Charter Announces Third Quarter 2017 Results
STAMFORD, Conn., Oct. 26, 2017 /PRNewswire/ -- 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, 2017. On May 18, 2016, Charter completed its transactions between the Company, Time Warner Cable Inc. ("Legacy TWC") and Charter Communications, Inc. ("Legacy Charter"), and Legacy Charter and Bright House Networks, LLC ("Legacy Bright House") (collectively, the "Transactions"). Pro forma(1) results give effect to the Transactions as if they had closed on January 1, 2015 and include the operations of Legacy Charter, Legacy TWC and Legacy Bright House for the nine months ended September 30, 2016.
Key highlights:
-- Third quarter total customer relationships increased 212,000, compared
to 275,000 during the third quarter of 2016, when excluding the impact
of customer activity related to Legacy Bright House's seasonal customer
plan in 2016.(2) Third quarter total residential and SMB primary service
units ("PSUs") increased by 257,000, while third quarter 2016 PSUs grew
by 395,000, when adjusted for the seasonal customer program changes at
Legacy Bright House.
-- Third quarter revenues of $10.5 billion grew 4.2%, as compared to the
prior year period, driven by residential revenue growth of 4.4% and
commercial revenue growth of 8.0%, partly offset by a decline in
advertising revenue of 11.1%, due to lower political revenue.
-- Third quarter Adjusted EBITDA(3) of $3.8 billion grew 5.0%
year-over-year, and 4.7% when excluding transition costs.
-- Net income attributable to Charter shareholders in the third quarter
declined to $48 million from $189 million during the same period last
year. The decline was driven by an increase in depreciation and
amortization in the third quarter of 2017, partly offset by a
year-over-year increase in Adjusted EBITDA.
-- Third quarter capital expenditures totaled $2.4 billion, and $2.3
billion when excluding transition capital expenditures.
-- During the third quarter, Charter purchased approximately 10.9 million
shares of Charter Class A common stock and Charter Holdings common units
for approximately $4.0 billion.
"Our integration is going well and remains on schedule. And despite the complexity that comes with changing the way we do business in 75% of our footprint, we continue to generate solid customer, revenue and EBITDA growth," said Tom Rutledge, Chairman and CEO of Charter Communications, Inc. "Through our integration, we are creating one company, with a unified and centralized operating strategy, which will put Charter on a path to be able to grow quickly over a multi-year period."
1 See Exhibit 99.1 in the Company's
Quarterly Report on Form 10-Q for
the three and nine months ended
September 30, 2016 filed with the
Securities and Exchange Commission
on November 3, 2016, which
includes reconciliations of the
pro forma information to actual
information for each quarter of
2015 and the first and second
quarters of 2016. See the "Use of
Adjusted EBITDA, Free Cash Flow
and Pro Forma Information" section
of this document for additional
information.
(2) In the second quarter of 2017,
Charter conformed the seasonal
customer program in the Legacy
Bright House footprint to
Charter's program. For additional
information, see footnote j on
page 6 of the addendum to this
release.
(3) Adjusted EBITDA and free cash flow
are defined in the "Use of
Adjusted EBITDA, Free Cash Flow
and Pro Forma Information" section
and are reconciled to consolidated
net income and net cash flows from
operating activities,
respectively, in the addendum of
this news release.
Key Operating
Results
Approximate as of
September 30, September 30, Y/Y Change
2017 (a) 2016 (a)(j)
------- ----------
Footprint (b)
------------
Estimated Video
Passings 49,854 49,001 1.7%
Estimated Internet
Passings 49,594 48,689 1.9%
Estimated Voice
Passings 48,832 47,854 2.0%
Penetration
Statistics (c)
---------------
Video Penetration
of Estimated Video
Passings 34.1% 35.3% (1.2) ppts
Internet
Penetration of
Estimated Internet
Passings 47.6% 45.6% 2.0ppts
Voice Penetration
of Estimated Voice
Passings 23.1% 23.1% -ppts
Customer
Relationships (d)
------------------
Residential 25,470 24,551 3.7%
Small and Medium
Business 1,523 1,367 11.4%
----- -----
Total Customer
Relationships 26,993 25,918 4.1%
Residential
-----------
Primary Service
Units ("PSUs")
---------------
Video 16,542 16,887 (2.0)%
Internet 22,282 21,017 6.0%
Voice 10,405 10,288 1.1%
------ ------
49,229 48,192 2.2%
Quarterly Net
Additions/
(Losses)
-------------
Video (104) (47) (121.3)%
Internet 249 350 (28.9)%
Voice 27 33 (18.2)%
--- ---
172 336 (48.8)%
Single Play (e) 10,373 9,447 9.8%
Double Play (e) 6,436 6,569 (2.0)%
Triple Play (e) 8,661 8,535 1.5%
Single Play
Penetration (f) 40.7% 38.5% 2.2ppts
Double Play
Penetration (f) 25.3% 26.8% (1.5) ppts
Triple Play
Penetration (f) 34.0% 34.8% (0.8) ppts
% Residential Non-
Video Customer
Relationships 35.1% 31.2% 3.9ppts
Monthly Residential
Revenue per
Residential
Customer (g) $110.12 $109.70 0.4%
Small and Medium
Business
----------------
PSUs
----
Video 440 388 13.4%
Internet 1,321 1,185 11.5%
Voice 881 751 17.3%
--- ---
2,642 2,324 13.7%
Quarterly Net
Additions/
(Losses)
-------------
Video 15 10 50.0%
Internet 36 37 (2.7)%
Voice 34 26 30.8%
--- ---
85 73 16.4%
Monthly Small and
Medium Business
Revenue per
Customer (h) $206.64 $214.53 (3.7)%
Enterprise PSUs (i)
------------------
Enterprise PSUs 108 93 16.1%
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.
