Charter Announces Second Quarter 2014 Results
Charter Announces Second Quarter 2014 Results
Strategic Initiatives and Investment Delivering Intended Results
STAMFORD, Conn., July 31, 2014 /PRNewswire/ -- Charter Communications, Inc. (along with its subsidiaries, the "Company" or "Charter") today reported financial and operating results for the three and six months ended June 30, 2014.
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Key highlights:
-- Pro forma(1) for the acquisition of Bresnan, total residential customer
relationships grew by 4.5% over the last twelve months, with second
quarter residential revenue per customer growing 1.9% on a pro forma
basis compared to the prior-year period.
-- Residential customer relationships increased 27,000 during the second
quarter, versus 2,000 during the second quarter of 2013. Residential
primary service units ("PSUs") increased by 55,000 during the period,
versus 28,000 in the year-ago quarter, including continued improvement
in year-over-year video customer trends.
-- Second quarter revenues of $2.3 billion grew 7.3% on a pro forma basis
as compared to the prior-year period, led by residential revenue growth
of 6.4%, and commercial revenue growth of 19.0%.
-- Second quarter Adjusted EBITDA(2) grew by 7.9% year-over-year on a pro
forma basis. Net loss totaled $45 million in the second quarter of 2014,
an improvement compared to a $95 million net loss on a pro forma basis
in the year-ago period.
"Our strategic initiatives to reposition Charter in the marketplace are gaining momentum and having their intended impact, attracting customers and driving faster revenue and Adjusted EBITDA growth," said Tom Rutledge, President and CEO of Charter Communications. "As we continue to implement our all-digital initiative, and roll-out the Charter Spectrum brand and product suite, Charter is well positioned to drive higher levels of product penetration, financial growth and return on investment."
(1 )All customer data and results, unless otherwise noted, are pro forma for the Bresnan transaction, as if it had occurred on January 1, 2012, and are provided in the addendum of this news release.
(2 )Adjusted EBITDA and free cash flow are defined in the "Use of Non-GAAP Financial Metrics" section and are reconciled to net loss and net cash flows from operating activities, respectively, in the addendum of this news release.
Key Operating Results
Approximate as of
-----------------
Actual Pro Forma
------ ---------
June 30, June 30, Y/Y
2014 (a) 2013 (a) Change
--------- --------- -------
Footprint
---------
Estimated Video Passings
(b) 12,817 12,768 -%
Estimated Internet Passings
(b) 12,482 12,454 -%
Estimated Voice Passings
(b) 11,976 11,784 2%
Penetration Statistics
----------------------
Video Penetration of
Estimated Video Passings
(c) 33.7% 34.2% -0.5 ppts
Internet Penetration of
Estimated Internet
Passings (c) 38.9% 35.6% 3.3 ppts
Voice Penetration of
Estimated Voice Passings
(c) 21.1% 19.6% 1.5 ppts
Residential
-----------
Residential Customer
Relationships (d) 5,700 5,452 5%
Residential Non-Video
Customers 1,534 1,246 23%
% Non-Video 26.9% 22.9% 4.0 ppts
Customers
---------
Video (e) 4,166 4,206 (1)%
Internet (f) 4,568 4,204 9%
Voice (g) 2,360 2,176 8%
----- -----
Residential PSUs (h) 11,094 10,586 5%
Residential PSU /Customer
Relationships (d)(h) 1.95 1.94
Quarterly Net Additions/
(Losses) (i)
------------------------
Video (e) (29) (55) NM
Internet (f) 49 38 29%
Voice (g) 35 45 (22)%
--- ---
Residential PSUs (h) 55 28 96%
Bulk Digital Upgrade Net
Additions (j) 15 6
Single Play Penetration (k) 37.9% 37.6% 0.3 ppts
Double Play Penetration (l) 29.3% 30.5% -1.2 ppts
Triple Play Penetration (m) 32.7% 31.9% 0.8 ppts
Digital Penetration (n) 96.1% 90.4% 5.7 ppts
Monthly Residential Revenue
per Residential Customer
(d)(o) $110.81 $108.71 2%
Commercial
----------
Commercial Customer
Relationships (d)(p) 385 347 11%
Customers
---------
Video (e)(p) 154 164 (6)%
Internet (f) 282 233 21%
Voice (g) 164 131 25%
--- ---
Commercial PSUs (h) 600 528 14%
Quarterly Net Additions/
(Losses) (i)
------------------------
Video (e)(p) (6) (3) (100)%
Internet (f) 13 13 -%
Voice (g) 12 8 50%
--- ---
Commercial PSUs (h) 19 18 6%
Footnotes
In thousands, except per
customer and penetration data.
See footnotes to unaudited
summary of operating
statistics on page 6 of the
addendum of this news release.
The footnotes contain
important disclosures
regarding the definitions used
for these operating
statistics.
