Charter Communications Earnings Call NUGGETS: Video Subscriber Strategy, Rebranding

On Tuesday, Charter Communications Inc (NASDAQ:CHTR) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Video Subscriber Strategy

Craig Moffett – Sanford Bernstein: Two questions if I could. First, Tom for you, you talked about winning back video subscribers. You look like you’ve added an awful lot of non-video subscribers in the last quarter and over the last year. Can you talk about what’s the strategies are to win back those video subscribers? I would presume that a pool of people that take your broadband product but not your video would be your first target audience. Then Chris, just on the higher inventories that you talked about in CapEx, is it fair to say that given that you’ve already pre-set some of the inventories you would need that the CapEx for the rest of the year that gets to your guidance would largely be capitalized labor or at least the increment would be capitalized labor, and if so, does that have an impact on your expected labor expense that would hit EBITDA margins?

A Closer Look: Charter Communications Inc Earnings Cheat Sheet>>

Thomas M. Rutledge – President and CEO: Well, Craig, with regard to win back, you are right, our previous strategy and our results have created a lot of data-only relationships in Charter. We have almost 1 million of those relationships and so the opportunity to sell them other products has always been part of our strategy. So that is a big opportunity, but even larger than that is the unsold (passing) universe and the satellite subscriber base that exists inside that universe and what we’ve been doing to get ready to market that universe is to make our product set superior to satellite, so we’ve gone away from the historic analog distribution that we’ve had and gone to an all digital product, a two-way interactive video product with the state-of-the-art HD quality and the bulk of the service then we’re moving toward getting a fully deployed HD product across our entire footprint on every channel we carry. As you know there is a lot of inertia in the video business but we have an inherently superior video product than our competitors in most places – the bulk of our competitors and we have superior data product and a superior voice product and put those altogether in a package that’s compelling and actually creates a value proposition for the consumer based on what they’re currently paying and we think we have an opportunity to grow our business for years to come.

Christopher L. Winfrey – EVP and CFO: Craig on the second question related to capital and general and labor, so we took during the second quarter reflecting a higher percentage of our customers that were being sold into digital reflecting a higher number of boxes that were being placed into those homes, already starting in Q2 but gearing up for Q3 in particular. The higher number of DVR sell-in and a higher placement of DVRs inside the home, that type of inventory increase will continue, and as the as the model plays out, we’ll accelerate, and so I think you’ll see some of those trends continue. On that basis, when we increase the estimate for CapEx for this year, over 90% of that increase really comes from CPE and so that should give you some indication. It’s also the reason that the range is somewhat wide depending on the level of success and how quickly that grabs hold as planned. Your second question was on labor. So, yes, to the extent you’re doing more installs and to the extent you’re spending more time in the home placing more CPE, all of which is accretive, you’d be spending more on labor. Some of that will be OpEx to the extent it’s a reconnected home and some of that will be capital to the extent it’s a new home with a new service. So, all of that will be flowing through in the coming quarters.

Craig Moffett – Sanford Bernstein: But would you expect the capitalized labor to be a net benefit to expense and then less of a hit to the income statement because more of it hits the balance sheet or would you expect it to be an addition to both pools because of the increase volumes?

Christopher L. Winfrey – EVP and CFO: I’d expect it to be in addition to both pools because of the increase volumes.

Rebranding

Jeff Wlodarczak – Pivotal Research Group: One for Tom and two quick ones for Chris. Tom, as a part of your ultimate strategy over time to rebrand the Charter offering, are you satisfied with the Charter brand in the market? Then for Chris, is the temporary effects in the customer connects and revenue for your new initiatives, is that mostly related to the fact that you’re no longer marketing analog or is there something else? Then Chris, for the last couple of quarters you all have been running about a $9 million hit related to investments in your customer experience. Did you still have that hit this quarter and what’s the outlook going forward?

Thomas M. Rutledge – President and CEO: Jeff, on the rebranding strategy, we don’t have a rebranding strategy at the moment and there are parts of – there are aspects of the way Charter’s footprint is distributed that makes rebranding more difficult for us than some companies. So, I’m not sure it’s a good idea. We think that we can be successful with our current brand and that doesn’t mean that we won’t consider it, but we don’t have a current plan to change our brand name.

Christopher L. Winfrey – EVP and CFO: Jeff, on the temporary effects of connects in revenue, it’s a combination of what you were describing, which is, actively only marketing our digital product as well as transitioning different sales channels to different selling methods and the process that is going on there as well as when you are bringing on these customers may be having a little bit less one-time revenue in the short term, which generates a higher recurring revenue stream over the long-term. As to the customer experience investments, it does continue, and I would say over $5 million was what we saw inside the quarter. It’s becoming less of a one-time item as we spend more time in the home to make sure that the customers issues are fully resolved before we leave the trouble call and preventative maintenance, which we’ve talked about for a couple of quarters now as we accelerate that will become a recurring practice over time. So that’s probably why you’ve heard us (indiscernible) to speaking about that that as we expected to be doing those activities going forward.

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