Charter Communications, Inc. (NASDAQ:CHTR) reported financial and operating results for the three and twelve months ended December 31, 2015.

Key highlights:

  • As of December 31, 2015, Charter served 6.7 million residential and small and medium business (“SMB”) customers. For the full year 2015, total residential and SMB customers grew by 352,000, or 5.6%.
  • 2015 marks the first full year in over a decade in which Charter grew its total video customers, including 33,000 video net additions in the fourth quarter, and 11,000 for the full year 2015.
  • For the full year 2015, residential primary service units (“PSUs”) increased by 5.2%, while SMB PSUs increased by 19.4%, with fourth quarter 2015 residential and SMB PSU net additions growing year-over-year by 26.5% and 47.4%, respectively.
  • Fourth quarter revenues of $2.5 billion grew 6.4% as compared to the prior-year period, driven by residential revenue growth of 7.2% and commercial revenue growth of 12.3%.
  • Fourth quarter Adjusted EBITDA1 grew by 7.5% year-over-year. Excluding transition costs of $22 million for Charter’s pending transactions, fourth quarter Adjusted EBITDA grew by 8.4% year-over-year.
  • Full year 2015 revenues increased 7.1% and Adjusted EBITDA rose 6.8%. Excluding transition costs for the pending transactions, 2015 Adjusted EBITDA increased 8.5%.
  • Capital expenditures totaled $1.840 billion in 2015, down from $2.221 billion in 2014. Excluding transition capital expenditures for the pending transactions, 2015 capital expenditures totaled $1.725 billion.
  • Full year 2015 free cash flow totaled $547 million, compared to $171 million during the prior-year, driven by higher Adjusted EBITDA and lower capital expenditures, partially offset by over $500 million of transition-specific operating expenses, capital expenditures and cash interest payments associated with transactions-related debt held in escrow.

“Our consumer-focused product and service strategy continued to drive Charter’s accelerating customer growth in 2015, including positive video net additions,” said Tom Rutledge, President and CEO of Charter Communications. “Charter remains the fastest growing cable company in the United States because it provides highly-competitive consumer-friendly products at attractive price points, in simple packages, with quality customer service. We look forward to bringing Charter Spectrum to the Time Warner Cable and Bright House footprints following the close of our transactions, offering consumers better products, prices and service, driving greater growth for our new company and our business partners, and creating value for shareholders.”

1Adjusted EBITDA and free cash flow are defined in the “Use of Non-GAAP Financial Metrics” section and are reconciled to net loss and net cash flows from operating activities, respectively, in the addendum of this news release.

Key Operating Results

Approximate as of
December 31, 2015 (a) December 31, 2014 (a) Y/Y Change
Footprint (b)
Estimated Video Passings 12,783 12,740 %
Estimated Internet Passings 12,515 12,465 %
Estimated Voice Passings 12,062 12,005 %
Penetration Statistics (c)
Video Penetration of Estimated Video Passings 34.7 % 34.7 % ppts
Internet Penetration of Estimated Internet Passings 44.5 % 40.7 % 3.8 ppts
Voice Penetration of Estimated Voice Passings 23.3 % 21.8 % 1.5 ppts
Customer Relationships (d)
Residential (e) 6,284 5,990 5 %
Small and Medium Business (i) 390 332 17 %
Total Customer Relationships 6,674 6,322 6 %
Residential (e)
Primary Service Units (“PSU”)
Video 4,322 4,324 %
Internet 5,227 4,785 9 %
Voice 2,598 2,439 7 %
12,147 11,548 5 %
Quarterly Net Additions/(Losses)
Video 29 (3) NM
Internet 115 104 11 %
Voice 47 50 (6) %
191 151 26 %
Single Play (f) 2,458 2,350 5 %
Double Play (f) 1,790 1,722 4 %
Triple Play (f) 2,036 1,918 6 %
Single Play Penetration (g) 39.1 % 39.2 % -0.1 ppts
Double Play Penetration (g) 28.5 % 28.8 % -0.3 ppts
Triple Play Penetration (g) 32.4 % 32.0 % 0.4 ppts
% Residential Non-Video Customer Relationships 31.2 % 27.8 % 3 %
Monthly Residential Revenue per Residential Customer (h) $111.19 $108.67 2 %
Small and Medium Business
PSUs
Video (i) 108 95 14 %
Internet 345 290 19 %
Voice 218 177 23 %
671 562 19 %
Quarterly Net Additions/(Losses)
Video 4 NM
Internet 14 11 27 %
Voice 10 8 25 %
28 19 47 %
Monthly Small and Medium Business Revenue per Customer (j) $173.12 $181.83 (5) %
Enterprise PSUs (k)
Enterprise PSUs 30 25 20 %
Footnotes
In thousands, except per customer and penetration data. See footnotes to unaudited summary of operating statistics on page 5 of the addendum of this news release. The footnotes contain important disclosures regarding the definitions used for these operating statistics.
NM – Not meaningful
All percentages are calculated using whole numbers. Minor differences may exist due to rounding.

