FOR RELEASE: 8:00 a.m. ET, Tuesday, August 5, 2008
Charter Reports Second Quarter
Financial and Operating Results
Charter drives margin expansion and healthy ARPU growth
in the second quarter
St. Louis, Missouri – August 5, 2008 – Charter Communications, Inc. (NASDAQ: CHTR) (along with its subsidiaries, the “Company” or “Charter”) today reported its second quarter and six-month 2008 financial and operating results.
| · | Second quarter revenues of $1.623 billion grew 8.9% year-over-year on a pro forma1 basis and 8.3% on an actual basis primarily driven by increases in telephone and high-speed Internet (HSI) revenues. |
| · | Second quarter adjusted EBITDA2 of $591 million increased 10.1% year-over-year on a pro forma basis and 9.4% on an actual basis. |
| · | Second quarter adjusted EBITDA margin of 36.4% increased 40 basis points year-over-year on a pro forma basis. |
| · | Total ARPU3 for the quarter increased 12.2% year-over-year to $104.35, driven by increased sales of The Charter BundleTM, advanced services growth and upgrading customers to higher service tiers. |
| · | Revenue generating units (RGUs) increased 6.4% year-over-year, with 98,900 net additions during the second quarter of 2008. |
“Our solid financial performance in the second quarter is a result of our consistent strategies to increase bundled penetration, enhance products and services, and improve the customer experience,” said Neil Smit, President and Chief Executive Officer. “Our priorities are to deliver healthy financial growth, leverage infrastructure investments and capture new growth opportunities.”
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 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.
3 Average revenue per basic customer.
Key Operating Results
All of the following customer growth and ARPU statistics are presented on a pro forma basis. Charter added a net 98,900 RGUs during the second quarter of 2008. As of June 30, 2008, Charter served approximately 5,557,600 customers and the Company’s 12,181,700 RGUs were comprised of 5,162,000 basic video, 3,056,900 digital video, 2,787,300 HSI, and 1,175,500 telephone customers.
| · | Telephone customers increased by approximately 90,500 during the second quarter of 2008 and the number of telephone customers is up nearly 70% year-over-year. Telephone penetration is now 11.8% of telephone homes passed. |
| · | Digital video customers increased by approximately 33,900 and basic video customers decreased by 44,800 during the second quarter. Video ARPU was $58.73 for the second quarter of 2008, up 5.6% year-over-year. |
| · | HSI customers increased by approximately 19,300 in the second quarter of 2008. HSI ARPU increased year-over-year to $40.67. |
Second quarter 2008 total ARPU increased 12.2% to $104.35 from the same period in 2007, driven primarily by an increase in bundled customers, advanced services growth, and upgrading customers to higher service tiers.
Second Quarter Results – Pro forma
Second quarter revenues were $1.623 billion, a pro forma increase of 8.9%, or $133 million. The increase resulted primarily from increases in telephone and HSI revenues.
Telephone revenues increased to $134 million from pro forma telephone revenues of $80 million a year ago, up 67.5% year-over-year on a pro forma basis as our telephone customer base continues to grow. HSI revenues were $339 million, up 10.4% year-over-year on a pro forma basis, due to increases in ARPU and the number of customers. Video revenues were $874 million, up 2.5% year-over-year on a pro forma basis, primarily as a result of advanced services revenue growth partially offset by a decline in basic video customers. Commercial revenues rose to $96 million, or 17.1% on a pro forma basis,
resulting from increased sales of the Charter Business Bundle® to small and medium-size businesses.
Operating expenses, which include programming, service and advertising sales costs, were $698 million, an 8.7% increase year-over-year on a pro forma basis, 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 were $334 million, up 7.4% on a pro forma basis 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.
Adjusted EBITDA totaled $591 million for the second quarter of 2008, a pro forma increase of 10.1% compared to the year-ago quarter.
Net cash flows used in operating activities for the second quarter of 2008 were $36 million, compared to $151 million for the second quarter of 2007 on a pro forma basis. The decrease in cash flows used in operating activities is primarily the result of changes in operating assets and liabilities that used less cash in 2008 than the corresponding period in 2007, and the increase in adjusted EBITDA.
Six Months Results – Pro forma
For the six months ended June 30, 2008, revenues were $3.187 billion, a pro forma increase of $281 million, or 9.7%, primarily from telephone and HSI revenue growth.
Telephone revenues increased to $255 million from pro forma revenues of $143 million a year ago, up 78.3% year-over-year. HSI revenues increased to $667 million, up 11.2% year-over-year on a pro forma basis. Video revenues were $1.732 billion, an increase of 2.9% year-over-year on a pro forma basis. Commercial revenues increased to $189 million, up 16.0% on a pro forma basis.
