Altice USA Reports Fourth Quarter and Full Year 2018 Results

NEW YORK–(BUSINESS WIRE)–Altice USA (NYSE:ATUS) today reported results for the fourth quarter and
full year ended December 31, 2018.

Dexter Goei, Altice USA Chief Executive Officer, said: “Altice
USA has once again delivered great financial performance, meeting all of
our guidance targets for 2018, and hitting many more operational
milestones. Throughout the year, we drove improved subscriber trends and
accelerated revenue growth, achieved our highest ever margins, and
generated material growth in free cash flow. We enter 2019 continuing on
our fast-paced journey defined by innovation and simplicity to deliver
state-of-the-art connectivity services, advanced business solutions and
high-quality content.”

Altice USA Key Financial Highlights

• Revenue growth +4.0% YoY in Q4 2018 to $2.45 billion, driven by
  Residential revenue growth of +2.1%, Business Services revenue growth
  of +5.3% and advertising revenue growth of +33.2%; FY 2018 revenue
  growth of 2.8% YoY
• Adjusted EBITDA⁽¹⁾ grew +7.8% YoY and Adjusted EBITDA
  margin of 45.5% in Q4 2018 excluding impact of consolidating i24
  losses (+6.9% YoY Adjusted EBITDA growth to $1.11 billion on a
  reported basis; margin highest ever level at 45.1%); FY 2018 Adjusted
  EBITDA growth of 4.6% and margin of 43.5%
• Operating Free Cash Flow (“OpFCF”)⁽¹⁾ declined -2.1% YoY in
  Q4 2018 to $785 million with an OpFCF margin of 32.0% with higher
  investment in key growth initiatives including fiber (FTTH), Altice
  One and mobile; FY 2018 OpFCF declined -0.7% YoY.
• Free Cash Flow⁽²⁾ grew +27.0% YoY in FY 2018 to $1.35
  billion ($417m in Q4), supporting total shareholder return in 2018 of
  $2 billion, including $500 million of share repurchases ($259m in Q4)
  and $1.5 billion special cash dividend

Altice USA Operational Highlights

• Total unique Residential customer relationships stable YoY (+0.2% YoY)
  with quarterly net additions of +7k in Q4 2018; improved compared to
  prior year (+6k in Q4 2017). Video trends at both Optimum and
  Suddenlink better YoY with continued broadband customer growth
  • Pay TV RGU quarterly net losses of -15k in Q4 2018 were better
    than the prior year (-25k in Q4 2017)
  • Residential broadband RGU quarterly net additions of +22k in line
    with prior year (vs. +25k in Q4 2017)
  • Residential ARPU per unique customer increased 1.9% YoY to $142.4
    in Q4 2018, supporting Residential revenue growth of +2.1% YoY

• Business Services revenue growth of +5.3% YoY in Q4 2018 boosted by
  strength in Enterprise & Carrier segment growing +6.4% YoY and SMB
  growth of +4.7% YoY
• Advertising revenue growth of 33.2% YoY in Q4 2018 supported by the
  growth of local and national multi-screen advertising solutions
  provided by a4, as well as NY Interconnect delivering strong growth
  based on political
• Continued enhancement of data services with an increased demand for
  higher speed tiers supporting growing data usage; approximately 80% of
  Residential broadband gross additions taking download speeds of 200
  Mbps or higher at the end of Q4 (approximately 50% of total broadband
  customers take 200 Mbps speeds or higher) with an average data usage
  of over 250GB per month
• Altice USA has reached over 300k unique Altice One customers⁽³⁾ (approximately
  10% of total video customers) with higher net promoter scores for
  Altice One compared to legacy set top boxes; successful launch of the
  new Altice One Operating System 2.0
• Continued expansion of the availability of 1 Gbps 1P fiber (FTTH)
  broadband service with advanced wireless gateway and Smart WiFi with
  meshing capabilities (up to 10G+ capable)

Altice USA FY 2018 Guidance Achieved

For the full year 2018, Altice USA achieved revenue growth of 2.8% YoY
(in line with guidance for ~2.5-3.0% YoY growth), Adjusted EBITDA margin
expansion of 0.7 percentage points YoY (in line with guidance for
Adjusted EBITDA margin expansion) and reported annual capex of $1.15bn
(in line with guidance to be less than $1.3bn). Altice USA also reached
its year-end leverage target of 4.5x to 5.0x net debt / Adjusted EBITDA,
reporting 4.9x at the end of 2018 on a L2QA basis.