During the fourth quarter of 2015, Charter’s residential customer relationships grew by 82,000, versus 67,000 in the prior-year period. Residential PSUs increased by 191,000 versus a gain of 151,000 in the prior-year period, driven by Charter Spectrum, an industry-leading suite of video, Internet, and voice services launched in 2014. Charter Spectrum includes over 200 HD channels, in addition to minimum offered Internet speeds of 60 Mbps, and a fully-featured voice service, delivered at a highly competitive price. As of the end of the fourth quarter of 2015, 90% of Charter’s residential customers received Charter Spectrum products.

Residential video customers increased by 29,000 in the fourth quarter of 2015, versus a loss of 3,000 in the year-ago period. For the past four years, Charter has significantly increased the competitiveness of its video product, by including more HD channels and video on demand offerings, attractive packaging of advanced services, improved selling methods, and enhanced service quality. Today, virtually all of Charter’s passings are fully digitized, with access to more HD channels than satellite TV offers, and as of December 31, 2015, over 96% of Charter’s residential video customers subscribed to the Company’s expanded basic video service.

Charter has introduced its new cloud-based user interface, Spectrum Guide, to its video customers in certain markets, including Fort Worth, Texas and Reno, Nevada. Spectrum Guide dramatically improves video content search and discovery, and fully enables Charter’s on-demand offering. In addition, Spectrum Guide can function on nearly all of Charter’s deployed set-tops. Charter is also poised to launch its new set-top box, World Box, which features downloadable security along with other advanced functionality, driving an enhanced customer experience and reducing incremental set-top box costs.

Charter added 115,000 residential Internet customers in the fourth quarter of 2015, compared to 104,000 a year ago. As of December 31, 2015, 88% of Charter’s residential Internet customers subscribed to tiers that provided speeds of 60 Mbps or more. The Company continues to see strong demand for its Internet service as consumers value the speed and reliability of Charter’s Internet offering.

During the fourth quarter, the Company added 47,000 residential voice customers, versus a gain of 50,000 during the fourth quarter of 2014.

Fourth quarter residential revenue per customer relationship totaled $111.19, and grew by 2.3% as compared to the prior-year period, driven by higher product sell-in, promotional rate step-ups and rate adjustments, partially offset by continued single play Internet sell-in.

During the fourth quarter of 2015, small and medium business (SMB) customer relationships grew by 15,000 versus 12,000 during the fourth quarter of 2014. SMB PSUs increased 28,000, compared to 19,000 during the fourth quarter of 2014. Charter’s accelerating SMB customer and PSU growth is being driven by the launch of the Spectrum Business product suite to the small and medium business segments during the first quarter of 2015. This competitive new offering is intended to provide better products and greater value to SMB customers.

