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 homes passed as ofJune 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. 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 39%, 36%, and 4%, respectively, of our consolidated revenue for the six months endedJune 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 six months endedJune 30, 2021 , 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 5% of our consolidated revenue for the three months endedJune 30, 2021 . Our mobile and other revenue for the six months endedJune 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 35 -------------------------------------------------------------------------------- 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$28,386 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. 36 -------------------------------------------------------------------------------- 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 June 30, Six Months Ended June 30, 2021 2020 2021 2020 Revenue: Broadband$ 992,155 $ 920,363 $ 1,962,726 $ 1,805,892 Video 892,605 952,526 1,798,439 1,899,587 Telephony 103,374 117,322 210,355 242,352 Residential revenue 1,988,134 1,990,211 3,971,520 3,947,831 Business services and wholesale revenue 372,010 365,564 739,226 730,094 News and advertising 131,767 96,631 236,837 202,171 Mobile 20,664 19,866 39,899 38,222 Other 3,433 2,707 7,347 6,917 Total revenue 2,516,008 2,474,979 4,994,829 4,925,235 Operating expenses: Programming and other direct costs 849,872 860,875 1,701,736 1,725,389 Other operating expenses 589,180 542,637 1,169,613 1,124,946 Restructuring and other expense 5,864 40,966 9,073 48,260 Depreciation and amortization (including impairments) 444,327 521,794 879,184 1,069,363 Operating income 626,765 508,707 1,235,223 957,277 Other income (expense): Interest expense, net (319,371) (350,874) (635,683) (714,426) Gain (loss) on investments and sale of affiliate interests, net 125,019 197,597 198,472 (257,876) Gain (loss) on derivative contracts, net (98,840) (152,061) (152,405) 287,800 Gain (loss) on interest rate swap contracts, net (21,574) (33,735) 54,079 (88,567) Loss on extinguishment of debt and write-off of deferred financing costs (51,712) - (51,712) - Other income, net 2,467 669 5,326 1,592 Income before income taxes 262,754 170,303 653,300 185,800 Income tax expense (61,820) (58,826) (173,827) (75,861) Net income 200,934 111,477 479,473 109,939 Net loss (income) attributable to noncontrolling interests (3,274) (213) (7,677) 467 Net income attributable to AlticeUSA , Inc. stockholders$ 197,660 $ 111,264 $ 471,796 $ 110,406 37
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The following is a reconciliation of net income to Adjusted EBITDA and Operating Free Cash Flow (unaudited):
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Net income $ 200,934 $ 111,477 $ 479,473 $ 109,939
Income tax expense 61,820 58,826 173,827 75,861
Other income, net (2,467) (669) (5,326) (1,592)
Loss (gain) on interest rate swap
contracts, net 21,574 33,735 (54,079) 88,567
Loss (gain) on derivative contracts,
net 98,840 152,061 152,405 (287,800)
Loss (gain) on investments and sales of
affiliate interests, net (125,019) (197,597) (198,472) 257,876
Loss on extinguishment of debt and
write-off of deferred financing costs 51,712 - 51,712
Interest expense, net 319,371 350,874 635,683 714,426
Depreciation and amortization
(including impairments) 444,327 521,794 879,184 1,069,363
Restructuring and other expense 5,864 40,966 9,073 48,260
Share-based compensation 27,646 34,318 55,927 62,264
Adjusted EBITDA 1,104,602 1,105,785 2,179,407 2,137,164
Less: Capital Expenditures (cash) 323,104 228,723 535,895 527,805
Operating Free Cash Flow $ 781,498 $ 877,062 $ 1,643,512 $ 1,609,359 The following is a reconciliation of net cash flow from operating activities to Free Cash Flow (unaudited):
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Net cash flows from operating
$ 1,479,165 $ 1,529,541 activities Less: Capital Expenditures (cash) 323,104 228,723 535,895 527,805 Free Cash Flow$ 406,439 $ 707,253 $ 943,270 $ 1,001,736
The following table sets forth certain customer metrics, excluding our mobile customers, for the Company (unaudited):
June 30, March 31, June 30,
2021 (f) 2021 2020 (f)
(in thousands)
Homes passed (a) 9,195.1 9,067.6 8,880.1
Total customer relationships (b)(c) 5,051.4 5,023.2 4,997.1
Residential 4,670.7 4,647.4 4,621.4
SMB 380.7 375.8 375.7
Residential customers:
Broadband 4,401.3 4,370.8 4,307.8
Video 2,870.5 2,906.6 3,102.9
Telephony 2,118.4 2,161.2 2,337.1
Penetration of homes passed (d) 54.9 % 55.4 % 56.3 %
ARPU(e) $ 142.24 $ 142.24 $ 144.38
(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
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commercial establishments that have connected to our broadband network.
Broadband services were not available to approximately 30 thousand homes passed
and telephony services were not available to approximately 500 thousand 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. 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 June 30,
2021 include 37.3 customer relationships (35.1 residential and 2.2 SMB) that
were acquired from Morris Broadband, LLC in April 2021 .
(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.
