Charter Announces First Quarter 2021 Results

STAMFORD, Conn., April 30, 2021 /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, 2021.

Key highlights:

 

• First quarter total residential and small and medium business ("SMB") customer relationships increased by 302,000. As of March 31, 2021, Charter served a total of 31.4 million residential and SMB customers, with 1.7 million net new customer relationships added over the last twelve months.
• First quarter total residential and SMB Internet customers increased by 355,000. As of March 31, 2021, Charter served a total of 29.2 million residential and SMB Internet customers, with 2.0 million total Internet customers added over the last twelve months.
• First quarter total residential and SMB mobile lines increased by 300,000. As of March 31, 2021, Charter served a total of 2.7 million mobile lines, with 1.3 million mobile lines added over the last twelve months.
• First quarter revenue of $12.5 billion grew by 6.7% year-over-year, driven by residential revenue growth of 5.8% and mobile revenue growth of 90.7%.
• First quarter Adjusted EBITDA¹ of $4.9 billion grew by 12.5% year-over-year.
• Net income attributable to Charter shareholders totaled $807 million in the first quarter.
• First quarter capital expenditures totaled $1.8 billion and included $112 million of mobile-related capital expenditures.
• First quarter free cash flow¹ of $1.9 billion grew by 35.3% year-over-year.
• During the first quarter, Charter purchased approximately 6.3 million shares of Charter Class A common stock and Charter Communications Holdings, LLC ("Charter Holdings") common units for approximately $4.0 billion.

"We continue to execute well in a market environment that has not yet returned to normal. We added 355,000 Internet customers in the first quarter, and 2 million over the last year, for year-over-year growth of 7.3%," said Tom Rutledge, Chairman and CEO of Charter. "Our value-driven operating strategy of providing multiple high-quality products at lower prices than sold individually continues to drive our growth."

 

During the first quarter of 2021, Charter's residential customer relationships grew by 282,000, compared to growth of 468,000 in the first quarter of 2020 and 321,000 in the first quarter of 2019. As of March 31, 2021, Charter had 29.4 million residential customer relationships, with year-over-year growth of 1.6 million, or 5.8%.

During the first quarter of 2021, Charter added 334,000 residential Internet customers, compared to 563,000 during the first quarter of 2020 and 398,000 during the first quarter of 2019. The lower net additions relative to 2020 and 2019 is a function of a lower market churn environment, resulting in fewer selling opportunities in the first quarter of 2021. During the first quarter, Charter doubled its starting download speed to 200 Mbps in 17 additional markets at no extra cost to customers. Currently, 200 Mbps is the minimum speed offered to new Spectrum Internet^® customers in nearly 85% of Charter's footprint, with 100 Mbps the minimum speed offered in the remainder of its footprint. As of March 31, 2021, over 70% of customers subscribed to Internet tiers that provided 200 Mbps or more of speed. Charter also offers Spectrum Internet Gig across its entire footprint. Additionally, Charter's Advanced In-Home WiFi, a managed WiFi service that provides customers an optimized home network while providing greater control of their connected devices, has now been launched across more than 90% of Charter's footprint for new Internet connects.

Residential video customers decreased by 156,000 in the first quarter of 2021, compared to decreases of 70,000 in the first quarter of 2020 and 152,000 in the first quarter of 2019. As of March 31, 2021, Charter had 15.5 million residential video customers.

During the first quarter of 2021, residential wireline voice customers declined by 102,000, compared to declines of 83,000 in the first quarter of 2020 and 120,000 in the first quarter of 2019. As of March 31, 2021, Charter had 9.1 million residential wireline voice customers.

First quarter 2021 residential revenue per residential customer (excluding mobile) totaled $112.18, and declined by 0.5% compared to the prior year period, given a higher percentage of non-video customers, a higher mix of lower priced video packages within Charter's video customer base, lower pay-per-view and video on demand revenue and lower installation revenue, partly offset by promotional rate step-ups and rate adjustments.

SMB customer relationships grew by 20,000 in the first quarter of 2021, while first quarter 2020 and 2019 SMB customer relationships grew by 18,000 and 30,000, respectively. During the first quarter of 2021, enterprise PSUs grew by 2,000, compared to growth of 2,000 in the first quarter of 2020 and 5,000 in the first quarter of 2019.

During the first quarter of 2021, Charter added 300,000 mobile lines, compared to growth of 290,000 during the first quarter of 2020 and 176,000 during the first quarter of 2019. Spectrum Mobile^TM 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" or "By the Gig." All plans include 4G and 5G access, with no added taxes, fees or contracts.

