charter communications 3Q_2008_Earnings_Presentation_vFINAL

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  • 1. Charter Communications Third Quarter 2008 Earnings Call November 6, 2008 1
  • 2. Cautionary Statement Regarding Forward Looking Statements CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS: This presentation 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 quot;Risk Factorsquot; from time to time in our filings with the Securities and Exchange Commission (“SEC”). Many of the forward-looking statements contained in this presentation may be identified by the use of forward-looking words such as quot;believe,quot; quot;expect,quot; quot;anticipate,quot; quot;should,quot; quot;planned,quot; quot;will,quot; quot;may,quot; quot;intend,quot; quot;estimated,quot; quot;aim,quot; quot;on track,quot; quot;target,quot; quot;opportunity,quot; and quot;potential,quot; among others. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this presentation are set forth in other reports or documents that we file from time to time with the SEC, and include, but are not limited to: •the availability, in general, of funds to meet interest payment obligations under our debt and to fund our operations and necessary capital expenditures, either through cash flows from operating activities, further borrowings or other sources and, in particular, our ability to fund debt obligations (by dividend, investment or otherwise) to the applicable obligor of such debt; •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; •our ability to repay debt prior to or when it becomes due and/or successfully access the capital or credit markets to refinance that debt through new issuances, exchange offers or otherwise, including restructuring our balance sheet and leverage position, especially given recent volatility and disruption in the capital and credit markets; •the impact of competition from other distributors, including incumbent telephone companies, direct broadcast satellite operators, wireless broadband providers, and digital subscriber line (“DSL”) providers; •difficulties in growing, further introducing, and operating our telephone services, while adequately meeting customer expectations for the reliability of voice services; •our ability to adequately meet demand for installations and customer service; •our ability to sustain and grow revenues and cash flows from operating activities by offering video, high-speed Internet, telephone and other services, and to maintain and grow our customer base, particularly in the face of increasingly aggressive competition; •our ability to obtain programming at reasonable prices or to adequately raise prices to offset the effects of higher programming costs; •general business conditions, economic uncertainty or downturn, including the recent volatility and disruption in the capital and credit markets and the significant downturn in the housing sector and overall economy; and •the effects of governmental regulation on our business. 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 presentation. Unless otherwise stated, all results are pro forma, which reflect certain sales and acquisitions of cable systems in 2006, 2007, and 2008 as if they had occurred on January 1, 2006. For comparable actual results for 2007, see the Appendix to these slides. 2
  • 3. Consistent Priorities Generating Results 3Q08 Highlights Increase sales of 11% ARPU growth from bundling, upselling, & advanced services 205K RGU net adds; up 53% y/y products & 52% bundle penetration, up from 45% in 3Q07 services Enhancing products to improve customer lifetime value HD customers up nearly 50% y/y Improve customer Majority of HSI net gain was on higher speed tiers experience Improving service levels on all key fronts Diversifying product mix to higher margin HSI and phone Drive operating & Scaling operating infrastructure; phone COGS / sub down ~35% capital 79% of capex success based effectiveness 8% revenue growth Deliver solid 11% adjusted EBITDA1 growth financial growth 34.4% adjusted EBITDA1 margin – up 90bp over prior year 1. See notes on slide 12 3
  • 4. Growing Bundled Relationships Bundled Customers (Customers in thousands) +12% y/y 2,718 Value of home entertainment in a bundle 2,433 plays well in today’s economy Triple Play Customers Bundled customers up 12% y/y Triple play penetration 19%, up from 12% in year ago period Double Play Customers Triple play ARPU consistent at $125 - $130 3Q07 3Q08 Bundle continues to provide retention Bundle benefits 45% 52% Pen. 3-Play $125 - $130 $125 - $130 ARPU Leveraging Bundle to Drive Performance 4
  • 5. Investing in Success Based Initiatives Capital Spending ($ in millions) 79% of capex in 3Q was success based $311 $288 CPE represented 55% of capex Continue to invest in new growth opportunities Charter Business Deploying technologies to maximize 3Q07 3Q08 bandwidth capacity Customer Premise Equipment Scalable Infrastructure Increasing Internet speeds and Line Extensions Upgrade/Rebuild launching DOCSIS 3.0 in next Support Capital couple months Success 74% 79% Based 2008 capital expected to be $1.2 billion % of 20.5% 17.6% Revenue Disciplined approach to capital investments 5
  • 6. 3Q08 Financial Performance 3Q08 Highlights Revenue Summary 3Q Y/Y YTD Y/Y Revenue growth 8% y/y ($ millions) 3Q08 Growth YTD 08 Growth Video $867 3% $2,599 3% RGUs up 7% y/y and ARPU High-Speed Internet increased 11% y/y 342 8% 1,009 10% Telephone 144 55% 399 69% Telephone and HSI Commercial 100 16% 289 16% contributed to 65% of revenue Ad Sales 80 4% 223 4% growth Other 103 -2% 304 7% Charter Business continued Total Revenues 1,636 8% $4,823 9% strong revenue growth Operating Costs and Expenses 1,073 6% 3,124 8% Margin up 90bp year-over- year from bundle growth, 1 $563 11% $1,699 11% Adj EBITDA scaling the infrastructure, and shift in product mix 1 Adj EBITDA Margin 34.4% 0.9% 35.2% 0.4% 6 1. See notes on slide 12
