10-QPeriod: Q2 FY2018

CHARTER COMMUNICATIONS, INC. /MO/ Quarterly Report for Q2 Ended Jun 30, 2018

Filed July 31, 2018For Securities:CHTR

Summary

Charter Communications, Inc. reported solid revenue growth of 4.8% for both the three and six months ended June 30, 2018, compared to the prior year, reaching $10.85 billion and $21.51 billion respectively. This growth was primarily driven by increases in residential internet and commercial business customers, alongside price adjustments. Net income attributable to Charter shareholders significantly improved, rising from $139 million to $273 million for the quarter and from $294 million to $441 million year-to-date. Despite this profitability improvement, free cash flow saw a substantial decrease due to unfavorable changes in working capital and increased capital expenditures. The company also highlighted the launch of its mobile service in the second quarter, contributing to both revenue opportunities and impacting operational costs. Operationally, Charter continued its integration efforts from the Time Warner Cable and Bright House acquisitions, with approximately 70% of residential customers now on the Spectrum pricing and packaging (SPP) model and 91% of its footprint being all-digital. The company maintained a strong focus on share repurchases, deploying significant capital towards buybacks, while also managing a substantial debt load. Regulatory challenges, particularly in New York, were noted as a significant ongoing concern that could impact future operations.

Financial Highlights

49 data points
Beta

Revenue

$10.85B

Net Income

$273.00M

2.5% Net Margin

EPS (Diluted)

$1.15

Total Assets

$146.25B

Cash & Equivalents

$773.00M

Free Cash Flow

$705.00M

Financial Statements
Beta
Revenue$10.85B
Operating Expenses$9.49B
Operating Income$1.36B
Net Income$273.00M
EPS (Basic)$1.17
EPS (Diluted)$1.15
Shares Outstanding (Basic)234.24M
Shares Outstanding (Diluted)237.07M

Key Highlights

  • 1Revenue increased by 4.8% year-over-year for both the three and six-month periods, reaching $10.85 billion and $21.51 billion respectively, driven by internet and commercial customer growth.
  • 2Net income attributable to Charter shareholders more than doubled year-over-year for the quarter ($139M to $273M) and increased significantly year-to-date ($294M to $441M).
  • 3Free cash flow decreased significantly by $340 million for the quarter and $1.5 billion year-to-date, primarily due to unfavorable working capital changes and increased capital expenditures.
  • 4Charter launched its mobile service in Q2 2018, contributing to revenue growth but also impacting operational costs and free cash flow.
  • 5Capital expenditures increased by approximately 12% year-to-date to $4.57 billion, driven by scalable infrastructure, line extensions, and support capital.
  • 6The company continued its aggressive share repurchase program, buying back approximately $1.7 billion in Class A common stock and Charter Holdings units in the quarter.
  • 7Charter is facing significant regulatory challenges in New York, with the Public Service Commission (PSC) rescinding its approval of Charter's acquisition of Time Warner Cable's New York operations and seeking penalties, which could materially impact operations.
  • 8Total debt remained substantial at $71.1 billion as of June 30, 2018, though the company maintained leverage within its target range.

Frequently Asked Questions

Revenue growth was primarily driven by an increase in the number of residential Internet and commercial business customers, alongside price adjustments and increased penetration of expanded basic video packages. Advertising sales also saw a notable increase.

The decrease in free cash flow is attributed to several factors including unfavorable changes in working capital, an increase in capital expenditures (particularly for scalable infrastructure, line extensions, and support capital), and the initial costs associated with the launch of the mobile service. Higher interest expense also contributed to the decline.

The New York Public Service Commission (PSC) has rescinded its approval of Charter's acquisition of Time Warner Cable's New York operations and is seeking penalties. Charter believes it is in compliance with merger conditions and is defending its position vigorously. However, an adverse outcome could lead to Charter ceasing operations in New York within six months and could materially affect its consolidated financial condition, results of operations, or liquidity.

Charter continues to manage a substantial debt load of over $71 billion. The company aims to maintain leverage within its target range of 4 to 4.5 times. Simultaneously, Charter is actively repurchasing its Class A common stock and Charter Holdings common units, deploying significant capital towards these buybacks as part of its capital allocation strategy, which also includes reinvestment in business growth and strategic opportunities.