Charter Reports Fourth Quarter and Annual 2009
Financial and Operating Results
St. Louis, Missouri – March 2, 2010 – Charter Communications, Inc. (along with its subsidiaries, the “Company” or “Charter”) today reported financial and operating results for the three months and year ended December 31, 2009.
Key year-over-year highlights:
| · | Revenues for the year ended December 31, 2009 increased 4.5% on a pro forma1 basis and 4.3% on an actual basis compared to 2008. |
| · | Adjusted EBITDA2 for 2009 increased 7.8% on a pro forma basis and 7.5% on an actual basis compared to 2008. |
| · | Fourth quarter revenues grew 3.5% on a pro forma basis and 3.3% on an actual basis, driven by increases in telephone, high-speed Internet (HSI) and commercial revenues. |
| · | Fourth quarter adjusted EBITDA grew 2.4% on a pro forma basis and 2.1% on an actual basis. |
| · | Total average monthly revenue per basic video customer (ARPU) for the fourth quarter increased 8.1% year-over-year to $117.43, driven by increased sales of The Charter BundleTM. |
| · | Charter completed its financial restructuring in November 2009, reducing debt by approximately $8 billion, or 40%. |
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.
2Adjusted EBITDA is defined in the “Use of Non-GAAP Financial Metrics” section and is reconciled to consolidated net income (loss) in the addendum of this news release.
“2009 was a successful year on many fronts. We enhanced our video, Internet and phone services while continuing to improve the customer experience. We also achieved strong operating results throughout the year and completed a financial restructuring that better positions us for the future,” said Mike Lovett, Interim President and Chief Executive Officer.
Fresh Start Accounting and Combined Successor and Predecessor Results
As previously announced, Charter emerged from Chapter 11 on November 30, 2009 under our pre-arranged Joint Plan of Reorganization (“the Plan”), which was confirmed by the United States Bankruptcy Court for the Southern District of New York.
Upon emergence from bankruptcy, Charter adopted fresh start accounting. In addition to fresh start accounting, our consolidated financial statements reflect all effects of the transactions contemplated by the Plan. Thus, our financial statements are not comparable in many respects to our financial statements for periods prior to our adoption of fresh start accounting and prior to accounting for the effects of the reorganization.
The accompanying consolidated statements of operations and cash flows contained in the addendum to this release present the results of operations and the sources and uses of cash for (i) the eleven months ended November 30, 2009 of the Company (the “Predecessor”) and (ii) the one month ended December 31, 2009 of the Company (the “Successor”). However, for purposes of this release, we have combined the current year results of operations for the Predecessor and the Successor. We believe the combined results of operations for the three and twelve months ended December 31, 2009 provide management and investors with a more meaningful perspective of our ongoing financial and operational performance and trends than if we did not combine the results of operations of the Predecessor and the Successor in this manner.
Net gains related to our emergence from Chapter 11 Bankruptcy and the related application of fresh start accounting had a significant impact on net income for the quarter and year ended December 31, 2009. Net income for the fourth quarter of 2009 was $12.718 billion compared to a net loss of $1.495 billion in the year ago quarter. Net income for 2009 was $11.366 billion compared to a net loss of $2.451 billion in 2008.
Key Operating Results
All of the following customer and ARPU statistics are presented on a pro forma basis. Charter served approximately 12.7 million revenue generating units (RGUs) as of December 31, 2009. Approximately 57% of Charter’s customers subscribe to a bundle, up from 53% in the fourth quarter of 2008. Charter’s pro forma ARPU for the fourth quarter of 2009 was $117.43, an increase of 8.1% compared to fourth quarter 2008, primarily as a result of higher bundled penetration.
Fourth quarter 2009 customer changes (on a pro forma basis) included the following:
| · | Digital video customers increased by approximately 43,300 and basic video customers decreased by approximately 56,900 during the fourth quarter. Video ARPU was $62.06 for the fourth quarter of 2009, up 4.7% year-over-year. |
| · | HSI customers grew by approximately 51,800 during the fourth quarter of 2009. HSI ARPU of $41.48 increased approximately 3.0% compared to the year-ago quarter, driven by customer upgrades to higher speeds of service and increased penetration of home networking service. |
| · | Fourth quarter 2009 net gains of telephone customers were approximately 60,600. Telephone penetration is now 14.9% of approximately 10.7 million telephone homes passed as of December 31, 2009. Telephone ARPU of $41.73 increased approximately 1.6% compared to the year-ago quarter. |
As of December 31, 2009, Charter served approximately 5.3 million customers, and the Company’s 12.7 million RGUs were comprised of 4.8 million basic video, 3.2 million digital video, 3.1 million HSI and 1.6 million telephone customers.