First Quarter Financial Results

Revenues

First quarter revenue increased by 6.7% year-over-year to $12.5 billion, driven primarily by growth in Internet and mobile revenues. Excluding advertising revenue, which benefited from political spend in the first quarter of 2020, revenue grew by 7.1% year-over-year.

Internet revenue grew by 15.4% year-over-year to $5.1 billion, driven by growth in Internet customers during the last year, promotional rate step-ups, rate adjustments and higher bundled revenue allocation.

Video revenue totaled $4.3 billion in the first quarter, a decrease of 1.8% compared to the prior year period, driven by a higher mix of lower priced video packages within Charter's video customer base, lower bundled revenue allocation, lower pay-per-view and video on demand revenue and lower installation revenue, partly offset by promotional rate step-ups and rate adjustments.

Voice revenue totaled $399 million in the first quarter, a decrease of 12.6% compared to the first quarter of 2020. Factors impacting the year-over-year change in voice revenue included value-based pricing, a decline in wireline voice customers over the last twelve months and changes in bundled revenue allocation.

Residential revenue totaled $9.8 billion in the first quarter, an increase of 5.8% year-over-year.

Commercial revenue increased by 2.0% year-over-year to $1.7 billion, driven by enterprise and SMB revenue growth of 2.5% and 1.6% year-over-year, respectively. Enterprise revenue growth was impacted by lower cell tower backhaul revenue. Enterprise retail revenue excluding wholesale revenue increased by 7.2% year-over-year, reflecting PSU growth. SMB revenue growth was partly reduced by some continuing COVID-19 related seasonal plans.

First quarter advertising sales revenue of $344 million declined by 5.8% compared to the year-ago quarter, driven by lower political revenue, partly offset by higher advanced advertising revenue. Excluding political revenue in both periods, advertising sales revenue increased by 5.3% year-over-year.

First quarter mobile revenue totaled $492 million, an increase of 90.7% year-over-year.

Other revenue totaled $207 million in the first quarter, a decrease of 2.0% year-over-year, driven by lower processing fees, partly offset by higher regional sports network revenue.

Operating Costs and Expenses

First quarter total operating costs and expenses increased by $235 million, or 3.2% year-over-year.

First quarter programming costs increased by $96 million, or 3.3% as compared to the first quarter of 2020, reflecting contractual programming increases and renewals, partly offset by a higher mix of lower cost packages within Charter's video customer base and lower pay-per-view expenses.

Regulatory, connectivity and produced content expenses increased by $49 million, or 8.9% year-over-year, primarily driven by higher sports rights costs as a result of more games played in the first quarter of 2021 compared to 2020.

Costs to service customers decreased by $44 million, or 2.4% year-over-year, despite year-over-year residential and SMB customer growth of 5.8%. The year-over-year decrease in costs to service customers was primarily driven by lower bad debt as a result of stimulus packages and lower market churn, partly offset by previously announced wage increases for hourly field operations and call center employees as Charter meets its commitment to a minimum $20 per hour wage in 2022.

Marketing expenses decreased by $15 million, or 2.0% year-over-year.

First quarter mobile costs totaled $572 million, an increase of 52.8% year-over-year, and were comprised of device costs, customer acquisition costs, and service and operating costs.

Other expenses decreased by $49 million, or 5.5% as compared to the first quarter of 2020, primarily driven by a non-recurring adjustment to bonuses related to COVID-19.

Adjusted EBITDA

First quarter Adjusted EBITDA of $4.9 billion grew by 12.5% year-over-year, reflecting growth in revenue and operating expenses of 6.7% and 3.2%, respectively. 

Net Income Attributable to Charter Shareholders

Net income attributable to Charter shareholders totaled $807 million in the first quarter of 2021, compared to $396 million in the first quarter of 2020. The year-over-year increase in net income attributable to Charter shareholders was primarily driven by higher Adjusted EBITDA, with a benefit from non-cash changes in the value of financial instruments as reflected in other income (expenses), net, largely offset by a tentative litigation settlement charge in other operating expenses, net.  

 Net income per basic common share attributable to Charter shareholders totaled $4.22 in the first quarter of 2021 compared to $1.91 during the same period last year. The increase was primarily the result of the factors described above in addition to a 7.9% decrease in basic weighted average common shares outstanding versus the prior year period.

Capital Expenditures

Property, plant and equipment expenditures totaled $1.8 billion in the first quarter of 2021, compared to $1.5 billion during the first quarter of 2020, primarily driven by increases in scalable infrastructure and line extensions. The year-over-year increase in scalable infrastructure spending was primarily related to augmentation of network capacity for customer growth and usage, with incremental spending to reclaim network headroom maintained prior to COVID-19. The increase in line extensions was driven by continued network expansion, including to rural areas. First quarter capital expenditures included $112 million of mobile costs, most of which related to retail stores and IT systems, and are included in support capital.

