InvestorsOctober 25, 2019
Charter Announces Third Quarter 2019 Results
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Key highlights:
- Third quarter total residential and SMB customer relationships increased 310,000, compared to 234,000 during the third quarter of 2018. As of
September 30, 2019 , Charter had 29.0 million total customer relationships, and added over 1.1 million net new customer relationships over the last twelve months. - During the third quarter, Charter generated residential and SMB Internet net additions of 380,000, video net losses of 75,000 and wireline voice net losses of 190,000.
- Charter added 276,000 mobile lines in the third quarter, compared to 208,000 mobile line net additions in the second quarter of 2019. As of
September 30, 2019 , Charter served a total of 794,000 mobile lines. - Third quarter revenue of
$11.5 billion grew 5.1%, as compared to the prior year period, driven by residential revenue growth of 4.4%, mobile revenue growth of$175 million and commercial revenue growth of 4.1%. - Third quarter Adjusted EBITDA1 of
$4.1 billion grew 3.4% year-over-year, while third quarter cable Adjusted EBITDA1 of$4.2 billion grew 5.0% year-over-year. - Net income attributable to Charter shareholders totaled
$387 million in the third quarter, compared to$493 million during the same period last year. The year-over-year decrease in net income attributable to Charter shareholders was primarily driven by a pension remeasurement gain in the third quarter of 2018, partly offset by higher Adjusted EBITDA. - Third quarter capital expenditures totaled
$1.7 billion compared to$2.1 billion during the third quarter of 2018. Third quarter capital expenditures included$100 million of mobile-related capital expenditures. - Consolidated free cash flow1 for the third quarter of 2019 totaled
$1.3 billion , compared to$532 million during the same period last year. Cable free cash flow1 for the third quarter totaled$1.5 billion , compared to$681 million during the same period last year. - During the third quarter, Charter purchased approximately 7.8 million shares of Charter Class A common stock and
Charter Communications Holdings, LLC ("Charter Holdings ") common units for approximately$3.1 billion .
"Our strategy of offering high-quality products with good service at attractive prices is working and continues to produce strong customer relationship growth," said
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
Approximate as of |
|||||||||
September 30, |
September 30, |
Y/Y Change |
|||||||
Footprint (b) |
|||||||||
Estimated Video Passings |
51,579 |
50,616 |
1.9 |
% |
|||||
Estimated Internet Passings |
51,416 |
50,421 |
2.0 |
% |
|||||
Estimated Voice Passings |
50,867 |
49,833 |
2.1 |
% |
|||||
Penetration Statistics (c) |
|||||||||
Video Penetration of Estimated Video Passings |
31.5 |
% |
32.9 |
% |
(1.4) |
ppts |
|||
Internet Penetration of Estimated Internet Passings |
51.2 |
% |
49.4 |
% |
1.8 |
ppts |
|||
Voice Penetration of Estimated Voice Passings |
21.1 |
% |
22.6 |
% |
(1.5) |
ppts |
|||
Customer Relationships (d) |
|||||||||
Residential |
27,037 |
26,063 |
3.7 |
% |
|||||
Small and Medium Business |
1,930 |
1,792 |
7.7 |
% |
|||||
Total Customer Relationships |
28,967 |
27,855 |
4.0 |
% |
|||||
Quarterly Net Additions/(Losses) |
|||||||||
Residential |
282 |
192 |
46.7 |
% |
|||||
Small and Medium Business |
28 |
42 |
(32.9) |
% |
|||||
Total Customer Relationships |
310 |
234 |
32.4 |
% |
|||||
Residential |
|||||||||
Primary Service Units ("PSUs") |
|||||||||
Video |
15,725 |
16,140 |
(2.6) |
% |
|||||
Internet |
24,595 |
23,336 |
5.4 |
% |
|||||
Voice |
9,595 |
10,218 |
(6.1) |
% |
|||||
Quarterly Net Additions/(Losses) |
|||||||||
Video |
(77) |
(66) |
(17.1) |
% |
|||||
Internet |
351 |
266 |
32.2 |
% |
|||||
Voice |
(213) |
(107) |
(98.9) |
% |
|||||
Single Play (e) |
11,557 |
10,858 |
6.4 |
% |
|||||
Double Play (e) |
8,088 |
6,789 |
19.1 |
% |
|||||
Triple Play (e) |
7,392 |
8,416 |
(12.2) |
% |
|||||
Single Play Penetration (f) |
42.7 |
% |
41.7 |
% |
1.0 |
ppts |
|||
Double Play Penetration (f) |
29.9 |
% |
26.1 |
% |
3.8 |
ppts |
|||
Triple Play Penetration (f) |
27.3 |
% |
32.3 |
% |
(5.0) |
ppts |
|||
% Residential Non-Video Customer Relationships |
41.8 |
% |
38.1 |
% |
3.7 |
ppts |
|||
Monthly Residential Revenue per Residential Customer (g) |
$112.00 |
$111.13 |
0.8 |
% |
|||||
Small and Medium Business |
|||||||||
PSUs |
|||||||||
Video |
520 |
488 |
6.6 |
% |
|||||
Internet |
1,730 |
1,594 |
8.5 |
% |
|||||
Voice |
1,120 |
1,024 |
9.4 |
% |
|||||
Quarterly Net Additions/(Losses) |
|||||||||
Video |
2 |
12 |
(77.4) |
% |
|||||
Internet |
29 |
42 |
(31.0) |
% |
|||||
Voice |
23 |
30 |
(24.8) |
% |
|||||
Monthly Small and Medium Business Revenue per Customer (h) |
$169.44 |
$173.52 |
(2.4) |
% |
|||||
Enterprise PSUs (i) |
|||||||||
Enterprise PSUs |
264 |
243 |
8.8 |
% |
|||||
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 third quarter of 2019, Charter's residential customer relationships grew by 282,000, while third quarter 2018 residential customer relationships grew by 192,000. As of September 30, 2019, Charter had 27.0 million residential customer relationships, with year-over-year growth of 3.7%.
