Altice USA Earnings: Few Signs of Progress; Remainder of the Year Critical

The next 12 months will go a long way toward determining Altice USA’s ATUS fate. We are lowering our fair value estimate to $13 per share from $19 on expectations for weaker broadband pricing and margins. We still believe Altice USA owns an attractive set of assets, but its equity value is tiny relative to its debt load, making this a highly volatile investment.

Altice has yet to turn the corner operationally, but management, under new CEO Dennis Mathew, struck an optimistic tone for the remainder of 2023, particularly on the launch of Optimum Complete. The new offering mirrors the products from peers Comcast and Charter in bundling broadband and wireless services at a low introductory price.

Altice also closed on the issuance of $1 billion in new debt, which it will ultimately use to repay notes maturing in 2024, pushing its next major maturity out to 2025. However, the debt comes at a high cost: 11.25% versus 5.25% on the maturing notes. The firm will likely need to show operational improvement by the middle of 2024 and hope for improvement in the debt markets when it looks to refinance $1.6 billion of term loans that mature in 2025.

In the first quarter, total revenue declined 5.3% year over year, reflecting the accumulation of customer losses, a sharp drop in ad revenue, and nonrecurring revenue recorded a year ago. The firm lost 26,000 net customers, comparable with the prior quarter. EBITDA declined 9% versus a year ago but would have dropped 13% absent a gain on stock-based compensation. Altice burned $166 million during the quarter versus free cash flow of $208 million last year. Management pointed to a sizable sequential drop in operating expenses as evidence that investments to improve the customer experience have peaked. Capital spending was also pulled forward as spending hit $583 million versus a full-year budget of $1.7 billion-$1.8 billion. Management hasn’t given an outlook for 2023 other than to say the firm will generate positive free cash flow.