Charter Communications, Inc. Q2 2008 Earnings Call Transcript

Charter Communications, Inc. (CHTR)

Q2 2008 Earnings Call

August 5, 2008 9:00 am ET

Executives

Neil Smit - President, Chief Executive Officer

Eloise Schmitz - Interim Chief Financial Officer

Mike Lovett - Chief Operating Officer

Mary Jo Moehle - Investor Relations

Analysts

Terry Shamer - Citigroup

Michael Pace - JPMorgan

Jason Kim - Goldman Sachs

Richard Greenfield - Pali Capital

David Goldberg - Morgan Stanley

Bryan Goldberg - JPMorgan

James Ratcliffe - Lehman Brothers

David Joyce - Miller Tabak & Co.

Ethan Lacey - Merrill Lynch

Joe Galzavana - Baxon Capital

Harry DeMott - King Street Capital

Presentation

Operator

Welcome to the Charter Communications second quarter 2008 earnings conference call. (Operator instructions) Ms. Mary Jo Moehle, you may begin your conference.

Mary Jo Moehle

Welcome to Charter’s second quarter 2008 earnings call. The results we’re reporting this morning are included in the news release we issued over business wire at 8:00 am Eastern Time and posted to our website, charter.com. We also posted a presentation there covering our second quarter results.

This morning’s call will contain certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ from historical or anticipated results. Certain factors that could affect actual results are set forth as risk factors described in Charter’s Form 10-K and our quarterly report on Form 10-Q, which was filed with the SEC earlier today.

During the course of this call we’ll be referring to non-GAAP measures as defined and reconciled in this morning’s release. These non-GAAP measures as defined by Charter may not be comparable to measures with similar titles used by other companies. In today’s earnings release, we reported results in accordance with GAAP as well as pro forma results for the second quarter of 2007.

The pro forma results reflect sales and acquisitions of cable systems in 2007 as if they had occurred on January 1, 2007. During this morning’s call, we’ll be referring to pro forma year-over-year growth rates. With that introduction, I’ll now turn the call over to Charter’s President and CEO, Neil Smit.

Neil Smit

For some time now I’ve stressed the importance of consistent performance and so today we are please to report another quarter of solid financial results. For the second quarter of 2008 we achieved approximately 9% revenue growth driven by an increase of 735,000 RGUs during the past year and a 12% increase in ARPU year-over-year.

Adjusted EBTIDA increased approximately 10% year-over-year as a result of both revenue growth and margin expansion. This solid financial performance stems from our continuous focus on driving profitable revenue growth by maximizing the lifetime value of our customers in terms of profit contribution and longevity of the relationship.

As bundled penetration continues to climb and we effectively balance rate and volume year-over-year total ARPU has climbed in the double-digits for more than two years. Despite the current challenging environment to continuous improvements in service, targeting the right customers and the benefits of bundling, customer retention and bad debt remain consistent with last year.

Second quarter adjusted EBITDA margin expanded 40 basis points compared to a year ago to 36.4%. With phone penetration at 12% and bundled penetration at 50% we began to see the margin benefit in the overall results that we’ve seen previously in markets with double-digit penetration. In fact these markets are now approximately 70% of our footprint. More over we’re capitalizing on prior investments made in our technical operations and care centers as we achieved increased productivity and higher service levels on all key fronts.

We expect to continue to realize operating efficiencies as we further leverage our infrastructure to pursue new growth opportunities. As an example Charter business who had generated $340 million of revenue in 2007 continues to deliver strong results and the segment is still early in its growth stages. We believe the demand in the commercial market for choice and value presents a sizable upside for Charter business and we’re seeing strong uptake of our telephone product here.

We’re also focused on maximizing bandwidth to support additional growth. We’re accomplishing this through switch-digital which we’re testing now and we’ll begin to deploy it later in the year and the all digital platform which we plan to deploy in portions of our footprint with the highest digital penetration. These bandwidth initiatives allow us to deploy a more HD content an increased internet speeds.

Our 16 meg services is available to more than 80% of our high-speed footprint and we plan to launch DOCSIS 3.0 later in the year. We believe these strategies position us well competitively and set us up for growth in the future. Our strategic priorities are consistent. We remain focused on delivering continued healthy revenue in EBITDA growth leveraging the investments of our infrastructure and capturing new opportunities.

