Business News

Charter Reports Fourth Quarter and Full Year 2010 Financial and Operating Results

Wednesday 02. March 2011 - Actively investing in customer experience and product offerings to optimize infrastructure and enhance growth opportunities

Charter Communications, Inc. (along with its subsidiaries, the “Company” or “Charter”) today reported financial and operating results for the three months and year ended December 31, 2010.
Key highlights:
— Compared with the prior year, revenues for the quarter ended December
31, 2010 grew 5.2% on a pro forma(1) basis and 4.3% on an actual basis.
Revenues for the year ended December 31, 2010 increased 4.8% on a pro
forma(1) basis and 4.5% on an actual basis.
— Fourth quarter adjusted EBITDA(2) grew 8.6% year-over-year on a pro
forma basis and 8.1% on an actual basis. Net income attributable to
Charter shareholders declined to a loss of $70 million in the fourth
quarter of 2010 on a pro forma basis and $85 million on an actual basis.
Adjusted EBITDA for 2010 increased to 4.5% on a pro forma basis and 4.3%
on an actual basis. Net income attributable to Charter shareholders
declined to a loss of $230 million for 2010 on a pro forma basis and
$237 million on an actual basis.
— Total average monthly revenue per basic video customer (ARPU) for the
quarter increased 10.3% to $130.28 driven by an increase in bundle
penetration, growth in our commercial and ad sales businesses and
advanced services.
— Free cash flow(2) for the quarter ended December 31, 2010 was $243
million and cash flows from operating activities were $489 million. For
the year ended December 31, 2010, free cash flow was $710 million and
cash flows from operating activities were $1.911 billion.
— Charter continued to extend maturities and further balance its maturity
profile in January with the issuance of $1.4 billion of 7.0% CCO
Holdings, LLC Senior Notes due 2019 with proceeds used to repay
borrowings under Charter Communications Operating, LLC’s credit
facilities.
(1) Pro forma results are described below 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 consolidated net income (loss) and net cash flows from operating activities, respectively, in the addendum of this news release.
“Our improved financial position and generation of free cash flow in 2010 has allowed us to invest in our strategic priorities to improve the customer experience and grow the commercial business,” said Mike Lovett, President and Chief Executive Officer. “We are pleased with the progress we made on those initiatives in 2010 and expect that by the end of 2011 our roll out of switched digital video and DOCSIS 3.0 will be substantially complete. Our commercial capabilities continue to grow and we are leveraging our network for the next generation of television along with the recent TiVo announcement as a first step to bring an enhanced entertainment experience to our customers.”
Key Operating Results
All of the following customer and ARPU statistics are presented on a pro forma basis. Charter served approximately 12.8 million RGUs as of December 31, 2010, an increase of 325,000 RGUs, or about 2.6%, over the prior year. We added 14,400 RGUs in the fourth quarter of 2010, a reflection of our approach to customer acquisition focusing on the customer lifetime value, relying on the value of our bundled services rather than deep discounting. Approximately 61% of Charter’s residential customers subscribe to a bundle, compared to 57% a year ago. Charter’s ARPU for the fourth quarter of 2010 was $130.28; an increase of 10.3% compared to fourth quarter 2009, primarily as a result of increases in our bundle penetration along with growth in our commercial and ad sales businesses and advanced services.
Fourth quarter 2010 customer highlights included the following:
— Digital video customers increased by approximately 19,200 and basic
video customers decreased by approximately 67,300 during the fourth
quarter. Video ARPU was $70.39 for the fourth quarter of 2010, up 5.9%
year-over-year as a result of increases in premium revenue and higher
digital, high definition and digital video recorder (DVR) penetration.
— Internet customers grew by approximately 31,700 during the fourth
quarter of 2010, reflecting continued consumer demand for superior
speeds offered by Charter compared to DSL. Internet ARPU of $41.72
increased approximately 0.6% compared to the year-ago quarter,
reflecting increased penetration of home networking.
— Fourth quarter 2010 net gains of phone customers were approximately
30,800. Phone penetration reached 16.3% as of December 31, 2010. Phone
ARPU of $41.29 decreased approximately 2.9% year-over-year.
As of December 31, 2010, Charter served approximately 5.1 million customers, and the Company’s 12.8 million RGUs were comprised of 4.5 million basic video, 3.4 million digital video, 3.2 million Internet and 1.7 million residential phone customers.
Fourth Quarter Results
Fourth quarter 2010 pro forma revenues were $1.780 billion, up 5.2% compared to the year-ago quarter, as the Company continued to grow its residential, commercial and ad sales businesses. On an actual basis revenues grew 4.3% to $1.784 billion.
