Charter Announces First Quarter 2015 Results

STAMFORD, Conn., May 1, 2015 /PRNewswire/ -- Charter Communications, Inc. (along with its subsidiaries, the "Company" or "Charter") today reported financial and operating results for the three months ended March 31, 2015.

Key highlights:

• First quarter revenues of $2.4 billion grew 7.3%¹ as compared to the prior-year period, driven by residential revenue growth of 6.7% and commercial revenue growth of 14.8%.
• First quarter Adjusted EBITDA² grew by 4.2% year-over-year. Excluding first quarter Comcast transactions transition costs of $21 million, Adjusted EBITDA grew by 7.0% year-over-year.
• Capital expenditures totaled $351 million in the first quarter of 2015, compared to $539 million during the first quarter of 2014.
• Residential customer relationships increased by 86,000 during the first quarter, versus 112,000 during the first quarter of 2014. For the twelve months ending March 31, 2015, residential customer relationships grew by 4.5%, or 254,000.
• Residential primary service units ("PSUs") increased by 160,000 during the first quarter versus a gain of 206,000 in the prior-year period.

"Our first quarter results continue to demonstrate the sustainable growth trajectory of our operating strategy to provide high quality products and service at an attractive price," said Tom Rutledge, President and CEO of Charter Communications. "Our continued customer relationship growth reflects the growing value and utility of our offerings and higher levels of customer satisfaction. Our subscriber and revenue growth, combined with declining capital intensity, is leading to meaningful free cash flow growth."

 

During the first quarter of 2015, Charter's residential customer relationships grew by 86,000, with triple play sell-in improving year-over-year, to 64% of total residential video sales. Commercial customer relationships grew by 12,000 in the first quarter of 2015. Residential PSUs increased by 160,000, while commercial PSUs increased 21,000 during the first quarter.

As of the end of the first quarter of 2015, 85% of Charter's residential customers received Charter Spectrum products. Charter Spectrum is an industry-leading suite of video, data, and voice services, launched in 2014, that includes over 200 HD channels, in addition to minimum offered Internet speeds of 60 Mbps, and a fully featured voice service, delivered at a highly competitive price. At the end of first quarter, virtually all of Charter's passings were fully digitized, with access to more HD channels than satellite TV offers, and 96% of video customers subscribed to the Company's expanded basic video product.

Residential video customers decreased by 7,000 in the first quarter of 2015, versus a gain of 18,000 in the year-ago period. During the first quarter 2015, Charter had 15,000 fewer bulk digital upgrade net additions than it did during the first quarter of 2014.

For the past two years Charter has significantly increased the competitiveness of its video product, by including more HD channels and video on demand offerings, attractive packaging of advanced services, improved selling methods, and enhanced service quality. In the coming months, Charter will introduce its new cloud-based user interface, Spectrum Guide, to its video customers in certain markets. Spectrum Guide makes video content search and discovery easier for customers, and fully enables Charter's on-demand offering. In addition, Spectrum Guide will function on nearly all of Charter's deployed set-tops.

Charter added 125,000 residential Internet customers in the first quarter of 2015, compared to 136,000 a year ago. As of March 31, 2015, 85% of Charter's residential Internet customers subscribed to tiers that provided speeds of 60 Mbps or more. The Company continues to see strong demand for its Internet service as consumers value the speed and reliability of Charter's Internet offering.

During the first quarter, the Company added 42,000 residential voice customers, versus a gain of 52,000 during the first quarter of 2014.

First quarter residential revenue per customer relationship totaled $112.25, and grew by 1.8% as compared to the prior-year period, driven by rate adjustments, higher product sell-in and promotional rate step-ups, partially offset by continued single play Internet sell-in and bulk digital upgrades.

Revenue

First quarter 2015 revenues rose to $2.4 billion, 7.3% higher than the year-ago quarter, driven primarily by growth in Internet, commercial and video revenues.

Video revenues totaled $1.1 billion in the first quarter, an increase of 3.5% compared to the prior-year period. Video revenue growth was driven by higher advanced services penetration, annual and promotional rate adjustments, and higher expanded basic and digital penetration, partially offset by a decrease in residential limited basic video customers.

Internet revenues grew 16.4% compared to the year-ago quarter to $717 million, driven by an increase of 372,000 Internet customers during the last year and by promotional rolloff, price adjustments and revenue allocation from higher bundling.

Voice revenues totaled $134 million, a decline of 10.2% versus the first quarter of 2014, due to value-based pricing and revenue allocation from higher bundling, partially offset by the addition of 156,000 voice customers in the last twelve months.

