CHTR

Charter Communications, Inc. (CHTR)

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Charter Communications (CHTR)

Q4 2012 Earnings Call

February 22, 2013 10:00 am ET

Executives

Robin Gutzler

Thomas M. Rutledge - Chief Executive Officer, President and Director

Christopher L. Winfrey - Chief Financial Officer and Executive Vice President

Analysts

John C. Hodulik - UBS Investment Bank, Research Division

Jeffrey Duncan Wlodarczak - Pivotal Research Group LLC

Brian Russo - Deutsche Bank AG, Research Division

Benjamin Swinburne - Morgan Stanley, Research Division

Jason B. Bazinet - Citigroup Inc, Research Division

Philip Cusick - JP Morgan Chase & Co, Research Division

Vijay A. Jayant - ISI Group Inc., Research Division

Frank G. Louthan - Raymond James & Associates, Inc., Research Division

Amy Yong - Macquarie Research

Bryan D. Kraft - Evercore Partners Inc., Research Division

Lance W. Vitanza - CRT Capital Group LLC, Research Division

Presentation

Operator

Hello. My name is Dawn, and I will be your conference operator. At this time, I would like to welcome everyone to Charter's Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] Thank you. I will now turn the call over to Robin Gutzler. You may begin your conference.

Robin Gutzler

Thank you, Dawn. Good morning, everyone, and welcome to Charter's 2012 Fourth Quarter Earnings Call. This morning, we issued a press release over PRNewswire at 8:00 a.m. Eastern Time detailing our results.

Before we proceed, I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, including our most recent Form 10-K. We will not review those risk factors and other cautionary statements on this call. However, we do 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 will 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 release, we reported results in accordance with GAAP, as well as pro forma results for 2011. The pro forma results reflect the acquisition of certain cable systems in 2011 as if they had occurred on January 1, 2011, unless otherwise noted. The year-over-year growth rates we will be referring to this morning are on a pro forma basis.

Joining me on today's call are Tom Rutledge, President and CEO; and Chris Winfrey, our CFO.

The presentation that accompanies their comments can be found on our website, charter.com, under Financial Information. The press release and trending schedules are also posted on our website under Investor & News Center.

With that, I'll turn the call over to Tom.

Thomas M. Rutledge

Thank you, Robin. Over the past year, we implemented a new strategy for Charter in terms of providing a superior product, reorganizing the business and how we price and package our product. We have made significant progress. We accelerated our underlying subscription revenue growth and grew revenue over 4% in the fourth quarter of 2012 and our growth rate was increasing during the quarter. We also added 20,000 residential customer relationships compared to 5,000 in the prior year, our best fourth quarter performance in 10 years. And we gained nearly 110,000 residential customer relationships over the past 12 months.

While our video subscription units declined in the quarter, we lost fewer units than we did a year ago and the quality of our video customer base and the video packages we're selling are significantly better. In fact, if you include limited basic video customer losses -- if you exclude video limited video customer losses, our video losses were just 12,000 for all of 2012. Our triple play connect rate in the quarter was 36% of video connects, which is a significant improvement, and we've seen sell-in in the past few weeks get as high as 50%, which is where we'd like to be consistently.

Triple play ARPU at acquisition during Q4, was $120, despite our $90 promotional price, indicating a higher sell-in rate of ancillary services. In just 6 months, 30% of our total customer base is now on our new pricing and packaging, which means these customers are receiving a truly competitive product, are less likely to drive transactions and less likely to churn or either migrated in the old pricing or will be stepping up after the promotional period. Fundamentally, we're getting a better return on our investment for newly acquired customers.

On the commercial side, we continue to drive revenue growth for the year by over 20%. Even with all of the operating changes and investment, we grew adjusted EBITDA by 1.7% in the quarter. The objective is to do much more over time now that we've completed our organizational changes.

On our last call, I outlined the many changes we're making in our business, but we're also making the appropriate investments to take better care of our customers and our key strategic asset, our 2-way plant. Not only will these investments normalize over time, but they position us for faster residential top line growth, which we're starting to see.

In 2013, we'll focus on 4 key areas to further our objectives and deliver more for our customers. First, we're going to continue to leverage our 2-way interactive high-capacity plant, which is competitively superior to the vast majority of our footprint. This includes maintaining superiority on our Internet speed and reliability and continued catch-up plant maintenance so we can deliver a superior product that increases the inherent architectural advantage of our 2-way plant. This allows us to differentiate ourselves from satellite and telco and take share. The other way to increase our competitive advantage is to go all-digital by the end of 2014. In essence, we've already gone all-digital from a go-to-market perspective as we stopped actively marketing analog service in the middle of last year. And we'll continue to go all-digital in a variety of ways, including continued analog channel reductions, prioritization of specific regions for full digitization now, where the benefits already outweigh the costs.

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