Charter Communications, Inc. (CHTR) Q2 2008 Earnings Report, Transcript and Summary

A replay will be available beginning approximately two hours after the call has ended and will run through midnight eastern time Friday, August 8th. A replay will be available beginning approximately two hours after the call has ended and will run through midnight eastern time Friday, August 8th.

Britt: Now Rob will give you additional insight into our financial performance. Now Rob will give you additional insight into our financial performance.

Marcus: Our subscriber growth was broad based across our footprint, with noteworthy contributions from Los Angeles, which improved year-over-year, and Dallas, which had its best RGU performance since we closed the Adelphia and Comcast transactions in July of 2006. Our subscriber growth was broad based across our footprint, with noteworthy contributions from Los Angeles, which improved year-over-year, and Dallas, which had its best RGU performance since we closed the Adelphia and Comcast transactions in July of 2006. Our subscriber growth was broad based across our footprint, with noteworthy contributions from Los Angeles, which improved year-over-year, and Dallas, which had its best RGU performance since we closed the Adelphia and Comcast transactions in July of 2006. Our subscriber growth was broad based across our footprint, with noteworthy contributions from Los Angeles, which improved year-over-year, and Dallas, which had its best RGU performance since we closed the Adelphia and Comcast transactions in July of 2006. Finally, we are reaffirming our full year outlook for revenues, adjusted OIBDA and free cash flow and are updating our EPS outlook to reflect a number of items which I’ll go into in a few minutes. Employee expense did benefit from a $19 million decrease in equity based compensation expense due primarily to the timing of equity grants that were made in the first quarter of this year but in the second quarter of last year, however that benefit was almost entirely offset by increases in our pension and group insurance clauses. Employee expense did benefit from a $19 million decrease in equity based compensation expense due primarily to the timing of equity grants that were made in the first quarter of this year but in the second quarter of last year, however that benefit was almost entirely offset by increases in our pension and group insurance clauses. Employee expense did benefit from a $19 million decrease in equity based compensation expense due primarily to the timing of equity grants that were made in the first quarter of this year but in the second quarter of last year, however that benefit was almost entirely offset by increases in our pension and group insurance clauses. The lower income taxes paid were in part due to the benefit of the Economic Stimulus Act of 2008, which provides for accelerated depreciation on capital placed in service this year. The lower income taxes paid were in part due to the benefit of the Economic Stimulus Act of 2008, which provides for accelerated depreciation on capital placed in service this year. The lower income taxes paid were in part due to the benefit of the Economic Stimulus Act of 2008, which provides for accelerated depreciation on capital placed in service this year.

Hobbs: On the marking front we have aggressively promoted the Price Lock Guarantee, and it clearly has reduced churn. And of course our bundling strategy has been effective in New York City as well, where we had more than 325,000 Triple Play subscribers at the end of the quarter for penetration of over 20%. Thank you, and with that, I’ll turn it over to Tom for the Q&A portion of the call. Thank you, and with that, I’ll turn it over to Tom for the Q&A portion of the call. Thank you, and with that, I’ll turn it over to Tom for the Q&A portion of the call. Thank you, and with that, I’ll turn it over to Tom for the Q&A portion of the call. Thank you, and with that, I’ll turn it over to Tom for the Q&A portion of the call.

Hobbs:

So, Craig, before I get to the capital structure point, the one thing I would encourage you to do is not focus inordinately on subscriber growth on the commercial side. And if you’ll look at our commercial revenue growth, I think the growth is quite substantial, and increasingly we’re going to try to give you better metrics to measure our performance on the commercial side because I think looking at subscribers alone just falls short. Marcus: So, Craig, before I get to the capital structure point, the one thing I would encourage you to do is not focus inordinately on subscriber growth on the commercial side. And if you’ll look at our commercial revenue growth, I think the growth is quite substantial, and increasingly we’re going to try to give you better metrics to measure our performance on the commercial side because I think looking at subscribers alone just falls short.

Your next question comes from Jason Bazinet – Citigroup.

Britt: But I also think that, if you talk to a bunch of the lawyers, like lots of things in the law, this is a lot more complicated than the headlines appear. So maybe this will all be fine and we’ll deploy it, but I don’t think we fully know that yet. But I also think that, if you talk to a bunch of the lawyers, like lots of things in the law, this is a lot more complicated than the headlines appear. So maybe this will all be fine and we’ll deploy it, but I don’t think we fully know that yet.

Your next question comes from Vijay Jayant – Lehman Brothers.

Britt:

Hobbs:

Your next question comes from Jessica Reif-Cohen - Merrill Lynch.

And then secondly, on programming expenses, the 6% growth was relatively modest and, you know, after listening to all of the second quarter calls of many of the programmers, we're talking about - it feels like expectations on the programming side are much higher, and I'm just wondering if you can comment on how you expect programming expenses to ramp up, not just for the back half of the year but over the next few years? And then secondly, on programming expenses, the 6% growth was relatively modest and, you know, after listening to all of the second quarter calls of many of the programmers, we're talking about - it feels like expectations on the programming side are much higher, and I'm just wondering if you can comment on how you expect programming expenses to ramp up, not just for the back half of the year but over the next few years?

Jessica, why don't we have Rob do both those, and Landel and I can jump in if we see something to add? Britt: Jessica, why don't we have Rob do both those, and Landel and I can jump in if we see something to add?