Operating expenses for the six months ended June 30, 2008 were $1.380 billion, an increase of 8.8% year-over-year on a pro forma basis; and selling, general, and administrative expenses were $671 million, up 10.4% on a pro forma basis.
Adjusted EBITDA totaled $1.136 billion for the first half of 2008, a pro forma increase of 10.3% compared to the first half of 2007.
Net cash flows provided by operating activities for the first six months of 2008 were $168 million, compared to $112 million for the first half of 2007 on a pro forma basis. The increase in cash flows provided by operating activities is primarily the result of adjusted EBITDA growth offset by changes in operating assets and liabilities that used more cash in 2008 than the corresponding period in 2007.
Second Quarter Results – Actual
Second quarter revenues increased 8.3% and operating costs and expenses increased 7.6% compared to year-ago results.
Adjusted EBITDA for the second quarter of 2008 rose 9.4% compared to the year-ago period.
Income from operations was $230 million in the second quarter of 2008, compared to $200 million in the second quarter of 2007. The increase was primarily related to adjusted EBITDA growth.
Net loss for the second quarter of 2008 was $276 million, or $0.74 per common share. For the second quarter of 2007, Charter reported a net loss of $360 million and net loss per common share of $0.98. Net loss decreased primarily as a result of an increase in adjusted EBITDA and decreases in non-operating expenses.
Expenditures for property, plant, and equipment for the second quarter of 2008 were $316 million, compared to second quarter 2007 expenditures of $281 million. The increase in capital expenditures primarily reflects year-over-year increases in customer premise equipment, specifically due to the purchase of advanced set top boxes.
Net cash flows used in operating activities during the second quarter of 2008 were $36 million, compared to $148 million of net cash flows used in operating activities for the second quarter of 2007. The decrease in cash flows used in operating activities is primarily the result of changes in operating assets and liabilities that used less cash in 2008 than the corresponding period in 2007 and the increase in adjusted EBITDA.
Six Months Results – Actual
Revenues for the six months ended June 30, 2008 increased 9.0% year-over-year. Operating costs and expenses rose 8.6% compared to year-ago actual results. Adjusted EBITDA for the first six months of 2008 grew 9.7% compared to the year-ago period.
Income from operations increased to $435 million for the first half of 2008, compared to $356 million in the first half of 2007 primarily due to adjusted EBITDA growth.
Net loss for the first six months of the year was $634 million, or $1.71 per common share. For the first six months of 2007, Charter reported a net loss of $741 million and net loss per common share of $2.02. The decrease in net loss is attributable to the increase in adjusted EBITDA.
Capital expenditures for property, plant, and equipment for the six months ended June 30, 2008 were $650 million, compared to $579 million in 2007. The increase in capital expenditures primarily reflects year-over-year increases in customer premise equipment, specifically an increase the purchase of advanced set top boxes. 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 first six months of 2008 were $168 million, compared to $118 million for the first half of 2007. The increase in cash flows provided by operating activities is primarily the result of adjusted EBITDA growth offset by changes in operating assets and liabilities that used more cash in 2008 than the corresponding period in 2007.
As of June 30, 2008, Charter had $20.480 billion in long-term debt and $63 million of cash on hand. Availability under the Company’s revolving credit facility totaled approximately $1.4 billion at June 30, 2008, none of which was limited by covenant restrictions. Charter expects that cash on hand, cash flows from operating activities, and the amounts available under its credit facilities will be adequate to fund its projected cash needs, including scheduled maturities, through 2009. Cash flows from operating activities, and the amounts available under Charter’s credit facilities will not be sufficient to fund projected cash needs in 2010 (primarily as a result of the CCH II, LLC
$1.9 billion of senior notes outstanding at July 2, 2008 that mature in September 2010) and thereafter.
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 (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 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 and $34 million for the three months ended June 30, 2008 and 2007, 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 six months ended June 30, 2008 and 2007, we have provided pro forma results in this release for the three and six months ended June 30, 2007. We believe these pro forma results facilitate meaningful analysis of the results of operations. Pro forma results in this release reflect certain sales and acquisitions of cable systems in 2007 as if they had occurred as of January 1, 2007. Pro forma income statements for the three and six months ended June 30 2007 and pro forma customer statistics as of March 31, 2008, December 31, 2007 and June 30, 2007 are provided in the addendum of this news release.
Additional Information Available on Website
A slide presentation to accompany the second 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.
Conference Call
The Company will host a conference call on Tuesday, August 5, 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 52499711.
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 August 12, 2008. The passcode for the replay is 52499711.
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, 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 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.
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