Charter Reports Third Quarter 2009
Financial and Operating Results
Court indicated confirmation of Company’s
pre-arranged joint plan of reorganization is forthcoming
St. Louis, Missouri – November 9, 2009 – Charter Communications, Inc. (along with its subsidiaries, the “Company” or “Charter”) today reported financial and operating results for the three and nine months ended September 30, 2009.
Key year-over-year highlights:
| · | Third quarter revenues of $1.693 billion grew 3.8% on a pro forma1 basis and 3.5% on an actual basis, driven by increases in telephone, high-speed Internet (HSI) and commercial revenues. |
| · | Third quarter adjusted EBITDA2 of $606 million grew 7.8% on a pro forma basis and 7.6% on an actual basis. |
| · | Third quarter adjusted EBITDA margin of 35.8% increased 140 basis points on an actual basis, driven by continued operational efficiencies. |
| · | Total average monthly revenue per basic video customer (ARPU) for the quarter increased 8.2% year-over-year to $115.26, driven by increased sales of The Charter BundleTM. |
| · | Revenues for the nine months ended September 30, 2009 increased 4.9% on a pro forma basis and 4.6% on an actual basis compared to 2008. |
| · | Adjusted EBITDA for the first nine months of 2009 increased 9.7% on a pro forma basis and 9.5% on an actual basis compared to 2008. |
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.
“Third quarter and year to date revenue and adjusted EBITDA increases reflect continued growth of our high-speed Internet and telephone businesses, both residential and commercial,” said Neil Smit, President and Chief Executive Officer. “We continue to provide value to our customers by enhancing our products and service and by leveraging our advanced technology. For example, we increased our upload and download speeds, making Charter’s high-speed Internet service even more attractive to our customers and further strengthening our advantage over DSL. In what is proving to be a challenging environment, we continue to deliver solid results, thanks to our continued focus on enhancing the customer experience, promoting the value of the bundle and remaining disciplined in expense management.”
Key Operating Results
All of the following customer and ARPU statistics are presented on a pro forma basis. Charter served approximately 12.6 million revenue generating units (RGUs) as of September 30, 2009. Approximately 56% of Charter’s customers subscribe to a bundle, up from 52% in the third quarter of 2008. Charter’s pro forma ARPU for the third quarter of 2009 was $115.26, an increase of 8.2% compared to third quarter 2008, primarily as a result of higher bundled penetration.
Third quarter 2009 customer changes (on a pro forma basis) included the following:
| · | Digital video customers increased by approximately 22,800 and basic video customers decreased by approximately 46,500 during the third quarter. Video ARPU was $61.49 for the third quarter of 2009, up 4.1% year-over-year. |
| · | HSI customers grew by approximately 52,400 during the third quarter of 2009. HSI ARPU of $41.59 increased approximately 2.6% compared to the year-ago quarter, driven by customer upgrades to higher speeds of service and increased penetration of home networking service. |
| · | Third quarter 2009 net gains of telephone customers were approximately 55,300. Telephone penetration is now 14.5% of approximately 10.6 million telephone homes passed as of September 30, 2009. Telephone ARPU of $42.76 increased approximately 5.1% compared to the year-ago quarter. |
As of September 30, 2009, Charter served approximately 5.3 million customers and the Company’s 12.6 million RGUs were comprised of 4.9 million basic video, 3.2 million digital video, 3.0 million HSI and 1.5 million telephone customers.
Third Quarter Results – Actual and Pro forma
Third quarter revenues of $1.693 billion increased 3.8% compared to the year-ago quarter on a pro forma basis and 3.5% on an actual basis. The increase is the result of telephone, HSI and commercial revenue growth.
Telephone revenues for the 2009 third quarter were $183 million, a 27.1% increase over third quarter 2008, driven by a larger telephone customer base and an increase in telephone ARPU. HSI revenues were $371 million, up 8.5% year-over-year due to an increased number of customers and ARPU growth. Commercial revenues rose to $113 million, a 13% increase year-over-year, primarily resulting from increased sales of the Charter Business Bundle® to small and medium-size businesses, growth in our fiber-based data services and the launch of primary rate interface (PRI) services. Video revenues were $861 million, down slightly compared to the year-ago quarter, as a decline in basic video customers was partially offset by digital and advanced services revenue growth. Advertising sales revenues of $64 million for the third quarter of 2009, which showed improvement compared to the second quarter of 2009, declined 20.0% year-over-year on an actual basis, primarily as a result of significant decreases in revenues from the political, automotive and retail sectors.
Operating costs and expenses totaled $1.087 billion for the third quarter of 2009, a 1.3% increase on an actual basis compared to the year-ago period. Operating expenses for the 2009 third quarter, which include programming, service and advertising sales costs, were $736 million, a 3.7% increase year-over-year on an actual basis, primarily as a result of increased programming costs. Selling, general and administrative expenses were $351 million, a decrease of 3.3% on an actual basis compared to the year-ago quarter, reflecting efficiencies gained in our operations.
Adjusted EBITDA for the third quarter of 2009 rose to $606 million, up 7.8% compared to the year-ago period on a pro forma basis and up 7.6% on an actual basis.
Charter reported $2.591 billion of loss from operations in the third quarter of 2009, compared to $208 million of income from operations in the third quarter of 2008.
As a result of the continued economic pressure on the Company’s customers from the recent economic downturn along with increased competition, the Company determined that its projected future growth would be lower than previously anticipated in its annual impairment testing in December 2008, which determination resulted in a requirement that the Company perform an interim franchise impairment analysis. In the third quarter, the Company recorded approximately $2.854 billion of non-cash impairment of franchises as a result of this impairment analysis, as required by Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill and Other.