  • 7. Upselling Video Customers Bundled Video Mix (Residential) Single Double Triple 3Q08 Highlights 100% Success in moving customers to 75% digital tier 50% Video bundled households up 11% 25% y/y 0% 62K digital net adds, up nearly four- 3Q06 3Q07 3Q08 fold from 3Q07 Digital penetration now 61%, up from Video Customer Mix 54% a year ago Basic Only Digital Video ARPU up nearly 7% y/y: 100% HD customers up nearly 50% y/y 75% VOD orders up nearly 60% y/y 50% 25% 0% 3Q06 3Q07 3Q08 7
  • 8. Growing HSI HSI Customers (Customers in thousands) 2,858 3Q08 Highlights +9% y/y 2,632 HSI customers up 9% y/y 71K net adds, up 32% y/y HSI ARPU essentially flat y/y at $40.53 Continue to see demand for premium 3Q07 3Q08 services HSI Net Adds Majority of HSI net gain was higher speeds (Customers in thousands) 71 +32% Home networking net adds up 68% y/y y/y 54 3Q07 3Q08 8
  • 9. Leveraging Telephone to Drive Bundle Telephone Customers (Customers in thousands) 3Q08 Highlights 1,274 +59% y/y Strong customer and revenue growth 804 Telephone penetration at 12% of 10.2 million homes passed Telephone launches essentially complete Phone available to 86% of footprint 3Q07 3Q08 Phone Pen Telephone COGS per customer down 10% 12% (mkt HH) ~35% y/y Telephone Revenue Expect to reach 20-25% penetration in next few years $144 ($ in millions) +55% y/y $93 9 3Q07 3Q08
  • 10. Solid Momentum at Charter Business 3Q08 Highlights Charter Business Revenue Charter Business revenue up 16% y/y ($ in millions) +16% y/y 169K commercial customers at Sep 30; +13% $100 y/y up 10% y/y $86 Commercial telephone customers have $76 increased 133% year to date Strong bundle sell-in for new customers $5.5B market opportunity on-network or within 600ft of network 3Q06 3Q07 3Q08 10
  • 11. Delivering Value to Customers RGUs Total ARPU (Customers in thousands) +11% y/y +7% y/y $106 12,387 12,083 $100 $95 11,581 3Q07 1Q08 3Q08 3Q07 1Q08 3Q08 Revenue Adjusted EBITDA1 ($ in millions) ($ in millions) +8% y/y +11% y/y $1,636 $563 $545 $1,564 $1,517 $508 3Q07 1Q08 3Q08 3Q07 1Q08 3Q08 11 1. See notes on slide 12
  • 12. Footnotes Unless otherwise stated, all results are pro forma, which reflect certain sales and acquisitions of cable systems in 2006, 2007, and 2008 as if they had occurred on January 1, 2006. For comparable actual results for 2007, see the Appendix to these slides. 1 Adjusted EBITDA and pro forma adjusted EBITDA are non-GAAP financial measures and should be considered in addition to, not as a substitute for, 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 is defined as income from operations before depreciation and amortization, impairment charges, stock compensation expense, and other operating expenses such as special charges or 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 non-recurring items, and is unaffected by the Company’s capital structure or investment activities. Adjusted EBITDA and pro forma adjusted EBITDA are liquidity measures used by Company management and its board of directors to measure the Company’s ability to fund operations and its financing obligations. For this reason, it is a significant component of Charter’s annual incentive compensation program. 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 for the Company. Company management evaluates these costs through other financial measures. The Company believes that adjusted EBITDA and pro forma adjusted EBITDA provide information useful to investors in assessing Charter’s 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 SEC). Adjusted EBITDA and pro forma adjusted EBITDA, as presented, include management fee expenses in the amount of $33 and $32 million for each of the three months ended September 30, 2008 and 2007, respectively, which expense amounts are excluded for the purposes of calculating compliance with leverage covenants. For a reconciliation of pro forma adjusted EBITDA and adjusted EBITDA to the most directly comparable GAAP financial measure, see the Appendix. 12
  • 13. Appendix 13
  • 14. CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES UNAUDITED RECONCILIATION OF NON-GAAP MEASURES TO GAAP MEASURES (DOLLARS IN MILLIONS) Three Months Three Months Ended September 30, Ended March 31, 2008 2007 2007 2008 Actual Actual Pro Forma (a) Actual Net cash flows from operating activities $ 242 $ 209 $ 207 $ 204 Less: Purchases of property, plant and equipment (288) (311) (311) (334) Less: Change in accrued expenses related to capital expenditures - (12) (12) (31) Free cash flow (46) (114) (116) (161) Interest on cash pay obligations (b) 462 449 449 452 Purchases of property, plant and equipment 288 311 311 334 Change in accrued expenses related to capital expenditures - 12 12 31 Other, net 13 6 6 10 Change in operating assets and liabilities (154) (154) (154) (121) Adjusted EBITDA $ 563 $ 510 $ 508 $ 545 (a) Pro forma results reflect certain sales and acquisitions of cable systems in 2007 as if they occurred as of January 1, 2007. (b) Interest on cash pay obligations excludes accretion of original issue discounts on certain debt securities and amortization of deferred financing costs that are reflected as interest expense in our consolidated statements of operations. 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.
  • 15. Revenue Summary - Actual ($ millions) 3Q Y/Y YTD Y/Y 3Q08 Growth YTD08 Growth Video $ 867 2.6% $ 2,599 2.2% High-Speed Internet 342 7.5% 1,009 9.7% Telephone 144 53.2% 399 69.1% Commercial 100 14.9% 289 15.1% Advertising sales 80 3.9% 223 3.2% Other 103 -1.0% 304 7.0% Total Revenues $ 1,636 7.3% $ 4,823 8.4% Operating Costs and Expenses 1,073 5.7% 3,124 7.6% Adjusted EBITDA $ 563 10.4% $ 1,699 9.9%