NM - Not meaningful
-------------------
On July 1, 2013, Charter completed its acquisition of Cablevision's Bresnan Broadband Holdings, LLC and its subsidiaries (collectively, "Bresnan"). As a result of the acquisition, Charter added cable operating systems in Montana, Wyoming, Colorado and Utah that pass approximately 670,000 homes and serve approximately 375,000 residential and business customers. All customer data referred to herein, are pro forma for the Bresnan transaction, as if it had occurred on January 1, 2012.
During the second quarter of 2014, Charter's residential customer relationship and PSU growth improved year-over-year. Residential customer relationships grew by 27,000, up from 2,000 in the second quarter of 2013, with triple play sell-in improving year-over-year, to 58% of total residential video sales. Commercial customer relationships grew by 6,000 in the second quarter of 2014, compared to a gain of 7,000 customers in the prior-year period.
Residential PSUs increased by 55,000 versus 28,000 in the year-ago quarter, while commercial PSUs increased 19,000 during the second quarter versus a gain of 18,000 in the year-ago quarter.
As of the end of the second quarter of 2014, Charter had completed 60% of its all-digital initiative. All-digital allows Charter to offer more advanced products and services, and provides residential customers with two-way digital set-tops, which offer higher picture quality, an interactive programming guide and video on demand on all TV outlets in the home. Charter expects to complete its all-digital initiative by year-end 2014.
During the second quarter, Charter continued to introduce its new product suite, Charter Spectrum, in markets that were recently converted to all-digital, including St. Louis, Madison, Reno, portions of Charter's Michigan, North Carolina and Alabama footprints, and other areas. Charter customers in these markets now have access to an industry-leading suite of video, data, and voice services that includes over 200 HD channels, in addition to minimum offered Internet speeds of 60 Mbps, and a fully featured voice service, delivered at a highly competitive price. Charter Spectrum is being introduced across Charter's markets in 2014, in conjunction with the Company's all-digital initiative. Charter Spectrum is available to new Charter customers, and to existing customers within the Company's new pricing and packaging structure launched in 2012. As of the end of the second quarter of 2014, 80% of residential customers were in Charter's new pricing and packaging, excluding customers in the former Bresnan properties.
Residential video customers decreased by 29,000 in the second quarter of 2014, versus a loss of 55,000 in the year-ago period. The improvement in video customer performance was driven by Charter's increasingly competitive video product, including more HD channels and video on demand offerings, attractive packaging of advanced services, improved selling methods, and enhanced service quality.
Charter added 49,000 residential Internet customers in the second quarter of 2014, compared to 38,000 a year ago. As of June 30, 2014, over 80% of Charter's residential Internet customers subscribed to tiers that provided speeds of 30 Mbps or more. The Company continues to see strong demand for its Internet service as consumers value the speed and reliability of Charter's Internet offering.
During the second quarter, the Company added 35,000 residential voice customers, versus a gain of 45,000 during the second quarter of 2013, reflecting continued triple play sell-in.
First quarter residential revenue per customer relationship totaled $110.81, and grew by 1.9% on a pro forma basis as compared to the prior-year period, driven by rate adjustments, higher product sell-in and promotional rate step-ups, partially offset by continued single play Internet sell-in and bulk digital upgrades.
Second Quarter Financial Results
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND OPERATING DATA
(dollars in millions, except per share data)
Three Months Ended June 30,
---------------------------
2014 2013 2013
Actual Pro Forma % Change Actual % Change
------ --------- -------- ------ ---------
REVENUES:
Video $1,110 $1,056 5.1% $986 12.6%
Internet 638 554 15.2% 520 22.7%
Voice 145 169 (14.2)% 158 (8.2)%
Commercial 244 205 19.0% 191 27.7%
Advertising sales 79 76 3.9% 73 8.2%
Other 43 45 (4.4)% 44 (2.3)%
---
Total Revenues 2,259 2,105 7.3% 1,972 14.6%
----- ----- -----
COSTS AND EXPENSES:
Total operating costs and
expenses (excluding
depreciation and
amortization) 1,464 1,368 7.0% 1,280 14.4%
----- ----- -----
Adjusted EBITDA $795 $737 7.9% $692 14.9%
==== ==== ====
Adjusted EBITDA margin 35.2% 35.0% 35.1%
Capital Expenditures $570 $440 $422
% Total Revenues 25.2% 20.9% 21.4%
Net loss $(45) $(95) $(96)
Loss per common share,
basic and diluted $(0.42) $(0.94) $(0.96)
Net cash flows from
operating activities $632 $484
Free cash flow $70 $75
Revenue
Second quarter 2014 revenues rose to $2.3 billion, 7.3% higher on a pro forma basis than the year-ago quarter, due to growth in Internet, video and commercial revenues. On an actual basis, second quarter revenues rose 14.6% year-over-year.
Video revenues totaled $1.1 billion in the second quarter, an increase of 5.1% on a pro forma basis compared to the prior-year period. Video revenue growth was driven by higher expanded basic and digital penetration, annual and promotional rate adjustments, higher advanced services penetration, and revenue allocation from higher bundling, partially offset by a decrease in residential limited basic video customers. Video revenues grew by 12.6% year-over-year, on an actual basis.
