InvestorsJuly 31, 2018
Charter Announces Second Quarter 2018 Results
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Key highlights:
- As of
June 30, 2018 , Charter had 27.6 million total customer relationships and 52.9 million total PSUs. - Second quarter total residential and SMB customer relationships increased 196,000, compared to 213,000 during the second quarter of 2017. Over the twelve months ended
June 30, 2018 , total residential and SMB customer relationships grew by 3.3%. - In the second quarter, total residential and SMB video, Internet and voice customers increased by 202,000, as compared to 246,000 during the second quarter of 2017.
- Second quarter revenues of
$10.9 billion grew 4.8%, as compared to the prior year period, driven by residential revenue growth of 4.6%, commercial revenue growth of 4.4%, and advertising revenue growth of 12.0%. - Second quarter Adjusted EBITDA1 of
$4.1 billion grew 5.3% year-over-year, and 6.2% when excluding second quarter mobile costs. - Net income attributable to Charter shareholders totaled
$273 million in the second quarter, compared to$139 million during the same period last year. - Second quarter capital expenditures totaled
$2.4 billion compared to$2.1 billion during the second quarter of 2017, primarily driven by in-year timing differences and Charter's all-digital and Internet speed increase initiatives. Second quarter capital expenditures included$88 million of all-digital costs and$53 million of mobile launch costs. - During the second quarter, Charter purchased approximately 6.4 million shares of Charter Class A common stock and
Charter Communications Holdings, LLC ("Charter Holdings ") common units for approximately$1.9 billion .
"Over the last two years, we have invested significantly to quickly integrate and unify the operating strategies of three large cable operators. While that process is disruptive, it has allowed us to position our residential and commercial businesses for long term growth and success, which is beginning to show in our operating results," said
1. |
Adjusted EBITDA, free cash flow and GAAP are defined in the "Use of Adjusted EBITDA and Free Cash Flow Information" section and are reconciled to consolidated net income and net cash flows from operating activities, respectively, in the addendum of this news release. |
Key Operating Results
Approximate as of |
||||||||||||||
June 30, 2018 (b) |
June 30, 2017 (a)(b) |
Y/Y Change |
||||||||||||
Footprint (c) |
||||||||||||||
Estimated Video Passings |
50,364 |
49,500 |
1.7 |
% |
||||||||||
Estimated Internet Passings |
50,149 |
49,228 |
1.9 |
% |
||||||||||
Estimated Voice Passings |
49,532 |
48,472 |
2.2 |
% |
||||||||||
Penetration Statistics (d) |
||||||||||||||
Video Penetration of Estimated Video Passings |
33.1 |
% |
34.2 |
% |
(1.1) |
ppts |
||||||||
Internet Penetration of Estimated Internet Passings |
49.1 |
% |
47.5 |
% |
1.6 |
ppts |
||||||||
Voice Penetration of Estimated Voice Passings |
22.9 |
% |
23.2 |
% |
(0.3) |
ppts |
||||||||
Customer Relationships (e) |
||||||||||||||
Residential |
25,871 |
25,157 |
2.8 |
% |
||||||||||
Small and Medium Business |
1,750 |
1,580 |
10.8 |
% |
||||||||||
Total Customer Relationships |
27,621 |
26,737 |
3.3 |
% |
||||||||||
Residential |
||||||||||||||
Primary Service Units ("PSUs") |
||||||||||||||
Video |
16,206 |
16,502 |
(1.8) |
% |
||||||||||
Internet |
23,070 |
22,005 |
4.8 |
% |
||||||||||
Voice |
10,325 |
10,375 |
(0.5) |
% |
||||||||||
49,601 |
48,882 |
1.5 |
% |
|||||||||||
Quarterly Net Additions/(Losses) |
||||||||||||||
Video |
(73) |
(91) |
19.8 |
% |
||||||||||
Internet |
218 |
230 |
(5.2) |
% |
||||||||||
Voice |
(45) |
14 |
(421.4) |
% |
||||||||||
100 |
153 |
(34.6) |
% |
|||||||||||
Single Play (f) |
10,694 |
10,062 |
6.3 |
% |
||||||||||
Double Play (f) |
6,633 |
6,467 |
2.6 |
% |
||||||||||
Triple Play (f) |
8,544 |
8,628 |
(1.0) |
% |
||||||||||
Single Play Penetration (g) |
41.3 |
% |
40.0 |
% |
1.3 |
ppts |
||||||||
Double Play Penetration (g) |
25.6 |
% |
25.7 |
% |
(0.1) |
ppts |
||||||||
Triple Play Penetration (g) |
33.0 |
% |
