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Charter: Enhanced Product Set And Insourced Service Platform Drive Operating Efficiencies And Growth Stamford, Connecticut

The following excerpt is from the company's SEC filing.

April 28, 2016

- Charter Communications, Inc. (along with its subsidiaries, the “Company” or “Charter”) today reported financial and operating results for the

months ended

March 31, 2016

Key highlights:

As of

, Charter served

6.8 million

residential and small and medium business ("SMB") customers. For the twelve months ended

, total residential and SMB customers grew by


Total customer relationships increased


during the first quarter, versus


during the first quarter of

. Residential and SMB primary service units ("PSUs") increased by


during the period, versus


in the year-ago quarter.

Video and Internet customer trends continued to improve on a year-over-year basis, with total first quarter

video net additions of


, versus a loss of


in the prior-year period, and total first quarter

Internet net additions of



in the first quarter of

quarter revenues of

$2.5 billion

as compared to the prior-year period, driven by residential revenue growth of

and commercial revenue growth of

quarter Adjusted EBITDA

year-over-year. Excluding transition costs in the first quarters of

, 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

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."

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, 2015 (a)

Y/Y Change

Footprint (b)

Estimated Video Passings



Estimated Internet Passings



Estimated Voice Passings



Penetration Statistics (c)

Video Penetration of Estimated Video Passings

Internet Penetration of Estimated Internet Passings

3.7 ppts

Voice Penetration of Estimated Voice Passings

1.4 ppts

Customer Relationships (d)

Small and Medium Business

Total Customer Relationships

Primary Service Units ("PSU")



Quarterly Net Additions/(Losses)

Single Play (e)

Double Play (e)

Triple Play (e)

Single Play Penetration (f)

Double Play Penetration (f)

-0.2 ppts

Triple Play Penetration (f)

% Residential Non-Video Customer Relationships

Monthly Residential Revenue per Residential Customer (g)



Small and Medium Business

Monthly Small and Medium Business Revenue per Customer (h)



Enterprise PSUs (i)


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.

NM - Not meaningful

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

During the

, Charter's residential customer relationships grew by



in the prior-year period. Residential PSUs increased by


versus a gain of


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

, 91% of Charter's residential customers received


Residential video customers increased by



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

, 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


residential Internet customers in the

, compared to


a year ago. As of

, 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.

quarter, the Company added

residential voice customers, versus a gain of


quarter residential revenue per customer relationship totaled

, and grew by

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.

, SMB customer relationships grew by

. SMB PSUs increased


. 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.

Quarter Financial Results




(dollars in millions, except per share data)

Three Months Ended March 31,

% Change


Residential revenue

Small and medium business

Commercial revenue

Advertising sales

Total Revenues


Total operating costs and expenses

Adjusted EBITDA margin

Capital Expenditures

% Total Revenues

Net loss

Loss per common share, basic and diluted

Net cash flows from operating activities

Free cash flow

revenues rose to

higher than the year-ago quarter, driven primarily by growth in Internet, video and commercial revenues.

Video revenues totaled

$1.2 billion

quarter, an increase of

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

compared to the year-ago quarter to

$804 million

, driven by an increase of


Internet customers during the last year, promotional rolloff and price adjustments.

Voice revenues totaled

$135 million

versus the

, due to the addition of


voice customers in the last twelve months, partially offset by value-based pricing.

Commercial revenues rose to

$301 million

over the prior-year period, and was driven by small and medium business revenue growth of

and enterprise revenue growth of

. Following the launch of new pricing and packaging for commercial customers, PSU growth has accelerated albeit at lower promotional pricing.

quarter advertising sales revenues of

$72 million

ago quarter primarily driven by an increase in political advertising revenue.