Charter added 351,000 residential Internet customers in the third quarter of 2019, versus third quarter 2018 residential Internet customer net additions of 266,000. As of September 30, 2019, Charter had 24.6 million residential Internet customers, with 85% subscribing to tiers that provided 100 Mbps or more of speed. Charter recently doubled its minimum Internet speeds to 200 Mbps in a number of additional markets at no additional cost to new and existing Spectrum Internet residential and SMB customers. Currently, 200 Mbps is the slowest speed offered to new Internet customers in approximately 60% of Charter's footprint, with 100 Mbps offered as the slowest speed in the remaining 40% of its footprint.
Residential video customers decreased by 77,000 in the third quarter of 2019, while third quarter 2018 video customers decreased by 66,000. As of September 30, 2019, Charter had 15.7 million residential video customers.
During the third quarter of 2019, residential wireline voice customers declined by 213,000, while third quarter 2018 voice customers declined by 107,000. As of September 30, 2019, Charter had 9.6 million residential wireline voice customers.
Third quarter 2019 residential revenue per residential customer (excluding mobile) totaled
In September of 2018, Charter completed the full market launch of its Spectrum MobileTM service across its footprint. 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
SMB customer relationships grew by 28,000 during the third quarter of 2019, compared to growth of 42,000 during the third quarter of 2018. As of September 30, 2019, Charter had 1.9 million SMB customer relationships, with year-over-year growth of 7.7%. Enterprise PSUs grew by 6,000 during the third quarter of 2019 compared to growth of 8,000 during the third quarter of 2018. As of September 30, 2019, Charter had 264,000 enterprise PSUs, with growth of 8.8% year-over-year.
Third Quarter Financial Results
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
|
||||||||||
Three Months Ended September 30, |
||||||||||
2019 |
2018 |
% Change |
||||||||
REVENUES: |
||||||||||
Video |
$ |
4,359 |
$ |
4,332 |
0.6 |
% |
||||
Internet |
4,195 |
3,809 |
10.1 |
% |
||||||
Voice |
477 |
512 |
(6.8) |
% |
||||||
Residential revenue |
9,031 |
8,653 |
4.4 |
% |
||||||
Small and medium business |
974 |
922 |
5.7 |
% |
||||||
Enterprise |
644 |
632 |
1.8 |
% |
||||||
Commercial revenue |
1,618 |
1,554 |
4.1 |
% |
||||||
Advertising sales |
394 |
440 |
(10.6) |
% |
||||||
Mobile |
192 |
17 |
NM |
|||||||
Other |
215 |
228 |
(5.6) |
% |
||||||
Total Revenue |
11,450 |
10,892 |
5.1 |
% |
||||||
COSTS AND EXPENSES: |
||||||||||
Cable operating costs and expenses |
7,027 |
6,847 |
2.6 |
% |
||||||
Mobile operating costs and expenses |
337 |
94 |
NM |
|||||||
Total operating costs and expenses |
7,364 |
6,941 |
6.1 |
% |
||||||
Adjusted EBITDA |
$ |
4,086 |
$ |
3,951 |
3.4 |
% |
||||
Adjusted EBITDA margin |
35.7 |
% |
36.3 |
% |
||||||
Cable Adjusted EBITDA |
$ |
4,231 |
$ |
4,028 |
5.0 |
% |
||||
Cable Adjusted EBITDA margin |
37.6 |
% |
37.0 |
% |
||||||
Capital Expenditures |
$ |
1,651 |
$ |
2,118 |
||||||
% Total Revenue |
14.4 |
% |
19.5 |
% |
||||||
Cable Capital Expenditures |
$ |
1,551 |
$ |
2,052 |
||||||
% Total Cable Revenue |
13.8 |
% |
18.9 |
% |
||||||
Net income attributable to Charter shareholders |
$ |
387 |
$ |
493 |
||||||
Earnings per common share attributable to Charter shareholders: |
||||||||||
Basic |
$ |
1.77 |
$ |
2.14 |
||||||
Diluted |
$ |
1.74 |
$ |
2.11 |
||||||
Net cash flows from operating activities |
$ |
2,943 |
$ |
2,804 |
||||||
Free cash flow |
$ |
1,271 |
$ |
532 |
||||||
Cable free cash flow |
$ |
1,527 |
$ |
681 |
Revenues
Third quarter revenue rose 5.1% year-over-year to
Video revenue totaled
Internet revenue grew 10.1%, compared to the year-ago quarter, to
Voice revenue totaled
Commercial revenue rose to
Third quarter advertising sales revenue of
Third quarter mobile revenue totaled
Other revenue totaled
Operating Costs and Expenses
Third quarter total operating costs and expenses increased by
