ALTICE USA, INC. All dollar amounts, 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, 2020 . 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, telephony, and mobile services to more than five million residential and business customers. Our footprint extends across 21 states through a fiber-rich hybrid-fiber coaxial ("HFC") broadband network and a fiber-to-the-home ("FTTH") network with approximately 9.2 million total passings as ofSeptember 30, 2021 . Additionally, we offer news programming and content, advertising services, as well as a full service mobile offering to consumers across our 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, 2020 . 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 declines. 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 39%, 35%, and 4%, respectively, of our consolidated revenue for the nine months endedSeptember 30, 2021 . 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 nine months endedSeptember 30, 2021 , 16% 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 5% of our consolidated revenue for the nine months endedSeptember 30, 2021 . Our mobile and other revenue for the nine months endedSeptember 30, 2021 accounted for approximately 1% of our consolidated revenue. Revenue is impacted by rate increases, changes in the number of customers that subscribe 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. 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 38 -------------------------------------------------------------------------------- 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, Inc. and its DirecTV subsidiary, Lumen Technologies, Inc., DISH Network Corporation, Frontier Communications Corporation and Verizon Communications Inc. 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, 2020 . 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 the 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 we may continue to do so in the future. Our FTTH network build, which would enable us to deliver more than 10 Gbps broadband speeds to meet the growing data needs of residential and business customers, is underway. In addition, we launched our full service mobile offering 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- Capital Expenditures" for additional information regarding our capital expenditures. Certain Transactions The following transactions had an impact in the periods covered by this Management's Discussion and Analysis of Financial Condition and Results of Operations: InJune 2021 , Lightpath completed an acquisition for an aggregate purchase price of approximately$28,260 and the operating results of the acquired business were consolidated as of the acquisition date. InApril 2021 , the Company completed its acquisition of the cable assets ofMorris Broadband, LLC inNorth Carolina and the operating results of the acquired business were consolidated as of the acquisition date. InDecember 2020 , the Company completed the sale of a 49.99% interest in its Lightpath fiber enterprise business (the "Lightpath Transaction") based on an implied enterprise value of$3.2 billion . The Company retained a 50.01% interest in the Lightpath business and maintained control ofCablevision Lightpath LLC ("Lightpath"), the entity holding the interest in the Lightpath business. Accordingly, the Company continues to consolidate the operating results of the Lightpath business. OnJuly 14, 2020 , the Company completed its acquisition of certain cable assets inNew Jersey and the operating results of the acquired business were consolidated as of the acquisition date. 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. 39 -------------------------------------------------------------------------------- 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 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. Results of Operations -Altice USA (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Revenue: Broadband$ 989,410 $ 941,237 $ 2,952,136 $ 2,747,129 Video 877,422 867,021 2,675,861 2,766,608 Telephony 99,943 115,995 310,298 358,347 Residential revenue 1,966,775 1,924,253 5,938,295 5,872,084 Business services and wholesale revenue 440,813 362,215 1,180,039 1,092,309 News and advertising 143,625 124,177 380,462 326,348 Mobile 20,456 19,722 60,355 57,944 Other 3,213 3,619 10,560 10,536 Total revenue 2,574,882 2,433,986 7,569,711 7,359,221 Operating expenses: Programming and other direct costs 843,909 783,934 2,545,645 2,509,323 Other operating expenses 590,519 558,092 1,760,132 1,683,038 Restructuring and other expense 1,885 40,419 10,958 88,679 Depreciation and amortization (including impairments) 447,958 502,248 1,327,142 1,571,611 Operating income 690,611 549,293 1,925,834 1,506,570 Other income (expense): Interest expense, net (319,001) (322,454) (954,684) (1,036,880) Gain (loss) on investments and sale of affiliate interests, net (46,821) 314,177 151,651 56,301 Gain (loss) on derivative contracts, net 43,385 (261,597) (109,020) 26,203 Gain (loss) on interest rate swap contracts, net 5,521 (158) 59,600 (88,725) Loss on extinguishment of debt and write-off of deferred financing costs - (250,489) (51,712) (250,489) Other income, net 2,280 1,685 7,606 3,277 Income before income taxes 375,975 30,457 1,029,275 216,257 Income tax expense (105,226) (33,186) (279,053) (109,047) Net income (loss) 270,749 (2,729) 750,222 107,210 Net income attributable to noncontrolling interests (3,896) (1,966) (11,573) (1,499) Net income (loss) attributable to Altice USA, Inc. stockholders$ 266,853 $ (4,695)
