Charter Announces Second Quarter 2018 Results
STAMFORD, Conn., July 31, 2018 /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, 2018.
Key highlights:
-- As of June 30, 2018, Charter had 27.6 million total customer
relationships and 52.9 million total PSUs.
-- Second quarter total residential and SMB customer relationships
increased 196,000, compared to 213,000 during the second quarter of
2017. Over the twelve months ended June 30, 2018, total residential and
SMB customer relationships grew by 3.3%.
-- In the second quarter, total residential and SMB video, Internet and
voice customers increased by 202,000, as compared to 246,000 during the
second quarter of 2017.
-- Second quarter revenues of $10.9 billion grew 4.8%, as compared to the
prior year period, driven by residential revenue growth of 4.6%,
commercial revenue growth of 4.4%, and advertising revenue growth of
12.0%.
-- Second quarter Adjusted EBITDA(1) of $4.1 billion grew 5.3%
year-over-year, and 6.2% when excluding second quarter mobile costs.
-- Net income attributable to Charter shareholders totaled $273 million in
the second quarter, compared to $139 million during the same period last
year.
-- Second quarter capital expenditures totaled $2.4 billion compared to
$2.1 billion during the second quarter of 2017, primarily driven by
in-year timing differences and Charter's all-digital and Internet speed
increase initiatives. Second quarter capital expenditures included $88
million of all-digital costs and $53 million of mobile launch costs.
-- During the second quarter, Charter purchased approximately 6.4 million
shares of Charter Class A common stock and Charter Communications
Holdings, LLC ("Charter Holdings") common units for approximately $1.9
billion.
"Over the last two years, we have invested significantly to quickly integrate and unify the operating strategies of three large cable operators. While that process is disruptive, it has allowed us to position our residential and commercial businesses for long term growth and success, which is beginning to show in our operating results," said Tom Rutledge, Chairman and CEO of Charter Communications. "By the end of this year our integration will be nearly complete, and we will be operating as one company, with a unified product, marketing, and service infrastructure, which will allow us to accelerate growth and innovate faster."
1. Adjusted EBITDA, free cash flow
and GAAP are defined in the
"Use of Adjusted EBITDA and
Free Cash Flow 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
June 30, 2018 (b) June 30, 2017
(a)(b) Y/Y Change
---------------- -------------- ----------
Footprint (c)
------------
Estimated Video Passings 50,364 49,500 1.7%
Estimated Internet
Passings 50,149 49,228 1.9%
Estimated Voice Passings 49,532 48,472 2.2%
Penetration Statistics
(d)
----------------------
Video Penetration of
Estimated Video Passings 33.1% 34.2% (1.1) ppts
Internet Penetration of
Estimated Internet
Passings 49.1% 47.5% 1.6 ppts
Voice Penetration of
Estimated Voice Passings 22.9% 23.2% (0.3) ppts
Customer Relationships
(e)
----------------------
Residential 25,871 25,157 2.8%
Small and Medium Business 1,750 1,580 10.8%
----- -----
Total Customer
Relationships 27,621 26,737 3.3%
Residential
-----------
Primary Service Units
("PSUs")
---------------------
Video 16,206 16,502 (1.8)%
Internet 23,070 22,005 4.8%
Voice 10,325 10,375 (0.5)%
------ ------
49,601 48,882 1.5%
Quarterly Net Additions/
(Losses)
------------------------
Video (73) (91) 19.8%
Internet 218 230 (5.2)%
Voice (45) 14 (421.4)%
--- ---
100 153 (34.6)%
Single Play (f) 10,694 10,062 6.3%
Double Play (f) 6,633 6,467 2.6%
Triple Play (f) 8,544 8,628 (1.0)%
Single Play Penetration
(g) 41.3% 40.0% 1.3 ppts
Double Play Penetration
(g) 25.6% 25.7% (0.1) ppts
Triple Play Penetration
(g) 33.0% 34.3% (1.3) ppts
% Residential Non-Video
Customer Relationships 37.4% 34.4% 3.0 ppts
Monthly Residential
Revenue per Residential
Customer (h) $111.88 $109.99 1.7%
Small and Medium Business
-------------------------
PSUs
----
Video 476 423 12.5%
Internet 1,552 1,390 11.7%
Voice 994 863 15.2%