--------------------------------
All percentages are calculated
using whole numbers. Minor
differences may exist due to
rounding.
During the third quarter, Charter continued its all-digital efforts in the approximately 35% of Legacy TWC's footprint and 60% of Legacy Bright House's footprint that are not yet all-digital. All-digital allows Charter to offer more advanced products and services, and provides residential customers with two-way digital set-top boxes, which offer better picture quality, an interactive programming guide and video on demand on all TV outlets in the home.
During the third quarter of 2017, Charter's residential customer relationships grew by 172,000, while third quarter 2016 customer relationships grew by 245,000, or 241,000 when adjusted for seasonal program changes made at Legacy Bright House.(1) Residential PSUs increased by 172,000 in the third quarter of 2017, while third quarter 2016 PSUs increased by 336,000, or 322,000 when adjusted for the seasonal program changes at Legacy Bright House. As of September 30, 2017, Charter had 25.5 million residential customer relationships and 49.2 million residential PSUs.
Residential video customers decreased by 104,000 in the third quarter of 2017, while third quarter 2016 video customers decreased by 47,000, or 51,000 when adjusted for seasonal program changes made at Legacy Bright House. As of September 30, 2017, Charter had 16.5 million residential video customers.
Charter added 249,000 residential Internet customers in the third quarter of 2017, while third quarter 2016 Internet customers grew by 350,000, or 344,000 when adjusted for seasonal program changes made at Legacy Bright House. Charter now offers minimum Internet speeds of at least 100 Mbps to over 75% of its total footprint, with nearly all of Charter's remaining footprint offering minimum Internet speeds of at least 60 Mbps. As of September 30, 2017, 93% of Legacy Charter's residential Internet customers subscribed to tiers that provided speeds of 60 Mbps or more compared to 73% at Legacy TWC and 80% at Legacy Bright House. The Company continues to see strong demand for its Internet service as consumers value the speed and reliability of Charter's Internet offering. As of September 30, 2017, Charter had 22.3 million residential Internet customers.
During the third quarter of 2017, the Company added 27,000 residential voice customers, while third quarter 2016 voice customers grew by 33,000, or 29,000 when adjusted for seasonal program changes made at Legacy Bright House. As of September 30, 2017, Charter had 10.4 million residential voice customers.
Third quarter residential revenue per customer relationship totaled $110.12, and grew by 0.4% compared to the prior year period, as promotional rate step-ups, modest rate adjustments, and pay-per-view event revenue were partially offset by continued single play Internet sell-in and the migration of Legacy TWC and Legacy Bright House customers to higher-value Spectrum pricing and packaging.
During the third quarter of 2017, SMB customer relationships grew by 40,000, versus customer growth of 34,000 during the third quarter of 2016. SMB PSUs increased 85,000, compared to 73,000 during the third quarter of 2016. As of September 30, 2017, Charter had 1.5 million SMB customer relationships and 2.6 million SMB PSUs.
(1) See footnote j on page 6 of
the addendum to this release
for additional information
regarding changes made to
Legacy Bright House's
seasonal customer program in
the second quarter of 2017.
Third 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 September 30,
2017 2016 % Change
---- ---- --------
REVENUES:
Video $4,213 $4,094 2.9%
Internet 3,556 3,206 10.9%
Voice 611 728 (16.1)%
--- ---
Residential revenue 8,380 8,028 4.4%
Small and medium business 931 867 7.4%
Enterprise 553 508 8.9%
--- ---
Commercial revenue 1,484 1,375 8.0%
Advertising sales 373 420 (11.1)%
Other 221 214 3.0%
Total Revenue 10,458 10,037 4.2%
COSTS AND EXPENSES:
Total operating costs and
expenses 6,639 6,401 3.7%
----- -----
Adjusted EBITDA $3,819 $3,636 5.0%
====== ======
Adjusted EBITDA margin 36.5% 36.2%
Capital Expenditures $2,393 $1,748
% Total Revenues 22.9% 17.4%
Net income attributable
to Charter shareholders $48 $189
Earnings per common share attributable to
Charter shareholders:
Basic $0.19 $0.70
Diluted $0.19 $0.69
Net cash flows from
operating activities $2,908 $2,801
Free cash flow $594 $1,001
Revenue
Third quarter revenues rose 4.2% year-over-year to $10.5 billion, driven by growth in Internet, video and commercial revenues. Excluding advertising, third quarter revenues increased 4.9% year-over-year.
