C ompanyName:Char t e r
Co mmunic at io ns Inc
C ompanyTicker:CHT R
Sector:Se r vic e s
Industry:Me dia
EventDescription:Q120 15Ear nings
Call
MarketC apasofEventDate:20 .97B
PriceasofEventDate:18 7.435
CharterCommunications(CHTR)Earnings
Report:Q12015ConferenceCallTranscript
ThefollowingC harterC ommunicationsconferencecalltookplaceonMay1,2015,10:00AMET.Thisisa
transcriptofthatearningscall:
Co mpanyPar t ic ipant s
StefanAnninger;C harter;VPIRP
TomRutledge;C harter;PresidentC EO
C hrisWinfrey;C harter;EVPC FO
Ot he r Par t ic ipant s
JasonBazinet;C iti;Analyst
JohnHodulik;UBS;Analyst
BenSwinburne;MorganStanley;Analyst
JonathanC haplin;NSR;Analyst
VijayJayant;EvercoreISI;Analyst
C raigMoffett;MoffettNathanson;Analyst
BrettFeldman;GoldmanSachs;Analyst
JamesRatcliffe;Buckinghamresearch;Analyst
FrankLouthan;RaymondJames;Analyst
MikeMcC ormack;Jefferies;Analyst
MarciRyvicker;WellsFargo;Analyst
MANAGEMENTDISC USSIO NSEC TIO N
Ope r at o r :
Goodmorning.MynameisThea,andIwillbetheconferenceoperatortoday.Atthistime,Iwouldliketo
welcomeeveryonetotheC harterC ommunications'firstquarter2015earningsconferencecall.Alllines
havebeenplacedonmutetopreventanybackgroundnoise.Afterthespeakers'remarks,therewillbea
question-and-answersession.(O peratorInstructions).Atthistime,Iwouldliketoturntheconference
overtoMr.StefanAnninger.Sir,youmaybegin.
St e f anAnninge r (VPIRP):
Goodmorning,andwelcometoC harter'sFirstQ uarter2015InvestorC all.Thepresentationthat
accompaniesthiscallcanbefoundonourwebsite,ir.charter.com,undertheFinancialInformation
section.
Beforeweproceed,Iwouldliketoremindyouthatthereareanumberofriskfactorsandother
cautionarystatementscontainedinourSEC filings,includingourmostrecentforms10-Kand10-Q .We
willnotreviewthoseriskfactorsandothercautionarystatementsonthiscall.However,weencourage
youtoreadthemcarefully.Variousremarksthatwemakeonthiscallconcerningexpectations,
predictions,plansandprospectsconstituteforward-lookingstatements.Theseforward-looking
statementsaresubjecttorisksanduncertaintiesthatmaycauseactualresultstodifferfromhistoricalor
anticipatedresults.Anyforward-lookingstatementsreflectmanagement'scurrentviewonly,andC harter
undertakesnoobligationtoreviseorupdatesuchstatementsortomakeadditionalforward-looking
© 2014TheStr eet,I nc.Al l R i ghtsR eser ved
Page1of16
C ompanyName:Char t e r
Co mmunic at io ns Inc
C ompanyTicker:CHT R
Sector:Se r vic e s
Industry:Me dia
EventDescription:Q120 15Ear nings
Call
MarketC apasofEventDate:20 .97B
PriceasofEventDate:18 7.435
statementsinthefuture.
Duringthecourseoftoday'scall,wewillbereferringtonon-GAAPmeasuresasdefinedandreconciledin
ourearningsmaterials.Thesenon-GAAPmeasuresasdefinedbyC hartermaynotbecomparableto
measureswithsimilartitlesusedbyothercompanies.Unlessotherwisespecified,2014growthrates
referredtoonthiscallareproformafortheBresnantransactionasifithadoccurredonJanuary1,2012.
Pleasealsonotethatallgrowthratesnotedonthiscallandinthepresentationarecalculatedonayearover-yearbasis,unlessotherwisespecified.
Joiningmeontoday'scallareTomRutledge,PresidentandC EO ,andC hrisWinfrey,ourC FO .Andwith
that,I'llturnthecallovertoTom.
T o mRut le dge (PresidentC EO ):
ThanksStefan.O urstrategytodeliversuperiorproductsatattractivepricescontinuestoresonatewith
consumers.C harter'sSpectrumproductsarenowinover85%ofourcustomers'households.The
continuedstrengthinourcustomerrelationshiprevenueandcashflowgrowthreflectsthesuccessofour
product.Andourservicemetrics,customersatisfaction,andchurnratesareallimproving.Andwewill
launchnewproductsthatleveragethesuperiorityofournetworkandthatwilltranslateintomore
revenueandevenupourhomepassed.C harterremainsinanexcellentpositiontogrowitsbusiness
organically,byadditionalmarketsharegains,withorwithoutM&A.
Duringthefirstquarter,weadded86,000newresidentialcustomerrelationships,andoverthelast12
months,we'vegrownourresidentialcustomerbaseby4.5%.ResidentialPSUsgrewby160,000duringthe
quarter.O verthelast12months,we'vegrownexpandedbasicvideorelationshipsandwestillexpectto
addvideorelationshipsforthefull-year.Inthefirstquarter,welost7,000videocustomers,andweadded
125,000broadbandcustomers.O urbroadbandpenetrationisnowatover40%ofourhomespassed,and
todayatabout85%ofourresidentialinternetcustomerssubscribetotiersthatprovide60megabitsor
more.
Duringthefirstquarter,revenuegrewby7.3%.Excludingadvertisingrevenue,totalrevenuegrewby
7.6%,fasterthanlastyear'sfirstquarter.Residentialrevenuegrowthalsoimprovedyear-over-year,
growing6.7%.Andwe'regoingfaster,withlessrelianceonannualpriceincreases.AndadjustedEBITDA
grewby7%whenexcludingC omcasttransactiontransitionexpenses.
O urfirstquarterresultscontinuetodemonstratethesustainablegrowthprofileofouroperatingstrategy.
TheyalsodemonstrateC harter'scashflowpotentialwithall-digitalbehindus,excludingtransactionrelatedexpenses.EBITDAlesscapitalexpendituresincreasedbymorethan$250millionversuslastyear's
firstquarter.
Lookingspecificallyatvideo,duringthefirstquarterwemadeafewoperationalchanges,includinga
tightenedcreditpolicy.Andwedidn'thavetheprioryearbenefitofall-digital,whichdrovebulk
upgradesandareductioninunauthorizedcustomerslastyear.Inthecomingmonths,we'llbelaunching
ournewcloud-baseduserinterface,SpectrumGuide,inmarketslikeRenoandSt.Louis.SpectrumGuide
worksonnearlyallofourboxesandmakescontentsearchanddiscoveryeasierandfullyenablesourondemandoffering.ResultsinFortWorth,thetestmarket,havebeenpositive.
