Charter Announces Fourth Quarter 2019 Results

STAMFORD, Conn., Jan. 31, 2020 /PRNewswire/ -- Charter Communications, Inc. (along with its subsidiaries, the "Company" or "Charter") today reported financial and operating results for the three and twelve months ended December 31, 2019.

Key highlights:

• Fourth quarter total residential and SMB customer relationships increased by 268,000, compared to 248,000 during the fourth quarter of 2018. Fourth quarter total residential and SMB Internet customers increased by 339,000, compared to 329,000 during the fourth quarter of 2018.
• During the year ended December 31, 2019, total residential and SMB customer relationships grew by 1.1 million, or 4.0% to 29.2 million, and total residential and SMB Internet customers grew by 1.4 million, or 5.6% to 26.7 million.
• Charter added 288,000 Spectrum Mobile^TM lines in the fourth quarter and as of December 31, 2019, Charter served a total of 1.1 million mobile lines, with 948,000 mobile lines added in 2019.
• Fourth quarter revenue of $11.8 billion grew by 4.7% year-over-year, driven by residential revenue growth of 5.7%, mobile revenue growth of $147 million and SMB revenue growth of 6.3%.
• Fourth quarter Adjusted EBITDA¹ of $4.5 billion grew by 8.8% year-over-year, while fourth quarter cable Adjusted EBITDA¹ of $4.7 billion grew by 8.9% year-over-year.
• For the year ended December 31, 2019, revenue of $45.8 billion increased by 4.9% year-over-year. Full year 2019 Adjusted EBITDA totaled $16.9 billion, 5.0% higher than in 2018, while cable Adjusted EBITDA of $17.4 billion grew by 6.6% year-over-year.
• Net income attributable to Charter shareholders totaled $714 million in the fourth quarter, compared to $296 million during the same period last year. For the year ended December 31, 2019, net income attributable to Charter shareholders totaled $1.7 billion, compared to $1.2 billion in 2018.
• Fourth quarter capital expenditures totaled $2.3 billion and included $151 million of mobile-related capital expenditures. For the year ended December 31, 2019, capital expenditures totaled $7.2 billion, down from $9.1 billion in 2018, and included $432 million of mobile-related capital expenditures.
• For the year 2019, consolidated free cash flow¹ totaled $4.6 billion, compared to $2.2 billion in 2018. Cable free cash flow¹ totaled $5.8 billion for the full year 2019, versus $2.8 billion in 2018.
• During the fourth quarter, Charter purchased approximately 5.6 million shares of Charter Class A common stock and Charter Communications Holdings, LLC ("Charter Holdings") common units for approximately $2.6 billion. For the year ended December 31, 2019, Charter purchased 19.0 million shares of Charter Class A common stock and Charter Holdings common units for approximately $7.6 billion.

"Our operating strategy continues to deliver strong results and in 2019, we created over 1.1 million new customer relationships, substantially more than in 2018. And we added over 1.4 million new Internet customers, also more than in 2018," said Tom Rutledge, Chairman and CEO of Charter Communications. "As we look to 2020, we remain focused on driving customer growth by offering superior services and value to our customers, improving the efficiency of our operations, and delivering sustainable free cash flow growth, by driving EBITDA growth, while reducing capital intensity."

^1.  Adjusted EBITDA, cable Adjusted EBITDA, free cash flow and cable free cash flow are non-GAAP measures defined in the "Use of Adjusted EBITDA and Free Cash Flow Information" section and are reconciled to net income attributable to Charter shareholders and net cash flows from operating activities, respectively, in the addendum of this news release.

Key Operating Results

During the fourth quarter of 2019, Charter's residential customer relationships grew by 240,000, while fourth quarter 2018 residential customer relationships grew by 207,000. As of December 31, 2019, Charter had 27.3 million residential customer relationships, with year-over-year growth of 1.0 million, or 3.8%.

Charter added 313,000 residential Internet customers in the fourth quarter of 2019, versus fourth quarter 2018 residential Internet customer net additions of 289,000. As of December 31, 2019, Charter had 24.9 million residential Internet customers, with 85% subscribing to tiers that provided 100 Mbps or more of speed. Over the course of 2019, Charter doubled minimum Internet speeds in a number of markets at no additional cost to new and existing Spectrum Internet^® customers. Currently, 200 Mbps is the slowest speed offered to new Internet customers in approximately 60% of Charter's footprint, with 100 Mbps the slowest speed offered in the remaining 40% of its footprint.

Residential video customers decreased by 105,000 in the fourth quarter of 2019, while fourth quarter 2018 residential video customers decreased by 36,000. As of December 31, 2019, Charter had 15.6 million residential video customers.