Now I will turn the call over to Eloise Schmitz for discussion of our financial results in greater detail and then Mike Lovett will discuss our operational results; Eloise.

Eloise Schmitz

For the second quarter of 2008, total revenue was $1.623 billion, an increase of 9% over the second quarter of 2007. We added 100,000 RGUs in the second quarter and achieved a 12% year-over-year increase in total ARPU as we drove deeper penetration of bundled offerings and advanced services. Telephone continues to be our largest revenue growth drivers and contributed to 40% of overall revenue growth in the quarter.

High-speed internet revenue increased by 10% to $339 million as a result of an increase in the number of customers and ARPU growth driven by demand for enhanced services such as speed and home networking.

Video revenues in the second quarter rose by 3% to $874 million primarily due to ARPU growth of 6% related to advanced services, premium tiers and rate adjustment. For the second quarter, our commercial business revenues climbed 17% to $96 million, driven by the introduction of commercial telephone product and the business bundle.

Ad sales revenue for the second quarter was flat year-over-year. While political advertising spend increased in the two states, this was offset by decreases in the automotive and furniture sectors. Other revenue was up 13% primarily due to increases in franchise and other regulatory fee.

Adjusted EBITDA grew $54 million or 10% year-over-year to $591 million. Adjusted EBITDA margin increased 40 basis points to 36.4%. While we continue to invest in marketing and service we captured margin benefit as we drove bundled penetration, scaled the phone business and increased the mix of products to higher margin HSI and phone.

In addition as Neil mentioned, we drove increased productivity in our care centers, which also contributed to margin expansion. We continue to allocate approximately three quarters of our capital expense dollars to success based initiatives. Including CPE related to customer and advanced video services growth.

Total CapEx in the second quarter was $360 million and we continue to expect to spend approximately $1.2 billion in CapEx in 2008. As of June 30, liquidity, including revolver availability, cash and investments totaled approximately $1.4 billion, none of which was limited by covenant restrictions.

In addition in July we exchanged $338 million of CCH II notes to 2010 for $364 million of new CCH II notes to 2013. This represented 15% of the 2010 maturity and approximately $1.9 billion now remains outstanding. We expect that cash on hand; cash flows from operating activities and the amounts available under our credit facilities will be adequate to meet our projected cash needs though 2009.

Cash flows from operating activities and the amounts available under our credit facilities will not be sufficient to fund projected needs in 2010 primarily as a result of the $1.9 billion of CCH II notes that mature in September of 2010.

I’ll now turn the call over to Mike Lovett for a discussion of our operations.

Mike Lovett

We are pleased that our operations are driving solid financial results. The investments we’ve made in customer service, marketing and workforce efficiencies along with the scale benefits we are realizing in our phone products are clearly paying off.

As Neil mentioned in his opening comments our strategy continues to be one of balance between healthy rate and volume list. The second quarter was typically a down quarter for volume due to seasonality type primarily to colleges in our service areas. In order to capture the highest lifetime customer value, which is directly tied to sustainable EBITDA growth our focus shifted more to the rate side of this equation. As a result total ARPU increased 12% year-over-year and now exceeds $104 per basis customers. Inherent in these results is our strategy of driving bundled customer penetration, which now stands at 50%.

On the video side we lost 45,000 basis customers during the second quarter and similar to the first quarter most of that loss came from our limited basic tier. Digital net adds in the second quarter were 34,000 compared to 9,000 in the year ago period, driving great success, moving basic customers up to the digital tier with demand for VOD, HD and DVR driving a nearly 6% year-over-year increase in video ARPU. High-Definition customers increased 55% compared to the second quarter of 2007.

We’re leveraging our HD and OnDemand platform and the OnDemand orders increased 60% year-over-year and the number of customers using OnDemand climbed 20% year-over-year. We’ve reported 10% high-speed internet revenue growth for the second quarter and 11% growth year-to-date; both rate and volume contributed to our strong high-speed growth during the first half of the year, with 19,000 net adds during the quarter, a 105,000 net adds year-to-date and a year-over-year increase in ARPU in each of the first two quarters of the year.