O verthecomingmonths,we'llincreasethenumberofon-demandtitleswehaveonourset-topboxes
andontheC harterTVappbyafactorofthree.Thecomingmonthswillalsoseethewiderrolloutofour
Worldbox,ournewmoreadvancedandlessexpensivedownloadablesecurityinfrastructureinseveral
markets.Soourvideoproduct,whichisfullycompetitivetoday,continuestoimprove.AndwithSpectrum
Guideandotherfeatures,itwillgetevenbetterthroughouttheyear,offeringarich,fully-featuredvideo
packagethatissuperiortothecompetitionatahighlyattractiveprice.
© 2014TheStr eet,I nc.Al l R i ghtsR eser ved
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C ompanyName:Char t e r
Co mmunic at io ns Inc
C ompanyTicker:CHT R
Sector:Se r vic e s
Industry:Me dia
EventDescription:Q120 15Ear nings
Call
MarketC apasofEventDate:20 .97B
PriceasofEventDate:18 7.435
Webelievethatmostconsumerswantfully-featuredvideoproducts.Thosefully-featuredvideoproducts
areattheheartofourvideobusinesstoday,andwebelievethey'llbeatthecoreofourvideobusiness
wellintothefuture.Andweexpectgrowthinvideoin2015,despitethecontinuedpressureonpay-TV
customergrowth.Thatpressureiscomingfromweakhouseholdformation,highercontentcosts,and
otherentertainmentdiversions.
Givenallthereportingonapossiblealacarteservicesandsmallerpackageoffering,we'vebeen
consideringwaystoprovidecompellingservicesandpackagesatlowerretailpricepoints,withalower
contentcoststructure,andwiththeinclusionofdirect-to-consumerservices,allthenofferingtosatisfy
theunservedmarketplace.Ifwecancreateanewvideoproductthatoffersrealvaluetothissegmentwe
targetandthecustomerswillstickwith,thatalsogivesusanopportunitytoupgradecustomerstoour
fully-featuredvideoproductasconsumerneedschange.Andobviouslywe'lldoitifwecan.Wehaven't
foundthatproductmixyetandwedon'tthinkanyoneelsehaseither.Thereforeweremainfocusedon
theopportunitytoprovidehigh-qualitytelevisionservicewithamodernuserinterfacetoallourpassings
andgrowourvideobusinessfurther.
Turningtocommercial--inearlyMarch,wereorganizedandthere-brandedourcommercialservices
undertheSpectrumbrandandlaunchedanewpricingandpackagingstructureforthesmalland
mediumbusinesssegments.Thatstructureisintendedtoprovidebetterproductsandgreatervalueto
smallandmediumbusinesscustomersandtodrivedeeperproductpenetrationatthepointofconnect
withmanageablepricestep-upsovertime,verysimilartowhatwe'vedoneintheresidential
marketplace.We'realreadysellingmoreandweexpectthisnewpricingandpackagingtoreaccelerate
thefinancialgrowthofourcommercialservicesunitasithasourresidentialbusiness.Theentirebusiness
telecommarketfootprintremainsaverysignificantgrowthopportunityforC harter.
I'dliketomakeafewcommentsonourrecentlyterminatedtransactionwithC omcast.Asacompany,we
putasignificantamountoftimeandeffortandmoneyintocompletingourtransactionwithC omcast.
O bviously,we'redisappointedthatourtransactionsdidnotclose,butI'mpleasedthatwecontinueto
growourcorebusinessandwe'veputourselvesinabetterpositiontoacquirethe6.5millionunserved
passingsinourfootprintandtoacquireotherpassingsinadisciplinedmanner,consistentwithourgoal
ofdeliveringcompetitiveproductsandhigh-qualityserviceatattractivepricepointstodrivemarket
share,cashflow,andshareholdervalue.
O uragreementwithAdvance/Newhouserequiresthatwenegotiateingoodfaithontheterminationwith
C omcasttransactionsandwe'redoingthat.Thereisn'tmorethatI'llsaybeyondthat,exceptIwantto
complimentthequalityoftheBrightHouseassetsandthemanagementteam,aswealreadyhave.
Andwiththat,I'llturnthecallovertoC hris.
Chr is Winf r e y(EVPC FO ):
Thanks,Tom.Turningtoslidethreeoftoday'spresentation,asTommentioned,wegrewresidentialPSUs
by160,000duringthequarter.Inthevideo,welost7,000residentialcustomerscomparedto2,000nonbulkvideocustomernetaddsinthepriorperiod.ThisslightdeclinewasrelatedtothefactorsTom
describedandhasnotdampenedourfull-yearoutlookforvideo.
Inresidentialinternet,weadded125,000customers,andwegrewresidentialvoicecustomersby42,000.
O verthelastyear,ourresidentialcustomerbasegrewby254,000or4.5%forthelastyear.Andatthe
sametime,firstquarterresidentialARPUroseby1.8%year-over-yeardrivenbysell-in,step-ups,anda
lowerlevelofannualrateincreasesforthereasonsImentionedonthelastquarterlycall.
Despitegoodtriple-playselling,wecontinuedtohaveafairamountofsingle-play,internetwhichpulls
ontheaverageARPU.Thisslidefiveshows,ourcustomergrowth,combinedwithourARPUgrowth,
© 2014TheStr eet,I nc.Al l R i ghtsR eser ved
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C ompanyName:Char t e r
Co mmunic at io ns Inc
C ompanyTicker:CHT R
Sector:Se r vic e s
Industry:Me dia
EventDescription:Q120 15Ear nings
Call
MarketC apasofEventDate:20 .97B
PriceasofEventDate:18 7.435
resultedinyear-over-yearresidentialrevenuegrowthof6.7%comparedto6.5%oneyearago,again
withlowerrateincreasesthisyear.
Lookingatcommercial,weadded21,000PSUs.C ommercialrevenuegrewbyapproximately15%,driven
primarilybysmallandmediumbusinesses.Excludingthelowergrowthhospitalityvideobusiness,telecom
revenuegrewby17%.AsTommentioned,werecentlyre-brandedourcommercialservicesunitto
Spectrumsomeassociatedcostsinthequarterandwelaunchednewpricingandpackagingtothesmall
andmediumbusinesssegment.We'realreadyseeingasignificantsalesupliftatthenewpricepoints.
O uradvertisingrevenuedeclinedbyabout2%year-over-year,andintotal,revenuewasupby7.3%in
thefirstquarter.Andexcludingadvertisingrevenue,totalrevenuegrewby7.6%.
TurningtooperatingexpensesandadjustedEBITDAonslidesix.Totaloperatingexpensesgrewby$127
millionor8.9%year-over-year.AndtransitioncostsrelatedtoourtransactionswithC omcastaccounted
forabout$21millionofthat$127million.Excludingtransitioncost,totalexpensesgrew7.4%year-onyear,withtotalprogrammingexpensegrowingby$60millionandthataccountedforabouthalfofthe
year-over-yearincreaseintotaloperatingexpense.The10%increaseinprogrammingisdrivenby
contractualrateincreases,about1%growthinourexpandedvideocustomerbaseoverthelastyear,
andhigherpenetrationofourtiers,broadercarriageinthelaunchofnewchannels.
