charter communications 4Q2007_Earnings_Presentation_vFINAL
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charter communications 4Q2007_Earnings_Presentation_vFINAL charter communications 4Q2007_Earnings_Presentation_vFINAL Presentation Transcript

  • Charter Communications 4Q and Full Year 2007 Earnings Call February 27, 2008 1
  • 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;opportunityquot; 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 pay or refinance debt prior to or when it becomes due and/or refinance that debt through new issuances, exchange offers or otherwise, including restructuring our balance sheet and leverage position; • 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 slowdown, including the recent significant slowdown in the new 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 of our sales and acquisition of certain assets in 2006 and 2007 as if they had occurred as of January 1, 2006. For comparable actual results, see the Appendix to these slides. 2
  • Continuing Momentum Consistent Revenue and Adjusted EBITDA1 Growth 13.6% Fifth consecutive quarter of year 12.6% over year double-digit growth 11.7% 11.3% 11.1% 11.0% 10.7% 10.6% 10.4% 10.3% Balancing price and volume ARPU increased 13% in 4Q Y/Y RGU net adds grew 20% in 4Q Y/Y Drive bundled penetration Bundled penetration of 47% 7.5% annualized phone penetration rate in 4Q 4Q06 1Q07 2Q07 3Q07 4Q07 Revenue Adjusted EBITDA Disciplined strategies generated consistent results See notes on slide 12 3
  • Benefits of the Bundle Markets with Telephone Penetration of Total EOY 2007 <10% >10% Company % of Homes Passed 48% 52% 100% ARPU* $90 $96 $94 % 2+ Product Bundle 41% 51% 47% Phone drives faster HSI growth Phone improves analog customer performance In 2007 In 2007 27% Markets with >10% Markets with >10% 52% 52% Phone Penetration Phone Penetration 67% 73% Markets with <10% Markets with <10% Phone Penetration 48% 48% Phone Penetration 33% % of Total HPs % of HSI Net % of Total HPs % of Analog Gain Customers Net Loss * Represents annual 2007 total ARPU. 4
  • Operating Strategies Generated Desired Results Drive Bundle Improve End–to–End Drive Operating and Penetration Customer Experience Capital Effectiveness Increased bundled Narrowed appointment Reduced headends by 56% penetration to 47% windows since 2005 Doubled triple-play Reduced average time to Improved 2007 adjusted EBITDA1 margin 30 bps penetration to 14% repair over 2006 Phone penetration Improved service levels reached 10.6% at YE 74% of 2007 cap ex was with 78% taking triple success based play during 2007 Drive sustainable revenue and adjusted EBITDA growth See notes on slide 12 5
  • 4Q and 2007 Performance 4Q07 Highlights Double-digit year over year Revenue Summary 4Q Y/Y FY Y/Y revenue growth driven by HSI ($ millions) 4Q07 Growth FY07 Growth and telephone Video $846 3% $3,370 3% ARPU increased 13% year High-Speed Internet 326 18% 1,248 21% over year Telephone 107 118% 343 154% Ad Sales 82 (10%) 297 (6%) HSI revenue driven by Commercial 90 15% 339 14% customer growth and a 4.8% increase in ARPU year Other 97 12% 374 11% over year Total Revenues $1,548 10.6% $5,971 10.9% Commercial revenue Operating Costs and Expenses 985 9.4% 3,870 10.4% continued strong growth 1 Adj EBITDA $563 12.6% $2,101 11.9% Success in bundling yielded a 70 basis point year over year adjusted EBITDA margin improvement in Q4 See notes on slide 12 6
  • Maturity Profile Annual Maturities Through 20122 ($ in millions) Revolver availability was $1.0 billion at December 31, 2007 not restricted by covenants Reduced cumulative maturities $2,297 Expect adequate liquidity through 2009 to $367 million through second or third $1,719 quarter of 2009 85% of our maturities are $302 $347 due in 2012 and beyond $65 2008 2009 2010 2011 2012 Opportunistic improvements to financial flexibility See notes on slide 12 7
  • RGU Growth Opportunities Now over 150 HD viewing options providing Enhanced additional convenience and choice Products Planned launch of 16 Mbps in all KMAs in 2008 Online connects more than doubled since last year Distribution Front counter, retail and other channels continue to Channels generate RGU growth Targeting non-video customers with HSI and phone Refined Offers Continue to test, refine and measure marketing Narrowed appointment windows, improved average Improved time to repair Service Online, self help and chat capabilities 8
  • Phone and HSI Phone Penetration HSI Penetration 24% 11% 22% 7% 2006 2006 2007 2007 Unlimited local and long distance Up to 5/10/16 Mbps download speed calling to US, Canada, Puerto Rico Security software (anti-virus & firewall) Voicemail Offer Wireless home networking 10 popular calling features, including Caller ID and Call Waiting Exclusive content on Charter.net Unlimited local and intrastate calling Approach each home passed with Speed migration and home improved value proposition networking driving ARPU growth Strategy Use telephone to drive two and three Impact of bundle increases product bundles penetration and reduces overall churn 9