Video revenues totaled $4.2 billion in the third quarter, an increase of 2.9% compared to prior-year period. Video revenue growth was driven by annual and promotional rate adjustments, pay-per-view events, and revenue allocation relating to the launch of Spectrum pricing and packaging in Legacy TWC and Legacy Bright House, partially offset by a decrease in video customers over the last 12 months.
Internet revenues grew 10.9%, compared to the year-ago quarter, to $3.6 billion, driven by growth in Internet customers during the last year, promotional rolloff and revenue allocation relating to the launch of Spectrum pricing and packaging in Legacy TWC and Legacy Bright House.
Voice revenues totaled $611 million in the third quarter, a decrease of 16.1% compared to the third quarter of 2016, as value-based pricing and revenue allocation relating to the launch of Spectrum pricing and packaging in Legacy TWC and Legacy Bright House, more than offset voice customer growth over the last twelve months.
Commercial revenues rose to $1.5 billion, an increase of 8.0% over the prior year period, driven by SMB revenue growth of 7.4% and enterprise revenue growth of 8.9%.
Third quarter advertising sales revenues of $373 million decreased 11.1% compared to the year-ago quarter, driven by a decrease in political, as well as barter and local advertising revenue.
Operating Costs and Expenses
Third quarter total operating costs and expenses increased by $238 million, or 3.7%, compared to the year-ago period.
Third quarter programming expense increased by $295 million, or 12.3% as compared to the third quarter of 2016, reflecting contractual programming increases, renewals, improving expanded basic video sell-in at Legacy TWC and higher pay-per-view expenses.
Costs to service customers decreased by $73 million or 3.6% year-over-year, as a result of benefits from the combination of the three companies and improved productivity.
Marketing expenses increased by $33 million, or 5.6% year-over-year due to higher sales and the implementation of Charter's selling tactics in the acquired footprints. Other expenses decreased by $16 million, or 2.0% as compared to the third quarter of 2016, driven primarily by Transactions synergies.
Adjusted EBITDA
Third quarter Adjusted EBITDA of $3.8 billion grew by 5.0% year-over-year reflecting revenue growth and operating expense growth of 4.2% and 3.7%, respectively. Excluding transition costs of $23 million in the third quarter of 2017 and $32 million in the prior year period, Adjusted EBITDA grew by 4.7% year-over-year.
Net Income Attributable to Charter Shareholders
Net income attributable to Charter shareholders totaled $48 million in the third quarter of 2017, compared to $189 million in the third quarter of 2016. The year-over-year decrease in net income was primarily driven by higher depreciation and amortization in the third quarter of 2017, higher interest expense and a decrease in gain on financial instruments, partly offset by higher Adjusted EBITDA and lower severance-related and transactions expenses.
Net income per basic common share attributable to Charter shareholders totaled $0.19 in the third quarter of 2017 compared to $0.70 during the same period last year. The decrease was primarily the result of the factors described above, partially offset by a 6.4% decrease in weighted average shares outstanding versus the prior year period.
Capital Expenditures
Property, plant and equipment expenditures totaled $2.4 billion in the third quarter of 2017, compared to $1.7 billion during the third quarter of September 30, 2016. The year-over-year increase in capital expenditures was driven by an increase in CPE spending related to higher customer connect volumes driven by the launch of Spectrum pricing and packaging in Legacy TWC and Legacy Bright House and the related higher set-top box placement rate per Spectrum connect, and CPE related to Charter's all-digital initiative. The increase in scalable infrastructure was related to the timing of in-year spend and planned product improvements for video and Internet. Support capital increased due to the in-year timing of vehicle purchases and capitalized labor associated with software development. Transition capital expenditures accounted for $125 million of capital expenditures in the third quarter of 2017, versus $109 million in the third quarter of 2016. Excluding transition-related expenditures, third quarter 2017 capital expenditures totaled $2.3 billion, compared to $1.6 billion during the same period last year.
Cash Flow and Free Cash Flow
During the third quarter of 2017, net cash flows from operating activities totaled $2.9 billion, compared to $2.8 billion in the third quarter of 2016. The year-over-year increase in net cash flows from operating activities was primarily due to higher Adjusted EBITDA, partly offset by a smaller working capital benefit in the third quarter of 2017 versus the third quarter of 2016.
Free cash flow for the third quarter of 2017 totaled $594 million, compared to $1.0 billion during the same period last year. The decrease was driven by higher capital expenditures in the third quarter of 2017 versus the third quarter of 2016, partly offset by higher net cash flows from operating activities.
Liquidity & Financing
As of September 30, 2017, total principal amount of debt was $66.8 billion and Charter's credit facilities provided approximately $2.9 billion of additional liquidity in excess of Charter's $2.2 billion cash position.
In July, Charter Operating and Charter Communications Operating Capital Corp. issued $1.0 billion of 3.750% senior secured notes due 2028 and an additional $500 million of 5.375% senior secured notes due 2047. The net proceeds were used to pay related fees and expenses and for general corporate purposes, including buybacks of Charter Class A common stock or common units of Charter Communications Holdings, LLC.