C oststoservicecustomers,whichincludesfieldoperations,customercareandnetworkoperationscosts,
grewby5%year-over-year,drivenbysimilarandlargercostofcustomerbase.O thercostsgrewby$23
million,or12.6%year-over-year,drivenbyhigherlaborcoststosupportcommercial,someadditional
administrativelaborexpense,andanincreasedbaddebt.Excludingtransitioncosts,adjustedEBITDA
grewby$54millioninthequarter,or7%year-over-year,withalowerlevelofrateincreases.Soourfirst
quarteroperatingresultsweresolid,andgenerallyasweexpected.
Movingtoslideeight.Firstquartercapitalexpenditurestotaled$351millionor15%ofrevenue,including
$14million,whichwasrelatedtoC omcasttransactions.Muchofthetransitioncapitalwe'vespentwon't
infactbelost,asweneededtoacceleratetheplatforminvestmentsthatwouldhaveincurredoverthe
nextcoupleofyearsanyway.Eitherway,thesignificantyear-over-yeardeclineinC apExwasdrivenby
thecompletionofall-digitalduringthefourthquarteroflastyearandwecontinuetoexpect
approximately$1.7billionincapitalexpenditurein2015,excludingspendingrelatedtoacquisitions.
IfyoujustlookatEBITDAandC apEx,excludingtransitionexpenses,theincreasedcontributiontocash
flowwas$256millioninthequarter.Thatsaid,wegenerated$101millionoffreecashflowinthefirst
quarter,comparedto$74millionlastyear.O urfreecashflow,asImentioned,wasoffsetby$35millionof
transitionexpensesinC apExImentionedamomentago,M&Aexpenseswhichareincludedbelow
adjustedEBITDAandotherexpenses,and$36millionofcashinterestpaidduringthequarterforthe$7
billionofescrowedC omcasttransactiondebt.
Butthebiggestdriverwasfirstquartertradeworkingcapital,aswesawasignificantdeclineinaccruals
andpayablesforC apExyear-over-year,whichwasaone-timereversalfortheall-digitalbuild.Soabsent
thatroughly$80millionimpactinthequarter,whichwas$150millionyear-over-yearworkingcapital
swing,ourbusinesstrendshouldprovideuswithaslightworkingcapitalbenefitona12-monthrolling
basisgoingforward,astheynormallydo,withalotofseasonalityinthequartersbetween.
Turningtoourbalancesheet.O urcurrentleverageratiowas4.4xonanLTMbasis,withinourtarget
leveragerange.Andincludingtheimpactofourrecentdebtrefinancings,ourcurrentweightedaverage
volumecostisnow5.2%.Iwon'tgothroughallofourtaxassetsagain,butwebelievewe'veconstructed
averyattractivecapitalstructureprofilethatsupportsouroperatingstrategy.
Andwiththat,operatorwe'renowreadyforquestions.
© 2014TheStr eet,I nc.Al l R i ghtsR eser ved
Page4of16
C ompanyName:Char t e r
Co mmunic at io ns Inc
C ompanyTicker:CHT R
Sector:Se r vic e s
Industry:Me dia
EventDescription:Q120 15Ear nings
Call
MarketC apasofEventDate:20 .97B
PriceasofEventDate:18 7.435
Q UESTIO NS&ANSWERS
Ope r at o r :
(O peratorInstructions).We'llpauseforjustamomenttocompiletheQ &Aroster.Thefirstquestion
willcomefromJasonBazinetwithC iti.
Jas o nBaz ine t (Analyst-C iti):
Thanks.Ijusthadtwoquickquestions.Inyourpreparedremarks,Mr.Rutledge,youtalkedaboutdirectto-consumerofferingsthatyouwereexploring.Ijustneverheardthatphrase.Iwaswonderingifyou
couldjustelaborateonwhatthatis?AndthensecondontheC apExfront.I'mjust--canyoujustprovide
maybealittlebitofcolorintermsofwhythe$1.7billionisstillthecorrectnumberforthefull-year,given
thesharpdrop-offinthefirstquarter?Thanks.
T o mRut le dge (PresidentC EO ):
Allright,Jason.Well,thedirect-to-consumernotioninmyscriptwasreallyaboutaproviderofover-thetopserviceslikeNetflix,ornowinthecaseofHBO ,orHulu,orotherslikethat,wherethepayerofthe
contenthasadirectrelationshipwiththecustomer.AndsowhatIwassayingwasthatourviewisthatwe
canmixthoseproductsintoproductsthatweselltosatisfytheentirecustomers'videoneeds.
Jas o nBaz ine t (Analyst-C iti):
Anddoesthat--whenyousaydirect-to-consumer,doesthatimplyoutsideyourfootprintaswell,or
you'reenvisioningDTC withinyourfootprint?
T o mRut le dge (PresidentC EO ):
Ican'thearhim.
Jas o nBaz ine t (Analyst-C iti):
Areyoutalkingabout--yes,goahead.
Chr is Winf r e y(EVPC FO ):
Thequestionwaswhetherdirect-to-consumerimpliesinsideofourprintoroutsideofourfootprint?
T o mRut le dge (PresidentC EO ):
O h,I'massumingthatproductscanbebuiltwhichwouldbesoldbyusinsideourfootprint,butwouldalso
containproductsthataresoldoutsideourfootprint,deliveredbytheinternet.
Jas o nBaz ine t (Analyst-C iti):
Understood,okay.
T o mRut le dge (PresidentC EO ):
Generally,butnotnecessarily.
Jas o nBaz ine t (Analyst-C iti):
Understood.
Chr is Winf r e y(EVPC FO ):
© 2014TheStr eet,I nc.Al l R i ghtsR eser ved
Page5of16
C ompanyName:Char t e r
Co mmunic at io ns Inc
C ompanyTicker:CHT R
Sector:Se r vic e s
Industry:Me dia
EventDescription:Q120 15Ear nings
Call
MarketC apasofEventDate:20 .97B
PriceasofEventDate:18 7.435
AndJasononC apEx,the$1.7billion--Q 1incabletendstobealittlebitlightandseasonal.That'sno
differenthere.WealsobenefitedinsideofQ 1comingoffofall-digitalwithhigherinventorylevels.Butwe
thinkthat$1.7billionisstillafairestimateforthefull-year.Andwhenyoutakealookaround,Q 1always
tendstobealittlebitlighterthanusual.
Jas o nBaz ine t (Analyst-C iti):
O kay.Thankyou.
Ope r at o r :
ThenextquestionwillcomefromJohnHodulikwithUBS.
