Charter Announces First Quarter 2020 Results
STAMFORD, Conn., May 1, 2020 /PRNewswire/ -- Charter Communications, Inc. (along with its subsidiaries, the "Company" or "Charter") today reported financial and operating results for the three months ended March 31, 2020.
Key highlights:
-- First quarter total residential and SMB customer relationships(1)
increased by 486,000, compared to 351,000 during the first quarter of
2019. First quarter total residential and SMB Internet customers(1)
increased by 582,000, compared to 428,000 during the first quarter of
2019.
-- Charter added 290,000 Spectrum Mobile(TM) lines in the first quarter and
as of March 31, 2020, Charter served a total of 1.4 million mobile
lines.
-- First quarter revenue of $11.7 billion grew by 4.8% year-over-year,
driven by residential revenue growth of 4.2%, mobile revenue growth of
85.0% and SMB revenue growth of 5.4%.
-- First quarter Adjusted EBITDA(2) of $4.4 billion grew by 8.4%
year-over-year, while first quarter cable Adjusted EBITDA(2) of $4.5
billion grew by 8.1% year-over-year.
-- Net income attributable to Charter shareholders totaled $396 million in
the first quarter, compared to $253 million during the same period last
year.
-- First quarter capital expenditures totaled $1.5 billion and included $87
million of mobile-related capital expenditures.
-- Consolidated free cash flow(2) for the first quarter of 2020 totaled
$1.4 billion, compared to $645 million in 2019. Cable free cash flow(2)
totaled $1.6 billion for the first quarter of 2020, versus $936 million
in 2019.
-- During the first quarter, Charter purchased approximately 5.2 million
shares of Charter Class A common stock and Charter Communications
Holdings, LLC ("Charter Holdings") common units for approximately $2.6
billion.
"Thanks to the dedication of our employees and the quality of our network, we have continued to deliver high quality connectivity services to millions of existing and new customers in the communities we serve, including homes, businesses, hospital and educational systems, and local, state and federal government institutions. And I am very proud that the products we deliver have played a key role in enabling social distancing, remote working, distance learning, and much more" said Tom Rutledge, CEO and Chairman of Charter Communications, Inc. "Our ability to service existing customers with significantly more data, and install new customers at an accelerated rate, is a direct result of the commitment of our employees and the $40 billion of investment we have made in our infrastructure in just the last five years. Charter remains committed to delivering outstanding products and services, keeping the communities we serve connected, working and learning, and doing our part to help our country recover from this crisis. And we continue to invest in the next generation of communications technology and infrastructure that will allow us to service the future of connectivity."
1. Results include the impact of
COVID-19 related offers and
programs launched by Charter in
the first quarter of 2020. See
page 4 for additional
information.
2. Adjusted EBITDA, cable Adjusted
EBITDA, free cash flow and cable
free cash flow are non-GAAP
measures defined in the "Use of
Adjusted EBITDA and Free Cash
Flow Information" section and
are reconciled to net income
attributable to Charter
shareholders and net cash flows
from operating activities,
respectively, in the addendum of
this news release.
Key Operating Results
Approximate as of
March 31, 2020 (a) March 31, 2019 (a) Y/Y Change
Footprint (b)
---
Estimated Passings 52,418 51,384 2.0
%
Penetration Statistics (c)
---
Total Customer Relationship
Penetration of Estimated % %
Passings 56.7 55.4
1.3 ppts
Customer Relationships (d)
---
Residential 27,745 26,591 4.3
%
Small and Medium Business 1,976 1,863 6.1
%
Total Customer 29,721 28,454 4.5
Relationships %
Quarterly Net Additions (Losses)
---
Residential 468 321 45.6
%
Small and Medium Business 18 30 (39.0)
%
Total Customer 486 351 38.3
Relationships %
Residential
Primary Service Units ("PSUs")
---
Internet 25,471 24,023 6.0
%
Video 15,550 15,952 (2.5)
%
Voice 9,360 10,015 (6.5)
%
Quarterly Net Additions (Losses)
---
Internet 563 398 41.6
%
Video (70) (152) 53.5
%
Voice (83) (120) 31.5
%
Single Play (e) 12,099 11,189 8.1
%
Double Play (e) 8,655 7,412 16.8
%
Triple Play (e) 6,991 7,990 (12.5)
%
Single Play Penetration (f) 43.6 42.1
% %
1.5 ppts
Double Play Penetration (f) 31.2 27.9
% %
3.3 ppts
Triple Play Penetration (f) 25.2 30.0
% %
(4.8) ppts
% Residential Non-Video 44.0 40.0
Customer Relationships % %
4.0 ppts
Monthly Residential Revenue
per Residential Customer %
(g) $112.73 $112.47 0.2
Small and Medium Business
PSUs
---
Internet 1,775 1,664 6.7
%
Video 524 509 2.8
%
Voice 1,162 1,072 8.4
%
Quarterly Net Additions (Losses)
---
Internet 19 30 (38.4)
%
Video 7 (109.4)
%
Voice 18 21 (12.7)
%
Monthly Small and Medium
Business Revenue per %
Customer (h) $168.83 $170.64 (1.1)
Mobile Lines
Residential and Small and
Medium Business Mobile %
Lines 1,372 310 342.7
Net Additions 290 176 64.2
%
Enterprise PSUs (i)
Enterprise PSUs 269 253 6.5
%
Net Additions 2 5 (61.3)
%
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.
