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charter communications 1Q_2008_Earnings_Presentation


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charter communications 1Q_2008_Earnings_Presentation

  1. 1. Charter Communications First Quarter 2008 Earnings Call May 12, 2008 1
  2. 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;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 sales and acquisition of cable systems in 2006 and 2007 as if they had occurred on January 1, 2006. For comparable actual results for 2007, see the Appendix to these slides. 2
  3. 3. Continuing Momentum with Focused Strategies RGU net adds of 302,300 – total RGUs up 7% year-over-year Video RGU net adds of 90,900 – strongest net adds since 2003 RGU Momentum 1.1 million telephone customers – nearly doubled since 1Q07 49% bundle penetration up from 43% Total ARPU up 13.4% – surpassed $100 ARPU Growth Video ARPU up 6.2% due to HD and other advanced services Strong Revenue 10.5% revenue growth and Adj EBITDA1 10.5% adjusted EBITDA1 growth Growth Opportunistically Completed $1.0 billion financing transaction Improve Balance $1.9 billion of liquidity at quarter end Sheet 3 See notes on slide 11
  4. 4. Right Strategies Generating Results Bundled Customers Revenue ($ in millions) +10.5% $1,564 y/y +13% y/y 2,602,800 $1,416 2,305,300 Triple Play Customers 1Q07 1Q08 Adjusted EBITDA1 Double Play Customers ($ in millions) +10.5% $545 y/y 1Q 0 7 1Q 0 8 $493 Bundle 43% 49% Pen. 3-Play $120 - $130 $120 - $130 ARPU 1Q07 1Q08 Bundle driving double-digit revenue and adj EBITDA1 growth See notes on slide 11 4
  5. 5. 1Q08 Performance Snapshot 1Q08 Highlights 1Q Y/Y Revenue Summary 1Q08 Growth ($ in millions) 10.5% revenue and adj EBITDA1 growth year-over-year Video $858 3% HSI and telephone contributed 63% of High-Speed Internet 328 12% revenue growth Telephone 121 92% Commercial revenue continued strong Commercial 93 15% performance, growing 15% year-over- year Ad Sales 68 10% Other 96 12% Total ARPU up 13.4% to over $100 driven by bundle and advanced services Total Revenues $1,564 10.5% Operating Costs and Expenses $1,019 10.4% 1 Adj EBITDA $545 10.5% See notes on slide 11 5
  6. 6. Upselling Video Customers Video Customer Mix Bundled Video Mix (Residential) 100% 100% 75% 75% Triple Digital 50% Double 50% Basic Only Single 25% 25% 0% 0% 1Q06 1Q07 1Q08 1Q06 1Q07 1Q08 Note: Bundled video mix is residential (non-bulk) video customers only. 1Q08 Video Highlights Video ARPU 90,900 video RGU net adds +6.2% Video ARPU up 6.2% year-over-year: $57.46 On Demand orders up 44% $56.05 $55.46 $55.13 65% of video revenue growth in $54.11 quarter from advanced services Best video RGU net adds and ARPU growth since 2003 1Q07 2Q07 3Q07 4Q07 1Q08 6
  7. 7. Growing HSI Customers 1Q08 HSI Highlights HSI Customers +86 (Customers in ‘000s) 2,768 Grew HSI customers 10% year-over-year 2,682 2,632 HSI ARPU of $40.08, up from $39.76 in 1Q07 2,578 Home networking customers and revenue 2,517 quadrupled year-over-year Widely deploying 16 Mbps this year 1Q07 2Q07 3Q07 4Q07 1Q08 Pen. of 23.4% 23.8% 24.1% 24.3% 25.0% HSI HH HSI revenue growth driven by bundle, speed migration, and home networking 7
  8. 8. Focus on Driving Telephone Penetration Telephone Customers 1Q08 Telephone Highlights (Customers in ‘000s) Nearly doubled telephone customers and +126 revenue year-over-year 1,085 959 78% of telephone customers have Triple Play 804 701 Triple Play ARPU $120 - $130 573 Expect 20-25% penetration in next few years 1Q07 2Q07 3Q07 4Q07 1Q08 Pen. of 7.9% 9.2% 9.7% 10.6% 11.4% Phone HH Leveraging telephone to drive bundle 8
  9. 9. Bundle Opportunity Driving Bundle Penetration Targeting Unserved Households (% of Residential Customer Relationships) 49% 43% Existing Video Opportunity Customers 36% Double 4.9M HH 6.5M HH Triple 1Q06 1Q07 1Q08 391K 391K HH Non-video Customers Opportunity with 6.5M unserved Added 96,100 bundled customers in 1Q08 households available to target Nearly half of customers now in a bundle Focused on providing right mix to right Opportunity to further target remaining customers 51% of customer base with bundle Non-video customers grew 14% year-over- packages year with mid-teen growth for last 5 quarters 9
  10. 10. 1Q08 Summary RGU net adds of 302,300 Leveraging telephone and HSI to drive deeper bundle penetration RGU Momentum 16% triple play penetration – doubled year-over-year 13.4% year-over-year ARPU growth Growing ARPU with advanced services, bundling, and upselling ARPU Growth Triple play ARPU of $120 - $130 Strong Revenue 10.5% revenue growth and Adj EBITDA 10.5% adjusted EBITDA1 growth Growth1 Disciplined Expect $1.2B capex in 2008 Capital Three-quarters of capex success-based Investments See notes on slide 11 10
  11. 11. Footnotes Unless otherwise stated, all results are pro forma, which reflect certain sales and acquisition of cable systems in 2007 and 2006 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, 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 $34 and $32 million for each of the three months ended March 31, 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. 11
  12. 12. Appendix 12
  13. 13. CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES UNAUDITED RECONCILIATION OF NON-GAAP MEASURES TO GAAP MEASURES (DOLLARS IN MILLIONS) Three Months Ended March 31, 2008 2007 2007 Actual Actual Pro Forma (a) Net cash flows from operating activities $ 204 $ 266 $ 263 Less: Purchases of property, plant and equipment (334) (298) (298) Less: Change in accrued expenses related to capital expenditures (31) (32) (32) Free cash flow (161) (64) (67) Interest on cash pay obligations (b) 452 453 453 Purchases of property, plant and equipment 334 298 298 Change in accrued expenses related to capital expenditures 31 32 32 Other, net 10 2 2 Change in operating assets and liabilities (121) (225) (225) Adjusted EBITDA $ 545 $ 496 $ 493 (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.
  14. 14. Revenue Summary ($ millions) 1Q Y/Y 1Q08 Growth Video $ 858 2.4% High-Speed Internet 328 11.6% Telephone 121 92.1% Commercial 93 14.8% Advertising Sales 68 7.9% Other 96 11.6% Total Revenues $ 1,564 9.8% Operating Costs and Expenses 1,019 9.7% Adj EBITDA $ 545 9.9%