Charter currently expects 2021 cable capital expenditures, excluding Rural Digital Opportunity Fund investments which will begin later this year, to be relatively consistent as a percentage of cable revenue versus 2020.

Cash Flow and Free Cash Flow

During the first quarter of 2021, net cash flows from operating activities totaled $3.8 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.

Free cash flow in the first quarter of 2021 totaled $1.9 billion, compared to $1.4 billion during the same period last year. The year-over-year increase in free cash flow was driven by an increase in net cash flows from operating activities.

Liquidity & Financing

As of March 31, 2021, total principal amount of debt was $84.3 billion and Charter's credit facilities provided approximately $4.7 billion of additional liquidity in excess of Charter's $772 million cash position.

In March 2021, Charter Communications Operating, LLC and Charter Communications Operating Capital Corp. jointly issued $1.5 billion aggregate principal amount of 3.500% senior secured notes due June 2041 at a price of 99.544% of the aggregate principal amount, $1.0 billion aggregate principal amount of 3.900% senior secured notes due June 2052 at a price of 99.951% of the aggregate principal amount and an additional $500 million aggregate principal amount of 3.850% senior secured notes due April 2061 at a price of 94.668% of the aggregate principal amount. The net proceeds were used to pay related fees and expenses and for general corporate purposes, including funding buybacks of Charter Class A common stock and Charter Holdings common units as well as repaying certain indebtedness, including $750 million aggregate principal amount of CCO Holdings 5.750% notes due February 2026.

In April 2021, CCO Holdings, LLC and CCO Holdings Capital Corp. jointly issued $1.0 billion of 4.500% senior unsecured notes due 2033 at par. The net proceeds will be used for general corporate purposes, including to fund potential buybacks of Charter Class A common stock and Charter Holdings common units, to repay certain indebtedness and to pay related fees and expenses.

Share Repurchases

During the three months ended March 31, 2021, Charter purchased approximately 6.3 million shares of Charter Class A common stock and Charter Holdings common units for approximately $4.0 billion.

Conference Call

Charter will host a conference call on Friday, April 30, 2021 at 8:30 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 "Events & Webcasts" 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 3359178.

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 26, 2021. The conference ID code for the replay is 3359178.

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 months ended March 31, 2021, which will be posted on the "Results & SEC Filings" section of the Company's investor relations website at ir.charter.com, when it is filed with the Securities and Exchange Commission (the "SEC"). A slide presentation to accompany the conference call and a trending schedule containing historical customer and financial data will also be available in the "Results & SEC Filings" section.

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, net income attributable to Charter shareholders 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, other (income) expenses, net and other operating expenses, net, 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 SEC). For the purpose of calculating compliance with leverage covenants, the Company uses Adjusted EBITDA, as presented, excluding certain expenses paid by its operating subsidiaries to other Charter entities. The Company's debt covenants refer to these expenses as management fees, which were $277 million and $311 million for the three months ended March 31, 2021 and 2020, respectively.

About Charter

Charter Communications, Inc. (NASDAQ:CHTR) is a leading broadband connectivity company and cable operator serving more than 31 million customers in 41 states through its Spectrum brand. Over an advanced communications network, the company offers a full range of state-of-the-art residential and business services including Spectrum Internet^®, TV, Mobile and Voice.

For small and medium-sized companies, Spectrum Business^® delivers the same suite of broadband products and services coupled with special features and applications to enhance productivity, while for larger businesses and government entities, Spectrum Enterprise provides highly customized, fiber-based solutions. Spectrum Reach^® delivers tailored advertising and production for the modern media landscape. The company also distributes award-winning news coverage, sports and high-quality original programming to its customers through Spectrum Networks and Spectrum Originals. More information about Charter can be found at corporate.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, 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," "focused on" 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 SEC, and include, but are not limited to:

• our ability to sustain and grow revenues and cash flow from operations by offering Internet, video, 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 and providers of video content over broadband Internet connections;
• general business conditions, unemployment levels and the level of activity in the housing sector and economic uncertainty or downturn, including the impacts of the Novel Coronavirus ("COVID-19") pandemic to our customers, our vendors and local, state and federal governmental responses to the pandemic;
• 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 and distribution requirements);
• 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 effects of governmental regulation on our business including subsidies to consumers, subsidies and incentives for competitors, costs, disruptions and possible limitations on operating flexibility related to, and our ability to comply with, regulatory conditions applicable to us;
• the ability to hire and retain 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.