Ending C
ustomers and Net Additions on COVID-19 Offers
As of and for the quarter ended March 31, 2020
(in thousands)
Remote Keep Small and Medium Total
Education Americans Business
Offer (a) Connected (b) Seasonal Plan (c)
Residential
Ending Customers
Customer Relationships 119 1
n/a 120
Internet PSUs 119 1
n/a 120
Video PSUs 46 (d) 1
n/a 47
Voice PSUs 34 (d)
n/a 34
Mobile Lines 3 (d)
n/a 3
Quarterly Net Additions
Customer Relationships 113 1
n/a 114
Internet PSUs 119 1
n/a 120
Video PSUs 41 (d) 1
n/a 42
Voice PSUs 33 (d)
n/a 33
Mobile Lines 3 (d)
n/a 3
Small and Medium Business
Ending Customers
Customer Relationships
n/a 5 5
Internet PSUs
n/a 4 4
Video PSUs
n/a 2 2
Voice PSUs
n/a 3 3
Mobile Lines
n/a
Quarterly Net Additions
Customer Relationships
n/a 5 5
Internet PSUs
n/a 4 4
Video PSUs
n/a 2 2
Voice PSUs
n/a 3 3
Mobile Lines
n/a
(a) The Remote Education Offer ("REO")
represents residential customers
participating in Charter's free
60-day Internet offer available
to households with K-12 and/or
college students or educators who
are not currently Spectrum
Internet customers. These
residential customers are
generally eligible to purchase
additional products and services
(i.e., video, voice and mobile) at
current promotional rates.
(b) As part of our pledge to the FCC,
Keep Americans Connected customers
represents customers who would
have been disconnected by quarter
end as a result of non-payment
under our normal policies, but
were not disconnected and
collection efforts paused due to
COVID-19 related payment
challenges. As of quarter end,
approximately 140,000 residential
customers had requested protection
from disconnection under the
pledge of which 1,000 would have
been disconnected for non-payment
under our normal policies. At the
end of April, 36,000 of those
140,000 customers' outstanding
balance is now fully current, and
in total nearly 50% have made
partial or full payments since
entering disconnection protection.
However, at the end of April,
67,000 of those 140,000 customers
now have past due balances beyond
the point of normal disconnection.
(c) Small and Medium Business Seasonal
Plan represents small and medium
business customers who have
requested a reduced level of
service and now pay a reduced
price for their service due to
temporary business closure or
because these customers have
reduced their service offering to
their own customers.
(d) Customers that connected as part of
the REO who have subscribed to
products in addition to Spectrum
Internet (i.e., video, voice,
mobile) during the 60-day free
Internet offer. Billings are not
deferred for these additional
services. Approximately 5,000 and
1,000 of the REO customers were
current video and voice customers,
respectively.
To assist communities impacted by the COVID-19 pandemic, Charter launched a Remote Education Offer in March, providing free Spectrum Internet(®) for 60 days to households with K-12 and/or college students as well as educators that do not already have Spectrum Internet service. The majority of customers participating in the Remote Education Offer are choosing to be provided with Internet service at flagship speeds (i.e., 200 Mbps or 100 Mbps). Furthermore, as of March 31, 2020, approximately 50% of participants in the Remote Education Offer chose to subscribe to additional services (i.e., video, voice, mobile) from Charter, and are currently being billed for these additional services. Charter is also participating in the FCC's Keep Americans Connected Pledge, pausing disconnects and collection efforts for residential and SMB customers impacted by COVID-19. Finally, Charter has offered a seasonal plan at reduced rates to SMB customers that have temporarily closed or because these customers have reduced their service offerings to their own customers. The following discussion includes the impact of Charter's COVID-19 related offers and programs, which continue in the second quarter, on customer results and data. See page 4 for the total number of customers participating in these COVID-19 related offers and programs as of March 31, 2020.
During the first quarter of 2020, Charter's residential customer relationships grew by 468,000, while first quarter 2019 residential customer relationships grew by 321,000. As of March 31, 2020, Charter had 27.7 million residential customer relationships, with year-over-year growth of 1.2 million, or 4.3%.
Charter added 563,000 residential Internet customers in the first quarter of 2020, versus first quarter 2019 residential Internet customer net additions of 398,000. As of March 31, 2020, Charter had 25.5 million residential Internet customers, with over 85% subscribing to tiers that provided 100 Mbps or more of speed. Currently, 200 Mbps is the slowest speed offered to new Internet customers in approximately 60% of Charter's footprint, with 100 Mbps the slowest speed offered in the remaining 40% of its footprint.