During the fourth quarter of 2019, residential wireline voice customers declined by 152,000, while fourth quarter 2018 voice customers declined by 83,000. As of December 31, 2019, Charter had 9.4 million residential wireline voice customers.

Fourth quarter 2019 residential revenue per residential customer (excluding mobile) totaled $113.79, and grew by 1.8% compared to the prior year period, given promotional rate step-ups, rate adjustments and a lower rate of customers migrating to Spectrum pricing and packaging, partly offset by a higher percentage of non-video customers, a higher mix of streaming and lighter video packages within Charter's video customer base and lower pay-per-view and video on demand revenue.

During the fourth quarter of 2019, Charter added 288,000 mobile lines, and as of December 31, 2019, Charter served a total of 1.1 million mobile lines. Spectrum Mobile is available to all new and existing Spectrum Internet customers and runs on America's most awarded LTE network combined with Spectrum WiFi. Spectrum Mobile customers can choose one of two simple ways to pay for data, "Unlimited" for $45 a month (per line), or "By the Gig" at $14/GB, in both cases including applicable fees and taxes.

SMB customer relationships grew by 28,000 during the fourth quarter of 2019, compared to growth of 41,000 during the fourth quarter of 2018. As of December 31, 2019, Charter had 2.0 million SMB customer relationships, with year-over-year growth of 6.8%. Enterprise PSUs grew by 3,000 during the fourth quarter of 2019 compared to growth of 5,000 during the fourth quarter of 2018. As of December 31, 2019, Charter had 267,000 enterprise PSUs, with growth of 7.6% year-over-year.

Fourth Quarter Financial Results

 

Revenues

Fourth quarter revenue increased by 4.7% year-over-year to $11.8 billion, driven by growth in Internet, mobile, video and SMB revenue. Excluding mobile revenue and advertising revenue, which benefited from political spend in the fourth quarter of 2018, revenue grew by 4.8% year-over-year.

Video revenue totaled $4.5 billion in the fourth quarter, an increase of 2.6% compared to the prior year period. Video revenue growth was driven by rate adjustments and promotional rolloff, partly offset by a decline in video customers during the last year, a higher mix of streaming and lighter video packages within Charter's video customer base and lower pay-per-view and video on demand revenue.

Internet revenue grew by 11.5%, compared to the year-ago quarter, to $4.3 billion, driven by growth in Internet customers during the last year, promotional rolloff and rate adjustments.

Voice revenue totaled $450 million in the fourth quarter, a decrease of 12.5% compared to the fourth quarter of 2018, driven by a decline in wireline voice customers over the last twelve months and value-based pricing.

Commercial revenue increased to $1.6 billion, an increase of 1.8% over the prior year period, driven by SMB revenue growth of 6.3%, partly offset by a decline in enterprise revenue of 4.5%. Fourth quarter commercial revenue was impacted by Charter's sale of Navisite, its managed cloud services business within Spectrum Enterprise, in the third quarter of 2019. Excluding Navisite revenue from the fourth quarter of 2018, commercial and enterprise revenue grew by 4.3% and 1.3% over the prior year period, respectively.

Fourth quarter advertising sales revenue of $434 million declined by 22.7% compared to the year-ago quarter, driven by lower political revenue. Excluding political revenue in both periods, advertising sales revenue grew by 4.6% year-over-year.

Fourth quarter mobile revenue totaled $236 million, an increase of $147 million year-over-year.

Other revenue totaled $220 million in the fourth quarter, a decrease of 6.6% year-over-year, driven by lower processing fees and home shopping revenue, partly offset by video customer premise equipment ("CPE") sold to customers.

Operating Costs and Expenses

Fourth quarter total operating costs and expenses increased by $165 million, or 2.3% year-over-year, but were in-line with the prior year quarter when excluding fourth quarter mobile costs.

Fourth quarter programming costs increased by $17 million, or 0.6% as compared to the fourth quarter of 2018, reflecting contractual programming increases and renewals, partly offset by lower video customers, a higher mix of streaming and lighter video packages within Charter's video customer base and lower pay-per-view expenses.

Regulatory, connectivity and produced content expenses increased by $25 million, or 4.3% year-over-year, primarily driven by video CPE sold to customers and original programming costs.

Costs to service customers decreased by $41 million, or 2.3% year-over-year, despite year-over-year residential and SMB customer growth of 4.0%. The year-over-year decrease in costs to service customers was primarily driven by lower service transactions per customer and lower churn.

Marketing expenses increased by $16 million, or 2.1% year-over-year.

Other expenses decreased by $13 million, or 1.4% as compared to the fourth quarter of 2018 primarily driven by lower advertising sales costs and the sale of Navisite.

