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Charter Announces First Quarter 2016 Results

STAMFORD, Conn., April 28, 2016 /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, 2016.

Key highlights:

  • As of March 31, 2016, Charter served 6.8 million residential and small and medium business ("SMB") customers. For the twelve months ended March 31, 2016, total residential and SMB customers grew by 381,000 or 5.9%.
  • Total customer relationships increased 119,000 during the first quarter, versus 90,000 during the first quarter of 2015. Residential and SMB primary service units ("PSUs") increased by 218,000 during the period, versus 173,000 in the year-ago quarter.
  • Video and Internet customer trends continued to improve on a year-over-year basis, with total first quarter 2016 video net additions of 15,000, versus a loss of 12,000 in the prior-year period, and total first quarter 2016 Internet net additions of 155,000, versus 135,000 in the first quarter of 2015.
  • First quarter revenues of $2.5 billion grew 7.1% as compared to the prior-year period, driven by residential revenue growth of 6.5% and commercial revenue growth of 12.0%.
  • First quarter Adjusted EBITDA [1] grew by 10.4% year-over-year. Excluding transition costs in the first quarters of 2016 and 2015, Adjusted EBITDA grew by 10.2% year-over-year.
  • Capital expenditures totaled $429 million in first quarter, an increase from $351 million in the year-ago period. Excluding transition capital expenditures for the pending transactions, first quarter 2016 capital expenditures totaled $376 million.

"Our products, service, customer growth and financial results continue to improve, as we deliver more value to our residential and business customers," said Tom Rutledge, President and CEO of Charter Communications. "The operating, service and financial benefits of our strategies are as we expected and demonstrate the growth opportunity that our consumer-friendly practices can drive on a larger set of underpenetrated assets through our pending transactions with Time Warner Cable and Bright House Networks."

[1] Adjusted EBITDA and free cash flow are defined in the "Use of Non-GAAP Financial Metrics" section and are reconciled to net loss and net cash flows from operating activities, respectively, in the addendum of this news release.

Key Operating Results









Approximate as of




March 31, 2016 (a)


March 31, 2015 (a)


Y/Y Change

Footprint (b)






Estimated Video Passings

12,854



12,745



1

%

Estimated Internet Passings

12,588



12,475



1

%

Estimated Voice Passings

12,138



12,022



1

%







Penetration Statistics (c)






Video Penetration of Estimated Video Passings

34.6

%


34.6

%


ppts

Internet Penetration of Estimated Internet Passings

45.5

%


41.8

%


3.7

ppts

Voice Penetration of Estimated Voice Passings

23.6

%


22.2

%


1.4

ppts







Customer Relationships (d)






Residential

6,388



6,070



5

%

Small and Medium Business

405



342



18

%

Total Customer Relationships

6,793



6,412



6

%







Residential






Primary Service Units ("PSU")






Video

4,332



4,311



%

Internet

5,368



4,910



9

%

Voice

2,633



2,481



6

%


12,333



11,702



5

%







Quarterly Net Additions/(Losses)






Video

10



(13)



NM


Internet

141



125



13

%

Voice

35



42



(17)

%


186



154



21

%







Single Play (e)

2,509



2,385



5

%

Double Play (e)

1,813



1,739



4

%

Triple Play (e)

2,066



1,946



6

%







Single Play Penetration (f)

39.3

%


39.3

%


ppts

Double Play Penetration (f)

28.4

%


28.6

%


-0.2

ppts

Triple Play Penetration (f)

32.3

%


32.1

%


0.2

ppts







% Residential Non-Video Customer Relationships

32.2

%


29.0

%


3

%







Monthly Residential Revenue per Residential Customer (g)

$111.04



$109.53



1

%







Small and Medium Business






PSUs






Video

113



96



18

%

Internet

359



300



20

%

Voice

231



185



25

%


703



581



21

%







Quarterly Net Additions/(Losses)






Video

5



1



NM


Internet

14



10



40

%

Voice

13



8



63

%


32



19



68

%







Monthly Small and Medium Business Revenue per Customer (h)

$169.74



$179.74



(6)

%







Enterprise PSUs (i)






Enterprise PSUs

31



26



19

%


FootnotesIn 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.


NM - Not meaningful


All percentages are calculated using whole numbers. Minor differences may exist due to rounding.

During the first quarter of 2016, Charter's residential customer relationships grew by 104,000, versus 80,000 in the prior-year period. Residential PSUs increased by 186,000 versus a gain of 154,000 in the prior-year period, driven by Charter Spectrum, an industry-leading suite of video, Internet, and voice services launched in 2014. Charter Spectrum includes over 200 HD channels, in addition to minimum offered Internet speeds of 60 Mbps, and a fully-featured voice service, delivered at a highly competitive price. As of the end of the first quarter of 2016, 91% of Charter's residential customers received Charter Spectrum products.

Residential video customers increased by 10,000 in the first quarter of 2016, versus a loss of 13,000 in the year-ago period. For the past four years, Charter has significantly increased the competitiveness of its video product, by including more HD channels and video on demand offerings, attractive packaging of advanced services, improved selling methods, and enhanced service quality. Today, virtually all of Charter's passings are fully digitized, with access to more HD channels than satellite TV offers, and as of March 31, 2016, over 96% of Charter's residential video customers subscribed to the Company's expanded basic video service.