Since early March, Charter has seen a substantial increase in network traffic, particularly in the daytime, with more people working and learning from home. Residential data usage for Internet-only customers was over 600 gigabytes per month in March, increasing by more than 20% since the fourth quarter of 2019. Due to our significant investment in infrastructure and technology, Charter's network continues to perform well despite higher levels of data traffic.
Residential video customers decreased by 70,000 in the first quarter of 2020, while first quarter 2019 residential video customers decreased by 152,000. As of March 31, 2020, Charter had 15.6 million residential video customers.
During the first quarter of 2020, residential wireline voice customers declined by 83,000, while first quarter 2019 voice customers declined by 120,000. As of March 31, 2020, Charter had 9.4 million residential wireline voice customers.
First quarter 2020 residential revenue per residential customer (excluding mobile) totaled $112.73, and grew by 0.2% compared to the prior year period, given promotional rate step-ups, rate adjustments and a lower rate of customers migrating to Spectrum pricing and packaging, partly offset by a higher percentage of non-video customers, a higher mix of streaming and lighter video packages within Charter's video customer base, lower video equipment revenue, lower pay-per-view and video on demand revenue and Charter's Remote Education Offer.
During the first quarter of 2020, Charter added 290,000 mobile lines, and as of March 31, 2020, Charter served a total of 1.4 million mobile lines. Spectrum Mobile is available to all new and existing Spectrum Internet customers and runs on America's most awarded LTE network combined with Spectrum WiFi. 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, in both cases including applicable fees and taxes. In the first quarter of 2020, Spectrum Mobile launched 5G service. Customers with a $45/monthly unlimited data plan can use 5G phones to access 5G service at no additional cost in select cities nationwide.
SMB customer relationships grew by 18,000 during the first quarter of 2020, compared to growth of 30,000 during the first quarter of 2019. As of March 31, 2020, Charter had 2.0 million SMB customer relationships, with year-over-year growth of 6.1%. Enterprise PSUs grew by 2,000 during the first quarter of 2020 compared to growth of 5,000 during the first quarter of 2019. As of March 31, 2020, Charter had 269,000 enterprise PSUs, with growth of 6.5% year-over-year.
First 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 March 31,
2020 2019 % Change
REVENUES:
Internet $
4,407 $
4,024 9.5
%
Video 4,422 4,384 0.9
%
Voice 457 504 (9.4)
%
Residential revenue 9,286 8,912 4.2
%
Small and medium business 996 945 5.4
%
Enterprise 622 643 (3.2)
%
Commercial revenue 1,618 1,588 1.9
%
Advertising sales 365 345 5.7
%
Mobile 258 140 85.0
%
Other 211 221 (4.4)
%
Total Revenue 11,738 11,206 4.8
%
COSTS AND EXPENSES:
Cable operating costs and expenses 6,968 6,891 1.1
%
Mobile operating costs and expenses 374 260 44.4
%
Total operating costs and expenses 7,342 7,151 2.7
%
Adjusted EBITDA $
4,396 $
4,055 8.4
%
Adjusted EBITDA margin 37.4 36.2
% %
Cable Adjusted EBITDA $
4,512 $
4,175 8.1
%
Cable Adjusted EBITDA margin 39.3 37.7
% %
Capital Expenditures $
1,461 $
1,665
% Total Revenue 12.4 14.9
% %
Cable Capital Expenditures $
1,374 $
1,577
% Total Cable Revenue 12.0 14.2
% %
Net income attributable to Charter shareholders $
396 $
253
Earnings per common share attributable to Charter shareholders:
Basic $
1.91 $
1.13
Diluted $
1.86 $
1.11
Net cash flows from operating activities $
3,220 $
2,686
Free cash flow $
1,371 $
645
Cable free cash flow $
1,631 $
936
Revenues
First quarter revenue increased by 4.8% year-over-year to $11.7 billion, driven by growth in Internet, mobile, SMB, video and advertising revenue. Excluding mobile revenue and advertising revenue, which benefited from political spend in the first quarter of 2020, revenue grew by 3.7% year-over-year.
Internet revenue grew by 9.5% compared to the year-ago quarter, to $4.4 billion, driven by growth in Internet customers during the last year, promotional rolloff and rate adjustments.
Video revenue totaled $4.4 billion in the first quarter, an increase of 0.9% compared to the prior year period. Video revenue growth was driven by rate adjustments and promotional rolloff, partly offset by a decline in video customers during the last year, a higher mix of streaming and lighter video packages within Charter's video customer base, lower video equipment revenue and lower pay-per-view and video on demand revenue.
Voice revenue totaled $457 million in the first quarter, a decrease of 9.4% compared to the first quarter of 2019, driven by a decline in wireline voice customers over the last twelve months and value-based pricing.
