Charter Reports First Quarter 2009
Financial and Operating Results
Charter operations remain solid; financial restructuring underway to reduce debt
St. Louis, Missouri – May 7, 2009 – Charter Communications, Inc. (Pink OTC: CHTRQ) (along with its subsidiaries, the “Company” or “Charter”) today reported financial and operating results for the three months ended March 31, 2009.
Key year-over-year highlights:
| · | First quarter pro forma1revenues of $1.661 billion grew 6.5% on a pro forma basis and revenues grew 6.3% on an actual basis; primarily driven by increases in telephone and high-speed Internet (HSI) revenues. |
| · | First quarter adjusted EBITDA2 of $616 million grew 13.2% on a pro forma basis and 13.0% on an actual basis. |
| · | First quarter adjusted EBITDA margin of 37.1% increased more than 200 basis points on a pro forma and actual basis. |
| · | Total average monthly revenue per basic video customer (ARPU) for the quarter increased 9.9% year-over-year to $110.32, driven by increased sales of The Charter BundleTM and advanced services growth. |
| · | Revenue generating units (RGUs) increased 149,600 during the first quarter, driven by increased telephone and HSI customers. RGUs increased 4.1% compared to March 31, 2008. |
| · | Commercial revenues increased 16.3% year over year on a pro forma and actual basis, accounting for approximately 15% of total first quarter revenue growth, primarily driven by the Charter Business Bundle. |
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.
“Our results for the first quarter confirm that Charter’s operations remain strong,” said Neil Smit, President and Chief Executive Officer. “We are pleased to report solid growth in both revenue and adjusted EBITDA. Our organization is nimble, and we’ve adjusted to market conditions, achieving efficiencies while remaining committed to investing in new products and improving service that deliver value to our customers.”
Mr. Smit continued, “I am also pleased with the progress we have made in our financial restructuring and commend our employees for continuing to provide our customers with superior service and value throughout this process. We have been working diligently to complete our financial restructuring expeditiously, and look forward to emerging as a stronger company.”
Key Operating Results
All of the following customer growth and ARPU statistics are presented on a pro forma basis. Charter added 149,600 RGUs during the first quarter of 2009. Approximately 54% of Charter’s customers subscribe to a bundle, up from 49% in the first quarter of 2008. Charter’s pro forma ARPU for the first quarter of 2009 was $110.32, an increase of 9.9% compared to first quarter 2008, primarily as a result of higher bundled penetration and digital video recorder and high-definition customer growth, as well as an increase in video on demand usage.
First quarter 2009 RGU changes (on a pro forma basis) consisted of the following:
| · | Digital video customers increased by approximately 25,600 and basic video customers decreased by 22,200 during the first quarter. Video ARPU was $60.61 for the first quarter of 2009, up 5.3% year-over-year. Customers leasing high-definition or digital video recorder set tops has increased more than 30% year over year, and on demand orders during the first quarter of 2009 increased nearly 40% compared to the year ago quarter, driving increased video ARPU and customer satisfaction. |
| · | First quarter 2009 net gains of HSI customers were approximately 71,900. HSI ARPU of $41.26 increased approximately 2.5% compared to both the year ago and prior quarter, driven by customer upgrades to higher levels of service. |
| · | First quarter 2009 net gains of telephone customers were approximately 74,300. Telephone penetration is now 13.5% of approximately 10.6 million telephone homes passed as of March 31, 2009. |
As of March 31, 2009, Charter served approximately 5,433,200 customers and the Company’s 12,541,600 RGUs were comprised of 5,013,700 basic video; 3,157,700 digital video; 2,947,100 HSI, and 1,423,100 telephone customers.
First Quarter Results – Pro forma
First quarter pro forma revenues were $1.661 billion, an increase of 6.5%, or $101 million, over pro forma 2008 results.
Pro forma adjusted EBITDA totaled $616 million for the first quarter of 2009, an increase of 13.2% compared to the pro forma results for the year-ago quarter. The pro forma adjusted EBITDA margin increased 220 basis points in the first quarter to 37.1%, up from 34.9% in the year-ago quarter on a pro forma basis.
Pro forma net cash flows from operating activities for the first quarter of 2009 were $187 million, compared to $203 million for the first quarter of 2008 on a pro forma basis.
First Quarter Results – Actual
First quarter revenues of $1.662 billion increased 6.3% compared to the year ago quarter. The increase resulted primarily from telephone and HSI revenue growth.
Telephone revenues for the 2009 first quarter were $169 million, a 39.7% increase over first quarter 2008, driven by a larger telephone customer base and an increase in telephone ARPU. HSI revenues were $360 million, up 9.8% year-over-year, due to an increased number of customers and ARPU growth. Video revenues were $872 million, up 1.6% year-over-year, primarily as a result of digital and advanced services revenue growth, partially offset by a decline in basic video customers. Commercial revenues rose to $107 million, a 16.3% increase year over year, resulting from increased sales of the Charter Business Bundle® primarily to small and medium-size businesses, as well as growth in our fiber-based data services. Advertising sales revenues declined 19.4% year over year to $54 million for the first quarter of 2009 primarily as a result of significant decreases in revenues from the political and automotive sectors.
