Altice USA Reports Second Quarter 2017 Results1

BETHPAGE, NY--(BUSINESS WIRE)-- Altice USA, Inc. (NYSE:ATUS):

• Altice USA continues to grow at an accelerated pace with further customer service improvements, investment in an advanced fiber network, product innovation and margin expansion
• Optimum is rated #1 in Customer Satisfaction and Customer Loyalty²; “Generation Gigaspeed” FTTH rollout progressing to deliver even higher quality of service and faster speeds
• Suddenlink was rated the fastest Internet Service Provider in the U.S. for 2017³; 1 Gig markets now 62% of Suddenlink footprint

• Revenue growth for Altice USA of +3.2% YoY in Q2 2017 (vs. +2.2% YoY in Q2 2016), excluding Newsday; reported revenue growth +0.6% YoY in Q2 2017 (vs. +2.0% YoY in Q2 2016)
• Adjusted EBITDA for Altice USA grew +21.9% YoY in Q2 2017; Adjusted EBITDA margin increased 6.6 percentage points YoY to 42.7%
• Adjusted EBITDA less capex (Operating Free Cash Flow⁴) for Altice USA grew +41.3% YoY in Q2 2017 (YTD 2017 OpFCF margin of 33.3% vs. 25.6% in FY 2016) showing very strong cash flow conversion
• Optimum saw continued growth in unique residential B2C customer relationships with +2k net additions in Q2, in line with the level of last year excluding a certain event⁵; Suddenlink unique residential B2C customer relationship net losses of -14k in Q2, reflecting normal seasonality
• Sixth straight quarter of customer service improvements
• Successful $2.2bn IPO of Altice USA

Dexter Goei, Altice USA Chairman and Chief Executive Officer, said: "We continue to advance our strategy of offering a more robust and differentiated product portfolio to meet our customers' needs, while investing in innovation, superior service and a reliable network. We are very pleased with our performance so far and look forward to continuing to build the Company for the long-term. The second quarter was also marked by the successful execution of Altice USA's initial public offering, which provides the Company with greater flexibility and strategic optionality operating in a competitive industry.”

Q2 2017 Highlights

Altice USA IPO

On June 27, 2017, Altice N.V. (Euronext: ATC, ATCB, “Altice”) and Altice USA, Inc. (NYSE: ATUS, “Altice USA”), announced the closing of Altice USA’s initial public offering of 71,724,139 shares of its Class A common stock at a price to the public of $30.00 per share, including the underwriters full exercise of their option to purchase 7,781,110 shares to cover overallotments. Altice USA’s Class A common stock began trading on June 22, 2017, on the New York Stock Exchange under the symbol “ATUS”.

Network Investments to Enhance Broadband Speeds and Reliability

Altice USA continues to make progress on its FTTH network plans and remains on track with its previously stated targets to upgrade 100% of Optimum footprint and part of Suddenlink footprint over the next five years. The Company continues to believe the FTTH network will be more resilient with reduced maintenance requirements, fewer service outages and lower power usage, which is expected to drive further cost efficiencies in the business. This network should position Altice USA to satisfy anticipated demand for increasing speeds and support evolving technologies, such as the expected transition of mobile networks to 5G, and enable the Company to capture associated revenue growth opportunities.

In the Optimum footprint, the Company continues to upgrade speeds, now offering up to 450Mbps in some areas, and has seen an increasing number of customers upgrading their speed tiers with 90% of residential broadband gross additions taking download speed tiers of 100Mbps or higher at the end of Q2 2017 (37% of the residential customer base now take speeds of 100Mbps or higher).

In the Suddenlink market, the Company continues to roll out 1 Gigabit service, currently with 62% of the market having access to these faster speeds. Suddenlink was rated the fastest Internet Service Provider in the U.S. for 2017⁶ with 64% of residential broadband gross additions taking speeds of 100Mbps or higher (44% of the residential customer base now take speeds of 100Mbps or higher).

On a blended basis, 79% of Altice USA’s residential broadband gross additions were taking download speeds of 100Mbps or higher with 39% of the total residential customer base taking 100Mbps or higher speeds as of the end of Q2 2017 (vs. 30% and 12% respectively at the end of Q2 2016). These upgrades have almost doubled YoY the average broadband speed taken by Altice USA’s customer base to 93Mbps at the end of Q2 2017 (from 52Mbps at the end of Q2 2016).

Customer Service Improvements

The Company’s network upgrades continue to be reflected in further improvements in customer service metrics, including a 20% YoY reduction in the number of technical service visits in H1 2017 vs. H1 2016 and a reduction in the number of technical service related calls of 19% YoY over the same period. This is the sixth straight quarter of customer service improvements since Altice took control of Suddenlink and the fourth straight quarter since taking control of Optimum. In fact, Optimum is rated #1 in Customer Satisfaction and Customer Loyalty⁷.