Altice USA FY 2019 Outlook

For the full year 2019 Altice USA expects:

• Revenue growth of 2.5-3.0% YoY
• Adjusted EBITDA margin expansion (ex-mobile)
• Increased investment for the continued rollout of Altice One, fiber
  (FTTH) deployment, and new mobile network with annual capex within a
  range of $1.3bn to $1.4bn
• Free Cash Flow growth (compared to $1.35bn in FY 2018) including
  mobile related costs
• Year-end leverage target unchanged at 4.5x to 5.0x net debt / Adjusted
  EBITDA (L2QA basis)
• Share repurchases of $1.5bn (ex-M&A)

Additional Q4 2018 Highlights

Product & Service Enhancements

Altice USA unveiled its Altice One Operating System (OS) 2.0, an update
to its Altice One entertainment and connectivity platform that adds
enhanced mobility and more advanced features for customers, including
the ability to watch Cloud DVR content on the go on the Altice One
mobile app. OS 2.0 also brings Altice One customers access to the
YouTube Kids app, the ability to use voice search on YouTube to discover
videos, more 4K content for a vivid viewing experience, and live show
restart on more than 20 additional networks. Altice One has transformed
the way Optimum and Suddenlink customers connect to the content they
love by simplifying their entertainment experience and providing
expansive WiFi coverage to power their homes. Altice USA continues to
make updates and enhancements to evolve the Altice One experience for
its customers.

Network Investments to Enhance Broadband Speeds, Video Services
and Reliability

Altice Fiber symmetrical 1Gbps internet service (up to 10G+ capable)
over Altice’s new fiber-to-the-home (FTTH) network is now being rolled
out to residential customers in select areas of Long Island, New Jersey
and Connecticut. Altice Fiber provides an unmatched experience to
support the most data intensive activities, from streaming 4K
ultra-high-definition (UHD) and high-definition (HD) video on multiple
devices, enjoying multi-player gaming experiences, video chat, streaming
music, high-quality virtual- and augmented-reality experiences, and
downloading large files simultaneously on dozens of devices at once. The
Altice Fiber Gateway is the first all-in-one integrated Giga-optics
router and smart WiFi device offered by an MSO in the United States. The
Gateway optimizes traffic on the home WiFi network to enable a superior
experience. This includes simultaneous dual-band WiFi that automatically
switches frequencies based on the bandwidth and range needs of the
device in use, WiFi extenders available to create a mesh network for
increased coverage, and the ability to manage the home WiFi experience
via an intuitive app. The Altice Fiber service will roll out to
additional areas throughout Altice’s New York area region as the company
continues to deploy and activate its FTTH network.

In addition to its fiber deployment, Altice USA is enhancing broadband
services on its existing hybrid fiber-coaxial (HFC) network in the
Optimum service area, now delivering broadband speeds of up to 400 Mbps
for residential customers and with plans to launch 1 Gbps (Gigabit)
service and smart WiFi capabilities over HFC in 2019. In addition,
further 1 Gbps capacity will be added in certain areas in the Suddenlink
service area, as well as continuing to build new homes at an accelerated
pace. As a result of recent enhancements to Altice USA’s network and
with the launch of Altice One, an increasing number of consumers are
selecting increased broadband speeds and using more data:

• Approximately 80% of Altice USA’s Residential broadband gross
  additions are taking download speed tiers of 200 Mbps or higher as of
  the end of Q4 2018 (50% of the Residential customer base now take
  speeds of 200 Mbps or higher, and over 80% of the customer base take
  speeds of 100 Mbps or higher);
• These upgrades are allowing the company to meet customer demand for
  higher broadband speeds with the average broadband speed taken by
  Altice USA’s customer base up 42% YoY to 181 Mbps at the end of Q4
  2018 (from 128 Mbps at the end of Q4 2017 and just 64 Mbps at the end
  of Q4 2016). Average data usage per customer reached over 250GB as of
  the end of Q4 2018, growing approximately 25% YoY as customers are
  using Altice USA’s broadband services more and more. Optimum customers
  are connecting 11 devices in the home on average.
• Altice One is also improving customers’ broadband experience with an
  advanced WiFi router and WiFi mini repeaters.

