Stefan Anninger:

Thanks, operator, and welcome, everyone. The presentation that accompanies this call can be found on our website, ir.charter.com. I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, which we encourage you to read carefully. Various remarks that we make on this call concerning expectations, predictions, plans, and prospects constitute forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management's current view only and Charter undertakes no obligation to revise or update such statements. On today's call, we have Chris Winfrey, our President and CEO, and Jessica Fischer, our CFO. With that, let's turn the call over to Chris.

Jessica Fischer :

Thanks, Chris. Let's turn to our customer results on slide 6. Including residential and SMB, we lost 149,000 Internet customers in the second quarter. While in Mobile, we added 557,000 mobile lines. Video customers declined by 408,000 and wireline voice customers declined by 280,000. As Chris mentioned, our second quarter Internet losses were primarily driven by the end of the ACP program. ACP program connects ended in early February. In May, the program's original $30 subsidy was reduced to $14. And in June, that subsidy was reduced to zero. We estimate that the end of the program's impact on our second quarter internet gross additions and churn drove over 100,000 of our 149,000 internet losses in the quarter. And from a financial perspective, there was an approximately $30 million headwind to second quarter revenue from onetime non-recurring ACP related items in the quarter. In addition, similar to the end of the Keep Americans Connected program in June 2020, many of our ACP customers had past due balances that had been fully reserved for accounting purposes. We took steps to eliminate a portion of those back balances for certain customers and put a portion of their remaining balances on payment plans. For certain customers with a low likelihood to pay post ACP, we have been recognizing revenue on a cash basis, resulting in slightly less revenue and less bad debt in the second quarter than we would have otherwise had. So far, we are performing well with ACP retention, but the largest driver of Internet customer losses associated with the end of the ACP program will be in non-pay disconnects, and they will occur in the third and fourth quarters, likely weighted to the third. We continue to do everything we can to preserve connectivity for former ACP subsidy recipients. We have a number of products and offers to assist those that have lost their ACP subsidy, including our Spectrum Internet Assist program, our Internet 100 products, and we've been offering all of our ACP customers a free mobile line for one year. And we continue to market offers targeted at low income customers, a segment that we have historically served well. Turning to rural, we ended the quarter with 582,000 subsidized rural passings. We grew those passings by 89,000 in the second quarter and by 345,000 over the last 12 months. We had 36,000 net customer additions in our subsidized rural footprint in the quarter. We continue to expect to activate approximately 450,000 new subsidized rural passings in 2023, about 50% more than 2023. We also continue to expect our RDOF build to be completed by the end of 2026, two years ahead of schedule. Moving to second quarter financial results starting on slide 7. Over the last year, Residential customers declined by 1.3%. Residential revenue per customer relationship grew by 0.4% year-over-year, given promotional rate step-ups, rate adjustments, and the growth of Spectrum Mobile, partly offset by a higher mix of non-video customers, growth of lower-priced video packages within our base, and some internet ARPU compression related to retention offers extended to customers that previously received an ACP subsidy. As slide 7 shows, in total, Residential revenue declined by 0.6% year-over-year. Turning to commercial, SMB revenue grew by 0.6% year-over-year, reflecting SMB customer growth of 0.2% year-over-year and higher monthly SMB revenue per SMB customer, primarily due to rate adjustment. Enterprise revenue grew 4.5% year-over-year, driven by enterprise PSU growth of 6.1% year-over-year. And when excluding all wholesale revenue, enterprise grew by 5.9%. Second quarter advertising revenue grew by 3.3% year-over-year, given political revenue growth. Core ad revenue was down about 2% year-over-year. Other revenue grew by 6% year-over-year, primarily driven by higher mobile device sales. And in total, consolidated second quarter revenue was up 0.2% year-over-year and 0.1% year-over-year when excluding advertising revenue. Moving to operating expenses and adjusted EBITDA on slide 8, in the second quarter, total operating expenses declined by 1.4% year-over-year. Programming costs declined by 9.8% year-over-year due to a 9.5% decline in video customers year-over-year and a higher mix of lighter video packages, partly offset by higher programming rates. Other costs of revenue increased by 12.6%, primarily driven by mobile service direct costs and higher mobile device sales. Cost-to-service customers declined 4.2% year-over-year given productivity from our 10-year investments, including lower labor costs and lower bad debt expense, as we saw some favorability and our mobile bad debt as a portion of revenue due to an improved customer tenure and credit profile. And, as I mentioned earlier, a portion of our uncollectible billings offset revenue in the quarter. Sales and marketing costs grew by 1.9% as we remain focused on driving customer acquisition. Finally, other expense grew by 4.7%, mostly driven by an insurance expense benefit from the prior year quarter. Adjusted EBITDA grew by 2.6% year-over-year in the quarter, and when excluding advertising, EBITDA grew by 2.4% year-over-year. While we don't manage the business at a single product line P&L level, we continue to compute allocations internally, and this quarter, for the first time, our standalone mobile adjusted EBITDA was positive, even when including the headwind of subscriber acquisition costs and without the benefit of GAAP revenue allocation to mobile revenue. Our mobile profitability this quarter marks a significant milestone. It shows that we're on the path to establishing a mobile business that is very profitable. Overall, our goal is to deliver solid EBITDA growth, and we believe we can continue to do that even as we make significant investments in the business and face a challenging competitive environment and the end of the ACP program. Our expense management process is working with growing realization of impacts in the second quarter. We continue to expect accelerating EBITDA growth in the back half of the year, given our expense management initiatives, Spectrum 1 promotional roll-off, and political advertising revenue. Turning to net income on slide 9, we generated $1.2 billion of net income attributable to Charter shareholders in the second quarter, in line with last year, as higher adjusted EBITDA was mostly offset by higher other operating expense, primarily due to restructuring and severance costs and net amounts of litigation settlements. Turning to slide 10, capital expenditures totaled $2.85 billion in the second quarter, in line with last year's second quarter spend. Line extension spend totaled $1.1 billion, $37 million higher than last year, driven by our subsidized rural construction initiative and continued network expansion across residential and commercial green sales and market fill-in opportunity. Second quarter capital expenditures, excluding line extensions, totaled $1.7 billion, which was similar to the prior year period. For the full year 2024, we now expect capital expenditures to total approximately $12 billion, down from between $12.2 billion and $12.4 billion previously. Our reduced outlook for 2024 capital spending reflects lower internet and video customer net additions, including the impact of the end of the ACP program, which drives lower CPE costs. We're also actively managing vendor rates and construction materials to make our capital expenditures more efficient. We still expect line extension spend of approximately $4.5 billion, and network evolution spend of approximately $1.6 billion. Turning to free cash flow on slide 11, free cash flow in the second quarter totaled $1.3 billion, an increase of approximately $630 million compared to last year's second quarter. The year-over-year increase was primarily driven by higher adjusted EBITDA, lower cash taxes due to timing, and a favorable change in working capital. On that front, we've been managing the balance sheet to provide us better overall cash flow and increased flexibility. Over the last several quarters, we sold our towers portfolio, which generated almost $400 million in proceeds. We launched our EIP securitization program in the second quarter, which backs a new $1.25 billion credit facility at favorable interest rates. And we've been working with our vendor base to extend our payment terms, utilizing a supply chain financing tool to support our working capital favorability. We will continue to identify and capitalize on balance sheet opportunities to help fund our unique one-time capital investments. We finished the quarter with $96.5 billion in debt principle. Our current rent rate annualized cash interest is $5.1 billion, and we repurchased $1.5 million Charter shares and Charter Holdings common units, totaling $404 million at an average price of $271 per share. Given our long dated and 86% fixed rate debt structure, our sensitivity to higher rates is relatively low. If we refinanced all of our debt due in 2025 and 2026 at current rates, the impact to our rent rate interest expense would be less than $60 million. As of the end of the second quarter, our ratio of net debt to last 12 months adjusted EBITDA moved down to 4.32x. We expect to continue to move closer to the middle of our 4x to 4.5x target leverage range through the end of this year. And we remain fully committed to maintaining our split rated debt structure, including access to the investment grade market, given the significant benefits that it offers to all of our capital providers. We continue to be confident in the long-term trajectory of the business. We have the best products at the best prices in our industry, and we remain under penetrated relative to our long-term potential. That combined with the investments that we're making in the business and our expense savings initiative will continue to drive strong EBITDA growth and value creation for many years to come. And with that, I'll turn it over to the operator for Q&A.

Craig Moffett:

Hi. Thank you. Perhaps no surprise. I'd like to drill down a little bit more on the ACP impacts. A couple of questions. First, to what extent are you seeing ACP showing up in reduced gross editions that is just lower market activity because new customers can't sign up for or ACP customers who are moving can't continue to sign up for the program even before you start to see non-pay disconnects. And then second, what impact is it having on ARPU? You reported 1.7% broadband ARPU the same as last quarter. Had it not been for ACP, could you just tell us what that would have been as you're starting to now lap some of the Spectrum 1 discounts that were included in the numbers in the past?

Jessica Fischer :

Yes. So Internet ARPU increased 1.7% year-over-year in the quarter. If you adjusted, Craig, for the $30 million in one-time ACP related items that I mentioned and for the impact of the mobile revenue allocation, that ARPU growth would have been 2.7%. I didn't incorporate the cash basis accounting impact that I mentioned earlier. It's small, and unless those customers do end up paying at a rate that's higher than our expectation, I think it recurs in revenue going forward. But so I think you would have been, but for those two items, that's a 2.7%

Operator:

Our next question comes from the line of Sebastiano Petti with JP Morgan.

Chris Winfrey:

Sure. Look, the competitive fiber overbuild has maintained a relatively steady pace. If anything, it's slightly lower than what it had been. And so we don't see any dramatic change there. When I talked about maintaining our competitiveness means having a similar impact, despite the fact that you have an expanding footprint. So you could, if I was being bullish, I would argue that that's an improvement, and as opposed to just staying steady. And so we're competing well, both in the wireline overbuild space, which is more permanent, as well as the cell phone internet space as well. In terms of some of the experiments that you're seeing as it relates to wholesale access and whatnot, it's still a fiber overbuild at the end of the day. And there's still economics that need to be deployed. And those economics are, in my mind, are not very good. They haven't been for decades of the economics of an overbuilder on an existing footprint. So I don't think it, A, dramatically changes the outputs that they can provide because the economics aren't any different, and B, it's really small. What you're talking about that's been done is just a very small percentage of the U.S. footprint. So the ability to project products both from a sales and marketing and service perspective really is impacted by the ubiquitous nature of the technology that you have and the ability to provide those products in the marketplace. And so from our perspective, when we look at it and say, what's unique about us is we have a gigabit network deployed everywhere we operate. In addition to that, we're upgrading that wireline network to have symmetrical and multi-gig speeds everywhere, not just in redline pockets, but everywhere that we operate, and then you combine that with our WiFi and CBRS capabilities and a very strategic relationship that we have with a great partner in Verizon, it gives us the ability to provide seamless connectivity, converged broadband everywhere you go inside of our footprint, and that's unique. The only other operator who has those type of capabilities really is Comcast. And so I think that's the real strategic advantage for us, and it's not because we have that capability in 2%, 3%, or 5% of our footprint. We have it everywhere we operate, and it allows us to be loud in the marketplace, talk about not only the product advantages of having that seamless connectivity, but the ability to save customers hundreds and thousands of dollars really with a better product. And so I don't see anything that's really changed. Other than some of these joint ventures announcements that you've seen, if you really sit back and think about it from both a strategy and from a valuation perspective, I think it's flattering. It tells you the strategic asset that we have. And so if you take a look at the slide that we have on page 4 of the deck today, you think about everything that I said and our capabilities, and then you think about where others are trying to go, many of the MNOs, I do think that's flattering both from a strategic, from an operating and from evaluation perspective of what we have and what we're capable of doing. It has people's attention.

Chris Winfrey:

Sure. Well, mobile wasn't just up. What I was saying is it was up quarter-over-quarter. We had a very good first quarter. It was clearly up even more this quarter. And if you excluded the benefit of the ACP mobile only, mobile retention offers, we still would have been better than a very strong first quarter. That reflects just the general momentum that we have, but also, we have evolved the product. And so we've rolled out the Anytime Upgrade Program, which is unique in the market. We have even though it sounds small, it's attractive to customers, service, and repair function that's, I think, competitive. And now with the phone balance buyout program, which is also pretty unique in the marketplace. And all of those rolled out sequentially during the course of the quarter and have continued to improve our selling capabilities along the way. I think that positions us well in any market. We've not been, I think, where you were going, we've not been, we don't intend to be in the business of subsidizing phones. But we do have really good programs that make it attractive for customers to not only come in to be a customer spectrum mobile, but also to stay with us because we have the ability through the Anytime Upgrade Program to really at a low competitive cost, keep them current with their models of phones now and in the future. And stating the obvious, the biggest advantage here beyond just the devices really is the ability to provide a higher quality, faster mobile service, seamless connectivity, and to be able to save them hundreds or thousands of dollars a year. I mean, if you think about our pricing at $30 for unlimited and $40 for unlimited plus on one line and each incremental line, it's really competitive. It's very good. So we're happy with where we are with the product. We will continue to evolve it. I think some of those feature sets that will evolve really include things like mobile speed boost, which ties to the capabilities that we have with WiFi and wireline, and the ability to have spectrum mobile as an SSID. So those of you in the New York and LA markets, for example, what you'll notice is as you travel outside of your home with Spectrum Mobile, an auto-authenticated attachment to Spectrum Mobile SSID, which boosts your speed wherever you go, and it increases your access and your reliability, which is the nature of seamless connectivity.

Operator:

Our next question comes from the line of Jonathan Chaplin with New Street Research.

Chris Winfrey:

So Jonathan, there's I think a few derivatives inside of your question. And so let me try to give you what you're looking for in the way that we think about it. And inside of the first quarter, we had performed better relative to prior quarters and prior year on competitive switching. And so that was in the marketplace, so available subscriber ads and disconnects. But we saw, as you highlighted as well, once everybody had reported, we saw a significant reduction in the first quarter of this year in the available gross ads, a significant drop year-over-year and that was due to housing starts, rental vacancies, but also the removal of ACP for new connects, all of which driving your version to mobile-only back to pre-pandemic levels. That broadband market growth rate overall we still saw is significantly reduced for all those factors inside of Q1 but a dramatic drop, and so that put our performance in relative light given the overall market backdrop, a lot of which was one time in nature. In Q2, and while it's early because we don't have all the data, I think our evidence shows that for the first time and due to, again, all of the one-time factors and most dramatically the loss of ACP, the broadband market actually shrunk as a one-time event. And so if you put our performance and then our statements about relative competition in context with that, and I think we're doing pretty well. And that was the nature of the comments that I provided in the prepared remarks. I do think that, as I mentioned, moves will come back. It's hard to predict exactly when, but moves will come back, housing starts will return, apartment rental rates will go back up, and most importantly, the most dramatic effect is once you flush out the ACP impact between Q2 and Q3 predominantly, then you'll be able to get back into a much more normalized environment. And I think the product investments that we're making and the attractiveness of the value that we provide puts us in great position for when that volume returns, and we're doing everything we can in the meantime to preserve all the ACP customers doing really well, but at the same time making sure that we're ready to come out in a good light on the back end once the volume does pick back up.

Stefan Anninger:

Operator, we'll take our next question, please.

Benjamin Swinburne:

Thanks. Good morning. Chris, I believe you guys took some cost action. I don't know if there were headcount reductions this year at Charter, but I know you guys have had a cost plan you've been working on. I'm wondering if you could just talk about what you guys are doing and how you're approaching that. And I think you had suggested you guys weren't going to touch any sort of customer-facing resources. So just give us a sense of where you are on that and your philosophy as you look through the rest of the year and how we might think about that impacting the financials. And then maybe for Jessica, I don't know if you have any visibility at this point into Q3, ACP impact from that 100,000, but if you do, I'd love to hear it. And try to understand the decline in bad debt. I know you touched on it in your prepared remarks. I don't know if that tells us something about your third quarter ACP expectation, or if you still expect cost of service to be flat for the year, we just want a little more color around those trends. Thank you both.

Jessica Fischer :

Yes. So if you think about what happened in bad debt in the year-over-year, Ben, there's a few things going on. One really with tenure and credit profile in our mobile customer base that's been improving, particularly for customers that have EIP plans with us. And on the ACP front, we took a lot of bad debt along the way, particularly for customers who entered the ACP program and they had outstanding unpaid balances. And so those have really been reserved throughout the ACP program. I mentioned it in the remarks but there also is a portion of the ACP customer base where we have a very low expectation of payment for them and so instead of taking their revenue into revenue and then taking bad debt expenses and offset, we actually didn't recognize revenue for those customers. So when you see that it means that bad debt expense, I think absent that you might have had -- you would have had more bad debt expense if we had put that back in the other direction. And then the last point I mean we did have overall lower resi revenue in 2Q in the year-over-year and some mixed changes and so with other things being equal that also drives a little bit of downward pressure on bad debt. All of that is to say I wouldn't read anything sort of into what is it that you think about Q3 and looking at what happened with bad debt in the year-over-year, I think there are a number of factors going on there. As you think about then what's happening on the overall cost reduction side which I think was your other question. The expense management process is pretty extensive. While we're not doing anything that will impact our sales or service capabilities, we have things that are big things that are small some short some medium some long-term opportunities all across the business. We've made progress with some vendor cost reductions with reduced spend around discretionary categories like real estate and third-party services, some reductions to overhead expenses and implementing some tools to increase our efficiency and actually I think the benefits from those came a little faster into 2Q than what we had anticipated, but we're already realizing the benefits of some of the changes will continue to build on additional opportunities over time. As you look at the rest of the year, I think we had given some thoughts on our outlook for expenses. We had expected programming costs per video customer to grow in the 1% to 2% range year-over-year. I now expect that to be flattish year-over-year. We previously had said that we expected costs to serve to be flat with 2023. I now expect that to decline by 1% to 2% inclusive of bad debt expense. And in sales to marketing, I think we had said 2% to 3% growth. And at this point, I would expect us to be in the low end of that range, if not a bit below. I also, as an aside, just want to clarify something I said earlier. My comments on working capital. I want to be clear that the comments on working capital are on cable working capital. Mobile continues to have the detriment of the EIP notes. And so those will continue to be a drag, though the securitization plan that we did in the quarter does help that.