--- ---
3,022 2,676 12.9%
Quarterly Net Additions/
(Losses)
------------------------
Video 16 15 6.7%
Internet 49 39 25.6%
Voice 37 39 (5.1)%
--- ---
102 93 9.7%
Monthly Small and Medium
Business Revenue per
Customer (i) $176.96 $190.37 (7.0)%
Enterprise PSUs (j)
------------------
Enterprise PSUs 235 202 16.3%
Footnotes
In thousands, except per customer and penetration data. See footnotes to unaudited summary of operating statistics on page 5 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 second quarter of 2018, Charter's residential customer relationships grew by 141,000, while second quarter 2017 customer relationships grew by 166,000. Residential PSUs increased by 100,000 in the second quarter of 2018, compared to second quarter 2017 residential PSU additions of 153,000. The year-over-year decrease in PSU additions was primarily driven by a decline in voice net additions in the second quarter of 2018. As of June 30, 2018, Charter had 25.9 million residential customer relationships and 49.6 million residential PSUs.
Charter added 218,000 residential Internet customers in the second quarter of 2018, versus second quarter 2017 Internet customers additions of 230,000. As of June 30, 2018, Charter had 23.1 million residential Internet customers, with over 80% of those residential Internet customers subscribing to tiers that provided 60 Mbps or more of speed, and over 60% subscribing to Internet tiers that provided 100 Mbps or more of speed. Currently, 100 Mbps is the slowest speed offered to new Internet customers in 99% of Charter's footprint.
During the second quarter, Charter further expanded the availability of its Spectrum Internet Gig service (940 Mbps) to a number of new markets. The service, which uses DOCSIS 3.1 technology, is now available in approximately 60% of Charter's footprint. Charter expects to offer its Spectrum Internet Gig service to nearly all of its footprint by the end of 2018. Additionally, Charter is doubling minimum Internet speeds to 200 Mbps in a number of markets at no additional cost to new and existing Spectrum Internet customers.
Residential video customers decreased by 73,000 in the second quarter of 2018, while second quarter 2017 video customers decreased by 91,000. During the year ended June 30, 2018, limited basic video subscriptions represented all of Charter's residential video customer losses, while the combination of traditional expanded basic video, and Charter's Stream and Choice packages contributed to video customer growth. As of June 30, 2018, Charter had 16.2 million residential video customers.
As of the end of the second quarter, 91% of Charter's footprint was all-digital. During the quarter, Charter continued its all-digital efforts, and as of June 30, 2018 , approximately 6% of Legacy TWC's footprint and 50% of Legacy Bright House's footprint were 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 video picture quality, an interactive programming guide and video on demand on all TV outlets in the home.
During the second quarter of 2018, residential voice customers declined by 45,000, while second quarter 2017 voice customers grew by 14,000. As of June 30, 2018, Charter had 10.3 million residential voice customers.
On June 30, Charter launched its Spectrum Mobile(TM) service. Spectrum Mobile runs on America's largest, most reliable 4G-LTE network and is combined with a nationwide network of Spectrum WiFi hotspots. Spectrum Mobile customers can choose one of two simple ways to pay for data, "Unlimited" for $45 a month (per line), or "By the Gig" at $14/GB. Both plans include free nationwide talk and text and customers can easily switch data plans during the month. In the coming months, Spectrum Mobile will broaden its array of device offerings, and will also allow customers to transfer existing handsets to Spectrum Mobile.
Second quarter residential revenue per customer relationship totaled $111.88, and grew by 1.7% compared to the prior year period, as promotional rate step-ups and modest rate adjustments, were partly offset by continued single play Internet sell-in.
