Altice USA Earnings: Operational Improvements Are Making Progress, but the Road Is Long

Altice USA’s ATUS second quarter provided glimmers of hope, but the firm remains far from healthy. While shares remain deeply undervalued relative to our $13 fair value estimate, our Very High Morningstar Uncertainty Rating reflects Altice USA’s very large debt load. The firm will likely need several quarters to stabilize its customer base before it can begin growing revenue again. An unexpected increase in competitive intensity before it reaches that stabilization point could be difficult to overcome.

Net broadband customer losses totaled 37,000 during the quarter, better than the 39,000 net losses a year ago and the first year-over-year improvement since 2021. CEO Dennis Mathew said the enhancements to customer service, the Optimum Complete wireless bundle offer, and a more regional focus leave him “very bullish” on the trajectory of the business. Still, total revenue fell 6% from a year ago due to steep customer losses over the past year and a continued slide in revenue per customer as the firm works to retain accounts. Management pointed to a nice 1% sequential bump in revenue per customer, which is encouraging, but this metric tends to bounce around seasonally.

Cost-cutting was notable during the quarter, which management ascribed to efforts to improve efficiency in basic processes around customer service and network management. The EBITDA margin declined less than 1 percentage point versus a year ago to 39.0%. Capital spending remains elevated as the firm continues to deploy fiber and expand to new locations, causing a $35 million free cash flow deficit during the quarter.

With the debt load increasing and profitability suffering, net debt is now at 6.7 times trailing EBITDA, from 5.7 times a year ago. With the investigation into potential procurement fraud at Altice’s Portuguese subsidiary, Altice USA has paused some purchasing, which will cut capital spending during the second half of the year and likely push free cash flow back into positive territory.