Operating Costs and Expenses

quarter total operating costs and expenses increased by

$85 million

, compared to the year-ago period, reflecting increases in programming costs, marketing costs and other expenses.

quarter programming expense increased by $

37 million

, as compared to the

, 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

. Excluding this programming expense benefit and the impact of video customer growth over the last twelve months, first quarter

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

, given improved service metrics. Other expenses grew by

$34 million

, 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

other expenses would have grown 13.4% versus the prior-year period.

quarter Adjusted EBITDA of

$883 million

year-over-year, reflecting revenue growth and operating costs and expenses growth of

, respectively. Excluding transition related

expenses, first quarter Adjusted EBITDA grew by 10.2% year-over-year.

Net Loss

Net loss totaled

$188 million

$81 million

. The year-over-year increase in net loss was primarily related to a

$165 million

increase in interest expense, driven by the financing of Charter's pending transactions with Time Warner Cable Inc. ("TWC") and Bright House Networks, LLC ("Bright House"), offset by higher income from operations and lower income tax expense. Basic and diluted loss per common share was

during the same period last year. The increase in loss per common share was primarily the result of the factors described above, partially offset by a

increase in weighted average shares outstanding versus the prior-year period.

Property, plant and equipment expenditures totaled

. The year-over-year increase in capital expenditures resulted from higher product development investments, transition capital expenditures related to Charter's planned and pending acquisitions and the timing of support capital investments versus the prior-year, partially offset by a decline in customer premise equipment ("CPE") spending. Transition-related capital expenditures accounted for

$53 million

of capital expenditures in the

$14 million

. Excluding transition-related expenditures,

property, plant and equipment expenditures totaled

$337 million

Cash Flow

, net cash flows from operating activities totaled

$424 million

$528 million

. The year-over-year decline in net cash flow from operating activities was primarily due to higher cash interest paid in the

versus the first quarter of

, driven by the financing of Charter's pending transactions with TWC and Bright House, partly offset by an

increase in Adjusted EBITDA year-over-year, and a smaller increase in working capital than in the prior-year period.

Free cash flow for the

totaled negative

$61 million

$101 million

during the same period last year. The decrease was primarily due to higher cash interest paid in the

, and the year-over-year increase in capital expenditures, partly offset by the factors described above.

Liquidity & Financing

, total principal amount of debt was approximately

$37.3 billion

, and Charter held

$21.8 billion

in proceeds from debt in escrow for Charter's pending transactions with TWC and Bright House. As of

, Charter's credit facilities provided approximately

of additional liquidity.

In February 2016, Charter issued $1.7 billion of 5.875% senior unsecured notes due 2024 (the "2024 Notes") and in April 2016, Charter issued $1.5 billion of 5.500% senior unsecured notes due 2026 (the "2026 Notes"). Charter intends to use the net proceeds from the issuance of the 2024 Notes and the 2026 Notes for one or more of the following: (i) to repurchase or redeem any of Charter’s outstanding 7.000% senior notes due 2019 and 7.375% senior notes due 2020 and pay any related fees and expenses, (ii) to repurchase or redeem all or a portion of Charter's outstanding 6.500% senior notes due 2021 and pay related fees and expenses and (iii) for general corporate purposes. Any redemption or repurchase of Charter's outstanding 6.500% senior notes due 2021 would not take place until after the Company determines the amount, if any, of the incremental cash proceeds to TWC stockholders if they were to elect $115 per share in cash rather than $100 per share in connection with the previously announced transaction with TWC.

Conference Call

Charter will host a conference call on Thursday,

at 10:00 a.m. Eastern Time (ET) related to the contents of this release.

The conference call will be webcast live via the Company's investor relations website at

. 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 73914494.

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 12, 2016. The conference ID code for the replay is 73914494.

Additional Information Available on Website

The information in this press release should be read in conjunction with the financial statements and footnotes contained in the Company's Form 10-Q for the quarter ended

which will be posted on the “Financial Information” section of our investor relations website at

, when it is filed with the United States Securities and Exchange Commission. 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 Non-GAAP Financial Metrics

The Company uses certain measures that are not defined by Generally Accepted Accounting Principles (“GAAP”) to evaluate various aspects of its business. Adjusted EBITDA and free cash flow are non-GAAP financial measures and should be considered in addition to, not as a substitute for, net loss or cash flows from operating activities reported in accordance with GAAP. These terms, as defined by Charter, may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA is reconciled to net loss and free cash flow is reconciled to net cash flows from operating activities in the addendum of this news release.

