CHTR Charter Communications Inc New

STAMFORD, Conn., April 30, 2019 /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, 2019.

Key highlights:

• First quarter total residential and SMB customer relationships increased 351,000, compared to 264,000 during the first quarter of 2018. As of March 31, 2019, Charter had 28.5 million total customer relationships and 53.5 million total PSUs.
• During the first quarter, Charter generated residential and SMB Internet net additions of 428,000, video net losses of 145,000 and wireline voice net losses of 99,000.
• Charter added 176,000 mobile lines in the first quarter, compared to 113,000 mobile line net additions in the fourth quarter of 2018. As of March 31, 2019, Charter served a total of 310,000 mobile lines.
• First quarter revenues of $11.2 billion grew 5.1%, as compared to the prior year period, driven by residential revenue growth of 4.2%, commercial revenue growth of 4.3% and mobile revenue of $140 million.
• First quarter Adjusted EBITDA¹ of $4.1 billion grew 4.2% year-over-year, while first quarter cable Adjusted EBITDA¹ of $4.2 billion grew 7.0% year-over-year.
• Net income attributable to Charter shareholders totaled $253 million in the first quarter, compared to $168 million during the same period last year. The year-over-year increase in net income attributable to Charter shareholders in the first quarter was primarily driven by higher Adjusted EBITDA.
• First quarter capital expenditures totaled $1.7 billion compared to $2.2 billion during the first quarter of 2018. First quarter capital expenditures included $88 million of mobile-related capital expenditures.
• Consolidated free cash flow for the first quarter of 2019 totaled $645 million, compared to negative free cash flow of $49 million during the same period last year. Cable free cash flow for the first quarter totaled $936 million, compared to negative cable free cash flow of $24 million during the same period last year.
• During the first quarter, Charter purchased approximately 2.9 million shares of Charter Class A common stock and Charter Communications Holdings, LLC ("Charter Holdings") common units for approximately $963 million.

"With the most customer-impacting elements of our integration behind us, we are now focused on growing our business. We are doing that by driving high quality subscriptions, reducing transactions and churn, and maintaining and creating product superiority with a value proposition that our competitors don't provide," said Tom Rutledge, Chairman and CEO of Charter Communications. "In the first quarter, we accelerated our customer relationship growth and grew our cable free cash flow by nearly $1 billion year-over-year. We are pleased with our progress and our operating model is designed to drive continuous improvement, and long-term growth, in a way that works for customers, our employees, the communities we serve, and our shareholders."

Key Operating Results

During the first quarter of 2019, Charter's residential customer relationships grew by 321,000, while first quarter 2018 residential customer relationships grew by 231,000. As of March 31, 2019, Charter had 26.6 million residential customer relationships and 50.0 million residential PSUs.

Charter added 398,000 residential Internet customers in the first quarter of 2019, versus first quarter 2018 Internet customer net additions of 334,000. As of March 31, 2019, Charter had 24.0 million residential Internet customers, with over 80% of those residential Internet customers subscribing to tiers that provided 100 Mbps or more of speed. Currently, 100 Mbps is the slowest speed offered to new Internet customers in 99% of Charter's footprint. Additionally, Charter has doubled minimum Internet speeds to 200 Mbps in a number of markets at no additional cost to new and existing Spectrum Internet customers.

Residential video customers decreased by 152,000 in the first quarter of 2019, while first quarter 2018 video customers decreased by 121,000. As of March 31, 2019, Charter had 16.0 million residential video customers.

During the first quarter of 2019, residential wireline voice customers declined by 120,000, while first quarter 2018 voice customers declined by 54,000. As of March 31, 2019, Charter had 10.0 million residential wireline voice customers.

First quarter 2019 residential revenue per residential customer (excluding mobile) totaled $112.47, and grew by 1.0% compared to the prior year period, as promotional rate step-ups and rate adjustments, were partly offset by continued single play Internet sell-in.

In September of 2018, Charter completed the full market launch of its Spectrum Mobile™ service to new and existing Spectrum Internet customers across its footprint. Spectrum Mobile runs on America's largest, most reliable LTE network and is 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 now including applicable fees and taxes. During the first quarter of 2019, Charter added 176,000 mobile lines, and as of March 31, 2019, Charter served a total of 310,000 mobile lines.