(f)Customer metrics as of June 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 June 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 June 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 June 30, 2020 exclude new customers with students in
the household that were receiving broadband services for free ("Altice
Advantage"). See table below for details.
June 30, 2021 June 30, 2020
Altice Advantage
NY Order Storms Pledge and NJ Order Customers
Included Included Included (Excluded)
(in thousands)Total customer relationships 8.4 4.0 18.7 (17.8) Residential 7.3 3.7 18.1 (17.8) SMB 1.1 0.3 0.6 - Residential customers: Broadband 7.2 3.4 17.9 (17.8) Video 4.1 2.1 8.0 - Telephony 3.3 1.0 8.9 -Altice USA - Comparison of Results for the Three and Six Months EndedJune 30, 2021 compared to the Three and Six Months EndedJune 30, 2020 Broadband Revenue Broadband revenue for the three and six months endedJune 30, 2021 was$992,155 and$1,962,726 , respectively, while broadband revenue for the three and six months endedJune 30, 2020 was$920,363 and$1,805,892 , 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$71,792 (8%) and$156,834 (9%) for the three and six months endedJune 30, 2021 compared to the three and six months endedJune 30, 2020 . The increase was due primarily to higher average 39 -------------------------------------------------------------------------------- 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, 2021 was$892,605 and$1,798,439 , respectively, and video revenue for the three and six months endedJune 30, 2020 was$952,526 and$1,899,587 , 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$59,921 (6%) and$101,148 (5%) for the three and six months endedJune 30, 2021 compared to the three and six months endedJune 30, 2020 . The decrease was due primarily to a decline in video customers and lower pay-per-view and video-on-demand revenue, partially offset by higher average recurring video revenue per video customer, primarily driven by certain rate increases. Telephony Revenue Telephony revenue for the three and six months endedJune 30, 2021 was$103,374 and$210,355 , respectively, and for the three and six months endedJune 30, 2020 was$117,322 and$242,352 , 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$13,948 (12%) and$31,997 (13%) for the three and six months endedJune 30, 2021 compared to the three and six months endedJune 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 six months endedJune 30, 2021 was$372,010 and$739,226 , respectively, and for the three and six months endedJune 30, 2020 was$365,564 and$730,094 , 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$6,446 (2%) and$9,132 (1%) for the three and six months endedJune 30, 2021 compared to the three and six months endedJune 30, 2020 . The increase was primarily due to higher average recurring broadband revenue per SMB customer, primarily driven by certain rate increases and service level changes, partially offset by a decrease in SMB customers and a decrease resulting from revenue related to an indefeasible right of use contract recorded in the second quarter of 2020. News and Advertising Revenue News and advertising revenue for the three and six months endedJune 30, 2021 was$131,767 and$236,837 , respectively, and for the three and six months endedJune 30, 2020 was$96,631 and$202,171 , 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$35,136 and$34,666 for the three and six months endedJune 30, 2021 compared to the three and six months endedJune 30, 2020 . The increase was primarily due to an increase in advertising revenue, primarily for linear advertising versus overall reduced advertising revenue during the COVID-19 pandemic for the three and six months endedJune 30, 2020 . Mobile Revenue Mobile revenue for the three and six months endedJune 30, 2021 was$20,664 and$39,899 , respectively, and 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. Mobile revenue increased$798 (4%) and$1,677 (4%) for the three and six months endedJune 30, 2021 compared to the three and six months endedJune 30, 2020 . As ofJune 30, 2021 , we had approximately 180,000 mobile lines compared to approximately 144,000 mobile lines as ofJune 30, 2020 . 40 -------------------------------------------------------------------------------- Other Revenue Other revenue for the three and six months endedJune 30, 2021 and 2020 was$3,433 and$7,347 , respectively, and for the three and six months endedJune 30, 2020 was$2,707 and$6,917 , 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, 2021 amounted to$849,872 and$1,701,736 , and$860,875 and$1,725,389 , for the three and six months endedJune 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 decrease of$11,003 (1%) and$23,653 (1%) for the three and six months endedJune 30, 2021 , as compared to the three and six months endedJune 30, 2020 was primarily attributable to the following:
Three Months Six Months Decrease in programming costs due to lower video customers, credits received, and lower pay-per-view and video-on-demand costs, partially offset by an increase in costs due to net contractual rate increases
$ (7,493) $ (18,629) Decrease in costs of mobile devices (5,975) (9,349)
Increase in call completion and transfer costs primarily related to our mobile services, partially offset by a decrease in costs based on a lower level of activity related to our telephony service
1,582 5,033
Increase in costs primarily from digital media and linear advertising spots for resale
5,402 1,483
Other net decreases, including costs related to an indefeasible right of use contract recorded in the second quarter of 2020
(4,519) (2,191)
$ (11,003) $ (23,653)
Programming costs
Programming costs aggregated $695,182 and $1,394,635 for the three and six
months ended June 30, 2021 and $702,674 and $1,413,264 for the three and six
months ended June 30, 2020 , respectively. 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 six months ended June 30, 2021
amounted to $589,180 and $1,169,613 , and for the three and six months ended June
30, 2020 amounted to $542,637 and $1,124,946 , 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.