In August, CCO Holdings, LLC and CCO Holdings Capital Corp. issued $1.5 billion of 5.000% senior unsecured notes due 2028. The net proceeds were used to pay related fees and expenses and for general corporate purposes, including buybacks of Charter Class A common stock or common units of Charter Communications Holdings, LLC.
In September, Charter Communications Operating, LLC and Charter Communications Operating Capital Corp. issued $1.25 billion of 4.200% senior secured notes due 2028, and an additional $750 million of 5.375% senior secured notes due 2047. The net proceeds were used to pay related fees and expenses and for general corporate purposes, including buybacks of Charter Class A common stock or common units of Charter Communications Holdings, LLC.
In October, CCO Holdings, LLC and CCO Holdings Capital Corp. issued $500 million of 4.000% senior unsecured notes due 2023, and an additional $1.0 billion of 5.000% senior unsecured notes due 2028. The net proceeds will be used to pay related fees and expenses and for general corporate purposes, including buybacks of Charter Class A common stock or common units of Charter Communications Holdings, LLC.
Share Repurchases
During the three months ended September 30, 2017, Charter purchased approximately 10.9 million shares of Charter Class A common stock and Charter Holdings common units for approximately $4.0 billion.
Conference Call
Charter will host a conference call on Thursday, October 26, 2017 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 79481864.
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 November 8, 2017. The conference ID code for the replay is 79481864.
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 Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2017, which will be posted on the "Financial Information" section of our investor relations website at ir.charter.com, when it is filed with the Securities and Exchange Commission (the "SEC"). A slide presentation to accompany the conference call and a trending schedule containing historical customer and financial data will also be available in the "Financial Information" section.
Use of Adjusted EBITDA, Free Cash Flow and Pro Forma Information
The company uses certain measures that are not defined by U.S. 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, consolidated net income and 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 consolidated net income and net cash flows from operating activities, respectively, in the Addendum to this release.
Adjusted EBITDA is defined as consolidated net income plus net interest expense, income taxes, depreciation and amortization, stock compensation expense, loss on extinguishment of debt, (gain) loss on financial instruments, other pension (benefits) costs, other (income) expense, net and other operating (income) expenses, such as merger and restructuring costs, 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 capital expenditures and changes in accrued expenses related to capital expenditures.
Management and Charter'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 facilities and notes (all such documents have been previously filed with the the SEC). For the purpose of calculating compliance with leverage covenants, the Company uses Adjusted EBITDA, as presented, excluding certain expenses paid by its operating subsidiaries to other Charter entities. The Company's debt covenants refer to these expenses as management fees, which were $262 million and $231 million for the three months ended September 30, 2017 and 2016, respectively, and were $791 million and $535 million for the nine months ended September 30, 2017 and 2016, respectively.
Pro forma results give effect to the Transactions as if they had closed on January 1, 2015 and include the operations of Legacy Charter, Legacy TWC and Legacy Bright House for the nine months ended September 30, 2016. Due to the transformative nature of the Transactions, the Company believes that providing a discussion of its results of operations on a pro forma basis provides management and investors a more meaningful perspective on the Company's financial and operational performance and trends. The results of operations data on a pro forma basis are provided for illustrative purposes only and are based on available information and assumptions that Charter believes are reasonable and do not purport to represent what the actual consolidated results of operations of Charter would have been had the Transactions occurred on January 1, 2015, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position. Exhibit 99.1 in the Company's Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2016 filed with the SEC on November 3, 2016 provides pro forma financial information for each quarter of 2015 and the first and second quarters of 2016 and a reconciliation of the pro forma financial information to the actual results of operations of the Company.
About Charter
