Executive Summary / Key Takeaways

• Altice USA is undergoing a multi-phase transformation, moving from operational stabilization to accelerated business transformation aimed at achieving sustainable long-term growth and improved free cash flow, targeting approximately $3.4 billion in Adjusted EBITDA for 2025.
• The company is leveraging its hybrid HFC and expanding Fiber networks, alongside strategic initiatives like hyper-local go-to-market playbooks, value-added services, and mobile convergence, to counter intense competition and macroeconomic pressures.
• Significant investments in technology, including AI across operations and network upgrades (mid-split, FTTH expansion), are driving operational efficiencies, enhancing customer experience, and positioning the network for multi-gig speeds across approximately 65% of the footprint by year-end 2028.
• Despite recent revenue declines (down 4.4% year-over-year in Q1 2025 to $2.15 billion) and a Q1 2025 Free Cash Flow Deficit of $168.6 million (driven by higher interest payments and CapEx), management targets stabilizing broadband subscriber trends and moderating operating expenses in 2025, with a path to annual capital spend under $1.3 billion.
• Key risks include persistent competitive intensity from fiber overbuilders and fixed wireless, macroeconomic sensitivity impacting customer affordability, ongoing programming cost pressures, and potential impacts from legal proceedings like the Warner Matter copyright infringement suit.

Altice USA: Charting a Course Through Transformation

Altice USA, Inc. (NYSE: ATUS) operates at the intersection of connectivity and content, primarily serving residential and business customers across 21 states, with a significant presence in the New York metropolitan area. Born from the acquisition of Cablevision Systems Corporation in 2016 and controlled by Patrick Drahi, the company has built a substantial footprint leveraging both a fiber-rich hybrid-fiber coaxial (HFC) network and a growing fiber-to-the-home (FTTH) infrastructure. Its core business revolves around delivering broadband, video, telephony, and mobile services under the Optimum brand, alongside enterprise solutions via Lightpath and Optimum Business.

The company has embarked on a multi-year transformation journey, initially focused on operational stabilization (Phase 1) and now accelerating towards business transformation and growth (Phase 2). This strategic pivot is critical in a rapidly evolving industry landscape characterized by intense competition from established players like Comcast (CMCSA), Charter (CHTR), Verizon (VZ), and AT&T (T), as well as disruptive forces like fixed wireless access (FWA) providers and fiber overbuilders. Altice USA's strategy is to leverage its network assets, enhance customer experience, introduce innovative products, and drive operational efficiency through technology to carve out sustainable growth.

Central to Altice USA's strategic response is its technological foundation and ongoing innovation. The company operates a dual network architecture: a vast HFC network and an expanding FTTH network. The HFC network, serving the majority of its 9.9 million total passings as of March 31, 2025, is undergoing continuous enhancement. Recent efforts include deploying DOCSIS 3.1 across the West footprint and utilizing technologies like OFDM and OFDMA to address congestion and improve performance efficiently, often for costs under $350 per node, significantly less than traditional node splits. The company is also beginning targeted mid-split upgrades in 2025 on its DOCSIS 3.1 network, aiming to expand spectrum and enable download speeds exceeding 1 gigabit per second, with a path to deliver multi-gig speeds (up to 2 gigabits per second on HFC and 8 gig symmetrical on Fiber) to approximately 65% of its network by year-end 2028.

The FTTH network is a premium asset, recognized for speed and reliability, particularly in the East footprint. Altice USA ended Q1 2025 with nearly 3 million fiber passings and is focused on accelerating customer migrations and driving penetration. The goal is to reach over 1 million fiber customers by year-end 2026, up from 606.7 thousand as of March 31, 2025. Fiber customers exhibit better churn profiles and higher ARPU, often subscribing to gig or multi-gig speeds. The company is also expanding its total footprint, targeting over 175,000 new passings in 2025, with the majority being fiber builds in strategic, high-growth areas.

Beyond core network infrastructure, Altice USA is investing heavily in digitalization and artificial intelligence (AI) to transform operations and customer interactions. Initiatives include leveraging AI for marketing effectiveness, refining offers based on data, and deploying AI tools in customer care and retention. The in-house AI virtual agent, AIVA, already resolves over 50% of customer inquiries. An expanded partnership with Google Cloud aims to build an intelligent customer experience using generative AI technologies, enhancing frontline tools and driving workforce efficiencies. These efforts have already yielded tangible results, contributing to 1.7 million fewer service calls and 235,000 fewer truck rolls over the last 12 months, improving the cost to serve and customer satisfaction (NPS).

The strategic focus extends to product innovation and value-added services (VAS). Recognizing macroeconomic pressures and changing consumer preferences, Altice USA is rolling out targeted offers, including a new everyday low price option for income-constrained segments (representing 18% of the East and 38% of the West footprint). They are also sharpening their focus on the multi-dwelling unit (MDU) segment, representing over 2 million passings, with new tools and strategies. New VAS offerings like Total Care ($15/month premium support) and Whole Home WiFi ($10/month, launched April 2025) aim to enhance the in-home experience and drive incremental revenue. Management estimates that new revenue from mobile and value-added services could exceed $0.5 billion over time, with products like B2B security and connection backup potentially achieving over 30% penetration.

Mobile convergence is another key pillar. Altice USA's mobile offering, leveraging an MVNO model, saw significant growth with 49,000 net additions in Q1 2025, surpassing 500,000 lines. The company targets 1 million mobile lines by year-end 2027. Mobile convergence, particularly with fiber, leads to significantly lower churn (32% lower annualized churn for fiber customers with mobile vs. HFC without mobile). The mobile portfolio is expanding to include device protection, tablets, and future wearables, with B2B mobile sales also commencing.

