FOR RELEASE: 7:00 a.m. CT, Thursday, November 8, 2007
Charter Reports Third-Quarter
Financial and Operating Results
Double-digit pro forma revenue and pro forma adjusted EBITDA growth
for the fourth consecutive quarter
St. Louis, MO – November 8, 2007 – Charter Communications, Inc. (NASDAQ: CHTR) (along with its subsidiaries, the “Company” or “Charter”) today reported its third-quarter 2007 financial and operating results.
Highlights:
| · | Third-quarter pro forma revenues of $1.526 billion grew 11.2% year over year and actual revenue grew 9.9%, driven by significant increases in telephone and high-speed Internet (HSI) revenues. |
| · | Third-quarter pro forma adjusted EBITDA of $511 million increased 10.6% year over year and actual adjusted EBITDA grew 9.2%. (Adjusted EBITDA is defined in the “Use of Non-GAAP Financial Metrics” section and is reconciled to net cash flows from operating activities in the addendum of this news release.) |
| · | Total ARPU (average revenue per customer) increased 13.0% year over year, driven by increased sales of The Charter BundleTM and advanced services growth. |
| · | In October, Charter successfully completed a convertible note exchange offer, extending 88% of the Company’s convertible senior notes due 2009. |
“We are pleased to be announcing double-digit pro forma revenue and adjusted EBITDA growth for the fourth consecutive quarter,” said Neil Smit, President and Chief Executive Officer. “We will remain disciplined in our operating, marketing and capital investments targeted to continue growing the business.”
In addition to the actual results for the three and nine months ended September 30, 2006 and 2007, we have provided in this release pro forma results for the three and nine months ended September 30, 2006 and 2007. We believe these pro forma results
facilitate meaningful analysis of the results of operations. Pro forma results in this release reflect (i) our sales of assets in 2006, (ii) our sales of assets in January 2007 and May 2007, and (iii) our acquisition of assets in August 2007 as if they had occurred as of January 1, 2006. Pro forma income statements for the three and nine months ended September 30, 2006 and September 30, 2007 and pro forma customer statistics as of June 30, 2007, December 31, 2006 and September 30, 2006 are provided in the addendum of this news release.
Key Operating Results
All of the following customer growth and ARPU statistics are presented on a pro forma basis. Charter added a net 130,900 revenue generating units (“RGUs”) during the third quarter of 2007, and year to date has added 629,600 RGUs. As of September 30, 2007, Charter served approximately 5,655,900 customers. The Company’s 11,672,500 RGUs were comprised of 5,347,800 analog video, 2,882,900 digital video, 2,639,200 HSI, and 802,600 telephone customers.
| · | Telephone customers increased by approximately 102,300 in the third quarter of 2007. Year to date, telephone customers increased 356,800, compared to 203,600 telephone customer net additions in the first nine months of 2006. |
| · | HSI customers increased by approximately 53,000 in the third quarter of 2007. Year to date, HSI customers increased 237,300, compared to 245,600 HSI customer net additions in the first nine months of 2006. |
| · | Digital video customers increased by approximately 15,800 in the third quarter of 2007. Year to date, digital video customers increased 88,500, compared to 130,000 digital video net additions in the first nine months of 2006. |
| · | Analog video customers decreased by approximately 40,200 in the third quarter of 2007. Year to date, analog video customers decreased 53,000, compared to a net loss of 27,800 analog video customers in the first nine months of 2006. |
Third-quarter 2007 total ARPU increased 13.0%, with video ARPU increasing 4.3% and HSI ARPU increasing 6.1%, as compared to the same period in 2006, driven
primarily by advanced services and upgrading customers to higher Internet speeds and programming tiers.
We now serve 802,600 telephone customers – more than double the 339,600 customers served as of September 30, 2006. Charter Telephone® was available to approximately 8.3 million homes as of September 30, 2007, and as of October 31, 2007, we passed an additional 300,000 homes. Charter will continue to focus on driving deeper penetration of telephone service and bundled service packages, while further expanding our telephone footprint. Charter expects telephone service to reach between 9.5 million and 10 million homes passed by the end of 2008.
Third-Quarter Results – Pro Forma
Third-quarter pro forma revenues were $1.526 billion, an increase of $154 million, or 11.2% – Charter’s fifth consecutive quarter of double-digit pro forma revenue growth. A significant portion of the increase resulted from increases in telephone and HSI revenues.
Pro forma telephone revenues increased by $57 million to $94 million from $37 million a year ago, as our telephone customer base has more than doubled since last year. Pro forma HSI revenues increased $55 million, up 20.8% year over year, due to significant ARPU increases and customer growth. Pro forma video revenues increased $20 million, up 2.4% year over year, primarily as a result of advanced services growth. Pro forma commercial revenues increased $11 million, or 14.5%, as Charter now markets the video, HSI, and telephone services bundle to small and medium-sized businesses.