Customers subscribing to home networking increased 25% during the past quarter, which contributes meaningfully to ARPU growth. Given our success of migrating customers to premium speed tiers we now have the flexibility to offer our low speed alternative with an attractive high-speed and phone bundled offer to capture value conscious customers and generate new customer growth.

Both telephone revenues and customers increased nearly 70% year-over-year, with net adds of 91,000 and in the second quarter we’re now at about 12% penetration of telephone homes passed and as I mentioned earlier we’re seeing the benefits of scale as evidenced in our second quarter margin expansion. In fact our telephone cost of good sold per customer is down 40% year-over-year. Triple play take rate of phone customers continued at 75% to 80% during the quarter and triple play ARPU remains at about a $125 to $130.

Charter business delivered solid results again this quarter, with revenue increasing 70% year-over-year. As we said last quarter commercial phone is available throughout our residential phone footprint. Our existing base in this segment allows us to upgrade customers into bundled services and we’re also seeing a dramatic increase in bundle selling of new Charter business customers. As a result commercial phone customers have nearly doubled year-to-date.

We’re leveraging our residential marketing and operations infrastructure along with an established high performing sales force to provide a solid and efficient platform for the continued growth of the commercial segment. I believe we’re well positioned for continued growth with contributions coming from each of our product lines. We believe our focus on improving the customer experience, enhancing our product offerings and leveraging our marketing capabilities, positions as well competitively both today and in the future.

With that I’d like to turn the call over to the operator and open it up for questions.

Question and Answer Session

Operator

(Operator Instructions) Your first question comes from Jason Bazinet of Citigroup.

Terry Shamer - Citigroup

This is [Terry Shamer] for Jason. On the RGU net additions, historically we’ve seen the second half of the year stronger versus the first half and looks like in ’07 the first half was stronger, ’08 you’ve posted very strong Q1. I just wanted to ask if there is anything going on with your marketing strategies that is driving this change in seasonality, thanks.

Neil Smit

Hi, Terry this is Neil. I think that as we mentioned we’re continuously managing volume and rate and trying to balance those two. In the seasonally lower volume quarter, we decided to focus on rate and we’re pleased with overall ARPU increase of 12% and the revenue increases that we’ve seen. We did see an increase in volume in that last month of the quarter in June and we think that that was purposeful and due to our strategies and it’s been healthy growth as we’ve been managing both the connect volume as well as the backend churn in bad debt. I always view churn and bad debt as lead indicators of the health of the business and we’re pleased with the results there and we think that those trends are encouraging.

Operator

Your next question comes from Mike Pace, of JPMorgan.

Michael Pace – JPMorgan

Can we focus on the high-speed data and the telephone adds a little bit? Even when we look versus the second quarter of ’07 they were down. Can you maybe add some color on why you thought that was the case and maybe think about seasonality, the economy and then competition so those three buckets, how that’s impacted those two units and then the over the air digital opportunity in early 2009 on your video business, could you add some color there as well?

Neil Smit

I’ll speak to the HSI and telephone and then pass it over to Mike for the DTV opportunity. As I said I think it’s important to look at those rate and volumes to measure performance. We’re pleased with the HSI revenue growth of 10.4% in the second quarter and 11% year-to-date. We had a higher number of new customers rolling off 6 and 12 month promos, so we shifted to rate in this quarter as I mentioned historically, a seasonally lower volume quarter. We are seeing demand for premium speeds and customers taking 10 meg or higher, more than doubled from the first quarter.

We continue to refine our marketing offers, to identify the new prospects and tailor the offers and we have recently introduced the 1 meg HSI light tier in the quarter bundled with phone at $50. These we have seen as a result of some of those trends, a slight volume up tick and we have the capability now as we’ve seen from the premium tier increase to up-sell and cross sell those customers. We do see a meaningful growth opportunity in HSI going forward.

Concerning phone, we’re rechecking the penetration at 12%, so we’re pleased with that. We’ve added year-to-date 216,000 customers. We’re confident, we’ll see continued success; at the bundle we have a larger phone footprint that we can then market to. We still believe we can reach 20%, 25% phone penetration over the next few years and we have some markets, which were already in that range.