Commercial revenue increased to $1.6 billion, an increase of 1.9% over the prior year period, driven by SMB revenue growth of 5.4%, partly offset by a decline in enterprise revenue of 3.2%. First quarter commercial revenue was impacted by Charter's sale of Navisite, its managed cloud services business within Spectrum Enterprise, in the third quarter of 2019. Excluding Navisite revenue from the first quarter of 2019, commercial and enterprise revenue grew by 4.3% and 2.7% over the prior year period, respectively.
First quarter advertising sales revenue of $365 million increased by 5.7% compared to the year-ago quarter, driven by higher political revenue. Excluding political revenue in both periods, advertising sales revenue declined by 5.9% year-over-year, driven by COVID-19 related cancellations in March.
First quarter mobile revenue totaled $258 million, an increase of 85.0% year-over-year.
Other revenue totaled $211 million in the first quarter, a decrease of 4.4% year-over-year, driven by lower home security revenue and lower processing fees, partly offset by higher video customer premise equipment ("CPE") sold to customers.
Operating Costs and Expenses
First quarter total operating costs and expenses increased by $191 million, or 2.7% year-over-year, and 1.1% when excluding mobile costs in both periods.
First quarter programming costs increased by $27 million, or 0.9% as compared to the first quarter of 2019, reflecting contractual programming increases and renewals, partly offset by lower video customers, a higher mix of streaming and lighter video packages within Charter's video customer base, a nonrecurring financial benefit and lower pay-per-view expenses.
Regulatory, connectivity and produced content expenses decreased by $10 million, or 1.7% year-over-year, primarily driven by lower regulatory fees and delayed sports rights costs in March, partly offset by higher original programming costs and video CPE sold to customers.
Costs to service customers increased by $26 million, or 1.4% year-over-year, despite year-over-year residential and SMB customer growth of 4.5% and previously announced accelerated wage benefits for hourly field operations and call center employees. The year-over-year increase in costs to service customers was entirely driven by bad debt, with a higher estimate of expected losses on current receivables related to COVID-19 in accordance with the new Current Expected Credit Losses (CECL) accounting standard adopted in January. Costs to service customers excluding bad debt decreased 0.7% year-over-year and was primarily driven by lower service transactions per customer and lower churn.
Marketing expenses increased by $31 million, or 4.2% year-over-year, primarily driven by higher labor costs and commissions.
Other expenses increased by $3 million, or 0.4% as compared to the first quarter of 2019 primarily driven by higher corporate costs and advertising sales expense, partly offset by lower costs related to the sale of Navisite.
First quarter mobile costs totaled $374 million, an increase of 44.4% year-over-year, and were comprised of device costs, customer acquisition costs, and service and operating costs.
Adjusted EBITDA
First quarter Adjusted EBITDA of $4.4 billion grew by 8.4% year-over-year, reflecting growth in revenue and operating expenses of 4.8% and 2.7%, respectively. First quarter cable Adjusted EBITDA grew by 8.1% year-over-year reflecting growth in cable revenue and cable operating expenses of 3.7% and 1.1%, respectively.
Net Income Attributable to Charter Shareholders
Net income attributable to Charter shareholders totaled $396 million in the first quarter of 2020, compared to $253 million in the first quarter of 2019. The year-over-year increase in net income attributable to Charter shareholders was primarily driven by higher Adjusted EBITDA, other income, net and lower tax expense, partly offset by a non-cash loss on financial instruments in the current year period versus a gain in the prior year period.
Net income per basic common share attributable to Charter shareholders totaled $1.91 in the first quarter of 2020 compared to $1.13 during the same period last year. The increase was primarily the result of the factors described above in addition to a 7.5% decrease in weighted average common shares outstanding versus the prior year period.
Capital Expenditures
Property, plant and equipment expenditures totaled $1.5 billion in the first quarter of 2020, compared to $1.7 billion during the first quarter of 2019, primarily driven by declines in scalable infrastructure and CPE spending. The year-over-year decrease in scalable infrastructure spending was primarily driven by timing. The decrease in CPE spending was primarily driven by a higher mix of boxless video outlets, increasing customer self-installations and a decline in the pace of migration of Legacy TWC and Legacy Bright House customers to Spectrum pricing and packaging. First quarter capital expenditures included $87 million of mobile costs, most of which are included in support capital.
Charter currently expects 2020 cable capital expenditures to decline as a percentage of cable revenue versus 2019.
Cash Flow and Free Cash Flow
During the first quarter of 2020, net cash flows from operating activities totaled $3.2 billion, compared to $2.7 billion in the prior year quarter. The year-over-year increase in net cash flows from operating activities was primarily due to higher Adjusted EBITDA.