Third 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
Third quarter mobile costs totaled
Adjusted EBITDA
Third 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
Charter currently expects capital expenditures, excluding capital expenditures related to mobile, to be slightly below
Cash Flow and Free Cash Flow
During the third quarter of 2019, net cash flows from operating activities totaled
Consolidated free cash flow for the third quarter of 2019 totaled
Liquidity & Financing
As of September 30, 2019, total principal amount of debt was
In
In
In
In
In
Share Repurchases
During the three months ended September 30, 2019, Charter purchased approximately 7.8 million shares of Charter Class A common stock and
Conference Call
Charter will host a conference call on Friday, October 25, 2019 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 2697386.
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 nine months ended September 30, 2019, 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 net income attributable to Charter shareholders and net cash flows from operating activities, respectively, in the Addendum to this release.
Adjusted EBITDA is defined as net income attributable to Charter shareholders plus net income attributable to noncontrolling interest, net interest expense, income taxes, depreciation and amortization, stock compensation expense, (gain) loss on financial instruments, other (income) expense, net and other operating (income) 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 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
Cable Adjusted EBITDA is defined as Adjusted EBITDA less mobile revenues plus mobile operating costs and expenses. Cable free cash flow is defined as free cash flow plus mobile net cash outflows from operating activities and mobile capital expenditures. Management and Charter's board of directors use cable Adjusted EBITDA and cable free cash flow to provide management and investors a more meaningful year-over-year perspective on the financial and operational performance and trends of our core cable business without the impact of the revenue, costs and capital expenditures in the initial funding period to grow a new product line as well as the negative working capital impacts from the timing of device-related cash flows when we provide the handset or tablet to customers pursuant to equipment installment plans.
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 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 service areas 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 ("DBS") 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;
- our ability to efficiently and effectively integrate acquired operations;
- 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 Cable Inc. and Bright House Networks, LLC Transactions; - 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 and any other consumer services and service platforms;
- 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 |
|||||||||||||||||||||
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND OPERATING DATA |
|||||||||||||||||||||
(dollars in millions, except per share data) |
|||||||||||||||||||||
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||||||||
2019 |
2018 |
% Change |
2019 |
2018 |
% Change |
||||||||||||||||
REVENUES: |
|||||||||||||||||||||
Video |
$ |
4,359 |
$ |
4,332 |
0.6 |
% |
$ |
13,134 |
$ |
12,987 |
1.1 |
% |
|||||||||
Internet |
4,195 |
3,809 |
10.1 |
% |
12,322 |
11,286 |
9.2 |
% |
|||||||||||||
Voice |
477 |
512 |
(6.8) |
% |
1,470 |
1,599 |
(8.0) |
% |
|||||||||||||
Residential revenue |
9,031 |
8,653 |
4.4 |
% |
26,926 |
25,872 |
4.1 |
% |
|||||||||||||
Small and medium business |
974 |
922 |
5.7 |
% |
2,882 |
2,737 |
5.3 |
% |
|||||||||||||
Enterprise |
644 |
632 |
1.8 |
% |
1,939 |
1,881 |
3.0 |
% |
|||||||||||||
Commercial revenue |
1,618 |
1,554 |
4.1 |
% |
4,821 |
4,618 |
4.4 |
% |
|||||||||||||
Advertising sales |
394 |
440 |
(10.6) |
% |
1,134 |
1,223 |
(7.3) |
% |
|||||||||||||
Mobile |
192 |
17 |
NM |
490 |
17 |
NM |
|||||||||||||||
Other |
215 |
228 |
(5.6) |
% |
632 |