Cableco Reports $107m Loss as Cable TV Subs Down 84k
If you were to plot the number of Charter Communication's (Nasdaq:CHTR) video customers on a graph from 1Q06 through 1Q11, then connect the dots, you’d end up with a shape resembling a ski slope. Perhaps the description of a bunny hill fits Charter’s video losses best: a gentle but consistent downward slope, with no real bumps in the road. Today, the New York based cable provider once again reported video losses for 2Q11, along with an overall loss of $107m for the quarter.
Despite some grim news, Charter did its best to put a positive spin on the quarter. In areas where direct financial comparisons provided underwhelming results, Charter emphasized more flattering stats or metrics. Take Mike Lovett’s opening comments to the 2Q11 earnings release for example.
"We delivered another solid quarter of adjusted EBITDA growth and substantial free cash flow," said Lovett, Charter’s president and ceo, touting Charter’s near 5% growth in adjusted EBITDA. After accounting for various items such as losses for extinguishment of debt, stock compensation, and other losses, actual EBITDA ticked up less than 2%.
On a positive note, Charter did increase its Internet and voice customers in 2Q11. Internet and voice revenue grew moderately at 4% and 3% YoY while Charter’s commercial revenue jumped a sizable 16% YoY to $141m. Overall, cable television declines offset these areas of growth and Charter’s topline remained relatively flat at around $1.8b.
Charter’s loss of near 84k video customers came during a quarter in which it actively sought deals to buy cable networks. Yesterday Charter finalized its acquisition of Windjammer’s cable assets and 17k customers. Later in 3Q11, after the completion of its James Cable system swap and its purchase of cable systems from US Cable, Charter will net 20k more customers. The customer gains from these deals are not reflected in 2Q11, but the adds do not appear sufficient to stabilize its trend of cable television losses.
To complement its recent M&A activity, Charter’s customer retention/acquisition strategy includes service upgrades and efforts to target business customers. Currently it is in the middle of initiatives to provide faster Internet and better video quality through distributing DOCSIS 3.0 modems and upgrading cable customers to switched digital video. In June Charter announced the deployment of its long-haul Ethernet service aimed at attracting enterprise customers looking to connect multiple business locations within Charter’s network.
Regardless of its success in expanding its customer base, part of the solution to Charter’s financial problems must be to address borrowing costs. Interest expense continues to grow faster than revenue in each quarter and refinancing efforts have led to large losses for retiring the debt early. If the recent U.S. debt crisis taught us anything, it’s that the solution to any financial problem must address revenues and debt.