FOR RELEASE: 8:00 a.m. ET, Wednesday, February 27, 2008
Charter Reports Fourth Quarter and Full Year
Financial and Operating Results
Year- over- year double-digit pro forma revenue and pro forma adjusted EBITDA growth for the fifth consecutive quarter
St. Louis, MO – February 27, 2008 – Charter Communications, Inc. (NASDAQ: CHTR) (along with its subsidiaries, the “Company” or “Charter”) today reported its fourth quarter and full year 2007 financial and operating results.
| · | Fourth quarter pro forma revenue of $1.548 billion grew 10.6% year over year and actual revenue of $1.553 billion grew 9.9%, primarily driven by increases in telephone and high-speed Internet (HSI) revenues. (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.) |
| · | Fourth quarter pro forma adjusted EBITDA of $563 million increased 12.6% year over year and actual adjusted EBITDA grew 12.3%. (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) for the quarter increased 12.9% year over year, driven by increased sales of The Charter BundleTM and advanced services growth. |
| · | Revenue generating units (RGUs) increased by 199,100 on a pro forma basis during the fourth quarter of 2007, a 19.9% increase in net adds over the prior year fourth quarter. |
Paul G. Allen, Charter Chairman of the Board and controlling shareholder, said, “I am pleased with the consistency of Charter’s performance and its continuing success in building operational momentum. In 2007, Neil and our management team executed our strategic plans and drove operational and financial improvement. All of Charter’s employees deserve recognition for the Company’s performance, and I am proud of their efforts. We expect the Charter Bundle and Charter Business Bundle to continue to be the
primary platform for success in 2008, and I am encouraged about the prospects for Charter as we continue to improve the experience for our customers.”
“I am pleased to be announcing year-over-year double-digit pro forma revenue and adjusted EBITDA growth for the fifth consecutive quarter,” said Neil Smit, President and Chief Executive Officer. “We have momentum coming out of 2007 and we remain disciplined in targeting our operating, marketing and capital investments to grow the business.”
Key Operating Results
All of the following customer growth and ARPU statistics are presented on a pro forma basis. Charter added a net 199,100 RGUs during the fourth quarter of 2007, and for the full year added 835,900 RGUs, a 15.3% increase in RGU net adds over 2006. As of December 31, 2007, Charter served approximately 5,596,300 customers and the Company’s 11,782,100 RGUs were comprised of 5,219,900 analog video, 2,920,400 digital video, 2,682,500 HSI, and 959,300 telephone customers.
| · | Telephone customers increased by approximately 155,300 in the fourth quarter of 2007, the most quarterly phone net additions in Charter history. The Company added 513,000 customers during the year 2007, ending the year at 10.6% penetration. |
| · | HSI customers increased by approximately 50,500 in the fourth quarter of 2007 and by 289,100 during the year 2007. HSI ARPU increased 4.8% compared to the fourth quarter of 2006, primarily due to content improvements and customers purchasing enhanced speeds. |
| · | Digital video customers increased by approximately 59,700 in the fourth quarter of 2007 and analog video customers decreased by 66,400. For the full year, the company gained 150,100 digital video customers and lost 116,300 analog video customers. Video ARPU increased 5.8% compared to the fourth quarter of 2006 due to growth in revenue from advanced services and rate adjustments. |
| · | Fourth quarter 2007 total ARPU increased 12.9% to $97.99 from the same period in 2006, driven primarily by bundling, advanced services growth, and upgrading customers to higher Internet speeds and programming tiers. |
Fourth Quarter Results – Pro Forma
Fourth quarter pro forma revenues were $1.548 billion, an increase of $148 million, or 10.6% – Charter’s sixth consecutive quarter of year-over-year double-digit pro forma revenue growth. The increase resulted primarily from increases in telephone and HSI revenues.
Pro forma telephone revenues increased to $107 million from $49 million a year ago, as our telephone customer base has more than doubled since last year. Pro forma HSI revenues increased $49 million, up 17.7% year over year, due to increases in ARPU and the number of customers. Pro forma video revenues increased $28 million, up 3.4% year over year, primarily as a result of advanced services revenue growth. Pro forma commercial revenues increased $12 million, or 15.4%, as Charter continues to market the Charter Business Bundle® to small and medium-size businesses.
Pro forma operating expenses, which include programming, service and advertising sales costs, increased 10.0% year over year, reflecting annual programming rate increases, increased labor costs to support improved service levels, and growth of the Company’s telephone business and other advanced services. Selling, general, and administrative expenses increased by 8.3% 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 $563 million for the fourth quarter of 2007, an increase of 12.6% compared to the year-ago quarter – Charter’s fifth consecutive quarter of double-digit, year over year pro forma adjusted EBITDA growth.
Pro forma net cash flows used in operating activities for the fourth quarter of 2007 were $2 million, compared to $28 million for the fourth quarter of 2006.
Annual Results – Pro Forma
For the year ended December 31, 2007, pro forma revenues were $5.971 billion, an increase of $588 million, or 10.9%, primarily from telephone and HSI revenue growth.
Pro forma telephone revenues increased to $343 million from $135 million a year ago. Pro forma HSI revenues increased $212 million, up 20.5% year over year. Pro forma video revenues increased $106 million, up 3.2% year over year. Pro forma commercial revenues increased $42 million, or 14.1%.
