Charter Communications, Inc. (CHTR)

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Charter Communications, Inc. (CHTR)

Q2 2011 Earnings Call

August 2, 2011 9:00 am ET


Robin Gutzler - VP, IR

Mike Lovett - President and CEO

Chris Winfrey - CFO


Jeff Wlodarczak - Pivotal Research Group

Jason Kim - Goldman Sachs

Benjamin Swinburne - Morgan Stanley

David Joyce - Miller Tabak & Co

Bryan Kraft - Evercore Partners

Michael Pace - JPMorgan

Amy Yong - Macquarie Research Equities

Lance Vitanza - CRT Capital Group

Richard Greenfield - BTIG

Rich Tullo - Albert Fried & Company

Ryan Vineyard - RBC Capital Markets



Good morning, my name is Rashira and I will be your conference operator today. At this time, I would like to welcome everyone to the Charter Second Quarter 2011 earnings conference call. (Operator instructions). Thank you. Ms. Gutzler, you may begin your conference.

Robin Gutzler

Thank you, Rashira. Good morning everyone and welcome to Charter’s 2011 second quarter earnings call. This morning we issued a press release over PR Newswire at 8:00 am Eastern Time detailing our results. This information is also posted our website, The website also contains the presentation that accompanies today’s comments.

Before we proceed, I would like to remind you that there are a number of risk factors and other cautionary statements contained in our Form 10-Q, for the quarter ended June 30, 2011. We will not review those risk factors and other cautionary statements on this call. However, we encourage you to read them carefully.

Various remarks that we make on this call concerning expectations, predictions, plans and prospects constitute forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results.

Any forward-looking statements reflect management’s current view only and Charter undertakes no obligation to revise or update such statements or to make additional forward-looking statements in the future.

During the course of today’s call, we’ll be referring to non-GAAP measures as defined and reconciled in this morning’s earnings release. These non-GAAP measures as defined by Charter may not be comparable to measures with similar titles used by other companies. In today’s earnings release, we reported results in accordance with GAAP as well as pro forma results for 2010.

The pro forma results reflect the divestitures of cable systems in 2010 as if they had occurred on January 1, 2010 unless otherwise noted. The year-over-year growth rates we will be referring to this morning are in a pro forma basis. Joining me on today’s call are Mike Lovett, President and CEO and Chris Winfrey, our CFO. I will now turn the call over to Mike.

Mike Lovett

Good morning and thank you for joining us today. I am pleased with another quarter of solid adjusted EBITDA growth and the substantial progress we have made on our strategic initiatives. Adjusted EBITDA rose 4.8% to $673 million and our margin improved to full percentage points to 37.6% versus last on revenues of $1.8 billion. And while we continue to make strategic investments in our business to set us up for long-term success, we generated $155 million of free cash flow.

We remain focused on improving the ways in which our customers interact with and perceive Charter. We conducted a number of successful pilot programs, which I highlighted for you on our first quarter call, including areas such as customer onboarding, technical issue resolution and CTE management. And we are rolling these initiatives out across our footprint. Even prior to these pilots fully taking hold, we have seen a 5% decrease in billing and service calls, as well as 8% lower service truck rolls compared to last year.

We achieved the best second quarter in year-to-date retention rates we have experienced since I joined Charter. And anecdotally, in markets where we launched these pilots, we are seeing an increase in the number of customer compliment letters.

We continue o leverage our Internet superiority as demand for fast and reliable connectivity grows. Nearly 95% of our residential customers are on 12-Meg or higher, which is double the fastest speed available from DSL. A fact that is beginning to be recognized by our customers as well as IP Content providers. We intend to maintain that advantage. As of June, we had deployed DOCSIS 3.0 to 85% of our footprint and we expect to be essentially complete by the end of the year.

As we operate a particular market, we launch our 60-Meg residential product and 50 and 100-Meg Coax for commercial customers. And similar to other cable operators in DOCSIS 3.0 markets, we have the capability to offer speeds of more than 100-Meg down the road as we see consumer interest.

Another strategic priority for us is to change the dynamic in our video business and to continue to provide innovative solutions for our customers. As of the end of the quarter, 68% of our Homes Passed were Switched Digital Video enabled allowing us to offer our customers more HD channels and additional VOD choices.

At the end of the second quarter, we averaged more than 60 HD channels across the footprint. While we are still in a bit of catch-up mode, we are on track to achieve our 75 average HD channel target by year-end. We also just announced new features that will be available for our customers such as HBO GO, BTN2Go and a remote record scheduling application and we are strengthening our sports offering with NFL Network and their extremely popular RedZone product in time for their 2011 season.

We are slating to file at the first phase of our next generation television strategy later this year with the integrated TiVo Premier Service and we will follow with soft launches to virtually all markets in the early part of next year. And the investments we are making in our commercial business are beginning to translate into strong financial results similar to the first quarter.

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