Internet revenues grew 15.2% on a pro forma basis compared to the year-ago quarter to $638 million, driven by an increase of 364,000 Internet customers during the last year and by price adjustments. On an actual basis, Internet revenues grew 22.7% year-over-year.
Voice revenues totaled $145 million, a decline of 14.2% on a pro forma basis versus the second quarter of 2013, due to value-based pricing and revenue allocation from higher bundling, partially offset by the addition of 184,000 voice customers in the last twelve months. Voice revenues declined 8.2% year-over-year, on an actual basis.
Commercial revenues rose to $244 million, an increase of 19.0% on a pro forma basis over the prior-year period, and was driven by higher sales to small and medium business customers and to carrier customers. On an actual basis, commercial revenues grew 27.7% year-over-year.
Second quarter advertising sales revenues of $79 million increased 3.9% on a pro forma basis compared to the year-ago quarter, driven by an increase in political advertising revenue. Advertising sales increased 8.2% year-over-year, on an actual basis.
Operating Costs and Expenses
Second quarter total operating costs and expenses increased 7.0% on a pro forma basis compared to the year-ago period, reflecting increases in programming costs, costs to service customers, and other expenses. Second quarter total operating costs include $14 million of net non-recurring expense benefits.
Second quarter programming expense increased by $54 million on a pro forma basis, or 9.8%, as compared to the second quarter of 2013, reflecting contractual programming increases and higher expanded basic package penetration. Costs to service customers grew by $16 million on a pro forma basis, or 4.0% as compared to the second quarter of last year, driven primarily by higher labor costs to deliver higher quality products and service levels. Other expenses grew by $17 million on a pro forma basis, or 9.6%, as compared to the second quarter of 2013, reflecting higher commercial labor costs and corporate expenses. On an actual basis, total operating costs and expenses grew by 14.4% year-over-year.
Adjusted EBITDA
Second quarter Adjusted EBITDA of $795 million grew by 7.9% year-over-year on a pro forma basis, reflecting pro forma revenue growth and operating costs and expenses growth of 7.3% and 7.0%, respectively. On an actual basis, Adjusted EBITDA grew by 14.9% compared to the year-ago quarter, driven by the factors described above, and by the acquisition of Bresnan.
Net Loss
Net loss totaled $45 million in the second quarter of 2014, an improvement compared to a $95 million net loss on a pro forma basis and $96 million net loss on an actual basis in the year-ago period. Net loss decreased year-over-year on a pro forma basis primarily due to a loss on extinguishment of debt of $81 million during the second quarter of 2013. Basic and diluted net loss per common share was $0.42 in the second quarter of 2014 compared to $0.94 on a pro forma basis, and $0.96 on an actual basis during the same period last year. The decrease in net loss per common share was primarily the result of the factors described above.
Capital Expenditures
Property, plant and equipment expenditures were $570 million in the second quarter of 2014, compared to $440 million on a pro forma basis and $422 million on an actual basis, during the second quarter of 2013. Charter's all-digital initiative was the primary driver of the year-over-year increase in capital expenditures, and accounted for $134 million of total second quarter capital expenditures.
Excluding 2014 potential expenditures specifically related to the transactions announced with Comcast on April 28, Charter expects 2014 capital expenditures to be approximately $2.2 billion, driven by Charter's all-digital transition including the deployment of additional set-top boxes in new and existing customer homes, growth in Charter's commercial business, and further spend related to efforts to insource service operations as well as product development. The actual amount of our capital expenditures will depend on a number of factors including the growth rates of both our residential and commercial businesses, and the pace at which we progress to all-digital transmission, which we anticipate will comprise approximately $400 million of 2014 capital expenditures.
Cash Flow
During the second quarter of 2014, net cash flows from operating activities totaled $632 million, compared to $484 million in the second quarter of 2013. The increase in net cash flows from operating activities was primarily related to an increase in Adjusted EBITDA and working capital benefits.
Free cash flow for the second quarter of 2014 was $70 million, compared to $75 million during the same period last year. The decrease was primarily due to higher capital expenditures, partly offset by an increase in cash flows from operating activities.
Liquidity
Total principal amount of debt was approximately $14.1 billion as of June 30, 2014. At the end of the quarter, Charter held $9 million of cash and cash equivalents, and its credit facilities provided approximately $1.2 billion of additional liquidity.
Conference Call
Charter will host a conference call on Thursday, July 31, 2014 at 10:00 a.m. Eastern Time (ET) related to the contents of this release.
The conference call will be webcast live via the Company's investor relations website at ir.charter.com. The call will be archived under the "Financial Information" section two hours after completion of the call. Participants should go to the webcast link no later than 10 minutes prior to the start time to register.
Those participating via telephone should dial 866-919-0894 no later than 10 minutes prior to the call. International participants should dial 706-679-9379. The conference ID code for the call is 65807322.
A replay of the call will be available at 855-859-2056 or 404-537-3406 beginning two hours after the completion of the call through the end of business on August 31, 2014. The conference ID code for the replay is 65807322.