Charter has introduced its new cloud-based user interface, Spectrum Guide, to video customers in Fort Worth, Texas, Reno, Nevada and St. Louis, Missouri. Spectrum Guide dramatically improves video content search and discovery, and fully enables Charter's on-demand offering. In addition, Spectrum Guide will function on nearly all of Charter's deployed set-tops. Charter will soon begin the launch of its new set-top box, World Box, which features downloadable security along with other advanced functionality, driving an enhanced customer experience and reducing incremental set-top box costs.

Charter added 141,000 residential Internet customers in the first quarter of 2016, compared to 125,000 a year ago. As of March 31, 2016, 89% of Charter's residential Internet customers subscribed to tiers that provided speeds of 60 Mbps or more. The Company continues to see strong demand for its Internet service as consumers value the speed and reliability of Charter's Internet offering.

During the first quarter, the Company added 35,000 residential voice customers, versus a gain of 42,000 during the first quarter of 2015.

First quarter residential revenue per customer relationship totaled $111.04, and grew by 1.4% as compared to the prior-year period, driven by higher product sell-in, promotional rate step-ups and rate adjustments, partially offset by continued single play Internet sell-in.

During the first quarter of 2016, SMB customer relationships grew by 15,000 versus 10,000 during the first quarter of 2015. SMB PSUs increased 32,000, compared to 19,000 during the first quarter of 2015. Charter's accelerating SMB customer and PSU growth is being driven by the launch of the Spectrum Business product suite to the small and medium business segments during the first quarter of 2015. This competitive new offering is intended to provide better products and greater value to SMB customers.

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,


2016


2015


% Change

REVENUES:






Video

$

1,170



$

1,129



3.7

%

Internet

804



717



12.1

%

Voice

135



134



0.5

%

Residential revenue

2,109



1,980



6.5

%

Small and medium business

202



182



11.3

%

Enterprise

99



87



13.4

%

Commercial revenue

301



269



12.0

%

Advertising sales

72



66



8.8

%

Other

48



47



2.7

%

Total Revenues

2,530



2,362



7.1

%







COSTS AND EXPENSES:






Total operating costs and expenses

1,647



1,562



5.4

%







Adjusted EBITDA

$

883



$

800



10.4

%







Adjusted EBITDA margin

34.9

%


33.9

%









Capital Expenditures

$

429



$

351




% Total Revenues

17.0

%


14.9

%









Net loss

$

(188)



$

(81)




Loss per common share, basic and diluted

$

(1.68)



$

(0.73)
















Net cash flows from operating activities

$

424



$

528




Free cash flow

$

(61)



$

101




First quarter 2016 revenues rose to $2.5 billion, 7.1% higher than the year-ago quarter, driven primarily by growth in Internet, video and commercial revenues.

Video revenues totaled $1.2 billion in the first quarter, an increase of 3.7% compared to the prior-year period. Video revenue growth was driven by higher advanced services penetration, annual and promotional rate adjustments and an increase in expanded basic and digital customers and revenue allocation from higher bundling, partially offset by a decrease in residential limited basic video customers.

Internet revenues grew 12.1% compared to the year-ago quarter to $804 million, driven by an increase of 458,000 Internet customers during the last year, promotional rolloff and price adjustments.

Voice revenues totaled $135 million, an increase of 0.5% versus the first quarter of 2015, due to the addition of 152,000 voice customers in the last twelve months, partially offset by value-based pricing.

Commercial revenues rose to $301 million, an increase of 12.0% over the prior-year period, and was driven by small and medium business revenue growth of 11.3% and enterprise revenue growth of 13.4%. Following the launch of new pricing and packaging for commercial customers, PSU growth has accelerated albeit at lower promotional pricing.

First quarter advertising sales revenues of $72 million increased 8.8% compared to the year-ago quarter primarily driven by an increase in political advertising revenue.

Operating Costs and Expenses

First quarter total operating costs and expenses increased by $85 million, or 5.4%, compared to the year-ago period, reflecting increases in programming costs, marketing costs and other expenses.

First quarter programming expense increased by $37 million, or 5.5%, as compared to the first quarter of 2015, reflecting contractual programming increases, a higher number of expanded basic package customers and the introduction of new networks to Charter's video offering, partly offset by a favorable settlement with a programmer in the first quarter of 2016. Excluding this programming expense benefit and the impact of video customer growth over the last twelve months, first quarter 2016 programming expense would have increased 6.0% year-over-year.

Costs to service customers remained virtually unchanged year-over-year despite year-over-year residential and SMB customer relationship growth of 5.9%, given improved service metrics. Other expenses grew by $34 million, or 17.6%, as compared to the first quarter of 2015, reflecting higher corporate and administrative labor costs, including the insourcing of IT and software development resources, property taxes and insurance costs, enterprise sales and labor costs, advertising sales costs and a non-recurring expense associated with Charter's incentive bonus plan. Excluding this non-recurring expense, first quarter 2016 other expenses would have grown 13.4% versus the prior-year...


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