Stefan Anninger :

Thanks, Ben. Operator, we'll take our next question, please.

Jessica Ehrlich:

Question on video, I guess, can you talk about the take-up of direct-to-consumer in these hybrid linear offers? And you've mentioned a couple that are coming, Paramount Plus and Hulu, is there anything else on the horizon? And then secondly, you mentioned political advertising should pick up in the second half. Given the current political environment, can you give us some color and expectations and if that's increasing?

Stefan Anninger :

Thanks, Jessica. Operator, we'll take our last question, please.

Peter Cipino:

Thanks and good morning. I have an ACP question that looks beyond the third quarter. Arguably, ACP has been history's greatest retention program for broadband operators and you took good advantage of it. Looking beyond the wave of involuntary disconnects in Q3 and not to say 2025, does that retention benefit go away? I mean, certainly it does. And then what needs to step up in its place or should we expect a slightly higher underlying churn rate attributable to those four or five million former ACP subs who go from having essentially no churn to maybe having a normal churn rate?

Stefan Anninger :

Thanks, Peter. And that concludes our call. We'll see you next quarter.

Christopher Winfrey:

Thanks, Stefan. During the first quarter, we lost 72,000 Internet customers. Despite lower Internet sales, we added nearly 500,000 Spectrum Mobile lines and close to 2.3 million lines year-over-year. We now have more than 8.2 million total mobile lines. With still low mobile penetration of Internet customers and passings, we have a long runway for customer and financial growth with the nation's fastest mobile service at incredible value.

Jessica Fischer:

Thanks, Chris. Let's turn to customer results on Slide 5. Including residential and SMB, we lost 72,000 Internet customers in the first quarter, and video customers declined by 405,000. In mobile, we added 486,000 mobile lines. And wireline voice customers declined by 279,000. Our mobile product continued to perform well. And although we saw lower mobile gross adds year-over-year tied to lower gross Internet additions, we also saw lower overall mobile churn rate year-over-year and sequentially.

John Hodulik:

If I could follow up on the ACP comments, first of all, just any additional color you guys can provide over the -- on the subscriber and ARPU impacts to that program winding down in the second and third quarter. And it sounds like given the cost-cutting opportunities and the commentary, you still believe you can grow EBITDA for the year. That's number one.

Christopher Winfrey:

Sure. Let me try to tackle those, and Jessica may want to chime in here as well. The first one is on ACP and what we estimate. John, the non-renewal of ACP, there's 23 million customers have it today. It's unfortunate. But it's certainly going to have a negative Internet customer growth impact for everyone, including us. And that's going to happen in what's already a seasonal Q2 and probably the third quarter as we work through likely non-pay activity. And so really, as you think about the extent of those losses, it's going to depend on a few things.

Jessica Fischer:

Yes. As you think about EBITDA across the year, as we pointed out and I would just highlight it, there are some pressures on EBITDA in Q2 because of the comps to last year as well as likely, if there is non-pay impact, there could be some bad debt pressure inside of Q2 as well. So I would expect our EBITDA growth to be more pressured in Q2.

Christopher Winfrey:

Yes. And so EBITDA, we're very confident on that. Giving a hard estimate on subscriber impact, for all the reasons I mentioned, is difficult. But we're going to outline that quarter by quarter. We'll have the ability to isolate. We'll provide that transparency for people along so they can see what's the underlying growth rate.

John Hodulik:

Yes, that's perfect.

Benjamin Swinburne:

Just maybe unpacking the EBITDA outlook a little bit more. Jessica, last quarter, you gave us some helpful guidance on a few expense line items for the year. I think programming, cost to service and marketing come to mind. I don't know if you had any updates on any of those given some of the moving pieces. I just wanted to check on that.

Jessica Fischer:

So Ben, on the line item expense guidance that we gave earlier in the year, I don't have an update to any of those specific items. But what I would tell you is that, because of some of the work that we're doing around expenses across the business, I think it's possible that we come in lower than what we guided to, to begin with. I don't have a revision, but I think it's possible we come in on the low side.

Jessica Fischer:

So that's a fair call out. The exact amount of the bad debt related to ACP is hard to predict because it's a matter of what the mix is between customers that go non-pay and customers that sort of contact you in some other way. So that's fair call out.

Christopher Winfrey:

You've got a lower transaction environment, plus all the expense management activity that we're doing, and that will have significant impact to cost to serve as well as sales and marketing as well.

Operator:

The next question comes from Jonathan Chaplin at New Street.

Jessica Fischer:

Yes. So Jonathan, I would say our confidence in the business hasn't changed. We remain comfortable with our 4 to 4.5x range based on the outlook that we have. But I think being sort of at the height of the investment cycle, we thought that creating a little bit of headroom was appropriate.

Christopher Winfrey:

I would just add on -- just to add, Jessica said it, 0 lack of confidence. We have good, strong free cash flow today, have even growing free cash flow, and much more so as we get through these onetime investments. It's really -- as Jessica has already said, it's about making sure that we ensure the investment-grade structure we have. And that's important to us, it's important to our debt holders, and it's important to our equity holders as well.

Jessica Fischer:

Jonathan, we're in regular contact with all 3 of the ratings agencies. Certainly, I think that there has been some additional conversation across debt holders and the rating agencies, given the higher CapEx that we have in the business and the sort of short-term pressure that, that puts on free cash flow.

Jessica Fischer:

Yes.

Craig Moffett:

Chris, I want to -- maybe 2 questions. One broader sort of more strategic question and then just one clarification from Jessica. On the first one, you said something to me a while back that I've been thinking about, about the way you think about convergence. And you characterized the Spectrum One offer not really as an offer but sort of as a new product category.

Christopher Winfrey:

And the piece of that, the piece that's pulling that is really cell tower backhaul...

Christopher Winfrey:

Right. So the traditional wholesale is relatively steady, and it's the cell tower backhaul that's in systemic decline, if you will.

Bryan Kraft:

I had 2 if I could. First, Jessica, related to free cash flow. I was wondering if you could size for us the onetime payment in the first quarter that impacted free cash flow. And also if you could help us understand how you're thinking about working capital usage this year.

Jessica Fischer:

Yes. So Bryan, the onetime payment that impacted free cash flow on the order of $150 million to $180 million, in that range. And then from a working capital perspective, Q1 is always for us a negative working capital quarter. And I fully expect that we'll sort of make back to close to flat over the course of the year the negative working capital that we had. Excluding working capital, excluding the mobile device or the mobile side in the first quarter. Obviously, mobile continues to be a drag on working capital because of the device sales, and so you should expect that piece to continue.

Operator:

The next question comes from Michael Rollins at Citi.

Christopher Winfrey:

Or in it, in most cases.

Michael Rollins:

And are you choosing to implement the ACP wind-down at the end of April? Or are you planning to go through mid-May with your customers?

Operator:

The next question comes from Vijay Jayant with Evercore.

Stefan Anninger:

Operator, we'll take our last question, please.

Steven Cahall:

So Chris, earlier, you said you're confident in returning to long-term growth, and you spoke a lot about the overbuilding activity that you're seeing. I think the challenge many of us have is when we pencil that out and kind of think about penetration of fiber and then we look at your passings growth and think about penetration as well, it's just tough to see when things return to growth on the subscriber side, maybe ex rural. So I was wondering if you could just give us any thinking as to your color and timing when we might start to see subscriber growth reaccelerate to a positive level.

Christopher Winfrey:

So I'm not going to provide a detailed timeline for the timing to reaccelerate, just because I want to be conservative and recognize that it's a very fluid space. I mean, clearly, we have ACP going on right now, which is going to be a onetime hit. You have cell phone Internet where they will reach capacity, and the timing of that isn't entirely clear. And then there's fiber upgrades, which have been announced and are pretty far along from what was actually announced.

Jessica Fischer:

On the mobile working capital side, so you point out, without a doubt, the drag on working capital is driven by the number of phones or other mobile devices that you sell subject to EIP notes. And so if we were to end up with additional devices because of having additional mobile customers as a result of our work on ACP or if we end up with some additional devices because of the Anytime Upgrade program, which is also possible, there could be some acceleration in that drag.

Stefan Anninger:

Thanks, operator.

Stefan Anninger:

Thanks, operator, and welcome everyone. The presentation that accompanies this call can be found on our website ir.charter.com. I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, which we encourage you to read carefully. Various remarks that we make on today's call concerning expectations, predictions, plans and prospects, constitute forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management's current view only and Charter undertakes no obligation to revise or update such statements. On today's call, we have Chris Winfrey, our President and CEO; and Jessica Fischer, our CFO. With that, let's turn the call over to Chris.

Jessica Fischer:

Thanks, Chris. Let's turn to our customer results on Slide 6. Including residential and SMB, we lost 61,000 Internet customers in the fourth quarter, while video customers declined by 257,000. In mobile, we added 546,000 mobile lines, and wireline voice customers declined by 251,000. Our Spectrum One product continued to perform well. Customers that signed up for our Spectrum One product in the fourth quarter of 2022 reached their 12-month anniversary this past quarter. Those promotional roll-offs didn't drive incremental Internet churn. In the quarter, we had slightly lower mobile line gross adds year-over-year tied to Internet gross additions with a lower churn rate year-over-year and flat sequentially. We continue to see healthy data usage at our Spectrum One promotional lines and remain confident that these lines will perform well as long-term customers. Turning to rural. We ended the year with 420,000 subsidized rural passings and grew those passings by 295,000 in 2023, in-line with our target, and by 105,000 in the fourth quarter alone, an acceleration from this 78,000 we activated during the third quarter. Customer growth in our subsidized rural footprint also accelerated, with 34,000 net customer additions in the quarter. As Slide 13 shows, we're generating customer penetrations of close to 50% in cohorts that have reached or passed the 12-month mark. In 2024, we expect to activate approximately 450,000 new subsidized rural passings, about 50% more than in 2023, with seasonality in the first quarter tied to the winter weather. Slide 12 shows that so far, with additional state bids that we expect, we will have committed to build approximately 1.75 million subsidized rural passings. We also expect our RDOF build to be completed by end of 2026, two years ahead of schedule. Moving to financial results, starting on Slide 7. Over the last year, residential customers declined by 0.3%, with video-only customer churn, partly offset by new customer growth driven by Internet. Residential revenue per customer relationship was up 0.1% year-over-year, given promotional rate step-ups, rate adjustments and the growth of Spectrum Mobile, mostly offset by a higher mix of non-video customers and growth of lower-priced video packages within our base. As Slide 7 shows, in total, residential revenue was flat year-over-year. Residential Internet ARPU grew by 2.2% year-over-year, but by 3.4% when excluding the impact of Spectrum One GAAP revenue allocation out of Internet into mobile. Turning to commercial, SMB revenue declined by 0.9% year-over-year, reflecting lower monthly SMB revenue per SMB customer, primarily due to a higher mix of lower-priced video packages and a lower number of voice lines per SMB customer. These factors were partly offset by SMB customer growth of 0.7% year-over-year. Enterprise revenue grew 3.8% year-over-year, driven by enterprise PSU growth of 6.5% year-over-year. Excluding all wholesale revenue, enterprise revenue grew by 6.1%. Fourth quarter advertising revenue declined by 23.4% or $130 million year-over-year due to less political revenue. Core ad revenue was down 0.7% year-over-year due to a more challenged advertising market, partly offset by our growing advanced advertising capabilities. Other revenue grew by 24.4% year-over-year, driven by higher mobile device sales. And in total, consolidated fourth quarter revenue was up 0.3% year-over-year and up 1.3% year-over-year when excluding advertising. Moving to operating expenses and adjusted EBITDA on Slide 8. In the fourth quarter, total operating expenses declined by 0.7% year-over-year. Programming costs declined by 10.6% year-over-year due to a decline in video customers of 6.8% year-over-year and a higher mix of lighter video packages. These factors were partly offset by higher programming rates. For the full year 2024, we expect programming cost per video customer to grow in the 1% to 2% range year-over-year with our video package mix being the largest variable. Other cost of revenue increased by 15%, primarily driven by higher mobile device sales and other mobile direct costs, partly offset by lower ad sales costs. Cost to service customers increased by 2.1% year-over-year, driven by additional activity to support the growth of Spectrum Mobile, partly offset by productivity improvements, including from 10-year investments, and lower service transactions per customer. Looking forward, I would note that our previous investments related to job structure, pay and benefits to build a more skilled and longer-tenured workforce are now largely complete and service transaction trends are back on trajectory after the programming dispute in September. Sales and marketing costs declined by 1.6%, primarily driven by lower labor costs. Finally, other expenses grew by 1.5%, driven by labor costs. Adjusted EBITDA grew by 1.6% year-over-year in the quarter and by 3.6% when excluding advertising. Turning to net income on Slide 9, we generated $1.1 billion of net income attributable to Charter shareholders in the fourth quarter, down from $1.2 billion last year, driven by a pension remeasurement loss and higher interest expense, partly offset by a gain on the sale of towers and higher adjusted EBITDA. Turning to Slide 10, capital expenditures totaled $2.9 billion in the fourth quarter, just below last year's fourth quarter spend. Line extension spend totaled $978 million, $50 million higher than last year, driven by our subsidized rural construction initiative and increased residential and commercial greenfields and market sell-in opportunities. Fourth quarter capital expenditures, excluding line extensions, totaled $1.9 billion compared to $2 billion in the fourth quarter of 2022, driven by lower spend on scalable infrastructure and lower spend on CPE due to purchase timing, partly offset by higher spend on upgrade/rebuild, primarily network evolution. For the full year 2023, we spent $11.1 billion. Looking ahead at full year 2024, we expect capital expenditures to total between $12.2 billion and $12.4 billion, including line extensions of approximately $4.5 billion and network evolution spend of approximately $1.6 billion. On Slide 11, we've provided our current expectations for capital spending through the year 2027, excluding any possible line extension spend associated with the BEAD program. The slide divides our spending into three categories

Jonathan Chaplin:

Thanks, guys. One for Chris and one for Jessica. For Chris, I'm wondering if you can give us some context on whether there was a change in competitive dynamics in the fourth quarter. As we look out across the fixed wireless guys and the fiber guys, it seemed pretty steady over the course of the last few quarters, sort of competitive pressures that seem to stabilize. And I'm wondering if there was just a bigger focus on -- from fixed wireless or potentially fiber in newer markets specifically? And then, for Jessica, the cash tax guidance is great. If bonus depreciation is expanded -- extended this year, how much of that cash tax go down by? Thank you.

Jessica Fischer:

Yeah. And I'd add on, the environment wasn't consistent through the quarter. Early on, we had some carryover from the Disney dispute in the August rate event that we talked about in last quarter's call. We had expected November and December to recover to the levels that we had seen going into that event, and they didn't. But as we exited the quarter, we saw December slightly negative, and January net adds are consistent with what we saw in December. So that environment does continue. On the cash tax side, Jonathan, it's not just bonus, it's also R&D and interest expense deductions that will impact us. But I would say the reforms that are being considered support the economics of our investments in connecting rural America and upgrading the network. And so, we are fully in support of them. I think it's a little premature to adjust our guidance. But given the investments that we're making, we do expect there to be a material benefit to cash taxes if the legislation were to go through.

Stefan Anninger:

Thanks, Jonathan. Luke, we'll take our next question, please.

Craig Moffett:

Hi, thank you. A couple of questions. Jessica, thank you for the comments you made about ACP. I'm wondering if you can just try to quantify a little bit more for us the number of ACP subscribers that you have, and if you have insight into how many of those are new subscribers versus previously were paying subscribers. And then, I wonder if you could also just comment about T-Mobile indicated that they expect 100,000 to 150,000 fewer net adds per quarter in fixed wireless. How do you think about that flowing into your footprint? And does that inform the way you think about the broadband growth rate going forward?

Jessica Fischer:

Yeah. So, on the numbers side, Craig, we have a little over 5 million households that received the ACP benefit, all for wireline Internet. Very few of those customers used ACP to upgrade to higher speeds or take more PSUs when they began receiving the benefit. But many do have our flagship speed or higher or do take other services from us. And I guess, the funding will continue through April. We'll try to keep people informed as we move through the process. But from our perspective, there's not a lot of visibility at this point as to anything that might happen when the program ends.

Jessica Fischer:

Yes. Do you want to talk to the fixed wireless lower net add guidance?

Craig Moffett:

Thank you.

Operator:

Our next question will come from the line of Benjamin Swinburne with Morgan Stanley. Your line is now open.

Chris Winfrey:

Sure. So, Ben, I think leading into the last earnings call, we had been listening to shareholder feedback about the difficulty people were having of projecting long-term CapEx trends given the significant capital investment opportunities that we have. And you're right, typically, we would never provide a multiyear outlook and we've -- about the only guidance that we've historically provided is in-year CapEx guidance. But these are unique opportunities that don't come around very often. The opportunity to have subsidized rural build, having the largest expansion of broadband and cable footprint really since the 1980s is unique and it's generational. And I think we felt that investors needed to see, A, the size and magnitude of what we were already committed to, and B, to have a very articulated outline of the returns of those investments, which Jessica has provided. We've been providing that, all that information is essentially what we provided over the past two years, but to do it in a single spot so people could wrap their heads around both the quantum that exist, the investment returns that are attached to that investment and that it doesn't go on into perpetuity, and that there is a real nice setup for what this is all about, which is free cash flow growth. And so, while we typically like to keep our cards close to our chest to preserve both flexibility and to maintain our competitive posture, I felt there was a trade-off here to make sure that our shareholders were with us and that people understood the value of the returns to the investment that we're making. And so, there's a balance here between, on one hand, having the flexibility to always make the right decisions to generate long-term free cash flow, and making sure that we're responsive to shareholder feedback along the way and that we can demonstrate the long-term value, so people take comfort with that. In terms of the prioritization of line extensions over the DAA or DOCSIS 4 upgrade, it wasn't so much about prioritization. It was really about certification of the DAA equipment taking a little bit longer, which was pushing out the timeline for the rollout. And so, the trade-off we had is could you do it the 1.2 gigahertz high-split upgrade under, what we call, an integrated CMTS environment. And do more of that footprint to keep the original pace or should we slow it down just a tad to make sure that we allowed for a catch-up of the DAA certification process so that you can move to high split with distributed access architecture as well as the 1.8 gigahertz and the rollout of DOCSIS 4.0, we chose the latter to make sure that we were having as much of the footprint with the full capabilities of DOCSIS 4.0 over time. The caveat is, if we get into couple of years from now, we see opportunities to pull capital forward. We'll of course do that, but this is our best view of where we're going to spend capital. And we thought it was worthwhile to show that to make sure people understand that it doesn't -- that higher level of capital expenditure doesn't go on into perpetuity.