Pro forma operating expenses, which include programming, advertising sales, and service costs, increased 12.0% year over year, reflecting annual programming rate increases and growth of the Company’s telephone business and other advanced services. Selling, general, and administrative expenses increased by 10.5% compared to the year-ago quarter, reflecting expenditures to further improve the customer experience and increased marketing expenditures targeted at revenue growth and retaining customers.
Pro forma adjusted EBITDA totaled $511 million for the third quarter of 2007, an increase of 10.6% compared to the year-ago quarter – Charter’s fourth consecutive quarter of double-digit, year over year, pro forma adjusted EBITDA growth.
Pro forma net cash flows from operating activities for the third quarter of 2007 were $210 million, compared to $138 million for the third quarter of 2006.
Nine-Month Results – Pro Forma
Nine months ended September 30, 2007 pro forma revenues were $4.451 billion, an increase of $440 million, or 11.0%, primarily related to increases in telephone and HSI revenues.
Pro forma telephone revenues increased to $236 million from $86 million a year ago. Pro forma HSI revenues increased $163 million, up 21.4% year over year. Pro forma video revenues increased $77 million, up 3.1% year over year. Pro forma commercial revenues increased $31 million, or 14.1%.
Pro forma operating expenses for the nine months ended September 30, 2007, which include programming, advertising sales, and service costs, increased 9.6% year over year; and selling, general, and administrative expenses increased by 13.0%.
Pro forma adjusted EBITDA totaled $1.546 billion for the first nine months of 2007, an increase of 11.5% compared to the first nine months of last year.
Pro forma net cash flows from operating activities for the first nine months of 2007 were $327 million, compared to $303 million for the first nine months of 2006.
Third-Quarter Results – Actual
Third-quarter revenues increased 9.9% and operating costs and expenses increased 10.2% compared to year-ago results.
Operating income from continuing operations increased to $107 million in the third quarter of 2007 from $66 million in the third quarter of 2006, primarily due to revenue growth exceeding operating costs and expense growth by $43 million.
Net loss for the third quarter of 2007 was $407 million, or $1.10 per common share. For the third quarter of 2006, Charter reported a net loss of $133 million and loss per common share of $0.41. Despite revenues increasing at a higher rate than operating
costs and expenses, net loss increased primarily due to non-recurring gains in the third quarter of 2006 when the Company recognized a $128 million gain on a debt exchange and a $200 million gain on the sale of discontinued operations.
Expenditures for property, plant, and equipment for the third quarter of 2007 were $311 million, compared to third-quarter 2006 expenditures of $256 million. The increase in capital expenditures primarily reflects year-over-year increases in customer premise equipment, support capital, and scalable infrastructure.
Nine-Months Results – Actual
Revenues for the first nine months of 2007 were $4.449 billion, an increase of 8.8% year over year. Operating costs and expenses were $2.903 billion, an increase of 8.3% compared to year-ago actual results. Adjusted EBITDA for the first nine months of 2007 was $1.546 billion, a 9.6% increase compared to the year-ago period.
Operating income from continuing operations more than doubled to $463 million in the first nine months of 2007, compared to $204 million in the first nine months of 2006. The primary drivers of the increase include revenue growth exceeding operating costs and expense growth during the period by $135 million, and depreciation and amortization expenses declining by $25 million year over year. In addition, asset impairment charges of $159 million were recorded in the first nine months of 2006, while similar charges of $56 million were taken in the 2007 nine-month period.
Net loss for the first nine months of 2007 was $1.148 billion, or $3.12 per common share. For the first nine months of 2006, Charter reported a net loss of $974 million and loss per common share of $3.04.
Expenditures for property, plant, and equipment for the first nine months of 2007 were $890 million, compared to $795 million in the first nine months of 2006. As previously disclosed, Charter expects that approximately three-quarters of its projected $1.2 billion of 2007 capital expenditures will be directed toward success-based activities.
Net cash flows from operating activities for the first nine months of 2007 were $327 million, compared to $348 million for the first nine months of 2006.
As of September 30, 2007, Charter had $19.7 billion in long-term debt and $59 million of cash on hand. Charter expects that cash on hand, cash flows from operating
activities, and amounts available under its credit facilities will be adequate to meet its cash needs through 2008.
Transactions
In October of 2007 Charter successfully completed an exchange of $364 million of our existing convertible senior notes due 2009 into $479 million of new convertible senior notes due in 2027, subject to earlier redemption at the option of the Company or repurchase at the option of the holders. This transaction resulted in 88% of the convertible senior notes being exchanged, leaving outstanding $49 million of convertible senior notes due 2009.