Fourth Quarter Results – Pro forma
Fourth quarter revenues of $1.710 billion increased 3.5% compared to the year-ago quarter on a pro forma basis. Adjusted EBITDA for the fourth quarter of 2009 totaled $633 million, an increase of 2.4% compared to the pro forma results for the year-ago period.
Fourth Quarter Results – Actual
Fourth quarter revenues of $1.710 billion increased 3.3% on an actual basis. The increase is the result of HSI, telephone and commercial revenue growth.
HSI revenues were $378 million, up 8.9% year-over-year due to an increased number of customers and ARPU growth. Telephone revenues for the 2009 fourth quarter were $184 million, a 17.9% increase over fourth quarter 2008, driven by a larger telephone customer base and an increase in telephone ARPU. Commercial revenues rose to $116 million, a 12.6% increase year-over-year, primarily resulting from increased sales of the Charter Business Bundle® and customer relationship growth. Video revenues were $862 million, essentially flat with the year-ago quarter, as digital and advanced services revenue growth were offset by a decline in basic video customers. Advertising sales revenues of $69 million for the fourth quarter of 2009, which showed a 7.8% improvement compared to the third quarter of 2009, declined 18.8% year-over-year, primarily as a result of significant decreases in revenues from the political, automotive and retail sectors.
Operating costs and expenses totaled $1.077 billion for the fourth quarter of 2009, a 4.0% increase compared to the year-ago period. Operating expenses for the 2009 fourth quarter, which include programming, service and advertising sales costs, were $731 million, a 4.0% increase year-over-year, primarily as a result of increased programming costs. Selling, general and administrative expenses were $346 million, an increase of 3.9% compared to the year-ago quarter.
Adjusted EBITDA for the fourth quarter of 2009 rose to $633 million, up 2.1% compared to the fourth quarter of 2008.
Charter reported $977 million of income from operations in the fourth quarter of 2009, compared to a net loss from operations of $1.257 billion in the fourth quarter of 2008. Driving the change are differences in non-cash franchise impairment charges. In the fourth quarter of 2008 Charter recorded a $1.521 billion non-cash franchise impairment charge. In the fourth quarter of 2009, we finalized the franchise impairment analysis initiated in the third quarter and recorded a $691 million reduction of the previously recorded non-cash franchise impairment charge.
Expenditures for property, plant and equipment for the fourth quarter of 2009 were $315 million, compared to fourth quarter 2008 expenditures of $264 million. The increase in capital expenditures was driven primarily by an increase in customer premise equipment related to higher customer demand for high definition and digital video recorder converters and an increase in support capital due to hardware, software and vehicle purchases.
Net cash flows used in operating activities for the fourth quarter of 2009 were $414 million, compared to $11 million in the fourth quarter of 2008. The increase in net cash flows used in operating activities was primarily due to cash paid associated with implementing the Plan.
Year to Date Results – Pro forma
Pro forma revenues for the year ended December 31, 2009 were $6.754 billion, an increase of 4.5%, or $293 million, over pro forma 2008 results.
Pro forma adjusted EBITDA for 2009 totaled $2.493 billion, an increase of 7.8% compared to the pro forma results for the year-ago period. The pro forma adjusted EBITDA margin increased 110 basis points for the year to 36.9%, up from 35.8% in the year-ago period on a pro forma basis.
Year to Date Results – Actual
Revenues of $6.755 billion for the year ended December 31, 2009 increased 4.3% compared to the year-ago period. The increase resulted from telephone, HSI and commercial revenue growth.
Telephone revenues for 2009 were $713 million, a 28.5% increase over 2008, driven by a larger telephone customer base and an increase in telephone ARPU. HSI revenues were $1.476 billion, up 8.8% year-over-year. Commercial revenues rose to $446 million, a 13.8% increase year-over-year. Video revenues were $3.468 billion, essentially flat with the same period in 2008. Advertising sales revenues declined 19.2% year-over-year to $249 million for 2009.
Operating costs and expenses totaled $4.262 billion for 2009, a 2.5% increase compared to the year-ago period. Operating expenses for the year, which include
programming, service and advertising sales costs, were $2.895 billion, a 3.7% increase year-over-year. Selling, general and administrative expenses were $1.367 billion, essentially flat with the prior year.
Adjusted EBITDA for the year ended December 31, 2009 rose to $2.493 billion, up 7.5% compared to the prior year.
Charter reported a $979 million of loss from operations in 2009, compared to a $614 million loss in 2008. The increase in loss from operations is primarily due to the $2.163 billion non-cash franchise impairment charge recorded in 2009 compared to $1.521 billion in 2008, partially offset by the increase in adjusted EBITDA and change in other operating income.