Fourth Quarter Financial Results

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES  
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND OPERATING DATA
(dollars in millions, except per share data)
Three Months Ended December 31,
2015 2014 % Change
REVENUES:
Video $ 1,167 $ 1,134 2.9 %
Internet 781 670 16.6 %
Voice 135 139 (2.7) %
Residential revenue 2,083 1,943 7.2 %
Small and medium business 199 178 11.5 %
Enterprise 95 84 14.1 %
Commercial revenue 294 262 12.3 %
Advertising sales 87 107 (18.9) %
Other 48 48 (1.2) %
Total Revenues 2,512 2,360 6.4 %
COSTS AND EXPENSES:
Total operating costs and expenses 1,604 1,515 5.9 %
Adjusted EBITDA $ 908 $ 845 7.5 %
Adjusted EBITDA margin 36.2 % 35.8 %
Capital Expenditures $ 548 $ 543
% Total Revenues 21.8 % 23.0 %
Net loss $ (122) $ (48)
Loss per common share, basic and diluted $ (1.09) $ (0.44)
Net cash flows from operating activities $ 611 $ 630
Free cash flow $ 80 $ 89

Revenue

Fourth quarter 2015 revenues rose to $2.5 billion, 6.4% higher than the year-ago quarter, driven primarily by growth in Internet, video and commercial revenues.

Video revenues totaled $1.2 billion in the fourth quarter, an increase of 2.9% compared to the prior-year period. Video revenue growth was driven by higher advanced services penetration, annual and promotional rate adjustments and an increase in expanded basic and digital customers, partially offset by a decrease in residential limited basic video customers.

Internet revenues grew 16.6% compared to the year-ago quarter to $781 million, driven by an increase of 442,000 Internet customers during the last year and by promotional rolloff, price adjustments and revenue allocation from higher bundling.

Voice revenues totaled $135 million, a decline of 2.7% versus the fourth quarter of 2014, due to value-based pricing and revenue allocation from higher bundling, partially offset by the addition of 159,000 voice customers in the last twelve months.

Commercial revenues rose to $294 million, an increase of 12.3% over the prior-year period, and was driven by small and medium business revenue growth of 11.5% and enterprise revenue growth of 14.1%. Following the launch of new pricing and packaging for commercial customers, PSU growth has accelerated albeit at lower promotional pricing.

Fourth quarter advertising sales revenues of $87 million decreased 18.9% compared to the year-ago quarter primarily driven by a decrease in political advertising revenue of $16 million.

Operating Costs and Expenses

Fourth quarter total operating costs and expenses increased by $89 million, or 5.9%, compared to the year-ago period, reflecting increases in programming costs, other expenses and transition costs related to Charter’s pending transactions with Time Warner Cable Inc. (“Time Warner Cable”) and Bright House Networks, LLC (“Bright House”). Transition costs accounted for $22 million of total fourth quarter operating costs. Excluding transition costs, fourth quarter total operating expenses increased by $78 million, or 5.3% year-over-year.

Fourth quarter programming expense increased by $49 million, or 7.9%, as compared to the fourth quarter of 2014, reflecting contractual programming increases and a higher number of expanded basic package customers and the introduction of new networks to Charter’s video offering.

Costs to service customers remained virtually unchanged year-over-year despite year-over-year residential and SMB customer relationship growth of 5.6%, given improved service metrics. Other expenses grew by $28 million, or 14.8%, as compared to the fourth quarter of 2014, reflecting higher corporate and administrative labor costs, including the insourcing of IT and software development resources, property taxes and insurance costs and enterprise sales and labor costs.

Adjusted EBITDA

Fourth quarter Adjusted EBITDA of $908 million grew by 7.5% year-over-year, reflecting revenue growth and operating costs and expenses growth of 6.4% and 5.9%, respectively. Excluding transition-related expenses, fourth quarter Adjusted EBITDA grew by 8.4% year-over-year.

Net Loss

Net loss totaled $122 million in the fourth quarter of 2015, compared to $48 million in the fourth quarter of 2014. The year-over-year increase in net loss was driven by $231 million of interest expense related to the financing of Charter’s pending transactions with Time Warner Cable and Bright House, offset by higher income from operations and lower income tax expense. Basic and diluted loss per common share was $1.09 in the fourth quarter of 2015 compared to $0.44 during the same period last year. The increase in loss per common share was primarily the result of the factors described above, partially offset by a 1.7% increase in weighted average shares outstanding versus the prior-year period.