Additional Information Available on Website
The information in this press release should be read in conjunction with the financial statements and footnotes contained in the Company's Form 10-Q for the three and six months ended June 30, 2014 available on the "Financial Information" section of our investor relations website at ir.charter.com. A slide presentation to accompany the conference call and 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 and free cash flow are non-GAAP financial measures and should be considered in addition to, not as a substitute for, net 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 net loss and free cash flow is reconciled to net cash flows from operating activities in the addendum of this news release.
Adjusted EBITDA is defined as net loss plus net interest expense, income taxes, depreciation and amortization, stock compensation expense, loss on extinguishment of debt, (gain) loss on derivative instruments, net and other operating 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 special items, and is unaffected by the Company's capital structure or investment activities. 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. These costs are evaluated 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.
Management and the Company's board of directors use Adjusted EBITDA and free cash flow to assess 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 credit facilities and notes (all such documents have been previously filed with the United States Securities and Exchange Commission). For the purpose of calculating compliance with leverage covenants, we use Adjusted EBITDA, as presented, excluding certain expenses paid by our operating subsidiaries to other Charter entities. Our debt covenants refer to these expenses as management fees which fees were in the amount of $58 million and $47 million for the three months ended June 30, 2014 and 2013, respectively and $122 million and $98 million for the six months ended June 30, 2014 and 2013, respectively.
In addition to the actual results for the three and six months ended June 30, 2014 and 2013, we have provided pro forma results in this release for the three and six months ended June 30, 2013. We believe these pro forma results facilitate meaningful analysis of the results of operations. Pro forma results in this release reflect certain acquisitions of cable systems in 2013 as if they occurred as of January 1, 2012. Pro forma statements of operations for the three and six months ended June 30, 2013 are provided in the addendum of this news release.
About Charter
Charter (NASDAQ: CHTR) 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 TV® video entertainment programming, Charter Internet® access, and Charter Phone®. Charter Business® similarly provides scalable, tailored, and cost-effective broadband communications solutions to business organizations, such as business-to-business Internet access, data networking, business telephone, video and music entertainment services, and wireless backhaul. 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.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This communication 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 SEC. Many of the forward-looking statements contained in this presentation 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", "tentative", "positioning", "designed", "create", "predict", "project", "seek", "would", "could", "potential", "continue", "ongoing", "upside", "increases" and "potential", among others. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this presentation 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:
Risks Related to Comcast Corporation ("Comcast") Transactions
-- the ultimate outcome of the proposed transactions between Charter and
Comcast including the possibility that such transactions may not occur
if closing conditions are not satisfied;
-- if any such transaction were to occur, the ultimate outcome and results
of integrating operations and application of our operating strategies to
the acquired assets and the ultimate ability to realize synergies at the
levels currently expected as well as potential programming
dis-synergies;
-- the impact of the proposed transaction on our stock price and future
operating results, including due to transaction and integration costs,
increased interest expense, business disruption, and diversion of
management time and attention;
-- the reduction in our current stockholders' percentage ownership and
voting interest as a result of the proposed transaction;
-- the increase in indebtedness as a result of the proposed transactions,
which will increase interest expense and may decrease our operating
flexibility;
Risks Related to Business
-- our ability to sustain and grow revenues and cash flow from operations
by offering video, Internet, voice, advertising and other services to
residential and commercial customers, to adequately meet the customer
experience demands in our markets and to maintain and grow our customer
base, particularly in the face of increasingly aggressive competition,
the need for innovation and the related capital expenditures and the
difficult economic conditions in the United States;
-- the impact of competition from other market participants, including but
not limited to incumbent telephone companies, direct broadcast satellite