Commercial revenues rose to $269 million, an increase of 14.8% over the prior-year period, and was driven by higher sales to small and medium business customers and to carrier customers.

First quarter advertising sales revenues of $66 million decreased 2.0% compared to the year-ago quarter.

Operating Costs and Expenses

First quarter total operating costs and expenses increased by $127 million, or 8.9%, compared to the year-ago period, reflecting increases in programming costs, other expenses, transition costs related to to Charter's previous transactions with Comcast and costs to service customers. Transition costs accounted for $21 million of total first quarter operating costs. Excluding these transition costs, first quarter total operating expenses increased by $106 million, or 7.4% year over year.

First quarter programming expense increased by $60 million, or 10.1%, as compared to the first quarter of 2014, reflecting contractual programming increases, a 0.9% increase in expanded basic package customers over the last twelve months, broader carriage of certain networks as a result of all-digital and the introduction of new networks to Charter's video offering.

Costs to service customers grew by $20 million, or 4.9% as compared to the first quarter of last year, driven primarily by our larger customer base and higher spending on labor to deliver improved products and service levels. Other expenses grew by $23 million, or 12.6%, as compared to the first quarter of 2014, reflecting higher administrative labor costs, bad debt expense, commercial costs, and advertising sales expenses.

Adjusted EBITDA

First quarter Adjusted EBITDA of $800 million grew by 4.2% year-over-year, reflecting revenue growth and operating costs and expenses growth of 7.3% and 8.9%, respectively. Excluding transition related expenses, first quarter Adjusted EBITDA of $821 million grew by 7.0% year-over-year.

Net Loss

Net loss totaled $81 million in the first quarter of 2015, compared to $37 million in the first quarter of 2014. First quarter 2015 net loss reflects $86 million of interest expense related to the Comcast transactions financing, and $13 million of transactions costs related to the Comcast transactions in other operating expenses, partially offset by higher Adjusted EBITDA and lower tax expense. Basic and diluted net loss per common share was $0.73 in the first quarter of 2015 compared to $0.35 during the same period last year. The increase in net loss per common share was primarily the result of the factors described above, partially offset by 4.9% increase in weighted average shares outstanding versus the prior-year period.

Capital Expenditures

Property, plant and equipment expenditures totaled $351 million in the first quarter of 2015, compared to $539 million during the first quarter of 2014. The decrease was the result of a decline in customer premise equipment ("CPE") spending, partially offset by higher product development investments and capital expenditures related to Charter's previous transactions with Comcast. CPE spending declined versus the prior-year period as Charter completed its all-digital initiative in the fourth quarter of 2014. The year-over-year increase in support capital expenditures was primarily driven by transition-related capital expenditures. Transition-related capital expenditures accounted for $14 million of capital expenditures in the first quarter.

Charter currently expects 2015 capital expenditures to be approximately $1.7 billion, excluding transition expenditures related to acquisitions. Charter expects its 2015 capital expenditures to be driven by growth in residential and commercial customers along with further spend related to product development.

Cash Flow

During the first quarter of 2015, net cash flows from operating activities totaled $528 million, compared to $577 million in the first quarter of 2014. The year-over-year decline in net cash flow from operating activities was primarily due to changes in trade accounts payable, an increase in cash paid for interest due to Charter's previous transactions with Comcast, and an increase in merger and acquisition costs, partially offset by an increase in Adjusted EBITDA.

Free cash flow for the first quarter of 2015 was $101 million, compared to $74 million during the same period last year. The increase was primarily due to lower capital expenditures, partially offset by a decline in accrued capital expenditures driven by the conclusion of Charter's all-digital initiative during the fourth quarter of 2014, and from lower net cash flows from operating activities.

Liquidity

Total principal amount of debt was approximately $21.0 billion as of March 31, 2015, including $7.0 billion of debt with proceeds held in escrow to be used to finance Charter's previous transactions with Comcast. At the end of the quarter, Charter held $20 million of cash and cash equivalents, and its credit facilities provided approximately $875 million of additional liquidity.