Jo hnHo dulik(Analyst-UBS):
Thanks.Maybe,wecouldjustexplorethesubscriber,thevideosubscribertrendsalittlebithereinthe
firstquarter.Itsoundslikechurniscomingdown,soifyouguyswerelittlelight,itwasonthenew
connects.Andyoumentionedacoupleofthings.Butifyoucouldmaybesortofgiveusanindicationof,
sortof,theweightingsofeach,butyousaidtightercreditstandardsmaybeincrementalcompetitionfrom
non-traditionalguysbecausewiththeall-digitaltransition,andIwouldsaylesscompetitionwith
AT&T,are--weexpectedsomewhathighernumbers?Thanks.
T o mRut le dge (PresidentC EO ):
SoJohn,it'sTom.Ithinkthereareseveralfactors.O ne,yougottounderstandwherewewereandwhat
ourplanningwas.Weweregettingreadyforabigintegration.
Jo hnHo dulik(Analyst-UBS):
Right.
T o mRut le dge (PresidentC EO ):
Wealsohadcomeofftheall-digitalproject,whichhas--whileithasbenefitstoconsumersandeven
benefitstousinpriorquarters,likeforinstance,unauthorizedcustomersgetcut-offwhenyoudigitize
andtheybecomeyourcustomersinmanycases,althoughtheirchurnratesgradesarehigherthanthe
averagecustomerbase,atthesametime,theall-digitalprojectisverydisruptive.Wehadtoputoutsix
millionboxesinauniverseofmilliontelevisionsinasingleone-yearperiod.
Andthat'sactually--whileitultimatelybenefitstheconsumertohavethatall-digitalproduct,becauseit
freesupournetworktoincreasethedataspeedsanditfreesupournetworktoputonmoreHD
channels,thewholeprocessisquitedisruptivefromaconsumerperspectiveanditcreatesalotofservice
transaction.Sowewereslowingdownthebusinessinthefirstquartertomanageourservicecalls.And
theyhavedroppedoff,asweexpectedtheywould.Soweactuallyhadafairlymodestvideobudget
becauseofallofthatactivityanyway.
Andfinally,Iguesswhenyouthinkaboutourincentivesasacompany,ourbiggestopportunitywasthe
transactionthatwasinfrontofus.Wewereabouttodivest40%ofourbusiness.Andso,ourfocuswas
somewhatdistracted.Butallinall,theoperationalissuesofchanging--creditpolicieschangingyearover-year,outcomesasaresultoftheterminationoftheall-digitalprojectandthemanagementofthe
serviceissuesaroundtheall-digitalproject,we'recomfortablewithwhereweare,andweare
comfortablewithourgrowthprospectsfortheyear,whichiswhywe'resayingweplannedtogovideo
throughouttheyear.
Jo hnHo dulik(Analyst-UBS):
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Page6of16
C ompanyName:Char t e r
Co mmunic at io ns Inc
C ompanyTicker:CHT R
Sector:Se r vic e s
Industry:Me dia
EventDescription:Q120 15Ear nings
Call
MarketC apasofEventDate:20 .97B
PriceasofEventDate:18 7.435
O kay.Thanks,Tom.Itmakessense.
Ope r at o r :
ThenextquestionwillcomefromBenSwinburnewithMorganStanley.
Be nSwinbur ne (Analyst-MorganStanley):
Thankyou.Goodmorning.C hris,canyou--willyougiveusthe,quantifythelevelofrateincreasenow
thatthefirstquarterisbehindyou,sowecanspeakaboutitversusprioryear?Iknowitwaslower.Butif
youcouldputanynumbersaroundit,thatwouldbeveryhelpful.
Andthenjust,Tom,couldyoutalkabouttheset-topplatformtodayandwhereit'sgoing?SoWorldbox,I
imagineit'slessexpensivethanwhatyou'vebeendeploying?C anyougiveusasenseformaybehow
muchandwhatelseitmightdoforyou?AndthenonthatNetflixO TTintegrationideayoubroughtup,
howmanyofyourset-topstodaycouldyoudeployaproductlikethatintermsofintegratingthose
servicesintoyourcorevideoplatform?
Chr is Winf r e y(EVPC FO ):
Soonrates,it'salittlemorecomplicatedbecauseyoudon'thave--it'sjustnotaQ 1.Inbothyears,you
haddifferenttimingseasoninsidethemonth.Whatwedidthisyearwasextremely--itwasveryminimal.
Butwealsobenefitfromtheretranspass-throughthatcamethroughinsideofQ 4.Andsoyouhaveto
looktothosetwoeffectscumulatively.O neiswhatwasinplaceinQ 4,andthereforetherunratealready
inJanuaryofthisyearplustheveryminimalincreasesaroundtheedgesthatwetookthisyear,as
comparedtothetimingofwhenlargerrateincreases,notonlyjustforQ 1butcumulativemarginrate
increasestookplacelastyear,theneteffectofallofwhichisthecumulativeQ 4andQ 1increasesthat
wetookthisyearweresubstantiallyloweronapercentageanddollarrevenuebasisthanwhatwehad
donelastyear.
Andwithoutgettingintoallthecomplexities,Ithinktheeasierwaytotakealookatitisifyoulookatthe
quarterly--quarter-over-quarterresidentialcustomerARPUgrowth,thisquarterweareat1.8%.Wehave
moreofthebasesteppingoutthatwehavelotlessannualrateincreasesandiflookatQ 4oflastyear,it
wasupat3.1%.WereallydidgooutofourwaylastquartertoexplainthattopeopleaswhattheQ 4
impactwasandhowwewereintentionallynotgoingtotakethesamelevelofrateincreasesthisyearfor
thereasonswementionedlastquarter,someofwhichTomjusttouchedon,frankly.
Soit'saroundaboutwayofsayingit'salargedifferencewhenyoutakethecumulativeQ 4andQ 1,and
largelylowerthanwhatwedidlastyear.
T o mRut le dge (PresidentC EO ):
SoBen,yourquestionontheset-toptypeonWorldboxandpriceandintegrationofotherproductsinto
ourproductoffering.Therearereallytwoplatformsthatwearecurrentlyrollingoutthatincreaseand
changethenatureofourvideoproductdramatically.O neisournewcloud-baseduserinterface,our
SpectrumGuide.Andthat'sabackward-compatibleuserinterfacethatstate-of-the-artandlookslikeany
kindofguidethatcanberenderedonanykindofdevicetoday.Itiscompletelymodernandusefuland
canbechangedwithverylittledevelopmenttimebecausealloftheactivityisdonecentrallyinaserverbasedarchitecture.