Capital Expenditures

Property, plant and equipment expenditures totaled $548 million in the fourth quarter of 2015, compared to $543 million during the fourth quarter of 2014. The year-over-year increase in capital expenditures resulted from higher product development investments and transition capital expenditures related to Charter’s planned and pending acquisitions, partially offset by a decline in customer premise equipment (“CPE”) spending. CPE spending declined versus the prior-year period as Charter completed its all-digital initiative in the fourth quarter of 2014. Transition-related capital expenditures accounted for $49 million of capital expenditures in the fourth quarter of 2015. Excluding transition-related expenditures, fourth quarter property, plant and equipment expenditures totaled $499 million.

Cash Flow

During the fourth quarter of 2015, net cash flows from operating activities totaled $611 million, compared to $630 million in the fourth quarter of 2014. The year-over-year decline in net cash flow from operating activities was primarily due to higher cash interest paid in the fourth quarter of 2015 versus the fourth quarter of 2014, driven by the financing of Charter’s pending transactions with Time Warner Cable and Bright House, partly offset by an increase in Adjusted EBITDA year-over-year, and a positive contribution from working capital.

Free cash flow for the fourth quarter of 2015 was $80 million, compared to $89 million during the same period last year. The decrease was primarily due to the factors described above.

Year to Date Financial Results

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND OPERATING DATA
(dollars in millions, except per share data)
Year Ended December 31,
2015  

2014

 

% Change

REVENUES:
    Video $ 4,587 $ 4,443 3.2 %
    Internet 3,003 2,576 16.6 %
    Voice 539 575 (6.4) %
     Residential revenue 8,129 7,594 7.0 %
    Small and medium business 764 676 13.0 %
    Enterprise 363 317 14.8 %
     Commercial revenue 1,127 993 13.5 %
    Advertising sales 309 341 (9.5) %
    Other 189 180 5.0 %
       Total Revenues 9,754 9,108 7.1 %
COSTS AND EXPENSES:
    Total operating costs and expenses 6,348 5,918 7.3 %
    Adjusted EBITDA $ 3,406 $ 3,190 6.8 %
    Adjusted EBITDA margin 34.9 35.0
 Capital Expenditures $ 1,840 $ 2,221
 % Total Revenues 18.9 24.4
Net loss $ (271) $ (183)
Loss per common share, basic and diluted $ (2.43) $ (1.70)
Net cash flows from operating activities $ 2,359 $ 2,359
Free cash flow $ 547 $ 171

Revenue

For the year ended December 31, 2015, revenues rose to $9.8 billion, 7.1% higher than in 2014, driven by continued growth in Internet, video and commercial revenues.

Operating Costs and Expenses

Operating costs and expenses totaled $6.3 billion in 2015, an increase of $430 million, or 7.3%, compared to the year-ago period, reflecting increases in programming costs, other expenses and transition costs. Transition costs accounted for$72 million of total 2015 operating costs.  Excluding transition costs, total operating expenses increased by $372 million, or 6.3% year over year.

Adjusted EBITDA

Adjusted EBITDA totaled $3.4 billion for the year ended December 31, 2015, an increase of 6.8% compared to 2014, reflecting revenue growth and operating costs and expenses growth of 7.1% and 7.3%, respectively.  Excluding transition-related expenses, Adjusted EBITDA grew by 8.5% year-over-year.

Net Loss

For the year ended December 31, 2015, net loss was $271 million, compared to $183 million in 2014.  The increase was driven by $506 million of interest expense related to the financing of Charter’s pending transactions with Time Warner Cable and Bright House and previous transactions with Comcast Corporation (“Comcast”), and an increase in loss on extinguishment of debt, offset by an income tax benefit related to a partnership restructuring in the third quarter of 2015 and higher income from operations. Net loss per common share was $2.43 for the year ended December 31, 2015, compared to $1.70 in 2014. The increase was primarily the result of the factors described above, offset by 3.2% increase in weighted average shares outstanding.