Pro forma operating expenses for the full year ended December 31, 2007, which include programming, service, and advertising sales costs, increased 9.7% year over year; and selling, general, and administrative expenses increased by 11.8%.
Pro forma adjusted EBITDA totaled $2.101 billion for the full year 2007, an increase of 11.9% compared to the full year 2006.
Pro forma net cash flows from operating activities for the full year 2007 were $317 million, compared to $267 million for the full year 2006.
Fourth Quarter Results – Actual
Fourth quarter revenues increased 9.9% and operating costs and expenses increased 8.6% compared to year-ago results.
Adjusted EBITDA for the fourth quarter of 2007 was $565 million, a 12.3% increase compared to the year-ago period.
Operating income from continuing operations was $85 million in the fourth quarter of 2007, compared to $163 million in the fourth quarter of 2006. The decrease was primarily related to a $178 million impairment of franchises in the fourth quarter of 2007. No comparable charge occurred in the fourth quarter of 2006.
Net loss for the fourth quarter of 2007 was $468 million, or $1.27 per common share. For the fourth quarter of 2006, Charter reported a net loss of $396 million and net loss per common share of $1.08. Despite adjusted EBITDA growth due to RGU net additions and an increase in bundled customers, net loss increased primarily due to the franchise impairment noted above.
Expenditures for property, plant, and equipment for the fourth quarter of 2007 were $354 million, compared to fourth quarter 2006 expenditures of $308 million. The
increase in capital expenditures primarily reflects year-over-year increases in customer premise equipment and support capital.
There were no net cash flows generated or used in operating activities during the fourth quarter of 2007, compared to $25 million of net cash flows used in operating activities for the fourth quarter of 2006.
Annual Results – Actual
Revenues for the full year 2007 were $6.002 billion, an increase of 9.0% year over year. Operating costs and expenses were $3.891 billion, an increase of 8.4% compared to year-ago actual results. Adjusted EBITDA for the full year 2007 was $2.111 billion, a 10.3% increase compared to the year-ago period.
Operating income from continuing operations increased to $548 million for the full year 2007, compared to $367 million in the full year 2006. The primary drivers of the increase in operating income were increased revenues and higher margins year over year.
Net loss for the full year 2007 was $1.616 billion, or $4.39 per common share. For the full year 2006, Charter reported a net loss of $1.370 billion and net loss per common share of $4.13. Despite the increase in adjusted EBITDA due to RGU net additions and an increase in bundled customers, net loss increased year over year. This is primarily due to a $148 million charge related to the early retirement of debt in 2007, while a $101 million gain related to the early retirement of debt was recorded in 2006. Additionally, in 2006 a $200 million gain was recorded related to the sale of discontinued operations.
Capital expenditures for property, plant, and equipment for the full year 2007 were $1.244 billion, compared to $1.103 billion in 2006. Charter expects that capital expenditures in the year 2008 will total approximately $1.2 billion and approximately 75% of that amount will be directed toward success-based activities.
Net cash flows from operating activities for the full year 2007 were $327 million, compared to $323 million for the full year 2006.
As of December 31, 2007, Charter had $19.908 billion in long-term debt and $75 million of cash on hand. Availability under the Company’s revolving credit facility totaled approximately $1.0 billion at year end, none of which was limited by covenant restrictions. Charter expects that cash on hand, cash flows from operating activities, and
amounts available under its credit facilities will be adequate to meet its projected cash needs through the second or third quarter of 2009 and thereafter will not be sufficient to fund such needs. Charter will therefore need to obtain additional sources of liquidity by early 2009.
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, 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, impairment charges, stock compensation expense, and other operating (income) 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 $31 million and $32 million for each of the three months ended December 31, 2007 and 2006, respectively, which expense amounts are excluded for the purposes of calculating compliance with leverage covenants.
In addition to the actual results for the three and twelve months ended December 31, 2006 and 2007, we have provided in this release pro forma results for the three and twelve months ended December 31, 2006 and 2007. We believe these pro forma results facilitate meaningful analysis of the results of operations. Pro forma results in this release reflect certain of our sales and acquisition of certain assets in 2006 and 2007 as if they had occurred as of January 1, 2006. Pro forma income statements for the three and twelve months ended December 31, 2006 and December 31, 2007 and pro forma customer statistics as of December 31, 2007, September 30, 2007 and December 31, 2006 are provided in the addendum of this news release.
Additional Information Available on Website
A slide presentation to accompany the fourth 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 twelve months ended December 31, 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 Wednesday, February 27, 2008, 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 no later than 10 minutes prior to the call. International participants should dial 706/643-3458. The passcode for the call is 32009033.
A replay of the call will be available at 800/642-1687 or 706/645-9291 beginning two hours after the completion of the call through the end of business on March 5, 2008. The passcode for the replay is 32009033.
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.
# # #
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, if not cured in a timely manner, 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; |
| | · | the impact of competition from other distributors, including incumbent telephone companies, direct broadcast satellite operators, wireless broadband providers, and digital subscriber line (“DSL”) providers; |
| | · | difficulties in growing, further introducing, and operating our telephone services, while adequately meeting 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, including the recent significant slowdown in the new housing sector and overall economy; and |
| | · | the effects of governmental regulation 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.
# # #