SMB customer relationships grew by 55,000, during the second quarter of 2018, compared to growth of 47,000 during the second quarter of 2017. SMB PSUs increased 102,000, compared to 93,000 during the second quarter of 2017. As of June 30, 2018, Charter had 1.8 million SMB customer relationships and 3.0 million SMB PSUs. Enterprise PSUs grew by 7,000 during the second quarter of 2018, compared to growth of 6,000 during the second quarter of 2017. As of June 30, 2018, Charter had 235,000 enterprise PSUs.
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,
---------------------------
2018 2017 % Change
---- ---- --------
REVENUES:
Video $4,363 $4,119 5.9 %
Internet 3,770 3,512 7.3 %
Voice 531 650 (18.3)%
--- ---
Residential
revenue 8,664 8,281 4.6 %
Small and
medium
business 915 890 2.9 %
Enterprise 627 588 6.7 %
--- ---
Commercial
revenue 1,542 1,478 4.4 %
Advertising
sales 427 381 12.0 %
Other 221 217 1.5 %
--- ---
Total
Revenue 10,854 10,357 4.8 %
COSTS AND
EXPENSES:
Total
operating
costs
and
expenses 6,803 6,510 4.5 %
----- -----
Adjusted
EBITDA $4,051 $3,847 5.3 %
====== ======
Adjusted
EBITDA
margin 37.3 % 37.1 %
Capital
Expenditures $2,391 $2,148
% Total
Revenues 22.0 % 20.7 %
Net
income
attributable
to
Charter
shareholders $273 $139
Earnings
per
common
share
attributable
to
Charter
shareholders:
Basic $1.17 $0.53
Diluted $1.15 $0.52
Net cash
flows
from
operating
activities $3,096 $2,945
Free cash
flow $804 $1,144
Revenue
Second quarter revenues rose 4.8% year-over-year to $10.9 billion, driven by growth in Internet, video, commercial and advertising revenues. Excluding advertising, second quarter revenues increased 4.5% year-over-year.
Video revenues totaled $4.4 billion in the second quarter, an increase of 5.9% compared to prior year period. Video revenue growth was driven by annual rate adjustments, promotional rolloff, a higher number of expanded basic video customers year-over-year and higher bundled revenue allocation relating to the launch of Spectrum pricing and packaging in Legacy TWC and Legacy Bright House, partly offset by a decrease in limited basic video customers.
Internet revenues grew 7.3%, compared to the year-ago quarter, to $3.8 billion, driven by growth in Internet customers during the last year, promotional rolloff and bundled revenue allocation relating to the launch of Spectrum pricing and packaging in Legacy TWC and Legacy Bright House.
Voice revenues totaled $531 million in the second quarter, a decrease of 18.3% compared to the second quarter of 2017, driven by value-based pricing, lower bundled revenue allocation relating to the launch of Spectrum pricing and packaging in Legacy TWC and Legacy Bright House, and a decline in voice customers over the last twelve months.
Commercial revenues rose to $1.5 billion, an increase of 4.4% over the prior year period, driven by enterprise revenue growth of 6.7% and SMB revenue growth of 2.9%. Second quarter 2018 commercial revenue growth was lower than second quarter 2018 commercial customer relationship growth, given the migration of Legacy TWC and Legacy Bright House commercial customers to more attractively priced Spectrum pricing and packaging for both SMB and enterprise services.
Second quarter advertising sales revenues of $427 million increased 12.0% compared to the year-ago quarter, driven by higher political revenue.
Operating Costs and Expenses
Second quarter total operating costs and expenses increased by $293 million, or 4.5% year-over-year, and 4.0% when excluding second quarter mobile launch costs.
Second quarter programming expense increased by $154 million, or 5.8% as compared to the second quarter of 2017, reflecting contractual programming increases, renewals and a higher number of expanded basic video customers year-over-year.
Regulatory, connectivity and produced content expenses increased by $28 million, or 5.1% year-over-year, driven in part by the Company's adoption of FASB's ASU 2014-09 as of January 1, 2018, which results in the reclassification of expenses related to the amortization of up-front fees paid to market and serve customers who reside in multiple dwelling units, and which were recorded in depreciation and amortization in the prior-year period, to regulatory, connectivity and produced content expenses.
