# Optimum Communications, Inc. (OPTU) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Optimum Communications, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1702780/000162828023004614/atus-20221231.htm
Accession: 0001628280-23-004614
Filing date: 2023-02-23
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/OPTU/
All MD&A years: /company/OPTU/mda/
Previous year: /company/OPTU/mda/fy2021/ (FY 2021)
Next year: /company/OPTU/mda/fy2023/ (FY 2023)

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

All dollar amounts, except per customer and per share data, included in the following discussion, are presented in thousands.

This Annual Report contains statements that constitute forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Securities Act of 1934, as amended.  In this Form 10-K there are statements concerning our future operating results and future financial performance.  Words such as "expects", "anticipates", "believes", "estimates", "may", "will", "should", "could", "potential", "continue", "intends", "plans" and similar words and terms used in the discussion of future operating results, future financial performance and future events identify forward-looking statements. Investors are cautioned that such forward-looking statements are not guarantees of future performance, results or events and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors.

We operate in a highly competitive, consumer and technology driven and rapidly changing business that is affected by government regulation and economic, strategic, technological, political and social conditions. Various factors could adversely affect our operations, business or financial results in the future and cause our actual results to differ materially from those contained in the forward-looking statements. In addition, important factors that could cause our actual results to differ materially from those in our forward-looking statements include:

•competition for broadband, video and telephony customers from existing competitors (such as broadband communications companies, direct broadcast satellite ("DBS") providers, wireless data and telephony providers, and Internet-based providers) and new fiber-based competitors entering our footprint;

•changes in consumer preferences, laws and regulations or technology that may cause us to change our operational strategies;

•increased difficulty negotiating programming agreements on favorable terms, if at all, resulting in increased costs to us and/or the loss of popular programming;

•increasing programming costs and delivery expenses related to our products and services;

•our ability to achieve anticipated customer and revenue growth, to successfully introduce new products and services and to implement our growth strategy;

•our ability to complete our capital investment plans on time and on budget, including our plan to build a parallel FTTH network;

•our ability to develop mobile voice and data services and our ability to attract customers to these services;

•the effects of economic conditions or other factors which may negatively affect our customers’ demand for our current and future products and services;

•the effects of industry conditions;

•demand for digital and linear advertising products and services;

•our substantial indebtedness and debt service obligations;

•adverse changes in the credit market;

•changes as a result of any tax reforms that may affect our business;

•financial community and rating agency perceptions of our business, operations, financial condition and the industries in which we operate;

•the restrictions contained in our financing agreements;

•our ability to generate sufficient cash flow to meet our debt service obligations;

•fluctuations in interest rates which may cause our interest expense to vary from quarter to quarter;

•technical failures, equipment defects, physical or electronic break-ins to our services, computer viruses and similar problems;

•cybersecurity incidents as a result of hacking, phishing, denial of service attacks, dissemination of computer viruses, ransomware and other malicious software, misappropriation of data, and other malicious attempts;

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•disruptions to our networks, infrastructure and facilities as a result of natural disasters, power outages, accidents, maintenance failures, telecommunications failures, degradation of plant assets, terrorist attacks and similar events;

•labor shortages and supply chain disruptions;

•the impact from the COVID-19 pandemic;

•our ability to obtain necessary hardware, software, communications equipment and services and other items from our vendors at reasonable costs;

•our ability to effectively integrate acquisitions and to maximize expected operating efficiencies from our acquisitions or as a result of the transactions, if any;

•significant unanticipated increases in the use of bandwidth-intensive Internet-based services;

•the outcome of litigation, government investigations and other proceedings; and

•other risks and uncertainties inherent in our cable and broadband communications businesses and our other businesses, including those listed under the caption "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained herein.

These factors are not necessarily all of the important factors that could cause our actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could cause our actual results to differ materially from those expressed in any of our forward-looking statements.

Given these uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements are made only as of the date of this Annual Report. Except to the extent required by law, we do not undertake, and specifically decline any obligation, to update any forward-looking statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

You should read this Annual Report with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect. We qualify all forward-looking statements by these cautionary statements.

Certain numerical figures included in this Annual Report have been subject to rounding adjustments. Accordingly, such numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.

Organization of Information

Management’s Discussion and Analysis provides a narrative on the Company’s financial performance and condition that should be read in conjunction with the accompanying financial statements and accompanying notes thereto. It includes the following sections:

•Our Business

•Key Factors Impacting Operating Results and Financial Condition

•Consolidated Results of Operations

•Non-GAAP Financial Measures

•Reconciliation of CSC Holdings Results of Operations to Altice USA's Results of Operations

•Liquidity and Capital Resources

•Critical Accounting Policies and Estimates

In this Item 7, we discuss the results of operations for the years ended December 31, 2022 and 2021 and comparisons of the 2022 results to the 2021 results. Discussions of the results of operations for the year ended December 31, 2020 and comparisons of the 2021 results to the 2020 results can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed on February 16, 2022.

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Our Business

We principally provide broadband communications and video services in the United States and market our services primarily under the Optimum brand. We deliver broadband, video, and telephony services to approximately 4.9 million residential and business customers. Our footprint extends across 21 states (primarily in the New York metropolitan area and various markets in the south-central United States) through a fiber-rich hybrid-fiber coaxial ("HFC") broadband network and a fiber-to-the-home ("FTTH") network with approximately 9.5 million total passings as of December 31, 2022. Additionally, we offer news programming and advertising services and a full service mobile offering to consumers across our footprint.

Key Factors Impacting Operating Results and Financial Condition

Our future performance is dependent, to a large extent, on the impact of direct competition, general economic conditions (including capital and credit market conditions), our ability to manage our businesses effectively, and our relative strength and leverage in the marketplace, both with suppliers and customers. For more information, see "Risk Factors" and "Business-Competition" included herein.

In March 2020, the United States declared a national emergency concerning the outbreak of COVID-19. The COVID-19 pandemic and the various governmental actions taken in response thereto significantly impacted our business, including how our customers use our products and services and how our employees provide services to our customers. Although we cannot predict how our business and future results will be impacted if the pandemic continues or if governmental authorities take action to slow or prevent an increase in the spread of COVID-19, we have and will work to adapt the environment in which we operate and continue to provide our products and services to our customers. See "Risk Factors—Our business, financial condition and results of operations may be adversely affected by the recent COVID-19 pandemic."

We derive revenue principally through monthly charges to residential customers of our broadband, video, and telephony services. We also derive revenue from DVR, VOD, pay-per-view, installation and home shopping commissions. Our residential broadband, video, and telephony services accounted for approximately 41%, 34%, and 3%, respectively, of our consolidated revenue for the year ended December 31, 2022. We also derive revenue from the sale of a wide and growing variety of products and services to both large enterprise and SMB customers, including broadband, telephony, networking and video services. For the year ended December 31, 2022, 15% of our consolidated revenue was derived from these business services. In addition, we derive revenues from the sale of advertising time available on the programming carried on our cable television systems, digital advertising, branded content, affiliation fees for news programming, and data analytics, which accounted for approximately 5% of our consolidated revenue for the year ended December 31, 2022. Our mobile and other revenue for the year ended December 31, 2022 accounted for approximately 1% of our consolidated revenue.