On April 25, 2014, the Company entered into a binding definitive agreement (the "Comcast Transactions Agreement") with Comcast Corporation ("Comcast"), which contemplated the following transactions: (1) an asset purchase, (2) an asset exchange and (3) a contribution and spin-off transaction (collectively, the "Comcast Transactions"). Pursuant to the terms of the Comcast Transactions Agreement, Comcast had the right to terminate the Comcast Transactions Agreement upon termination of the merger agreement among Comcast, Time Warner Cable Inc. ("TWC") and Tango Acquisition Sub, Inc. (the "Merger Agreement"). On April 24, 2015, Comcast and TWC terminated the Merger Agreement and delivered a notice of termination of the Comcast Transactions to Charter. Upon receiving the Termination Notice in April 2015, Charter reclassified the CCOH Safari Notes totaling $3.5 billion, and CCO Safari's Term G Loans totaling $3.5 billion, to current portion of long-term debt in its condensed consolidated balance sheets. The CCOH Safari Notes and the CCO Safari Term Loan G were repaid on April 30, 2015, and April 27, 2015, respectively.

In April 2015, CCO Holdings and CCO Holdings Capital Corp. closed on transactions in which they issued $1.15 billion aggregate principal amount of 5.125% senior unsecured notes due 2023 (the "2023 Notes"), $750 million aggregate principal amount of 5.375% senior unsecured notes due 2025 (the "2025 Notes") and $800 million aggregate principal amount of 5.875% senior notes due 2027 (the "2027 Notes" and collectively, the "Notes"). The net proceeds from the issuance of the 2023 Notes and 2025 Notes were used to finance tender offers and will be used to finance a subsequent call in which $1.0 billion aggregate principal amount of CCO Holdings' outstanding 7.250% senior notes due 2017 and $700 million aggregate principal amount of CCO Holdings' outstanding 8.125% senior notes due 2020 have and will be repurchased, as well as for general corporate purposes. The net proceeds from the issuance of the 2027 Notes will be used to partially call $800 million of the $1.4 billion of CCO Holdings' outstanding 7.000% senior notes due 2019.

Conference Call

Charter will host a conference call on Friday, May 1, 2015 at 10:00 a.m. Eastern Time (ET) related to the contents of this release.

The conference call will be webcast live via the Company's investor relations website at ir.charter.com. The call will be archived under the "Financial Information" section two hours after completion of the call. Participants should go to the webcast link no later than 10 minutes prior to the start time to register.

Those participating via telephone should dial 866-919-0894 no later than 10 minutes prior to the call. International participants should dial 706-679-9379. The conference ID code for the call is 24023770.

A replay of the call will be available at 855-859-2056 or 404-537-3406 beginning two hours after the completion of the call through the end of business on May 31, 2015. The conference ID code for the replay is 24023770.

Additional Information Available on Website

The information in this press release should be read in conjunction with the financial statements and footnotes contained in the Company's Form 10-Q for the three months ended March 31, 2015 which will be posted on the "Financial Information" section of our investor relations website at ir.charter.com, when it is filed with the United States Securities and Exchange Commission. A slide presentation to accompany the conference call and a trending schedule containing historical customer and financial data will also be available in the "Financial Information" section.

Use of Non-GAAP Financial Metrics

The Company uses certain measures that are not defined by Generally Accepted Accounting Principles ("GAAP") to evaluate various aspects of its business. Adjusted EBITDA and free cash flow are non-GAAP financial measures and should be considered in addition to, not as a substitute for, net loss or cash flows from operating activities reported in accordance with GAAP. These terms, as defined by Charter, may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA is reconciled to net loss and free cash flow is reconciled to net cash flows from operating activities in the addendum of this news release.

Adjusted EBITDA is defined as net loss plus net interest expense, income taxes, depreciation and amortization, stock compensation expense, loss on derivative instruments, net and other operating expenses, such as merger and acquisition costs, special charges and (gain) loss on sale or retirement of assets. As such, it eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of the Company's businesses as well as other non-cash or special items, and is unaffected by the Company's capital structure or investment activities. However, this measure is limited in that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues and the cash cost of financing. These costs are evaluated through other financial measures.

Free cash flow is defined as net cash flows from operating activities, less purchases of property, plant and equipment and changes in accrued expenses related to capital expenditures.

Management and the Company's board of directors use Adjusted EBITDA and free cash flow to assess Charter's performance and its ability to service its debt, fund operations and make additional investments with internally generated funds. In addition, Adjusted EBITDA generally correlates to the leverage ratio calculation under the Company's credit facilities or outstanding notes to determine compliance with the covenants contained in the credit facilities and notes (all such documents have been previously filed with the United States Securities and Exchange Commission). For the purpose of calculating compliance with leverage covenants, we use Adjusted EBITDA, as presented, excluding certain expenses paid by our operating subsidiaries to other Charter entities. Our debt covenants refer to these expenses as management fees which fees were in the amount of $76 million and $64 million for the three months ended March 31, 2015 and 2014, respectively.