So, overall we see a healthy business going forward. As we have in the past, we really focus on sustainable growth and we think that our strategies of balancing rate and volume are the way to provide for that sustainable growth; Mike.

Mike Lovett

Yes, Mike regarding over the over-the-air transition that’s coming up in February, we site the market similar-to-similar industry peers; roughly 10% to 15% of the homes passed don’t have a service today. I guess probably cut with the chasing, get to the number; we think there’s about half a million of our home passed today that may need some handholding in the digital transition that are currently on off here in Tennessee.

We think we’re in a very good competitive position with the fact that we are a local service provider in truss and service lobbies in each of our communities that we service and we’re focusing on similar to what we’ve been doing on our digital home transition. You see the success we’ve had over the last several quarters, in upgrading our existing base into a digital platform. We’re going to take a similar marketing approach to this target segment and think that there’s an opportunity there for us.

Michael Pace – JPMorgan

And I guess a follow-up Neil; you said that the second quarter ticked up towards the end or the month of June, could you comment or is there a fair reason that that continued into and through July?

Neil Smit

We’re seeing similar trends but, obviously I can’t comment on the third quarter. What’s been interesting is that the second quarter revolved, there was a connect. The balancing connects and disconnects I always look at how that evolves and I think we saw a very healthy mix of connect and disconnect volume. So a lot of times when you chase volume with price you see a lot of connect volume but then overtime you see the disconnect volume come with it and as I said that we see healthy trends with the business because we’re seeing the backend or the disconnect, the retention side of it and the bad debt side of it are inline with last year.

Mike Lovett

Mike if I could add one thing to that again kind of reinforcing Neil’s statement about healthy sustainable growth. The lead indicators that we look at there obviously ARPU is a significant piece of that and as we mentioned that we focused on driving rate in the front end of the quarter, there was a volume impact associated with that, but the lead indicators that we looked at, at the back end of the quarter to Neil’s point, the balance of growth coming from not only new connects and new customers coming in frankly at a higher rate than previously, but also the churn indicators are very favorable. We saw year-over-year growth in June favorable across all product lines and those performance indicators continued into the July period.

Operator

Your next question comes from Jason Kim of Goldman Sachs.

Jason Kim – Goldman Sachs

If I could ask a quick question about the high-speed data; other cable operators have commented that they’re seeing some significant market share gains from DSL on the high-speed data that add size. I know that you guys are more focused on making sure that you’re seeing profitable customers instead of chasing volume. I was wondering if you could comment on if you are seeing that sort of phenomenon happening in your footprint as well.

Neil Smit

Based on our internal estimates for the first quarter, we believe that we gained share in the first quarter and we think that trend continued into the second quarter based on the result we’ve seen so far.

Jason Kim – Goldman Sachs

You think that share gain accelerated in Q2 versus Q1 or did it remain about the same?

Neil Smit

I think it’s early to tell; we’ll see how the results evolve.

Operator

Your next question will come from Rich Greenfield of Pali Capital.

Richard Greenfield – Pali Capital

What percentage of the markets now have above a 10% phone penetration? Mike, I know you’ve talked about that being the critical measure to accelerate your margins. I was just wondering how many more markets there are to go that will continue to drive your margins as we look out over the next year.

Two, in terms of those comments about the June acceleration volumes, given your packaging; just wondering whether ARPU is remaining stable or continuing to increase despite the price points you mentioned for that bundle and then third, with Ecostar loosing subscribers and seeming to be a little bit lighter on their marketing end, just wondering how much impact that had on the quarter, whether you’re seeing much of a benefit from that, etc? Thanks.

Neil Smit

Double-digit markets are at about 70% right now. The Eco trends, I think it’s probably early to tell, but in the back half of the quarter I think we’ll probably explain some of the trends we saw and as Mike mentioned it’s across all the product lines. Mike anything you’d add?

Mike Lovett

Just to clarify, the 70% is across our entire footprint. So, we’re at 10% or higher across 70% of our phone footprint. The June acceleration Rich, we did see continued improvement, modest improvement in ARPU and the key is particularly during the June and July and August period from our perspective strategically is to maintain ARPU and not see it erode and we’re pleased to see that it’s actually showing modest improvements.