Revenue is impacted by rate increases, promotional offerings, changes in the number of customers that subscribe to our services, including additional services sold to our existing customers, programming package changes by our video customers, speed tier changes by our broadband customers, and acquisitions and construction of cable systems that result in the addition of new customers. Additionally, the allocation of revenue between the residential offerings is impacted by changes in the standalone selling price of each performance obligation within our promotional bundled offers.

Our ability to increase the number of customers to our services is significantly related to our penetration rates.

We operate in a highly competitive consumer-driven industry and we compete against a variety of broadband, video, mobile, fixed wireless broadband and fixed-line telephony providers and delivery systems, including broadband communications companies, wireless data and telephony providers, fiber-based service providers, satellite delivered video signals, Internet-delivered video content and broadcast television signals available to residential and business customers in our service areas. Our competitors include AT&T, DirecTV, DISH, Frontier, Lumen Technologies, Inc., T-Mobile US, and Verizon. Consumers' selection of an alternate source of service, whether due to economic constraints, technological advances, or preference, negatively impacts the demand for our services. For more information on our competitive landscape, see "Risk Factors" and "Business-Competition" included herein.

Our programming costs, which are the most significant component of our operating expenses, are impacted by increases in contractual rates, new channel launches, and by changes in the number of customers receiving certain programming services. We expect contractual rates to increase in the future. See "Results of Operations" below for more information regarding the key factors impacting our revenues and operating expenses.

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Historically, we have made substantial investments in our network and the development of new and innovative products and other service offerings for our customers as a way of differentiating ourselves from our competitors and we expect to do so in the future. Our ongoing FTTH network build, with planned upgrades, will enable us to deliver multi-gig broadband speeds to FTTH customers in order to meet the growing data needs of residential and business customers. In addition, we have launched a full service mobile offering to consumers across our footprint. We may incur greater than anticipated capital expenditures in connection with these initiatives, fail to realize anticipated benefits, experience delays and business disruptions or encounter other challenges to executing them as planned. See "Liquidity and Capital Resources-Capital Expenditures" for additional information regarding our capital expenditures.

Certain Transactions

The following transactions had an impact in the periods covered by this Management's Discussion and Analysis of Financial Condition and Results of Operations:

In June 2021, Lightpath completed an acquisition for a net purchase price of approximately $28,260 and the operating results of the acquired business were consolidated as of the acquisition date.

In April 2021, the Company completed its acquisition of the cable assets of Morris Broadband, LLC ("Morris Broadband") in North Carolina for approximately $312,184 and the operating results of the acquired business were consolidated as of the acquisition date.

Non-GAAP Financial Measures

We define Adjusted EBITDA, which is a non-GAAP financial measure, as net income (loss) excluding income taxes, 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, interest expense, net, depreciation and amortization, share-based compensation, restructuring expense and other operating items (such as significant legal settlements, contractual payments for terminated employees, and impairments). See reconciliation of net income to Adjusted EBITDA below.

Adjusted EBITDA eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of our business and from intangible assets recognized from acquisitions, as well as certain non-cash and other operating items that affect the period-to-period comparability of our operating performance. In addition, Adjusted EBITDA is unaffected by our capital and tax structures and by our investment activities.

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 Operating Free Cash Flow (defined as Adjusted EBITDA less cash capital expenditures), and Free Cash Flow (defined as net cash flows from operating activities less cash capital expenditures) as indicators of the Company’s financial performance. We believe these measures are two of several benchmarks used by investors, analysts and peers for comparison of performance in our industry, although they may not be directly comparable to similar measures reported by other companies.

We revised our definition of Adjusted EBITDA in the fourth quarter of 2022 to exclude the impact of significant legal settlements. This revision did not impact amounts reported in prior periods.

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Results of Operations

[[GREPCENT_TABLE]]
[["","Altice USA"],["","Years Ended December 31,","","Favorable (Unfavorable)"],["","2022","","2021"],["Revenue:"],["Residential:"],["Broadband","$","3,930,667","","","$","3,925,089","","","$","5,578"],["Video","3,281,306","","","3,526,205","","","(244,899)"],["Telephony","332,406","","","404,813","","","(72,407)"],["Business services and wholesale","1,473,837","","","1,586,044","","","(112,207)"],["News and advertising","520,293","","","550,667","","","(30,374)"],["Mobile","97,679","","","84,194","","","13,485"],["Other","11,471","","","13,837","","","(2,366)"],["Total revenue","9,647,659","","","10,090,849","","","(443,190)"],["Operating expenses:"],["Programming and other direct costs","3,205,638","","","3,382,129","","","176,491"],["Other operating expenses","2,735,469","","","2,379,765","","","(355,704)"],["Restructuring expense and other operating items","130,285","","","17,176","","","(113,109)"],["Depreciation and amortization (including impairments)","1,773,673","","","1,787,152","","","13,479"],["Operating income","1,802,594","","","2,524,627","","","(722,033)"],["Other income (expense):"],["Interest expense, net","(1,331,636)","","","(1,266,591)","","","(65,045)"],["Loss on investments, net","(659,792)","","","(88,898)","","","(570,894)"],["Gain on derivative contracts, net","425,815","","","85,911","","","339,904"],["Gain on interest rate swap contracts","271,788","","","92,735","","","179,053"],["Loss on extinguishment of debt and write-off of deferred financing costs","(575)","","","(51,712)","","","51,137"],["Other income, net","8,535","","","9,835","","","(1,300)"],["Income before income taxes","516,729","","","1,305,907","","","(789,178)"],["Income tax expense","(295,840)","","","(294,975)","","","(865)"],["Net income","220,889","","","1,010,932","","","(790,043)"],["Net income attributable to noncontrolling interests","(26,326)","","","(20,621)","","","(5,705)"],["Net income attributable to Altice USA, Inc. stockholders","$","194,563","","","$","990,311","","","$","(795,748)"]]
[[/GREPCENT_TABLE]]

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The following is a reconciliation of net income to Adjusted EBITDA and Operating Free Cash Flow:

[[GREPCENT_TABLE]]
[["","Altice USA"],["","Years Ended December 31,"],["","2022","","2021"],["Net income","$","220,889","","","$","1,010,932"],["Income tax expense","295,840","","","294,975"],["Other income, net","(8,535)","","","(9,835)"],["Gain on interest rate swap contracts","(271,788)","","","(92,735)"],["Gain on derivative contracts, net","(425,815)","","","(85,911)"],["Loss on investments, net","659,792","","","88,898"],["Loss on extinguishment of debt and write-off of deferred financing costs","575","","","51,712"],["Interest expense, net","1,331,636","","","1,266,591"],["Depreciation and amortization","1,773,673","","","1,787,152"],["Restructuring expense and other operating items","130,285","","","17,176"],["Share-based compensation","159,985","","","98,296"],["Adjusted EBITDA","3,866,537","","","4,427,251"],["Capital expenditures (cash)","1,914,282","","","1,231,715"],["Operating Free Cash Flow","$","1,952,255","","","$","3,195,536"]]
[[/GREPCENT_TABLE]]