SMB customer relationships grew by 30,000 during the first quarter of 2019, compared to growth of 33,000 during the first quarter of 2018, and by 9.9% year-over-year. SMB PSUs increased 58,000, compared to 70,000 during the first quarter of 2018. As of March 31, 2019, Charter had 1.9 million SMB customer relationships and 3.2 million SMB PSUs. Enterprise PSUs grew by 5,000 during the first quarter of 2019 compared to growth of 8,000 during the first quarter of 2018. As of March 31, 2019, Charter had 253,000 enterprise PSUs.

First Quarter Financial Results

Revenue

First quarter revenues rose 5.1% year-over-year to $11.2 billion, driven by growth in Internet, mobile, video and commercial revenues. Excluding advertising revenue, which benefited from political spend in the first quarter of 2018 and mobile revenue, revenue grew 4.1% year-over-year.

Video revenues totaled $4.4 billion in the first quarter, an increase of 2.1% compared to the prior year period. Video revenue growth was driven by annual rate adjustments and promotional rolloff partly offset by a decline in video customers during the last year.

Internet revenues grew 8.6%, compared to the year-ago quarter, to $4.0 billion, driven by growth in Internet customers during the last year, promotional rolloff and rate adjustments.

Voice revenues totaled $504 million in the first quarter, a decrease of 9.4% compared to the first quarter of 2018, driven by value-based pricing and a decline in wireline voice customers over the last twelve months.

Commercial revenues rose to $1.6 billion, an increase of 4.3% over the prior year period, driven by SMB revenue growth of 5.0% and enterprise revenue growth of 3.4%. First quarter 2019 commercial revenue growth was lower than first quarter 2019 commercial customer relationship growth, given the migration of Legacy TWC and Legacy Bright House commercial customers to more attractively priced Spectrum pricing and packaging for both SMB and enterprise services.

First quarter advertising sales revenues of $345 million declined 3.1% compared to the year-ago quarter, driven by lower political revenue. First quarter mobile revenue totaled $140 million.

Operating Costs and Expenses

First quarter total operating costs and expenses increased by $387 million, or 5.7% year-over-year, and 2.0% when excluding first quarter mobile costs.

First quarter programming expense increased by $113 million, or 4.1% as compared to the first quarter of 2018, reflecting contractual programming increases and renewals, partly offset by lower video customers.

Regulatory, connectivity and produced content expenses increased by $28 million, or 5.0% year-over-year, primarily driven by higher regulatory and franchise pass-through fees and costs of video customer premise equipment ("CPE") sold to customers.

Costs to service customers decreased by $32 million, or 1.7% year-over-year, despite year-over-year residential and SMB customer growth of 3.8%. The year-over-year decrease in costs to service customers was primarily the result of a decline in bad debt and lower transactions per customer.

Marketing expenses decreased by $16 million, or 2.0% year-over-year.

Other expenses increased by $42 million, or 4.8% as compared to the first quarter of 2018 primarily driven by insurance and software costs.

In the first quarter of 2019, mobile costs totaled $260 million and were comprised of device costs, service and operating costs and launch costs.

Adjusted EBITDA

First quarter Adjusted EBITDA of $4.1 billion grew by 4.2% year-over-year, reflecting revenue growth and operating expense growth of 5.1% and 5.7%, respectively. First quarter cable Adjusted EBITDA grew by 7.0% year-over-year reflecting cable revenue growth and cable operating expense growth of 3.8% and 2.0%, respectively.

Net Income Attributable to Charter Shareholders

Net income attributable to Charter shareholders totaled $253 million in the first quarter of 2019, compared to $168 million in the first quarter of 2018. The year-over-year increase in net income attributable to Charter shareholders was primarily driven by higher Adjusted EBITDA, lower depreciation and amortization costs and lower merger and restructuring costs, partly offset by higher income tax expense, a non-cash impairment charge to an equity method investment and higher interest expense.

Net income per basic common share attributable to Charter shareholders totaled $1.13 in the first quarter of 2019 compared to $0.71 during the same period last year. The increase was primarily the result of the factors described above in addition to a 5.5% decrease in weighted average common shares outstanding versus the prior year period.

Capital Expenditures

Property, plant and equipment expenditures totaled $1.7 billion in the first quarter of 2019, compared to $2.2 billion during the first quarter of 2018, primarily driven by a decline in CPE and scalable infrastructure spending. The decrease in CPE spending was primarily driven by lower set-top box purchases given the completion of Charter's all-digital initiative in the fourth quarter of 2018 and a year-over-year decline in the pace of migration of Legacy TWC and Legacy Bright House customers to Spectrum pricing and packaging. The decrease in scalable infrastructure spending was primarily driven by the completion of the rollout of DOCSIS 3.1 technology. The increase in support capital was due to higher capital spending related to Spectrum Mobile, partly offset by a lower rate of insourcing and integration spend. First quarter capital expenditures included $88 million of mobile costs, of which $72 million were included in support capital.