Costs to service customers increased by $22 million or 1.2% year-over-year compared to year-over-year residential and SMB customer growth of 3.3%. The year-over-year increase in costs to service customers was primarily the result of an increase in bad debt expense on a larger customer base.
Marketing expenses increased by $9 million, or 1.2% year-over-year due to higher sales and the implementation of Charter's selling tactics in the acquired footprints, partly offset by lower transition-related expenses.
Other expenses increased by $47 million, or 5.8% as compared to the second quarter of 2017 driven by higher information technology, advertising sales, insurance and enterprise costs.
In the second quarter of 2018, mobile launch costs totaled $33 million.
Adjusted EBITDA
Second quarter Adjusted EBITDA of $4.1 billion grew by 5.3% year-over-year, reflecting revenue growth and operating expense growth of 4.8% and 4.5%, respectively. Excluding mobile costs of $33 million in the second quarter of 2018, Adjusted EBITDA grew by 6.2% year-over-year.
Net Income Attributable to Charter Shareholders
Net income attributable to Charter shareholders totaled $273 million in the second quarter of 2018, compared to $139 million in the second quarter of 2017. The year-over-year increase in net income was primarily driven by higher Adjusted EBITDA and lower severance-related and transactions expenses, partly offset by higher year-over-year interest expense.
Net income per basic common share attributable to Charter shareholders totaled $1.17 in the second quarter of 2018 compared to $0.53 during the same period last year. The increase was primarily the result of the factors described above and a 11.1% decrease in weighted average common shares outstanding versus the prior year period.
Capital Expenditures
Property, plant and equipment expenditures totaled $2.4 billion in the second quarter of 2018, compared to $2.1 billion during the second quarter of 2017, primarily driven by an increase in scalable infrastructure, support capital spending, and line extensions, partly offset by lower CPE spending. The increase in scalable infrastructure was related to more consistent timing of in-year spend, and planned product improvements for video and Internet, including spending related to DOCSIS 3.1 launches. Support capital increased due to higher vehicle purchases, software development and facilities spending, and includes $46 million of capital spending related to the launch of Spectrum Mobile. The decrease in CPE spending was related to prior year timing of set-top box purchases related to the launch of Spectrum pricing and packaging in Legacy TWC and Legacy Bright House, partly offset by CPE related to Charter's all-digital initiative in 2018. Second quarter capital expenditures included $88 million of all-digital costs and $53 million of mobile launch costs.
Cash Flow and Free Cash Flow
During the second quarter of 2018, net cash flows from operating activities totaled $3.1 billion, compared to $2.9 billion in the second quarter of 2017. The year-over-year increase in net cash flows from operating activities was primarily due to higher Adjusted EBITDA and lower severance-related expenses.
Free cash flow for the second quarter of 2018 totaled $804 million, compared to $1.1 billion during the same period last year. The decrease was driven by higher capital expenditures in the second quarter of 2018 versus the second quarter of 2017, partly offset by higher net cash flows from operating activities. During the second quarter, the reduction in free cash flow from mobile totaled $116 million.
Liquidity & Financing
As of June 30, 2018, total principal amount of debt was $71.1 billion and Charter's credit facilities provided approximately $3.9 billion of additional liquidity in excess of Charter's $773 million cash position.
In April, Charter Communications Operating, LLC and Charter Communications Operating Capital Corp issued $800 million of 5.375% senior secured notes due 2038, and $1.7 billion of 5.750% senior secured notes due 2048. The net proceeds were used to repay existing indebtedness, including to fund the July redemption of all of the outstanding $2.0 billion in aggregate principal amount of TWC's 6.75% notes due July 2018, to pay related fees and expenses and for general corporate purposes, including funding buybacks of Charter Class A common stock and common units of Charter Holdings.
In July, Charter Communications Operating, LLC and Charter Communications Operating Capital Corp. issued $1.1 billion of 4.500% senior secured notes due 2024, and $400 million of senior secured floating rate notes due 2024 at three-month LIBOR, reset quarterly, plus 165 basis points. The net proceeds will be used for general corporate purposes, including to fund potential buybacks of Charter Class A common stock or common units of Charter Holdings.