Jessica Fischer:

Yeah. On the EBITDA performance inside of 2024, I guess -- I'm not going to give EBITDA guidance, but I think we can talk about the few things. So, you do have a political advertising year, that is a tailwind. We have -- so we've fully lapped the investments that we made in the employee population. And from an expense outlook perspective, I think my expectation is that we'll be able to keep cost to serve essentially flat on an absolute basis. And in sales and marketing, you might have some growth, but it will be small in the 2% to 3% range. And we continue -- as I said in my remarks, we're taking a look at expenses all across the business to identify areas where we can be more efficient and reduce costs without impacting our service levels and our sales capability. And so, we fully understand that we need to maintain EBITDA growth in this environment and strong EBITDA growth coming into what, as you note, should be a stronger year in order to be able to continue focusing on what we want for the long term, which is to be able to invest to grow in the long term and to return to that sort of Internet customer growth in the long term. So, I think the dynamics in the background are happening to make that growth happen. That's where we are.

Chris Winfrey:

Thanks, Ben.

Operator:

Our next question will come from the line of John Hodulik with UBS. Your line is now open.

Jessica Fischer:

Yeah. So, I'll start with ARPU. When you look at average revenue per customer overall, John, the biggest factor that's keeping it flat is the rate of video penetration. So, what matters there is the extent to which we can retain video customers with some of the package and pricing strategies that we have. If you isolate and you sort of pull out Internet ARPU, you can see even in the remarks that I made on the quarter that Internet ARPU continues to grow, and when you pull out the Spectrum One Mobile allocation, continues to grow at a rate that's consistent or even a little higher than historical level. On the mobile side, I talked about it on the last call. As you have -- so because we've sort of lapsed the free line offer, the number of free lines that we have in the system over the course of 2024 is more steady than it was in 2023. So, you'll also see that the impact of that mobile allocation over to the Internet should steady over time. And you'll have, just as a matter of math, more paying customers in the base as a proportion relative to the free lines. So, I think that's the piece there. I don't know, Chris, do you want to talk about pricing power?

John Hodulik:

Okay. Thank you.

Operator:

Our next question will come from the line of Peter Supino with Wolfe Research. Your line is now open.

Jessica Fischer:

Yeah. So, I'll start on the cost per passing question. What you see there is related to the mix between commercial and even enterprise passings and residential passing. So, the cost per resi passing that lives inside of that is closer to $1,500. What's happening is that there are, I'm going to say, a smaller number, but a larger dollar amount of commercial passings that are included in the mix that drive the average cost per passing to be a little bit higher. And we're just trying to give enough information there to get you to a reasonable passings estimate so that -- so you can model off of that what gains you would generate from the build.

Jessica Fischer:

Yeah. And...

Jessica Fischer:

We mentioned the less than 50% -- or the 50% or so at about the 12-month-plus mark. But as you can see and what we provided and all of the cohorts that we are seeing, we're still growing at a good rate at that point. So, it's not as though you've reached the customers who are going to get your product and then we're not seeing additional growth. We're still seeing good growth in those markets even at that vantage.

Stefan Anninger:

Operator, we'll take our next question, please.

Sebastiano Petti:

Hi, thanks for taking the question. I just wanted to follow-up on the competitive environment, just based upon the previous response. Just any help on thinking about the fixed wireless impact in terms of your -- is that just isolated or the competitive environment that has perhaps shifted in 4Q and persisted into January? Is that isolated in your non-fiber overlap territories or you're seeing that as well be somewhat impactful in terms of share as well in the 1-gig market? And a quick follow-up to that. Any update we can get on overlap for fiber as it stands exiting the year? And then, on the CBRS build out, obviously, your peer Comcast has been testing along with you for quite a while, but they're live in Philadelphia as perhaps as well as some other markets. Any update on how the team is thinking about CBRS and how you'll perhaps offload strategy over the next several years? Thank you.

Sebastiano Petti:

Thank you.

Stefan Anninger:

Thanks, operator. Thanks, everyone. We'll see you next quarter.

Stefan Anninger:

Thanks, operator, and welcome, everyone. The presentation that accompanies this call can be found on our website at ir.charter.com. I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, which we encourage you to read carefully. Various remarks that we make on this call, concerning expectations, predictions, plans and prospects, constitute forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management's current view only, and Charter undertakes no obligation to revise or update such statements. On today's call, we have Chris Winfrey, our President and CEO; and Jessica Fischer, our CFO. With that, let's turn the call over to Chris.

Jessica Fischer:

Thanks, Chris. Let's turn to our customer results on Slide 5. Including residential and SMB, we added 63,000 Internet customers in the third quarter. We estimate that approximately 15,000 third quarter Internet disconnects were driven by the temporary loss of ESPN in September. Video customers declined by 327,000 in the third quarter, with about 100,000 video disconnects driven by the Disney programming dispute. The overall impact to customer relationships was less than we expected, facilitated in part by the wide availability of over-the-top alternative. The loss of Disney programming occurred both at the beginning of football season and in the midst of a programming cost pass-through and the launch of our new Auto Pay discount incentive on Internet. Nonetheless, operationally, we handled the Disney dispute very well. But our billing and retention call centers were not fully back to normal until early October, so there was lingering customer net add impact early in the fourth quarter. Turning to mobile. We added 594,000 mobile lines in the third quarter. Wireline voice customers declined by 286,000 in the third quarter. Overall market activity, churn and gross adds, remained well below pre-COVID levels, partly driven by persistently low move rates. We continue to compete well in a portion of our footprint that is overlapped by fiber, but we also continue to see some impact from fixed wireless access competitors in the lower usage and price-sensitive customer segments of our residential and SMB businesses. That product remains slower and less reliable than what we can deliver, and will be additionally constrained as consumers demand more and more data. In fact, high data usage customers that switched to fixed wireless have a higher propensity to return to our Internet service. Despite our Disney dispute, third quarter residential Internet churn was at a new record low for the third quarter. Our Spectrum Mobile product also continued to perform well in the quarter. The majority of new lines continue to come from existing Internet customers, though the percentage of lines coming from new customers has continued to increase. Boarding from other carriers as a portion of our gross additions grew year-over-year, despite much higher mobile sales. We also continue to see healthy data usage on our Spectrum One promotional lines and remain confident that these lines should perform well as long-term customers. In the third quarter of last year, we launched Spectrum One pilot programs in a handful of markets. The pilot program customers reached their 12-month anniversary during the third quarter of this year, and incremental churn on those lines was small and even less than we expected. Turning to rural. Subsidized rural passings growth accelerated in the third quarter, with 78,000 passings activated. And we continue to expect approximately 300,000 new subsidized rural passings this year. As our RDOF build has progressed, we have identified roughly 300,000 adjacent passings along the way that are not in the sense of slot groups we want, but we will add to our network as we complete the RDOF build. Because of these adjacent passings, we now expect that our RDOF initiative will yield a total of 1.3 million passings to be constructed over a multiyear period. And while labor and equipment costs have both increased, we expect the average net cost per passing of these 1.3 million passings to be similar to our original RDOF net cost per passing estimate. We don't expect any potential BEAD build, subject to what Chris mentioned, to begin until 2025. Moving to financial results, starting on slide 6. Over the last year, residential customers grew by 0.2%, with new customer growth driven by Internet, partly offset by video-only customer churn. Residential revenue per customer relationship declined by 0.6% year-over-year, given a higher mix of non-video customers, growth of lower-priced video packages within our base and $63 million of residential customer credits related to the Disney lockout, partly offset by promotional rate step-ups, rate adjustments and the accelerated growth of Spectrum Mobile. Excluding Disney-related credits, residential revenue per customer relationship was flat year-over-year. As slide 6 shows, in total, residential revenue declined by 0.3% year-over-year. Excluding Disney-related credits, residential revenue grew by 0.3% year-over-year. Turning to commercial. SMB revenue declined by 0.9% year-over-year, reflecting lower monthly SMB revenue per SMB customer, primarily due to a higher mix of lower-priced video packages and a lower number of voice lines per SMB customer. These factors were partly offset by SMB customer growth of 1.3% year-over-year. Enterprise revenue grew by 3.7% year-over-year, driven by enterprise PSU growth of 5.9% year-over-year. Excluding all wholesale revenue, enterprise revenue grew by 5.5%. Third quarter advertising revenue declined by 20.3% or $97 million year-over-year due to less political revenue. Core ad revenue was down 1.8%, due to a more challenged advertising market, partly offset by our growing advanced advertising capabilities. Other revenue grew by 28.8% year-over-year, driven by higher mobile device sales. In total, consolidated third quarter revenue was up 0.2% year-over-year, and up 1.5% year-over-year when excluding advertising and the impact of the $68 million in total Disney-related customer credits. Moving to operating expenses and adjusted EBITDA on slide 7. In the third quarter, total operating expenses were approximately flat year-over-year. Programming costs declined by 9.6% year-over-year due to a decline in video customers of 6% year-over-year, a higher mix of lighter video packages and a $61 million benefit related to the temporary loss of Disney programming in early September. These factors were partly offset by higher programming rates. We now expect that for the full year 2023, programming cost per video customer will decline by approximately 3% year-over-year. Other cost of revenue increased by 15.2%, primarily driven by higher mobile device sales and other mobile direct costs, partly offset by lower regulatory and franchise fees and lower ad sales costs. Cost to service customers increased by 3.7% year-over-year, driven by previous adjustments to job structure, pay and benefits to build a more skilled and longer tenured workforce, resulting in lower frontline employee attrition compared to 2022 and additional activity to support the accelerated growth of Spectrum Mobile. Those were partly offset by productivity improvements, including from tenure investments, lower service transactions per customer and lower bad debt. Sales and marketing costs declined by 1.4%, primarily driven by lower labor costs, as we've lapped our prior year employee investments in sales and marketing. Overall, while we certainly had some additional overtime in our call centers, given the Disney dispute, it was not a material expense driver this quarter. Finally, other expenses grew by 2.5%, driven by labor costs. Adjusted EBITDA grew by 0.7% year-over-year in the quarter. Turning to net income on slide 8. We generated $1.3 billion of net income attributable to Charter shareholders in the third quarter, up from $1.2 billion last year, driven by higher adjusted EBITDA and lower other operating expense, partly offset by higher interest expense. Turning to slide 9. Capital expenditures totaled $3 billion in the third quarter, above last year's third quarter spend of $2.4 billion. The increase was primarily driven by higher spend on upgrade rebuild due to our network evolution initiative, higher spend on line extensions driven by Charter's subsidized rural construction initiative and continued network expansion across residential and commercial greenfield and market selling opportunities, and higher CPE, driven by the purchase of Xumo devices for our launch earlier this month. For the full year 2023, we now expect capital expenditures to total approximately $11.2 billion. Capital expenditures, excluding line extensions, should total approximately $7.2 billion, higher than our previous expectation. The increase reflects additional Xumo CPE purchases and an acceleration of network spend related to future high split markets, including inventory accumulation and other preparation activities like walk-out and design and proactive equipment swap-outs of both DTAs and MPEG2 boxes. As Chris noted, we continue to expect to spend approximately $100 per passing to evolve the network to offer multiple gigabit speeds. There has been no change to our longer-term network evolution CapEx outlook. We also continue to expect 2023 line extension capital expenditures to total approximately $4 billion. We are working through our 2024 operating plan right now. Given the greater subsidized rural passings and construction opportunity we currently see, we may partially fund that opportunity by very modestly slowing our network evolution plan, as Chris mentioned. And as we complete our 2024 plans, we will provide a more detailed outlook on our fourth quarter 2023 call in January. I want to highlight that capital expenditures, excluding line extensions and network evolution as a percentage of total revenue, have remained consistent since 2021. And following the completion of our network evolution initiative, capital expenditures, excluding line extensions as a percentage of revenue, should decline to below 2022 level, which has important long-term cash flow implications. As Slide 10 shows, we generated $1.1 billion of free cash flow this quarter versus $1.5 billion in the third quarter of last year. The decline was primarily driven by higher CapEx, mostly driven by our network evolution and expansion initiatives. A couple of brief comments on working capital and cash taxes before turning to the balance sheet. Excluding the impact of mobile devices, we now expect our full year 2023 change in working capital to be negative by a few hundred million dollars, given the timing of capital expenditures and lower-than-expected accrued programming at year-end. On cash taxes, we did have a lower cash tax payment in the third quarter, which is just a timing difference. The full year cash tax outlook, which I provided during our fourth quarter 2022 call, still stand. We finished the quarter with $97.6 billion in debt principal. Our current run rate annualized cash interest is $5.2 billion. As of the end of the third quarter, our ratio of net debt to last 12-month adjusted EBITDA was 4.45 times, and we intend to stay at or just below the high end of our four to 4.5 times target leverage range. During the quarter, we repurchased two million Charter shares and Charter Holdings common units, totaling $854 million, at an average price of $421 per share. Our 2023 EBITDA growth has been pressured by significant investments we've made in the future growth of our business. As we move toward 2024, pressure on our EBITDA growth will begin to abate, with growing transaction efficiency as we benefit from building employee tenure and easier comps as we have now lapped the impact of those employee investments. Lower transactions in our mobile business, which drove down -- which drive down our per customer cost of service and building as we move into next year, revenue growth acceleration from the roll-off of our mobile free line offers and positive impact from political advertising. In addition, faster pacing of our rural build should bring additional positive impact to customer net additions next year. In the longer term, the competitive impact in operational efficiencies from our network evolution will drive a stronger broadband business. Convergence momentum will improve our churn and generate financial growth for both broadband and mobile, and transformational changes to the video business can enhance the value of our product for our connectivity customers. The investments we have been making and will continue to make are set to drive the growth of our business going forward. Operator, we're now ready for Q&A

Jonathan Chaplin:

Thanks. Two quick questions. Starting with broadband, it looks like your -- the progress in the new markets, the rural markets that you're pushing into is great. The 12-month penetration there is accelerating, which is fantastic. But it seems like the core markets are progressing a little bit more slowly than you expected. And I'm wondering, Chris, if you can give us some context for what was different from what you may be expecting in the core markets as sort of function of just slower pull-through from Spectrum One, or greater pressures from fixed wireless broadband or something else? And then I'm wondering, sort of, taking a step back, whether you can give us a view of what you think the video business ultimately looks like five years down the line? I can imagine an environment, a world where you're collecting a platform fee, this lower ARPU, but very high margin from a large number of your customers, and it becomes a much more valuable business for you than the sort of the distribution business that you have today. But I would love to get your thoughts on like how that business evolves? And when we sort of hit the point where it starts to become a growth driver for you as opposed to a drag on growth? Thanks.

Stefan Anninger:

Thanks, Jonathan. We’ll take our next question, please.

Craig Moffett:

Hi, thank you. I wonder, maybe for Jessica, if we could drill down a little bit on the ARPU impact of Spectrum One? And how we should expect, as you start to see the first cohorts roll off, how should we expect ARPU to track for both broadband and for wireless, I guess, over the next not just the next quarter or so, but maybe a little bit longer term as you start to roll off those cohorts?

Craig Moffett:

That’s helpful. Thank you.

Operator:

Our next question comes from Ben Swinburne with Morgan Stanley. You may ask your question.

Chris Winfrey:

It was our fault, Ben. That's true. Why don't I take two of those, being network evolution -- or start off with two of those network evolution video CPE, and let Jessica take expansion and any gaps that I missed on the first two. On network evolution, we -- I mentioned that we could potentially slow down by, call it, six months. And then the counter to that, obviously, is wait a second, I thought this is improving your competitive standpoint, it is. But I would flag that we're competing. One, it's not that material at a time difference. And two, we're competing well against fiber today. And our goal remains to have a superior speed claims across everywhere we operate in our footprint. That being said, we've always said that we'll accelerate investments wherever we can. And the trade-off to that is we also recognize there is value in showing some discipline to shareholders in terms of the overall envelope capital and these rural investments, which continue to expand both in terms of size and our capabilities to deploy quickly. They produce immediate gains. So when you step back and think about trying to balance both our traditional approach, which is if there's capital returns, capital that can be deployed that has great ROI go as fast as you can, at the same time, balance investor expectations and show discipline there in terms of the overall envelope, a six-month time line, it's not going to make that much difference long-term. There is an additional benefit operationally, which is that an extended time line allows some of our DAA or distributed access architecture suppliers to catch up with the latest technology at full scale so that we can deploy the most advanced gear as part of this wave of high split and DOCSIS -- eventually DOCSIS 4.0 implementation. So, that's my thoughts on network evolution. Jessica can come back in a second and clean up on that, if I missed something. On video CPE, it's -- we have, over time, spent less on video CPE because we've been able to recycle World Box at the initial beginning of deployment for Xumo, we needed to get a starting state inventory of Xumo Boxes, and that's captured in capital. On the increment, we will be deploying more new boxes than we have in the past because we're essentially using Xumo as our go-to-market deployment for video CPE, and that's going very well right now. And -- now the boxes are less expensive than what traditional boxes have been over the past, and we expect the cost of those boxes to continue to decline significantly. So, you'll have a combination of volume, which will be determined by our success, and a lower price point over time as well as lower need to build up inventory through all of our channels and throughout the country. So it's -- there's a step-up there. But long term, I don't expect it to be that material.

Chris Winfrey:

So Ben, you got probably more than you asked for. But Jessica was talking and I step back -- if you step it up one level from that, I think it's important just to reiterate that this company has a very strong focus on long-term capital allocation, long-term shareholder value creation. But we also understand the value of shareholder confidence along the way. And so we're going to go outside of our comfort zone here before we finish our operating plan, try to provide some of that additional disclosure and transparency, and make sure that we've got the full buy-in of our shareholders along the way and demonstrate what we've always been, I think, is really good allocators of capital.

Stefan Anninger:

Thanks, Ben. Luke, we’ll take our next question please.

Vijay Jayant:

Thanks. Two, if I could. Jessica, you previously talked about cost items, cost to serve and sales and marketing sort of exiting this year close to zero. Obviously, cost of services elevated in the quarter. Can you just talk about where we are on the cost cycle, given you should be comping against some of your labor cost increases? And sort of what it sort of means sort of into 2024? And then Chris, you started mentioned, I think now two quarters in a row, about the BEAD process and the state process and how that may sort of play out and you may not participate kind of thing. Can you sort of talk about really what are the issues there? And if that is the case, are we still too optimistic on your line extension spend over the next few years, which I think is about $4 billion a year?