Charter (NASDAQ: CHTR) is a leading broadband communications company and the second largest cable operator in the United States. Charter provides a full range of advanced broadband services, including Spectrum TV(TM) video entertainment programming, Spectrum Internet(TM) access, and Spectrum Voice(TM). Spectrum Business(TM) 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 Spectrum Reach(TM) brand. More information about Charter can be found at 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, 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 as 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 communication 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," "initiatives," "seek," "would," "could," "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 communication are set forth in our annual report on Form 10-K, and 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 promptly, efficiently and effectively integrate acquired
operations;
-- 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;
-- 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, fiber to the home providers, video
provided over the Internet by (i) market participants that have not
historically competed in the multichannel video business, (ii)
traditional multichannel video distributors, and (iii) content providers
that have historically licensed cable networks to multichannel video
distributors, and providers of advertising over the Internet;
-- general business conditions, economic uncertainty or downturn,
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);
-- our ability to develop and deploy new products and technologies
including wireless products, our cloud-based user interface, Spectrum
Guide(®), and downloadable security for set-top boxes, and any other
cloud-based consumer services and service platforms;
-- the effects of governmental regulation on our business or potential
business combination transactions including costs, disruptions and
possible limitations on operating flexibility related to, and our
ability to comply with, regulatory conditions applicable to us as a
result of the Time Warner Inc. and Bright House Networks, LLC
Transactions;
-- any events that disrupt our networks, information systems or properties
and impair our operating activities or our reputation;
-- the ability to retain and hire key personnel;
-- 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;
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 communication.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND OPERATING DATA
(dollars in millions, except per share data)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------
2017 2016 2017 2016
Actual Actual % Change Actual Actual % Change
------ ------ -------- ------ ------ --------
REVENUES:
Video $4,213 $4,094 2.9% $12,416 $7,869 57.8%
Internet 3,556 3,206 10.9% 10,467 5,960 75.6%
Voice 611 728 (16.1)% 1,955 1,286 51.9%
--- --- ----- -----
Residential revenue 8,380 8,028 4.4% 24,838 15,115 64.3%
Small and medium business 931 867 7.4% 2,755 1,589 73.3%
Enterprise 553 508 8.9% 1,640 903 81.6%
--- --- ----- ---
Commercial revenue 1,484 1,375 8.0% 4,395 2,492 76.3%
Advertising sales 373 420 (11.1)% 1,091 729 49.9%
Other 221 214 3.0% 655 392 66.9%
--- --- --- ---
Total Revenue 10,458 10,037 4.2% 30,979 18,728 65.4%
------ ------ ------ ------
COSTS AND EXPENSES:
Programming 2,699 2,404 12.3% 7,952 4,648 71.1%
Regulatory, connectivity and
produced content 523 515 1.6% 1,553 944 64.5%
Costs to service customers 1,943 2,016 (3.6)% 5,798 3,663 58.3%
Marketing 629 596 5.6% 1,812 1,143 58.6%
Transition costs 23 32 (28.6)% 104 78 33.4%
Other expense 822 838 (2.0)% 2,440 1,513 61.3%
--- --- ----- -----
Total operating costs and expenses
(exclusive of items shown
separately below) 6,639 6,401 3.7% 19,659 11,989 64.0%
----- ----- ------ ------
Adjusted EBITDA 3,819 3,636 5.0% 11,320 6,739 68.0%
----- ----- ------ -----
Adjusted EBITDA margin 36.5% 36.2% 36.5% 36.0%
---- ---- ---- ----
Depreciation and amortization 2,701 2,437 7,846 4,412
Stock compensation expense 64 81 198 168
Other operating expenses, net 145 207 374 776
--- --- --- ---
Income from operations 909 911 2,902 1,383
--- --- ----- -----
OTHER EXPENSES:
Interest expense, net (788) (724) (2,250) (1,771)
Loss on extinguishment of debt - - (35) (110)
Gain (loss) on financial
instruments, net 17 71 (15) 16
Other pension benefits (costs) (17) 13 9 533
Other expense, net (3) (5) (14) (10)
--- --- --- ---
(791) (645) (2,305) (1,342)
---- ---- ------ ------
Income before income taxes 118 266 597 41
Income tax benefit (expense) (26) (16) (99) 3,135
--- --- --- -----
Consolidated net income 92 250 498 3,176
Less: Net income attributable to
noncontrolling interests (44) (61) (156) (108)
--- --- ---- ----
Net income attributable to Charter
shareholders $48 $189 $342 $3,068
=== ==== ==== ======
EARNINGS PER COMMON SHARE
ATTRIBUTABLE TO CHARTER SHAREHOLDERS:
Basic $0.19 $0.70 $1.31 $16.52
===== ===== ===== ======
Diluted $0.19 $0.69 $1.29 $15.23
===== ===== ===== ======
Weighted average common shares
outstanding, basic 253,923,805 271,263,259 262,074,603 185,706,106
=========== =========== =========== ===========
Weighted average common shares
outstanding, diluted 258,341,851 275,373,202 266,363,602 208,460,148
=========== =========== =========== ===========
Adjusted EBITDA is a non-GAAP term. See page 7 of this addendum for the reconciliation of Adjusted EBITDA to consolidated net income as defined by GAAP. All percentages are calculated using whole numbers. Minor differences may exist due to rounding.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND OPERATING DATA