In the business services segment, Lightpath continues to be a growth engine, with revenue increasing 7.3% in Q1 2025. Lightpath is strategically expanding its fiber network through acquisitions (UFD, WANRack Phoenix) and new builds (Columbus, OH), focusing on high-growth areas and the hyperscaler market. The company reported nearly $110 million in AI-related infrastructure bookings in 2024, with a pipeline totaling nearly $1 billion across 10 markets, highlighting a significant opportunity in the burgeoning AI infrastructure space.

Financially, Altice USA's performance reflects the ongoing transformation amidst challenging market dynamics. Q1 2025 revenue was $2.15 billion, a decrease of 4.4% year-over-year, primarily driven by declines in residential broadband (-2.0%), video (-12.0%), and telephony (-6.0%), partially offset by strong growth in mobile service revenue (+47.0%) and other revenue (+52.0%, largely mobile equipment sales). Residential ARPU was $133.93 in Q1 2025, down 1.3% year-over-year, impacted by lower video volume and programming-related customer credits, though rate actions and VAS growth provided some offset.

Adjusted EBITDA in Q1 2025 was $799 million, down 5.6% year-over-year. This decline was primarily due to lower revenue, partially mitigated by a decrease in programming and other direct costs (-10.0%), driven by lower video customers and programming cost moderation (partially offset by mobile growth). Other operating expenses increased (+4.0%) due to higher labor costs, marketing related to programming disputes, and maintenance, partially offset by lower truck rolls. Depreciation and amortization increased 8.0% year-over-year in Q1 2025 due to recent asset additions and accelerated depreciation.

For the full year 2024, the company reported revenue of $9.0 billion (down 3.1%) and Adjusted EBITDA of $3.4 billion (down 5.4%). Management forecasts Adjusted EBITDA of approximately $3.4 billion for the full year 2025, indicating an expectation of stabilization. The 2025 revenue outlook of $8.6 billion to $8.7 billion reflects anticipated subscriber trends and the impact of a non-presidential election year on advertising revenue. Total direct costs are expected to be around $2.6 billion in 2025, with other operating expenses also around $2.6 billion, showing slight moderation compared to 2024 and expected further moderation in 2026 as efficiency initiatives take hold.

Liquidity remains a key focus. As of March 31, 2025, Altice USA had approximately $700 million in liquidity, comprising cash and undrawn revolver capacity. The company's debt structure includes approximately $25.3 billion in total debt, with no significant maturities until 2027. The weighted average cost of debt was 6.8% as of Q1 2025, with 73% fixed. Cash flow generation saw a Free Cash Flow Deficit of $168.6 million in Q1 2025, compared to a deficit of $63.6 million in Q1 2024. This was primarily driven by a decrease in net cash from operating activities, largely due to a $145.2 million increase in interest payments, and higher capital expenditures ($356.1 million in Q1 2025 vs. $336.1 million in Q1 2024). Management targets full year 2025 capital spend of approximately $1.2 billion, a reduction from prior years, while still supporting network upgrades and expansion. The company is also exploring opportunities to monetize noncore assets, such as the planned sale of tower assets for approximately $60 million and the i24 News business.

The competitive landscape is a persistent challenge. Altice USA competes fiercely with large cable operators like Comcast and Charter, major telcos like Verizon and AT&T (particularly their fiber offerings), and disruptive FWA providers like T-Mobile (TMUS). While precise, directly comparable market share figures for all niche competitors are challenging to ascertain, Altice USA's market share is significantly smaller than the national leaders. Competitors often leverage scale, extensive fiber buildouts, and bundled offerings. Altice USA counters with its hyper-local strategy, tailoring offers town-by-town, enhancing network quality (recognized by third parties like Ookla and PCMag), and focusing on value-added services and mobile convergence to increase customer stickiness. While ATUS's TTM EBITDA margin (27.5%) trails peers like CMCSA (2024: 37%), CHTR (2024: 24%), VZ (2024: 21%), and T (2024: 16%), its focus on operational efficiency and cost moderation aims to close this gap, targeting a 40% normalized Adjusted EBITDA margin over time and a 70% gross margin by 2026. The Lightpath business, with its focus on AI-grade fiber and hyperscalers, provides a differentiated offering in the enterprise segment, leveraging a specific technological advantage not as prominent in the core cable/telco offerings of all competitors.

Risks to the investment thesis are notable. The intense competitive environment, particularly the aggressive pricing from fiber overbuilders and FWA, could continue to pressure subscriber numbers and ARPU. Macroeconomic conditions impacting consumer spending power, especially in the income-constrained segments, pose a headwind. Programming costs remain a challenge, as seen in recent disputes, although management is working to optimize agreements and offer more flexible video packages. Legal proceedings, such as the significant Warner Matter copyright infringement suit with a trial set for September 2025, could result in substantial costs or damages. The company's high debt level necessitates successful execution of its transformation plan and access to capital markets for refinancing.

Conclusion

Altice USA is at a critical juncture, actively executing Phase 2 of its transformation to pivot from stabilization to sustainable growth. The company is strategically leveraging its dual network assets, accelerating fiber deployment and migrations, and enhancing the HFC network for multi-gig capabilities. Significant investments in AI and digital tools are driving operational efficiencies and improving the customer experience, laying a foundation for cost moderation. The focus on hyper-local strategies, value-added services, and mobile convergence aims to improve subscriber trends and ARPU in a highly competitive market. While recent financial results reflect ongoing pressures, management's guidance for stabilizing Adjusted EBITDA in 2025 and targeting improved margins and free cash flow over time signals confidence in the strategic direction. The success of this transformation hinges on the company's ability to effectively execute its strategic initiatives, particularly in driving fiber and mobile penetration, realizing operational efficiencies through technology adoption, and navigating the persistent competitive and macroeconomic challenges, all while managing its substantial debt obligations.