Operating costs and expenses totaled $1.046 billion for the first quarter of 2009, a 2.6% increase compared to the year-ago period. Operating expenses for the 2009 first quarter, which include programming, service and advertising sales costs, were $713 million, a 4.7% increase year-over-year, reflecting annual programming rate increases and increased costs to support improved service levels and growth of the Company’s telephone business and advanced services. Selling, general, and administrative expenses were $333 million, a decrease of 1.5% compared to the year-ago quarter, reflecting efficiencies gained in our operations. Operating costs and expenses also reflect certain modified payment terms made during the first quarter which reduced costs and expenses by approximately $6 million.
Adjusted EBITDA for the first quarter of 2009 rose to $616 million, up 13.0% compared to the year-ago period.
Charter reported $334 million income from operations in the first quarter of 2009, compared to $205 million in the first quarter of 2008. Net loss for the first quarter of 2009 was $205 million, or 54 cents per common share. For the first quarter of 2008, Charter reported a net loss of $359 million and a net loss per common share of 97 cents. The increase in income from operations resulted primarily from the increase in sales of our bundled services, improved cost efficiencies and favorable litigation settlements in 2009. The decrease in net loss resulted from the same factors along with the allocation of losses of $129 million to noncontrolling interest beginning January 1, 2009 based on the adoption of Statement of Financial Accounting Standards No. 160, partially offset by expenses related to the financial restructuring underway at Charter.
Expenditures for property, plant, and equipment for the first quarter of 2009 were $269 million, compared to first quarter 2008 expenditures of $334 million. The decrease in capital expenditures is primarily the result of higher spending on scalable infrastructure during the first quarter of 2008 related to HSI and headend upgrades.
Net cash flows from operating activities for the first quarter of 2009 were $187 million, compared to $204 million in the first quarter of 2008.
Restructuring
As of March 31, 2009, Charter had $21.623 billion in debt, $9.849 billion of which was classified as liabilities subject to compromise due to Charter’s restructuring efforts. As previously announced, on March 27, 2009, Charter filed its pre-arranged Joint Plan of Reorganization (the “Pre-Arranged Plan”) and Chapter 11 petitions in the United States Bankruptcy Court for the Southern District of New York (the “Court”) in order to implement a financial restructuring that, upon approval, would reduce the Company’s debt by approximately $8 billion. The Pre-Arranged Plan also includes the investment by certain of the Company’s debt holders of more than $3 billion, including up to $2 billion in equity proceeds, $1.2 billion in roll-over debt and $267 million in new debt to support the overall refinancing. Charter expects the proposed restructuring to position the Company to generate positive free cash flow through significant interest expense reductions.
As a debtor in possession, the Company is authorized to transact business in the ordinary course of business and, as such, has been paying its trade creditors in full in the normal course. Charter expects that cash on hand and cash flows from operating activities will be adequate to fund its projected cash needs as it proceeds with its financial restructuring.
The Company’s principal Chapter 11 petition has been assigned the lead case number 09-11435. Additional information about Charter’s restructuring, including the disclosure statement describing the Pre-Arranged Plan and the terms of the committed and optional investments by members of the Bondholder Committee, is available at the Company’s website www.charter.com. You may also receive information from the Company’s restructuring information line, 800-419-3922. For access to Court documents and other general information about the Chapter 11 cases, please visit www.kccllc.net/charter.
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, 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 and $34 million for the three months ended March 31, 2009 and 2008, respectively, which expense amounts are excluded for the purposes of calculating compliance with leverage covenants.
In addition to the actual results for the three months ended March 31, 2009 and 2009, we have provided pro forma results in this release for the three months ended March 31, 2009 and 2008. 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 2008 and 2009 as if they had occurred as of January 1, 2008. Pro forma statements of operations for the three months ended March 31, 2009 and 2008; and pro forma customer statistics as of December 31, 2008 and March 31, 2008; are provided in the addendum of this news release.
About Charter Communications®
Charter Communications, Inc. is a leading broadband communications company and the fourth-largest 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. On March 27, 2009, Charter filed a pre-arranged plan and Chapter 11 petitions in the United States Bankruptcy Court for the Southern District of New York. Charter believes its operations are strong and expects to continue operating as usual during the financial restructuring. 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, including our quarterly reports on Form 10-Q filed in 2009 and our most recent annual report on Form 10-K and include, but are not limited to:
| • | the completion of the Company’s restructuring including the outcome and impact on our business of the proceedings under Chapter 11 of the Bankruptcy Code; |
| • | the ability of the Company to satisfy closing conditions under the agreements-in-principle with certain of our bondholders and pre-arranged Joint Plan of Reorganization (“the Plan”) and related documents and to have the Plan confirmed by the bankruptcy court; |
| • | the availability and access, in general, of funds to meet interest payment obligations under our debt and to fund our operations and necessary capital expenditures, either through cash on hand, 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 repay debt prior to or when it becomes due and/or successfully access the capital or credit markets to refinance that debt through new issuances, exchange offers or otherwise, including restructuring our balance sheet and leverage position, especially given recent volatility and disruption in the capital and credit markets; |
| • | the impact of competition from other distributors, including but not limited to incumbent telephone companies, direct broadcast satellite operators, wireless broadband providers, and digital subscriber line ("DSL") providers; |
| • | difficulties in growing 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 downturn, including the recent volatility and disruption in the capital and credit markets and the significant downturn 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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