loss on interest rate swap contracts, net was $33,735 and $88,567 for the three
and six months ended June 30, 2020 , respectively, and $26,900 and $50,572 for
the three and six months ended June 30, 2019 , respectively. These amounts
represent the increase or decrease in the fair value of interest rate swap
contracts. For the six months ended June 30, 2020 , the loss is net of a gain
recognized in connection with the early termination of two interest rate swap
contracts. These swap contracts are not designated as hedges for accounting
purposes.
Loss on Extinguishment of Debt and Write-off of Deferred Financing Costs
Loss on extinguishment of debt and write-off of deferred financing costs
amounted to $1,194 and $159,096 for the three and six months ended June 30,
2019 .
The following table provides a summary of the loss on extinguishment of debt and
the write-off of deferred financing costs recorded by the Company upon the
redemption of senior notes and the refinancing of credit facilities:
Three months ended Six months ended
June 30, 2019 June 30, 2019
CSC Holdings 10.125% Senior Notes due 2023 $ - $ 154,666
Refinancing and subsequent amendment to CSC Holdings credit
facility 1,194 4,430
$ 1,194 $ 159,096
Other Income, Net
Other income, net amounted to $669 and $1,592 for the three and six months ended
June 30, 2020 , respectively, compared to $212 and $292 for the three and six
months ended June 30, 2019 , respectively.
Income Tax Expense
For the three and six months ended June 30, 2020 , Altice USA recorded a tax
expense of $58,826 and $75,861 on pre-tax income of $170,303 and $185,800 ,
respectively, resulting in an effective tax rate that was higher than the U.S.
statutory tax rate. The higher tax rate was due to the impact of certain
non-deductible expenses and certain state tax expense adjustments, partially
offset by a benefit resulting from the recently enacted Coronavirus Aid, Relief
and Economic Security ("CARES Act"). See further details related to the CARES
Act in Note 13 of the consolidated financial statements.
For the three and six months ended June 30, 2019 , Altice USA recorded a tax
expense of $41,160 and $18,574 on pre-tax income of $127,570 and $79,786 ,
respectively, resulting in an effective tax rate that was higher than the U.S.
federal statutory tax rate. The primary differences between the effective tax
rate and the statutory tax rate are due to a revaluation of state deferred taxes
primarily due to certain changes to the state tax rates used to measure the
Company's deferred tax liabilities and certain non-deductible expenses.
52--------------------------------------------------------------------------------
© Edgar Online, source