About Charter

Charter (NASDAQ: CHTR) is a leading broadband communications company and the fourth-largest cable operator in the United States. Charter provides a full range of advanced broadband services, including advanced Charter Spectrum TV® video entertainment programming, Charter Spectrum Internet® access, and Charter Spectrum Voice®. Spectrum Business similarly provides scalable, tailored, and cost-effective broadband communications solutions to business organizations, such as business-to-business Internet access, data networking, business telephone, video and music entertainment services, and wireless backhaul. Charter's advertising sales and production services are sold under the Charter Media® brand. More information about Charter can be found at charter.com.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This communication includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), regarding, among other things, our plans, strategies and prospects, both business and financial.  Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations.  Forward-looking statements are inherently subject to risks, uncertainties and assumptions including, without limitation, the factors described under "Risk Factors" from time to time in our filings with the SEC.  Many of the forward-looking statements contained in this presentation may be identified by the use of forward-looking words such as "believe", "expect", "anticipate", "should", "planned", "will", "may", "intend", "estimated", "aim", "on track", "target", "opportunity", "tentative", "positioning", "designed", "create", "predict", "project", "seek", "would", "could", "continue", "ongoing", "upside", "increases" and "potential", among others.  Important factors that could cause actual results to differ materially from the forward-looking statements we make in this presentation are set forth in other reports or documents that we file from time to time with the SEC, and include, but are not limited to:

Risks Related to the transaction with Advance/Newhouse Partnership ("A/N") regarding Bright House Networks, LLC ("Bright House")

• as a result of the termination of the transactions agreement between us and Comcast Corporation, we, A/N and Liberty Broadband Corporation entered into a 30-day period in which the parties may renegotiate the transaction regarding Bright House and if no agreement is reached, either we or A/N may terminate the transaction. There can be no assurance that the parties will reach agreement during these negotiations, that any agreement reached will be as favorable to us as the existing transaction terms, or that we or A/N will not terminate the transaction after completion of the negotiations;
• the ultimate outcome of the transaction, including the possibility that the transaction may not occur if closing conditions are not satisfied;
• if the transaction were to occur, the ultimate outcome and results of integrating operations and application of our operating strategies to the acquired assets and the ultimate ability to realize synergies at the levels currently expected as well as potential programming dis-synergies;
• disruption in our business relationships as a result of the transaction;
• the impact of the transaction on our stock price and future operating results, including due to transaction and integration costs, increased interest expense, business disruption, and diversion of management time and attention;
• the reduction in our current stockholders' percentage ownership and voting interest as a result of the transaction; and
• the increase in indebtedness as a result of the transaction, which will increase interest expense and may decrease our operating flexibility.

Risks Related to Our Business

• our ability to sustain and grow revenues and cash flow from operations by offering video, Internet, voice, advertising and other services to residential and commercial customers, to adequately meet the customer experience demands in our markets and to maintain and grow our customer base, particularly in the face of increasingly aggressive competition, the need for innovation and the related capital expenditures;
• the impact of competition from other market participants, including but not limited to incumbent telephone companies, direct broadcast satellite operators, wireless broadband and telephone providers, digital subscriber line ("DSL") providers, and video provided over the Internet and providers of advertising over the Internet;
• general business conditions, economic uncertainty or downturn, high unemployment levels and the level of activity in the housing sector;
• our ability to obtain programming at reasonable prices or to raise prices to offset, in whole or in part, the effects of higher programming costs (including retransmission consents);
• the development and deployment of new products and technologies, including our cloud-based user interface, Spectrum Guide®, and downloadable security for set-top boxes;
• the effects of governmental regulation on our business or potential business combination transactions;
• the availability and access, in general, of funds to meet our debt obligations prior to or when they become due and to fund our operations and necessary capital expenditures, either through (i) cash on hand, (ii) free cash flow, or (iii) access to the capital or credit markets; and
• our ability to comply with all covenants in our indentures and credit facilities, any violation of which, if not cured in a timely manner, could trigger a default of our other obligations under cross-default provisions.

All forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by this cautionary statement. We are under no duty or obligation to update any of the forward-looking statements after the date of this release.

                    

 

 

 

 

 

 

 

Logo - http://photos.prnewswire.com/prnh/20110526/AQ10195LOGO

 

SOURCE Charter Communications, Inc.