Chris Winfrey:

For sales and marketing.

Chris Winfrey:

Vijay, on BEAD, you talked about pipeline, the BEAD has always been very difficult to forecast exactly what it will be because there's state allocations now, but how much of that is near our footprint. We're working through all of that. It's going to take a long time for that. So, -- and -- but in the meantime, RDOF and the state grants, they're going well. And there's a very large pipeline, as we've talked about, absent BEAD. I think it's fair to say that we were somewhat disappointed in the potential guidelines that came out from NTIA. And all I'm trying to say, without getting too much in the detail, NTIA states are all aware of the issues that we have. But to be clear, the states that adopt the NTIA's proposed guidelines on things such as Internet tiers, dictating Internet tiers, dictating pricing, labor practices, those just won't be attractive state for us to bid in. And so what we will do is we'll focus our investments on the states that allow us to retain flexibility to run the business, properly respond to market demand and ultimately, earn a healthy return. So, that's our focus. And so it's very difficult to forecast what, if any, BEAD investments will occur at this stage. And it's going to take us some time, I think, to figure that out as well as everybody else for that matter. So, we're not unique.

Stefan Anninger:

Thanks Vijay. Thank you. We'll take our next question please.

Phil Cusick:

Thank you. I guess a couple of follow-ups. Jessica, I heard your comment, on October customer addition drag, do you think it's still a reasonable goal for 2023 to add more broadband subs year-over-year? And if not, do you think 4Q of last year is a reasonable proxy for this year? I know you love guidance. And then second, as I'm thinking about your cost commentary as well as maybe some revenue pick up, what is the outlook for EBITDA acceleration from here? We've talked about EBITDA accelerating in the back half, but I'm also thinking about what your Disney content costs are going to do for the fourth quarter. Just how should we think about that from here? Thank you.

Jessica Fischer:

On the EBITDA side, so thinking about what the components are, as you go into Q4 and next year, in Q4, you do still have an advertising headwind and actually the most significant advertising headwind of the year because of political advertising. But as you go into next year, then that turns around where you're back in a political year and you have the benefit of political advertising. As I said earlier, we've sort of lapped the last of our 2022 labor adjustments as at the end of Q3. So I think the trajectory from a cost perspective on cost to serve and sales and marketing is -- it gives -- you have easier comps and you have growing efficiencies sort of going into next year. In the fourth quarter, we'll start gaining revenue from the mobile free line roll-off. It's relatively small inside of Q4, but the impact builds as you go through next year. So we expect to have a good tailwind from that. And then we continue to expect to have just overall efficiency from our 10-year investments across the business. So, as we said, I think that we recognized that EBITDA was challenged in 2023, by both the investments that we're making, doing it in a nonpolitical year. But as we get into Q4 and going into next year, our expectation is that we've pushed through most of that headwind and that we'll be in a better position.

Stefan Anninger:

Thanks, Phil. Luke, we'll take our next question, please.

Steven Cahall:

Thank you. So, you said that some of your initial Spectrum One roll-to-pay results were a little better than expected. Could you just expand on the tools you're employing to drive those retention rates? And what kind of targets you might have in mind for the Spectrum One mobile roll-to-pay as we think about how that retention could look going forward? And is it right to assume that it's about 300,000 lines per quarter that are up for grabs? And then additionally, we've received a lot of questions on the ACP program and what it means for Charter. Could you maybe just help us frame how you see that exposure? Do you think you require any contingency plans in case there's any changes to the political outlook for that? And is there a lot of overlap between ACP customers and Spectrum One customers? Or is that quite a different customer set? Thank you very much.

Stefan Anninger:

And that concludes our call. Thanks very much, everybody.

Jessica Fischer:

Thanks.

Stefan Anninger:

Good morning, and welcome to Charter's second quarter 2023 investor call. The presentation that accompanies this call can be found on our website, ir.charter.com, under the Financial Information section. Before we proceed, I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, including our most recent 10-K and also our 10-Q filed this morning. We will not review those risk factors and other cautionary statements on this call; however, we encourage you to read them carefully. Various remarks that we make on this call concerning expectation, predictions, plans and prospects constitute forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management’s current view only, and Charter undertakes no obligation to revise or update such statements or to make additional forward-looking statements in the future. During the course of today’s call, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. These non-GAAP measures, as defined by Charter, may not be comparable to measures with similar titles used by other companies. Please also note that, all growth rates noted on this call and in the presentation are calculated on a year-over-year basis unless otherwise specified. On today’s call, we have Chris Winfrey, our President and CEO; Tom Rutledge, our Executive Chairman; and Jessica Fischer, our CFO. With that, let’s turn the call over to Chris.

Jessica Fischer:

Thanks, Chris. Let's turn to our customer results on slide 6. Including residential and SMB, we added 77,000 Internet customers in the second quarter, versus 38,000 in the prior year period when excluding last year's Internet disconnects related to the transition from EBB to ACP. Video customers in the second quarter declined by $200,000 and wireline voice declined by 221,000, and we added 648,000 mobile lines. Internet churn remained near record lows for the second quarter and flat year-over-year. and Internet gross additions improved year-over-year. The year-over-year improvement in Internet net additions was driven by tailwinds from our rural construction initiative, the continued success of our Spectrum One product, better sales yields from higher tenured employees and a slower pace of fiber overbuild in our footprint during the quarter. Despite the year-over-year improvement in net adds, overall market activity remains well below pre-COVID level, partly driven by very low move rates. We also continue to see some impact from fixed wireless access competitors in the price-sensitive customer segment of residential and SMB. As Chris mentioned, our Spectrum Mobile product continued to perform well in the quarter. The majority of new lines continue to come from existing Internet customers, though the percentage of lines coming from new customers continued to increase and was higher than what we saw in the first quarter. Important from other carriers as a portion of our gross additions are essentially the same today as they were prior to the launch of Spectrum One despite much higher mobile sales. And with good usage on those promotional lines and unbeatable quality and value at a $30 retail price point, we expect the lines to perform well as long-term customers. Turning to rural, subsidized rural passings growth accelerated in the quarter with 68,000 passing activated and we continue to expect approximately 300,000 new subsidized rural passings this year. Additionally, costs are coming in as planned and we have the labor, equipment and supply necessary to execute our bills. We continue to bid on additional subsidies. In addition to RDOF, we've now won over $700 million in state subsidies for over 300,000 passings with a gross build cost of approximately $1.7 billion and a per passing cost to Charter net of subsidies of approximately $3,200. As Chris mentioned, we also look forward to the bidding process, assuming the right regulatory conditions. Moving to financial results, starting on slide 7. Over the last year, residential customers grew by 0.2%, with new customer growth driven by Internet, partly offset by video-only customer churn. Residential revenue per customer relationship declined by 0.3% year-over-year given a higher mix of non-video customers and growth of lower priced video packages within our base, partly offset by promotional rate step-ups, rate adjustments and the accelerated growth of Spectrum Mobile. As Slide 7 shows, residential revenue declined by 0.3% year-over-year. Turning to commercial. SMB revenue grew by 0.2% year-over-year, reflecting SMB customer growth of 1.7%, partly offset by lower monthly SMB revenue per customer, primarily due to a higher mix of lower-priced video packages and a lower number of voice lines per SMB customer. Enterprise revenue was up by 3.2% year-over-year. Enterprise PSUs grew by 6.2% year-over-year. And excluding all wholesale revenue, enterprise revenue grew by 7.2%. Second quarter advertising revenue declined by 16.5% year-over-year due to less political revenue. Core advertising revenue was down 3.5% year-over-year due to a more challenged advertising market partly offset by our growing advanced advertising capabilities. Other revenue grew 28.5% year-over-year driven by higher mobile device sales. And in total, consolidated second quarter revenue was up 0.5% year-over-year and up 1.1% year-over-year when excluding advertising. Moving to operating expense and adjusted EBITDA on Slide 8. In the second quarter, total operating expenses grew by $48 million or 0.6% year-over-year. Programming costs declined by 7.8% year-over-year due to a decline in video customers of 5.1% year-over-year, a higher mix of lighter video packages, partly offset by higher programming rates in the second half of '22 - by higher programming rates. In the second half of 2023, we now expect year-over-year growth in programming cost per video customer to be similar to the growth we saw in the first half of 2023. other cost of revenue increased by 15.4%, primarily driven by higher mobile device sales, other mobile direct costs and higher RSN costs driven by more Lakers games partly offset by lower ad sales costs. Cost to service customers increased by 3.6% year-over-year, driven by adjustments to job structure, pay and benefits to build a more skilled and longer tenured workforce, resulting in lower frontline employee attrition compared to 2022 and additional activity to support the accelerated growth of Spectrum Mobile, which is partly offset by productivity improvements, lower service transactions per customer and lower bad debt. As we mentioned last quarter, our employee attrition has declined more quickly than we expected given the programs we discussed at our December investor meeting. In response, we lowered our normal hiring in the first half of this year, and our overall headcount is now normalizing with increasing overall tenure and quality. Longer term, we continue to expect to see additional efficiencies in cost to service customers as a result of our continuing lower service transactions, service tenure and digital service investments, proactive maintenance, and network evolution investments. Sales and marketing costs grew by 3.6%, primarily driven by higher staffing across sales channels and the accelerated growth of Spectrum Mobile and other expenses declined by 0.4%, driven by favorability in insurance expense, mostly offset by higher labor costs. Adjusted EBITDA grew by 0.2% year-over-year in the quarter. Turning to net income on Slide 9. We generated $1.2 billion of net income attributable to Charter shareholders in the second quarter, down from $1.5 billion last year with higher adjusted EBITDA more than offset by additional interest expense. Turning to Slide 10. Capital expenditures totaled $2.8 billion in the second quarter, above last year's second quarter spend of $2.2 billion. The increase was primarily driven by higher spend on line extensions, which totaled $1.1 billion in the second quarter of 2023 and compared to $693 million in the second quarter of 2022. The increase in line extension was driven by Charter's subsidized rural construction initiative and continued network expansion across residential and commercial greenfield and market selling opportunity. Second quarter capital expenditures, excluding line extensions, totaled $1.8 billion compared to $1.5 billion in the second quarter of 2022. We spent more on upgrade rebuild primarily due to our network evolution initiative, and support capital was higher primarily due to investments in information technology system. For the full year, we continue to expect capital expenditures, excluding line extensions to be between $6.5 billion and $6.8 billion. Following the expected completion of our network evolution initiative at the end of 2025 or the beginning of 2026, capital expenditures, excluding line extensions as a percentage of revenue, should decline to below 2022 levels and continue to decline thereafter. And we expect 2023 line extension capital expenditures to reach approximately $4 billion. We continue to expect 2024 and 2025 line extension CapEx to look similar to our outlook for 2023 at approximately $4 billion per year. And our 2024 and 2025 line extension capital expenditure expectations assume we win funding for or otherwise commit to additional rural spending, including BEAD. As Slide 11 shows, we generated $668 million of consolidated free cash flow this quarter versus $1.7 billion in the second quarter of last year. The decline was driven by higher CapEx and mostly driven by our network expansion and network evolution initiatives and higher cash taxes as we became a full federal cash taxpayer in 2023. We finished the quarter with $97.8 billion in debt principal. Our current run rate annualized cash interest is $5.1 billion. And as of the end of the second quarter, our ratio of net debt to last 12-month adjusted EBITDA was 4.47 times. We intend to stay at or just below the high end of our 4 times to 4.5 times target leverage range. During the quarter, we repurchased 1.1 million Charter shares in Charter Holdings common units, totaling about $400 million at an average price of $341 per share. While our goal is to grow the business in the long-term, our focus on execution is driving operating leverage in the business even now. When you take the noise from political ads - when you take out the noise from political advertising, EBITDA grew by 1.3% year-over-year in the quarter, which means that we were more efficient despite significant mobile growth and a onetime step-up in labor investments. And we believe our financials will improve as we move later into the year with additional revenue growth in Internet and mobile that will begin showing in Q4 and lower service cost per customer as we realize the 10-year benefits of our investment in employees and lap last year's labor step up. Longer-term, we also expect to see continuing benefits in operating expenses from further digitization, network improvements, and benefits of programs like proactive maintenance. We're well poised for the future. Operator, we're now ready for Q&A.

Ben Swinburne:

Thanks. Good morning. I guess two questions. Maybe first, I think you guys will start to lap Spectrum One later this year, and it will probably be one of the first indications for all of us externally to sort of see the promotional roll-off activity and sort of the impact on churn, if any. I don't know if you could just maybe talk about what we should be expecting or how you guys are approaching that or what your expectations are as you go through that sort of first wave of promotional roll off. And then, I know we don't typically talk about video on these calls, but you guys have a lot going on there. And I was just wondering if you could spend a minute talking about sort of your strategy with Xumo and also the new sort of RSNs changes you've made? And just anything we should be thinking about in terms of the implications of this strategy on your financials, whether there's set-top box revenues we should be thinking about or capital intensity coming down, et cetera. Obviously, these are kind of big changes to a part of the business that we don't tend to spend a lot of time on. So I wanted to get your thoughts there. Thank you very much.

Jessica Fischer:

Yes. And that being said, I mean, the margin from the video product has been sort of - has shrunk over time. And our position has been that we're not willing to lose money in video. And so we believe the product is valuable for our customers. We're continuing to seek out ways that we can continue to provide those products in the way that people want, but to do it while still generating some financial return and whether that's in the form of set-top box revenue or in the way that we package the product overall, ultimately, we're continuing to try to sort of defend having margin in that business.

Ben Swinburne:

Thank you.

Operator:

Thank you. We'll take our next question from Phil Cusick with JPMorgan. Your line is open.

Jessica Fischer:

Yes. So first, on the expense side, I gave some outlook in the first quarter investor call during the Q&A regarding cost to service expense and sales and marketing expense growth and that really - that outlook hasn't changed. I think we'll have a difficult comp in other expense in Q3 because there were lower corporate costs in the third quarter. But aside from that, I think what we have said already continues to be true about the trajectory on the expense side. In terms of capital expenditures and timing across the year, our rural construction initiative now, I would say, is spending at a more consistent pace than has been the history of the business. And so I think you saw it was somewhat more CapEx loaded into the front half of the year this year relative to our outlook for the entire year than what you would often see in a year. I would expect because that rural build sort of has to continue at a pace over time that you will see that greater level of consistency in CapEx across the quarters, with maybe less back-end loading into Q4 than what you've seen in other than what you've seen us do in the past. And I would expect that as well as we continue sort of into next year. The pace of the build on the network evolution and the overall activity, we'll just keep a base level of CapEx in the business that might have been - that might have had more of a seasonal trend previously.

Stefan Anninger:

Thanks, Phil. Shall we. We’ll take our next question, please.

John Hodulik:

Thanks. Two questions for you. First, could you comment on the recent price increase? I think it's $5 increase on high-speed data. First, is that across the whole base? Maybe if you could compare it to sort of previous price increases? And do you think it's sort of enough to get the revenue per customer back into the black. So that's sort of number one. And number two, you guys over-indexed to the ACP program. Is there any way you could size that for us in terms of how large it is within the base talk about the strategy a little bit. And as we sort of go through that process, does that over time, potentially become a headwind for you guys in terms of broadband growth? Thanks.

Chris Winfrey:

John, I think Jessica said it, but the $5 would not apply to anybody who's already on promotion, it only be a retail and it would to the extent that somebody is or it comes on auto pay, that won't pass through. So it's not that material in the end. On ACP, the - on ACP our strategy is to respond to the governmental request from the White House FCC and Congress of using this program. And we've been - I think, the most successful at doing that of providing a way for new customers to get into broadband or in the local income space as well as for existing customers to be able to stay in the broadband space through times of affordability issues, meaning the coming in and out of the market through nonpay churn. And we've been very successful doing that at the request of the government, and it's worked very well for those customers. I do think that there's some questions around it being renewed. It has bipartisan support. And so we're hopeful that it will be renewed. I think it's been a very good and successful program. And so it's brought in some new customers, particularly early on through EBB and ACP, and we've been able to also have existing customers benefit from staying in broadband through that program. To the extent that it went away, many of these customers were existing broadband customers and both for new and existing customers plus you. The - for new and existing customers. We have programs. We've always had programs like Spectrum Internet Assist and low-income programs that we can accommodate in dealing with that at the back end. I'm hopeful that's not the case and that it gets renewed because I do think it's a successful program.

Stefan Anninger:

Thanks, John. We'll take our next question, shall we please.

Jonathan Chaplin:

Great, thanks, guys. I wonder if you can just stick with the ARPU theme for a second. It looks like ARPU in 2Q was a little bit lower than we expected maybe you didn't get the - as much of a benefit from the November price increase as we thought you would - or again, as Jessica said, there's a lot going on in ARPU. Maybe it's a function of how the bundled discount for Spectrum One is allocated across the different products. If you can give us some sort of some insight into drivers of ARPU in 2Q, that would be really helpful. And then Jessica, I think you mentioned during the call during your prepared remarks, the benefit that you're seeing in broadband from Spectrum. But I just missed the comment. If you can give us some more context on the pull-through effect you're seeing and how you think that progresses the longer that Spectrum One is in the market, that would be really helpful as well. Thank you.

Chris Winfrey:

I think there's also a fallacy in trying to oversimplify it, too. There's a tremendous amount of activity that's taken place in the course of the year and the course of the quarter with acquisition, retention, bundle allocations, rate increases in the past, rate increases in the more current period, there's a very complicated model that goes there. In the end, it was 2.5%, I think, ARPU growth in Internet year-over-year despite some of the allocation differences. And given the fact that we're growing and taking share in both - in all parts of our footprint, I think the - we're really pleased with that mix and that outcome. And if we can accelerate particularly the growth, as we get through later part of this year, I think we'd be very happy with that. On - tied to that, your second question, Jonathan, was Spectrum One and pull-through - the point that was being made is that a higher portion of our Mobile is coming from new customer connects through Spectrum One, and that is very promising. Still the majority of our Mobile and extra coming through existing customers, but the portion of which is coming through new connects is increasing, which means that it's having an effect in the marketplace. The real key for us is to be able to educate customers about what seems connectivity is, what gigabit wireless can provide. It's in essence a new category, and that takes time to resonate, which is why I said, in Spectrum One is our first iteration of convergence and seamless connectivity, and it's going well. And I think that bodes well for Internet. And I think it bodes well for Mobile, and it bodes well for Convergence for us overtime.