34.3 |
% |
(1.3) |
ppts |
||||||||
% Residential Non-Video Customer Relationships |
37.4 |
% |
34.4 |
% |
3.0 |
ppts |
||||||||
Monthly Residential Revenue per Residential Customer (h) |
$111.88 |
$109.99 |
1.7 |
% |
||||||||||
Small and Medium Business |
||||||||||||||
PSUs |
||||||||||||||
Video |
476 |
423 |
12.5 |
% |
||||||||||
Internet |
1,552 |
1,390 |
11.7 |
% |
||||||||||
Voice |
994 |
863 |
15.2 |
% |
||||||||||
3,022 |
2,676 |
12.9 |
% |
|||||||||||
Quarterly Net Additions/(Losses) |
||||||||||||||
Video |
16 |
15 |
6.7 |
% |
||||||||||
Internet |
49 |
39 |
25.6 |
% |
||||||||||
Voice |
37 |
39 |
(5.1) |
% |
||||||||||
102 |
93 |
9.7 |
% |
|||||||||||
Monthly Small and Medium Business Revenue per Customer (i) |
$176.96 |
$190.37 |
(7.0) |
% |
||||||||||
Enterprise PSUs (j) |
||||||||||||||
Enterprise PSUs |
235 |
202 |
16.3 |
% |
||||||||||
Footnotes
In thousands, except per customer and penetration data. See footnotes to unaudited summary of operating statistics on page 5 of the addendum of this news release. The footnotes contain important disclosures regarding the definitions used for these operating statistics.
All percentages are calculated using whole numbers. Minor differences may exist due to rounding.
During the second quarter of 2018, Charter's residential customer relationships grew by 141,000, while second quarter 2017 customer relationships grew by 166,000. Residential PSUs increased by 100,000 in the second quarter of 2018, compared to second quarter 2017 residential PSU additions of 153,000. The year-over-year decrease in PSU additions was primarily driven by a decline in voice net additions in the second quarter of 2018. As of June 30, 2018, Charter had 25.9 million residential customer relationships and 49.6 million residential PSUs.
Charter added 218,000 residential Internet customers in the second quarter of 2018, versus second quarter 2017 Internet customers additions of 230,000. As of June 30, 2018, Charter had 23.1 million residential Internet customers, with over 80% of those residential Internet customers subscribing to tiers that provided 60 Mbps or more of speed, and over 60% subscribing to Internet tiers that provided 100 Mbps or more of speed. Currently, 100 Mbps is the slowest speed offered to new Internet customers in 99% of Charter's footprint.
During the second quarter, Charter further expanded the availability of its Spectrum Internet Gig service (940 Mbps) to a number of new markets. The service, which uses DOCSIS 3.1 technology, is now available in approximately 60% of Charter's footprint. Charter expects to offer its Spectrum Internet Gig service to nearly all of its footprint by the end of 2018. Additionally, Charter is doubling minimum Internet speeds to 200 Mbps in a number of markets at no additional cost to new and existing Spectrum Internet customers.
Residential video customers decreased by 73,000 in the second quarter of 2018, while second quarter 2017 video customers decreased by 91,000. During the year ended June 30, 2018, limited basic video subscriptions represented all of Charter's residential video customer losses, while the combination of traditional expanded basic video, and Charter's Stream and Choice packages contributed to video customer growth. As of June 30, 2018, Charter had 16.2 million residential video customers.
As of the end of the second quarter, 91% of Charter's footprint was all-digital. During the quarter, Charter continued its all-digital efforts, and as of June 30, 2018 , approximately 6% of Legacy TWC's footprint and 50% of Legacy Bright House's footprint were not yet all-digital. All-digital allows Charter to offer more advanced products and services, and provides residential customers with two-way digital set-top boxes, which offer better video picture quality, an interactive programming guide and video on demand on all TV outlets in the home.
During the second quarter of 2018, residential voice customers declined by 45,000, while second quarter 2017 voice customers grew by 14,000. As of June 30, 2018, Charter had 10.3 million residential voice customers.