Share Repurchases
During the three months ended June 30, 2018, Charter purchased approximately 6.4 million shares of Charter Class A common stock and Charter Holdings common units for approximately $1.9 billion.
Conference Call
Charter will host a conference call on Tuesday, July 31, 2018 at 8:30 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 6488496.
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 May 11, 2018. The conference ID code for the replay is 6488496.
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 six months ended June 30, 2018, 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 and Free Cash Flow 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 (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 $265 million and $256 million for the three months ended June 30, 2018 and 2017, respectively, and were $538 million and $529 million for the six months ended June 30, 2018 and 2017, respectively.
About Charter
Charter Communications, Inc. (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 residential broadband services, including Spectrum TV(®) programming, Spectrum Internet(®), and Spectrum Voice(®). Under the Spectrum Business(®) brand, Charter provides scalable, and cost-effective broadband communications solutions to small and medium-sized business organizations, including Internet access, business telephone, and TV services. Through the Spectrum Enterprise brand, Charter is a national provider of scalable, fiber-based technology solutions serving many of America's largest businesses and communications service providers. Charter's advertising sales and production services are sold under the Spectrum Reach(®) brand. Charter's news and sports networks are operated under the Spectrum Networks brand. More information about Charter can be found at newsroom.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 efficiently and effectively integrate acquired
operations;
-- our ability to sustain and grow revenues and cash flow from operations
by offering video, Internet, voice, mobile, 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 mobile 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 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 June 30, Six Months Ended June30,
--------------------------- ------------------------
2018 2017 % Change 2018 2017 % Change
---- ---- -------- ---- ---- --------
REVENUES:
Video $4,363 $4,119 5.9 % $8,655 $8,193 5.6 %
Internet 3,770 3,512 7.3 % 7,477 6,909 8.2 %
Voice 531 650 (18.3)% 1,087 1,344 (19.1)%
--- --- ----- -----
Residential revenue 8,664 8,281 4.6 % 17,219 16,446 4.7 %
Small and medium business 915 890 2.9 % 1,815 1,756 3.4 %
Enterprise 627 588 6.7 % 1,249 1,167 7.0 %
--- --- ----- -----
Commercial revenue 1,542 1,478 4.4 % 3,064 2,923 4.9 %
Advertising sales 427 381 12.0 % 783 718 9.0 %
Other 221 217 1.5 % 445 434 2.3 %
--- --- --- ---
Total Revenue 10,854 10,357 4.8 % 21,511 20,521 4.8 %
------ ------ ------ ------
COSTS AND EXPENSES:
Programming 2,803 2,649 5.8 % 5,555 5,253 5.7 %
Regulatory, connectivity and
produced content 560 532 5.1 % 1,093 1,030 6.0 %
Costs to service customers 1,784 1,762 1.2 % 3,638 3,562 2.1 %
Marketing 769 760 1.2 % 1,520 1,525 (0.3)%
Mobile 33 - NM 41 - NM
Other expense 854 807 5.8 % 1,720 1,650 4.2 %
--- --- ----- -----
Total operating costs and
expenses (exclusive of items
shown separately below) 6,803 6,510 4.5 % 13,567 13,020 4.2 %
----- ----- ------ ------
Adjusted EBITDA 4,051 3,847 5.3 % 7,944 7,501 5.9 %
----- ----- ----- -----
Adjusted EBITDA margin 37.3 % 37.1 % 36.9 % 36.5 %
----- ----- ----- -----
Depreciation and amortization 2,592 2,595 5,302 5,145
Stock compensation expense 70 65 142 134
Other operating expenses, net 29 135 98 229
--- --- --- ---
Income from operations 1,360 1,052 2,402 1,993
----- ----- ----- -----
OTHER EXPENSES:
Interest expense, net (878) (749) (1,729) (1,462)
Loss on extinguishment of debt - (1) - (35)
Loss on financial instruments,
net (75) (70) (12) (32)
Other income (expense), net (27) 11 (30) 15
--- --- --- ---
(980) (809) (1,771) (1,514)
---- ---- ------ ------
Income before income taxes 380 243 631 479
Income tax expense (41) (48) (69) (73)
--- --- --- ---
Consolidated net income 339 195 562 406
Less: Net income attributable
to noncontrolling interests (66) (56) (121) (112)
--- --- ---- ----
Net income attributable to
Charter shareholders $273 $139 $441 $294
==== ==== ==== ====
EARNINGS PER COMMON SHARE
ATTRIBUTABLE TO CHARTER
SHAREHOLDERS:
Basic $1.17 $0.53 $1.87 $1.11
===== ===== ===== =====
Diluted $1.15 $0.52 $1.84 $1.09
===== ===== ===== =====
Weighted average common shares
outstanding, basic 234,241,769 263,460,911 235,992,306 266,217,549
=========== =========== =========== ===========
Weighted average common shares
outstanding, diluted 237,073,566 267,309,261 239,246,727 270,249,433
=========== =========== =========== ===========
Adjusted EBITDA is a non-GAAP
term. See page 6 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.