Marcus: We do have a significant reset of a particular network in the third quarter and that'll have some impact, and we'll also start to see the impact of increased subscribers as we close out the year. We do have a significant reset of a particular network in the third quarter and that'll have some impact, and we'll also start to see the impact of increased subscribers as we close out the year. We do have a significant reset of a particular network in the third quarter and that'll have some impact, and we'll also start to see the impact of increased subscribers as we close out the year. We do have a significant reset of a particular network in the third quarter and that'll have some impact, and we'll also start to see the impact of increased subscribers as we close out the year.

Your next question comes from Douglas Mitchelson - Deutsche Bank Securities.

Britt:

Marcus:

Hobbs:

And maybe then, just to put a short-term focus on it, is it fair to say that the trends we saw in 2Q are continuing into 3Q?

Hobbs:

Your next question comes from Benjamin Swinburne - Morgan Stanley.

2.6 lines we're up to. Marcus: 2.6 lines we're up to.

Okay, on the commercial side, you know, as I said, we're still trying to figure out what the best way to measure our performance there is, both for us internally as we manage the business but also to report to you guys so you have a better feel for what's happening. Marcus: Okay, on the commercial side, you know, as I said, we're still trying to figure out what the best way to measure our performance there is, both for us internally as we manage the business but also to report to you guys so you have a better feel for what's happening.

I guess I asked it poorly, but if you look at your commercial high speed data sub base, are those customers using 10 lines per business with the telco so that if you can convert them over you've got a lot of revenue to go after?

It is certainly the case that a prime target market for us on our phone business is our existing HSB customers, if that's what you're asking. Marcus: It is certainly the case that a prime target market for us on our phone business is our existing HSB customers, if that's what you're asking.

Hobbs:

Britt:

Hobbs: So in the battleground for basic subscribers, we see this as a real opportunity for us. So in the battleground for basic subscribers, we see this as a real opportunity for us.

Your next question comes from Richard Greenfield - Pali Research.

And then two, just looking for a view, Univision has now filed for retransmission consent negotiations at the end of this year and wanted to get your perspective on how you think that plays out and how willing you would be to pay cash for carriage of those stations given your markets.

Okay, Rich, I'll do the network DVR and let Rob do the Univision one. Britt: Okay, Rich, I'll do the network DVR and let Rob do the Univision one.

Marcus:

Can you give us any sense of how important in that Latino package that you're rolling out Univision is to that package?

Marcus:

Your next question comes from Ingrid Chung - Goldman Sachs.

And then separately I was wondering did you say earlier that you've seen churn be reduced across all your products year-over-year? And then separately I was wondering did you say earlier that you've seen churn be reduced across all your products year-over-year?

I'll just do the churn thing, and then Landel can talk about marketing. Britt: I'll just do the churn thing, and then Landel can talk about marketing.

Ingrid, the mechanical answer, though, is that yes, year-over-year, every RGU category has got lower churn this year than last. Marcus: Ingrid, the mechanical answer, though, is that yes, year-over-year, every RGU category has got lower churn this year than last.

Hobbs: Remember, I think, if you heard us talk before, our general approach against their DSL product is we're faster, and so that's a component we're focused on and we'll stay ahead of them in terms of speed around their DSL product. Remember, I think, if you heard us talk before, our general approach against their DSL product is we're faster, and so that's a component we're focused on and we'll stay ahead of them in terms of speed around their DSL product. Remember, I think, if you heard us talk before, our general approach against their DSL product is we're faster, and so that's a component we're focused on and we'll stay ahead of them in terms of speed around their DSL product. Remember, I think, if you heard us talk before, our general approach against their DSL product is we're faster, and so that's a component we're focused on and we'll stay ahead of them in terms of speed around their DSL product.

Your next question comes from Tuna Amobi - Standard & Poors. Tuna Amobi - Standard & Poors:

Britt: Behind the scenes there is a great deal of work going on on what those products might look like, but we don't feel any compulsion to roll those things out right now, particularly in light of, I think, the overall wireless market seems to be maturing pretty rapidly. Behind the scenes there is a great deal of work going on on what those products might look like, but we don't feel any compulsion to roll those things out right now, particularly in light of, I think, the overall wireless market seems to be maturing pretty rapidly. Behind the scenes there is a great deal of work going on on what those products might look like, but we don't feel any compulsion to roll those things out right now, particularly in light of, I think, the overall wireless market seems to be maturing pretty rapidly. Behind the scenes there is a great deal of work going on on what those products might look like, but we don't feel any compulsion to roll those things out right now, particularly in light of, I think, the overall wireless market seems to be maturing pretty rapidly. Tuna Amobi - Standard & Poors: So just to double check, you're not planning any major rollout on the 3G front end part of it, so it's more like a longer term 4G strategy?

Britt: Tuna Amobi - Standard & Poors:

Hobbs: And then the ARPU takeout of the overall PLG, we make sure we manage very carefully we're taking out the requisite amounts of money.

Your last question comes from Thomas Eagan - Collins Stewart LLC.

Marcus: One thing that's worth pointing out is that sequentially in 2007 we had actually a decline in revenue from Q2 to Q3 and pretty modest growth in revenue from Q3 to Q4, so it actually gives us a fairly favorable set of comparisons in the back half of the year. And the last piece is we are expecting some benefit from political advertising as we go into the fourth quarter.