Charter Announces Third Quarter 2013 Results

STAMFORD, Conn., Nov. 5, 2013 /PRNewswire/ -- Charter Communications, Inc. (along with its subsidiaries, the "Company" or "Charter") today reported financial and operating results for the three and nine months ended September 30, 2013.

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Key highlights:

• Third quarter revenues of $2.1 billion grew 5.4% on a pro forma basis¹ as compared to the prior-year period, led by growth in video, Internet and commercial revenues. On an actual basis, third quarter revenue rose 12.7%, driven primarily by the acquisition of Bresnan, which closed on July 1, 2013.
• Pro forma for the acquisition of Bresnan, total residential customer relationships grew by 46,000² during the quarter, versus 24,000 during the third quarter of 2012. Residential primary service units (PSUs) increased by 100,000 during the period, versus 60,000 in the year-ago quarter.  
• Third quarter residential revenues grew 5.1% on a pro forma basis versus the third quarter of 2012, when residential revenues grew by 1.6% on a pro forma basis.
• Commercial revenues grew 20.4% on a pro forma basis versus the prior-year period, primarily driven by higher sales to small and medium businesses and to carrier customers. Pro forma for the acquisition of Bresnan, commercial customer relationships grew by 12,000 in the third quarter of 2013, compared to a gain of 9,000 during the third quarter of 2012.
• Third quarter Adjusted EBITDA³ grew by 5.3% year-over-year on a pro forma basis, reflecting higher revenue growth and slower growth in costs to service customers. On an actual basis, third quarter Adjusted EBITDA rose 12.4% year-over-year, driven primarily by the acquisition of Bresnan.
• Free cash flow³ for the quarter was $132 million and net cash flows from operating activities totaled $538 million.

"We continue to execute well on our strategic objectives, and that's evidenced in the solid revenue and Adjusted EBITDA growth we delivered in the third quarter," said Tom Rutledge, President and CEO of Charter Communications. "We've greatly improved the competitiveness of our product offering and the value we deliver to customers, which is driving growth in both our residential and commercial businesses. We are backing up our product with substantially improved service levels, an area where we will continue to invest to drive even better quality. As we head into 2014, we believe Charter is in an increasingly strong position to grow both its market share and cash flow as we accelerate our all-digital program, begin to roll out new products and take full advantage of our superior network."

¹  Pro forma results are described below in the "Use of Non-GAAP Financial Metrics" section and are provided in the addendum of this news release.
²  All customer data, unless otherwise noted, are pro forma for the Bresnan transaction, as if it had occurred on January 1, 2012.
³  Adjusted EBITDA and free cash flow are defined in the "Use of Non-GAAP Financial Metrics" section and are reconciled to net loss and net cash flows from operating activities, respectively, in the addendum of this news release.

 

On July 1, Charter completed its acquisition of Cablevision's Bresnan Broadband Holdings, LLC and its subsidiaries (collectively, "Bresnan").  As a result of the acquisition, Charter added cable operating systems in Montana, Wyoming, Colorado and Utah that pass approximately 670,000 homes and serve approximately 375,000 residential and business customers. All customer data referred to herein, are pro forma for the Bresnan transaction, as if it had occurred on January 1, 2012.

During the third quarter, Charter continued to see year-over-year improvement in customer relationship and PSU growth trends, in both its residential and commercial businesses. Residential customer relationships grew by 46,000, up from 24,000 in the third quarter of 2012. Commercial customer relationships grew by 12,000 in the third quarter of 2013, compared to a gain of 9,000 in the prior-year period. Residential PSUs increased by 100,000 versus 60,000 in the year-ago quarter, while commercial PSUs increased 21,000 during the third quarter versus a gain of 20,000 in the year-ago quarter.

The continued year-over-year improvement in total customer and PSU growth reflects the Company's ongoing efforts to simplify offers and pricing, and enhance bundled packaging to bring more value to both new and existing customers. As part of its efforts to create value for customers, Charter has focused on driving penetration of its triple play offering, which includes more than 100 HD channels, video on demand, superior Internet and fully-featured phone service, in a straight-forward and reasonably priced offer. Over the twelve month period ending September 30, 2013, triple play penetration grew from 30.4% to 32.2%.

Charter also remains focused on improving its fundamental operating execution, including its field operations, network operations, and customer care, in order to offer better service to new and existing customers. Service levels for both residential and commercial customers continue to improve, and the Company expects its improved service to lead to higher penetration of its products and to produce higher-quality, longer-term relationships with customers.

During the third quarter, Charter continued to pursue its all-digital initiative and completed its all-digital network upgrade in portions of its California and Michigan footprints, with customers in each of these markets now having access to over 170 HD channels. Charter's all digital initiative allows the Company to offer more advanced services to its customers, and provides residential customers with two-way digital set-tops, which offer higher picture quality, an interactive programming guide and video on demand. Charter expects to complete its all-digital roll out across its entire footprint by year end 2014.