Revenue line items and certain
associated expenses have been
recast to reflect the customer
changes described in note (a) on
page 5 of this addendum and to
classify certain expenses more
closely with organizational
responsibility. There were no
changes to total revenue, Adjusted
EBITDA, capital expenditures, free
cash flow or net income.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions)
June 30, December 31,
2018 2017
---- ----
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $773 $621
Accounts receivable, net 1,619 1,635
Prepaid expenses and other
current assets 358 299
--- ---
Total current assets 2,750 2,555
----- -----
INVESTMENT IN CABLE PROPERTIES:
Property, plant and equipment,
net 34,411 33,888
Customer relationships, net 10,710 11,951
Franchises 67,319 67,319
Goodwill 29,554 29,554
------ ------
Total investment in cable
properties, net 141,994 142,712
------- -------
OTHER NONCURRENT ASSETS 1,507 1,356
----- -----
Total assets $146,251 $146,623
======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities $8,637 $9,045
Current portion of long-term
debt 5,387 2,045
----- -----
Total current liabilities 14,024 11,090
------ ------
LONG-TERM DEBT 66,730 68,186
------ ------
DEFERRED INCOME TAXES 17,376 17,314
------ ------
OTHER LONG-TERM LIABILITIES 2,479 2,502
----- -----
SHAREHOLDERS' EQUITY:
Controlling interest 37,443 39,084
Noncontrolling interests 8,199 8,447
----- -----
Total shareholders' equity 45,642 47,531
------ ------
Total liabilities and
shareholders' equity $146,251 $146,623
======== ========
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
Three Months Ended June Six Months Ended June
30, 30,
----------------------- ----------------------
2018 2017 2018 2017
---- ---- ---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES:
Consolidated net income $339 $195 $562 $406
Adjustments to reconcile
consolidated net income
to net cash flows from
operating activities:
Depreciation and
amortization 2,592 2,595 5,302 5,145
Stock compensation expense 70 65 142 134
Accelerated vesting of
equity awards - 20 5 37
Noncash interest income,
net (88) (88) (177) (196)
Loss on extinguishment of
debt - 1 - 35
Loss on financial
instruments, net 75 70 12 32
Deferred income taxes 29 26 57 42
Other, net 18 (11) 36 (18)
Changes in operating
assets and liabilities,
net of effects from
acquisitions:
Accounts receivable (210) (175) 16 61
Prepaid expenses and other
assets 40 60 (91) (23)
Accounts payable, accrued
liabilities and other 231 187 (69) 133
--- --- --- ---
Net cash flows from
operating activities 3,096 2,945 5,795 5,788
----- ----- ----- -----
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property,
plant and equipment (2,391) (2,148) (4,574) (3,703)
Change in accrued expenses
related to capital
expenditures 99 347 (466) 197
Other, net (77) (42) (67) (49)
--- --- --- ---
Net cash flows from
investing activities (2,369) (1,843) (5,107) (3,555)
------ ------ ------ ------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings of long-term
debt 2,699 2,506 5,628 7,146
Repayments of long-term
debt (1,315) (2,054) (3,500) (5,529)
Payments for debt issuance
costs (17) (21) (17) (42)
Purchase of treasury stock (1,664) (3,328) (2,281) (4,223)
Proceeds from exercise of
stock options 7 14 43 86
Purchase of noncontrolling
interest (201) (402) (328) (429)