Mobile

During the fourth quarter, Altice USA completed its development of the
core network to support its infrastructure-based MVNO including
upgrading and expanding its WiFi network. Approximately 19 thousand
AirStrands have now been deployed with the Sprint partnership,
representing the quickest and largest deployment of its kind in the
United States to date, leveraging Altice USA’s existing network
infrastructure. The commercial launch of a mobile service for Altice USA
customers is still on track for 2019.

Advertising and News Businesses

a4, Altice USA’s cross-screen targeted advertising company, introduced
Athena, a next generation platform that simplifies the media planning
process. Athena enables marketers to plan and activate true cross-screen
campaigns, locally and nationally, in just minutes. The data that powers
it streamlines the processes of creating audience segments and planning
– as well as activating – media across screens including TV, digital
video and display, OTT and social media. This effectively balances the
reach and frequency of a campaign for a given target audience. Athena is
the first application that truly places the end-to-end power and control
into the hands of marketers.

Altice USA’s News businesses continued to perform well in the fourth
quarter. i24NEWS continued to expand distribution and is now available
on Comcast, Charter / Spectrum, Mediacom, and Altice USA’s Optimum and
Suddenlink systems with more to come. The network also grew its
viewership and consistently maintained a lead over other international
news networks. News 12 Networks, the company’s hyper-local news network
in the NY tri-state area, remains the most viewed TV network in Optimum
households, and TV ratings continue to grow. News 12 also saw
significant increases in unique visitors to its digital and mobile
platforms and continues to invest in its digital offerings (digital
viewership growing over 20% YoY with over 60% YoY growth of total video
views on News 12 websites). In the fourth quarter, News 12 provided deep
political coverage on the 2018 Midterm election which drove high
ratings, beating many broadcast affiliates in the Optimum footprint in
terms of viewership.

Share repurchases

In conjunction with the separation from Altice Europe NV (Euronext: ATC,
ATCB), the Board of Directors of Altice USA authorized a share
repurchase program of $2.0bn, effective June 8, 2018. Under the
repurchase program, shares of Altice USA Class A common stock may be
purchased from time to time in the open market and may include trading
plans entered into with one or more brokerage firms in accordance with
Rule 10b5-1 under the Securities Exchange Act of 1934. From inception
through December 31, 2018, Altice USA repurchased an aggregate of
28,028,680 shares for a total purchase price of approximately $500m
(including $259m in Q4), equivalent to $17.84 per share. The acquired
shares were retired and the cost for these shares was recorded in paid
in capital in Altice USA’s consolidated balance sheet. As of December
31, 2018, Altice USA had 709,040,286 combined Class A and Class B shares
outstanding.

For the full year 2019, Altice USA is targeting a further $1.5bn of
share repurchases excluding any potential merger, asset sale and
acquisition (M&A) activity.

Combination of Suddenlink (Cequel) and Optimum (Cablevision)
Businesses under Single Credit Silo

Following the initial public offering of Altice USA and subsequent
separation from Altice Europe NV, on October 2, 2018, Altice USA
announced its intention to further simplify its structure and operations
by combining (the “Combination”) the Suddenlink (Cequel) and Optimum
(Cablevision) businesses under a single credit silo.

The Combination marks a significant milestone in the integration of the
Suddenlink and Optimum businesses and aligns Altice USA’s debt capital
structure with the way Altice USA is managed: as a unified company with
a common strategy. The Combination has resulted in a more diversified
credit silo which has simplified Altice USA’s financing strategy and
financial reporting requirements. The Combination was leverage neutral
for Altice USA.

The Combination was effected mainly by the following transactions:

• Exchange of existing Cequel senior secured and senior notes into new
  Cequel senior secured and senior notes issued by the same issuers,
  which automatically converted into new senior guaranteed and senior
  notes of CSC Holdings, LLC following the consummation of the
  Combination. On October 30, 2018, Altice USA announced acceptance of
  99.64% or $5.5 billion of Original Notes of the Suddenlink silo
  tendered for exchange;
• Refinancing of existing Cequel Credit Facility with proceeds of a new
  $1.275bn Term Loan at CSC Holdings, LLC.