operators, wireless broadband and telephone providers, digital
subscriber line ("DSL") providers, and video provided over the Internet;
-- general business conditions, economic uncertainty or downturn, high
unemployment levels and the level of activity in the housing sector;
-- 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);
-- the development and deployment of new products and technologies,
including in connection with our plan to make our systems all-digital in
2014;
-- the effects of governmental regulation on our business or potential
business combination transactions;
-- 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) free cash flow, or (iii) access to the capital or credit markets;
-- 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.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND OPERATING DATA
(dollars in millions, except per share data)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2014 2013 2014 2013
Actual Actual % Change Actual Actual % Change
------ ------ -------- ------ ------ --------
REVENUES:
Video $1,110 $986 12.6% $2,200 $1,944 13.2%
Internet 638 520 22.7% 1,254 1,021 22.8%
Voice 145 158 (8.2)% 295 329 (10.3)%
Commercial 244 191 27.7% 478 372 28.5%
Advertising sales 79 73 8.2% 147 133 10.5%
Other 43 44 (2.3)% 87 90 (3.3)%
--- --- --- ---
Total Revenues 2,259 1,972 14.6% 4,461 3,889 14.7%
----- ----- ----- -----
COSTS AND EXPENSES:
Programming 607 519 17.0% 1,213 1,031 17.7%
Franchises, regulatory and
connectivity 107 97 10.3% 214 192 11.5%
Costs to service customers 421 379 11.1% 821 752 9.2%
Marketing 135 118 14.4% 268 228 17.5%
Other 194 167 16.2% 383 324 18.2%
--- --- --- ---
Total operating costs and
expenses (excluding
depreciation and amortization) 1,464 1,280 14.4% 2,899 2,527 14.7%
----- ----- ----- -----
Adjusted EBITDA 795 692 14.9% 1,562 1,362 14.7%
--- --- ----- -----
Adjusted EBITDA margin 35.2% 35.1% 35.0% 35.0%
---- ---- ---- ----
Depreciation and amortization 528 436 1,033 861
Stock compensation expense 15 15 27 26
Other operating expenses, net 2 5 9 16
--- --- --- ---
Income from operations 250 236 493 459
--- --- --- ---
OTHER EXPENSES:
Interest expense, net (210) (211) (421) (421)
Loss on extinguishment of debt - (81) - (123)
Gain (loss) on derivative
instruments, net (6) 20 (8) 17
Other expense, net (14) (2) (17) (3)
--- --- --- ---
(230) (274) (446) (530)
---- ---- ---- ----
Income (loss) before income
taxes 20 (38) 47 (71)
Income tax expense (65) (58) (129) (67)
--- --- ---- ---
Net loss $(45) $(96) $(82) $(138)
==== ==== ==== =====
LOSS PER COMMON SHARE, BASIC AND
DILUTED: $(0.42) $(0.96) $(0.77) $(1.37)
====== ====== ====== ======
Weighted average common shares
outstanding, basic and diluted 107,975,937 100,600,678 107,211,813 100,464,808
=========== =========== =========== ===========
Adjusted EBITDA is a non-GAAP
term. See page 7 of this
addendum for the reconciliation
of adjusted EBITDA to net loss
as defined by GAAP.
Certain prior year amounts have
been reclassified to conform
with the 2014 presentation.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND OPERATING DATA
(dollars in millions, except per share data)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2014 2013 2014 2013
Actual Pro Forma (a) % Change Actual Pro Forma (a) % Change
------ ------------ -------- ------ ------------ --------
REVENUES:
Video $1,110 $1,056 5.1% $2,200 $2,081 5.7%
Internet 638 554 15.2% 1,254 1,088 15.3%
Voice 145 169 (14.2)% 295 353 (16.4)%
Commercial 244 205 19.0% 478 400 19.5%
Advertising sales 79 76 3.9% 147 139 5.8%
Other 43 45 (4.4)% 87 92 (5.4)%
--- --- --- ---
Total Revenues 2,259 2,105 7.3% 4,461 4,153 7.4%
----- ----- ----- -----
COSTS AND EXPENSES:
Programming 607 553 9.8% 1,213 1,099 10.4%
Franchises, regulatory and
connectivity 107 106 0.9% 214 210 1.9%
Costs to service customers 421 405 4.0% 821 804 2.1%
Marketing 135 127 6.3% 268 246 8.9%
Other 194 177 9.6% 383 342 12.0%
--- --- --- ---
Total operating costs and
expenses (excluding
depreciation and amortization) 1,464 1,368 7.0% 2,899 2,701 7.3%
----- ----- ----- -----
Adjusted EBITDA 795 737 7.9% 1,562 1,452 7.6%
--- --- ----- -----
Adjusted EBITDA margin 35.2% 35.0% 35.0% 35.0%
---- ---- ---- ----
Depreciation and amortization 528 463 1,033 915
Stock compensation expense 15 15 27 26
Other operating expenses, net 2 5 9 16
--- --- --- ---
Income from operations 250 254 493 495
--- --- --- ---
OTHER EXPENSES:
Interest expense, net (210) (224) (421) (448)
Loss on extinguishment of debt - (81) - (123)
Gain (loss) on derivative
instruments, net (6) 20 (8) 17
Other expense, net (14) (2) (17) (3)
--- --- --- ---
(230) (287) (446) (557)
---- ---- ---- ----
Income (loss) before income
taxes 20 (33) 47 (62)
Income tax expense (65) (62) (129) (101)
--- --- ---- ----
Net loss $(45) $(95) $(82) $(163)
==== ==== ==== =====
LOSS PER COMMON SHARE, BASIC AND
DILUTED: $(0.42) $(0.94) $(0.77) $(1.62)
====== ====== ====== ======
Weighted average common shares
outstanding, basic and diluted 107,975,937 100,600,678 107,211,813 100,464,808
=========== =========== =========== ===========
Adjusted EBITDA is a non-GAAP
term. See page 7 of this
addendum for the reconciliation
of adjusted EBITDA to net loss
as defined by GAAP.
Certain prior year amounts have
been reclassified to conform
with the 2014 presentation.
(a) Pro forma results reflect
certain acquisitions of cable
systems in 2013 as if they
occurred as of January 1, 2012.