Fourth quarter 2010 pro forma video revenues were $910 million, or $913 million on an actual basis, essentially flat with the year-ago quarter, as we saw benefits from premium and advanced services revenue growth along with pricing and fee adjustments offset by a decline in basic video customers. Pro forma Internet revenues were $404 million, up 7.7% year-over-year on a pro forma basis and 7.1% on an actual basis primarily due to a larger customer base. Telephone revenues for the 2010 fourth quarter were $211 million, an 8.2% increase over fourth quarter 2009 on a pro forma and actual basis, as growth in the triple play bundle continues. Commercial service revenues rose to $129 million, a 12.2% pro forma increase year-over-year (11.2% actual increase), reflecting increases in small to medium business (SMB), mid-market and carrier customers. Advertising sales revenues were $85 million for the fourth quarter of 2010, a 25.0% pro forma increase (23.2% actual increase), compared to the fourth quarter of 2009, as we saw increases across all sectors in 2010, especially political and automotive.
Pro forma operating costs and expenses totaled $1.097 billion, an increase of 3.2% compared to the year-ago period (2.1% actual increase), primarily due to expenses related to our investment in the customer experience, scaling the commercial business, and increases in marketing and programming. Programming expenses increased as a result of annual rate increases and were offset by one-time impacts from favorable programming contract negotiations within the quarter.
Adjusted EBITDA on a pro forma basis for the fourth quarter of 2010 totaled $683 million, an increase of 8.6% compared to the year-ago period. Adjusted EBITDA grew 8.1% on an actual basis to $684 million. Pro Forma Adjusted EBITDA margin was 38.4% for the fourth quarter of 2010 compared to 37.2% pro forma adjusted EBITDA margin in the fourth quarter of 2009. Margin improved as a result of the growth in our higher margin Internet and phone businesses, combined with one-time programming benefits, offset by the investments to scale our commercial business for growth.
Charter reported $279 million of income from operations in the fourth quarter of 2010, compared to $977 million in the fourth quarter of 2009. The change in income from operations is primarily a result of the $691 million reduction of a previously recorded non-cash impairment charge in 2009 that did not recur in 2010.
Net loss attributable to Charter shareholders was $85 million in the fourth quarter of 2010, compared to income of $12.718 billion in the fourth quarter of 2009 which included approximately $12.5 billion of gains related to our emergence from bankruptcy and fresh start accounting adjustments. Charter reported net loss per common share of $0.75 in the fourth quarter of 2010.
Expenditures for property, plant and equipment for the fourth quarter of 2010 decreased to $261 million, compared to fourth quarter 2009 expenditures of $315 million, due to the timing of our strategic investments and lower customer connect volume.
Free cash flow for the fourth quarter of 2010 was $243 million, compared to negative free cash flow of $721 million in the same period last year, which included certain payments made upon emergence from bankruptcy. The improvement in free cash flow is primarily due to the elimination of these payments combined with adjusted EBITDA growth and lower interest costs.
Net cash flows from operating activities for the fourth quarter of 2010 were $489 million, compared to negative cash flows of $414 million in the fourth quarter of 2009.
Year to Date Results – Actual
Revenues for the year ended December 31, 2010 were $7.059 billion, up 4.5% year-over-year. Operating costs and expenses totaled $4.460 billion, an increase of 4.6% for the year ended December 31, 2010, compared to the year-ago period. Adjusted EBITDA for the year ended December 31, 2010 totaled $2.599 billion, an increase of 4.3% compared to the year-ago period.
Charter reported $1.024 billion of income from operations for the year ended December 31, 2010, compared to $979 million of loss from operations in 2009, which included $2.163 billion of non-cash franchise impairment charges.
Net loss attributable to Charter shareholders was $237 million for the year ended December 31, 2010, compared to net income of $11.366 billion for the year ended December 31, 2009, which included approximately $11.0 billion of gains related to our emergence from bankruptcy and application of fresh start accounting offset by reorganizational costs and losses from franchise impairment, all net of tax. Charter reported net loss per common share of $2.09 for the year ended December 31, 2010.
Expenditures for property, plant and equipment for the year ended December 31, 2010 were $1.209 billion, compared to $1.134 billion in the same period last year. Charter expects capital spending for 2011 to be between $1.3 billion and $1.4 billion, as we intend to invest in both our video and Internet platforms through deployment of switched digital video (“SDV”) and DOCSIS 3.0 to most of our footprint by year end 2011 and as we continue to invest in growth of our commercial business.
Free cash flow for the year ended December 31, 2010 was $710 million, compared to negative free cash flow of $550 million in the same period last year.
Net cash flows from operating activities for 2010 were $1.911 billion, compared to $594 million in 2009. The increase in cash flows from operating activities is primarily due to reduced cash paid for interest and reorganization costs combined with growth in adjusted EBITDA.
Total principal amount of debt was approximately $12.3 billion as of December 31, 2010. At the end of the fourth quarter, the Company had availability under its revolving credit facility of approximately $1.1 billion.
In January 2011, CCO Holdings and CCO Holdings Capital Corp. issued $1.4 billion in aggregate principal amount of 7.00% senior unsecured notes due 2019. The Company used the net proceeds from the sale of the notes to repay outstanding term loan borrowings under its subsidiary’s credit facilities.