The following is a reconciliation of net cash flow from operating activities to Free Cash Flow:

[[GREPCENT_TABLE]]
[["","Altice USA"],["","Years Ended December 31,"],["","2022","","2021"],["Net cash flows from operating activities","$","2,366,901","","","$","2,854,078"],["Less: Capital expenditures (cash)","1,914,282","","","1,231,715"],["Free Cash Flow","$","452,619","","","$","1,622,363"]]
[[/GREPCENT_TABLE]]

The following table sets forth certain customer metrics, excluding our mobile customers, for the Company (unaudited):

[[GREPCENT_TABLE]]
[["","December 31,","","Increase (Decrease)"],["","2022","","2021"],["Total passings (a)","9,463.8","","","9,263.3","","","200.5"],["Total customer relationships (b)","4,879.7","","","5,014.7","","","(135.0)"],["Residential","4,498.5","","","4,632.8","","","(134.3)"],["SMB","381.2","","","381.9","","","(0.7)"],["Residential customers:"],["Broadband","4,282.9","","","4,386.2","","","(103.3)"],["Video","2,439.0","","","2,732.3","","","(293.3)"],["Telephony","1,764.1","","","2,005.2","","","(241.1)"],["Penetration of total passings (c)","51.6","%","","54.1","%","","(2.5)","%"],["ARPU(d)","$","134.76","","","$","137.79","","","$","(3.03)"],["FTTH total passings (e)","2,158.7","","","1,171.0","","","987.8"],["FTTH customer relationships (f)","171.7","","","69.7","","","102.1"],["FTTH Residential","170.0","","","69.3","","","100.7"],["FTTH SMB","1.7","","","0.3","","","1.4"],["Penetration of FTTH total passings (g)","8.0","%","","5.9","%","","2.0","%"]]
[[/GREPCENT_TABLE]]

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(a)Represents the estimated number of single residence homes, apartments and condominium units passed by our HFC and FTTH network in areas serviceable without further extending the transmission lines. In addition, it includes commercial establishments that have connected to our HFC and FTTH network. Broadband services were not available to approximately 30 thousand passings and telephony services were not available to approximately 500 thousand passings.

(b)Represents number of households/businesses that receive at least one of the Company's fixed-line services. Customers represent each customer account (set up and segregated by customer name and address), weighted equally and counted as one customer, regardless of size, revenue generated, or number of boxes, units, or outlets on our HFC and FTTH network.  Free accounts are included in the customer counts along with all active accounts, but they are limited to a prescribed group.  Most of these accounts are also not entirely free, as they typically generate revenue through pay-per-view or other pay services and certain equipment fees.  Free status is not granted to regular customers as a promotion.  In counting bulk residential customers, such as an apartment building, we count each subscribing family unit within the building as one customer, but do not count the master account for the entire building as a customer. We count a bulk commercial customer, such as a hotel, as one customer, and do not count individual room units at that hotel. Amounts as of December 31, 2021 include 37.3 thousand customer relationships (35.1 thousand residential and 2.2 thousand SMB) that were acquired from Morris Broadband in April 2021.

(c)Represents the number of total customer relationships divided by total passings.

(d)Calculated by dividing the average monthly revenue for the respective quarter (fourth quarter for annual periods) derived from the sale of broadband, video and telephony services to residential customers by the average number of total residential customers for the same period.

(e)Represents the estimated number of single residence homes, apartments and condominium units passed by the FTTH network in areas serviceable without further extending the transmission lines. In addition, it includes commercial establishments that have connected to our FTTH network.

(f)Represents number of households/businesses that receive at least one of the Company's fixed-line services on our FTTH network. FTTH customers represent each customer account (set up and segregated by customer name and address), weighted equally and counted as one customer, regardless of size, revenue generated, or number of boxes, units, or outlets on our FTTH network. Free accounts are included in the customer counts along with all active accounts, but they are limited to a prescribed group.  Most of these accounts are also not entirely free, as they typically generate revenue through pay-per view or other pay services and certain equipment fees.  Free status is not granted to regular customers as a promotion.  In counting bulk residential customers, such as an apartment building, we count each subscribing family unit within the building as one customer, but do not count the master account for the entire building as a customer. We count a bulk commercial customer, such as a hotel, as one customer, and do not count individual room units at that hotel.

(g)Represents the number of total FTTH customer relationships divided by FTTH total passings.

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Comparison of Results for the Year Ended December 31, 2022 to Results for the Year Ended December 31, 2021

Broadband Revenue

Broadband revenue for the years ended December 31, 2022 and 2021 was $3,930,667 and $3,925,089, respectively. Broadband revenue is derived principally through monthly charges to residential subscribers of our broadband services. Revenue is impacted by rate increases, promotional offerings, changes in the number of customers, and changes in speed tiers. Additionally, the allocation of revenue between the residential offerings is impacted by changes in the standalone selling price of each performance obligation within our promotional bundled offers.

Broadband revenue increased $5,578 for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase for the year ended December 31, 2022 was due primarily to higher average recurring broadband revenue per broadband customer, primarily driven by certain rate increases, service level changes and a decrease in certain promotional offerings, partially offset by a decrease in broadband customers.

Video Revenue

Video revenue for the years ended December 31, 2022 and 2021 was $3,281,306 and $3,526,205, respectively. Video revenue is derived principally through monthly charges to residential customers of our video services. Revenue is impacted by rate increases, promotional offerings, changes in the number of customers, additional services sold to our existing customers, and changes in programming packages. Additionally, the allocation of revenue between the residential offerings is impacted by changes in the standalone selling price of each performance obligation within our promotional bundled offers.

Video revenue decreased $244,899 (7%) for the year ended December 31, 2022 compared to the year ended December 31, 2021. The decrease was due primarily to a decline in video customers, partially offset by higher average recurring video revenue per video customer, primarily driven by certain rate increases.

Telephony Revenue

Telephony revenue for the years ended December 31, 2022 and 2021 was $332,406 and $404,813, respectively. Telephony revenue is derived principally through monthly charges to residential customers of our telephony services. Revenue is impacted by changes in rates for services, promotional offerings, changes in the number of customers, and additional services sold to our existing customers. Additionally, the allocation of revenue between the residential offerings is impacted by changes in the standalone selling price of each performance obligation within our promotional bundled offers.

Telephony revenue decreased $72,407 (18%) for the year ended December 31, 2022 compared to the year ended December 31, 2021. The decrease was due to a decline in telephony customers and lower average recurring revenue per telephony customer.

Business Services and Wholesale Revenue

Business services and wholesale revenue for the years ended December 31, 2022 and 2021 was $1,473,837 and $1,586,044, respectively. Business services and wholesale revenue is derived primarily from the sale of fiber-based telecommunications services to the business market, and the sale of broadband, video and telephony services to SMB customers.