June 30, 2013. Pro forma
revenues and operating expenses
increased by $133 million and
$88 million, respectively, and
net loss decreased by $1
million for the three months
ended June 30, 2013. Pro forma
revenues, operating expenses
and net loss increased by $264
million, $174 million and $25
million, respectively, for the
six months ended June 30, 2013.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
June 30, December 31,
2014 2013
---- ----
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and
cash
equivalents $9 $21
Accounts
receivable,
net 252 234
Prepaid
expenses
and other
current
assets 76 67
--- ---
Total
current
assets 337 322
--- ---
INVESTMENT IN CABLE
PROPERTIES:
Property,
plant and
equipment,
net 8,197 7,981
Franchises 6,009 6,009
Customer
relationships,
net 1,245 1,389
Goodwill 1,170 1,177
----- -----
Total
investment
in cable
properties,
net 16,621 16,556
------ ------
OTHER
NONCURRENT
ASSETS 411 417
--- ---
Total assets $17,369 $17,295
======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts
payable and
accrued
liabilities $1,606 $1,467
Total
current
liabilities 1,606 1,467
----- -----
LONG-TERM
DEBT 14,019 14,181
------ ------
DEFERRED
INCOME
TAXES 1,554 1,431
----- -----
OTHER LONG-
TERM
LIABILITIES 71 65
--- ---
SHAREHOLDERS'
EQUITY 119 151
--- ---
Total
liabilities
and
shareholders'
equity $17,369 $17,295
======= =======
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2014 2013 2014 2013
---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(45) $(96) $(82) $(138)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Depreciation and amortization 528 436 1,033 861
Stock compensation expense 15 15 27 26
Noncash interest expense 10 10 20 23
Loss on extinguishment of debt - 81 - 123
(Gain) loss on derivative
instruments, net 6 (20) 8 (17)
Deferred income taxes 62 54 124 56
Other, net (1) 26 2 27
Changes in operating assets and
liabilities, net of effects from
acquisitions:
Accounts receivable (36) (15) (18) 11
Prepaid expenses and other assets 6 10 (11) (6)
Accounts payable, accrued
liabilities and other 87 (17) 106 59
--- --- --- ---
Net cash flows from operating
activities 632 484 1,209 1,025
--- --- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment (570) (422) (1,109) (834)
Change in accrued expenses
related to capital expenditures 8 13 44 2
Other, net (5) (5) (1) (14)
--- --- --- ---
Net cash flows from investing
activities (567) (414) (1,066) (846)
---- ---- ------ ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt 337 3,395 630 4,710
Repayments of long-term debt (413) (3,470) (801) (4,825)
Payments for debt issuance costs - (20) - (32)
Purchase of treasury stock (6) (5) (17) (10)
Proceeds from exercise of options
and warrants 23 10 29 15
Other, net (1) (1) 4 -
--- --- --- ---
Net cash flows from financing
activities (60) (91) (155) (142)
--- --- ---- ----
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 5 (21) (12) 37
CASH AND CASH EQUIVALENTS,
beginning of period 4 65 21 7
--- --- --- ---
CASH AND CASH EQUIVALENTS, end of
period $9 $44 $9 $44
=== === === ===
CASH PAID FOR INTEREST $176 $250 $401 $370
==== ==== ==== ====
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED SUMMARY OF OPERATING STATISTICS
(in thousands, except per customer and penetration data)
Approximate as of
-----------------
Actual Pro Forma
------ ---------
June 30, 2014 March 31, 2014 December 31, June 30, 2013
(a) (a) 2013 (a) (a)
--- --- ------- ---
Footprint
---------
Estimated Video Passings
(b) 12,817 12,816 12,799 12,768
Estimated Internet
Passings (b) 12,482 12,475 12,467 12,454
Estimated Voice Passings
(b) 11,976 11,957 11,898 11,784
Penetration Statistics
----------------------
Video Penetration of
Estimated Video Passings
(c) 33.7% 34.0% 33.9% 34.2%
Internet Penetration of
Estimated Internet
Passings (c) 38.9% 38.4% 37.2% 35.6%
Voice Penetration of
Estimated Voice Passings
(c) 21.1% 20.7% 20.3% 19.6%
Residential
-----------
Residential Customer
Relationships (d) 5,700 5,673 5,561 5,452
Residential Non-Video
Customers 1,534 1,478 1,384 1,246
% Non-Video 26.9% 26.1% 24.9% 22.9%
Customers
---------
Video (e) 4,166 4,195 4,177 4,206
Internet (f) 4,568 4,519 4,383 4,204
Voice (g) 2,360 2,325 2,273 2,176
Residential PSUs (h) 11,094 11,039 10,833 10,586
====== ====== ====== ======
Residential PSU /Customer
Relationships (d)(h) 1.95 1.95 1.95 1.94
Quarterly Net Additions/(Losses) (i)
------------------------------------
Video (e) (29) 18 (2) (55)
Internet (f) 49 136 93 38
Voice (g) 35 52 56 45
Residential PSUs (h) 55 206 147 28
=== === === ===
Bulk Digital Upgrade Net
Additions (j) 15 16 4 6
Single Play Penetration
(k) 37.9% 37.9% 37.6% 37.6%
Double Play Penetration
(l) 29.3% 29.5% 29.8% 30.5%
Triple Play Penetration
(m) 32.7% 32.6% 32.6% 31.9%
Digital Penetration (n) 96.1% 93.2% 91.8% 90.4%
Monthly Residential
Revenue per Residential
Customer (d)(o) $110.81 $110.29 $108.12 $108.71
Commercial
----------
Commercial Customer
Relationships (d)(p) 385 379 375 347
Customers
---------
Video (e)(p) 154 160 165 164
Internet (f) 282 269 257 233
Voice (g) 164 152 145 131
Commercial PSUs (h) 600 581 567 528
=== === === ===
Quarterly Net Additions/(Losses) (i)
------------------------------------
Video (e)(p) (6) (5) (1) (3)
Internet (f) 13 12 12 13
Voice (g) 12 7 7 8
Commercial PSUs (h) 19 14 18 18
=== === === ===
Pro forma operating statistics
reflect certain acquisitions of
cable systems in 2013 as if
such transactions had occurred
as of the last day of the
respective period for all
periods presented.
