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425
CHARTER COMMUNICATIONS, INC. /MO/ filed this Form 425 on 02/05/2016
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FEBRUARY 04, 2016 / 03:00PM GMT, CHTR - Q4 2015 Charter Communications Inc Earnings Call








We've met the closing conditions for franchise approvals. And at the federal level, we continue to work closely with the FCC and DOJ, to make sure they have the information they need. And we remain hopeful that the process can be completed in March. In January, we received approval for our transactions from the New York State Public Service Commission. And at the state level, we're still waiting on New Jersey, Hawaii, and California.

We'll continue to work with state authorities to achieve a faster timeline, as we have 90,000 employees waiting to become part of the new Company. And we don't want to delay the significant consumer benefits that our transactions deliver. From a balance sheet, employee and operational perspective, we're ready to close. In early November, we completed the process of placing our acquisition financing in the debt markets, and have additional financing commitments if needed.

We're making good progress on integration plans, focusing on organizational structure and systems, all-digital new pricing and packaging, Spectrum Guide, And WorldBox rollouts. Our integration, planning and investments, including in-sourcing of various IT product and service platforms, will allow us to project uniform pricing, packaging and services across a national footprint, which will accelerate the integration of the three companies. Those cloud infrastructure investments include a billing isolation layer, a new provisioning architecture, and a unified biller-agnostic customer service platform in call centers and in the field.

These investments will help to simplify product, standardize service interactions in a consistent way, without the time, cost, and risk of migrating multiple third party platforms. These transactions bring significant benefit to all of our stakeholders. For consumers, these transactions will mean better products at better prices, with high quality service. And our new Company will be a significant contributor to the continued development of our national broadband infrastructure, by bringing faster internet speeds to more homes, in more places, with pro-consumer practices. We look forward to closing shortly so that we can produce the transaction benefits to the communities we serve. Now, I'll turn the call over to Chris.


Chris Winfrey - Charter Communications Inc - CFO

Thanks, Tom. I mentioned on our last call that we migrated our customer reporting methodology to match the approach used by our peers in advanced closing, in dual report, last quarter and this quarter. The results we issued today in our press release and trending schedule present our residential customer results using the doors methodology. Our SMB video customers are now based on relationships instead of EBUs, and we separately report enterprise PSUs to reflect our recent organizational changes.

Our P&L presentation similarly separates SMB revenue from enterprise revenue. And obviously, our new presentation approach does not impact our overall financial results. Any customer PSU revenue and adjusted EBITDA trends that you see under the new methodology used today are very similar to the trends that you'd see under the previous methodology. In fact, on pages 2 and 4 of today's trending schedule, provide our results under the prior presentation methodology, as well, to provide the transparent transition.

So starting with slide 8 of today's presentation, during the fourth quarter, we grew residential PSUs by 191,000, versus 151,000 last year. And in video, we added 29,000 residential customers, versus a loss of 3,000 last year. In residential internet, we added 115,000 customers, and we grew residential voice customers by 47,000. Over the last year, our residential customer base has brown by 294,000, or by 5%. And over the same period, residential ARPU was up by 2.3%, driven by a larger triple play base and step-ups, minus rate adjustments, partially offset by continued single play internet growth.

As slide 10 shows, our customer growth, combined with our ARPU growth, resulted in year-over-year residential revenue growth of 7.2%, compared to 8.3% last year, as we had lower rate increases in 2015. In commercial, we added 28,000 SMB PSUs, versus 19,000 in the prior year. And that improvement is being driven by a greater focus on customer types falling, and the separation of our SMB and enterprise groups. And by the launch of new pricing and packaging to the SMB marketplace in early 2015.

Total commercial revenue grew by approximately 12%, and continues to reflect the same short-term ARPU pressure that we saw in residential, when we initially launched our new pricing repackaging in the middle of 2012. Our advertising revenue is down about 19% year over year, driven by a $16 million decline in political in the fourth quarter, given last year's election cycle. In total, our fourth-quarter revenue was up by 6.4% year over year, 7.6% excluding advertising. And for the full year, as Tom mentioned, we grew our revenue by 7.1%, 7.7% excluding advertising.

In dollar terms, revenue grew by nearly $650 million. If you exclude advertising, 2015 revenue grew by $678 million, more than the $645 million in 2014. So we're pleased with the continued increase in revenue, especially when you consider that we took more modest rate increases than in 2014. Most of our 2015 revenue growth came from customer relationship growth. Turning to fourth-quarter operating expense and adjusted EBITDA on slide 11, total operating expense grew by $89 million, or 5.9% year over year, with transition OpEx counting for $22 million over total OpEx this quarter.

These types of costs will eventually become integration costs post-closing. Excluding transition, total expenses grew by 5.3%. And on a full-year basis, again excluding transition, our expense base grew by $372 million year over year. That compares to $433 million in 2014. So if you step back, we're growing more dollars of revenue, with less dollars of expense growth. Back to fourth-quarter expenses. Programming expense grew by $49 million, accounting for about half of the year-over-year increase in total operating expense.

The 7.9% increase in fourth-quarter programming was driven by contractual rate increases, growth in our expanded video customer base over the last year, higher penetration of our tiers, and the launch of new channels, including the Dodgers. Cost to service customers, which includes field operations, customer care and network operating cost, was flat year over year, despite residential and SMB customer relationship growth at 5.6%. We continue to get more efficient with lower service transaction volumes.

Other costs grew by $28 million, or about 15% year over year. And that's driven by some additional corporate and administrative labor expense, which includes the in-sourcing of IT and software development resources and enterprise. As well as property taxes on previous CapEx, and higher casualty claims due to more

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