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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 increase in other operating expenses of $46,543 and $44,667 , for the three
and six months ended June 30, 2021 as compared to the three and six months ended
June 30, 2020 was attributable to the following:
Three Months Six Months
Increase in marketing costs $ 19,059 $ 25,119
Increase in repairs and maintenance costs 13,862 21,863
Increase in legal costs, including legal settlements 6,677 11,009
Increase in utility costs primarily due to winter storm Uri in the first quarter of 2021
2,759 8,466
Net increase (decrease) in labor costs and benefits, offset by a decrease in capitalizable activity
3,407 (21,400)
Decrease in bad debt expense (4,954) (13,702)
Other net increases 5,733 13,312
$ 46,543 $ 44,667
Restructuring and Other Expense
Restructuring and other expense for the three and six months ended June 30, 2021
amounted to $5,864 and $9,073 , as compared to $40,966 and $48,260 for the three
and six months ended June 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 six months ended June 30, 2021
amounted to $444,327 and $879,184 , as compared to $521,794 and $1,069,363 for
the three and six months ended June 30, 2020 , respectively.
The decrease in depreciation and amortization of $77,467 (15%) and $190,179
(18%) for the three and six months ended June 30, 2021 as compared to the three
months ended June 30, 2020 was due to certain fixed assets and intangible assets
becoming fully depreciated or amortized, partially offset by the acceleration of
amortization in 2020 of certain customer relationship intangible assets. This
decrease was partially offset by an increase in depreciation as a result of
asset additions.
Adjusted EBITDA
Adjusted EBITDA amounted to $1,104,602 and $2,179,407 for the three and six
months ended June 30, 2021 as compared to $1,105,785 and $2,137,164 for the
three and six months ended June 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 decrease in Adjusted EBITDA for the three months ended June 30, 2021 as
compared to the three months ended June 30, 2020 was due to an increase in
operating expenses (excluding depreciation and amortization, restructuring and
other expense and share-based compensation), partially offset by an increase in
revenue, as discussed above. The increase in Adjusted EBITDA for the six months
ended June 30, 2021 as compared to the three months ended June 30, 2020 was due
to the increase in revenue and a decrease in operating expenses (excluding
depreciation and amortization, restructuring and other expense and share-based
compensation), as discussed above.
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Operating Free Cash Flow
Operating free cash flow was $781,498 and $1,643,512 for the three and six
months ended June 30, 2021 as compared to $877,062 and $1,609,359 for the three
and six months ended June 30, 2020 , respectively. The decrease in operating free
cash flow for the three months ended June 30, 2021 as compared to the same
period in 2020 is due to an increase in capital expenditures and a decrease in
Adjusted EBITDA. The increase in operating free cash flow for the six months
ended June 30, 2021 as compared to the same period in 2020 is due to an increase
in Adjusted EBITDA and a decrease in capital expenditures.
Free Cash Flow
Free cash flow was $406,439 and $943,270 for the three and six months ended
June 30, 2021 as compared to $707,253 and $1,001,736 for the three and six
months ended June 30, 2020 , respectively. The decrease in free cash flow in 2021
as compared to 2020 is primarily due to a decrease in cash flows from operating
activities and an increase in capital expenditures.
Interest Expense
Interest expense, net was $319,371 and $635,683 for the three and six months
ended June 30, 2021 as compared to $350,874 and $714,426 for the three and six
months ended June 30, 2020 , respectively. The decrease of $31,503 and $78,743
for the three and six months ended June 30, 2021 as compared to the three and
six months ended June 30, 2020 was attributable to the following:
Three Months Six Months
Decrease due primarily to lower interest rates on our indebtedness $ (31,462) $ (80,510)
Lower interest income 87 1,719
Other net increases (decreases), primarily amortization of deferred financing costs and original issue discounts
(128) 48
$ (31,503) $ (78,743)
Gain (Loss) on Investments and Sale of Affiliate Interests, net
Gain (loss) on investments, net was $125,019 and $198,472 for the three and six
months ended June 30, 2021 as compared to $197,597 and $(257,876) for the three
and six months ended June 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 six months ended
June 30, 2021 amounted to $(98,840) and $(152,405) compared to $(152,061) and
$287,800 for the three and six months ended June 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 $(21,574) and $54,079 for
the three and six months ended June 30, 2021 compared to $(33,735) and $(88,567)
for the three and six months ended June 30, 2020 , respectively. These amounts
represent the increase or decrease in the fair value of interest rate swap
contracts and for the 2020 period 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.
Other Income, net
Other income, net amounted to $2,467 and $5,326 for the three and six months
ended June 30, 2021 compared to $669 and $1,592 for the three and six months
ended June 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.
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Income Tax Expense For the three and six months endedJune 30, 2021 ,Altice USA recorded a tax expense of$61,820 and$173,827 on pre-tax income of$262,754 and$653,300 , resulting in an effective tax rate that was higher than theU.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 six months endedJune 30, 2020 , the Company recorded a tax expense of$58,826 and$75,861 on pre-tax income of$170,303 and$185,800 , resulting in an effective tax rate that was higher than theU.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 inMarch 2020 .
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