At June 30, 2013, actual
residential video, Internet and
voice customers were 3,917,000,
3,924,000 and 2,019,000,
respectively; actual commercial
video, Internet and voice
customers were 156,000, 214,000
and 119,000, respectively.
See footnotes to unaudited
summary of operating statistics
on page 6 of this addendum.
(a) We calculate the aging of customer accounts
based on the monthly billing cycle for each
account. On that basis, at June 30, 2014,
March 31, 2014, December 31, 2013 and June 30,
2013, customers include approximately 15,400,
11,100, 11,300 and 9,600 customers,
respectively, whose accounts were over 60
days, approximately 1,300, 900, 800 and 900
customers, respectively, whose accounts were
over 90 days and approximately 700, 800, 900
and 700 customers, respectively, whose
accounts were over 120 days.
(b) "Passings" represent our estimate of the number
of units, such as single family homes,
apartment and condominium units and commercial
establishments passed by our cable
distribution network in the areas where we
offer the service indicated. These estimates
are updated for all periods presented based
upon the information available at that time.
(c) "Penetration" represents residential and
commercial customers as a percentage of
estimated passings for the service indicated.
(d) "Customer Relationships" include the number of
customers that receive one or more levels of
service, encompassing video, Internet and
voice services, without regard to which
service(s) such customers receive. This
statistic is computed in accordance with the
guidelines of the National Cable &
Telecommunications Association ("NCTA").
Commercial customer relationships include
video customers in commercial structures,
which are calculated on an EBU basis (see
footnote (p)) and non-video commercial
customer relationships.
(e) "Video Customers" represent those customers who
subscribe to our video services. Our
methodology for reporting residential video
customers generally excludes units under bulk
arrangements, unless those units have a
digital set-top box, thus a direct billing
relationship. As we complete our all-digital
transition, bulk units are supplied with
digital set-top boxes adding to our bulk
digital upgrade customers.
(f) "Internet Customers" represent those customers
who subscribe to our Internet services.
(g) "Voice Customers" represent those customers who
subscribe to our voice services.
(h) "Primary Service Units" or "PSUs" represent the
total of video, Internet and voice customers.
(i) "Quarterly Net Additions/(Losses)" represent
the net gain or loss in the respective quarter
for the service indicated.
(j) "Bulk Digital Upgrade Net Additions" represents
the portion of residential video net additions
as a result of adding a digital set-top box
to a bulk unit.
(k) "Single Play Penetration" represents
residential customers receiving only one
Charter service offering, including video,
Internet or voice, as a % of residential
customer relationships.
(l) "Double Play Penetration" represents
residential customers receiving only two
Charter service offering, including video,
Internet and/or voice, as a % of residential
customer relationships.
(m) "Triple Play Penetration" represents
residential customers receiving all three
Charter service offerings, including video,
Internet and voice, as a % of residential
customer relationships.
(n) "Digital Penetration" represents the number of
residential digital video customers as a
percentage of residential video customers.
(o) "Monthly Residential Revenue per Residential
Customer" is calculated as total residential
video, Internet and voice quarterly revenue
divided by three divided by average
residential customer relationships during the
respective quarter.