Business services and wholesale revenue decreased $112,207 (7%) for the year ended December 31, 2022 compared to the year ended December 31, 2021. Approximately $121,553 of the decrease for the year ended December 31, 2022 was due to an early termination of a backhaul contract in 2021 which resulted in the recognition of deferred revenue and termination fees over the amended term in the prior year. Partially offsetting the decrease was an increase in SMB revenue, due primarily to higher average recurring broadband revenue per SMB customer, primarily driven by certain rate increases and service level changes, partially offset by lower SMB video and telephony revenue.

News and Advertising Revenue

News and advertising revenue for the years ended December 31, 2022 and 2021 was $520,293 and $550,667, respectively. News and advertising revenue is primarily derived from the sale of (i) advertising inventory available on the programming carried on our cable television systems (linear revenue), (ii) digital advertising, (iii) branded content, and (iv) data analytics. News and advertising revenue also includes affiliation fees for news programming.

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News and advertising revenue decreased $30,374 (6%) for the year ended December 31, 2022 compared to the year ended December 31, 2021. The decrease was primarily due to a decrease in advertising revenue from non-political linear and non-political digital advertising, partially offset by an increase in political advertising spending.

Mobile Revenue

Mobile revenue for the years ended December 31, 2022 and 2021 was $97,679 and $84,194, respectively, and relates to sales of devices and mobile services. As of December 31, 2022, we had approximately 240,000 mobile lines as compared to approximately 186,000 lines as of December 31, 2021.

Other Revenue

Other revenue for the years ended December 31, 2022 and 2021 was $11,471 and $13,837, respectively. Other revenue includes revenue from other miscellaneous revenue streams.

Programming and Other Direct Costs

Programming and other direct costs for the years ended December 31, 2022 and 2021 amounted to $3,205,638 and $3,382,129, respectively. Programming and other direct costs include cable programming costs, which are costs paid to programmers (net of amortization of any incentives received from programmers for carriage) for cable content (including costs of VOD and pay-per-view) and are generally paid on a per-customer basis. These costs are impacted by increases in contractual rates, new channel launches, and by changes in the number of customers receiving certain programming services. These costs also include interconnection, call completion, circuit and transport fees paid to other telecommunication companies for the transport and termination of voice and data services, which typically vary based on rate changes and the level of usage by our customers. These costs also include franchise fees which are payable to the state governments and local municipalities where we operate and are primarily based on a percentage of certain categories of revenue derived from the provision of video service over our cable systems, which vary by state and municipality. These costs change in relation to changes in such categories of revenues or rate changes. Additionally, these costs include the costs of mobile devices sold to our customers and direct costs of providing mobile services.

The decrease of $176,491 (5%) for the year ended December 31, 2022, as compared to the prior year was primarily attributable to the following:

[[GREPCENT_TABLE]]
[["Decrease in programming costs primarily due to lower video customers, partially offset by net contractual rate increases","$","(117,213)"],["Decrease in taxes and surcharges","(24,875)"],["Decrease in digital media and linear advertising spots for resale costs","(16,776)"],["Decrease in franchise fee costs due to lower video revenue","(13,535)"],["Other net decreases","(4,092)"],["","$","(176,491)"]]
[[/GREPCENT_TABLE]]

Programming costs

Programming costs aggregated $2,627,416 and $2,744,629 for the years ended December 31, 2022 and 2021, respectively. Our programming costs in 2023 will continue to be impacted by changes in programming rates, which we expect to increase, and by changes in the number of video customers.

Other Operating Expenses

Other operating expenses for the years ended December 31, 2022 and 2021 amounted to $2,735,469 and $2,379,765, respectively. Other operating expenses include staff costs and employee benefits including salaries of company employees and related taxes, benefits and other employee related expenses, as well as third-party labor costs. Other operating expenses also include network management and field service costs, which represent costs associated with the maintenance of our broadband network, including costs of certain customer connections and other costs associated with providing and maintaining services to our customers.

Customer installation and network repair and maintenance costs may fluctuate as a result of changes in the level of activities and the utilization of contractors as compared to employees. Also, customer installation costs fluctuate as the portion of our expenses that we are able to capitalize changes. Costs associated with the initial deployment of new customer premise equipment necessary to provide broadband, video and telephony services are capitalized (asset-based). The redeployment of customer premise equipment is expensed as incurred.

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Other operating expenses also include costs related to our call center operations that handle customer inquiries and billing and collection activities, and sales and marketing costs, which include advertising production and placement costs associated with acquiring and retaining customers. These costs vary period to period and certain of these costs, such as sales and marketing, may increase with intense competition. Additionally, other operating expenses include various other administrative costs.

The increase in other operating expenses of $355,704 (15%) for the year ended December 31, 2022 as compared to the prior year was attributable to the following:

[[GREPCENT_TABLE]]
[["Net increase in labor costs and benefits, partially offset by an increase in capitalizable activity","$","157,899"],["Increase in share-based compensation costs","61,689"],["Increase in repairs and maintenance costs, net of capitalizable activity, including costs to rebrand our Suddenlink services to Optimum","54,241"],["Increase in marketing costs, primarily due to costs to rebrand our Suddenlink services to Optimum","25,020"],["Increase in bad debt","19,349"],["Other net increases, net of capitalizable activity","37,506"],["","$","355,704"]]
[[/GREPCENT_TABLE]]

Restructuring Expense and Other Operating Items

Restructuring expense and other operating items for the year ended December 31, 2022 amounted to $130,285, as compared to $17,176 for the year ended December 31, 2021 and comprised of the following:

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2022","","2021"],["Contractual payments for terminated employees","$","4,002","","","$","6,227"],["Facility realignment costs","5,652","","","2,551"],["Impairment of right-of-use operating lease assets","3,821","","","6,701"],["Transaction costs related to certain transactions not related to the Company's operations","4,310","","","1,697"],["Litigation settlement (a)","112,500","","","\u2014"],["","$","130,285","","","$","17,176"]]
[[/GREPCENT_TABLE]]

(a)Represents the settlement amount of the Sprint litigation discussed in Note 17 to our consolidated financial statements.

We may incur additional contractual payments for terminated employee related costs and facility realignment costs in the future as we continue to analyze our organizational structure.

Depreciation and Amortization (including impairments)

Depreciation and amortization (including impairments) for the years ended December 31, 2022 and 2021 amounted to $1,773,673 and $1,787,152, respectively.

The decrease in depreciation and amortization of $13,479 (1%) for the year ended December 31, 2022 as compared to 2021 was due to lower amortization expense on intangible assets, partially offset by higher depreciation expense resulting from increased asset additions in 2022.

Adjusted EBITDA

Adjusted EBITDA amounted to $3,866,537 and $4,427,251 for the years ended December 31, 2022 and 2021, respectively.

Adjusted EBITDA is a non-GAAP measure that is defined as net income (loss) excluding income taxes, 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, interest expense, net, depreciation and amortization (including impairments), share-based compensation, restructuring expense and other operating items (such as significant legal settlements, contractual payments for terminated employees, and impairments). See reconciliation of net income (loss) to adjusted EBITDA above.