Thebreakthroughthatwe'veachievedinourstrategyisthatthiscloud-baseduserinterfacealsospeaks
multiplelanguagesofdigital.SoitcantalktoDO C SISboxes.Itcantalktoanydevice,bothinthehome
oroutsidethehome.AnditcantalktohistoricallyplaceddigitalboxesinthelanguageofMPEGas
opposedtoIP,whichcanbeeithercableorinternetlanguage.Andsowecanrenderthisuserinterface
© 2014TheStr eet,I nc.Al l R i ghtsR eser ved
Page7of16
C ompanyName:Char t e r
Co mmunic at io ns Inc
C ompanyTicker:CHT R
Sector:Se r vic e s
Industry:Me dia
EventDescription:Q120 15Ear nings
Call
MarketC apasofEventDate:20 .97B
PriceasofEventDate:18 7.435
oneveryset-topboxthat'sbeenhistoricallydeployed.
SoasIsaidearlier,wenowhave10milliondeployedset-topboxes,manyofthemwhichcan'treceive
DO C SISsignals,manyofwhichcan.Andwe'regoingtodeliverthisnewuserinterfaceinbothDO C SIS
andinMPEG.We'reusingtheactivevideoplatformandothersoftwareplatformsthatwehave.Andwe're
alsogoingtoleaveasmallresidentguideontheset-topboxes,sothatiftheboxeseverlose
connectivitytotheserver,thatcustomerstillhasuserinterface.O urviewisthatthatwon'tbeneeded,
butwe'vebuiltbelt-and-suspendersaroundit.
O nthatplatform,becauseit'sstreamed,wecanputanyotherservicesaswellontoverytelevisionor
outletwehave.Thosecanbeservicesthatweselldirectly.Theycanbeservicesthatothercompanies
selldirectly.AndwecanincludethoseintheUIifwewanttoornot.Soit'sanopenarchitecturethat
givesusatremendouscapabilitydependingonwhichwaythetelevisionmarketplaceevolves.
Worldboxisabetterset-topboxanditusesadownloadablesecuritythatisunderourcontrolas
opposedtotheboxvendor'scontrol.Anditallowsusthereforetobuyboxesfromanyvendoranywhere.
AndthereasonwecallitaWorldbox,itjustmeanswecanbuyfromanyworldvendor.Andwedon'thave
aparticularvendorinmindwhenwethinkaboutWorldbox,althoughwe'vedonedealswithC iscoand
ARRISandotherstobuildtheseboxesanddeploytheseboxes.
It'sprimarily--it'saverysophisticatedbox,butit'sinexpensivebecause,one,theconditionalaccessisn't
partoftheboxprice.Andtwo,we'resortofridingMoore'sLaw.Andthree,we'regettingtheeffectof
havingacompetitiveworldmarketplaceinfrontofusandpeopleofferingtheirproductsatcompetitive
pricestous.
Interestingly,theall-digitalprojectthatwejustdidwaspositivelyimpactedbythefactthatwebuilt
Worldbox.O urtraditionalboxvendorsbecameveryaccommodatingtousanddevelopedWorldboxwith
us,sawthewritingonthewallandproceededtogowheretechnologytakesthem.Andweactuallygot
verygoodpricingonthetraditionalboxesthatwedeployedandwealsoworkedwiththeFC C andgota
waiversothatwecouldputoutboxesthatdidn'thavecablecards.Thatwaiversincebeennegatedbya
changeinlaw.Butwetookadvantageofourrolloutstrategyandourarchitecturalstrategythroughout
theperiod.Butgoingforward,weexpectC PEtocontinuetocomedown,andthatultimatelytakescapital
intensityoutofthebusiness.
Be nSwinbur ne (Analyst-MorganStanley):
Thankyou,Tom.
Ope r at o r :
ThenextquestionwillcomefromJonathanC haplinwithNSR.
Jo nat hanChaplin(Analyst-NSR):
Great.Thanksfortakingthequestion.SoIjustwantedtogobacktoyourcommentsonhowyou're
lookingatthevideomarket,andgetasensetheopportunitywe-oneoftheopportunitiesweare
excitedaboutatC harterisyourabilitytotakevideopenetrationupfairlysignificantlyevenfromwhereit
isatthemoment.Isityourviewthatthemarkethaschangedandyouneedtocomein--youneedtoput
alowerpricetoofferintothemarketwiththedirect-to-consumerproductsinordertogettopenetration
levelsthatwemighthavethoughtyoucouldgettobefore?O risthatentirelyadditivetotheoriginal
businessplan?
T o mRut le dge (PresidentC EO ):
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MarketC apasofEventDate:20 .97B
PriceasofEventDate:18 7.435
Well,I'dsaythisway,themultichannelvideouniverseisveryhighlypenetrated.Andthereisaslightloss
ofvideopenetrationinaggregate.Thatsaid,thereisatremendousopportunityforustoshiftsharetous
toourbetterplatform.Soweseelotsofvideogrowthinfrontofusinamarketthatismaturebutnot
shrinkingdramatically.
Sothewholeover-the-topissue,orcord-cuttingIguessisabetterwayofdescribingit,issue,isthefact-itisoccurringanditsoccurringforavarietyofreasonsthatIstatedearlier,householdformation,income
levels,particularlythepriceofthefullpackageisexpensive.Andwedohavetheinternetnowand
peopleareusingtheinternetforbothvideoentertainmentbutotherkindsofdiversionaryentertainment,
allofwhichhave--whichyouseeaffectingtheratingsofvideoproductinanegativeway,butwhichputs
morepressureonthepricesideofthevideoproductfromalicensingperspective.
Allofthosefactorsarereal,butit'salsorealitythatpeopledolikethefullserviceandpeoplewantthe
fullservice.It'sjustthatit'snotthatinexpensive.
Andsoweseegrowth.We'dlovetobeabletoservepeoplewithproductsthatarelessthanafull
package,iftheirincomeorlightviewerlimitedintermsoftheirdesireforthatproduct.Imeanthe
elasticityofdemandfortheproductchangesbywhatthealternativesare.
Andfrankly,ifyousellpeopleproductsthattheythinkarecableorthefullproductandtheyarenotthat
product,thechurnratesgoveryhigh.AndPhilippeDaumanyesterdaysaidsomethingaboutfamily
packagesinthevideospace,whichIthinkisright.Peoplehaveplayedaroundwithpackaginginthe
past.Andtherealityisthatmostpeoplewantthewholething,eventhoughthatit'struethattheydon't
watchthatmanychannels,theyhaveaccesstoalotofservice,andthequalityisquitegood.
Sowhenyouthinkaboutpackagingandtargetingpeople,it'snotthateasytofindniches,andit'snot
thateasytomakethemodelworkwithoutafullservicepackageofproduct.Thatsaid,wearelookingat
allthealternatives.Weseewhat'sgoingoninthemarketplace.Weseethematurityofthemarketplace.
Butfundamentally,ourgrowthstrategyisdrivenbyhigh-qualityfull-serviceproducts.
Jo nat hanChaplin(Analyst-NSR):
Gotit.Thankyou.
Ope r at o r :
ThenextquestionwillcomefromVijayJayantwithEvercoreISI.