Distributions to
noncontrolling interest (37) (37) (76) (75)
Other, net (2) (6) (5) (8)
--- --- --- ---
Net cash flows from
financing activities (530) (3,328) (536) (3,074)
---- ------ ---- ------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 197 (2,226) 152 (841)
CASH AND CASH EQUIVALENTS,
beginning of period 576 2,920 621 1,535
--- ----- --- -----
CASH AND CASH EQUIVALENTS,
end of period $773 $694 $773 $694
==== ==== ==== ====
CASH PAID FOR INTEREST $882 $761 $1,889 $1,653
==== ==== ====== ======
CASH PAID FOR TAXES $21 $32 $22 $33
=== === === ===
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED SUMMARY OF OPERATING STATISTICS
(in thousands, except per customer and penetration data)
Approximate as of
-----------------
June 30, March 31, December 31, June 30,
2018 (b) 2018 (a)(b) 2017 (a)(b) 2017 (a)(b)
------- ---------- ---------- ----------
Footprint (c)
------------
Estimated Video
Passings 50,364 50,165 49,973 49,500
Estimated Internet
Passings 50,149 49,947 49,727 49,228
Estimated Voice
Passings 49,532 49,265 48,995 48,472
Penetration Statistics
(d)
----------------------
Video Penetration of
Estimated Video
Passings 33.1 % 33.4 % 33.7 % 34.2 %
Internet Penetration of
Estimated Internet
Passings 49.1 % 48.8 % 48.2 % 47.5 %
Voice Penetration of
Estimated Voice
Passings 22.9 % 23.0 % 23.2 % 23.2 %
Customer Relationships
(e)
----------------------
Residential 25,871 25,730 25,499 25,157
Small and Medium
Business 1,750 1,695 1,662 1,580
Total Customer
Relationships 27,621 27,425 27,161 26,737
====== ====== ====== ======
Residential
-----------
Primary Service Units
("PSUs")
---------------------
Video 16,206 16,279 16,400 16,502
Internet 23,070 22,852 22,518 22,005
Voice 10,325 10,370 10,424 10,375
49,601 49,501 49,342 48,882
====== ====== ====== ======
Quarterly Net
Additions/(Losses)
-------------------
Video (73) (121) 2 (91)
Internet 218 334 263 230
Voice (45) (54) 23 14
100 159 288 153
=== === === ===
Single Play (f) 10,694 10,577 10,341 10,062
Double Play (f) 6,633 6,537 6,473 6,467
Triple Play (f) 8,544 8,616 8,685 8,628
Single Play Penetration
(g) 41.3 % 41.1 % 40.6 % 40.0 %
Double Play Penetration
(g) 25.6 % 25.4 % 25.4 % 25.7 %
Triple Play Penetration
(g) 33.0 % 33.5 % 34.1 % 34.3 %
% Residential Non-
Video Customer
Relationships 37.4 % 36.7 % 35.7 % 34.4 %
Monthly Residential
Revenue per
Residential Customer
(h) $111.88 $111.41 $110.74 $109.99
Small and Medium
Business
----------------
PSUs
----
Video 476 460 450 423
Internet 1,552 1,503 1,470 1,390
Voice 994 957 930 863
3,022 2,920 2,850 2,676
===== ===== ===== =====
Quarterly Net
Additions/(Losses)
-------------------
Video 16 10 12 15
Internet 49 33 41 39
Voice 37 27 32 39
102 70 85 93
=== === === ===
Monthly Small and
Medium Business
Revenue per Customer
(i) $176.96 $178.84 $181.57 $190.37
Enterprise PSUs (j)
------------------
Enterprise PSUs 235 228 220 202
(a) Since the closing of the TWC and
Bright House transactions in May
2016, Charter has reported its
customer data and results using
legacy company reporting
methodologies. During the second
quarter of 2018, Charter implemented
certain reporting changes on a
retrospective basis which allowed
for the recasting of historical
customer data and results using
consistent definitions and reporting
methodologies across all three
legacy companies.