55

The decrease in adjusted EBITDA for the year ended December 31, 2022 as compared to the prior year was due to the decrease in revenue and an increase in operating expenses during 2022 (excluding depreciation and amortization, restructuring and other operating items and share-based compensation), as discussed above.

Operating Free Cash Flow

Operating free cash flow was $1,952,255 and $3,195,536 for the years ended December 31, 2022 and 2021, respectively. The decrease in operating free cash flow for 2022 as compared to 2021 is due to an increase in cash capital expenditures and a decrease in adjusted EBITDA.

Free Cash Flow

Free cash flow was $452,619 and $1,622,363 for the years ended December 31, 2022 and 2021, respectively. The decrease in free cash flow in 2022 as compared to 2021 is primarily due to an increase in cash capital expenditures and a decrease in cash from operating activities.

Interest expense, net

Interest expense, net was $1,331,636 and $1,266,591 for the years ended December 31, 2022 and 2021, respectively. The increase of $65,045 (5%) for the year ended December 31, 2022 as compared to the year ended December 31, 2021 was attributable to the following:

[[GREPCENT_TABLE]]
[["Increase primarily due to an increase in interest rates, partially offset by a decrease in average debt balances","$","97,008"],["Capitalized interest related to FTTH network construction","(15,431)"],["Higher interest income","(3,259)"],["Other net decreases, primarily lower amortization of deferred financing costs and original issue discounts","(13,273)"],["","$","65,045"]]
[[/GREPCENT_TABLE]]
Loss on Investments, net

Loss on investments, net for the years ended December 31, 2022 and 2021 of $659,792 and $88,898 consists primarily of the decrease in the fair value of the Comcast common stock owned by the Company. The effects of these losses are partially offset by the gains on the related equity derivative contracts, net described below.

Gain on Derivative Contracts, net

Gain on derivative contracts, net amounted to $425,815 and $85,911 for the years ended December 31, 2022 and 2021, respectively, and includes realized and unrealized gains due to the change in fair value of equity derivative contracts relating to the Comcast common stock owned by the Company. The effects of these gains are offset by losses on investment securities pledged as collateral, which are included in loss on investments, net discussed above.

Gain on Interest Rate Swap Contracts

Gain on interest rate swap contracts amounted to $271,788 and $92,735 for the years ended December 31, 2022 and 2021, respectively. These amounts represent the change in the fair value of interest rate swap contracts. These swap contracts are not designated as hedges for accounting purposes.

Loss on Extinguishment of Debt and Write-off of Deferred Financing Costs

Loss on extinguishment of debt and write-off of deferred financing costs amounted to $575 and $51,712 for the years ended December 31, 2022 and 2021, respectively.

56

The following table provides a summary of the loss on extinguishment of debt and the write-off of deferred financing costs recorded by the Company:

[[GREPCENT_TABLE]]
[["","Years ended December 31,"],["","2022","","2021"],["Repayment of CSC Holdings 5.500% Senior Guaranteed Notes due 2026","$","\u2014","","","$","51,712"],["Refinancing of Term Loan B and Incremental Term Loan B-3","575","","","\u2014"],["","$","575","","","$","51,712"]]
[[/GREPCENT_TABLE]]
Other Income, Net

Other income, net amounted to $8,535 and $9,835 for the years ended December 31, 2022 and 2021, respectively. These amounts include the non-service benefit (cost) components of the Company's pension plans of ($1,908) and $3,860, for the years ended December 31, 2022 and 2021, respectively, and dividends received on Comcast common stock owned by the Company.

Income Tax Expense

The Company recorded income tax expense of $295,840 for the year ended December 31, 2022, resulting in an effective tax rate of 57% which is higher than the U.S. federal statutory tax rate of 21%. The primary difference between the effective tax rate and the statutory tax rate is due to nondeductible officer’s and share-based compensation expense, state income taxes, net of the federal benefit, a revaluation of state deferred taxes primarily due to certain changes to the state tax rates used to measure the Company’s deferred tax liabilities, and certain other non-deductible expenses.

During the fourth quarter of 2022, the New York State Division of Tax Appeals published a decision for Charter Communications, Inc. versus New York State whereby it concluded that each corporation in a combined reporting group would have to separately qualify as a qualified emerging technology company (“QETC”) to use the preferential QETC tax rate. As the Company had been historically using the QETC rate at the combined reporting group level, it recorded a cumulative income tax expense of $157,300 that included both a revaluation of state deferred taxes and an increase to the Company's uncertain tax positions reserve for tax years 2017 through 2022 based on this published decision.

The Company recorded income tax expense of $294,975 for the year ended December 31, 2021, resulting in an effective tax rate of 23% which is higher than the U.S. federal statutory tax rate of 21%. The primary difference between the effective tax rate and the statutory tax rate is due to nondeductible officer’s and share-based compensation expense, state income taxes, net of the federal benefit, a revaluation of state deferred taxes primarily due to certain changes to the state tax rates used to measure the Company’s deferred tax liabilities, a tax benefit associated with internal restructuring and opportunity zone related investments, and certain other non-deductible expenses.

57

CSC HOLDINGS, LLC

The consolidated statements of operations of CSC Holdings are essentially identical to the consolidated statements of operations of Altice USA, except for the following:

[[GREPCENT_TABLE]]
[["","CSC Holdings"],["","Years ended December 31,"],["","2022","","2021"],["","(in thousands)"],["Net income attributable to Altice USA stockholders","$","194,563","","","$","990,311"],["Less: items included in Altice USA's consolidated statements of operations:"],["Income tax expense (benefit)","3,688","","","(2,135)"],["Net income attributable to CSC Holdings' sole member","$","198,251","","","$","988,176"]]
[[/GREPCENT_TABLE]]

The following is a reconciliation of CSC Holdings' net income to Adjusted EBITDA and Operating Free Cash Flow:

[[GREPCENT_TABLE]]
[["","CSC Holdings"],["","Years ended December 31,"],["","2022","","2021"],["Net income","$","224,577","","","$","1,008,797"],["Income tax expense","292,152","","","297,110"],["Other income, net","(8,535)","","","(9,835)"],["Gain on interest rate swap contracts, net","(271,788)","","","(92,735)"],["Gain on derivative contracts, net","(425,815)","","","(85,911)"],["Loss on investments, net","659,792","","","88,898"],["Loss on extinguishment of debt and write-off of deferred financing costs","575","","","51,712"],["Interest expense, net","1,331,636","","","1,266,591"],["Depreciation and amortization","1,773,673","","","1,787,152"],["Restructuring expense and other operating items","130,285","","","17,176"],["Share-based compensation","159,985","","","98,296"],["Adjusted EBITDA","$","3,866,537","","","4,427,251"],["Capital expenditures (cash)","1,914,282","","","1,231,715"],["Operating Free Cash Flow","$","1,952,255","","","$","3,195,536"]]
[[/GREPCENT_TABLE]]

Refer to Altice USA's Management's Discussion and Analysis of Financial Condition and Results of Operations herein.