$ 738,649
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--------------------------------------------------------------------------------The following is a reconciliation of net income (loss) to Adjusted EBITDA and Operating Free Cash Flow (unaudited):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Net income (loss) $ 270,749 $ (2,729) $ 750,222 $ 107,210
Income tax expense 105,226 33,186 279,053 109,047
Other income, net (2,280) (1,685) (7,606) (3,277)
Loss (gain) on interest rate swap
contracts, net (5,521) 158 (59,600) 88,725
Loss (gain) on derivative contracts,
net (43,385) 261,597 109,020 (26,203)
Loss (gain) on investments and sales of
affiliate interests, net 46,821 (314,177) (151,651) (56,301)
Loss on extinguishment of debt and
write-off of deferred financing costs - 250,489 51,712 250,489
Interest expense, net 319,001 322,454 954,684 1,036,880
Depreciation and amortization
(including impairments) 447,958 502,248 1,327,142 1,571,611
Restructuring and other expense 1,885 40,419 10,958 88,679
Share-based compensation 24,350 34,710 80,277 96,974
Adjusted EBITDA 1,164,804 1,126,670 3,344,211 3,263,834
Less: Capital Expenditures (cash) 309,172 201,572 845,067 729,377
Operating Free Cash Flow $ 855,632 $ 925,098 $ 2,499,144 $ 2,534,457 The following is a reconciliation of net cash flow from operating activities to Free Cash Flow (unaudited):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Net cash flows from operating
$ 2,177,479 $ 2,188,661 activities Less: Capital Expenditures (cash) 309,172 201,572 845,067 729,377 Free Cash Flow$ 389,142 $ 457,548 $ 1,332,412 $ 1,459,284 41
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The following table sets forth certain customer metrics, excluding our mobile customers, for the Company (unaudited):
September 30, June 30, September 30,
2021 2021 (f) 2020 (f)
(in thousands)
Total passings (a) 9,212.5 9,195.1 8,987.9Total customer relationships (b)(c) 5,027.6 5,051.4
5,040.9
Residential 4,646.0 4,670.7 4,663.5
SMB 381.6 380.7 377.5
Residential customers:
Broadband 4,388.1 4,401.3 4,363.5
Video 2,803.0 2,870.5 3,035.1
Telephony 2,057.1 2,118.4 2,279.5
Penetration of total passings (d) 54.6 % 54.9 % 56.1 %
ARPU(e)(g) $ 140.73 $ 142.24 $ 138.16
(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 thousand passings and telephony services
were not available to approximately 500 thousand passings.
(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. 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
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. Amounts as of September
30, 2021 and June 30, 2021 include 37.3 thousand customer relationships (35.1
thousand residential and 2.2 thousand SMB) that were acquired from Morris
Broadband, LLC in April 2021 .
(d)Represents the number of total customer relationships divided by total
passings.
(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.
(f)Customer metrics as of September 30, 2021 include customers that were not
disconnected pursuant to the New York legislation ("NY Order") enacted in May
2021 that required us, during the pendency of the New York declared COVID-19
State of Emergency and a period thereafter, to maintain broadband, video and
voice services for non-paying customers and offer deferred payment plans to
customers experiencing financial difficulty. The NY Order was lifted at the end
of June 2021 , coinciding with the end of the declared COVID-19 State of
Emergency in New York , and we have subsequently resumed normal disconnect
policies. Customer metrics as of September 30, 2021 also include certain
customers impacted by storms in Louisiana in 2020 that have not been
disconnected pursuant to our normal disconnect policies. Customer metrics as of
September 30, 2020 include customers that were not disconnected pursuant to the
Keep Americans Connected pledge ("Pledge") that the Company made in response to
the COVID-19 pandemic and customers that had not been disconnected pursuant to
the New Jersey Executive Order No. 126 ("NJ Order") enacted in April 2020 that
protected New Jersey residents from disconnection of internet and voice services
for non-payment. However, the metrics as of September 30, 2020 exclude new
customers with students in the household that were receiving broadband services
for free ("Optimum Advantage"). See table below for details.