VijayJayant (Analyst-EvercoreISI):
Thanks.Tomjustcontinuingonyourpriorcomments,obviouslyFiO Sistryingtotakeacreativeviewon
howtheycandothis.Doyoubelievethatthatkindofstructureofaconsumerpropositioniswhatthe
marketneedsandonecanyoudothat?
AndthenforC hris,justofquickly,justthepulseofthehighermarkettoday,they'veobviouslybeen
borrowingmoneyoverthelastfewmonthsaspartoftheC omcasttransaction.Buttogettensofbillionsof
dollarsoffinancing,isthemarketfullyavailable?Arethebigbankswillingtoprovidebridgeloans,
broadlyspeaking?Sojustwanttoseeifyoucangiveussomesenseofhowthespreadmarketis?Thanks.
T o mRut le dge (PresidentC EO ):
WithregardtoFiO Spackage.Ithinkthosekindsofproductshavebeentriedinthepast.AndIdon'tknow
what'sinFiO S'scontractswithESPN,butgenerallytherearetieringrequirementsandthereare
penetrationrequirementsforservicelevelsthatarequite--theyhavebeenhistoricintheindustry,
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MarketC apasofEventDate:20 .97B
PriceasofEventDate:18 7.435
becausepeoplehavetriedthesetierspreviously,familypackages.Infactatonepoint,theFC C was
promotingthatideawiththefamilytierintheirlastadministration.
Soitisit'snotanewconcept.Productshavebeenlaunchedevendecadesago.HBO Light,Festival,and
otherserviceslikethat,theyweredesignedtoappealtoniches.Butallofthemhaveendedupmigrating
backintoafullpackagekindofworld.Andsoit'shardto--actuallygiventhewaythatbusinessis
structuredwhenyouarebuyingprogrammingtobuildproductsthatactuallysatisfypeople.And--but
wouldIberatherbeabletoselllotsofsmallertiers?Yes,Iwould.ButIstillthinkthemajorityof
householdswouldbuymostofthem.
Chr is Winf r e y(EVPC FO ):
AndVijayonthecapitalmarketsquestion--thereissomeofthatthat'sanembeddedM&Aquestion
thatI'dliketosteerawaylittlebit.ButgenerallyI'dsay,itfeelstousthatthecapitalmarketsremains
healthyandreceptiveforgoodcreditsandforgoodoperatingstrategies.Andthat'swhatisonourhands
istohaveagoodoperatingstrategy.Andbeyondthat,it'sdifficulttosay.
VijayJayant (Analyst-EvercoreISI):
Great.Thankyou.
T o mRut le dge (PresidentC EO ):
O perator?
Ope r at o r :
ThenextquestionwillcomefromC raigMoffettwithMoffettNathanson.
Cr aigMo f f e t t (Analyst-MoffettNathanson):
Hi,thankyou.SoIwanttoreturntothetrajectoryofARPUforasecond.Separateandapartfromthemix
ofsingle-playsandtriple-playswhichsortofcloudsit,canyoujustgiveusalittlebitofinsightintohow
you'retrackingwithrespecttothestep-upsinpricing?andisthatflowingthroughattheratethatyou
hadcometoexpectit?Andifyoucouldjustanupdateusonhowmuchofthatisstilltocomeaswelook
forward?
T o mRut le dge (PresidentC EO ):
C raig,yes,itisasweexpectedandourmodelisworking.IthinkthemixisslightlydifferentthanImight
havetalkedacoupleofyearsagointermsoftriple-playtosingledataplayandthatkindofthing.Butit
isessentially--thosepeoplethatpriceintopackagesaresteppingupasweexpectedandtheretention
ratesarewhatwe'veforecastedandplannedallalong.AndsothetrajectoryoftheARPUisconsistent
withourmodel.
Chr is Winf r e y(EVPC FO ):
AndC raig,I'daddontothat.It'sahealthyARPUdevelopment.Soit'sanARPUdevelopmentthat's
supportedbydeliveringthecustomerofwhattheywantwiththefastestinternetspeed,thelowestcost
voice,themostfully-featuredvideoproductatanattractiveprice,whichiswhatgivesyouthestep-up
powertobeginwith,butevenmorethatstepsupthat'sstillatabetterpricepointforalltheserviceswith
betterservicethanthecustomercouldreceiveelsewhere,whichisreallywhatmakesitsustainableat
thesametimeyou'redelivering4.5%,5%customergrowthatthesametime.
Cr aigMo f f e t t (Analyst-MoffettNathanson):
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MarketC apasofEventDate:20 .97B
PriceasofEventDate:18 7.435
AndsohowshouldwethinkaboutthegrowthofARPUgoingforward?Iknowyoucan'tgiveprecise
guidance,butcanyougiveussomegeneralguidanceforhowyouwouldexpecttheARPUtotrackover
thenextyearorso?
Chr is Winf r e y(EVPC FO ):
Sure.I'mnotgoingtogiveforwardguidance,butIthinkIcandirectyouto--inourinvestorpresentation
thatweproduceeveryquarter,youcanseetheyear-over-yeargrowthratesandyoucanseewhere,
pointsintimewherewe'vehadsomeannualrateflowingthroughandyoucanseewhentherehas
essentiallynotbeenthateffectflowingthrough,whichiswhyIwasmakingthehealthyARPUincreaseis
basedonthebusinessdevelopment.
Andyouhavealotmoretransactionsthataretakingplacethanmeetstheeye.Youdon'tonlyhave
grossconnects.Youhavemigrations.Youhaveupgrades.Youhavedowngrades.Andyouhavebundling
ofthosecustomersandthepricingofthebundleofthosecustomersthataredisconnecting.It'sareally
complexmodel.
T o mRut le dge (PresidentC EO ):
Itis.
Chr is Winf r e y(EVPC FO ):
AndIthinkit'dbewrongtotrytooversimplifyit,butwhenyouhaveanoperatingstrategythathasthe
productpricingandpackagingthatwehave,youcanbeinanenvironmentwhereyouhavesteadyprice
increasesthatarebasedonthevaluethatyou'reprovidingandyoucandoitinawaythat,despitethe
higherinputcosts,thatyouroverallgrossmarginandEBITDAmarginpercustomerandyourEBITDA
marginperpassingcanincrease--substantiallyinsomecases--despitethefactthatsomeofyourinput
costsaregrowingupatahigherrate.Andthat'swhatputscablegenerally,andC harterIthinkina
uniquepositionrelativetoothers,aslongasyouprovidetherightpricingandpackaging.
Cr aigMo f f e t t (Analyst-MoffettNathanson):
O kay.Thankyou.
Ope r at o r :
ThenextquestionwillcomefromBrettFeldmanwithGoldmanSachs.
Br e t t Fe ldman(Analyst-GoldmanSachs):
Thanksfortakingthequestion.Younotedinyourcommentsandinyourreleasethattherewasan
increaseinbaddebtexpenseyear-over-yearandoneofyourpeershadasimilardisclosure.I'mjust
curious,isthatcomingfromthecommercialsideortheresidentialside?Andthenjustasafollow-on,
couldyoutalkalittlemorebroadlyaboutwhatyou'reseeingintheeconomyandhowit'saffectingyour
business?