On
Second quarter residential revenue per customer relationship totaled
SMB customer relationships grew by 55,000, during the second quarter of 2018, compared to growth of 47,000 during the second quarter of 2017. SMB PSUs increased 102,000, compared to 93,000 during the second quarter of 2017. As of June 30, 2018, Charter had 1.8 million SMB customer relationships and 3.0 million SMB PSUs. Enterprise PSUs grew by 7,000 during the second quarter of 2018, compared to growth of 6,000 during the second quarter of 2017. As of June 30, 2018, Charter had 235,000 enterprise PSUs.
Second Quarter Financial Results
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES |
|||||
Three Months Ended June 30, |
|||||
2018 |
2017 |
% Change |
|||
REVENUES: |
|||||
Video |
$ 4,363 |
$ 4,119 |
5.9 % |
||
Internet |
3,770 |
3,512 |
7.3 % |
||
Voice |
531 |
650 |
(18.3)% |
||
Residential revenue |
8,664 |
8,281 |
4.6 % |
||
Small and medium business |
915 |
890 |
2.9 % |
||
Enterprise |
627 |
588 |
6.7 % |
||
Commercial revenue |
1,542 |
1,478 |
4.4 % |
||
Advertising sales |
427 |
381 |
12.0 % |
||
Other |
221 |
217 |
1.5 % |
||
Total Revenue |
10,854 |
10,357 |
4.8 % |
||
COSTS AND EXPENSES: |
|||||
Total operating costs and expenses |
6,803 |
6,510 |
4.5 % |
||
Adjusted EBITDA |
$ 4,051 |
$ 3,847 |
5.3 % |
||
Adjusted EBITDA margin |
37.3 % |
37.1 % |
|||
Capital Expenditures |
$ 2,391 |
$ 2,148 |
|||
% Total Revenues |
22.0 % |
20.7 % |
|||
Net income attributable to Charter shareholders |
$ 273 |
$ 139 |
|||
Earnings per common share attributable to Charter shareholders: |
|||||
Basic |
$ 1.17 |
$ 0.53 |
|||
Diluted |
$ 1.15 |
$ 0.52 |
|||
Net cash flows from operating activities |
$ 3,096 |
$ 2,945 |
|||
Free cash flow |
$ 804 |
$ 1,144 |
Revenue
Second quarter revenues rose 4.8% year-over-year to
Video revenues totaled
Internet revenues grew 7.3%, compared to the year-ago quarter, to
Voice revenues totaled
Commercial revenues rose to
Second quarter advertising sales revenues of
Operating Costs and Expenses
Second quarter total operating costs and expenses increased by
Second quarter programming expense increased by
Regulatory, connectivity and produced content expenses increased by
Costs to service customers increased by
Marketing expenses increased by
Other expenses increased by
In the second quarter of 2018, mobile launch costs totaled
Adjusted EBITDA
Second quarter Adjusted EBITDA of
Net Income Attributable to Charter Shareholders
Net income attributable to Charter shareholders totaled
Net income per basic common share attributable to Charter shareholders totaled
Capital Expenditures
Property, plant and equipment expenditures totaled
Cash Flow and Free Cash Flow
During the second quarter of 2018, net cash flows from operating activities totaled
Free cash flow for the second quarter of 2018 totaled
Liquidity & Financing
As of June 30, 2018, total principal amount of debt was
In April,
In July,
Share Repurchases
During the three months ended June 30, 2018, Charter purchased approximately 6.4 million shares of Charter Class A common stock and
Conference Call
Charter will host a conference call on Tuesday, July 31, 2018 at
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 6488496.
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
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 Quarterly Report on Form 10-Q for the three and six months ended June 30, 2018, which will be posted on the "Financial Information" section of our investor relations website at ir.charter.com, when it is filed with the
Use of Adjusted EBITDA and Free Cash Flow Information
The company uses certain measures that are not defined by U.S. 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, consolidated net income and net 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 and free cash flow are reconciled to consolidated net income and net cash flows from operating activities, respectively, in the Addendum to this release.
Adjusted EBITDA is defined as consolidated net income plus net interest expense, income taxes, depreciation and amortization, stock compensation expense, loss on extinguishment of debt, (gain) loss on financial instruments, other (income) expense, net and other operating (income) expenses, such as merger and restructuring 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 capital expenditures and changes in accrued expenses related to capital expenditures.