(dollars in millions, except per share data)
Nine Months Ended September 30,
-------------------------------
2017 2016 % Change
Actual Pro Forma
------ ---------
REVENUES:
Video $12,416 $12,292 1.0%
Internet 10,467 9,376 11.6%
Voice 1,955 2,186 (10.6)%
----- -----
Residential revenue 24,838 23,854 4.1%
Small and medium business 2,755 2,518 9.4%
Enterprise 1,640 1,499 9.4%
----- -----
Commercial revenue 4,395 4,017 9.4%
Advertising sales 1,091 1,190 (8.2)%
Other 655 687 (4.8)%
--- ---
Total Revenue 30,979 29,748 4.1%
------ ------
COSTS AND EXPENSES:
Programming 7,952 7,228 10.0%
Regulatory, connectivity and
produced content 1,553 1,570 (1.1)%
Costs to service customers 5,798 5,933 (2.3)%
Marketing 1,812 1,804 0.5%
Transition costs 104 78 33.4%
Other expense 2,440 2,524 (3.3)%
----- -----
Total operating costs and expenses
(exclusive of items shown
separately below) 19,659 19,137 2.7%
------ ------
Adjusted EBITDA 11,320 10,611 6.7%
------ ------
Adjusted EBITDA margin 36.5% 35.7%
---- ----
Depreciation and amortization 7,846 7,060
Stock compensation expense 198 219
Other operating expenses, net 374 519
--- ---
Income from operations 2,902 2,813
----- -----
OTHER EXPENSES:
Interest expense, net (2,250) (2,155)
Loss on extinguishment of debt (35) (110)
Gain (loss) on financial
instruments, net (15) 16
Other pension benefits 9 549
Other income (expense), net (14) 5
--- ---
(2,305) (1,695)
------ ------
Income before income taxes 597 1,118
Income tax expense (99) (288)
--- ----
Consolidated net income 498 830
Less: Net income attributable to
noncontrolling interests (156) (214)
---- ----
Net income attributable to Charter
shareholders $342 $616
==== ====
EARNINGS PER COMMON SHARE
ATTRIBUTABLE TO CHARTER
SHAREHOLDERS:
Basic $1.31 $2.28
===== =====
Diluted $1.29 $2.25
===== =====
Weighted average common shares
outstanding, basic 262,074,603 270,028,132
=========== ===========
Weighted average common shares
outstanding, diluted 266,363,602 273,824,029
=========== ===========
Pro forma results reflect certain acquisitions of cable systems in 2016 as if they occurred as of January 1, 2015. Adjusted EBITDA is a non-GAAP term. See page 7 of this addendum for the reconciliation of Adjusted EBITDA to consolidated net income as defined by GAAP. All percentages are calculated using whole numbers. Minor differences may exist due to rounding.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions)
September 30, December 31,
2017 2016
---- ----
(unaudited)
ASSETS
CURRENT
ASSETS:
Cash and
cash
equivalents $2,164 $1,535
Accounts
receivable,
net 1,652 1,432
Prepaid
expenses
and other
current
assets 316 333
--- ---
Total
current
assets 4,132 3,300
----- -----
INVESTMENT
IN CABLE
PROPERTIES:
Property,
plant and
equipment,
net 33,300 32,963
Customer
relationships,
net 12,589 14,608
Franchises 67,316 67,316
Goodwill 29,554 29,509
------ ------
Total
investment
in cable
properties,
net 142,759 144,396
------- -------
OTHER
NONCURRENT
ASSETS 1,337 1,371
----- -----
Total assets $148,228 $149,067
======== ========
LIABILITIES
AND
SHAREHOLDERS'
EQUITY
CURRENT
LIABILITIES:
Accounts
payable and
accrued
liabilities $8,351 $7,544
Current
portion of
long-term
debt 2,068 2,028
----- -----
Total
current
liabilities 10,419 9,572
------ -----
LONG-TERM
DEBT 66,064 59,719
------ ------
DEFERRED
INCOME
TAXES 26,576 26,665
------ ------
OTHER LONG-
TERM
LIABILITIES 2,591 2,745
----- -----
SHAREHOLDERS'
EQUITY:
Controlling
interest 33,229 40,139
Noncontrolling
interests 9,349 10,227
----- ------
Total
shareholders'
equity 42,578 50,366
------ ------
Total
liabilities
and
shareholders'
equity $148,228 $149,067
======== ========
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
---- ---- ---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES:
Consolidated net income $92 $250 $498 $3,176
Adjustments to reconcile
consolidated net income to net
cash flows from operating
activities:
Depreciation and amortization 2,701 2,437 7,846 4,412
Stock compensation expense 64 81 198 168
Accelerated vesting of equity
awards 6 57 43 202
Noncash interest income, net (87) (107) (283) (148)
Other pension (benefits) costs 17 (13) (9) (533)
Loss on extinguishment of debt - - 35 110
(Gain) loss on financial
instruments, net (17) (71) 15 (16)
Deferred income taxes 11 (6) 53 (3,170)
Other, net 85 - 93 -
Changes in operating assets and
liabilities, net of effects from
acquisitions:
Accounts receivable (162) 98 (101) (2)
Prepaid expenses and other assets 60 74 37 85
Accounts payable, accrued
liabilities and other 138 1 271 531
--- --- --- ---
Net cash flows from operating
activities 2,908 2,801 8,696 4,815
----- ----- ----- -----
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property, plant and
equipment (2,393) (1,748) (6,096) (3,437)
Change in accrued expenses related
to capital expenditures 79 (52) 276 86
Purchases of cable systems, net of
cash acquired - - - (28,810)
Change in restricted cash and cash
equivalents - - - 22,264
Other, net (14) (2) (63) (8)
--- --- --- ---
Net cash flows from investing
activities (2,328) (1,802) (5,883) (9,905)
------ ------ ------ ------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings of long-term debt 5,014 - 12,115 5,997
Repayments of long-term debt (50) (50) (5,534) (4,120)