Consolidated free cash flow for the first quarter of 2020 totaled $1.4 billion, compared to $645 million during the same period last year. Cable free cash flow for the first quarter of 2020 totaled $1.6 billion, compared to $936 million during the same period last year. The year-over-year increases in consolidated free cash flow and cable free cash flow were driven by an increase in net cash flows from operating activities and a decline in capital expenditures.
Liquidity & Financing
As of March 31, 2020, total principal amount of debt was $79.1 billion and Charter's credit facilities provided approximately $4.7 billion of additional liquidity in excess of Charter's $2.9 billion cash position.
In February 2020, CCO Holdings, LLC ("CCO Holdings") and CCO Holdings Capital Corp. issued $1.65 billion of 4.500% senior unsecured notes due 2030. The net proceeds were used to redeem $1.0 billion aggregate principal amount of CCO Holdings' 5.125% senior notes due 2023, $500 million aggregate principal amount of CCO Holdings' 5.750% senior notes due 2023 and $150 million aggregate principal amount of CCO Holdings' outstanding 5.750% senior notes due 2024.
In March 2020, CCO Holdings and CCO Holdings Capital Corp. issued an additional $1.1 billion of the same 4.500% senior unsecured notes due 2030 that were issued earlier in February and $1.4 billion of 4.500% senior unsecured notes due 2032. A portion of the net proceeds were or will be used to redeem $1.25 billion aggregate principal amount of CCO Holdings' 5.250% senior notes due 2022 and $1.15 billion aggregate principal amount of CCO Holdings' 5.125% senior notes due 2023, and the remaining net proceeds were or will be used for general corporate purposes.
In April 2020, Charter Communications Operating, LLC and Charter Communications Operating Capital Corp. issued $1.6 billion of 2.800% senior secured notes due 2031 and $1.4 billion of 3.700% senior secured notes due 2051. The proceeds were or will be used to pay related fees and expenses and for general corporate purposes.
Share Repurchases
During the three months ended March 31, 2020, Charter purchased approximately 5.2 million shares of Charter Class A common stock and Charter Holdings common units for approximately $2.6 billion.
Conference Call
Charter will host a conference call on Friday, May 1, 2020 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 2229456.
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 15, 2020. The conference ID code for the replay is 2229456.
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 months ended March 31, 2020, 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, net income attributable to Charter shareholders 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 net income attributable to Charter shareholders and net cash flows from operating activities, respectively, in the Addendum to this release.
Adjusted EBITDA is defined as net income attributable to Charter shareholders plus net income attributable to noncontrolling interest, net interest expense, income taxes, depreciation and amortization, stock compensation expense, loss on extinguishment of debt, (gain) loss on financial instruments, net, other pension (benefits) costs, net, other (income) expense, net and other operating (income) expenses, such as special charges and (gain) loss on sale or retirement of assets. As such, it eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of the Company's businesses as well as other non-cash or special items, and is unaffected by the Company's capital structure or investment activities. However, this measure is limited in that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues and the cash cost of financing. These costs are evaluated through other financial measures.
Free cash flow is defined as net cash flows from operating activities, less 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 $311 million and $300 million for the three months ended March 31, 2020 and 2019, respectively.
Cable Adjusted EBITDA is defined as Adjusted EBITDA less mobile revenues plus mobile operating costs and expenses. Cable free cash flow is defined as free cash flow plus mobile net cash outflows from operating activities and mobile capital expenditures. Management and Charter's board of directors use cable Adjusted EBITDA and cable free cash flow to provide management and investors a more meaningful year-over-year perspective on the financial and operational performance and trends of our core cable business without the impact of the revenue, costs and capital expenditures in the initial funding period to grow a new product line as well as the negative working capital impacts from the timing of device-related cash flows when we sell the handset or tablet to customers pursuant to equipment installment plans.
About Charter
Charter Communications, Inc. (NASDAQ:CHTR) is a leading broadband connectivity company and cable operator serving more than 29 million customers in 41 states through its Spectrum brand. Over an advanced communications network, the company offers a full range of state-of-the-art residential and business services including Spectrum Internet(®), TV, Mobile and Voice.