Management and Charter'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 facilities and notes (all such documents have been previously filed with the the
About Charter
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, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things, our plans, strategies and prospects, both business and financial. Although we believe that our plans, intentions and expectations as 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 communication 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," "initiatives," "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 communication are set forth in our annual report on Form 10-K, and in other reports or documents that we file from time to time with the
- our ability to efficiently and effectively integrate acquired operations;
- our ability to sustain and grow revenues and cash flow from operations by offering video, Internet, voice, mobile, 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, fiber to the home providers, video provided over the Internet by (i) market participants that have not historically competed in the multichannel video business, (ii) traditional multichannel video distributors, and (iii) content providers that have historically licensed cable networks to multichannel video distributors, and providers of advertising over the Internet;
- general business conditions, economic uncertainty or downturn, 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);
- our ability to develop and deploy new products and technologies including mobile products, our cloud-based user interface, Spectrum Guide®, and downloadable security for set-top boxes, and any other cloud-based consumer services and service platforms;
- the effects of governmental regulation on our business including costs, disruptions and possible limitations on operating flexibility related to, and our ability to comply with, regulatory conditions applicable to us as a result of the
Time Warner Inc. andBright House Networks, LLC transactions; - any events that disrupt our networks, information systems or properties and impair our operating activities or our reputation;
- the ability to retain and hire key personnel;
- 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 communication.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES |
|||||||||||
Three Months Ended June 30, |
Six Months Ended June30, |
||||||||||
2018 |
2017 |
% Change |
2018 |
2017 |
% Change |
||||||
REVENUES: |
|||||||||||
Video |
$ 4,363 |
$ 4,119 |
5.9 % |
$ 8,655 |
$ 8,193 |
5.6 % |
|||||
Internet |
3,770 |
3,512 |
7.3 % |
7,477 |
6,909 |
8.2 % |
|||||
Voice |
531 |
650 |
(18.3)% |
1,087 |
1,344 |
(19.1)% |
|||||
Residential revenue |
8,664 |
8,281 |
4.6 % |
17,219 |
16,446 |
4.7 % |
|||||
Small and medium business |
915 |
890 |
2.9 % |
1,815 |
1,756 |
3.4 % |
|||||
Enterprise |
627 |
588 |
6.7 % |
1,249 |
1,167 |
7.0 % |
|||||
Commercial revenue |
1,542 |
1,478 |
4.4 % |
3,064 |
2,923 |
4.9 % |
|||||
Advertising sales |
427 |
381 |
12.0 % |
783 |
718 |
9.0 % |
|||||
Other |
221 |
217 |
1.5 % |
445 |
434 |
2.3 % |
|||||
Total Revenue |
10,854 |
10,357 |
4.8 % |
21,511 |
20,521 |
4.8 % |
|||||
COSTS AND EXPENSES: |
|||||||||||
Programming |
2,803 |
2,649 |
5.8 % |
5,555 |
5,253 |
5.7 % |
|||||
Regulatory, connectivity and produced content |
560 |
532 |
5.1 % |
1,093 |
1,030 |
6.0 % |
|||||
Costs to service customers |
1,784 |
1,762 |
1.2 % |
3,638 |
3,562 |
2.1 % |
|||||
Marketing |
769 |
760 |
1.2 % |
1,520 |
1,525 |
(0.3)% |
|||||
Mobile |
33 |
— |
NM |
41 |
— |
NM |
|||||
Other expense |
854 |
807 |
5.8 % |
1,720 |
1,650 |
4.2 % |
|||||
Total operating costs and expenses (exclusive of items shown separately below) |
6,803 |
6,510 |
4.5 % |
13,567 |
13,020 |
4.2 % |
|||||
Adjusted EBITDA |
4,051 |
3,847 |
5.3 % |
7,944 |
7,501 |
5.9 % |
|||||
Adjusted EBITDA margin |
37.3 % |
37.1 % |
36.9 % |
36.5 % |
|||||||
Depreciation and amortization |
2,592 |
2,595 |
5,302 |
5,145 |
|||||||
Stock compensation expense |
70 |
65 |
142 |
134 |
|||||||
Other operating expenses, net |
29 |
135 |
98 |
229 |
|||||||
Income from operations |
1,360 |
1,052 |
2,402 |
1,993 |
|||||||
OTHER EXPENSES: |
|||||||||||
Interest expense, net |
(878) |
(749) |
(1,729) |
(1,462) |
|||||||
Loss on extinguishment of debt |
— |
(1) |
— |
(35) |
|||||||
Loss on financial instruments, net |
(75) |
(70) |
(12) |
(32) |
|||||||
Other income (expense), net |
(27) |
11 |
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