Also, effective November 1, 2007, Charter swapped its West Sacramento, CA cable system serving 19,000 analog video customers for WaveDivision’s Los Angeles area cable systems serving the communities of Cerritos and Ventura, serving 14,200 analog video customers. This trade reflects the Company’s continued effort to further strengthen its strategic clusters.
Use of Non-GAAP Financial Metrics
The Company uses certain measures that are not defined by GAAP to evaluate various aspects of its business. Adjusted EBITDA, pro forma adjusted EBITDA, and free cash flow are non-GAAP financial measures and should be considered in addition to, not as a substitute for, 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 is defined as income from operations before, depreciation and amortization, asset impairment charges, stock compensation expense, and other operating expenses such as special charges and 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 non-recurring items, and is unaffected by the Company’s capital structure or investment activities. Adjusted EBITDA and pro forma adjusted EBITDA are liquidity measures used by Company management and its Board of Directors to measure the
Company’s ability to fund operations and its financing obligations. For this reason, it is a significant component of Charter’s annual incentive compensation program. 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 for the Company. Company management evaluates these costs 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.
The Company believes that adjusted EBITDA, pro forma adjusted EBITDA, and free cash flow provide information useful to investors in assessing Charter’s 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 United States Securities and Exchange Commission). Adjusted EBITDA and pro forma adjusted EBITDA, as presented, include management fee expenses in the amount of $32 million for each of the three months ended September 30, 2007 and 2006, respectively, which expense amounts are excluded for the purposes of calculating compliance with leverage covenants.
Additional Information Available on Website
A slide presentation to accompany the third-quarter conference call will be available on the Investor & News Center of our website at www.charter.com in the “Presentations/Webcasts” section. Pro forma data, including disclosure concerning the pro forma data and the basis upon which it was calculated, for each quarter of 2006 and 2007 can also be found on the Investor & News Center in the “Pro Forma Information” section. The pro forma income statement for the three months and nine months ended September 30, 2006 and 2007 and pro forma historical customer statistics are also provided in the addendum of this news release.
Conference Call
The Company will host a conference call on Thursday, November 8, 2007, at 9:00 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 www.charter.com. Access the webcast by clicking on “About Charter” at the top of the home page. Participants should go to the call link at least 10 minutes prior to the start time to register. The call will be archived on the website beginning two hours after its completion. Accompanying slides will also be available on the site.
Those participating via telephone should dial 888-233-1576. International participants should dial 706-643-3458.
A replay will be available at 800-642-1687 or 706-645-9291 beginning two hours after completion of the call through end of business November 15, 2007. The passcode for the replay is 15381251.
About Charter Communications®
Charter Communications, Inc. is a leading broadband communications company and the third-largest publicly traded cable operator in the United States. Charter provides a full range of advanced broadband services, including advanced Charter Digital Cable® video entertainment programming, Charter High-Speed® Internet access, and Charter Telephone®. Charter Business™ similarly provides scalable, tailored, and cost-effective broadband communications solutions to business organizations, such as business-to-business Internet access, data networking, video and music entertainment services, and business telephone. Charter’s advertising sales and production services are sold under the Charter Media® brand. More information about Charter can be found at www.charter.com.
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Contact:
Media: Analysts:
Anita Lamont Mary Jo Moehle
314-543-2215 314-543-2397
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, 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 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" 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:
· | the availability, in general, of funds to meet interest payment obligations under our debt and to fund our operations and necessary capital expenditures, either through cash flows from operating activities, further borrowings or other sources and, in particular, our ability to fund debt obligations (by dividend, investment or otherwise) to the applicable obligor of such debt; |
· | our ability to comply with all covenants in our indentures and credit facilities, any violation of which could trigger a default of our other obligations under cross-default provisions; |
· | our ability to pay or refinance debt prior to or when it becomes due and/or refinance that debt through new issuances, exchange offers or otherwise, including restructuring our balance sheet and leverage position; |
· | competition from other distributors, including incumbent telephone companies, direct broadcast satellite operators, wireless broadband providers, and DSL providers; |
· | difficulties in introducing, growing, and operating our telephone services, such as our ability to adequately meet customer expectations for the reliability of voice services; |
· | our ability to adequately meet demand for installations and customer service; |
· | our ability to sustain and grow revenues and cash flows from operating activities by offering video, high-speed Internet, telephone and other services, and to maintain and grow our customer base, particularly in the face of increasingly aggressive competition; |
· | our ability to obtain programming at reasonable prices or to adequately raise prices to offset the effects of higher programming costs; |
· | general business conditions, economic uncertainty or slowdown; and |
· | the effects of governmental regulation, including but not limited to local and state franchise authorities, on our business. |
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.
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