Chris Winfrey:

Yes. But I also expect the Mobile attach rate to our existing Internet customers to increase too, because it's resonating not just for new customers, but for existing customers. And so you have benefits all around.

Stefan Anninger:

Thanks, Jonathan. Operator, we'll take our next question, please.

Brett Feldman:

Yes, two questions. Thanks. One of the topics that have been discussed a lot so far this earnings season is that seasonality in the broadband business appears to be much more muted than we've seen previously. I'm curious for your take on it and how you're thinking about the significance of seasonal dynamics as you look into the remainder of the year. And then, just you noted that cash taxes were up a lot year-on-year, as you've transitioned to being a full cash taxpayer. I was hoping you could maybe give us some insight as to how to think about the way cash taxes are likely to trend over the course of any given year. I think historically, 2Q tends to be a high watermark, but I'm not sure, if there are nuances in terms of what we should be expecting for Charter? Thank you.

Brett Feldman:

Cash taxes.

Brett Feldman:

Thank you.

Operator:

Thank you. We'll take our next question from Craig Moffett with MoffettNathanson.

Chris Winfrey:

Sure. So look, I'd start by saying that any time you have your competitors that continue to talk about you on their earnings call, I take that as a compliment. The second thing I would say is clearly, some of their data, they're not really good at producing it, and that’s not accurate. The third thing I would say is that in Jessica's prepared remarks, she mentioned the level of port activity is at/or better than it was even prior to the Spectrum One launch. So we're - we feel very good that these are not only good and high-quality customers, the majority of which are broadband customers today. So they've resembled the marketplace and the product is very attractive, it's selling in very well, and it's going to stick very well. And we look forward to seeing that develop over the next few quarters. On the mobile margin, you had done some work at your conference, I mentioned that if we thought your work was wrong, we would have let you know. And so that hasn't changed. And that was based off of some of the Verizon's disclosure as opposed to ours. Right now, we have a significant amount of customer acquisition, and so we have the cost of acquiring those customers and we have the cost of operating those customers. And we don't always have the full revenue attached to those customers just yet, and that will start to occur beginning in October and just grow from there. So the overall profitability of the mobile product, if it were a stand-alone product, which is not, is good. It's very good. And - but it's not - it's also at the same time, I want to be careful not to be dragged into it. It's never how we thought about that product. It's really an extension of our broadband product and seamless connectivity and a broadband product that none of our competitors can deploy ubiquitously across their footprint. And so you got to think about the broader profitability. But if it were a standalone product, the profitability is good, and our expectations have continued to move in that direction.

Craig Moffett:

Thank you.

Stefan Anninger:

Thanks, Greg. Operator, we'll take our next question please.

Vijay Jayant:

Thanks. I just want to talk about seasonality, obviously, Chris sort of suggesting we didn't see the same sort of seasonal impact in 2Q in terms of college and/or snowbirds and so forth. So can you help us think about - is that really changed? And does that mean that 3Q and 4Q that we see sort of reversals may not be as pronounced? Thank you.

Vijay Jayant:

Thanks Chris.

Operator:

Thank you. We'll take our next question from Bryan Kraft with Deutsche Bank. Your line is open.

Chris Winfrey:

Hi Bryan, it was in the materials subsidized rural construction is 26,000 Internet net adds inside the quarter. On CBRS, we are at a full commercial launch inside of a market today, and it is going well and on that basis and making sure that the handover times which are working very well right now, continue to perform like that at scale. Then we'll set the next year are the basis for our broader CBRS rollout. It's - I don't want to spook people either that we're going to be very focused on deploying that CBRS where there's a high and fast ROI. We have a number of other accretive projects that are going on right now through network evolution and expansion. And so we're very cognizant of the overall CapEx build. But we're going to build that in a measured way across our footprint, fully deployed the CBRS and the markets that we've acquired over time. But we're going to do it in a way that's very targeted and it generates fast returns. Your third question was around portfolio spectrum. I can't imagine why you're asking that. But forecasting. But we have a very strategic, good perpetual MVNO relationship with Verizon. And the economics as everybody knows, are very good. And that means - and combine that with what we were just talking about before. The ability through better and better WiFi and through CBRS over time to have the vast majority of the traffic continue and increasingly be over our network with faster speeds, means that we have the ability to lease the macro cell towers at an attractive rate and not be in the business directly of having to continue to build those towers, densify those towers and acquire additional spectrum. And I think it's a capital-light model that really works well for us. And I think it's a model that, as you can see, has worked very well for Verizon, our partner as well. So I think it's symbiotic. And I would never say never. We'll always take a look at things as they come up, but we haven't felt the need to be in the macro cell tower construction densification and Spectrum acquisition business at scale.

Stefan Anninger:

Thanks, Brian. We'll take our last question from Michael Rollins. Go ahead, operator, sorry.

Michael Rollins:

Thanks and Good morning. I was just curious to follow up on just the mobile discussion with a couple of questions on some of the segments. So in - one of the comments is that 11% of internet customers are taking mobile, which would infer almost two lines per account. Just curious if you're starting to see more of a shift to multiline and family plan adoption of your mobile services and if there's a significant opportunity to take up the number of lines per account over time. And then on the SMB side, are there some opportunities to accelerate the mobile gains there where they've been running at about 15,000 to 20,000 per quarter. Thanks.

Michael Rolls:

Thanks.

Chris Winfrey:

Thank you very much.

Stefan Anninger:

Good morning and welcome to Charter’s first quarter 2023 investor call. The presentation that accompanies this call can be found on our website, ir.charter.com, under the Financial Information section. Before we proceed, I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, including our most recent 10-K and also our 10-Q filed this morning. We will not review those risk factors and other cautionary statements on this call. However, we encourage you to read them carefully. Various remarks that we make on this call concerning expectations, predictions, plans and prospects constitute forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management’s current view only and Charter undertakes no obligation to revise or update such statements or to make additional forward-looking statements in the future. During the course of today’s call, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. These non-GAAP measures, as defined by Charter, may not be comparable to measures with similar titles used by other companies. Please also note that all growth rates noted on this call and in the presentation are calculated on a year-over-year basis unless otherwise specified. On today’s call, we have Chris Winfrey, our President and CEO; Tom Rutledge, our Executive Chairman; and Jessica Fischer, our CFO. With that, let’s turn the call over to Chris.

Jessica Fischer:

Thanks, Chris. Before discussing our first quarter results, I want to remind everyone that starting this quarter, we have made some changes to the way we report our P&L. First, we now include mobile service revenue in the residential and SMB revenue as appropriate and mobile equipment revenue is now reported in other revenue. On the expense side, we no longer report mobile expenses separately and those are now included in the applicable expense category. Ultimately, these changes better reflect the converged and integrated nature of our mobile business and our operations and offer structure. For additional information regarding these changes, please review Footnote A on Page 7 of the trending schedule we posted this morning. Now, let’s turn to our customer results on Slide 5. Including residential and SMB, we added 76,000 Internet customers in the first quarter. Video customers declined by $241,000 partly driven by a programming expense increase passed through in January of this year. Wireline voice declined by $220,000 and we added a record 686,000 mobile lines. Although our Internet customer growth continued to be positive in the first quarter, market activity levels remain low. During the quarter, total churn was slightly higher than last year, but still near record lows and well below pre-pandemic levels. We have seen a small impact from fixed wireless access competitors in the price-sensitive customer segment. Generally speaking, however, these customers typically exhibit higher levels of churn regardless of competition. And given the issues with fixed wireless product feeds, as confirmed by third-parties and questions surrounding that product’s reliability and scalability, we expect fixed wireless customers to find their way back to us over time. We continue to drive very strong mobile growth with our high-quality, differentiated and attractively priced service. The majority of new lines continue to come from existing Internet customers, though the percentage of lines coming from acquisition has increased significantly since the introduction of our Spectrum One product. And as we mentioned last quarter, our converged customers have meaningfully lower Internet and customer relationship churn. As Chris mentioned, we also continue to perform well in rural areas. The new rural disclosures we issued today on Page 5 of our trending schedule show that we continue to see robust growth in rural passings. During the quarter, we activated 44,000 subsidized rural passings despite winter’s construction seasonality. Penetration of subsidized rural passings continues to exceed our original target and these rural customers are purchasing products beyond Internet, including mobile, video and wireline voice. Moving to financial results starting on Slide 6. Over the last year, residential customers were down slightly with new customer growth driven by Internet offset by video-only customer churn. Residential revenue per customer relationship grew by 2.5% with promotional rate step-ups, rate adjustments and the accelerated growth of Spectrum Mobile partly offset by a higher mix of non-video customers and growth of lower priced video packages within our base. As Slide 6 shows, residential revenue grew by 2.5% year-over-year. And as a reminder, starting this quarter, our residential revenue now includes mobile service revenue, which grew from $387 million in the first quarter of 2022 to $497 million in the first quarter of 2023. Turning to commercial. SMB revenue grew by 2% year-over-year, reflecting SMB customer growth of 2.4%. Enterprise revenue was up by 3.1% year-over-year. Enterprise PSUs grew by 4.9% year-over-year. And excluding all wholesale revenue, enterprise revenue grew by 7.3%. First quarter advertising revenue declined by 7.2% year-over-year due to less political revenue. Core ad revenue was down 2.1% year-over-year driven by lower local and national advertising revenue offset by our growing advanced advertising capabilities. Other revenue grew by 34% year-over-year primarily driven by higher mobile device sales and higher rural subsidies. In total, consolidated first quarter revenue was up 3.4% year-over-year. Looking to second quarter revenue growth, I would remind you that we will lap April 22 rate adjustments and face the headwind of strong political advertising revenue in the prior year. Moving to operating expenses and EBITDA on Slide 7, in the first quarter, total operating expenses grew by $316 million or 3.9% year-over-year. Programming costs declined by 6% year-over-year due to a decline in video customers of 5.2% year-over-year and a higher mix of lighter video packages partly offset by higher programming rates. Note that our first quarter programming costs included $50 million of favorable adjustments, which is similar in size to sports network rebates and other favorable adjustments we saw in the first quarter last year. Looking at the full year 2023, we continue to expect programming cost per video customer to be approximately flat year-over-year. Other cost of revenue increased by 19.9% primarily driven by higher mobile device sales and other mobile direct costs. Cost to service customers increased by 6.9% year-over-year driven by adjustments to job structure, pay and benefits to build a more skilled and longer tenured workforce, resulting in lower frontline employee attrition compared to 2022 and additional activity to support the accelerated growth of Spectrum Mobile. Partly offset by productivity improvements, as a result of the programs we discussed at our December investor meeting, our employee attrition declined more quickly than we had expected, which is allowing us to lower our normal hiring in the first half of this year and increase overall tenure and quality. Longer term, we continue to expect additional efficiencies and cost to service customers over time as a result of our continuing lower service transactions, service tenure and digital service investments, proactive maintenance, and network evolution investments. Sales and marketing costs grew by 7.6% primarily driven by higher staffing across sales channels and the accelerated growth of Spectrum Mobile and other expenses grew by 6.7% driven by higher labor costs. Adjusted EBITDA grew 2.6% year-over-year in the quarter. Turning to net income on Slide 8, we generated $1 billion of net income attributable to Charter shareholders in the first quarter, down from $1.2 billion last year with higher adjusted EBITDA more than offset by higher interest expense. Turning to Slide 9. Capital expenditures totaled $2.5 billion in the first quarter, above last year’s first quarter spend of $1.9 billion. The increase was primarily driven by higher spend on line extensions, which totaled $890 million in the first quarter of 2023 compared to $541 million in the prior quarter driven by Charter’s subsidized rural construction initiative and continued network expansion across residential and commercial greenfield and market fill-in opportunities. I would also note that in the first quarter we saw a sequential decline in total CapEx associated with our subsidized rural construction initiative as we purchased a significant amount of rural construction equipment inventory as supply chain issues improved in the fourth quarter. First quarter capital expenditures, excluding line extensions, totaled $1.6 billion compared to $1.3 billion in the first quarter of 2022. We spent more on upgrade rebuild given our network evolution initiative. Customer premise equipment, which includes installation costs, was higher year-over-year, and support capital was also up just given timing. Our expectations for full year 2023 capital expenditures have not changed in part, because the costs associated with our network evolution and rural construction initiatives are coming in as planned. For the full year, we continue to expect capital expenditures excluding line extensions to be between $6.5 billion and $6.8 billion. Following the expected completion of our network evolution initiative at the end of 2025 or the beginning of 2026, CapEx, excluding line extensions as a percentage of revenue, should decline to below 2022 levels and continue to decline thereafter. And we expect 2023 line extension and capital expenditures to reach approximately $4 billion. We continue to expect 2024 and 2025 line extension CapEx to look similar to our outlook for 2023 at approximately $4 billion per year. And our 2024 and 2025 line extension capital expenditure expectations assume that we win funding for or otherwise commit to additional rural spending. As Slide 10 shows, we generated $664 million of consolidated free cash flow this quarter versus $1.8 billion in the first quarter of last year. The decline was primarily driven by higher CapEx mostly driven by our network expansion and network evolution initiatives and an unfavorable change in working capital, excluding the impact of mobile devices, which was typical seasonality for the first quarter but larger than last year. The year-over-year headwind was partly driven by outgoing payments related to the larger inventory buildup in Q4 of 2022 that I just mentioned. For the full year, however, we expect the change in working capital, excluding the impact of mobile devices to be roughly neutral as our capital and payroll accruals should rise over the course of the year. Mobile device working capital will remain a headwind given the mismatch in timing between when we receive EIP payments and when we pay handset providers. Also, in the first quarter, we didn’t make significant cash tax payments. And generally speaking, we make four federal cash tax payments a year with two quarterly payments made in the second quarter and one payment made in each of the third and fourth quarters. We’re not changing our cash tax outlook that we provided on last quarter’s call and simply providing a bit more clarity on the timing of cash tax payments. We finished the quarter with $97.8 billion in debt principal. Our current run rate annualized cash interest is $5.1 billion. As of the end of the first quarter, our ratio of net debt to last 12-month adjusted EBITDA was 4.47x, and we intend to stay at or just below the high end of our 4 to 4.5x target leverage range. During the quarter, we repurchased 2.6 million Charter shares and Charter Holdings common units totaling about $1 billion at an average price of $375 per share. Charter’s bandwidth ridge 2-way network passes nearly 56 million homes and businesses with gigabit and converged services everywhere. And given the significant investments we’ve made in that network over a multiyear period, we’re now in a position to upgrade it further in both a cost-efficient and time-efficient manner to offer the fastest speeds and the most advanced telecommunication services in the country. Additionally, our scale and our capabilities are allowing us to rapidly expand that network, both to unserved and underserved areas through our rural construction initiative and to other high ROI expansion opportunities. Those initiatives, combined with our service-oriented operating strategy and prudent capital allocation, are poised to drive long-term customer growth, higher free cash flow and shareholder value. Operator, we’re now ready for Q&A.

Doug Mitchelson:

Thanks so much. If I could do one for Chris, one for Jessica, Chris, on the go-to-market strategy for wireless, I’m just curious what percentage of the wireless lines being created by the 12-month promotion you’re hoping will convert to full pay after the promotional period expires. I think as part of that, we think about what’s the data usage, how is that tracking for the promotional wireless lines versus the non-promotional lines or how many of your gross adds are phone numbers being ported in versus creating new phone numbers. Just trying to understand the revenue opportunity from that promotion, I certainly get the retention benefits? And then Jessica, you’re not really sure what you’re willing to say, but when you think about your prior commentary about labor investments impacting both 1Q and 2Q, should we start to think about a little bit more margin expansion in the back half of the year? Or any comments you’re willing to make on swing factors for margins the remainder of the year would be helpful. Thank you.

Jessica Fischer:

Yes. I mean, Doug, we understand that there is some false market chatter. We should be clear on some other things. The majority of our gross adds are coming from paying lines. Less than 5% of our lines today are tablets, and those have the same rate plans as phones, and we don’t include wearables in our numbers either. So the lines that we’re putting up are good lines.

Jessica Fischer:

Yes. To your question on margin and what happens in the second half of the year, the increases that you see both in sales and marketing expense and cost to serve right now and the year-over-year are really driven by strong mobile sales. But if you think about what happens to them for the rest of the year, in sales and marketing, if you look back at last year, 2Q ‘22 sales and marketing expense was sequentially lower than 1Q, which might put a little bit of pressure on the year-over-year comp in Q2. But the year-over-year growth rate of sales and marketing expense should moderate over the course of the second half of the year. We will have lapped our midyear 2022 staffing adjustments. And in Q4, we will lap the Spectrum One-related sales cost increase. Similarly, on the cost reserve side, I expect year-over-year growth in cost to serve to moderate in the second half of 2023, which I think is consistent with what we said before and end the year at growth levels that are more consistent with where we were – with where we’ve been previously, which is largely flat. So I do think that as we go through the year to – in line with what we’ve said, the business continues to become more efficient, and we continue to expect to be able to operate it more efficiently and generate and generate growth from them.

Doug Mitchelson:

Yes. Thank you both. And thanks for the rural disclosures as well.

Tom Rutledge:

Thanks, Doug. Katy, we will take our next question, please.

Ben Swinburne:

Thanks, good morning. I guess for either of you, just wanted to hear more about the kind of process of accelerating those rural build-outs. I think you talked about – I think it was March relative to the full first quarter. Is this the kind of – is it a simple – I mean not simple, but is it better weather allows for greater and faster construction? Just what are the puts and takes of getting that number even higher as we move through the rest of spring, summer through the year? And I think you put too fine of a point on it, but does the 6-month clock that you guys talk about start when homes are activated? I just want to make sure I got sort of the definitions around activated and marketed to, etcetera. So, just trying to get a sense of the rollout for the rest of this year? Thanks.

Ben Swinburne:

Got it. Okay.

Ben Swinburne:

Yes. And then just as a follow-up to Doug’s question, and I don’t like doing the battling earnings calls thing, but since it came up quite specifically last night on the T-Mobile call, these promotional lines, the additional lines you’re adding, it sounds like those are lines being used and your expectation is as those roll to pay, those lines will continue to be lines. So I think they are – arguably these are not coming from anywhere. They are just being created. I just wanted to get your thoughts on that as you do roll to pay because it’s obviously a decent piece of your line count? Thanks.