Fourth quarter mobile costs totaled $372 million, an increase of $161 million year-over-year, and were comprised of device costs, customer acquisition costs, and service and operating costs.

Adjusted EBITDA

Fourth quarter Adjusted EBITDA of $4.5 billion grew by 8.8% year-over-year, reflecting growth in revenue and operating expenses of 4.7% and 2.3%, respectively. Fourth quarter cable Adjusted EBITDA grew by 8.9% year-over-year reflecting cable revenue growth of 3.4% and cable operating expenses that were in-line with the prior year.

Net Income Attributable to Charter Shareholders

Net income attributable to Charter shareholders totaled $714 million in the fourth quarter of 2019, compared to $296 million in the fourth quarter of 2018. The year-over-year increase in net income attributable to Charter shareholders was primarily driven by higher Adjusted EBITDA, a non-cash loss on financial instruments in the prior year period versus a gain in the current year period and lower other operating expenses, net.

Net income per basic common share attributable to Charter shareholders totaled $3.36 in the fourth quarter of 2019 compared to $1.31 during the same period last year. The increase was primarily the result of the factors described above in addition to a 6.3% decrease in weighted average common shares outstanding versus the prior year period.

Capital Expenditures

Property, plant and equipment expenditures totaled $2.3 billion in the fourth quarter of 2019, compared to $2.4 billion during the fourth quarter of 2018, primarily driven by declines in CPE and scalable infrastructure spending. The decrease in CPE spending was primarily driven by a higher mix of boxless video outlets, lower video gross additions, a decline in the pace of migration of Legacy TWC and Legacy Bright House customers to Spectrum pricing and packaging, increasing customer self-installations and the completion of Charter's all-digital initiative in 2018. The year-over-year decrease in scalable infrastructure spending was primarily driven by the completion of the rollout of DOCSIS 3.1 technology in 2018 and the associated bandwidth benefit in 2019. Fourth quarter capital expenditures included $151 million of mobile costs, most of which were included in support capital.

Cash Flow and Free Cash Flow

During the fourth quarter of 2019, net cash flows from operating activities totaled $3.4 billion, compared to $3.2 billion in the prior year quarter. The year-over-year increase in net cash flows from operating activities was primarily due to higher Adjusted EBITDA.

Consolidated free cash flow for the fourth quarter of 2019 totaled $1.6 billion, compared to $885 million during the same period last year. Cable free cash flow for the fourth quarter of 2019 totaled $1.9 billion, compared to $1.2 billion during the same period last year. The year-over-year increases in consolidated free cash flow and cable free cash flow were driven by an increase in accrued expenses related to capital expenditures, a decline in capital expenditures and an increase in net cash flows from operating activities.

Liquidity & Financing

As of December 31, 2019, total principal amount of debt was $78.4 billion and Charter's credit facilities provided approximately $4.7 billion of additional liquidity in excess of Charter's $3.5 billion cash position.

In October 2019, CCO Holdings, LLC ("CCO Holdings") and CCO Holdings Capital Corp. issued $1.35 billion of 4.750% senior unsecured notes due 2030. The net proceeds were used to finance a tender offer and subsequent call of $500 million aggregate principal amount of CCO Holdings' outstanding 5.250% senior notes due 2021 and $850 million aggregate principal amount of CCO Holdings' outstanding 5.750% senior notes due 2024. An additional $500 million and $1.2 billion of the same 4.750% senior unsecured notes due 2030 were issued in late October and December, respectively. The proceeds were or will be used for general corporate purposes, including to fund buybacks of Charter Class A common stock and/or Charter Holdings common units and to repay certain indebtedness.

In October 2019, Charter Communications Operating, LLC ("Charter Operating") and Charter Communications Operating Capital Corp. issued $1.5 billion of 4.800% senior secured notes due 2050. In December, an additional $1.3 billion of the same 4.800% senior secured notes due 2050 were issued. The proceeds were or will be used for general corporate purposes, including to fund buybacks of Charter Class A common stock and/or Charter Holdings common units and to repay certain indebtedness.

In October 2019, Charter Operating repriced $4.5 billion of revolver and $4.0 billion of term loan A to LIBOR plus 125 basis points (from 150 basis points) and its existing term loan B to LIBOR plus 175 basis points (from 200 basis points). In addition, $4.5 billion of the revolver and $4.0 billion of term loan A maturities were extended to 2025 (from 2023 and 2024) and $3.8 billion of term loan B maturities were extended to 2027 (from 2025).

Share Repurchases

During the three months ended December 31, 2019, Charter purchased approximately 5.6 million shares of Charter Class A common stock and Charter Holdings common units for approximately $2.6 billion.

Year to Date Financial Results