For small and medium-sized companies, Spectrum Business(®) delivers the same suite of broadband products and services coupled with special features and applications to enhance productivity, while for larger businesses and government entities, Spectrum Enterprise provides highly customized, fiber-based solutions. Spectrum Reach(®) delivers tailored advertising and production for the modern media landscape. The company also distributes award-winning news coverage, sports and high-quality original programming to its customers through Spectrum Networks and Spectrum Originals. More information about Charter can be found at corporate.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," "focused on" 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:
-- the impact of the COVID-19 pandemic on the economy, our customers, our
vendors, local, state and federal governmental responses to the pandemic
and our businesses generally;
-- our ability to sustain and grow revenues and cash flow from operations
by offering Internet, video, voice, mobile, advertising and other
services to residential and commercial customers, to adequately meet the
customer experience demands in our service areas 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
("DBS") operators, wireless broadband and telephone providers, digital
subscriber line ("DSL") providers, fiber to the home providers and
providers of video content over broadband Internet connections;
-- 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 and any other consumer services and service
platforms;
-- any events that disrupt our networks, information systems or properties
and impair our operating activities or our reputation;
-- 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 Cable Inc. and Bright House Networks,
LLC Transactions;
-- general business conditions, economic uncertainty or downturn, including
the impacts of the COVID-19 pandemic to unemployment levels and the
level of activity in the housing sector;
-- 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 March 31,
2020 2019 % Change
REVENUES:
Internet $
4,407 $
4,024 9.5
%
Video 4,422 4,384 0.9
%
Voice 457 504 (9.4)
%
Residential revenue 9,286 8,912 4.2
%
Small and medium business 996 945 5.4
%
Enterprise 622 643 (3.2)
%
Commercial revenue 1,618 1,588 1.9
%
Advertising sales 365 345 5.7
%
Mobile 258 140 85.0
%
Other 211 221 (4.4)
%
Total Revenue 11,738 11,206 4.8
%
COSTS AND EXPENSES:
Programming 2,892 2,865 0.9
%
Regulatory, connectivity and produced content 551 561 (1.7)
%
Costs to service customers 1,848 1,822 1.4
%
Marketing 766 735 4.2
%
Mobile 374 260 44.4
%
Other expense 911 908 0.4
%
Total operating costs and expenses (exclusive of items 7,342 7,151 2.7
shown separately below)
%
Adjusted EBITDA 4,396 4,055 8.4
%
Adjusted EBITDA margin 37.4 36.2
%
%
Depreciation and amortization 2,497 2,550
Stock compensation expense 90 85
Other operating (income) expenses, net 7 (5)
Income from operations 1,802 1,425
OTHER INCOME (EXPENSES):
Interest expense, net (980) (925)
Loss on extinguishment of debt (27)
Gain (loss) on financial instruments, net (318) 37
Other pension benefits, net 10 9
Other income (expense), net 9 (110)
(1,306) (989)
Income before income taxes 496 436
Income tax expense (29) (119)
Consolidated net income 467 317
Less: Net income attributable to noncontrolling
interests (71) (64)
Net income attributable to Charter shareholders $
396 $
253
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CHARTER SHAREHOLDERS:
Basic $
1.91 $
1.13
Diluted $
1.86 $
1.11
Weighted average common shares outstanding, basic 207,831,305 224,630,122
Weighted average common shares outstanding, diluted 212,810,613 227,595,365
Adjusted EBITDA is a non-GAAP
term. See page 8 of this
addendum for the reconciliation
of Adjusted EBITDA to net income
attributable to Charter
shareholders 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)
March 31, December 31,
2020 2019
ASSETS (unaudited)
CURRENT ASSETS:
Cash and cash equivalents $
2,908 $
3,483
Accounts receivable, net 2,091 2,227
Prepaid expenses and other
current assets 760 761
Total current assets 5,759 6,471
RESTRICTED CASH 28 66
INVESTMENT IN CABLE PROPERTIES:
Property, plant and equipment,
net 34,096 34,591
Customer relationships, net 6,955 7,453
Franchises 67,322 67,322
Goodwill 29,554 29,554
Total investment in cable
properties, net 137,927 138,920
OTHER NONCURRENT ASSETS 2,838 2,731
Total assets $
146,552 $
148,188
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities $
8,310 $
8,885
Current portion of long-term
debt 4,905 3,500
Total current liabilities 13,215 12,385
LONG-TERM DEBT 74,787 75,578
DEFERRED INCOME TAXES 17,665 17,711
OTHER LONG-TERM LIABILITIES 4,163 3,703
SHAREHOLDERS' EQUITY:
Controlling interest 29,628 31,445
Noncontrolling interests 7,094 7,366
Total shareholders' equity 36,722 38,811
Total liabilities and
shareholders' equity $
146,552 $
148,188
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
Three Months Ended March 31,
2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net income $
467 $
317
Adjustments to reconcile consolidated net income to net cash
flows from operating activities:
Depreciation and amortization 2,497 2,550
Stock compensation expense 90 85
Noncash interest income, net (12) (55)
Other pension benefits, net (10) (9)
Loss on extinguishment of debt 27
(Gain) loss on financial instruments, net 318 (37)
Deferred income taxes (14) 81