We currently expect capital expenditures, excluding capital expenditures related to mobile, to be approximately $7 billion in 2019, versus $8.9 billion in 2018. Our expectation for lower capital expenditures in 2019 versus 2018, is primarily driven by our expectation for lower customer premise equipment spend with the completion of our all-digital conversion, lower scalable infrastructure spend with the completion of the rollout of DOCSIS 3.1 technology across our footprint and lower support capital spend with the substantial completion of the integration of Legacy TWC and Legacy Bright House.

Cash Flow and Free Cash Flow

During the first quarter of 2019, net cash flows from operating activities totaled $2.7 billion, consistent with net cash flows from operating activities in the prior year quarter, with higher Adjusted EBITDA, lower cash paid for interest and lower merger and restructuring charges offset by higher year-over-year usage of trade working capital.

Consolidated free cash flow for the first quarter of 2019 totaled $645 million, compared to negative free cash flow of $49 million during the same period last year. Cable free cash flow for the first quarter of 2019 totaled $936 million, compared to negative cable free cash flow of $24 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 a decline in capital expenditures versus the prior year quarter, partly offset by a decline in accrued capital expenditures.

Liquidity & Financing

As of March 31, 2019, total principal amount of debt was $73.4 billion. Charter's credit facilities provided approximately $4.6 billion of additional liquidity in excess of Charter's $1.5 billion cash position.

In January 2019, Charter Communications Operating, LLC ("CCO") and Charter Communications Operating Capital Corp. issued $1.25 billion of 5.050% senior secured notes due 2029 and $750 million of 5.750% senior secured notes due 2048 (collectively, the "Notes"). Charter used the net proceeds from the sale of the Notes for general corporate purposes, including funding buybacks of Class A common stock of Charter and/or common units of Charter Holdings and for repaying certain indebtedness, including repaying at maturity Time Warner Cable, LLC's 8.750% senior notes due 2019.

In January 2019, Charter Operating entered into an amendment to its Credit Agreement raising $1.7 billion of new term loan A-3 and increasing revolving loan capacity to $4.75 billion from $4.0 billion. In addition, the majority of term loan A-2 holders converted to term loan A-3 and essentially all revolver commitments were extended to 2024. The net proceeds were used for general corporate purposes, including funding buybacks of Charter Class A common stock and/or common units of Charter Holdings and for repaying certain indebtedness, including repaying at maturity Time Warner Cable, LLC's 8.250% senior notes due 2019.

Share Repurchases

During the three months ended March 31, 2019, Charter purchased approximately 2.9 million shares of Charter Class A common stock and Charter Holdings common units for approximately $963 million.

Conference Call

Charter will host a conference call on Tuesday, April 30, 2019 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 2391249.

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, 2019. The conference ID code for the replay is 2391249.

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, 2019, 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, consolidated net income 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 consolidated net income 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, 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 $300 million and $273 million for the three months ended March 31, 2019 and 2018, 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 provide the handset or tablet to customers pursuant to equipment installment plans.

About Charter

Charter Communications, Inc. (NASDAQ:CHTR) is a leading broadband communications company and the second largest cable operator in the United States. Charter provides a full range of advanced residential broadband services, including Spectrum TV^® programming, Spectrum Internet^®, Spectrum Voice^®, and Spectrum Mobile™. Under the Spectrum Business^® brand, Charter provides scalable, and cost-effective broadband communications solutions to small and medium-sized business organizations, including Internet access, business telephone, and TV services. Through the Spectrum Enterprise brand, Charter is a national provider of scalable, fiber-based technology solutions serving many of America's largest businesses and communications service providers. Charter's advertising sales and production services are sold under the Spectrum Reach^® brand. Charter's news and sports networks are operated under the Spectrum Networks brand. More information about Charter can be found at newsroom.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" 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:

• our ability to sustain and grow revenues and cash flow from operations by offering video, Internet, 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, video provided over the Internet by (i) market participants that have not historically competed in the multichannel video business, (ii) traditional multichannel video distributors, and (iii) content providers that have historically licensed cable networks to multichannel video distributors, and providers of advertising over the Internet;
• our ability to efficiently and effectively integrate acquired operations;
• 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, 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);
• 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 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.

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SOURCE Charter Communications, Inc.