Payments for debt issuance costs (41) - (83) (283)
Issuance of equity - - - 5,000
Purchase of treasury stock (3,525) (349) (7,748) (448)
Proceeds from exercise of stock
options 25 47 111 71
Purchase of noncontrolling
interest (493) - (922) -
Distributions to noncontrolling
interest (38) (37) (115) (55)
Proceeds from termination of
interest rate derivatives - - - 88
Other, net (2) - (8) -
--- --- --- ---
Net cash flows from financing
activities 890 (389) (2,184) 6,250
--- ---- ------ -----
NET INCREASE IN CASH AND CASH
EQUIVALENTS 1,470 610 629 1,160
CASH AND CASH EQUIVALENTS,
beginning of period 694 555 1,535 5
--- --- ----- ---
CASH AND CASH EQUIVALENTS, end of
period $2,164 $1,165 $2,164 $1,165
====== ====== ====== ======
CASH PAID FOR INTEREST $891 $950 $2,544 $1,964
==== ==== ====== ======
CASH PAID FOR TAXES $5 $44 $38 $48
=== === === ===
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED SUMMARY OF OPERATING STATISTICS
(in thousands, except per customer and penetration data)
Approximate as of
September 30, June 30, December 31, September 30,
2017 (a) 2017 (a) 2016 (a) 2016 (a)(j)
------- ------- ------- ----------
Footprint (b)
------------
Estimated Video Passings 49,854 49,615 49,229 49,001
Estimated Internet
Passings 49,594 49,309 48,955 48,689
Estimated Voice Passings 48,832 48,587 48,142 47,854
Penetration Statistics
(c)
----------------------
Video Penetration of
Estimated Video
Passings 34.1% 34.4% 35.0% 35.3%
Internet Penetration of
Estimated Internet
Passings 47.6% 47.3% 46.2% 45.6%
Voice Penetration of
Estimated Voice
Passings 23.1% 23.1% 23.1% 23.1%
Customer Relationships
(d)
----------------------
Residential 25,470 25,298 24,801 24,551
Small and Medium
Business 1,523 1,483 1,404 1,367
Total Customer
Relationships 26,993 26,781 26,205 25,918
====== ====== ====== ======
Residential
-----------
Primary Service Units
("PSUs")
---------------------
Video 16,542 16,646 16,836 16,887
Internet 22,282 22,033 21,374 21,017
Voice 10,405 10,378 10,327 10,288
49,229 49,057 48,537 48,192
====== ====== ====== ======
Quarterly Net Additions/
(Losses)
------------------------
Video (104) (90) (51) (47)
Internet 249 231 357 350
Voice 27 14 39 33
172 155 345 336
=== === === ===
Single Play (e) 10,373 10,177 9,640 9,447
Double Play (e) 6,436 6,484 6,586 6,569
Triple Play (e) 8,661 8,637 8,575 8,535
Single Play Penetration
(f) 40.7% 40.2% 38.9% 38.5%
Double Play Penetration
(f) 25.3% 25.6% 26.6% 26.8%
Triple Play Penetration
(f) 34.0% 34.1% 34.6% 34.8%
% Residential Non-Video
Customer Relationships 35.1% 34.2% 32.1% 31.2%
Monthly Residential
Revenue per Residential
Customer (g) $110.12 $109.46 $109.77 $109.70
Small and Medium
Business
----------------
PSUs
----
Video 440 425 400 388
Internet 1,321 1,285 1,219 1,185
Voice 881 847 778 751
2,642 2,557 2,397 2,324
===== ===== ===== =====
Quarterly Net Additions/
(Losses)
------------------------
Video 15 14 12 10
Internet 36 36 34 37
Voice 34 38 27 26
85 88 73 73
=== === === ===
Monthly Small and Medium
Business Revenue per
Customer (h) $206.64 $210.64 $214.25 $214.53
Enterprise PSUs (i)
------------------
Enterprise PSUs 108 103 97 93
(a) All customer statistics include the operations of
Legacy TWC, Legacy Bright House and Legacy
Charter each of which is based on individual
legacy company reporting methodology. These
methodologies differ and their differences may be
material. Statistical reporting will be
conformed over time to a single Charter reporting
methodology.
We calculate the aging of customer accounts based
on the monthly billing cycle for each account.
On that basis, at September 30, 2017, June 30,
2017, December 31, 2016 and September 30, 2016,
actual customers include approximately 218,300,
209,500, 208,400 and 200,900 customers,
respectively, whose accounts were over 60 days
past due, approximately 20,300, 14,800, 15,500
and 15,200 customers, respectively, whose
accounts were over 90 days past due and
approximately 12,000, 8,700, 8,000 and 8,900
customers, respectively, whose accounts were over
120 days past due.
(b) Passings represent our estimate of the number of
units, such as single family homes, apartment and
condominium units and small and medium business
and enterprise sites passed by our cable
distribution network in the areas where we offer
the service indicated. These estimates are based
upon the information available at this time and
are updated for all periods presented when new
information becomes available.
(c) Penetration represents residential, small and
medium business and enterprise 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. Customers who reside in
residential multiple dwelling units ("MDUs") and
that are billed under bulk contracts are counted
based on the number of billed units within each
bulk MDU. Total customer relationships excludes
enterprise customer relationships.
(e) Single play, double play and triple play customers
represent customers that subscribe to one, two or
three of Charter service offerings, respectively.
(f) Single play, double play and triple play
penetration represents the number of residential
single play, double play and triple play
customers, respectively, as a percentage of
residential customer relationships.
(g) 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.