Richard Greenfield – Pali Capital

So despite that low price offer you’re seeing a good amount of up selling from that initial get the phone to ring offer.

Mike Lovett

Very similar to what we’ve done, we’ve talked before about it. I think probably the best example we’ve used is our 6997 triple play product where we see a significant up sell, continue to see ARPU in that 125 to 130 range. So we’re leveraging the capabilities in our call centers very effectively.

Neil Smit

I think another important thing to note is on the margin expansion side. They are pretty robust and so what we did was we leveraged the infrastructure and I think we’re starting to see that we are able to do that in Mike’s operations across call centers and the technical operation side. We’re seeing productivity improvements; as I mentioned we saw a 40% improvement in telephone cost of goods and I think as we mentioned in the past as you get into the double-digit penetration you’re seeing the benefits of product mix as for example 40% of the revenue growth with telephone related, which is higher margin product.

Operator

Your next question will come from David Goldberg of Morgan Stanley.

David Goldberg – Morgan Stanley

I was wondering if you could talk a little bit about the impact that you’ve been seeing from the overall economy and particularly if you’re seeing any spend down in terms of video subs going to lower tiers or potentially using less VOD and also if you guys are seeing any of that in the telephony market where I think particularly AT&T has talked about mobile substitution accelerating in this economy?

Mike Lovett

From a macro standpoint the biggest impact is housing, so we’re not seeing that type of expansion that we’ve historically seen. So, line extensions as a good example, we’re not seeing new housing growth.

From a video standpoint, we took a strategy around our limited basic services where we took rate adjustments in Q4 and Q1 of this year and we took significant steps to move to a standard price point for our limited or our broadcast basic customers. They saw a significant higher increase than the majority of our video base. I think that’s reflected in some of the losses we’ve seen in the first half of this year.

I think it’s also reflected in our ability to go to those households and move them into a digital package so they can see a better value proposition, but what we are seeing and I think it’s probably best indicated in our VOD growth and our HD growth is in this type of economy where no business is recession proof. Customers are looking for a better value of their disposable entertainment dollar and I think we offer a very good value proposition there.

Neil Smit

And concerning telephone penetration, we increased penetration one point this quarter so we’re up to 12% now and we still see healthy growth especially in some of those higher penetrated markets, the trends that we’ve mentioned in previous calls continue and in some of the higher penetrated markets we’re actually gaining share at a higher percentage than some of the lower penetrated markets.

Operator

Your next question comes from Bryan Goldberg of JPMorgan.

Bryan Goldberg - JPMorgan

I was wondering if you could update us on your switch-digital deployment activity; are there any markets where that technology is deployed and how that’s going and then also could you just update us on your marketing spend levels, is it still around 4% of revenues?

Neil Smit

Yes concerning switch-digital video, we have been testing the product in our LA market. We don’t see any issues with it scaling so far and as I mentioned we’ll be continuing to rollout that technology going forward. Our marketing spend is consistent with lots of your levels, at about 4%.

Operator

Your next question comes from James Ratcliffe of Lehman Brothers.

James Ratcliffe – Lehman Brothers

Following up on the switch-digital question; how do you think switch-digital vis-à-vis going all digital? Do you think of them as alternatives and you use one in one market and one in the other or do you expect to essentially be layering the two across your entire footprint and secondly on the broadcast basic side or the cyber basis side you’re down about 2.1 million analog subs; how many of those are still on the broadcast basic package? Thanks.

Neil Smit

I will cover the SDV question in the technologies and then we’ll discuss the basic. We still believe that the combination of switch-digital analog reclamation and the simulcast technologies are the right approach for us and we’ll remain very disciplined about our CapEx spending while continuing to improve the overall network capability.

The simultrends or simulcast as we’ve said in the past we’ll plan to convert the majority of our footprint by 2009. Switch-digital we’re in testing mode in LA and we will continue deployment in the second half of the year.

Concerning all digital, we plan to roll it out in portions of our footprint, those with the higher digital penetration rate by the year end using some low cost set-tops; it will be the year end and then going forward and just generally form a Charter perspective we’re not really opposed to being a fast follower from the technology that led to evolve growth from a cost prospective and a technology stability perspective. So, I hope that answers your question on the technology side. Mike basic?