Ben Swinburne:

Thank you, Chris.

Tom Rutledge:

Thanks, Ben. Katy, we will take our next question, please.

John Hodulik:

Great. Thanks. And again, thanks for the rural disclosure. So it looks like if you pulled out the rural adds, you guys added about 50,000 subs. Just anything you can talk about in the core markets. If you could talk about what you’re seeing sort of incrementally from a competitive standpoint, again, the fixed wireless guys are talking about bringing on more capacity and expanding into new markets. Does that become more of an issue as they rollout? And then you talked about this deployment of high split infrastructure. Would you expect to see better trends in those markets as you sort of turn on that service and improve, say, upstream capacity sort of along the way. So should we expect it to be something of an iterative process or where things get better as the infrastructure gets more competitive? Thanks.

John Hodulik:

Got it. If I could just follow-up or, is the goal is still to have higher adds this year than versus last year? Thank you.

John Hodulik:

Got it.

Operator:

Thank you. Our next question will come from Phil Cusick with JPMorgan. Your line is now open.

Chris Winfrey:

We won’t step into that rut.

Jessica Fischer:

Yes. So Phil, talking about going into Q2. Q2 is always a seasonally more difficult quarter. But in terms of trends, we did continue to see what I sort of had said in – at the end of February, and that I think that our trends looked a little better across coming in and in March than they had in February, which was better than January. And we continue to see that now with the context of Q2 being kind of what it is. So I think that we continue to think that the things look pretty good or at least better than it was previously on that front.

Phil Cusick:

Will Xumo be reported as a regular video sub or you will have a different category for that?

Jessica Fischer:

Yes. And as we get closer to the rollout, we will try to provide some additional information on where we think that, that will land.

Chris Winfrey:

Thanks Phil.

Operator:

Thank you. Our next question will come from Peter Supino with Wolfe Research. Your line is now open.

Chris Winfrey:

Sure. I think the device business and that’s not why we got into mobile. And we got into mobile to provide the fastest connectivity service and to save customers money on their monthly overall connectivity service and to bring convergence, a product that doesn’t really exist anywhere, but Charter and cable generally today. So, never say never but we don’t see a need, and we don’t have any plans to be aggressively into the subsidy business from a device standpoint. We don’t need to because we provide significant value, best fees, the best product and the best amount of savings already with what we are – our go-to-market strategy today.

Stefan Anninger:

Thanks Peter. Katy, we will take our next question.

Jonathan Chaplin:

Thanks guys. Two questions. The early work that we have done on suggests the returns in those markets could be phenomenal, potentially double what you guys may be seeing in RDOF markets if the full subsidy is awarded. I am wondering if you can help size what the opportunity could be. I think you got like roughly 20% of the RDOF opportunity? Could it be something of that magnitude of the BEAD opportunity? And then as we total up broadband ads in the industry, it looks like there has been a bit of a slowdown for the overall industry this quarter. I am wondering if you have got any context for what might be driving that. Is it just a pull forward of growth from COVID from the sort of period of higher growth during COVID, or is there something else going on? Thanks.

Jessica Fischer:

The thing that I would add to that is that, Jonathan, we have a very disciplined sort of practice now and how we bid for these offerings. And so we are very comfortable with our ability to price the passings with our ability to then bid for an appropriate amount of subsidy against that and then to go on the back end and execute against building the passings in a way that’s cost-effective and that generates the returns that we set out for. So, there is a hypothetical math exercise that you can do to try to get to what we would win. But what I would be clear about is what we win we will win at good returns, and we will execute it on the back end and bring those returns back into the company.

Stefan Anninger:

Thanks Jonathan. Katy, we will take our next question.

Craig Moffett:

Hi. Thank you. I wonder if you could talk a little bit about wireless margins, Jessica. You shared one more quarter of wireless results. And I think it’s – while I sort of get that the remarkable pace of subscriber growth means customer acquisition cost is very high, it also leaves – it leaves sort of to the imagination how the business will actually scale over time. So, anything you could share with us about underlying wireless margins or customer lifetime values of wireless subscribers? And in particular, what traffic you might offload and how that might affect it going forward would be very helpful? Thank you.

Chris Winfrey:

Craig, on the traffic offload, I mentioned in the prepared remarks that we have now deployed spectrum mobile network to all capable devices, which is our advanced WiFi service, and that’s in 40% of our residential customers. We have now begun to launch that advanced WiFi service and Spectrum Mobile network to SMB as well. So, up until this point, the vast majority of the traffic offload has been inside of an existing customer’s household and hasn’t given the ability for them to do significant amounts of offload outside the household and special local network really over the course of the past four months or five months is accelerating that ability to have traffic offload. And that’s prior to us fully deploying CBRS, which we intend to do. And we are already live in one large market. It’s going very well. So, whereas I think we had publicly said that we had 15% of our usage was through the lease of the 5G MVNO network. That’s now decreasing already pretty quickly. And so the 85% that was on our network before is now moving up to 87%, just in a matter of months, and that will continue to increase over time as we deploy more Spectrum Mobile network through advanced WiFi as well as CBRS over time. And so it’s attractive today, and it will continue to be more attractive. And the profitability and the cash flow today is really tied up in the subscriber acquisition cost.

Stefan Anninger:

Thanks Craig. Katy, we will take our next question please.

Jessica Ehrlich:

Thank you. Two questions. One on mobile pricing longer term, I mean do you think this is similar to broadband when you guys entered the market decades ago at a significant discount to telecom and then grew it over time as your share grew? So, just kind of how you are thinking about it longer term? And then second on Xumo, can you remind us what the timing of the rollout is? But also on advertising, can you compare it to linear? Like, how are you thinking about it in terms of inventory load, CPMs? I mean, it seems like you will have a lot more data.

Jessica Fischer:

On the longer term question on mobile pricing and sort of where we go there, I think the most important thing to – for us to worry about right now is that we are trying to take share in that market and to take share. We are priced to take share. And while we are doing that, we are still able to make good margins on that product. And so I don’t think that there is some sort of long-term pricing game to think about right now. Our – what we are really thinking about is what we do to take share in the market to provide mobile service to more of our customers, the fastest and best priced in the industry, and to use that to generate cash flow for the business.

Jessica Ehrlich:

Thank you.

Operator:

Thank you. Our last question will come from Michael Rollins with Citi. Your line is now open.

Chris Winfrey:

Michael, I will take those. In the business, it’s different between SMB and enterprise. Honestly, SMB is a little bit soft right now. We are still growing. You can see that in our numbers. But the SMB space has been a little soft. I don’t think we are alone in seeing that. And I also think that fixed wireless access may be selling cheap, low-quality residential products into a lower portion of the SMB space. It’s – we see some evidence of that. I think that’s temporary. As it relates to enterprise, we are doing very well in enterprise, the retail side. Clearly, we have ongoing cell tower backhaul revenue pressure. But in the retail space for enterprise, whether it’s fiber Internet access, Ethernet, our managed services, our UCaaS services, we are actually doing very well. It takes a while to activate sales, but I think we had our best sales quarter ever in Q1 pre-activation. So, the enterprise space is doing well and expect the retail piece to continue to grow well and to actually to accelerate. On ACP, we are not going to get into specific numbers other than to say – it’s a big program for the government. It’s important to the government, and we have been very active in deploying ACP at their request. It’s been very successful. The vast majority of the customers we have were already existing customers who are now benefiting from that benefit. And we are – we believe, the largest ACP participant. And we are hopeful that the government continues to renew that program over time because we think it’s a good program and it’s been important, and it’s a good benefit in the marketplace.

Stefan Anninger:

Thanks Michael. Back to you Katy.

Stefan Anninger:

Thanks everyone and we will see you next quarter.

Jessica Fischer:

Thanks.

Stefan Anninger:

Good morning, and welcome to Charter's fourth quarter 2022 investor call. The presentation that accompanies this call can be found on our website, ir.charter.com, under the Financial Information section. Before we proceed, I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, including our most recent 10-K filed this morning. We will not review those risk factors and other cautionary statements on this call. However, we encourage you to read them carefully. Various remarks that we make on this call concerning expectations, predictions, plans and prospects constitute forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management's current view only, and Charter undertakes no obligation to revise or update such statements or to make additional forward-looking statements in the future. During the course of today's call, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. These non-GAAP measures, as defined by Charter, may not be comparable to measures with similar titles used by other companies. Please also note that all growth rates noted on this call and in the presentation are calculated on a year-over-year basis, unless otherwise specified. On today's call, we have Chris Winfrey, our CEO; Tom Rutledge, our Executive Chairman; and Jessica Fischer, our CFO. With that, let's turn the call over to Chris.

Jessica Fischer:

Thanks, Chris. Before getting started, I want to remind you that we will be making a couple of changes to our reporting beginning next quarter. First, as we noted in our investor meeting in December, we'll include mobile service revenue in residential and SMB revenue as appropriate. We will no longer report mobile expenses separately, and both of these changes better reflect the converged and integrated nature of our mobile business and our operations and our offer structure. Second, we will provide additional line extension capital and rural disclosures. And finally, I want to note that while our fourth quarter results contain some modest impacts from Hurricane Ian, the overall impact of the hurricane on our financials and customer numbers was very small and doesn't warrant separate disclosure. Let's turn to our customer results on Slide 5. Including residential and SMB, we added 105,000 Internet customers in the fourth quarter and added 344,000 over the last 12 months. Video customers declined by 144,000 in the fourth quarter. Wireline voice declined by 233,000 and we added a record 615,000 mobile lines. For the full year, we added 1.7 million mobile lines. Although our Internet customer growth continued to be positive in the fourth quarter, activity levels remain low. During the quarter, we saw both lower Internet churn and lower Internet connects than in the fourth quarters of 2021, 2020 and 2019. Total churn, voluntary churn and non-plate churn were all lower year-over-year, and we're at all-time lows for the fourth quarter. Move return remains well below pre-pandemic levels, which also reduces our selling opportunity. Gross additions remain down across the footprint by similar amounts in overbuild and non-overbuild areas, similar to what we've seen in the past few quarters. In terms of competitive impact, some of the lower gross additions we see probably relate to DSL conversion going to a new entrant, fixed wireless, instead of coming to us. But given the issues with fixed wireless, product reliability and scalability, we expect those customers to find their way to us over the long term. In addition, we've seen a slightly higher pace of fiber overbuild recently. And I would also note that we've seen a small amount of market share return to mobile-only service over the past several quarters, the reversal of some COVID effects. Despite these challenges with lower market activity, our Spectrum One product is working. We remain in the early stages of offering converged packages of products and refinement to our approach continues, but we're very pleased with the results. Moving to financial results, starting on Slide 6. Over the last year, residential customers grew by 0.2% year-over-year. Residential revenue per customer relationship was flat year-over-year, with promotional rate step-ups and rate adjustments, offset by a higher mix of non-video customers and a higher mix of lower-priced video packages within our base. Also keep in mind that our residential revenue and ARPU does not reflect any mobile revenue, although that will change next quarter when we make the reporting adjustments I discussed a moment ago. In addition, we're allocating a portion of Spectrum One-related customer revenue from Internet to mobile revenue under GAAP. As Slide 6 shows, total residential revenue grew by 0.4% year-over-year. Turning to commercial. SMB revenue grew by 2.4% year-over-year, reflecting SMB customer growth of 3%. Enterprise revenue was up by 4.9% year-over-year. And excluding wholesale revenue, enterprise revenue grew by 9.1%, and enterprise PSUs grew by 4.4% year-over-year. Fourth quarter advertising revenue grew by 25% year-over-year, primarily driven by political revenue. Core ad revenue was down by 3%, with lower national and local advertising revenue, driven by the softening ad market, offset by our growing advanced advertising capabilities. Mobile revenue totaled $876 million, with $401 million of that revenue being device revenue. Other revenue grew by 4.9% year-over-year, mostly driven by higher rural construction initiatives subsidies, partly offset by lower processing fees and lower video CPE sold to customers. In total, consolidated fourth quarter revenue was up 3.5% year-over-year and up 4.5% for the full year 2022. Moving to operating expenses and adjusted EBITDA on Slide 7. In Q4, total operating expenses grew by $359 million or 4.6% year-over-year. Programming costs declined by 3.3% year-over-year due to a decline in video customers year-over-year, and a higher mix of lighter video packages, partly offset by higher programming rates. Looking at the full year 2023, we expect programming cost per video customer to be approximately flat year-over-year. Regulatory connectivity and produced content declined by 5.3%, primarily driven by lower regulatory and franchise fees and lower video CPE sold to customers. Cost to service customers increased by 5.8% year-over-year, driven by higher labor costs, higher fuel and freight costs and higher bad debt, partly offset by productivity improvements. Excluding bad debt from both years, cost to service customers grew by 4.9%. And while bad debt was higher year-over-year, it remained below pre-COVID level. As we noted in our December investor meeting, we're making very targeted adjustments to job structure, pay and benefits and career paths inside of our operations teams in order to build an even higher skilled and more tenured workforce, which drove the higher labor costs. These adjustments will add some pressure year-over-year to cost to service customers expense growth in the first half of this year. But that year-over-year growth should moderate in the second half of 2023. And we continue to expect additional efficiencies in cost to service customers over time as a result of the continued digitization of service, productivity improvements and our network evolution investment. Marketing expense grew by 6.9% year-over-year, primarily due to the higher staffing levels I mentioned and wages, which included targeted adjustments in our sales channels. Mobile expenses totaled $982 million and were comprised of mobile device costs tied to device revenue, customer acquisition and service and operating costs. And other expenses increased by 6.6%, primarily driven by higher labor costs and higher advertising sales expense related to higher political revenue. Adjusted EBITDA grew by 1.9% year-over-year in the quarter and 4.8% for the full year 2022. Turning to net income on Slide 8, we generated $1.2 billion of net income attributable to Charter shareholders in the fourth quarter compared to $1.6 billion in the fourth quarter of last year, with higher income tax and interest expense more than offsetting higher adjusted EBITDA. Turning to Slide 9. Capital expenditures totaled $2.9 billion in the fourth quarter and $9.4 billion for the full year 2022. Our total CapEx for the year reflects the timing of more accelerated equipment inventory receipts in December than expected. Fourth quarter capital spending of $2.9 billion rose above last year's fourth quarter spend of $2.1 billion, primarily driven by higher line extension spend driven by our rural construction initiative. Capital expenditures, excluding line extensions, increased from $1.6 billion in last year's fourth quarter to $2 billion this quarter, driven by investment in network evolution, higher customer premise equipment spend on advanced WiFi equipment and timing of spend. For the full year 2023, we continue to expect capital expenditures, excluding line extensions, to be between $6.5 billion and $6.8 billion. So excluding line extensions, we expect a small increase year-over-year in capital spend driven by the acceleration of network evolution spending and partly offset by declines in other areas. Following the expected completion of our network evolution initiative at the end of 2025 or the beginning of 2026, CapEx, excluding line extensions as a percentage of revenue, should decline to below 2022 level and continue to decline thereafter. Turning to line extensions. In 2023, we expect line extension capital expenditures to reach approximately $4 billion. We expect 2024 and 2025 line extension CapEx to look similar to our outlook for 2023 at approximately $4 billion per year. And our 2024 and 2025 line extension capital expenditure expectations, assume we win funding for or otherwise commit to additional rural spending. We also expect most BEAD money to begin to be appropriated in the 2024 timeframe with four-year build timelines from grants. At that time, we expect that our RDOF spend will begin to ramp down. We expect the BEAD program to present a unique and attractive opportunity for us to expand our network with subsidies, generating significant returns that solidly exceed our cost of capital. For our additional subsidized passings, we expect our net rural construction cost per passing to be closer to the roughly $3,000 per passing that we've incurred in our recent subsidized state and local builds than to our RDOF per passing costs. Our six-month penetration of passings in our newly built rural areas continues to be around 40%, and we expect penetrations in these areas to continue to grow. If you use the cost per passing that I mentioned a moment ago, a high broadband penetration assumption, which we think is reasonable, our current ARPU, excluding mobile, a high incremental margin based on low incremental overhead costs and a reasonable terminal multiple or perpetuity growth rate, you can clearly see the very attractive IRRs associated with our rural builds. Turning to Slide 10. We generated $1.1 billion of consolidated free cash flow this quarter versus $2.3 billion in the fourth quarter of last year. The decline was primarily driven by higher capital expenditures, mostly the result of our rural construction initiatives and by higher cash tax payments. For the full year, we generated $6.1 billion of free cash flow versus $8.7 billion in 2021. However, excluding cash taxes and our rural construction initiative, our full year free cash flow grew by 4%. We finished the quarter with $97.4 billion in debt principal. Our current run rate annualized cash interest is $5 billion. As of the end of the fourth quarter, our ratio of net debt to last 12-month adjusted EBITDA was 4.47x. We intend to stay at or just below the high end of our 4x to 4.5x target leverage range. During the quarter, we repurchased 3.6 million Charter shares and Charter Holdings common units totaling about $1.3 billion at an average price of $344 per share. For the full year, we repurchased 23.8 million Charter shares and Charter Holdings common units totaling approximately $11.7 billion. We have a proven operating balance sheet and capital allocation model that drives customer and financial growth and shareholder value. We've always prioritized investments that generate long-term growth, and those investments ultimately protect and extend our return of capital to shareholders. We continue to generate significant free cash flow and intend to both invest for long-term growth and simultaneously returned excess capital to shareholders in the form of buybacks. Operator, we're now ready for Q&A.

Jonathan Chaplin :

I'm wondering if you could give us a little bit more context around the strength we saw in wireless this quarter. How much of that is coming from selling into your existing base of customers versus new customers that you're bringing in the door? And really what I'm sort of trying to unpack is some way to kind of analyze the pull-through effect that the Spectrum One is having on broadband acquisition, separate from sort of the impact it has on lowering churn. And then you said that the opportunity for sort of driving this converged bundle is really untapped at this stage. Can you remind us of what penetration is of accounts with wireless at the moment? And where you think that could sort of potentially get to in the long term?

Jonathan Chaplin :

Chris, do you have a sense of how many of the broadband adds you might not have got, but for the Spectrum One offer with wireless?

Operator:

Our next question will come from Vijay Jayant with Evercore ISI.