Capital Expenditures

Capital expenditures for the year ended December 31, 2015, totaled $1.840 billion compared to $2.221 billion in 2014. The decrease was the result of the completion of Charter’s all-digital initiative in 2014, partially offset by higher transition capital expenditures and product development costs in 2015. Transition-related capital expenditures accounted for $115 million and $27 million of capital expenditures in 2015 and 2014, respectively. Excluding transition-related expenses, 2015 property, plant and equipment expenditures totaled $1.725 billion, consistent with management expectations.

Cash Flow

In 2015, net cash flows from operating activities totaled $2.4 billion, and remained unchanged year-over-year, with higher Adjusted EBITDA offset by higher cash interest payments associated with debt issued to finance Charter’s pending transactions with Time Warner Cable and Bright House and previous transactions with Comcast.

Free cash flow for the year ended December 31, 2015 was $547 million, compared to $171 million during the same period last year. The increase was primarily due to lower capital expenditures and higher Adjusted EBITDA, partially offset by higher cash interest payments.

Liquidity & Financing

As of December 31, 2015, total principal amount of debt was approximately $35.9 billion, and Charter held $21.8 billion in proceeds from debt in escrow for Charter’s pending transactions with Time Warner Cable and Bright House, described below. As of December 31, 2015, Charter’s credit facilities provided approximately $961 million of additional liquidity.

In May 2015, Charter entered into a merger agreement with Time Warner Cable and CCH I, LLC (“New Charter”), pursuant to which the parties to the agreement will engage in a series of transactions that will result in Charter and Time Warner Cable becoming wholly owned subsidiaries of New Charter (the “TWC Transaction”). After giving effect to the TWC Transaction, New Charter will be the new public company parent that will hold the operations of the combined companies.

In May 2015, in connection with the execution of the merger agreement with Time Warner Cable, Charter’s contribution agreement with Advance/Newhouse Partnership was amended pursuant to which Charter would become the owner of the membership interests in Bright House and any other assets primarily related to Bright House.

In July 2015, Charter issued $15.5 billion in aggregate principal amount of senior secured notes comprised of $2.0 billion of 3.579% senior secured notes due 2020, $3.0 billion of 4.464% senior secured notes due 2022, $4.5 billion of 4.908% senior secured notes due 2025, $2.0 billion of 6.384% senior secured notes due 2035, $3.5 billion of 6.484% senior secured notes due 2045 and $500 million of 6.834% senior notes due 2055. The net proceeds were deposited into an escrow account and will be used to partially finance the TWC Transaction as well as for general corporate purposes.

In August 2015, Charter closed on a new term loan H facility and a new term loan I facility totaling an aggregate principal amount of $3.8 billion. The new term loan H facility was issued at a principal amount of $1.0 billion and matures in 2021. Pricing on the new term loan H facility was set at LIBOR plus 2.50% with a LIBOR floor of 0.75% and issued at a price of 99.75% of the aggregate principal amount. The new term loan I facility was issued at a principal amount of $2.8 billion and matures in 2023. Pricing on the new term loan I facility was set at LIBOR plus 2.75% with a LIBOR floor of 0.75% and issued at a price of 99.75% of the aggregate principal amount. The net proceeds were deposited into an escrow account and will be used to partially finance the TWC Transaction as well as for general corporate purposes.

In November 2015, Charter issued $2.5 billion of 5.750% senior secured notes due 2026. The net proceeds were deposited into an escrow account and will be used to partially finance the TWC Transaction as well as for general corporate purposes. (Original Source)

Shares of Charter Communications closed yesterday at $176.45. CHTR has a 1-year high of $199 and a 1-year low of $157.51. The stock’s 50-day moving average is $175.45 and its 200-day moving average is $182.56.

On the ratings front, Telsey Advisory Group analyst Thomas Eagan reiterated a Buy rating on CHTR, with a price target of $227, in a report issued on November 2. The current price target represents a potential upside of 28.6% from where the stock is currently trading. According to TipRanks.com, Eagan has a total average return of 34.2%, an 87.2% success rate, and is ranked #26 out of 3612 analysts.

Charter Communications Inc is a cable operator providing services in the United States. It offers cable video programming, Internet services, and voice services, as well as video services such as video on demand, HD television and DVR service.