Altice USA, Inc. ATUS reported healthy second-quarter 2020 results, with the top and bottom lines beating the Zacks Consensus Estimate. Despite a challenging macroeconomic environment, the company recorded solid customer additions, driven by resilience in the business model, and is likely to continue this growth momentum in the second half of the year.
Net income for the June quarter was $111.3 million or 19 cents per share compared with $86.4 million or 13 cents in the prior-year quarter. The improvement can be attributed to the top-line growth. The bottom line beat the Zacks Consensus Estimate by 4 cents.
Altice USA, Inc. Price, Consensus and EPS Surprise
Altice USA, Inc. price-consensus-eps-surprise-chart | Altice USA, Inc. Quote
Second-quarter total revenues increased to $2,475 million from $2,451.1 million in the year-earlier quarter, driven by record Broadband revenue growth of 14.2%. Residential revenues inched up 0.8% while Business Services rose 2.2%, partially offset by a 15.6% decline in News and Advertising revenues. The top line surpassed the consensus mark of $2,422 million.
The company witnessed robust demand for its broadband service for the second consecutive quarter, achieving the best-ever quarterly performance with 70,000 broadband net additions, excluding Altice Advantage. To support this network demand, Altice has accelerated the deployment of 1-gig speeds, which are currently available in more than 75% of its geographical footprint. Revenue per customer relationship declined 0.4% year over year to $144.38.
Business Services witnessed 3% growth in Enterprise & Carrier revenues and 1.7% in SMB, with higher demand for broadband speed upgrade for remote working and secured Internet solutions. News and Advertising revenues declined due to lower advertising amid the coronavirus-induced turmoil.
Operating income improved to $508.7 million from $482.5 million in the year-ago quarter. Adjusted EBITDA was $1,105.8 million compared with $1,079.2 million in the prior-year quarter. In the second quarter, Altice repurchased 25.7 million shares for an aggregate price of about $631 million, at an average price of $24.03.
Subsequent to the end of the quarter, Altice inked an agreement to divest about 50% of its stake in Lightpath fiber enterprise business for an implied enterprise value of $3.2 billion. The company will receive total gross cash proceeds of approximately $2.3 billion from the sale and related financing activity. It will retain a little more than 50% interest in Lightpath and maintain control of the business.
In addition, Altice completed the acquisition of regional cable operator, Service Electric Cable T.V. of New Jersey, Inc. Covering almost the entire length and breadth of the county, Service Electric Cable offered cable, telephone and Internet services to about 30,000 local customers. With coveted assets that boast attractive broadband growth opportunities, the transaction provides Altice a much-needed boost to cement its regional presence.
Cash Flow & Liquidity
Operating free cash flow in the second quarter was up 15.1% year over year to $877 million, courtesy of lower capital spending. Free cash flow surged 49.8% year over year to $707 million. As of Jun 30, 2020, the company’s consolidated net debt was $22,593 million, down $1 million sequentially owing to higher free cash flow.
2020 Outlook Reinstated
Altice expects the macroeconomic impact from the COVID-19 pandemic to affect its operations, particularly in News and Advertising, and SMB businesses. Although this lowers revenues and EBITDA visibility, the company remains confident in its ability to deliver free cash flow growth in 2020 while maintaining leverage and share repurchase targets.
The company currently anticipates capital expenditures in 2020 to be below $1.3 billion, with growth in revenues and adjusted EBITDA. It maintains a year-end leverage target of 4.5x-5.0x. Altice expects share repurchases of $1.7 billion.
Zacks Rank & Other Stocks to Consider
Altice currently has a Zacks Rank #2 (Buy).
Some other favorably-ranked stocks in the industry are Turtle Beach Corporation HEAR, sporting a Zacks Rank #1 (Strong Buy), and Vocera Communications, Inc. VCRA and Nokia Corporation NOK, both carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Turtle Beach has a trailing four-quarter earnings surprise of 46.4%, on average.
Vocera has a long-term earnings growth expectation of 18%. It delivered an earnings surprise of 70%, on average, in the trailing four quarters.
Nokia has a long-term earnings growth expectation of 15.6%. It delivered an earnings surprise of 129.1%, on average, in the trailing four quarters.
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