Jessica Fischer :

Yes. So the $4 billion, Vijay, I do think that it's kind of a budgeting exercise, but it's our expectation, and it's on the higher end of our expectations. But it all matters how much we win and subsidized builds. And so it really is a matter of sort of what's available and what makes sense from an ROI perspective for us to spend and to try to get additional passings and generate additional returns. But I think the $4 billion is where we think that we will be based on our expectation of what will happen right now. So that's probably the way to think about that. On the cash tax, our cash tax liability is always dependent on a number of different variables. We're a full cash taxpayer now. We've previously given guidance on taxes. If you look back, I think, at what we said in Q4 of 2021, and there's more CapEx in the plan now, which generally should reduce that liability. But because you don't have 100% deductibility, you don't get 100% credit for that anymore. As a result, I would look back at that guidance. And we might be slightly above the percentages that we gave there, maybe 1% or 2% higher, but you can generally sort of look back to that to think about how to estimate cash tax.

Stefan Anninger :

Chelsea, we'll take our next question, please.

Craig Moffett :

Two questions, if I could. First, let's drill down on margins a little bit. I think it's hard for all of us to sort of make sense of the wireless margins given how fast the subscriber base is growing and therefore, how high customer acquisition costs might be. How should we think about -- particularly since we're not going to see it reported separately anymore, how should we think about the margin trajectory for wireless and therefore, the margin trajectory for the business overall as you go forward? And then just one more operating question. Can you just talk about the decision in your upgrade of your physical plant to not go all the way to symmetrical speeds, but to keep your downstream speeds higher than your upstream speeds?

Christopher Winfrey :

I'll comment a little bit on the network question. And the -- so your question was whether the choice to not upgrade to symmetrical. Just as a reminder for everybody, the first 15% of the upgrade is going to be with DOCSIS 3.1 high split using integrated CMTS. That will give us 2 -- up to 2 by 1, 15% footprint. So if we can make that one by one, we could make that somewhere in between and make it symmetrical. But -- so we have the capabilities. It's just based on our assessment of where the market value is. 5 by 1 in the 50% of the footprint. And then what we think is a base case is 10 by 1, using 1.8 gigahertz DOCSIS 4.0 RPD in 35% of the footprint. Now -- the reason we're choosing that you can mix and match where you allocate your bandwidth based on what you think the customer demand, the marketing claims and the actual product and device capabilities are. So we have flexibility to make, for example, you can make a symmetrical speed of product out there, depending on where you set the split. And those options remain available to us. It's our view right now that the upstream demand today is much more of a marketing campaign as opposed to any real product demand. And we want to lead in those marketing claims, which is why we're doing what we're doing. We also have from a marketing claims perspective from a symmetrical that what we'll be deploying here allows a fiber drop in the -- as a remote OLT inside of the node. So that gives us marketing claims across the entire footprint for 25 symmetrical and over time, 50 or 100-gig symmetrical. Hard to imagine what, when and how that would ever be needed, but it gives us the opportunity to do that and market it at least in these communities to have that type of speed, not different from what we do with enterprise already today. So we have a lot of flexibility. That's what I think we really like about this plan. We can go fast. We can do it at a low cost. We can reset the up and downstream, and we can pivot where we need to go at a very attractive price. We can do it at a faster pace and a cheaper cost than all of our competitors and be out in front of any potential overbuild with a better product for the long term.

Operator:

Our next question will come from Phil Cusick with JPMorgan.

Christopher Winfrey :

So Phil, let me parse the market a little bit in the broadband market. Clearly, in areas where we don't have a gig overlap, we are growing and continue to grow despite a low transaction volume marketplace. And despite some of the rollback to post-pandemic rollback to mobile-only that Jessica described. I don't think it will go all the way back, but we're all seeing a little bit of that taking place. So growing in that space. Typically in a gig overlap area, you have newly minted overbuild and you have existing overbuilt and existing overbuild we're growing and newly minted. You have a small setback upfront because you have just have a new competitor in the marketplace. And to the extent you have a higher amount of that, that mix impacts where you're going. In the fourth quarter, based on all the passings analysis that we look at, we actually grew despite that higher fiber overbuild inside of our footprint in the fourth quarter, we actually grew in that space despite the mix contribution of additional overbuild. So I think that's positive. And so that's -- it's small. And as you can tell through the net add numbers. But I think it's promising for the future, and that's even prior to having the benefit of additional marketing claims through the network evolution as well as having clearly the wind behind our sales over time of additional network expansion and the promise of having a fundamentally different and better product than any of our competitors can have through a converged offering that has gig powered wireless. So those initiatives, they won't happen inside of Q1 or Q2, but they'll continue to steadily increase and improve our position and ability to grow. The biggest one would be, if we can get market volume coming back, that would actually be the biggest contributor of growth more than any of the things that I just mentioned. I'd note as a tangential and somebody will ask it, and so I'll comment on it. We have not -- as we've talked about, we've not seen any demonstrable impact on our churn as it relates to fixed wireless access. And we think it could have had some impact on our gross adds, particularly on ads that we would have pulled from DSL. But when some pricing actions were taken in December, we saw for the first time a very limited impact on our voluntary term, but not where you would have expected it. It's actually in our non-gig overlap and in our MDU footprint where you have higher churn to customers, higher tendency to move around, higher tendency to non-pay. And so it was a -- maybe it's just a blip, but there's two linings to that. One is that, for the first time, we saw a small amount of churn related to that. And the flip side is those customers tend to be very mobile, if you will. And I think given the experience of that product even more so are used for the return of them coming back to a proper broadband product with or without convergence. So anyway, that's just food for thought around that. I hope that answers the question.

Philip Cusick :

We used to talk about them.

Philip Cusick :

Sorry. No, I was just going to ask, do you have some room on -- we used to talk about the sort of small video package mix and how that might peak out at some point? Is that an issue anymore? Or can you kind of put people wherever you want in terms of packages?

Thomas Rutledge :

It is. So I guess I'm ham or the egg, I'm not sure what you want me to be. We still have limitations on what we can do contractually, but we've been moving those limitations as we renew contracts. But the industry is structurally in a bad place from a video perspective, and you've got a really high-priced fat package with everything in it. And there are a lot of content companies whose pricing is a lot less and it separated out from that package can create a lot of value for consumers. But obviously, it's a different model. It requires different selling. And so we've been trying within those limitations to do what Chris said, which is to have the best product we can. But I would say that it's not a solved situation in terms of the way the marketplace is structured. And it's still structured in a way that continues to make video an expensive product for most consumers.

Operator:

Our next question will come from Kutgun Maral with RBC Capital Markets.

Christopher Winfrey :

I don't have it in front of me that split on the 5.3 million, but the vast, vast majority, we're in the connectivity business, and so we're selling mobile service. And to the extent that a customer wants additional devices, of course, we have that and we make it available. But our view here is driving Internet both acquisition as well as Internet churn and to drive profitability, but having an overall higher ARPU and you get that through selling the mobile service combined with the broadband service. Maybe you start with programming and jump...

Christopher Winfrey :

In terms of position with programmers, Tom mentioned the margin issue that exists inside of video. And we've talked about the availability of that content really almost anywhere, in some cases, in many cases, for free because of piracy. We've been a long proponent Tom has been around the problems related to that. So I guess it's fair to say I don't know about harder line. It's just more indifferent about carriage of certain content at a higher increasing price when it's available all across the market at cheaper rates or even for free. And so that's not a harder line, that's just a reality of where we're at. The two biggest issues inside of the content category continued to be retrans, which is over-the-air content, which we're forced to pass on as a significant cost to our customers. And the development of sports and the other channels are important and put into what I was just describing, but those are the two biggest drivers of cost increases to consumer.

Douglas Mitchelson :

I think at the Analyst Day, it was suggested that broadband net adds would be better in 2023 than 2022, and that 2023 would have EBITDA growth. And so I'm just wondering, I think, Chris, on the broadband net add side, kind of what gives you confidence that 2023 could be better than 2022? And then I guess, jump all, but maybe for Jessica, on EBITDA, do I remember that right? The expectation is EBITDA growth in 2023? And I know you guys are in a fan of guidance, but any -- what are the swing factors that can impact that? And any thoughts on cadence if you're willing to offer would be helpful. And then -- sorry, just -- I'll ask it all at once. Chris, I'm just curious as a follow-up. You said the pricing action, it was maybe just a blip that it was like the first time. But you've -- when you've had pricing actions in the past, you've had churn, right? So I wasn't sure what was -- what you saw for the first time when you mentioned a blip in churn?

Jessica Fischer :

On the EBITDA side, as you said, we don't give EBITDA guidance, but certainly, we do expect growth in 2023. I think I drive it out of a few things. We have continued to have customer growth. I think we've talked about on the rate side. We have taken some small rate actions recently. And then we continue to believe that we have -- we continue to expect rates to be good across those customers. So driving revenue growth. I would remind you that we lapped last year's rate increases in April. So to your comment around timing, the second quarter is probably the space in which that's most challenged. But -- and then as Chris said, we've made these investments in tenure. We expect to gain better efficiencies both out of the tenure initiative, out of the continued digitization of the process that we have. We continue to improve in our operational efficiency, which drives sort of relative costs out of the business. And so I think we're pretty confident in generating that EBITDA growth year-over-year.

Operator:

Our next question will come from Ben Swinburne with Morgan Stanley.

Jessica Fischer :

Yes. So I'm going to start at the bottom of the list, Ben. We expect to build around 300,000 subsidized rural passings in 2023, which are mostly RDOF and they're incremental to the normal business as usual pace of build. What I would do with those is we've given you information on how much penetration we get of those passings, the 40% at six months. We continue to grow after we hit that 40% at six months, but you can time them in that way. Our pace coming into the end of the year within the 15,000 to 20,000 passings per month range, and I would expect -- we're starting the year at that pace and we're going to end at a faster pace to get to that total of 300,000 number. The $3,000 per passing, so just to be clear, I think what I said was that we would be closer to the $3,000 that we've been in the more recent subsidized builds than to our RDOF amount. So we’re totally prescriptive around $3,000 exactly. But that is a net number. Our expectation on state subsidized and on the BEAD build is that those programs are likely to be structured in a way where the expenses count -- where the subsidies are accounted for as a capital offset and not as revenue. So we're going at it with net numbers. Gross build costs, I think, are a lot harder. And so we understand quite a bit now about what we need to -- about what we want in terms of driving economics and also sort of had some experience in bidding these passings and are seeing what's happening in the marketplace. But what you win impacts a lot about what those gross build costs are and they could be in a pretty wide range. So I don't have a number on that side.

Benjamin Swinburne :

That's very helpful. Can I just ask a clarification from your comment. I think you guys talked about nonpaid churn, all forms of churn at record lows in Q4, including non-pay. But I think you also mentioned bad debt was coming back up. Just any comment on sort of the consumer, the low-end consumer. Some of your competitors have talked about non-pay churn normalizing. Was -- it didn't sound like we're seeing that, but I wanted to hear your thoughts?

Jessica Fischer :

Yes. The other piece I would remind you we've talked about before, we're a big participant in ACP and a big proponent of that program. I think for our customers that are more prone to non-pay. We've endeavored to make sure that they recognize that, that program is available to them and to be part of the solution they're making Internet affordable for them. It has two impacts. One is that those customers don't churn as much as before. The other impact, though, is that on some of those customers that convert into the ACP program. We might be carrying a balance related to those customers that then ends up sort of flushing through in our bad debt computation. So while bad debt is higher on a numerical value basis, it's not necessarily connecting into a non-pay churn where we've converted the customer to being an ACP customer.

Christopher Winfrey :

Thank you, everyone.

Operator:

Thank you, ladies and gentlemen. This does conclude today's conference call, and we appreciate your participation. You may disconnect at any time.

Stefan Anninger:

Good morning, and welcome to Charter's third quarter 2022 investor call. The presentation that accompanies this call can be found on our website, ir.charter.com, under the Financial Information section. Before we proceed, I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, including our most recent 10-K and also our 10-Q filed this morning. We will not review those risk factors and other cautionary statements on this call. However, we encourage you to read them carefully. Various remarks that we make on this call concerning expectations, predictions, plans and prospects constitute forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management's current view only, and Charter undertakes no obligation to revise or update such statements or to make additional forward-looking statements in the future. During the course of today's call, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. These non-GAAP measures, as defined by Charter, may not be comparable to measures with similar titles used by other companies. Please also note that all growth rates noted on this call and in the presentation are calculated on a year-over-year basis unless otherwise specified. On today's call, we have Tom Rutledge, Chairman and CEO; and Chris Winfrey, our COO; and Jessica Fischer, our CFO. With that, let's turn the call over to Tom.

Chris Winfrey:

Thanks, Tom, and thanks for the kind words. I'm both honored and excited about the opportunity to continue to help Charter grow and to create shareholder value as the incoming CEO. It has also been a privilege for all of us here at Charter to work for and learn from Tom over the past 10 years. His leadership is the reason Charter exists as it does today, and he's mentored all of us here to keep reinventing cable and we're fortunate that he'll continue to do the same as our Executive Chairman. So Tom covered the quarterly headlines, so I thought I'd give some additional market color. While our Internet net additions improved from last quarter, they remained below last year. The largest driver by far is that activity level remains low. Total churn and voluntary churn were slightly lower year-over-year and were at all-time lows for third quarter. Non-pay and move churn remains well-below pre-pandemic levels. Those are market issues that also reduce our selling opportunities. While we've seen some improving trends, gross additions also remain down across the footprint by similar amounts in both overbuild and non-overbuild areas, similar to what we've seen in the past few quarters. In terms of competitive impact, some of the lower gross additions we see probably relate to DSL conversion going to a new entrant, fixed wireless instead of coming to us. Given the issues with fixed wireless product reliability and scalability and usage trends, we expect those customers to find their way back to us over the long-term. We've also seen a similar pace of fiber reported telco Internet numbers confirm what we saw, a small mix issue from newly overbuilt footprint, no different from the past. I would also note that we've seen a small amount of market share return to mobile-only service over the past several quarters, the reversal of some COVID effects. So we're in a unique moment, the opposite of the one we saw in 2020 and early 2021, in fact. Market transaction volume will eventually pick up, and so will our Internet net adds. In the meantime, we're growing mobile at record rates, even in a low volume environment by saving customers thousands of dollars. That growth is also good for broadband. So we remain well positioned. Our fixed and mobile broadband services continue to converge technically and operationally, and our Spectrum 1 offering launched earlier this month exemplifies that. As Tom mentioned, we have a path to drive significantly higher speeds, at a much faster pace and at much lower cost than our competitors. And we can sustain good revenue growth, lower cost of service per customer relationship for many years. I've been in the cable industry for almost 25 years and at Charter for over 10 years. And I've played a key role in developing our operating strategy. So our recipe for creating shareholder value through better products, pricing and packaging and service, coupled with a levered equity return strategy will remain intact. At the same time, I do think, the CEO transition will be a good opportunity for us, both in this market and with the transition taking place to update investors on what I expect over the next few years, including details of our network evolution plan, convergence capabilities, service experience for customers and our rural expansion and build-out plans. That's a lot to cover, so I look forward to a virtual event with the investment community that we'll schedule for a date, following the CEO transition in December. Now, I'll turn the call over to Jessica.

Operator:

Thank you. [Operator Instructions] Thank you. Our first question will come from Doug Mitchelson with Credit Suisse. Your line is now open.

Tom Rutledge :

Thanks, Doug. Yes, your memory is good. And I'll turn the answer over to Chris. But when triple-play was first announced, there was a lot of skepticism, and some people thought it was foolish, but it turned out to be quite successful.

Doug Mitchelson:

Thank you.

Operator:

Thank you. Our next question will come from Benjamin Swinburne with Morgan Stanley. Your line is now open.

Chris Winfrey:

So, two quick things, and then I'm going to pass it over to Jessica. On Spectrum One, we didn't launch that until October. So it had no impact on our Q3 results. And on your question regarding high split, we're going to go into lots of detail in December. So, I'm going to try to be quiet today around all that. There's nothing shocking. I think Tom and others may elaborate on the benefits of high spot, but we'll give a more detailed plan in December. The question is on the mobile. I'm going to hand that over to Jessica around the financials on mobile and she can go through that.

Tom Rutledge:

Yes, at a high level, Ben, on spectrum splits, what they essentially do is give you the opportunity to increase down speeds and upstream speeds significantly and to offer products symmetrically at pretty low capital cost. When we did DOCSIS 3.1, you remember, we spent about $9 a point past, not counting CPE, and -- which was $450 million approximately to get the plant ready. This is going to cost a little more than that, but it's still a relatively low-cost capital investment that gives you a significant increase in capacity. And it leaves you in a pathway where you can continue to invest with additional technologies, including DOCSIS 4.0 to even further enhance the capability of the network at a pretty capital-efficient way that gives you massive capacity and moves us to the 10G world we've been talking about over time. And as a general concept, it takes away additional operating costs as well and additional capital cost when you make these investments because the augmentation in the network that you have to do for growth, I talked in my prepared remarks about how much capacity people are using that capacity use continues to go up. So, this -- and we have a normal capital budget associated with that growth in capacity. And when you do these spectrum split upgrades, you get that capacity included with that investment. So, you don't have to make the augmentation investment. So, it's a very efficient way of ubiquitously deploying lots of capability across your entire footprint. And I think the cable industry, in general, will have that capacity across its entire footprint very relatively quickly.

Benjamin Swinburne:

Thank you so much.

Operator:

Thank you. Our next question will come from Craig Moffett with MoffettNathanson. Your line is now open.