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June 30, 2021 September 30, 2020
Optimum Advantage
NY Order Storms Pledge and NJ Order Customers
Included Included Included (Excluded)
(in thousands)
Total customer relationships 8.4 4.0 22.4 (1.4)
Residential 7.3 3.7 22.4 (1.4)
SMB 1.1 0.3 - -
Residential customers:
Broadband 7.2 3.4 22.1 (1.4)
Video 4.1 2.1 2.4 -
Telephony 3.3 1.0 9.5 -
(g) ARPU for the September 30, 2020 period reflects a reduction of $5.51 due to
credits that we anticipated to be issued to video customers as a result of
credits the Company expected to receive from certain sports programming networks
whereby the minimum number of events were not delivered pursuant to the
contractual agreements with the networks and related franchise fees.
Altice USA - Comparison of Results for the Three and Nine Months Ended
September 30, 2021 compared to the Three and Nine Months Ended September 30,
2020
Broadband Revenue
Broadband revenue for the three and nine months ended September 30, 2021 was
$989,410 and $2,952,136 , respectively, while broadband revenue for the three and
nine months ended September 30, 2020 was $941,237 and $2,747,129 , 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 $48,173 (5%) and $205,007 (7%) for the three and
nine months ended September 30, 2021 compared to the three and nine months ended
September 30, 2020 . The increase for the three month period was due primarily to
higher average recurring broadband revenue per broadband customer, primarily
driven by certain rate increases and service level changes, partially offset by
a decline in broadband customers. The increase for the nine month period 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 nine months ended September 30, 2021 was
$877,422 and $2,675,861 , respectively, and video revenue for the three and nine
months ended September 30, 2020 was $867,021 and $2,766,608 , 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 increased $10,401 (1%) for the three months ended September 30,
2021 compared to the three months ended September 30, 2020 . The increase is due
to estimated credits of $76,700 recorded during the third quarter of 2020
expected to be issued to customers as a result of $73,300 of credits the Company
expected to receive from certain sports programming networks whereby the minimum
number of events were not delivered pursuant to the contractual agreements with
the networks and related franchise fees ("RSN Credits"). This increase was
partially offset by lower revenue due to a decline in video customers.
Video revenue decreased $90,747 (3%) for the nine months ended September 30,
2021 compared to the nine months ended September 30, 2020 . The decrease was
primarily due to a decline in video customers and lower pay-per-view and
video-on-demand revenue, partially offset by the RSN Credits recorded in the
2020 period and higher average recurring video revenue per video customer,
primarily driven by certain rate increases.
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Telephony Revenue
Telephony revenue for the three and nine months ended September 30, 2021 was
$99,943 and $310,298 , respectively, and for the three and nine months ended
September 30, 2020 was $115,995 and $358,347 , 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 $16,052 (14%) and $48,049 (13%) for the three and
nine months ended September 30, 2021 compared to the three and nine months ended
September 30, 2020 . The decrease was due to a decline in telephony customers and
lower average revenue per telephony customer.
Business Services and Wholesale Revenue
Business services and wholesale revenue for the three and nine months ended
September 30, 2021 was $440,813 and $1,180,039 , respectively, and for the three
and nine months ended September 30, 2020 was $362,215 and $1,092,309 ,
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 $78,598 (22%) and $87,730 (8%)
for the three and nine months ended September 30, 2021 compared to the three and
nine months ended September 30, 2020 . Approximately $69,300 of the increase in
the three and nine month period ended September 30, 2021 was due to an early
termination of a backhaul contract for air strands which resulted in the
recognition of deferred revenue and termination fees over the amended term. The
remaining incremental deferred revenue and termination fees of approximately
$31,100 will be recorded in the fourth quarter of 2021. In addition, other
increases were due to higher average recurring broadband revenue per SMB
customer, primarily driven by certain rate increases and service level changes
and for the three months ended September 30, 2021 an increase in the average
number of SMB customers. For the nine months ended September 30, 2021 , the
increase was partially offset by a decrease resulting from revenue related to an
indefeasible right of use contract recorded in the second quarter of 2020 and a
decrease in the average number of SMB customers for the respective periods.
News and Advertising Revenue
News and advertising revenue for the three and nine months ended September 30,
2021 was $143,625 and $380,462 , respectively, and for the three and nine months
ended September 30, 2020 was $124,177 and $326,348 , 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 increased $19,448 (16%) and $54,114 (17%) for the
three and nine months ended September 30, 2021 compared to the three and nine
months ended September 30, 2020 . The increases were primarily due to an increase
in advertising revenue, primarily for linear advertising.