The following is a reconciliation of net cash flow from operating activities to Free Cash Flow:

[[GREPCENT_TABLE]]
[["","CSC Holdings"],["","Years ended December 31,"],["","2022","","2021"],["Net cash flows from operating activities","$","2,366,901","","","$","2,823,934"],["Capital expenditures (cash)","1,914,282","","","1,231,715"],["Free Cash Flow","$","452,619","","","$","1,592,219"]]
[[/GREPCENT_TABLE]]

58

LIQUIDITY AND CAPITAL RESOURCES

Altice USA has no operations independent of its subsidiaries. Funding for our subsidiaries has generally been provided by cash flow from their respective operations, cash on hand and borrowings under the CSC Holdings revolving credit facility and the proceeds from the issuance of securities and borrowings under syndicated term loans in the capital markets. Our decision as to the use of cash generated from operating activities, cash on hand, borrowings under the revolving credit facility or accessing the capital markets has been based upon an ongoing review of the funding needs of the business, the optimal allocation of cash resources, the timing of cash flow generation and the cost of borrowing under the revolving credit facility, debt securities and syndicated term loans. We target a year-end leverage ratio of 4.5x to 5.0x for CSC Holdings over time. We calculate our CSC Holdings net leverage ratio as net debt to L2QA EBITDA (Adjusted EBITDA for the two most recent consecutive fiscal quarters multiplied by 2.0).

We expect to utilize free cash flow and availability under the CSC Holdings revolving credit facility, as well as future refinancing transactions, to further extend the maturities of, or reduce the principal on, our debt obligations. The timing and terms of any refinancing transactions will be subject to, among other factors, market conditions. Additionally, we may, from time to time, depending on market conditions and other factors, use cash on hand and the proceeds from other borrowings to repay the outstanding debt securities through open market purchases, privately negotiated purchases, tender offers, or redemptions.

We believe existing cash balances, operating cash flows and availability under the CSC Holdings revolving credit facility will provide adequate funds to support our current operating plan, make planned capital expenditures and fulfill our debt service requirements for the next twelve months. However, our ability to fund our operations, make planned capital expenditures, make scheduled payments on our indebtedness and repay our indebtedness depends on our future operating performance and cash flows and our ability to access the capital markets, which, in turn, are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond our control. Competition, market disruptions or a deterioration in economic conditions could lead to lower demand for our products, as well as lower levels of advertising, and increased incidence of customers' inability to pay for the services we provide. These events would adversely impact our results of operations, cash flows and financial position. Although we currently believe amounts available under the CSC Holdings revolving credit facility will be available when, and if, needed, we can provide no assurance that access to such funds will not be impacted by adverse conditions in the financial markets or other conditions. The obligations of the financial institutions under the revolving credit facility are several and not joint and, as a result, a funding default by one or more institutions does not need to be made up by the others.

In the longer term, we may not be able to generate sufficient cash from operations to fund anticipated capital expenditures, meet all existing future contractual payment obligations and repay our debt at maturity. As a result, we could be dependent upon our continued access to the capital and credit markets to issue additional debt or equity or refinance existing debt obligations. We intend to raise significant amounts of funding over the next several years to fund capital expenditures, repay existing obligations and meet other obligations, and the failure to do so successfully could adversely affect our business. If we are unable to do so, we will need to take other actions including deferring capital expenditures, selling assets, seeking strategic investments from third parties or reducing or eliminating stock repurchases and discretionary uses of cash.

59

Debt Outstanding

The following table summarizes the carrying value of our outstanding debt, net of unamortized deferred financing costs, discounts and premiums (excluding accrued interest) as of December 31, 2022, as well as interest expense for the year ended December 31, 2022.

[[GREPCENT_TABLE]]
[["","CSC Holdings Restricted Group","","Lightpath","","Other Unrestricted Entities","","Altice USA/CSC Holdings"],["Debt outstanding:"],["Credit facility debt","$","8,488,017","","","$","575,478","","","$","\u2014","","","$","9,063,495"],["Senior guaranteed notes","7,638,443","","","\u2014","","","\u2014","","","7,638,443"],["Senior secured notes","\u2014","","","443,046","","","\u2014","","","443,046"],["Senior notes","6,916,148","","","408,090","","","\u2014","","","7,324,238"],["Subtotal","23,042,608","","","1,426,614","","","\u2014","","","24,469,222"],["Finance lease obligations","244,595","","","\u2014","","","\u2014","","","244,595"],["Notes payable and supply chain financing","127,635","","","\u2014","","","\u2014","","","127,635"],["Subtotal","23,414,838","","","1,426,614","","","\u2014","","","24,841,452"],["Collateralized indebtedness relating to stock monetizations (a)","\u2014","","","\u2014","","","1,746,281","","","1,746,281"],["Total debt","$","23,414,838","","","$","1,426,614","","","$","1,746,281","","","$","26,587,733"],["Interest expense:"],["Credit facility debt, senior notes, finance leases, notes payable and supply chain financing","$","1,180,422","","","$","76,357","","","$","\u2014","","","$","1,256,779"],["Collateralized indebtedness relating to stock monetizations (a)","\u2014","","","\u2014","","","78,276","","","78,276"],["Total interest expense","$","1,180,422","","","$","76,357","","","$","78,276","","","$","1,335,055"]]
[[/GREPCENT_TABLE]]

(a)This indebtedness was collateralized by shares of Comcast common stock. In January 2023 we settled this debt by delivering the Comcast shares we held and the related equity derivative contracts resulting in the receipt of cash of approximately $50,500.

See Note 11 to our consolidated financial statements for further information regarding our outstanding debt.

Payment Obligations Related to Debt

As of December 31, 2022, total amounts payable by us in connection with our outstanding obligations, including related interest, as well as notes payable and supply chain financing, and the value deliverable at maturity under monetization contracts, but excluding finance lease obligations are as follows (see Note 9 to our consolidated financial statements):

[[GREPCENT_TABLE]]
[["","CSC Holdings Restricted Group","","Lightpath","","Other Unrestricted Entities (a)","","Altice USA/ CSC Holdings"],["2023","$","1,519,076","","","$","84,918","","","$","1,776,378","","","$","3,380,372"],["2024","2,119,783","","","84,791","","","\u2014","","","2,204,574"],["2025 (b)","4,356,212","","","84,263","","","\u2014","","","4,440,475"],["2026","1,622,150","","","80,079","","","\u2014","","","1,702,229"],["2027","5,063,343","","","1,103,294","","","\u2014","","","6,166,637"],["Thereafter (c)","15,929,320","","","438,344","","","\u2014","","","16,367,664"],["Total","$","30,609,884","","","$","1,875,689","","","$","1,776,378","","","$","34,261,951"]]
[[/GREPCENT_TABLE]]

(a)Includes $1,776,378 related to the Company's collateralized indebtedness and related interest.  This indebtedness is collateralized by shares of Comcast common stock. In January 2023, the Company settled this debt by delivering shares of Comcast common stock and the related equity derivative contracts.

(b)Includes $1,575,000 principal amount and related interest related to the CSC Holdings' revolving credit facility that is due on the earlier of (i) July 13, 2027 and (ii) April 17, 2025 if, as of such date, any Term Loan B borrowings are still outstanding, unless the Term Loan B maturity date has been extended to a date falling after July 13, 2027.