  • Video HD Choices Basic and Expanded Basic tiers Digital Home 340 Genre and premium tiers Offer Increase HD and VOD content Advanced video services 100 13 Increase HD choices YE 2006 YE 2007 YE 2008 Use the bundle to stabilize analog Strategy HD and DVR customer Up-sell users to advanced services growth accelerated this year, Balance price and volume resulting in an increase of about 60% in advanced video subscriptions year over year 10
  • Charter Business Video and music entertainment service Charter Business Revenue Business-to-business Internet access ($ in millions) Offer $339 Data networking $297 Commercial telephone launched to residential telephone footprint in 2007 $256 Estimated $5.5 billion in total commercial addressable spend Targeting SMB space Strategy o Businesses with 12 lines or less 2005 2006 2007 o Estimated $2 billion annual spend Leverage third-party resources to scale telephone sales and installation 11
  • Footnotes Unless otherwise stated, all results are pro forma, which reflect certain of our sales and acquisition of certain assets in 2006 and 2007 as if they had occurred as of January 1, 2006. For comparable actual results, 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 (income) 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 $31 and $32 million for each of the three months ended December 31, 2007 and 2006, 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. 2 Includes revolver commitment reductions, term loan amortization and bond and convertible maturities. The remaining $15 billion of face amount of debt matures in 2013 and beyond. 12
  • Appendix 13
  • CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES UNAUDITED RECONCILIATION OF NON-GAAP MEASURES TO PRO FORMA GAAP MEASURES (DOLLARS IN MILLIONS) PRO FORMA (a) 2005 2006 2007 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Net cash flows from operating activities $ 116 $ 183 $ (24) $ 136 $ (28) $ 264 $ (152) $ 207 $ (2) Less: Purchases of property, plant and equipment (262) (233) (290) (254) (308) (298) (281) (311) (354) Less: Change in accrued expenses related to capital expenditures (28) (7) (2) 13 20 (32) (7) (12) 49 Free cash flow (174) (57) (316) (105) (316) (66) (440) (116) (307) Interest on cash pay obligations (b) 377 406 424 445 448 453 452 449 457 Purchases of property, plant and equipment 262 233 290 254 308 298 281 311 354 Change in accrued expenses related to capital expenditures 28 7 2 (13) (20) 32 7 12 (49) Other, net 5 5 9 3 (2) 2 18 6 7 Change in operating assets and liabilities (46) (159) 74 (124) 82 (225) 218 (154) 101 Adjusted EBITDA $ 452 $ 435 $ 483 $ 460 $ 500 $ 494 $ 536 $ 508 $ 563 (a) Pro forma results reflect certain sales and acquisitions of cable systems in 2006 and 2007 as if they occurred as of January 1, 2006. (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, non-GAAP measures, to the most directly comparable pro forma GAAP measures.
  • CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES UNAUDITED RECONCILIATION OF NON-GAAP MEASURES TO GAAP MEASURES (DOLLARS IN MILLIONS) ACTUAL 2005 2006 2007 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Net cash flows from operating activities $ 142 $ 209 $ (4) $ 143 $ (25) $ 266 $ (148) $ 209 $ - Less: Purchases of property, plant and equipment (273) (241) (298) (256) (308) (298) (281) (311) (354) Less: Change in accrued expenses related to capital expenditures (28) (7) (2) 13 20 (32) (7) (12) 49 Free cash flow (159) (39) (304) (100) (313) (64) (436) (114) (305) Interest on cash pay obligations (a) 390 416 440 445 448 453 452 449 457 Purchases of property, plant and equipment 273 241 298 256 308 298 281 311 354 Change in accrued expenses related to capital expenditures 28 7 2 (13) (20) 32 7 12 (49) Other, net 5 5 9 3 (2) 2 18 6 7 Change in operating assets and liabilities (46) (159) 74 (124) 82 (225) 218 (154) 101 Adjusted EBITDA from continuing and discontinued operations $ 491 $ 471 $ 519 $ 467 $ 503 $ 496 $ 540 $ 510 $ 565 (a) 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, non-GAAP measures, to the most directly comparable GAAP measures in accordance with Section 401(b) of the Sarbanes-Oxley Act.
  • Revenue Summary ($ millions) 4Q Y/Y FY Y/Y 4Q07 Growth FY07 Growth Video $ 850 2.5% $ 3,392 1.3% High-Speed Internet 326 17.3% 1,252 19.1% Telephone 107 118.4% 343 154.1% Commercial 90 15.4% 341 11.8% Other 180 0.6% 674 1.5% Total Revenues $ 1,553 9.9% $ 6,002 9.0% Operating Costs and Expenses 988 8.6% 3,891 8.4% Adj EBITDA $ 565 12.3% $ 2,111 10.3%