Mobile Revenue
Mobile revenue for the three and nine months ended September 30, 2021 was
$20,456 and $60,355 , respectively, and for the three and nine months ended
September 30, 2020 was $19,722 and $57,944 , respectively, and relates to sales
of devices and mobile services. Mobile revenue increased $734 (4%) and $2,411
(4%) for the three and nine months ended September 30, 2021 compared to the
three and nine months ended September 30, 2020 . As of September 30, 2021 , we had
approximately 181,000 mobile lines compared to approximately 162,000 mobile
lines as of September 30, 2020 .
Other Revenue
Other revenue for the three and nine months ended September 30, 2021 and 2020
was $3,213 and $10,560 , respectively, and for the three and nine months ended
September 30, 2020 was $3,619 and $10,536 , respectively. Other revenue includes
revenue from other miscellaneous revenue streams.
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Programming and Other Direct Costs
Programming and other direct costs for the three and nine months ended
September 30, 2021 amounted to $843,909 and $2,545,645 , and $783,934 and
$2,509,323 , for the three and nine months ended September 30, 2020 ,
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 $59,975 (8%) and $36,322 (1%) for the three and nine months
ended September 30, 2021 as compared to the three and nine months ended
September 30, 2020 were primarily attributable to the following:
Three Months Nine Months
Increase in programming costs primarily due to
$
50,567
5,306 6,789
Decrease in costs of mobile devices (1,366) (10,715)
Increase in costs due to certain tax refunds recorded in 2020 11,033 11,033
Other net decreases, including costs related to an indefeasible right of use contract recorded in the second quarter of 2020
(5,565) (2,723)
$ 59,975 $ 36,322
Programming costs
Programming costs aggregated $681,778 and $2,076,413 for the three and nine
months ended September 30, 2021 and $631,211 and $2,044,475 for the three and
nine months ended September 30, 2020 , respectively. Programming costs for the
three and nine months ended September 30, 2020 included estimated RSN Credits of
$75,300 that the Company expected to receive from certain sports programming
networks whereby the minimum number of events were not delivered pursuant to the
contractual agreements with the networks. Our programming costs in 2021 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 nine months ended September 30, 2021
amounted to $590,519 and $1,760,132 , and for the three and nine months ended
September 30, 2020 amounted to $558,092 and $1,683,038 , 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 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
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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 increases in other operating expenses of $32,427 (6%) and $77,094 (5%), for
the three and nine months ended September 30, 2021 as compared to the three and
nine months ended September 30, 2020 were attributable to the following:
Three Months Nine Months
Increase in repairs and maintenance costs $ 11,742 $ 29,932
Increase in marketing costs 8,605 33,724
Increase in utility costs, including costs related to winter storm Uri in the first quarter of 2021
2,131 10,597
Favorable resolution of a tax matter in the 2020 periods 5,598 5,598
Increase (decrease) in legal fees, including legal settlements (10,147) 862
Net increase (decrease) in labor costs and benefits, offset by a decrease in capitalizable activity
6,699 (10,984)
Increase (decrease) in bad debt expense 9,767 (3,935)
Other net increases (decreases) (1,968) 11,300
$ 32,427 $ 77,094
Restructuring and Other Expense
Restructuring and other expense for the three and nine months ended
September 30, 2021 amounted to $1,885 and $10,958 , as compared to $40,419 and
$88,679 for the three and nine months ended September 30, 2020 , respectively.
These amounts primarily related to severance and other employee related costs
resulting from headcount reductions, facility realignment costs and impairments
of certain ROU assets. We may incur additional restructuring expenses in the
future as we continue to analyze our organizational structure.
Depreciation and Amortization
Depreciation and amortization for the three and nine months ended September 30,
2021 amounted to $447,958 and $1,327,142 , as compared to $502,248 and $1,571,611
for the three and nine months ended September 30, 2020 , respectively.
The decreases in depreciation and amortization of $54,290 (11%) and $244,469
(16%) for the three and nine months ended September 30, 2021 as compared to the
three and nine months ended September 30, 2020 were due to certain fixed assets
and intangible assets becoming fully depreciated or amortized and due to the
acceleration of amortization in 2020 of certain customer relationship intangible
assets. These decreases were partially offset by increases in depreciation and
amortization as a result of asset additions in 2021.
Adjusted EBITDA
Adjusted EBITDA amounted to $1,164,804 and $3,344,211 for the three and nine
months ended September 30, 2021 as compared to $1,126,670 and $3,263,834 for the
three and nine months ended September 30, 2020 , respectively.