Adjusted EBITDA is defined as net loss plus net interest expense, income taxes, depreciation and amortization, stock compensation expense, loss on extinguishment of debt, loss on derivative instruments, net, other expense, net and other operating expenses, such as merger and acquisition 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 purchases of property, plant and equipment and changes in accrued expenses related to capital expenditures.

Management and the Company's board of directors use Adjusted EBITDA and free cash flow to assess Charter's performance and its ability to service its debt, fund operations and make additional investments with internally generated funds. In addition, Adjusted EBITDA generally correlates to the leverage ratio calculation under the Company's credit facilities or outstanding notes to determine compliance with the covenants contained in the credit facilities and notes (all such documents have been previously filed with the United States Securities and Exchange Commission). For the purpose of calculating compliance with leverage covenants, we use Adjusted EBITDA, as presented, excluding certain expenses paid by our

operating subsidiaries to other Charter entities. Our debt covenants refer to these expenses as management fees which fees were in the amount of

$102 million

$76 million

for the three months ended

About Charter

Charter (NASDAQ: CHTR) is a leading broadband communications company and the fourth-largest cable operator in the United States. Charter provides a full range of advanced broadband services, including Spectrum TV™ video entertainment programming, Spectrum Internet™ access, and Spectrum Voice™. Spectrum Business™ similarly provides scalable, tailored, and cost-effective broadband communications solutions to business organizations, such as business-to-business Internet access, data networking, business telephone, video and music entertainment services, and wireless backhaul. Charter's advertising sales and production services are sold under the Spectrum Reach™ brand. More information about Charter can be found at




Justin Venech

Stefan Anninger




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 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”, “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, our definitive proxy statement filed with the SEC on August 20, 2015, and other reports or documents that we file from time to time with the SEC, and include, but are not limited to:

Risks Related to the TWC Transaction and Bright House Transaction (collectively, the “Transactions”)

delays in the completion of the Transactions;

the risk that a condition to completion of the Transactions may not be satisfied;

the risk that regulatory or other approvals that may be required for the Transactions is delayed, is not obtained or is obtained subject to material conditions that are not anticipated;

New Charter’s ability to achieve the synergies and value creation contemplated by the Transactions;

New Charter’s ability to promptly, efficiently and effectively integrate acquired operations into its own operations;

managing a significantly larger company than before the completion of the Transactions;

diversion of management time on issues related to the Transactions;

changes in Charter’s, TWC’s or Bright House’s businesses, future cash requirements, capital requirements, results of operations, revenues, financial condition and/or cash flows;

disruption in the existing business relationships of Charter, TWC and Bright House as a result of the Transactions;

the increase in indebtedness as a result of the Transactions, which will increase interest expense and may decrease Charter’s operating flexibility;

changes in transaction costs, the amount of fees paid to financial advisors, potential termination fees and the potential payments to TWC’s and Bright House's executive officers in connection with the Transactions;

operating costs and business disruption that may be greater than expected; and

the ability to retain and hire key personnel and maintain relationships with providers or other business partners pending completion of the Transactions.

Risks Related to Our Business

our ability to sustain and grow revenues and cash flow from operations by offering video, Internet, voice, advertising and other services to residential and commercial customers, to adequately meet the customer experience demands in our markets and to maintain and grow our customer base, particularly in the face of increasingly aggressive competition, the need for innovation and the related capital expenditures;

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, video provided over the Internet 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);

the development and deployment of new products and technologies including our cloud-based user interface, Spectrum Guide®, and downloadable security for set-top boxes;

the effects of governmental regulation on our business or potential business combination transactions;

any events that disrupt our networks, information systems or properties and impair our operating activities and negatively impact our reputation;

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 release.