(h) Monthly small and medium business revenue per
customer is calculated as total small and medium
business quarterly revenue divided by three
divided by average small and medium business
customer relationships during the respective
quarter.
(i) Enterprise PSUs represents the aggregate number of
fiber service offerings counting each separate
service offering at each customer location as an
individual PSU.
(j) In the second quarter of 2017, Charter conformed
the seasonal customer program in the Legacy
Bright House footprint to Charter's program.
Prior to the plan change, Legacy Bright House
customers enrolling in the seasonal plan were
charged a one-time fee and counted as customer
disconnects, and as new connects, when moving off
the seasonal plan. Under Charter's seasonal plan,
residential customers pay a reduced monthly fee
while the seasonal plan is active and remain
reported as customers. Excluding the impact of
customer connect activity related to Legacy
Bright House residential customers moving off the
seasonal plan, net additions for video, Internet
and voice PSUs for the third quarter of 2016
would have been lower by 4,000, 6,000 and 4,000,
respectively. Excluding the net disconnect
activity in the second and third quarters of
2016, residential customer relationships, video,
Internet and voice PSUs at September 30, 2016
would have been higher by approximately 54,000,
48,000, 66,000 and 45,000, respectively.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED RECONCILIATION OF NON-GAAP MEASURES TO GAAP MEASURES
(dollars in millions)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------
2017 2016 2017 2016
Actual Actual Actual Actual
------ ------ ------ ------
Consolidated net income $92 $250 $498 $3,176
Plus: Interest expense, net 788 724 2,250 1,771
Income tax (benefit) expense 26 16 99 (3,135)
Depreciation and amortization 2,701 2,437 7,846 4,412
Stock compensation expense 64 81 198 168
Loss on extinguishment of debt - - 35 110
(Gain) loss on financial instruments,
net (17) (71) 15 (16)
Other pension (benefits) costs 17 (13) (9) (533)
Other, net 148 212 388 786
--- --- --- ---
Adjusted EBITDA (a) 3,819 3,636 11,320 6,739
Less: Purchases of property, plant
and equipment (2,393) (1,748) (6,096) (3,437)
------ ------ ------ ------
Adjusted EBITDA less capital
expenditures $1,426 $1,888 $5,224 $3,302
====== ====== ====== ======
Net cash flows from operating
activities $2,908 $2,801 $8,696 $4,815
Less: Purchases of property, plant
and equipment (2,393) (1,748) (6,096) (3,437)
Change in accrued expenses related to
capital expenditures 79 (52) 276 86
--- --- --- ---
Free cash flow $594 $1,001 $2,876 $1,464
==== ====== ====== ======
Nine Months Ended
September 30,
2017 2016
Actual Pro Forma (b)
------ ------------
Consolidated net income $498 $830
Plus: Interest expense, net 2,250 2,155
Income tax expense 99 288
Depreciation and amortization 7,846 7,060
Stock compensation expense 198 219
Loss on extinguishment of debt 35 110
(Gain) loss on financial instruments,
net 15 (16)
Other pension benefits (9) (549)
Other, net 388 514
--- ---
Adjusted EBITDA (a) 11,320 10,611
Less: Purchases of property, plant
and equipment (6,096) (5,657)
------ ------
Adjusted EBITDA less capital
expenditures $5,224 $4,954
====== ======
(a) See pages 1 and 2 of this
addendum for detail of the
components included within
Adjusted EBITDA.
(b) Pro forma results reflect
certain acquisitions of cable
systems in 2016 as if they
occurred as of January 1,
2015.
The above schedule is 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
UNAUDITED CAPITAL EXPENDITURES
(dollars in millions)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------
2017 2016 2017 2016
Actual Actual Actual Actual
------ ------ ------ ------
Customer premise
equipment (a) $855 $662 $2,579 $1,177
Scalable infrastructure
(b) 632 441 1,282 937
Line extensions (c) 319 249 864 467
Upgrade/rebuild (d) 163 156 415 307
Support capital (e) 424 240 956 549
--- --- --- ---
Total capital
expenditures $2,393 $1,748 $6,096 $3,437
====== ====== ====== ======
Capital expenditures
included in total
related to:
Commercial services $339 $306 $941 $566
Transition (f) $125 $109 $287 $273
Nine Months Ended September 30,
2017 2016
Actual Pro Forma (g)
------ ------------
Customer premise
equipment (a) $2,579 $2,074
Scalable infrastructure
(b) 1,282 1,556
Line extensions (c) 864 751
Upgrade/rebuild (d) 415 461
Support capital (e) 956 815
--- ---
Total capital
expenditures $6,096 $5,657
====== ======
Capital expenditures
included in total
related to:
Commercial services $941 $931
Transition (f) $287 $273
(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) Transition represents incremental costs
incurred to integrate the Legacy TWC
and Legacy Bright House operations and
to bring the three companies' systems
and processes into a uniform operating
structure.
(g) Pro forma results reflect certain
acquisitions of cable systems in 2016
as if they occurred as of January 1,
2015.
View original content with multimedia:http://www.prnewswire.com/news-releases/charter-announces-third-quarter-2017-results-300543893.html
SOURCE Charter Communications, Inc.