Adjusted EBITDA is a non-GAAP measure that is defined 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. See
reconciliation of net income (loss) to Adjusted EBITDA above.
The increase in Adjusted EBITDA for the three and nine months ended
September 30, 2021 as compared to the three and nine months ended September 30,
2020 was due to the increase in revenue, partially offset by an 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 $855,632 and $2,499,144 for the three and nine
months ended September 30, 2021 as compared to $925,098 and $2,534,457 for the
three and nine months ended September 30, 2020 , respectively. The
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decrease in operating free cash flow for the three and nine months ended
September 30, 2021 as compared to the same periods in 2020 was due to an
increase in capital expenditures, partially offset by an increase in Adjusted
EBITDA.
Free Cash Flow
Free cash flow was $389,142 and $1,332,412 for the three and nine months ended
September 30, 2021 as compared to $457,548 and $1,459,284 for the three and nine
months ended September 30, 2020 , respectively. The decrease in free cash flow in
the three month period is primarily due an increase in capital expenditures,
partially offset by an increase in cash flows from operating activities. The
decrease in free cash flow in the nine month period is primarily due an increase
in capital expenditures and a decrease in cash flows from operating activities.
Interest Expense
Interest expense, net was $319,001 and $954,684 for the three and nine months
ended September 30, 2021 as compared to $322,454 and $1,036,880 for the three
and nine months ended September 30, 2020 , respectively. The decreases of $3,453
and $82,196 for the three and nine months ended September 30, 2021 as compared
to the three and nine months ended September 30, 2020 were attributable to the
following:
Three Months Nine Months
Decrease due primarily to lower interest rates on our indebtedness
132 1,851
Other net increases, primarily amortization of deferred financing costs and original issue discounts
1,533 1,581
$ (3,453) $ (82,196)
Gain (Loss) on Investments and Sale of Affiliate Interests, net
Gain (loss) on investments, net was $(46,821) and $151,651 for the three and
nine months ended September 30, 2021 as compared to $314,177 and $56,301 for the
three and nine months ended September 30, 2020 , respectively and 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.
Gain (Loss) on Derivative Contracts, net
Gain (loss) on derivative contracts, net for the three and nine months ended
September 30, 2021 amounted to $43,385 and $(109,020) compared to $(261,597) and
$26,203 for the three and nine months ended September 30, 2020 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.
Gain (Loss) on Interest Rate Swap Contracts, net
Gain (loss) on interest rate swap contracts, net was $5,521 and $59,600 for the
three and nine months ended September 30, 2021 compared to $(158) and $(88,725)
for the three and nine months ended September 30, 2020 , respectively. These
amounts represent the increase or decrease in the fair value of interest rate
swap contracts and for the nine month period in 2020 also includes the 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 $51,712 for the nine months ended September 30, 2021 and $250,489
for the three and nine months ended September 30, 2020 .
47
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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 notes:
Three and Nine
Nine Months Ended Months Ended
September 30,
2021
-
CSC Holdings 5.375% Senior Guaranteed Notes due 2023 - 26,721
CSC Holdings 10.875% Senior Notes due 2025 - 35,375
CSC Holdings 7.75% Senior Notes due 2025 - 136,249
CSC Holdings 6.625% Senior Guaranteed Notes due 2025 - 52,144
$ 51,712 $ 250,489
Other Income, net
Other income, net amounted to $2,280 and $7,606 for the three and nine months
ended September 30, 2021 compared to $1,685 and $3,277 for the three and nine
months ended September 30, 2020 , respectively. These amounts include dividends
received on Comcast common stock owned by the Company and the non-service
cost/benefit components of the Company's pension plan.
Income Tax Expense
For the three and nine months ended September 30, 2021 , Altice USA recorded a
tax expense of $105,226 and $279,053 on pre-tax income of $375,975 and
$1,029,275 , 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 state tax expense.
For the three and nine months ended September 30, 2020 , Altice USA recorded a
tax expense of $33,186 and $109,047 on pre-tax income of $30,457 and $216,257 ,
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 Coronavirus Aid, Relief and Economic
Security ("CARES Act") enacted in March 2020 . In addition, income tax expense of
$16,878 was recognized in the three months ended September 30, 2020 as a result
of the reevaluation of the Company's deferred tax liability in connection with
the tax rate increase in New Jersey for 2020 through 2023, enacted in September
2020 .
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