The closing of the Combination was completed on November 27, 2018,
following receipt of relevant regulatory approvals and other customary
conditions.

Other Significant Events

Additional $5 Billion of Refinancing Activity in 2019 YTD

In January 2019, Altice USA’s wholly owned subsidiary CSC Holdings
issued $1.5bn in aggregate principal amount of senior guaranteed notes
due 2029 (“CSC Holdings 2029 Guaranteed Notes”). The notes bear interest
at a rate of 6.5% and will mature on February 1, 2029. The net proceeds
from the sale of the notes were used to repay certain indebtedness,
including to repay at maturity $526m aggregate principal amount of CSC
Holdings’ 8.625% senior notes due February 2019 plus accrued interest,
redeem approximately $905m of the aggregate outstanding amount of CSC
Holdings’ 10.125% senior notes due 2023 at a redemption price of
107.594% plus accrued interest, and paid fees and expenses associated
with the transactions.

Subsequently in February 2019, CSC Holdings issued an additional $250m
principal amount of CSC Holdings 2029 Guaranteed Notes at a price of
101.75% of the principal value with the net proceeds used to repay $250m
of amounts outstanding under the revolving credit facility.

In January 2019, CSC Holdings also obtained commitments to refinance its
existing revolving credit facility. After the refinancing, the total
size of the new revolving credit facility is $2.56bn, including $2.17bn
extended to January 2024 and priced at LIBOR plus 2.25%. The remaining
$392m matures in November 2021.

In February 2019, CSC Holdings entered into a $1.0bn senior secured Term
Loan B-4 maturing on April 15, 2027, the proceeds of which were used to
redeem $895m in aggregate principal amount of CSC Holdings’ 10.125%
Senior Notes due 2023, representing the entire aggregate principal
amount outstanding, and paying related fees, costs and expenses. The
Incremental Term Loan B-4 bears interest at a rate per annum equal to
LIBOR plus 3.00% and was issued with an original issue discount of 1.0%.

Following all of this recent refinancing activity, Altice USA’s average
cost of debt was reduced from 6.5% to 6.1% (representing an annual
interest cost saving of over $80m) with the average maturity of its debt
increasing from 5.9 to 6.6 years (as of the end of December 2018).
Through a series of separate floating-for-fixed interest rate swap
transactions, Altice USA also increased its percentage of fixed rate
debt to approximately 75% as of the end of December 2018 (pro forma for
the recent refinancing activity).

Financial and Operational Review

For quarter and full year ended December 31, 2018 compared to quarter
and full year ended December 31, 2017