Franchises, regulatory and connectivity


Transition costs

Total operating costs and expenses (exclusive of items shown separately below)

Depreciation and amortization

Stock compensation expense

Other operating expenses, net

Income from operations


Interest expense, net

Loss on derivative instruments, net

Other expense, net

Loss before income taxes

Income tax expense


Weighted average common shares outstanding, basic and diluted



Adjusted EBITDA is a non-GAAP term. See page 6 of this addendum for the reconciliation of adjusted EBITDA to net loss as defined by GAAP.

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

Addendum to Charter Communications, Inc. First Quarter 2016 Earnings Release


(dollars in millions)

December 31,



Cash and cash equivalents

Accounts receivable, net

Prepaid expenses and other current assets

Total current assets





Property, plant and equipment, net

Customer relationships, net


Total investment in cable properties, net




Total assets





Accounts payable and accrued liabilities

Total current liabilities






Total liabilities and shareholders’ deficit



Adjustments to reconcile net loss to net cash flows from operating activities:

Noncash interest expense

Deferred income taxes

Other, net

Changes in operating assets and liabilities, net of effects from acquisitions:

Prepaid expenses and other assets

Accounts payable, accrued liabilities and other


Purchases of property, plant and equipment

Change in accrued expenses related to capital expenditures

Change in restricted cash and cash equivalents

Net cash flows from investing activities


Borrowings of long-term debt

Repayments of long-term debt

Payments for debt issuance costs

Purchase of treasury stock

Proceeds from exercise of options and warrants

Net cash flows from financing activities


CASH AND CASH EQUIVALENTS, beginning of period




(in thousands, except per customer and penetration data)

December 31, 2015 (a)







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

See footnotes to unaudited summary of operating statistics on page 5 of this addendum.

We calculate the aging of customer accounts based on the monthly billing cycle for each account. On that basis, at March 31, 2016, December 31, 2015 and March 31, 2015, customers include approximately 27,900, 38,100 and 27,700 customers, respectively, whose accounts were over 60 days, approximately 1,100, 1,700 and 900 customers, respectively, whose accounts were over 90 days and approximately 900, 900 and 700 customers, respectively, whose accounts were over 120 days.

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.

Penetration represents residential and small and medium business customers as a percentage of estimated passings for the service indicated.

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. Small and medium business customers are counted based on the number of customer locations. Total customer relationships excludes enterprise customer relationships.

Single play, double play and triple play customers represent customers that subscribe to one, two or three of Charter service offerings, respectively.

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.

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.

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.

Enterprise PSUs represents the aggregate number of Charter's fiber service offerings counting each separate service offering at each customer location as an individual PSU.



Plus: Interest expense, net

Adjusted EBITDA (a)

Less: Purchases of property, plant and equipment

Adjusted EBITDA less capital expenditures

(a) See page 1 of this addendum for detail of the components included within adjusted EBITDA.

The above schedules are presented in order to reconcile adjusted EBITDA and free cash flows, both non-GAAP measures, to the most directly comparable GAAP measures in accordance with Section 401(b) of the Sarbanes-Oxley Act.


Customer premise equipment (a)

Scalable infrastructure (b)

Line extensions (c)

Upgrade/Rebuild (d)

Support capital (e)

Total capital expenditures (f)

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).

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).

Line extensions include network costs associated with entering new service areas (e.g., fiber/coaxial cable, amplifiers, electronic equipment, make-ready and design engineering).

Upgrade/rebuild includes costs to modify or replace existing fiber/coaxial cable networks, including betterments.

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).

Total capital expenditures for the

include the following (dollars in millions):

Commercial services

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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Other recent filings from the company include the following:

Quarterly report [Sections 13 or 15(d)] - April 28, 2016
Charter Communications's President and CEO was just granted 2,000,000 options and restricted shares - April 27, 2016
Charter Closes $1.5 Billion Senior Unsecured Notes - April 27, 2016
Charter: Form, Schedule Or Registration Statement No Filing Party: Date Filed: Charter Communications, Inc. - April 12, 2016