Business News

Charter Reports First Quarter 2011 Financial and Operating Results

Tuesday 03. May 2011 - Strong focus on bundling opportunities, disciplined investments and enhancing the customer experience

Charter Communications, Inc. (along with its subsidiaries, the “Company” or “Charter”) today reported financial and operating results for the three months ended March 31, 2011.
Key highlights:
— Compared with the prior year, revenues for the quarter ended March 31,
2011 grew 3.1% on a pro forma (1) basis and 2.0% on an actual basis, led
by pro forma growth of 17.1% in our commercial business and 5.1% in
Internet revenues.
— First quarter adjusted EBITDA (2) grew 4.7% year-over-year on a pro
forma basis and 4.1% on an actual basis. Net income declined to a loss
of $110 million in the first quarter of 2011.
— Total average monthly revenue per basic video customer (ARPU) for the
quarter increased 8.2% year-over-year to $131.01, driven by an increase
in bundle and advanced video service penetration, along with growth in
our commercial business.
— Free cash flow (2) for the quarter ended March 31, 2011 was $72 million
and cash flows from operating activities were $447 million.
— Residential customer relationships increased by approximately 22,000 in
the first quarter of 2011 and non-video customer relationships increased
nearly 50,000 for the quarter and 23.5% year-over-year.
(1) Pro forma results are described in the “Use of Non-GAAP Financial Metrics” section and are provided in the addendum of this news release.
(2) Adjusted EBITDA and free cash flow are defined in the “Use of Non-GAAP Financial Metrics” section and are reconciled to net income (loss) and net cash flows from operating activities, respectively, in the addendum of this news release.
“I’m pleased to report solid first quarter results for 2011,” said Mike Lovett, President and Chief Executive Officer. “Our first quarter performance was driven by the acceleration of growth in our commercial business, discipline around customer acquisition, and continued strength in our high-speed Internet business driving higher customer relationships. We are continuing to make investments in the customer experience, brand and residential and commercial platform, further increasing the value of our bundles and simplifying the ways our customers engage with us and our products.”
Key Operating Results
All of the following customer and ARPU statistics are presented on a pro forma basis. As of March 31, 2011, Charter served approximately 5.2 million residential and commercial customers, and the Company’s 9.3 million residential primary service units (PSUs) were comprised of 4.3 million video, 3.3 million Internet and 1.7 million phone residential customers. PSUs increased 86,800 in the first quarter of 2011. Residential customer relationships grew by 21,900 in the first quarter of 2011. Approximately 61.4% of Charter’s residential customers subscribe to a bundle, compared to 58.5% a year ago. Commercial PSUs increased approximately 9,600 in the first quarter to 440,700 and are up 8.2% over the first quarter of 2010. Charter’s total ARPU for the first quarter of 2011 was $131.01; an increase of 8.2% compared to first quarter 2010, primarily as a result of increased bundle and advanced services penetration along with growth in our commercial and ad sales businesses.
First quarter 2011 residential customer highlights included the following:
— Video ARPU was $71.01 for the first quarter of 2011, up 4.3%
year-over-year as a result of increases in premium revenue and higher
digital, high definition (HD) and digital video recorder (DVR)
penetration. Video customers decreased by approximately 25,100 customers
in the quarter, while digital video customers increased by 28,400.
Digital penetration reached 75.4% with 54.0% of our digital customers
taking HD and/or DVR services.
— Internet customers grew by approximately 87,900 during the first quarter
of 2011, reflecting continued consumer demand for superior speeds
offered by Charter compared to DSL. Internet ARPU of $41.77 decreased
approximately 1.2% compared to the year-ago quarter.
— First quarter 2011 net gains of phone customers were approximately
24,000 with phone penetration at 16.3% as of March 31, 2011. Phone ARPU
of $40.97 decreased approximately 1.7% year-over-year.
First Quarter Results
First quarter 2011 revenues were $1.770 billion, up 3.1% compared to the year-ago quarter on a pro forma basis and 2.0% on an actual basis, as the Company continues to grow its commercial, Internet and phone businesses and increase sales of bundled services.
First quarter 2011 video revenues were $908 million, a decrease of 0.7% compared to the year ago quarter on a pro forma basis and down 1.9% on an actual basis as a result of a decline in basic video customers, offset by growth in advanced service revenues and pricing and fee adjustments. Internet revenues were $412 million, up 5.1% year-over-year on a pro forma basis and 4.3% on an actual basis primarily due to a larger customer base. Telephone revenues for the 2011 first quarter were $212 million, a 7.1% increase over first quarter 2010 on a pro forma and actual basis, as growth in the triple play bundle continues. Commercial service revenues rose to $137 million, a 17.1% pro forma increase year-over-year (16.1% actual increase), reflecting increases in small to medium business, carrier and large business customers. Advertising sales revenues were $62 million for the first quarter of 2011, a 6.9% pro forma increase (5.1% actual increase), compared to the first quarter of 2010, primarily from growth in the automotive sector.
Operating costs and expenses totaled $1.107 billion, an increase of 2.1% compared to the year-ago period on a pro forma basis (0.8% actual increase), primarily due to increases in programming, marketing and labor costs related to our investments to enhance the overall customer experience and scaling the commercial business. Programming expenses increased as a result of contractual programming increases offset by customer losses and marketing expenditures increased due to new brand and acquisition campaigns.
Adjusted EBITDA for the first quarter of 2011 was $663 million, an increase of 4.7% on a pro forma basis (4.1% actual increase) compared to the year-ago period. Adjusted EBITDA margin improved to 37.5% for the first quarter of 2011 compared to 36.9% pro forma adjusted EBITDA margin in the first quarter of 2010 (36.7% actual adjusted EBITDA margin). Margin increased, benefitting from our customer acquisition and retention strategies and focus on customer lifetime value, combined with disciplined expense management, and was partially offset by investments in both brand-focused marketing and scaling of our commercial business for growth.
Charter reported $269 million of income from operations in the first quarter of 2011, compared to $251 million in the first quarter of 2010. The increase in income from operations is primarily a result of increased sales of our bundled services offset by an increase in depreciation and amortization related to capital expenditures.
Net loss was $110 million in the first quarter of 2011, compared to income of $24 million in the first quarter of 2010. The change was a result of a $67 million non-cash loss on extinguishment of debt in 2011 and a nonrecurring tax benefit of $69 million in the first quarter of 2010. Charter reported net loss per common share of $0.97 in the first quarter of 2011 compared to earnings of $0.21 during the same period last quarter.
Expenditures for property, plant and equipment for the first quarter of 2011 increased to $356 million, compared to first quarter 2010 expenditures of $310 million, due to continued investments in our Internet and video platforms to improve the customer experience along with growth and infrastructure investments to broaden our commercial business solutions. Our estimate for capital expenditures for 2011 remains approximately $1.3 billion to $1.4 billion.
Free cash flow for the first quarter of 2011 was $72 million, compared to $203 million in the same period last year on a pro forma basis ($205 million actual). The decrease in free cash flow was primarily due to working capital changes that provided $74 million less cash during the same period of 2011, an increase of $50 million in cash paid for interest primarily related to the timing of bond interest payments, and an increase of $46 million in capital expenditure from the acceleration and timing of strategic investments reduced by an increase in adjusted EBITDA. The $74 million reduction in cash provided from changes in working capital is driven by one-time benefits in the first quarter of 2010 post emergence from bankruptcy along with timing of payments in the first quarter of 2011.
Net cash flows from operating activities were $447 million, compared to $530 million in the first quarter of 2010 driven by the same working capital and interest items discussed above.