Mike Lovett

Yes, James on the analog side we don’t disclose the percentages that are in our broadcast basics tier.

James Ratcliffe – Lehman Brothers

Are there a still a lot left just sort of directionally or we are talking majority of your customers are on expanded basic or are the portion of the analog customers on broadcast actually rising at this point?

Mike Lovett

It’s our feeling that we’re now inline with our industry peers as a percentage mix.

Operator

Your next question comes from David Joyce of Miller Tabak & Company.

David Joyce - Miller Tabak & Co.

I was wondering if you have anecdotes on how far U-verse has moved into your markets; what percentage of your footprint do you have that exposure?

Neil Smit

So, from an overall footprint perspective AT&T over laps us about 64% and Vorizon’s about 20%. From a total footprint perspective we have increase in areas where together they’re marketing. U-verse and FiOS has gone from about 6% to 7% to 8% to 10%. The mix there is generally about 2% FiOS so the remaining, 6% to 8% is AT&T, U-verse.

David Joyce - Miller Tabak & Co.

On the ARPU mix on high-speed data; I don’t think you quite got to that, but are you seeing because of the economy, the customers taking lower end tiers on high speed data that are going to be potential up sells later?

Neil Smit

No, we feel we doubled the number of customers of the first quarter in our higher-speed tiers, 10 meg or above in Q2 and we’re pleased that over the first two quarters, in each of the quarters we are able to increase our ARPU about 1% in each of the quarters. So, we continue to drive ARPU increases primarily driven by two factors; one is speed upgrades and the second is incremental advance services such as home networking. Mike, anything you would add?

Mike Lovett

The significant portion of our customer base today is on our 5 meg, what we call our platform tier and as Neil mentioned we’re having a fair amount of success in moving customers into the 10 megs and 16 megs. If you think about a year ago we had customers primarily in our 3 meg products, so we’ve been doing a stair step, end of life to low end product and move customers north into our more premium speeds.

Now with the introduction of the 1 meg low speed offer we think we have an opportunity to go to a different current non-customer, to go to a segment that we haven’t been able to bring in the door to-date and that are a little bit more cost conscious and we think there’s opportunity there and we are trialing a two product non-video offer, a low end phone products with our low speed data product and its early in the game but we feel like there is opportunity there as well.

Operator

And next question comes from the line Ethan Lacey of Merrill Lynch.

Ethan Lacey - Merrill Lynch

Just a couple of quick question, one on SME; I’m just curious, certainly the growth remains really strong there and I’m just wondering from early adopters on your commercial business are you seeing any increase in churn looking at other industries that have a high amount of exposure like directories, the small to medium business markets been fairly challenged. Also just wanted to touch on DOCSIS 3.0, I think you said rolling out in the second half of ’08; is there a target footprint for the end of the year and then maybe for ’09 and if you could just give a sense for the cost passed on DOCSIS 3.0, that will be helpful.

Mike Lovett

Regarding the commercial business, probably the best example, we’ve taken a very methodical approach to this. Our feeling was that we needed to get everything locked down and in this business I think you have a chance to get into early and get out of it quickly if you don’t provide overall service and value and I think others that have attempted to get into this business have seen some of that.

Probably the best example of success against that is we have a referral program for existing customers and we have a significant statistic there that 50% of the referrals that we’re getting from customers lead to a close sale and we’re not seeing any indicators on churn. We did have some concern that from an economic standpoint that we might see some early impact on the small, medium business customer, but we have not seen that to date.

Neil Smit

Concerning to DOCSIS 3.0 yes, we are rolling it out in the second half of the year. We haven’t yet announced which market. We are going to be rolling it out and are included in our CapEx number for the year, which is still estimated at $1.2 billion and I don’t have the costs per sell available right here.

Operator

Your next question comes from [Joe Galzavana with Baxon Capital].

