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Charter (CHTR) Q4 Earnings & Revenues Up Y/Y on User Growth

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Charter Communications CHTR reported fourth-quarter 2019 earnings of $3.28 per share that jumped 154.3% year over year.

Revenues of $11.45 billion increased 4.7% on a year-over-year basis, owing to growth in Internet, mobile, SMB and video revenues.

The Zacks Consensus Estimate for earnings and revenues was pegged at $2.50 per share and $11.76 billion, respectively.

Segment Details

Residential revenues (78.8% of total revenues) came in at $9.27 billion, up 5.7% from the year-ago quarter.

Monthly Residential revenue per Residential Customer (excluding mobile) totaled $113.79, up 1.8% year over year, driven by promotional rate step-ups, rate adjustments and a lower rate of customers migrating to Spectrum pricing and packaging.

However, a higher percentage of non-video customers, an increasing mix of streaming and lighter video packages for the company’s video customer base, and lower pay-per-view and video on demand revenues hurt the top line.


Video revenues (48.3% of residential revenues) increased 2.6% to $4.47 billion, driven by annual rate adjustments and promotional roll-off.

Internet revenues (46.9% of residential revenues) grew 11.6% year over year to $4.35 billion owing to an increase in Internet customers, promotional roll-off and rate adjustments.

However, voice revenues (4.9% of revenues) decreased 12.6% to $450 million due to value-based pricing and a decline in wireline voice customers.

Commercial revenues (13.6% of total revenues) increased 1.8% year over year to $1.60 billion. Small and medium business (SMB) revenues (61.5% of commercial revenues) rose 6.3% year over year to $986 million. Enterprise revenues (38.5% of commercial revenues) decreased 4.6% to $617 million.

However, commercial revenue growth was negatively impacted by the divestiture of Navisite, Charter’s managed cloud services business within Spectrum Enterprise, on Sep 6.

Moreover, advertising sales (3.7% of total revenues) declined 22.8% year over year to $434 million, primarily due to lower political revenues.

Mobile revenues (2% of total revenues) totaled $236 million compared with $89 million in the year-ago quarter.

Other revenues (1.9% of total revenues) came in at $220 million, down 6% year over year.

Subscriber Statistics

As of Dec 31, Charter had 29.235 million total customer relationships, up 4% year over year.

In the reported quarter, total residential and SMB customer relationships increased 268K compared with 248K in the year-ago quarter.

Moreover, residential and SMB Internet net additions were 313K and 26K, respectively.

As of Dec 31, Charter had 24.9 million residential Internet customers, with 85% subscribing to tiers that provided 100 Mbps or more speed.

The company doubled its minimum Internet speed offering to 200 Mbps in several markets at no additional costs for new and existing Spectrum Internet customers.

Notably, 200 Mbps is currently the slowest speed offered to new Internet customers in approximately 60% of Charter's footprint. Moreover, 100 Mbps is offered as the slowest speed in the remaining 40% of its footprint.

Further, Charter added 288K mobile lines in the fourth quarter. As of Dec 31, the company served a total of 1.1 million mobile lines.

However, Charter continued to lose video (105K in the reported quarter) and wireline voice customers (net losses were 152K).

Operating Details

Total operating costs and expenses increased 2.3% from the year-ago quarter to $7.23 billion. As percentage of revenues, total operating costs and expenses declined 140 basis points (bps) to 61.5%.

Programming costs rose 0.6% year over year to $2.81 billion due to a rise in renewals and contractual programming. However, as percentage of revenues, programming costs shrank 100 bps year over year.

Regulatory, connectivity and produced content costs were up 4.4% to $596 million, primarily due to increased cost of video customer premise equipment sold to customers and elevated original programming costs. As percentage of revenues, regulatory, connectivity and produced content costs were stable at 5.1% year over year.

Costs to service customers declined 2.2% year over year to $1.79 billion. Marketing costs were $748 million, up 2.2% year over year.

However, as percentage of revenues, costs to service customers and marketing costs contracted 110 bps and 20 bps on a year-over-year basis, respectively.

Notably, mobile costs were $372 million compared with $211 million in the year-ago quarter.

Adjusted EBITDA increased 8.8% year over year to $4.53 billion. Moreover, adjusted EBITDA margin expanded 140 bps to 38.5%.

Balance Sheet & Cash Flow

As of Dec 31, 2019, cash and cash equivalents were $3.48 billion.

Further, as of Dec 31, total principal amount of debt was $78.4 billion. At the end of the reported quarter, the ratio of net debt to the past 12-month adjusted EBITDA was 4.45x. Charter intends to stay at or just below the high end of its targeted 4x to 4.5x leverage range.

In fourth-quarter 2019, net cash flow from operating activities totaled $3.36 billion, higher than $2.94 billion in the previous quarter.

Capital expenditures were $2.3 billion that included $151 million related to the mobile business. The company generated $1.6 billion of consolidated free cash flow compared with $1.3 billion in the previous quarter.

In the reported quarter, the company bought back 5.6 million shares for approximately $2.6 billion.

2020 Guidance

Charter expects programming costs per video customer to grow in the mid-single-digit-percentage range.

Moreover, mobile capital expenditures are expected to be similar to 2019 and then, decline meaningfully in 2021.

Further, in 2020, Charter expects cable capital expenditure intensity to continue to decline from 15% in 2019.

Zacks Rank & Stocks to Consider

Currently, Charter carries a Zacks Rank #3 (Hold).

Disney DIS, Fox Corporation (FOXA - Free Report) and ViacomCBS VIAC are stocks worth considering in the broader Consumer & Discretionary sector. All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Disney, Fox and ViacomCBS are scheduled to report quarterly results on Feb 4, 5 and 20, respectively.

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