Other, net (20) 98
Changes in operating assets and liabilities, net of effects
from acquisitions and dispositions:
Accounts receivable 136 155
Prepaid expenses and other assets (104) (300)
Accounts payable, accrued liabilities and
other (155) (199)
Net cash flows from operating activities 3,220 2,686
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,461) (1,665)
Change in accrued expenses related to capital
expenditures (388) (376)
Real estate investments through variable
interest entities (38) (39)
Other, net 37
Net cash flows from investing activities (1,850) (2,080)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt 4,339 6,884
Repayments of long-term debt (3,589) (5,572)
Payments for debt issuance costs (41) (25)
Issuance of equity 23
Purchase of treasury stock (2,352) (940)
Proceeds from exercise of stock options 93 44
Purchase of noncontrolling interest (393) (93)
Distributions to noncontrolling interest (39) (39)
Other, net (24) (4)
Net cash flows from financing activities (1,983) 255
NET INCREASE (DECREASE) IN CASH, CASH
EQUIVALENTS AND RESTRICTED CASH (613) 861
CASH, CASH EQUIVALENTS AND RESTRICTED CASH,
beginning of period 3,549 765
CASH, CASH EQUIVALENTS AND RESTRICTED CASH,
end of period $
2,936 $
1,626
CASH PAID FOR INTEREST $
1,050 $
966
CASH PAID FOR TAXES $
19 $
4
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED SUMMARY OF OPERATING STATISTICS
(in thousands, except per customer and penetration data)
Approximate as of
March 31, 2020 December 31, 2019 March 31, 2019
(a) (a) (a)
Footprint (b)
---
Estimated Passings 52,418 52,154 51,384
Penetration Statistics (c)
---
Total Customer
Relationship Penetration % %
of Estimated Passings 56.7 56.1
% 55.4
Customer Relationships (d)
---
Residential 27,745 27,277 26,591
Small and Medium Business 1,976 1,958 1,863
Total Customer
Relationships 29,721 29,235 28,454
Quarterly Net Additions (Losses)
---
Residential 468 240 321
Small and Medium Business 18 28 30
Total Customer
Relationships 486 268 351
Residential
Primary Service Units ("PSUs")
---
Internet 25,471 24,908 24,023
Video 15,550 15,620 15,952
Voice 9,360 9,443 10,015
Quarterly Net Additions (Losses)
---
Internet 563 313 398
Video (70) (105) (152)
Voice (83) (152) (120)
Single Play (e) 12,099 11,741 11,189
Double Play (e) 8,655 8,377 7,412
Triple Play (e) 6,991 7,159 7,990
Single Play Penetration 43.6 43.0
% 42.1
(f) % %
Double Play Penetration 31.2 30.7
% 27.9
(f) % %
Triple Play Penetration 25.2 26.2
% 30.0
(f) % %
% Residential Non-Video 44.0 42.7
% 40.0
Customer Relationships % %
Monthly Residential
Revenue per Residential
Customer (g) $
112.73 $
113.79 $
112.47
Small and Medium Business
PSUs
---
Internet 1,775 1,756 1,664
Video 524 524 509
Voice 1,162 1,144 1,072
Quarterly Net Additions (Losses)
---
Internet 19 26 30
Video - 4 7
Voice 18 24 21
Monthly Small and Medium
Business Revenue per
Customer (h) $
168.83 $
169.06 $
170.64
Mobile Lines
Residential and Small and
Medium Business Mobile
Lines 1,372 1,082 310
Net Additions 290 288 176
Enterprise PSUs (i)
Enterprise PSUs 269 267 253
Net Additions 2 3 5
(a) We calculate the aging of customer
accounts based on the monthly
billing cycle for each account. On
that basis, at March 31, 2020,
December 31, 2019 and March 31,
2019, customers included
approximately 140,800, 154,200 and
171,100 customers, respectively,
whose accounts were over 60 days
past due, approximately 12,500,
13,500 and 19,500 customers,
respectively, whose accounts were
over 90 days past due and
approximately 8,200, 10,000 and
20,800 customers, respectively,
whose accounts were over 120 days
past due. As detailed on page 6,
our customer counts include those
customers who connected as part of
our Remote Education Offer and those
customers who we have not
disconnected in our normal timelines
associated with our Keep Americans
Connected pledge.
(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. Passings in prior
periods have been updated to reflect
standardization of definitions and
presentation among legacy companies.
(c) Penetration represents residential
and small and medium business
customers as a percentage of
estimated passings. Penetration
excludes mobile-only customers.
(d) Customer relationships include the
number of customers that receive one
or more levels of service,
encompassing Internet, video 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 exclude enterprise and
mobile-only customer relationships.
(e) Single play, double play and triple
play customers represent customers
that subscribe to one, two or three
of our cable service offerings,
respectively, excluding mobile.
(f) Single play, double play and triple
play penetration represents the
number of residential single play,
double play and triple play cable
customers, respectively, as a
percentage of residential customer
relationships, excluding mobile.
(g) Monthly residential revenue per
residential customer is calculated
as total residential Internet, video
and voice quarterly revenue divided
by three divided by average
residential customer relationships
during the respective quarter.
Monthly residential revenue per
residential customers excludes
mobile revenue and customers.
(h) Monthly small and medium business
revenue per small and medium
business 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.
Monthly small and medium business
revenue per small and medium
customer excludes mobile revenue and
customers.