Joe Galzavana - Baxon Capital

I’m trying to get my hands around this subscriber and it appears obviously you’ve stayed focused, you shifted more rate than volume and I’m just trying to figure out how was it compared to what you were looking for, because now I guess I’m trying to figure out now that you’re going to shift back, I’m trying to get if you figured out the magic formula here “in certain quarters we’re going to shift this and then next quarters we’ll turn on the spigot again” and I’m just trying to figure as we go forward, do you feel like you’ve got control of that number between rate and volume?

Neil Smit

I think a few things on that Joe; one is that we’ve always got tests in the marketplace. So, at anytime we have probably 30 to 50 tests out there. Some were more oriented towards bringing in the volume and then converting it and some were oriented to more rate; can we drive rate and where might there will be a less price sensitive market. So I mean at any time there are a lot of tests in the market and we’re seeing what the results are.

It’s a very conscious decision in the second quarter that we were not going to chase volume with rate in a seasonally low quarter and we have been trying over the last few years to close the ARPU gap with some of our peers. I think we are pleased with the 12.2% ARPU increase and as I referred to in the call we’re pleased with kind of the healthiness of our customer growth where we’re both, connect and the churn side are moving well.

I have always felt that it’s a easier task generally speaking to discount and get volume than the other way round, but I think we look generally for sustainable EBITDA growth; that’s our strategy, sustainable both revenue and EBITDA growth and I think maintaining the balance between rate and volume its always a task that we’re very sensitive to and we have as Mike mentioned launched some programs in the quarter. For example the HSI light product together with phone going after some of those non-video customers and we have seen good growth in that segment.

So, we’ll continue to run the test, we’ll continue to be consistent in our strategies. I think bouncing from one to the other is very difficult for the organization especially the call center side of the business, because you can see volume spikes and valleys with that, so we look for consistency and clear strategies for the business.

Operator

Your last question will come from Harry DeMott of King Street Capital.

Harry DeMott - King Street Capital

I was wondering when you look at your growth in RGUs across all the markets and your churn and everything, did you find any regional difference. I mean for example, California has had a tough time than a lot of the other economies around the country. Are you seeing regional differences and then I’ll just follow-up with a couple of other things.

Mike Lovett

We do see regional differences impacted by a couple of things. Neil talked about our competitive overlap with AT&T and Vorizon. We’ve got overlap in the LA market and in our forward market with both AT&T and Vorizon and both of those DMAs have been affected, I think a little bit more significantly by the economic issue as well. So they contributed a larger portion of the impact in RGUs in the quarter than their size.

Harry DeMott - King Street Capital

And then if you take a look at your CapEx, you didn’t have a whole lot of video adds and yet the CapEx for the CP was obviously sort of focused on high speed on HD DVR, so I was sort of wondering is that sort of an issue of timing, i.e., your seeing some growth going to the third quarter and there fore you are stocking up on these boxes or is it more a function of that you’re existing base has been sort of up sold, these sort of packages and therefore you’re going out and switching out those sort of boxes because it’s seems like the CapEx for CP was sort of ahead of what do you might expect given the adds.

Mike Lovett

I think it’s more the timing related issue that you refer to as which has impact on inventory, so we want to make sure that we have inventory levels sufficient going into the higher volume season and with some of the demand we’re seeing with HD and some of our advanced video services, we want to ensure we meet that demand.

Harry DeMott - King Street Capital

What is the percentage of your markets where you now offer phone and the triple play and then the last one would be other than the CCH2’s in 2010, would you have enough liquidity to make it through 2010, except the billion and change dollars that you need to move around?

Mike Lovett

The footprint is 82% currently.

Harry DeMott - King Street Capital

That’s for phone or triple play or I guess both.

Mike Lovett

For both which is about $10 million across the footprint. Eloise, CCH2.

Eloise Schmitz

Yes at the end of the second quarter we had approximately $1.4 billion of cash and revolver available to us and in our disclosure I think we tried to be as clear as we can that that will be sufficient to support all of our needs through 2009, but it won’t be in 2010 because of the approximately $1.9 billion of maturities that are due in 2010. So I think the best guidance I can give you is around having the $1.4 billion available, but it is the 2010 issue which is primarily as a result of the CCH2 maturity.

Neil Smit

I would like to thank you all for joining us this morning and I look forward to speaking with your again soon. Thank you.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: [e-mail]. Thank you!