60

(c)Includes $2,001,942 principal amount related to the CSC Holdings' Incremental Term Loan B-6 that is due on the earlier of (i) January 15, 2028 and (ii) April 15, 2027 if, as of such date, any Incremental Term Loan B-5 borrowings are still outstanding, unless the Incremental Term Loan B-5 maturity date has been extended to a date falling after January 15, 2028.

CSC Holdings Restricted Group

For financing purposes, the Company is structured as a restricted group (the "Restricted Group") and an unrestricted group, which includes certain designated subsidiaries and investments (the "Unrestricted Group"). The CSC Holdings Restricted Group is comprised of CSC Holdings and substantially all of its wholly-owned operating subsidiaries, excluding Lightpath which became an unrestricted subsidiary in September 2020. These subsidiaries are subject to the covenants and restrictions of the credit facility and indentures governing the notes issued by CSC Holdings.

Sources of cash for the Restricted Group include primarily cash flow from the operations of the businesses in the Restricted Group, borrowings under its credit facility and issuance of securities in the capital markets, contributions from its parent, and, from time to time, distributions or loans from its subsidiaries. The Restricted Group's principal uses of cash include: capital spending, in particular, the capital requirements associated with the upgrade of its digital broadband, video and telephony services, including costs to build our FTTH network; debt service; distributions made to its parent to fund share repurchases; other corporate expenses and changes in working capital; and investments that it may fund from time to time.

CSC Holdings Credit Facility

In October 2015, a wholly-owned subsidiary of Altice USA, which merged with and into CSC Holdings on June 21, 2016, entered into a senior secured credit facility, which currently provides U.S. dollar term loans currently in an aggregate principal amount of $3,000,000 ($1,535,842 outstanding at December 31, 2022) (the "CSC Term Loan Facility", and the term loans extended under the CSC Term Loan Facility, the "CSC Term Loans") and U.S. dollar revolving loan commitments in an aggregate principal amount of $2,475,000 ($1,575,000 outstanding at December 31, 2022) (the "CSC Revolving Credit Facility" and, together with the CSC Term Loan Facility, the "CSC Credit Facilities"), which are governed by a credit facilities agreement entered into by, inter alios, CSC Holdings, certain lenders party thereto and JPMorgan Chase Bank, N.A. as administrative agent and security agent (as amended, restated, supplemented or otherwise modified from time to time, the "CSC Credit Facilities Agreement").

In October 2018, CSC Holdings entered into a $1,275,000 ($527,014 outstanding at December 31, 2022) incremental term loan facility (the “Incremental Term Loan B-3”) and in October 2019, CSC Holdings entered into a $3,000,000 ($2,917,500 outstanding at December 31, 2022) incremental term loan facility ("Incremental Term Loan B-5") under its existing credit facilities agreement.

In July 2022, CSC Holdings entered into an amendment to its CSC Revolving Credit Facility that provided for, among other things, an extended maturity date of July 13, 2027 and in December 2022, CSC Holdings entered into a $2,001,942 incremental term loan facility (the "Incremental Term Loan B-6") under the CSC Holdings Credit Facilities Agreement.

During the year ended December 31, 2022, CSC Holdings borrowed $2,315,000 under its revolving credit facility and repaid $1,640,000 of amounts outstanding under the revolving credit facility.

See Note 11 to our consolidated financial statements for further information regarding the CSC Credit Facilities Agreement.

Senior Guaranteed Notes and Senior Notes

See Note 11 of our consolidated financial statements for further details of the Company’s outstanding senior guaranteed notes and senior notes.

As of December 31, 2022, CSC Holdings was in compliance with applicable financial covenants under its credit facility and with applicable financial covenants under each respective indenture by which the senior guaranteed notes and senior notes were issued.

Lightpath Credit Facility

In November 2020, Lightpath entered into a credit agreement which provides a term loan in an aggregate principal amount of $600,000 ($588,000 outstanding at December 31, 2022) and revolving loan commitments in an aggregate principal amount of $100,000. As of December 31, 2022, there were no borrowings outstanding under the Lightpath

61

revolving credit facility. See Note 11 to our consolidated financial statements for further information regarding the Lightpath credit agreement.

As of December 31, 2022, Lightpath was in compliance with applicable financial covenants under its credit agreement and with applicable financial covenants under each respective indenture by which its senior secured notes and senior notes were issued.

Lightpath Interest Rate Swap Contract

Lightpath entered into an interest rate swap contract, effective April 2022, on a notional amount of $300,000, whereby Lightpath pays interest of 2.161% through December 2026 and receives interest based on the one-month LIBOR rate. This swap contract is not designated as a hedge for accounting purposes. Accordingly, the changes in the fair value of this interest rate swap contract are recorded through the statement of operations.

Capital Expenditures

The following table presents the Company's capital expenditures:

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2022","","2021"],["Customer premise equipment","$","316,175","","","$","227,280"],["Network infrastructure","1,153,860","","","642,545"],["Support and other","270,149","","","235,314"],["Business services","174,098","","","126,576"],["Capital purchases (cash basis)","1,914,282","","","1,231,715"],["Right-of-use assets acquired in exchange for finance lease obligations","160,542","","","145,047"],["Notes payable issued to vendor for the purchase of equipment and other assets","132,452","","","89,898"],["Change in accrued and unpaid purchases and other","169,227","","","129,020"],["Capital purchases (accrual basis)","$","2,376,503","","","$","1,595,680"]]
[[/GREPCENT_TABLE]]

Customer premise equipment includes expenditures for set-top boxes, cable modems, routers and other equipment that is placed in a customer's home, as well as installation costs for placing assets into service. Network infrastructure includes: (i) scalable infrastructure, such as headend equipment, (ii) line extensions, such as FTTH and fiber/coaxial cable, amplifiers, electronic equipment, make-ready and design engineering, and (iii) upgrade and rebuild, including costs to modify or replace existing fiber/coaxial cable networks, including enhancements. Support and other capital expenditures includes costs associated with the replacement or enhancement of non-network assets, such as software systems, vehicles, facilities and office equipment. Business services capital expenditures include primarily equipment, installation, support, and other costs related to our fiber based telecommunications business serving primarily enterprise customers.

Cash Flow Discussion

Altice USA

Operating Activities

Net cash provided by operating activities amounted to $2,366,901 and $2,854,078 for the years ended December 31, 2022, and 2021, respectively. 

The decrease in cash provided by operating activities of $487,177 in 2022 as compared to 2021 resulted from a decrease in net income before depreciation and amortization and other non-cash items of $561,762, partially offset by an increase of $74,585 due to changes in working capital (including an increase in interest payments of $69,659 and a decrease in tax payments of $9,627), as well as the timing of payments and collections of accounts receivable, among other items.

Investing Activities

Net cash used in investing activities for the years ended December 31, 2022 and 2021 was $1,921,510 and $1,573,603, respectively. 