• Reported revenue growth for Altice USA of +4.0% YoY in Q4 2018 to
  $2.455 billion:
• Adjusted EBITDA grew +6.9% YoY in Q4 2018 to $1.106 billion; Adjusted
  EBITDA margin highest ever level at 45.1% (+7.8% YoY Adjusted EBITDA
  growth and margin of 45.5% excluding impact of consolidating i24
  losses).
• Cash capex for Altice USA was $321 million in Q4 2018, representing
  13.1% of revenue.
• Operating Free Cash Flow declined -2.1% YoY in Q4 2018 to $785
  million, mostly reflecting increased investment in new fiber (FTTH),
  the launch of Altice One and initial mobile capex.
• Altice USA saw improved residential customer trends YoY with total
  unique Residential customer relationship quarterly net additions of
  +7k in Q4 2018 (vs. +6k in Q4 2017). This included Residential
  broadband RGU net additions of +22k, pay TV RGU net losses of -15k,
  and telephony RGU net losses of -2k in Q4 2018 (vs. +25k, -25k, and
  +10k, respectively, in Q4 2017). Altice USA Residential ARPU per
  unique customer increased +1.9% YoY in Q4 2018 to $142.44:
  • Optimum unique Residential customer relationship net additions of
    +3k in Q4 2018 were slightly lower than +6k net additions in Q4
    2017 as performance in the prior year benefited from a
    competitor’s programming dispute. Optimum saw broadband RGU net
    additions of +12k, -16k pay TV RGU net losses and -1k telephony
    RGU net losses (compared to Q4 2017 with +17k broadband RGUs net
    additions, -19k pay TV RGU net losses and +6k telephony RGU
    additions). Optimum Residential ARPU per unique customer grew
    +1.3% YoY;
  • Suddenlink unique Residential customer relationship net additions
    of +4k in Q4 2018 improved compared to -1k net losses in Q4 2017.
    Broadband RGUs grew in Q4 2018 with quarterly net additions of
    +10k (an improvement compared to broadband RGU net additions of
    +8k in Q4 2017). Pay TV RGUs grew for the first time in four years
    with +1k net additions in Q4, better than the prior year (-6k in
    Q4 2017), mostly reflecting market share gains from satellite
    operators and reflecting significant investment in Suddenlink’s
    video service. Telephony RGU net losses of -1k compared to +4k in
    Q4 2017. Residential ARPU per unique customer grew +3.8% YoY.
• Altice USA’s Business Services revenue increased +5.3% YoY in Q4 2018
  boosted by strength in the Enterprise & Carrier segment +6.4% due to
  several large wins in the Education & Carrier verticals. SMB revenue
  increased +4.7% YoY in Q4 supported by customer growth and increase in
  ARPU by sell-in of more services. Overall customer growth of +1.7% YoY
  due to improved value proposition with voice and data bundles and
  reduced churn.
• Altice USA’s Advertising revenue increased +33.2% YoY in Q4 2018 due
  to an increase in targeted data and analytics revenue and increase in
  political. The NY Interconnect in particular delivered strong growth
  based on political, benefiting from its enlarged structure.
  Separately, Altice USA, through its data and analytics subsidiary a4,
  is seeing strong growth with Athena, a self-serve client application
  for end-to-end multi-screen campaign management with “one-stop
  shopping” for advertisers (now including a new OTT advertising
  solution). Athena is the main growth driver of a4 and is being used by
  more and more customers, providing local and national advertising
  solutions with in-depth reporting, measurement and analytics.
• Altice USA’s programming costs increased +2.9% YoY in Q4 2018 due
  primarily to an increase in contractual programming rates, partially
  offset by the decrease in video customers. Programming costs per video
  customer are still expected to increase by high single digits going
  forward (+6.1% YoY in Q4 2018 and 6.9% for FY 2018):
• Net debt for Altice USA at the end of the fourth quarter was $21.408bn
  on a reported basis⁽⁴⁾, a reduction of $154m from the end
  of the third quarter of 2018 reflecting free cash flow generation of
  $417m, partly offset by share repurchases. This represents
  consolidated L2QA net leverage for Altice USA of 4.9x on a reported
  basis at the end of December (5.1x LTM). The year-end leverage target
  for Altice USA remains 4.5-5.0x net debt to EBITDA.
• Pro forma for the recent refinancing and revolver activity in 2019
  YTD, net debt for Altice USA at the end of fourth quarter was
  $21.782bn (including a portion of the refinancing used to pay for
  redemption costs, accrued interest, fees and other expenses)⁽⁴⁾.
• Altice USA has seen significant and rapid deleveraging at both Optimum
  and Suddenlink since the completion of their respective acquisitions
  as a result of underlying growth and improved cash flow generation
  (consolidated L2QA net leverage has fallen from 6.7x at Q2 2016 to
  4.9x in Q4 2018).
• Altice USA’s blended weighted average cost of debt was 6.1% and the
  blended weighted average life was 6.6 years at the end of December pro
  forma for recent refinancing activity in 2019 YTD. There are no
  significant maturities until 2021 (none in 2019) and near-term
  maturities could be covered by a $2.56bn revolving credit facility.

Reconciliation of Net Income (Loss) to Adjusted EBITDA and Adjusted
EBITDA less Cash Capital Expenditures:

We define Adjusted EBITDA, which is a non-GAAP financial measure, as net
income (loss) excluding income taxes, other non-operating income or
expenses, loss on extinguishment of debt and write-off of deferred
financing costs, gain (loss) on interest rate swap contracts, gain
(loss) on derivative contracts, gain (loss) on investments and sale of
affiliate interests, net, interest expense (including cash interest
expense), interest income, depreciation and amortization (including
impairments), share-based compensation expense or benefit, restructuring
expense or credits and transaction expenses.

Contacts

Head of Investor Relations
Nick Brown: +1 917 589 9983 / nick.brown@alticeusa.com

Head of Communications
Lisa Anselmo: +1 929 418-4362 / lisa.anselmo@alticeusa.com

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