The changes to previously reported
customer data and results occurred
primarily within legacy TWC and
legacy Bright House and include:
(i) the reclassification of certain
customer types, particularly
universities, from residential where
they were previously reported based
on the number of billed units in a
bulk contract to small and medium
business accounts where they are
reported based on the number of
physical sites;
(ii) the recasting of small and
medium business and enterprise PSUs
which were previously reported based
on billing relationships to now
being reported based on the number
of physical sites; and
(iii) the reclassification of fiber
video service from small and medium
business to enterprise.
TWC Hawaii customer statistics are
expected to move to Charter's
standard methodology in early 2019
and variances, if any, will be
disclosed at that time.
(b) We calculate the aging of customer
accounts based on the monthly
billing cycle for each account. On
that basis, at June 30, 2018, March
31, 2018, December 31, 2017 and June
30, 2017, actual customers include
approximately 227,500, 190,700,
248,900 and 214,100 customers,
respectively, whose accounts were
over 60 days past due, approximately
19,300, 17,200, 20,600 and 15,800
customers, respectively, whose
accounts were over 90 days past due
and approximately 13,200, 13,400,
13,200 and 9,000 customers,
respectively, whose accounts were
over 120 days past due.
(c) 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.
(d) Penetration represents residential
and small and medium business
customers as a percentage of
estimated passings for the service
indicated.
(e) 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.
(f) Single play, double play and triple
play customers represent customers
that subscribe to one, two or three
of Charter service offerings,
respectively.
(g) 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.
(h) 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.
(i) 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.
(j) Enterprise PSUs represents the
aggregate number of fiber service
offerings counting each separate
service offering at each customer
location as an individual PSU.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED RECONCILIATION OF NON-GAAP MEASURES TO GAAP MEASURES
(dollars in millions)
Three Months Ended June Six Months Ended June
30, 30,
----------------------- ----------------------
2018 2017 2018 2017
---- ---- ---- ----
Consolidated net income $339 $195 $562 $406
Plus: Interest expense, net 878 749 1,729 1,462
Income tax expense 41 48 69 73
Depreciation and amortization 2,592 2,595 5,302 5,145
Stock compensation expense 70 65 142 134
Loss on extinguishment of debt - 1 - 35
Loss on financial instruments, net 75 70 12 32
Other, net 56 124 128 214
--- --- --- ---
Adjusted EBITDA (a) $4,051 $3,847 $7,944 $7,501
====== ====== ====== ======
Net cash flows from operating
activities $3,096 $2,945 $5,795 $5,788
Less: Purchases of property, plant
and equipment (2,391) (2,148) (4,574) (3,703)
Change in accrued expenses related
to capital expenditures 99 347 (466) 197
--- --- ---- ---
Free cash flow $804 $1,144 $755 $2,282
==== ====== ==== ======
(a) See page 1 of this addendum for
detail of the components
included within Adjusted
EBITDA.
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 Six Months Ended
Ended June 30, June 30,
--------------- -----------------
2018 2017 2018 2017
---- ---- ---- ----
Customer
premise
equipment
(a) $828 $1,017 $1,762 $1,724
Scalable
infrastructure
(b) 587 382 1,073 650
Line
extensions
(c) 353 297 644 545
Upgrade/
rebuild
(d) 190 145 332 252
Support
capital
(e) 433 307 763 532
--- --- --- ---
Total
capital
expenditures $2,391 $2,148 $4,574 $3,703
====== ====== ====== ======
Capital
expenditures
included
in
total
related
to:
Commercial
services $309 $335 $592 $603
All-
digital
transition $88 $5 $274 $6
Mobile $53 $ - $70 $ -
(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).
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SOURCE Charter Communications, Inc.