Expenditures for property, plant and equipment for 2009 were $1.134 billion, compared to 2008 expenditures of $1.202 billion. The decrease in capital expenditures is primarily the result of lower spending on scalable infrastructure related to HSI and headend upgrades during 2009 compared to 2008. During 2010, we expect capital expenditures to be approximately $1.2 billion.
Net cash flows from operating activities for 2009 were $594 million, compared to $399 million in 2008. The increase in net cash flows from operating activities is primarily due to a decrease in cash paid for interest and increase in adjusted EBITDA, offset by reorganization items.
Debt and Equity Update
Upon completion of the Plan, Charter eliminated $8 billion of debt and reduced annual interest expense by more than $830 million. As of December 31, 2009, Charter had approximately $13.509 billion principal amount of debt and $754 million in cash and cash equivalents.
The Company has applied to NASDAQ to list its Class A common stock. The Company believes it will be in a position to complete the listing of its shares of Class A common stock on NASDAQ upon filling the vacancy on its board of directors and audit committee.
Conference Call
The Company will host a conference call on Tuesday, March 2, 2010 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. The webcast can be accessed by selecting "Investor & News Center" from the lower menu on the home page. The call will be archived in the "Investor & News Center" in the "Financial Information" section on the left beginning two hours after completion of the call. Participants should go to the call link no later than 10 minutes prior to the start time to register.
Those participating via telephone should dial 866-726-7983 no later than 10 minutes prior to the call. International participants should dial 706-758-7055. The conference ID code for the call is 59952615.
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 16, 2010. The conference ID code for the replay is 59952615.
Additional Information Available on Website
A slide presentation to accompany the conference call will be available on the “Investor & News Center” of our website at www.charter.com in the “Financial Information” section. A trending schedule containing historical customer and financial data can also be found in the “Financial Information” section.
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, adjusted EBITDA less capital expenditures and free cash flow are non-GAAP financial measures and should be considered in addition to, not as a substitute for, net income (loss) or 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 reconciled to
consolidated net income (loss) and free cash flow is reconciled to cash flows from operating activities in the addendum of this new release.
Adjusted EBITDA is defined as consolidated net income (loss) plus interest expense, income taxes, depreciation and amortization, impairment of franchises, 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 less capital expenditures is defined as Adjusted EBITDA minus purchases of property, plant and equipment. Adjusted EBITDA, pro forma adjusted EBITDA and adjusted EBITDA less capital expenditures are used by management and the Company’s board of directors to evaluate the performance of the Company’s business. For this reason, they are significant components of Charter’s annual incentive compensation program. However, these measures are limited in that they do not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues and the cash cost of financing. Management evaluates these costs through other financial measures.
Free cash flow is defined as net cash flows from operating activities, less purchases of property, plant and equipment and changes in accrued expenses related to capital expenditures.
The Company believes that adjusted EBITDA, pro forma adjusted EBITDA, adjusted EBITDA less capital expenditures and free cash flow provide information useful to investors in assessing Charter’s performance and its 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 $36 million and $32 million for the three months ended December 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 and twelve months ended December 31, 2009 and 2008, we have provided pro forma results in this release for the three months ended December 31, 2008 and years ended December 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 occurred as of January 1, 2008. Pro forma statements of operations for the three months ended December 31, 2008 and years ended December 31, 2009 and 2008 and pro forma customer statistics as of September 30, 2009 and December 31, 2008 are provided in the addendum of this news release.
About Charter
Charter Communications, Inc. (CCMM - OTC Bulletin Board) 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 TVTM video entertainment programming, Charter InternetTM access, and Charter PhoneTM. 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 (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), 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:
| · | our ability to sustain and grow revenues and cash flows from operating activities by offering video, high-speed Internet, telephone and other services to residential and commercial customers, and to maintain and grow our customer base, particularly in the face of increasingly aggressive competition and the difficult economic conditions in the United States; |
| · | 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 and competition from video provided over the Internet; |
| · | general business conditions, economic uncertainty or downturn and the significant downturn in the housing sector and overall economy; |
| · | our ability to obtain programming at reasonable prices or to raise prices to offset, in whole or in part, the effects of higher programming costs (including retransmission consents); |
| · | our ability to adequately deliver customer service; |
| · | the effects of governmental regulation on our business; |
| · | the availability and access, in general, of funds to meet our debt obligations, prior to or when they become due, and to fund our operations and necessary capital expenditures, either through (i) cash on hand, (ii) cash flows from operating activities, (iii) access to the capital or credit markets including through new issuances, exchange offers or otherwise, especially given recent volatility and disruption in the capital and credit markets, or (iv) other sources and our ability to fund debt obligations (by dividend, investment or otherwise) to the applicable obligor of such debt; and |
| · | 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. |
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.