Altice USA also continues to improve customer service and achieve sales and marketing efficiencies through digitalization. The percentage of B2C gross adds achieved through online sales channels has increased to 18% for Optimum and 28% for Suddenlink as of the end of Q2 2017 (vs. 2% and 14% respectively in Q4 2015 before Altice took control of Optimum and Suddenlink).

Product and Service Innovations

Altice USA is bringing new innovations and service offerings to market. In the second quarter, the Company successfully launched for small and medium-sized businesses its hosted voice product developed on the backbone of Altice's Advanced Business Communications Platform, which was developed by Altice Labs. For residential customers, Altice USA expanded its customer service offerings, introducing a full suite of whole-home premium service products, including in-home installation of devices, remote technical support for mobile devices and computers, and device protection to provide customers with advanced levels of support and added value beyond the company's traditional 24/7 service for its TV, phone and internet products. In the second quarter, the Company also introduced its new home communications hub to customers as part of beta testing, and looks forward to introducing it more broadly in the coming months.

Commercial Rebranding

On May 23, 2017, Altice announced the transformation from a holding company with a collection of different assets and brands around the world, to a unified global group with one single brand - Altice. The Altice name, brand and new logo will replace the current commercial brands at each of Altice's operating companies, including Optimum and Suddenlink, and it is expected that the commercial brands will have completed the transition process by the end of the second quarter of 2018. The business brands will transition to Altice Business.

Content and Programming Partnerships

On May 25, 2017, Altice USA reached a multi-year partnership with Viacom that includes advanced advertising and content distribution agreements. This partnership combines Altice USA's unique audience data, multi-screen advertising platforms, measurement and analytics capabilities with Viacom's advanced advertising offerings to deliver local and national advertising across multiple screens, including TV, mobile, tablet and desktop. The content distribution arrangement includes an early carriage renewal of Viacom's premier networks in the Optimum system and the return of a number of Viacom networks in Suddenlink systems, as well as additional rights for the distribution of multi-platform, digital and next-generation Viacom content including select virtual reality and 4K for Altice USA's current and future customer offerings. This partnership reinforces Altice USA’s commitment to significantly enhance the video experience for all of its customers.

On May 17, 2017, Altice USA participated in a $19 million round of financing of Cheddar along with other strategic investors including Raine Ventures, Amazon, NYSE and Broad Video Ventures. Cheddar is the place for brands to reach young people interested in business, finance, technology and innovation with live video programming, covering news through the lens of the companies and executives driving changes in these areas.