Net loss for the third quarter of 2009 was $1.035 billion, or $2.73 per common share. For the third quarter of 2008, Charter reported an actual net loss of $322 million and a net loss per common share of 86 cents. The decrease in income from operations and the increase in net loss resulted primarily from the impairment of franchises, offset by an increase in sales of our bundled services and improved cost efficiencies. The impact of the impairment on net loss was partially offset by $625 million of tax benefit associated with the impairment and the allocation of losses of $1.395 billion to noncontrolling interest as a result of the adoption of ASC 810-10, Consolidation – Overall on January 1, 2009.
Expenditures for property, plant and equipment for the third quarter of 2009 were $279 million, compared to third quarter 2008 expenditures of $288 million.
Free cash flow3 for the third quarter of 2009 was $105 million compared to negative cash flow of $46 million for the year-ago quarter.
Net cash flows from operating activities for the third quarter of 2009 were $383 million, compared to $242 million in the third quarter of 2008. The increase in net cash flows from operating activities was primarily due to a decrease in cash paid for interest, and an increase in adjusted EBITDA, partially offset by costs associated with the financial restructuring.
Year to Date Results – Pro forma
Pro forma revenues for the nine months ended September 30, 2009 were $5.044 billion, an increase of 4.9%, or $235 million, over pro forma 2008 results.
Pro forma adjusted EBITDA for the first nine months of 2009 totaled $1.860 billion, an increase of 9.7% compared to the pro forma results for the year-ago period. The pro forma adjusted EBITDA margin increased 170 basis points for the first three quarters of the year to 36.9%, up from 35.2% in the year-ago period on a pro forma basis.
Year to Date Results – Actual
Revenues of $5.045 billion for the nine months ended September 30, 2009 increased 4.6% compared to the year-ago period. The increase resulted from telephone, HSI and commercial revenue growth.
Telephone revenues for the first nine months of 2009 were $529 million, a 32.6% increase over the first nine months of 2008, driven by a larger telephone customer base and an increase in telephone ARPU. HSI revenues were $1.098 billion, up 8.8% year-over-year. Commercial revenues rose to $330 million, a 14.2% increase year-over-year. Video revenues were $2.606 billion, essentially flat with the same period in 2008. Advertising sales revenues declined 19.3% year-over-year to $180 million for the first nine months of 2009.
Operating costs and expenses totaled $3.185 billion for the first nine months of 2009, a 2.0% increase compared to the year-ago period. Operating expenses for the first three quarters of 2009, which include programming, service and advertising sales costs, were $2.164 billion, a 3.6% increase year-over-year. Selling, general and administrative expenses were $1.021 billion, a 1.4% decrease compared to the year-ago period, reflecting efficiencies gained in our operations.
Adjusted EBITDA for the nine months ended September 30, 2009 rose to $1.860 billion, up 9.5% compared to the year-ago period.
Charter reported $1.956 billion of loss from operations in the first three quarters of 2009, compared to $643 million of income from operations in the same 2008 period. Net loss for the first nine months of 2009 was $1.352 billion, or $3.57 per common share. For the first nine months of 2008, Charter reported a net loss of $955 million and a net loss per common share of $2.57. The decrease in income from operations and increase in net loss resulted primarily from the impairment of franchises offset by an increase in sales of our bundled services, improved cost efficiencies and favorable litigation settlements in 2009. The impact of the impairment on net loss was partially offset by $625 million of tax benefit associated with the impairment and the allocation of losses of $1.571 billion to noncontrolling interest.
Expenditures for property, plant and equipment for the first nine months of 2009 were $819 million, compared to first nine months of 2008 expenditures of $938 million. The decrease in capital expenditures is primarily the result of higher spending on scalable infrastructure during 2008 related to HSI and headend upgrades, combined with lower expenditures on support capital in 2009.
Free cash flow for the nine months ended September 30, 2009 was $171 million, compared to negative cash flow of $569 million for the year-ago period.
Net cash flows from operating activities for the first nine months of 2009 were $1.008 billion, compared to $410 million in the first three quarters of 2008. The change in net cash flows from operating activities is primarily due to a decrease in cash paid for interest and an increase in adjusted EBITDA, partially offset by costs associated with the financial restructuring.
Restructuring
As of September 30, 2009, Charter had $21.596 billion in debt, $9.856 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 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. On October 15, 2009, the judge overseeing Charter’s case indicated in open court that he will confirm Charter’s Plan and
issue a confirmation order within the next several weeks. The Company expects to emerge from Chapter 11 shortly thereafter. 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 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 and free cash flow are reconciled to net cash flows from operating activities in the addendum of this new release.
Adjusted EBITDA is defined as income from operations before depreciation and amortization, impairment of franchises, stock compensation expense and other operating expenses, such as special charges and loss on sale or retirement of assets. Additionally, Adjusted EBITDA does not include reorganization items. 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 $34 million and $33 million for the three months ended September 30, 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 and nine months ended September 30, 2009 and 2008, we have provided pro forma results in this release for the three months ended September 30, 2008 and the nine months ended September 30, 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 of cable systems in 2008 and 2009 as if they occurred as of January 1, 2008. Pro forma statements of operations for the three months ended September 30, 2008 and nine months ended September 30, 2009 and 2008; and pro forma customer statistics as of June 30, 2009, December 31, 2008 and September 30, 2008; are provided in the addendum of this news release.
About Charter Communications®
Charter Communications, Inc. (Pink OTC: CHTRQ) 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 (as amended, “the Plan”) and related documents; |
| • | the availability and access, in general, of funds to meet our debt obligations 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, 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 and the weak economic conditions in the United States; |
| • | 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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