Chr is Winf r e y(EVPC FO ):
Yes,Idon'tthinkit'smuchfromaneconomicdevelopment.IthinkittiesintowhatTomwasdescribing
before.It'scomingoutontheback-endofall-digital.Wehadsomeupliftfromunauthorizedcustomers
becomingpayingcustomers,andsometimesyouseesomeofthatcomingouttheback-endaswell.We
alsodidmakesomechangestobothourcollectionandcreditpoliciesthatweighedintothatthathasa
one-timeeffect.Soit'sacombinationofthosetwofactors.Iwouldcallitmoreself-inflicted--intentionally,
forgoodreasons,asopposedtobroadermacroeconomicorcableindustrychallenges.
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C ompanyTicker:CHT R
Sector:Se r vic e s
Industry:Me dia
EventDescription:Q120 15Ear nings
Call
MarketC apasofEventDate:20 .97B
PriceasofEventDate:18 7.435
T o mRut le dge (PresidentC EO ):
Yes,thebroadereconomicsituationisactuallyslightlyimproving.
Chr is Winf r e y(EVPC FO ):
Yeah.
T o mRut le dge (PresidentC EO ):
There'smorehousingconstructionthantherehasbeen.Notmuch,butmore.
Br e t t Fe ldman(Analyst-GoldmanSachs):
Great.Andjustasafollow-up,Imean,shouldweexpectthebaddebtexpensewillimprovegoingforward
fromthispoint?
Chr is Winf r e y(EVPC FO ):
That'sourgoal.
Br e t t Fe ldman(Analyst-GoldmanSachs):
Great.Thankyou.
Ope r at o r :
ThenextquestionwillcomefromJamesRatcliffewithBuckinghamresearch.
Jame s Rat c lif f e (Analyst-Buckinghamresearch):
Goodmorning.Thanksfortakingmyquestion.Two,ifIcould.Firstofall,onthebusinessservicesside,you
talkedaboutprepackagingandonthatfront.Howmuchofanissueyou'refindingthelackofavailability
ofabundledwirelessproducttobe,andhowmuchinterestareyouseeingcustomersforthat?And
secondly,justfromastaffingperspective.Doyouhaveanyreplacementsorrebuildsneeded,particularly
thesystemsyou'replanningondivestingoffolkswhodecidedtodepartbeforethathappened?Thanks.
T o mRut le dge (PresidentC EO ):
Sowithbusinesspackaging,yourquestionwas,doweneedawirelesscomponenttothatproduct?
Jame s Rat c lif f e (Analyst-Buckinghamresearch):
Areyouseeinganymeaningfulnumberofcustomerswhoarelookingfortorollwirelessintoit,orare
peoplemainlymakingthosedecisionsseparately?
T o mRut le dge (PresidentC EO ):
Well,wecurrently--ourwirelessproductinthesmallbusinessspaceisaWi-Firouter,forthebusinessand
forthepublicspacesinthebusinessaspartoftheproductmix.Andweseethatashighlyattractivefrom
aproductpointofview,andweseeincreasedmarketshareshifttousinthatarea.
Withregardtomobilewirelessphones,wearenotinthatbusiness,don'thaveaproducttodayforsmall
businesstodothat.Andsoallofthebusinessthatwe'recreatingiswirelineandWi-Fi.Butour
fundamentalstrategythereisto,likeitisintheresidentialspace,tostandupabetterproductthanour
competitors,andtosellitatreasonablyattractivepromotionalpricingandtodriveamarketshare
strategyandto--we'vereorganizedouroperations,sothatwecanactuallyhandlethespeedofa
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Sector:Se r vic e s
Industry:Me dia
EventDescription:Q120 15Ear nings
Call
MarketC apasofEventDate:20 .97B
PriceasofEventDate:18 7.435
higheractivitylevel,whichhasaneffectinourcoststructurebythewayalso,initially.Butwe'revery
pleasedwiththeresultswe'regettingalreadyandourexpectationsthereareprovingout.Soweexpect
tohaveanacceleratingsmallbusinessgrowthprospect.
Withregardtostaffing,C hartermaybegotalittleaheadofitselfinsomestaffingareasinhiringpeopleas
aresultoftheproposedtransactionthatprobablyaren'treflectedinallthetransactioncosts.Butin
general,becauseofthewayouroperationsarestructured,thedivestedareasarenot--they'refully
staffedandthepeoplewhowereplanningongoingtoC omcastandworkingforC omcast,wereally
haven'tlostpeopleinthoseareas.Andtheyareall--obviouslytheywereconfusedandtheirliveswere
disruptedandallofthat,butthey'rewithusandtheirprospectswithusarebrightandwedon'thaveany
deficitsintermsofourabilitytoexecuteinthoseareas.
Jame s Rat c lif f e (Analyst-Buckinghamresearch):
Great.Thankyou.
Ope r at o r :
ThennextquestionwillbefromFrankLouthanwithRaymondJames.
Fr ankLo ut han(Analyst-RaymondJames):
Great,thankyou.C anyougiveusanupdateonyourprospectsforfiber-to-the-towerandsmall-cell
buildsinyourterritories?Areyouseeinganymeaningfulbusinessthere,andwhatdoyouthinkyour
outlookisforgettingthosekindofcontracts?
T o mRut le dge (PresidentC EO ):
Fiber-to-the-towerandsmall-cell?
Chr is Winf r e y(EVPC FO ):
Yes.Small-cellbackhaulprospects.
T o mRut le dge (PresidentC EO ):
I'msorrywe'rehavinghardtimehearingyou.Iamanyway.
O urfiber-to-the-towerbusinessisstillagoodbusinessandit'sstillgrowing.It'snotasgrowingasfast
becausewe'vecoveredalotofthetowersinourfootprint.Withregardtosmall-cells,wedon'thaveany
small-cellarrangementswithanybodyandhaven'tdoneany.We'velookedatthat,andwe'velookedat
theopportunitiesthatcombinelicensedandunlicensedspectruminsmall-cells,butwedon'thaveany
businessplanstoannounce.
Chr is Winf r e y(EVPC FO ):
Frank,whatIwouldtellyouisalotofthecapitalhasbeenspentonthat.Andsowe'reseeingthebenefit
oftheexistingcontractsthroughrevenue,whichisalwaysbydesigniscapitalintensive.Weareseeing
secondtenantsconnecttotheexistingcapitalthatwe'vedeployedwhichwasalwaysourhopeandnot
partoftheRO Iofbusinesscasewhenwebuiltit.
T o mRut le dge (PresidentC EO ):
That'sright.
Chr is Winf r e y(EVPC FO ):
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MarketC apasofEventDate:20 .97B
PriceasofEventDate:18 7.435
Soit'sanattractivebusiness.