The 2022 investing activities consisted primarily of capital expenditures of $1,914,282.

62

The 2021 investing activities consisted primarily of capital expenditures of $1,231,715, and payment for acquisitions, net of cash acquired of $340,444.

Financing Activities

Net cash used in financing activities amounted to $335,906 and $1,362,524 for the years ended December 31, 2022 and 2021.

In 2022, the Company's financing activities consisted primarily of the repayment of debt of $4,469,727, and principal payments on finance lease obligations of $134,682, partially offset by net proceeds from long-term debt of $4,276,903.

In 2021, the Company's financing activities consisted primarily of the repayment of debt of $4,870,108, the purchase of common stock pursuant to a share repurchase program of $804,928, principal payments on finance lease obligations of $85,949, repayment of collateralized indebtedness and related derivative contracts, net of $185,105 and other net cash payments of $11,539, partially offset by net proceeds from long-term debt of $4,410,000 and proceeds from collateralized indebtedness and related derivative contracts, net of $185,105.

CSC Holdings

Operating Activities

Net cash provided by operating activities amounted to $2,366,901 and $2,823,934 for the years ended December 31, 2022 and 2021, respectively.

The decrease in cash provided by operating activities of $457,033 in 2022 as compared to 2021 resulted from a decrease in income from continuing operations before depreciation and amortization and other non-cash items of $558,119, partially offset by an increase of $101,086 due to changes in working capital (including an increase in interest payments of $69,659 and a decrease in tax payments of $9,627, as well as the timing of payments and collections of accounts receivable, among other items).

Investing Activities

Net cash used in investing activities for the years ended December 31, 2022 and 2021 was $1,921,510 and $1,573,603, respectively.

The 2022 investing activities consisted primarily of capital expenditures of $1,914,282.

The 2021 investing activities consisted primarily of capital expenditures of $1,231,715 and payments for acquisitions, net of cash acquired of $340,444.

Financing Activities

Net cash used in financing activities amounted to $333,356 and $1,334,453 for the years ended December 31, 2022 and 2021, respectively.

In 2022, the Company's financing activities consisted primarily of the repayment of long-term debt of $4,469,727, and principal payments on finance lease obligations of $134,682, partially offset by net proceeds from long-term debt of $4,276,903.

In 2021, the Company's financing activities consisted primarily of the repayment of long-term debt of $4,870,108, distribution to parent of $763,435, principal payments on finance lease obligations of $85,949, repayment of collateralized indebtedness and related derivative contracts, net of $185,105 and other net cash payments of $24,961, partially offset by net proceeds from long-term debt of $4,410,000 and proceeds from collateralized indebtedness and related derivative contracts, net of $185,105.

Contractual Obligations and Off Balance Sheet Commitments

Our contractual obligations as of December 31, 2022 consist primarily of our debt obligations, purchase obligations which primarily include contractual commitments with various programming vendors to provide video services to our customers and minimum purchase obligations to purchase goods or services, operating and finance lease obligations, outstanding letters of credit, and guarantees. Note 11 to our consolidated financial statements contains further information regarding our debt obligations, Note 17 contains information regarding our off-balance sheet obligations and Note 9 contains information regarding our leases.

63

Share Repurchase Program

In June 2018, the Board of Directors of Altice USA authorized a share repurchase program of $2,000,000, and on July 30, 2019, the Board of Directors authorized a new incremental three-year share repurchase program of $5,000,000 that took effect following the completion in August 2019 of the $2,000,000 repurchase program. In November 2020, the Board of Directors authorized an additional $2,000,000 of share repurchases, bringing the total amount of cumulative share repurchases authorized to $9,000,000. Under these repurchase programs, 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. Size and timing of these purchases will be determined based on market conditions and other factors.  

On November 23, 2020, the Company commenced a modified "Dutch auction" tender offer (the "Tender Offer") to purchase up to $2,500,000 in value of shares of its Class A Common Stock, at a price not greater than $36.00 per share nor less than $32.25 per share . The Tender Offer expired on December 21, 2020. On December 21, 2020, the Company accepted for purchase 64,613,479 shares of its Class A Common Stock, at a price of $36.00 per share, plus related fees, for an aggregate purchase price of $2,326,949. The aggregate purchase price of these shares (including the fees relating to the Tender Offer), is reflected in stockholders' equity (deficiency) in the consolidated balance sheet of Altice USA as of December 31, 2020.

For the year ended December 31, 2022, Altice USA did not repurchase any shares. For the years ended December 31, 2021 and 2020, Altice USA repurchased an aggregate of 23,593,728 and 161,216,653 shares, respectively, for a total purchase price of approximately $804,928 and $4,816,895, respectively. These acquired shares were retired and the cost of these shares was recorded in stockholders' equity (deficiency) in the consolidated balance sheet of Altice USA. From inception through December 31, 2022, Altice USA repurchased an aggregate of 285,507,773 shares for a total purchase price of approximately $7,808,698. As of December 31, 2022, Altice USA had approximately $1,191,302 of availability remaining under the incremental share repurchase program.

Managing our Interest Rate and Equity Price Risk

See "Item 7A. Quantitative and Qualitative Disclosures About Market Risk" for a discussion regarding interest rate risk and equity price risk.

Critical Accounting Policies and Estimates

In preparing its financial statements, the Company is required to make certain estimates, judgments and assumptions that it believes are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.

We believe that the application of the following accounting policy requires significant estimates and is the most critical to aid in fully understanding and evaluating our reported financial results:

Plant and Equipment

Costs incurred in the construction of the Company's cable systems, including line extensions to, and upgrade of, the Company's HFC infrastructure and construction of the parallel FTTH infrastructure, are capitalized. This includes headend facilities and initial placement of the feeder cable to connect a customer that had not been previously connected. These costs consist of materials, subcontractor labor, direct consulting fees, and internal labor and related costs associated with the construction activities (including interest related to FTTH construction). The internal costs that are capitalized consist of salaries and benefits of the Company's employees and the portion of facility costs, including rent, taxes, insurance and utilities, that supports the construction activities. These costs are depreciated over the estimated life of the plant (10 to 25 years) and headend facilities (5 to 25 years). Costs of operating the plant and the technical facilities, including repairs and maintenance, are expensed as incurred.

Costs associated with the initial deployment of new customer premise equipment ("CPE") necessary to provide broadband, video and telephony services are also capitalized. These costs include materials, subcontractor labor, internal labor, and other related costs associated with the connection activities. The departmental activities supporting the connection process are tracked through specific metrics, and the portion of departmental costs that is capitalized is determined through a time weighted activity allocation of costs incurred based on time studies used to estimate the average time spent on each activity. These installation costs are amortized over the estimated useful lives of the CPE necessary to provide broadband, video and telephony services. The portion of departmental costs related to disconnecting services and removing CPE from a customer, costs related to connecting CPE that has been previously connected to the network, and repair and maintenance are expensed as incurred.

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Recently Issued Accounting Standards

See Note 3 to the accompanying consolidated financial statements contained in "Part II. Item 8. Financial Statements and Supplementary Data" for a discussion of recently issued accounting standards.