(p) Included within commercial video customers are
those in commercial structures, which are
calculated on an equivalent bulk unit ("EBU")
basis. We calculate EBUs by dividing the bulk
price charged to accounts in an area by the
published rate charged to non-bulk
residential customers in that market for the
comparable tier of service. This EBU method of
estimating video customers is consistent with
the methodology used in determining costs paid
to programmers and is consistent with the
methodology used by other multiple system
operators. As we increase our published video
rates to residential customers without a
corresponding increase in the prices charged
to commercial service customers, our EBU count
will decline even if there is no real loss in
commercial service customers. For example,
commercial video customers decreased by 5,000
and 10,000 during the three months ended March
31, 2014 and 2013, respectively, due to
published video rate increases and other
revisions to customer reporting methodology.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED RECONCILIATION OF NON-GAAP MEASURES TO GAAP MEASURES (dollars in millions)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2014 2013 2014 2013
Actual Actual Actual Actual
------ ------ ------ ------
Net loss $(45) $(96) $(82) $(138)
Plus: Interest expense, net 210 211 421 421
Income tax expense 65 58 129 67
Depreciation and amortization 528 436 1,033 861
Stock compensation expense 15 15 27 26
Loss on extinguishment of debt - 81 - 123
(Gain) loss on derivative
instruments, net 6 (20) 8 (17)
Other, net 16 7 26 19
--- --- --- ---
Adjusted EBITDA (b) 795 692 1,562 1,362
Less: Purchases of property, plant
and equipment (570) (422) (1,109) (834)
---- ---- ------ ----
Adjusted EBITDA less capital
expenditures $225 $270 $453 $528
==== ==== ==== ====
Net cash flows from operating
activities $632 $484 $1,209 $1,025
Less: Purchases of property, plant
and equipment (570) (422) (1,109) (834)
Change in accrued expenses related
to capital expenditures 8 13 44 2
--- --- --- ---
Free cash flow $70 $75 $144 $193
=== === ==== ====
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2014 2013 2014 2013
Actual Pro Forma (a) Actual Pro Forma (a)
------ ------------ ------ ------------
Net loss $(45) $(95) $(82) $(163)
Plus: Interest expense, net 210 224 421 448
Income tax expense 65 62 129 101
Depreciation and amortization 528 463 1,033 915
Stock compensation expense 15 15 27 26
Loss on extinguishment of debt - 81 - 123
(Gain) loss on derivative
instruments, net 6 (20) 8 (17)
Other, net 16 7 26 19
--- --- --- ---
Adjusted EBITDA (b) 795 737 1,562 1,452
Less: Purchases of property, plant
and equipment (570) (440) (1,109) (863)
---- ---- ------ ----
Adjusted EBITDA less capital
expenditures $225 $297 $453 $589
==== ==== ==== ====
(a) Pro forma results reflect
certain acquisitions of cable
systems in 2013 as if they
occurred as of January 1,
2012.
(b) See page 1 and 2 of this
addendum for detail of the
components included within
adjusted EBITDA.
The above schedules are
presented in order to
reconcile adjusted EBITDA and
free cash flows, both non-
GAAP measures, to the most
directly comparable GAAP
measures in accordance with
Section 401(b) of the
Sarbanes-Oxley Act.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CAPITAL EXPENDITURES
(dollars in millions)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2014 2013 2014 2013
Actual Actual Actual Actual
------ ------ ------ ------
Customer premise
equipment (a) $297 $192 $626 $425
Scalable infrastructure
(b) 107 78 194 132
Line extensions (c) 41 62 81 108
Upgrade/Rebuild (d) 51 48 84 87
Support capital (e) 74 42 124 82
--- --- --- ---
Total capital
expenditures (f) $570 $422 $1,109 $834
==== ==== ====== ====
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2014 2013 2014 2013
Actual Pro Forma Actual Pro Forma
(g) (g)
------ ---------- ------ ----------
Customer premise
equipment (a) $297 $198 $626 $438
Scalable infrastructure
(b) 107 86 194 142
Line extensions (c) 41 63 81 110
Upgrade/Rebuild (d) 51 50 84 89
Support capital (e) 74 43 124 84
--- --- --- ---
Total capital
expenditures (f) $570 $440 $1,109 $863
==== ==== ====== ====
(a) Customer premise equipment
includes costs incurred at the
customer residence to secure new
customers and revenue generating
units, including customer
installation costs and customer
premise equipment (e.g., set-top
boxes and cable modems).
(b) Scalable infrastructure includes
costs, not related to customer
premise equipment, to secure growth
of new customers and revenue
generating units, or provide service
enhancements (e.g., headend
equipment).
(c) Line extensions include network
costs associated with entering new
service areas (e.g., fiber/coaxial
cable, amplifiers, electronic
equipment, make-ready and design
engineering).
(d) Upgrade/rebuild includes costs to
modify or replace existing fiber/
coaxial cable networks, including
betterments.
(e) Support capital includes costs
associated with the replacement or
enhancement of non-network assets
due to technological and physical
obsolescence (e.g., non-network
equipment, land, buildings and
vehicles).
(f) Total capital expenditures include
$134 million and $3 million for the
three months ended June 30, 2014 and
2013, respectively, and $253 million
and $4 million for the six months
ended June 30, 2014 and 2013,
respectively, related to our all-
digital transition; and $63 million
and $84 million for the three months
ended June 30, 2014 and 2013,
respectively, and $122 million and
$145 million for the six months ended
June 30, 2014 and 2013, respectively,
related to commercial services.
(g) Pro forma results reflect certain
acquisitions of cable systems in 2013
as if they occurred as of January 1,
2012.
Logo - http://photos.prnewswire.com/prnh/20110526/AQ10195LOGO
SOURCE Charter Communications, Inc.
Photo:http://photos.prnewswire.com/prnh/20110526/AQ10195LOGO
http://photoarchive.ap.org/
Charter Communications, Inc.
CONTACT: Media: Justin Venech, 203-905-7818; Analysts: Stefan Anninger, 203-905-7955
Web Site: http://www.charter.com
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