Residential video customers declined by 27,000 in the third quarter of 2013, versus a loss of 71,000 in the year-ago period. The year over year improvement in video net adds results was driven by a more competitive video product, which now includes over 100 HD channels, packaging of advanced services, and the transition to new selling methods.

Charter added 86,000 residential Internet customers in the third quarter of 2013, compared to 77,000 a year ago. The Company continues to see strong demand for its Internet service as consumers value the speed and reliability of Charter's high speed offering.

During the third quarter, the Company added 41,000 residential telephone customers, versus a gain of 54,000 during the third quarter of 2012, when Charter's new pricing and packaging structure was first introduced.           

Third quarter residential revenue per customer relationship totaled $108.52, and grew by 2.8% on a pro forma basis, from $105.53 in the third quarter of 2012, driven by rate adjustments, higher product sell-in and promotional rate step-ups, partially offset by entry-level pricing and back-to-school campaigns in the quarter.

 

Revenue

Third quarter 2013 revenues rose to $2.1 billion, 5.4% higher on a pro forma basis than the year-ago quarter, due to growth in video, Internet and commercial revenues. On an actual basis, third quarter revenues rose 12.7% year-over-year.

Video revenues totaled $1.0 billion in the third quarter, an increase of 7.4% on a pro forma basis compared to the prior-year period. Video revenue growth was driven by higher expanded basic and digital penetration, annual and promotional rate adjustments, higher advanced services penetration, and revenue allocation from higher bundling, partially offset by a decrease in residential video customers and premium revenue. Video revenues grew by 15.2% year-over-year, on an actual basis.

Internet revenues grew 15.2% on a pro forma basis compared to the year-ago quarter to $575 million, driven by an increase of 290,000 Internet customers during the last year and by price adjustments. On an actual basis, Internet revenues grew 23.1% year-over-year.

Telephone revenues totaled $161 million, down 27.5% on a pro forma basis versus the third quarter of 2012, due to value-based pricing and revenue allocation from higher bundling, partially offset by the addition of 178,000 telephone customers in the last twelve months. Telephone revenues declined 22.6% year-over-year, on an actual basis.

Commercial revenues rose to $218 million, an increase of 20.4% on a pro forma basis over the prior-year period, and was driven by higher sales to small and medium businesses and to carrier customers. On an actual basis, commercial revenues grew 29.8% year-over-year.

Third quarter advertising sales revenues of $75 million declined 15.7% on a pro forma basis compared to the year-ago quarter, driven by a decline in political advertising revenue, which saw strength in the third quarter of 2012, given local and national elections, and from a decline in contractual revenue. Advertising sales declined 11.8% year-over-year, on an actual basis.

Operating Costs and Expenses

Third quarter total operating costs and expenses increased 5.5% on a pro forma basis compared to the year-ago period, reflecting increases in programming costs, costs to service customers, and marketing expenses.

Third quarter programming expense increased by $30 million on a pro forma basis, or 5.7%, as compared to the third quarter of 2012, reflecting contractual programming increases, partially offset by customer losses. Costs to service customers increased by $16 million on a pro forma basis, or 4.2% as compared to the third quarter of 2012, reflecting higher spending on labor in order to deliver improved products and service levels and greater reconnect expense resulting from higher sales. Marketing costs increased by $14 million on a pro forma basis, or 12.3%  as compared to the third quarter of 2012, reflecting heavier sales activity and sales channel development.

On an actual basis, total operating costs and expenses grew by 12.8% year-over-year.

Adjusted EBITDA

Third quarter Adjusted EBITDA of $732 million grew by 5.3% year-over-year on a pro forma basis, reflecting pro forma revenue growth and operating costs and expenses growth of 5.4% and 5.5%, respectively. On an actual basis, Adjusted EBITDA grew by 12.4% compared to the year-ago quarter, primarily driven by the acquisition of Bresnan. Adjusted EBITDA margin remained unchanged year-over-year, on both a pro forma and actual basis, at 34.6%.

Net Loss

Net loss totaled $70 million in the third quarter of 2013, compared to $103 million on a pro forma basis and $87 million on an actual basis in the year-ago period. Net loss decreased year-over-year primarily due to lower interest expense, lower income tax expense, and higher income from operations. Net loss per common share was $0.68 in the third quarter of 2013 compared to $1.03 on a pro forma basis and $0.87 on an actual basis during the same period last year. The decrease was the result of the factors described above, in addition to a 3.2% increase in weighted average shares outstanding in the last twelve months, driven primarily by the exercise of 2.3 million warrants in July 2013.

Capital Expenditures

Property, plant and equipment expenditures were $425 million in the third quarter of 2013, compared to $505 million on a pro forma basis and $488 million on an actual basis in 2012. The decrease was primarily driven by lower spending on customer premise equipment, given the timing of expenditures in 2013 versus the prior year.