(i) 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 ENDING CUSTOMERS AND NET ADDITIONS ON COVID-19 OFFERS
AS OF AND FOR THE QUARTER ENDED MARCH 31, 2020
(in thousands)
Remote Keep Small and Medium Total
Education Americans Business
Offer (a) Connected (b) Seasonal Plan (c)
Residential
Ending Customers
Customer Relationships 119 1
n/a 120
Internet PSUs 119 1
n/a 120
Video PSUs 46 (d) 1
n/a 47
Voice PSUs 34 (d)
n/a 34
Mobile Lines 3 (d)
n/a 3
Quarterly Net Additions
Customer Relationships 113 1
n/a 114
Internet PSUs 119 1
n/a 120
Video PSUs 41 (d) 1
n/a 42
Voice PSUs 33 (d)
n/a 33
Mobile Lines 3 (d)
n/a 3
Small and Medium Business
Ending Customers
Customer Relationships
n/a 5 5
Internet PSUs
n/a 4 4
Video PSUs n/a 2 2
Voice PSUs n/a 3 3
Mobile Lines n/a
Quarterly Net Additions
Customer Relationships n/a 5 5
Internet PSUs n/a 4 4
Video PSUs n/a 2 2
Voice PSUs n/a 3 3
Mobile Lines n/a
Residential and Small and Medium Business
Ending Customers
Customer Relationships 119 1 5 125
Internet PSUs 119 1 4 124
Video PSUs 46 (d) 1 2 49
Voice PSUs 34 (d) 3 37
Mobile Lines 3 (d) 3
Quarterly Net Additions
Customer Relationships 113 1 5 119
Internet PSUs 119 1 4 124
Video PSUs 41 (d) 1 2 44
Voice PSUs 33 (d) 3 36
Mobile Lines 3 (d) 3
(a) The Remote Education Offer ("REO")
represents residential customers
participating in Charter's free
60-day Internet offer available
to households with K-12 and/or
college students or educators who
are not currently Spectrum
Internet customers. These
residential customers are
generally eligible to purchase
additional products and services
(i.e., video, voice and mobile) at
current promotional rates.
(b) As part of our pledge to the FCC,
Keep Americans Connected customers
represents customers who would
have been disconnected by quarter
end as a result of non-payment
under our normal policies, but
were not disconnected and
collection efforts paused due to
COVID-19 related payment
challenges. As of quarter end,
approximately 140,000 residential
customers had requested protection
from disconnection under the
pledge of which 1,000 would have
been disconnected for non-payment
under our normal policies. At the
end of April, 36,000 of those
140,000 customers' outstanding
balance is now fully current, and
in total nearly 50% have made
partial or full payments since
entering disconnection protection.
However, at the end of April,
67,000 of those 140,000 customers
now have past due balances beyond
the point of normal disconnection.
(c) Small and Medium Business Seasonal
Plan represents small and medium
business customers who have
requested a reduced level of
service and now pay a reduced
price for their service due to
temporary business closure or
because these customers have
reduced their service offering to
their own customers.
(d) Customers that connected as part of
the REO who have subscribed to
products in addition to Spectrum
Internet (i.e., video, voice,
mobile) during the 60-day free
Internet offer. Billings are not
deferred for these additional
services. Approximately 5,000 and
1,000 of the REO customers were
current video and voice customers,
respectively.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED RECONCILIATION OF NON-GAAP MEASURES TO GAAP MEASURES
(dollars in millions)
Three Months Ended March 31,
2020 2019
Net income attributable to Charter shareholders $
396 $
253
Plus: Net income attributable to noncontrolling interest 71 64
Interest expense, net 980 925
Income tax expense 29 119
Depreciation and amortization 2,497 2,550
Stock compensation expense 90 85
Loss on extinguishment of debt 27
(Gain) loss on financial instruments, net 318 (37)
Other pension benefits, net (10) (9)
Other, net (2) 105
Adjusted EBITDA (a) 4,396 4,055
Less: Mobile revenue (258) (140)
Plus: Mobile costs and expenses 374 260
Cable Adjusted EBITDA $
4,512 $
4,175
Net cash flows from operating activities $
3,220 $
2,686
Less: Purchases of property, plant and equipment (1,461) (1,665)
Change in accrued expenses related to capital expenditures (388) (376)
Free cash flow 1,371 645
Plus: Mobile net cash outflows from operating activities 173 203
Purchases of mobile property, plant and equipment 87 88
Cable free cash flow $
1,631 $
936
(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, cable Adjusted
EBITDA, free cash flow and cable free cash
flow, 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 March 31,
2020 2019
Customer premise equipment (a) $
463 $
565
Scalable infrastructure (b) 170 297
Line extensions (c) 343 321
Upgrade/rebuild (d) 129 131
Support capital (e) 356 351
Total capital expenditures 1,461 1,665
Less: Mobile capital
expenditures (87) (88)
Cable capital expenditures $
1,374 $
1,577
Capital expenditures included in total related
to:
Commercial services $
261 $
305
(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.