Financial and Operational Review - Pro Forma

For quarter ended June 30, 2017 compared to quarter ended June 30, 2016

• Revenue growth for Altice USA of +3.2% YoY in Q2 2017 to $2,328m (vs. +2.2% YoY in Q2 2016), excluding Newsday; reported revenue growth +0.6% YoY in Q2 2017 (vs. +2.0% YoY in Q2 2016)
  • Optimum revenue growth was +2.9% YoY in Q2 2017, excluding Newsday; a decline of -0.7% YoY on a reported basis
  • Suddenlink revenue growth +3.8% YoY.
• Adjusted EBITDA for Altice USA grew +21.9% YoY in Q2 2017 to $994m (vs. +13.4% YoY in Q2 2016); Adjusted EBITDA margin increased +6.6 percentage points YoY to 42.7% (vs. 36.1% in Q2 2016):
  • Optimum Adjusted EBITDA growth of +28.6% YoY; Adjusted EBITDA margin increased +8.1 percentage points YoY to 40.8% (vs. 32.6% in Q2 2016);
  • Suddenlink Adjusted EBITDA growth +9.5% YoY; Adjusted EBITDA margin increased +2.5 percentage points YoY to 47.5% (vs. 45.0% in Q2 2016).
• Capex for Altice USA was $228m in Q2 2017 representing 9.8% of revenue. Capex is expected to increase through H2 2017 and into 2018 towards the historical total annual capex before Altice took over Optimum and Suddenlink as the build phase of the FTTH rollout has now begun.
• Operating Free Cash Flow for Altice USA grew +41.3% YoY in Q2 2017 to $766m (vs. +47.9% YoY in Q2 2016):
  • Optimum OpFCF growth of +56.9% YoY;
  • Suddenlink OpFCF growth +16.3% YoY.
• Altice USA saw total unique residential B2C customer relationship net losses of -11k in Q2 2017, driven by normal seasonality at Suddenlink, with continued growth in B2C ARPU per unique customer:
  • Increased demand for higher speed broadband tiers at Optimum continues to drive growth in B2C ARPU per unique customer (+1.6% YoY). Optimum saw continued growth in unique residential B2C customer relationships with +2k net additions in Q2, including broadband RGU additions of +10k and -12k video RGU losses (all of which are broadly in line with the RGU growth in Q2 2016 of +16k unique customer additions, +23k broadband RGU additions and -2k video RGU losses when adjusted for the impact of a strike at a competitor);
  • Suddenlink’s increased sales of higher broadband speed tiers drove growth in ARPU per unique customer (+2.8% YoY). Suddenlink unique residential B2C customer relationship net losses of -14k in Q2 reflect normal seasonality (vs. -10k losses in Q2 2016) including broadband RGU losses of -8k and video RGU losses of -25k (vs. -2k broadband RGU losses and -25k video RGU losses in Q2 2016);
• Altice USA’s programming costs increased +2.6% YoY in Q2 2017 due primarily to an increase in contractual programming rates, partially offset by the decrease in video customers. We continue to expect programming rates to increase by high single digits in 2017:
  • Optimum’s programming costs increased +2.8% YoY in Q2 2017 to $482m;
  • Suddenlink’s programming costs increased +1.8% YoY in Q2 2017 to $150m.
• Altice USA’s advertising revenue grew +2.4% YoY in Q2, an increase compared to Q2 2016 (+1.6%) due primarily to increases in digital advertising revenue.
• Net debt for Altice USA at the end of the second quarter was $21,336m, including the impact of total dividends in Q2 2017 of $840m (a total of $340m from Suddenlink, $500m from Optimum) and $193m accrued interest on the (now extinguished) shareholder loan paid prior to the IPO. Net debt was $21,370m pro forma for the partial repayment of the Cablevision 10.875% 2025 Senior Notes (funded by net primary equity proceeds from the IPO).
• Altice USA’s blended weighted average cost of debt was 6.4% (6.9% for Optimum, 5.4% for Suddenlink) and the blended weighted average life was 6.1 years at the end of June 2017. This represents consolidated L2QA net leverage for Altice USA of 5.5x both pre- and post-IPO proceeds (5.7x on LTM basis). Net leverage for Optimum was 5.6x and 5.3x for Suddenlink at the end of June 2017 on L2QA basis (5.3x and 5.0x pre-dividend payments in Q2 2017 respectively).

Reconciliation of net loss to Adjusted EBITDA and Adjusted EBITDA less Capital Expenditures:

We define Adjusted EBITDA, which is a non-GAAP financial measure, as net income (loss) excluding income taxes, income (loss) from discontinued operations, other non-operating income or expenses, loss on extinguishment of debt and write-off of deferred financing costs, loss on interest rate swap contracts, gain (loss) on equity derivative contracts, gain (loss) on investments, 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.

We believe Adjusted EBITDA is an appropriate measure for evaluating the operating performance of the Company. Adjusted EBITDA and similar measures with similar titles are common performance measures used by investors, analysts and peers to compare performance in our industry. Internally, we use revenue and Adjusted EBITDA measures as important indicators of our business performance, and evaluate management's effectiveness with specific reference to these indicators. We believe Adjusted EBITDA provides management and investors a useful measure for period-to-period comparisons of our core business and operating results by excluding items that are not comparable across reporting periods or that do not otherwise relate to the Company's ongoing operating results. Adjusted EBITDA should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), and other measures of performance presented in accordance with GAAP. Since Adjusted EBITDA is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies.

We also use Adjusted EBITDA less Capital Expenditures (including accrued, but unpaid capital), or Operating Free Cash Flow, as an indicator of the Company's financial performance. We believe this measure is one of several benchmarks used by investors, analysts and peers for comparison of performance in the Company's industry, although it may not be directly comparable to similar measures reported by other companies.

The following is the contribution from Newsday Media Group:

The following table sets forth certain customer metrics by segment (unaudited):

About Altice USA

Altice USA (NYSE:ATUS), the U.S. business of Altice N.V. (Euronext: ATC, ATCB), is one of the largest broadband communications and video services providers in the United States, delivering broadband, pay television, telephony services, Wi-Fi hotspot access, proprietary content and advertising services to approximately 4.9 million residential and business customers across 21 states through its Optimum and Suddenlink brands.

View source version on businesswire.com: http://www.businesswire.com/news/home/20170727006564/en/

Altice USA
Nick Brown, +41 79 720 15 03
Chief Investor Relations Officer Altice NV
nick.brown@altice.net
or
Arthur Dreyfuss, +41 79 946 49 31
Chief Communications Officer Altice NV
arthur.dreyfuss@altice.net
or
Lisa Anselmo, +1 516 803 2362
Head of Communications Altice USA
lisa.anselmo@alticeusa.com

Source: Altice USA

Released July 27, 2017