Fr ankLo ut han(Analyst-RaymondJames):
C anyougiveusanupdateonmaybehowmanytowersyouhavewireduporthevalueoftherevenue
stream?
Chr is Winf r e y(EVPC FO ):
Idon'thavethatinfrontofme.AndsoIcouldgiveyouanumber,butIwanttomakesurethatifIdid,it
didn'truntheriskofmixingfibersitesandcellbackhaultogether,I'drathernotdothatandhaveto
correctitafterwards.Butit'sstillgrowingandit'sgrowingwellbutit'snotgrowingatthepaceofnew
buildthatitdidprobablyayearago.
T o mRut le dge (PresidentC EO ):
Butupgradesaregoingfasterthanthepacetheywere.
Chr is Winf r e y(EVPC FO ):
Yes,that'sexactlyright.
Fr ankLo ut han(Analyst-RaymondJames):
Allright,great.Thankyou.
Ope r at o r :
ThenextquestionwillcomefromMikeMcC ormackwithJefferies.
Mike Mc Co r mac k(Analyst-Jefferies):
Higuys,thanks.Tommaybeifyoucanmakeaquickcommentonjusttheregulatoryenvironment,with
TitleIIandobviouslyyourconsolidationwastopofmind,butwedon'thavetogetdelvetoodeeplyinto
it.Butjustyourthoughtsonwhattheenvironmentisfromregulatorystandpoint,whetherornotit'ssortof
friendlytocableornot.Itseemssortofnot.Andthencommentingmaybeonthevoicesidewithrespect
tothepricingstrategythereandmaybecostpermonthpersubandhowthat'strending?Thanks.
T o mRut le dge (PresidentC EO ):
O kay.Well,lookontheregulatoryside,ImeanIthinkeverysituationisdifferent.TitleIIwasa--it's
actuallyalongstandingissue.Theissueofnetneutralityhasbeenaroundforalongtimeandcompanies
havebeenagitating.It'sbeenpartofthePresident'sagendaallalong,andhecampaignedonitinitially.
Soit'snotsurprisingthattheforcesthatprevailedtheredid.AlthoughIwishitwerestructureddifferently
andIthoughtthattheoutcomewaslessthanideal,Idon'tthinkthatisparticularlyrelatedtobeing
friendlyornotfriendlytocableingeneral.AndIthinkeverycompanyisdifferent.Everytransactionis
different.Andthey'rereallyindependentstructuralquestionsfromaregulatoryperspective.
Chr is Winf r e y(EVPC FO ):
Andonvoicepricing,it'sgoingdown.
T o mRut le dge (PresidentC EO ):
Yes,ourviewinthelongrunisthatithastogodown.Wepriceourpermanentpricingat$19.95,alltaxes
andfeesincluded.Andthecostofprovidingvoiceisgoingdownandwe'restillgrowingvoicefairly
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EventDescription:Q120 15Ear nings
Call
MarketC apasofEventDate:20 .97B
PriceasofEventDate:18 7.435
nicely,becauseit'sworthitatthatpricetoday.Willitbefiveyearsfromnow?Probablynot.ButIthink
havingafully-featuredwirelinevoiceproductwithhighqualityserviceisworthsomething.Andsointhe
package,Ithinkwe'llcontinuetosellitwell.
Mike Mc Co r mac k(Analyst-Jefferies):
IguessIwasjusttryingtogetasenseforhowthatmargintrendsovertimeanddoesitapproachsuboverallbusinesstypemargin?
Chr is Winf r e y(EVPC FO ):
Yes,theissuethatyouhaveseeninourP&Listhatvoicerevenueshavebeencomingdown,alotof
that'sjustallocationinthebundlesthatweknewfromnewpricingandpackagingdespitethefactthat
we'vebeengrowingup.Soinsteadofsellingitat$40,it'sbeenpricedinontherackrateof$20.So
that'sjustanallocationissue.Butweareinapositionnowthatdespitethatallocation,youcanstartto
saygrossmargindespitemovingdollarsoutofthatpieceofthebundle,grossmargincanbeincreasing.
AndIbelievethathasstartedtodosoalready.
T o mRut le dge (PresidentC EO ):
Yes,that'sright.Becauseofthewaywetransitionthepricing,wefinallyhittheplacewherewewillstart
togrowtotalrevenue.
Chr is Winf r e y(EVPC FO ):
Yes,Iwanttobeclearthat'snothowwelookatit.Andwelookatitonper-homebasisintermsofEBITDA
andcashflowthatwecangetoutofahome,becauseIcouldpriceandI'mnotsayingwe'ddothis,but
youcouldpriceandIwouldn'tdoitanyway--wecouldpriceatzeroandyoucouldtalkaboutmarginon
theproduct,oryoucanpriceit$35.Therealityismostpeoplearen'tbuyingphoneonastandalone
basis.Theyarebuyingittogetherwiththeirotherservices.Andsowhatyouhavetofocusisthevalue
thatyou'reprovidinginsidethehome,whatyoushouldpriceitat,andwhat'sthemarginthatyouhave
forthewholebundleofservice.
Mike Mc Co r mac k(Analyst-Jefferies):
Sure,understood.Thanksguys.
Ope r at o r :
AndthefinalquestionwillcomefromMarciRyvickerwithWellsFargo.
Mar c iRyvic ke r (Analyst-WellsFargo):
Thanks.C hrisyoumentioned,Ithink,previouslythatwhenyournewprogrammingcontractscameup,
you'regoingtonegotiateasalargercompany.AndIguesswiththetransaction'snowbeingcalledoff,
doesanythingchangewithupcomingprogrammingnegotiations?
T o mRut le dge (PresidentC EO ):
I'llanswerthat.Probably.ButIdon'tthinkthatthearcofourprogrammingexpensewillchange
significantlyasaresultofthis.Ithinktherearesynergiesthatoccurintransactionsthatcomefromscale
orexistingcontractsattributingtoanothercompany.ButintermsofC harterasastandalonebusiness,I
don'tthinkitmateriallyaffectswhatourcostswillbe,relativetowhattheywerehistorically.
Chr is Winf r e y(EVPC FO ):
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Industry:Me dia
EventDescription:Q120 15Ear nings
Call
MarketC apasofEventDate:20 .97B
PriceasofEventDate:18 7.435
TheotherthingIwouldaddtothatjustpurelyfromafinancialperspective.Whileweknewitwasthere,
andwhileweknewwewouldgetit,weneverputitinsideofanyofourplansbecauseyoudidn'tforecast
exactlywhereandwhenitwouldcomefrom.Sowetooktheconservativeapproachandwhenweput
thingstogetherforacquisitionsthatendeduppubliclydisclosedplacesbutitdidn'treflectthosetypeof
synergies.
Mar c iRyvic ke r (Analyst-WellsFargo):
Gotit.Thankyou.
Ope r at o r :
Ladiesandgentlemen,thatconcludestoday'sconferencecall.Youmaynowdisconnect.
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