In 2013, capital expenditures are expected to be approximately $1.8 billion, including the impact of the Bresnan acquisition, which closed on July 1, 2013. Charter expects remaining 2013 capital expenditures to be driven by the deployment of additional set-top boxes in new and existing customer homes, growth in Charter's commercial business, and further spend related to plant reliability, back-office support and Charter's organizational realignment. The actual amount of capital expenditures will depend on a number of factors including the growth rates of both residential and commercial businesses, as well as the Company's all-digital initiative.

Cash Flow

During the third quarter of 2013, net cash flows from operating activities totaled $538 million, compared to $468 million in the third quarter of 2012. The increase in net cash flows from operating activities was primarily related to an increase in Adjusted EBITDA.

Free cash flow for the third quarter of 2013 was $132 million, compared to negative $17 million during the same period last year. The increase was primarily due to a decrease in capital expenditures, and higher cash flow from operating activities versus the prior-year period.

In conjunction with the closing of the Bresnan transaction on July 1, Charter activated the previously committed term loan E facility providing for a $1.5 billion term loan maturing in seven years. Additionally, and as part of a previously announced tender offer, Charter repurchased $250 million aggregate principal amount of 8.00% senior notes due 2018 that were originally issued by Bresnan.

Liquidity

Total principal amount of debt was approximately $14.4 billion as of September 30, 2013. At the end of the quarter, Charter held $41 million of cash and cash equivalents, and its credit facilities provided approximately $978 million of additional liquidity.

Conference Call

Charter will host a conference call on Tuesday, November 5, 2013 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 website at charter.com. The webcast can be accessed by selecting "Investor & News Center" from the lower menu on the home page. The call will be archived in the "Investor & News Center" in the "Financial Information" section on the left beginning 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 45456138.

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 December 5, 2013. The conference ID code for the replay is 45456138.

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 three and nine months ended September 30, 2013 available on the "Investor & News Center" of our website at charter.com in the "Financial Information" section. A slide presentation to accompany the conference call and a trending schedule containing historical customer and financial data can also be found 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 extinguishment of debt, (gain) loss on derivative instruments, net and other operating expenses, such as 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 $49 million and $44 million for the three months ended September 30, 2013 and 2012, respectively, and $147 million and $126 million for the nine months ended September 30, 2013 and 2012, respectively.

In addition to the actual results for the three and nine months ended September 30, 2013 and 2012, we have provided pro forma results in this release for the nine months ended September 30, 2013 and the three and nine months ended September 30, 2012. We believe these pro forma results facilitate meaningful analysis of the results of operations. Pro forma results in this release reflect certain acquisitions of cable systems in 2013 as if they occurred as of January 1, 2012. Pro forma statements of operations for the nine months ended September 30, 2013 and the three and nine months ended September 30, 2012 are provided in the addendum of this news release.

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 TV® video entertainment programming, Charter Internet® access, and Charter Phone®. Charter 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 release 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 Securities and Exchange Commission ("SEC"). Many of the forward-looking statements contained in this release 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" and "potential," among others. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this release 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:

• our ability to sustain and grow revenues and cash flow from operations by offering video, Internet, telephone, 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 and the difficult economic conditions in the United States;
• 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;
• 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;
• the effects of governmental regulation on our business;
• 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.

 

 

 

 

September 30, 2013.  Pro forma revenues, operating expenses and net loss increased by $264 million, $174 million and $25 million, respectively, for the nine months ended September 30, 2013. 

September 30, 2012.  Pro forma revenues, operating expenses and net loss increased by $129 million, $85 million and $16 million, respectively, for the three months ended September 30, 2012.  Pro forma revenues, operating expenses and net loss increased by $381 million, $258 million and $55 million, respectively, for the nine months ended September 30, 2012. 

 

 

 

 

Pro forma operating statistics reflect certain acquisitions of cable systems in 2013 as if such transactions had occurred as of the last day of the respective period for all periods presented. 

At June 30, 2013, actual residential video, Internet and telephone customers were 3,917,000, 3,924,000 and 2,019,000, respectively; actual commercial video, Internet and telephone customers were 156,000, 214,000 and 119,000, respectively.

At December 31, 2012, actual residential video, Internet and telephone customers were 3,989,000, 3,785,000 and 1,914,000, respectively; actual commercial video, Internet and telephone customers were 169,000, 193,000 and 105,000, respectively.

At September 30, 2012, actual residential video, Internet and telephone customers were 4,025,000, 3,731,000 and 1,880,000, respectively; actual commercial video, Internet and telephone customers were 172,000, 186,000 and 99,000, respectively.

See footnotes to unaudited summary of operating statistics on page 6 of this addendum.

 

The above schedules are presented in order to reconcile adjusted EBITDA and free cash flows, both non-GAAP measures, to the most directly comparable GAAP measures in accordance with Section 401(b) of the Sarbanes-Oxley Act. 

 

 

SOURCE Charter Communications, Inc.