Tom Rutledge:

There's a lot in those in that question. First, with regard to my timing, actually, two years ago, put in my contract that on August 15th of this year, I would have an option in my employment agreement to begin the process of transitioning to Executive Chairman and giving up the CEO role. I chose that date two years ago, because it was the 50th anniversary of my beginning in cable as a technician working my way through college in 1972. So I have personal meaning to me, and I thought it was a milestone a couple of years ago that I might want to exercise. And then the other thought I had was at the end of this Executive Chairmanship, I'd be 70 years old, and I thought well, maybe I should think about not working after that age. But on the other hand, I was -- I love this business and I love what the future is for this business, and there's tremendous opportunity. And I want to see it through, but it's going to -- it's just such a good business and it's going to go on so long that it's time to pass at the time. So that's how I came to the decision. To your broadband cost questions, yeah, there are cost issues and we've had to deal with those costs and they're in our numbers. In this quarter, you can see that there's some inflationary pressure out there, and there have been labor force dislocations as a result of COVID and the economic policies that the country employed to deal with it. And they're significant, but we've -- our strategy from a pricing and packaging perspective is to be the value provider and to make these products work together at lower prices and create good value for consumers and to use our ability to drive market share as the primary driver of our revenue, but that said, we have been passing through video price increases, and we've passed through recently a broadband price increase and it was a result of the inflationary pressures that we've seen. At the same time, it doesn't negate the way our primary revenue opportunity is developing, which is to create more customers faster and to create those customers with more products associated with each connection so that our ARPU and the revenue go up together. And that's the primary driver of our revenue strategy. Our cost strategy though is real, and we are working in RDOF to develop we have had higher costs than we anticipated, but we've also had more success than we anticipated in terms of both penetration and the number of passings that we can develop off of the RDOF projects that we've built. So net-net, our cost is what we thought it would be on a per passing basis. But it does create pressure and difficulty for people to attract labor and to get things done. And so we're having issues ourselves with supply chain and the development of a workforce and how we do the work and what order we do work is being impacted by the labor market and the supply market. So I do think the cost of money and the cost of labor and the cost of everything will affect our competitors' ability to build as well.

Craig Moffett:

Thank you. And again, congratulations to you and to Chris, Tom, for the transition.

Stefan Anninger:

Thanks, Craig. Katie, we’ll take our next question, please.

Philip Cusick:

Hi, guys. Thank you. A couple of follow-ups, if I can. Chris, looking forward to your event in December, I know you addressed somewhat a couple of things a minute ago, but I noticed you didn't mention updates on core network capital intensity or leverage targets as part of this transition, which are things that we hear people asking about in the market, any changes to consider here that you can give us a little preview on? And then second, I know it's early, but Jessica, can you follow up on that, those rural initiatives and the contribution there to broadband subs. How should we think about capital spending for RDOF and other rural initiatives next year? Thank you.

Jessica Fischer:

On the rural side, I guess on your first question, the contribution to broadband subs. Certainly, we are seeing broadband subs coming in off of the rural build that we're executing already. I think I've said that we will start providing some more detailed information about femoral build and we weren't quite to do that this quarter. But I would expect coming into year-end that will provide some better information. It's not the entire growth in broadband. So the growth that you see, the 75,000 additions reflects growth off of our legacy footprint as well as some – a smaller amount of incremental growth off of the broadband subs. But we are doing very well in those markets that we build out. As far as thinking about how you should think about rural for next year, I don't want to front run giving guidance on that piece just yet. I would tell you that I think what we did in this year to try to accelerate, walk out and design is certainly in an effort to be able to build the rural builds at a good pace, which I think is both consistent with what strategically we'd like to do because having the passings and service sooner than later is good for the business. And from a regulatory perspective, we are certainly doing everything that we can to meet expectations on that side as well and in placing the build in service. But I don't, on that basis sort of have a number to give you for next year. I'd just tell you that I would expect our pace to continue to be strong because we're trying to build what we need to build as quickly as we're able to do so.

Tom Rutledge :

Thank you, Phil.

Operator:

Thank you. Our next question will come from Jonathan Chaplin with New Street. Your line is now open.

Chris Winfrey :

I'll jump in first. We haven't changed sorry, I just wanted to correct that I said we haven't lowered our pricing. Tom mentioned that we have passed through some of the inflationary cost increases, and that includes broadband should be indicative in terms of how you're thinking about that. And then on the fixed lines, I'm just throwing in a few pieces here and let others cover the rest. The fixed wireless access, the pricing really is designed for a full suite bundle of multiple mobile lines, and in some cases, high-priced mobile lines combined with the access. So I think the right comparison is if you take a look at our existing pricing in September with both broadband and mobile lines, because that's a comparable comparison. We're now with Spectrum One and compare that to the combined fixed wireless access offering. I think that's the best way to take a look at it. When you do that, you'll see that we're dramatically not only lower in terms of price and higher in terms of value, but the quality of the product is not really comparable. But I think that's the right way to think about those.

Jessica Fischer:

And I guess, in terms of how that then translates into EBITDA trajectory, Jonathan, I don't think it will come as a surprise to anyone that based on the lower broadband customer growth that we've had over the last year, really coming out of the really accelerated growth in those customers and we pull forward during COVID will mean that we had kind of higher revenue growth followed by what's likely to be somewhat lower revenue growth versus that COVID time period. But I think based on what Tom talked about that then as we sort of execute on the converge connectivity plan and as we see it return to normalcy in the market, we certainly expect that in the medium to long-term, that that will pick up back-up and so that you will have that increasing revenue growth again. Similarly on the expense side, we certainly have seen some impact, and I think we called out some of the impact of inflation in the financials in Q3. But we think that, that sort of once again sort of, is it temporary crunch on growth that is consistent with what people had what we think that people expect. But it will be followed by a return to more normal levels. And so ultimately, in the medium and long term, I think that the trajectory of EBITDA growth is back closer to pre-pandemic levels. But I acknowledge that, I think that, there could be a little bit of slowness in that growth in the short term.

Stefan Anninger:

Thanks, Jonathan. We will take our next question, please.

Vijay Jayant:

Thanks. My congratulations to you both. I had just a couple of questions. One, you've talked about a broadband rate increase. I mean we haven't seen in the market. Any details on what the magnitude of that is? And obviously, ARPU for broadband seems to be a big focus for all of us, given sort of flattish unit growth. So any sense on what that could drive broadband ARPU in 2023? And then just for housekeeping, was there any ACV impact on the broadband net adds for the quarter? Thanks so much.

Vijay Jayant:

Okay. Thanks so much.

Operator:

Thank you. Our next question will come from Peter Supino with Wolf Research. Your line is now open.

Tom Rutledge:

Peter, to the first part of your question, I'd say yes we expect to be able to pull the broadband growth through. It's a complicated sale, obviously, but yes.

Jessica Fischer:

On sequential growth, I guess, I would point out a couple of things. One, I highlighted in the prepared remarks, which was that the growth that we saw in Q2 was impacted by pricing adjustments that we had taken for video pass-through. And the way that those overlap year-over-year, you actually had the impact of two in the second quarter versus only one in the third quarter. So that's part of what was happening there. They're also in enterprise, commercial. There was a one-time item that was a benefit in last year that you don't have in this year that pressured those growth rates in the year-over-year or in the sequential quarter. So some of what you're seeing there is just the impact of lumpiness, not overall growth trajectory. On the leverage point, I would say that where we're sitting right now, the free cash flow yield on equity is so high that I think that continuing to do share buybacks presents significant opportunity for the company, just based on where we're sitting on that point. And the overall capital structure, I think, has been an advantage to the company in the long-term. And so I don't see where we are even in what might be a temporarily pressured growth environment as being a reason to move off of where we've been from a leverage standpoint or as your buyback strategy? And so consistent with what I said, we certainly expect to stay at the top of our four to four and a half times leverage ratio.

Tom Rutledge:

Thank you

Operator:

Thank you. Our next question will come from Brett Feldman with Goldman Sachs. Your line is now open.

Jessica Fischer:

So, on the debt repurchase question, I also have noticed that our debt is trading at a discount in the market. We do modeling consistently as to what we think the best option as between the two is, particularly given our plans to stay at the top end of our leverage range. And so I won't comment on anything in particular that we plan to do. But we do certainly notice it. And we'll continue to do our modeling, and we'll make the next decision based on what appears appropriate given where the market sits at that moment.

Tom Rutledge:

But not disconnects of…

Tom Rutledge:

Yes. And in many cases, we disconnect the video customer downgraded video customer and sell a mobile package at the same time. And they actually end up saving money, obviously, because they have no video or they buy a smaller video package from us in many cases. But they also end up driving ARPU up in the sense that they buy mobile and that mobile is a good value for them. Their overall hospital spend savings -- it is a savings.

Stefan Anninger:

Thanks Brett. Katie, we'll take our last question please.

Michael Rollins:

Thanks. Two questions. First, if I could revisit the ARPU discussion. As you're looking at that relationship between broadband ARPU and volume performance in the quarter, does this signify that there's just greater price sensitivity to grow the broadband base going forward? And then secondly, if the US goes into recession, how should investors think about the sensitivity in terms of Charter's KPIs and financial performance? And as you're describing the customers are trading down in video, is there a risk that, that accelerates or that customers step down their broadband peers. Thanks.

Jessica Fischer:

And there might be some impacts that you would see in a space like advertising enterprise. But the performance that we could get in mobile, particularly given our pricing there would be good. And even if it had video downgrades on the other side, the margins in mobile are actually better than the margins in the video. So you get some advantage of more customers moving into the mobile side of the business as well.

Jessica Fischer:

We'll be fine.

Michael Rollins:

And on the sub price sensitivity, are you just -- are you seeing more sensitivity in price to grow the broadband base on a net level going forward?

Tom Rutledge:

The way I would -- if there were price issues with broadband, you'd see broadband disconnects, and they're at historic lows.

Stefan Anninger:

Good morning, and welcome to Charter's second quarter 2022 investor call. The presentation that accompanies this call can be found on our website, ir.charter.com, under the Financial Information section. Before we proceed, I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, including our most recent 10-K and also our 10-Q filed this morning. We will not review those risk factors and other cautionary statements on this call. However, we encourage you to read them carefully. Various remarks that we make on this call concerning expectations, predictions, plans and prospects constitute forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management's current view only and Charter undertakes no obligation to revise or update such statements or to make additional forward-looking statements in the future. During the course of today's call, we will be referring to non-GAAP measures, as defined and reconciled in our earnings materials. These non-GAAP measures, as defined by Charter, may not be comparable to measures with similar titles used by other companies. Please also note that all growth rates noted on this call and in the presentation are calculated on a year-over-year basis unless otherwise specified. On today's call, we have Tom Rutledge, Chairman and CEO; Chris Winfrey, our COO; and Jessica Fischer, our CFO. With that, let's turn the call over to Tom.

Jessica Fischer:

Thanks, Tom. Now let's turn to our customer results on Slide 5. Including residential and SMB, we lost 21,000 Internet customers in the second quarter. As part of the EBB to ACP transition, a small portion of subsidized Internet customers either did not opt to continue their service after the EBB program ended or did not meet the ACP requirements, particularly the requirement that customers use their service in each 30-day period, which covers the vast majority of the impacted subscribers. This resulted in 59,000 customer disconnects during the quarter. Excluding that headwind, we organically grew 38,000 Internet customers in the quarter. Looking forward, we expect that zero usage ACP customers will have a smaller impact in our quarterly results than what we saw this quarter. Looking at the broader marketplace, while we saw seasonal increases in moves typical of the second quarter, moves remained well below pre-COVID levels. And voluntary churn, when excluding the EBB-ACP impact I mentioned, was even lower than last year, all of which reduced our selling opportunities. Turning to video. Video customers declined by 226,000 in the second quarter, following a programming pass-through increase. Wireline voice declined by $266,000, and we added 344,000 mobile lines. Despite the lower number of selling opportunities from our reduced activity levels, we continue to drive mobile growth with our high-quality, attractively priced service. Moving to financial results, starting on Slide 6. Over the last year, we grew total residential customers by $282,000 or 1%. Residential revenue per customer relationship increased by 2.8% year-over-year driven by promotional rate step-ups and earlier video rate adjustments versus last year that pass-through program rerate increases. These effects were partly offset by the same bundle and mix trends we've seen over the past year, including a higher mix of nonvideo customers and a higher mix of lower-priced video packages within our base. Also keep in mind that our residential ARPU does not reflect any mobile revenue. As Slide 6 shows, residential revenue grew by 4.5% year-over-year. Turning to commercial. SMB revenue grew by 3.7% year-over-year, reflecting SMB customer growth of 3.7%. Enterprise revenue was up by 4.9% year-over-year. Excluding all wholesale revenue, enterprise revenue grew by 8.2%, and enterprise PSUs grew by 4.7% year-over-year. Second quarter advertising revenue grew by 12% year-over-year. That growth came primarily from political. It was slightly offset by a 1% decline in our core advertising business due to lower local and national advertising revenue, including auto, partly offset by our growing advanced advertising capabilities. Mobile revenue totaled $726 million with $299 million of that revenue being device revenue. Other revenue increased by 8% -- 8. 8% year-over-year and includes rural construction initiatives subsidies totaling $29 million. In total, consolidated second quarter revenue was up 6.2% year-over-year. Moving to operating expenses and EBITDA on Slide 7. In 2Q, total operating expenses grew by $307 million or 3.9% year-over-year. Programming costs declined by 0.2% year-over-year due to a decline in video customers of 3.2% year-over-year and a higher mix of lighter video packages, all of which was mostly offset by higher programming rates. Looking at the full year 2022, we continue to expect programming cost per video customer to grow in the low to mid-single-digit percentage range. Regulatory connectivity and produced content declined by 10.3% primarily driven by lower Lakers RSN costs and lower video CPE sold to customers. The decline in Lakers and RSN costs was primarily driven by the delayed start of the NBA season in 2020, which drove more Lakers games charges in 2Q '21, making for an easier comparison this year. Excluding the RSN costs from both years, regulatory connectivity and produced content declined by 4.7%. For the full year 2022, we continue to expect regulatory connectivity and produced content expense to decline in the mid-single-digit percentage range versus 2021 primarily due to lower video CPE sold to customers and lower RSN costs given an abnormal Lakers game schedule last year. Cost to service customers increased by 5.1% year-over-year. The increase was primarily driven by higher bad debt year-over-year given lower bad debt in the second quarter of 2021, which benefited from government stimulus packages at the time. And while this quarter's nonpaid churn and bad debt write-offs both remain well below pre-COVID levels, our bad debt accrual includes expectations for potential softening of consumer finances later this year. Excluding bad debt from both years, cost to service customers grew by 1.1% primarily due to a larger customer base and higher fuel costs partly offset by productivity improvements. As the year progresses, prior year bad debt expense normalizes and should drive slower growth in cost to service customers expense during the second half of the year. Marketing expenses grew by 8.6% year-over-year due to higher labor costs driven by previously planned wage increases and higher staffing levels as Charter completes the insourcing of its inbound sales and retention call centers with a focus on providing better service to new and existing customers. For the full year 2022, we continue to expect marketing expense to grow in the mid-single-digit percentage range versus 2021. Mobile expenses totaled $797 million and were comprised of mobile device costs tied to device revenue. Customer acquisition and service and operating costs and other expenses increased by 1.3%. Adjusted EBITDA grew by 9.7% year-over-year in the quarter. Just a quick note on inflation before moving on to net income. We've seen some inflationary pressure in fuel, freight and utilities as well as pricing pressure on CPE and other network components. In labor, our planned move to a $20 per hour starting wage blunted the impact, but we still see pressure in the labor market, which we may need to more fully respond to as the year progresses. I would also note that our consumers are experiencing inflationary pressure. But given the availability of subsidies for broadband and our focus on saving customers hundreds of dollars per year by switching to our converged connectivity product, we believe that we're well positioned for this environment. Turning to net income on Slide 8. We generated $1.5 billion of net income attributable to Charter shareholders in the second quarter versus $1 billion last year. The year-over-year increase was primarily driven by higher adjusted EBITDA. Turning to Slide 9. Capital expenditures totaled $2.2 billion in the second quarter above last year's second quarter spend of $1.9 billion. We spent a total of $357 million on our rural construction initiative in the quarter. Most of that then relates to design, walk out and make ready, and as expected, has not yet resulted in significant passings growth. And the vast majority of that spend is accounted for in line extensions. We spent $95 million on mobile-related CapEx, which is mostly accounted for in support capital and scalable infrastructure and was driven by investments in back-office systems and wireless offload construction. As Slide 10 shows, we generated $1.7 billion of consolidated free cash flow this quarter versus $2.1 billion in the second quarter of last year. The decline was primarily driven by higher cash tax payments and higher CapEx mostly driven by our rural construction initiatives. We finished the quarter with $95.7 billion in debt principal. Our current run rate annualized cash interest is $4.5 billion. As of the end of the second quarter, our ratio of net debt to last 12-month adjusted EBITDA was 4.45 times. We intend to stay at or just below the high end of our 4 times to 4.5 times leverage range. During the quarter, we repurchased 8.3 million Charter shares and Charter Holdings common units totaling about $4.3 billion at an average price of $511 per share. And given where the share price has been, during the first two quarters of this year, we repurchased 7.2% of our fully diluted shares outstanding as of December 31, 2021, for approximately $7.8 billion. Operator, we're now ready for Q&A.

Ben Swinburne:

A couple on sort of competition and your go-to-market. You guys didn't talk a lot about fixed wireless or the fiber builds that are happening in various parts of the country. I'm just wondering if you could comment on whether that competitive intensity has increased, if you're seeing, in particular, pressure in certain parts of your footprint, including in the third quarter. I realize you don't like to comment quarterly, but obviously, there's a lot of focus on that. And then Tom, I was interested in your comment about generating mobile EBITDA because it would seem like there's maybe some tension between sort of passing on efficiencies in that business to the consumer through lower prices, which can drive volume and maybe drive broadband volume as it gets pulled through by mobile. But that tension exists versus sort of trying to make as much money as you can in that business. Just wondering if you could comment on how you think about balancing that, particularly as you move more traffic on network.

Operator:

Our next question will come from Vijay Jayant with Evercore. Your line is now open.

Chris Winfrey:

Vijay, can you clarify on your first question a little bit more? I didn't fully understand what you meant by the new first flow. This is Chris.

Tom Rutledge:

Yes, I think the way I would say what I think you're saying is we're a net share taker when there's a toss-up. And there's more toss-ups in -- when people are moving. And so therefore, our gross adds out of moves is higher than -- of all moves is higher than our disconnect rate of all moves. That's what you're saying.

Tom Rutledge:

That's our expectation. With regard to downstreams and upstreams, usage is still significant. 14:1 downstream versus upstream. And so from a practical point of view, our products are appropriate. We think, over the longer term, upstream use will continue, but it isn't actually growing faster than the downstream use at the moment.

Craig Moffett:

I wonder if you could just talk a little bit more about the broadband growth equation going forward, what you expect from broadband ARPU and -- going forward and then how much you think that with RDOF and the early state level Jobs Act awards you've gotten, how much do you think broadband homes passed, and so just how you think about the sort of equation for total broadband growth? And then separately, could you just comment on the degree that you think you can offload wireless traffic? I think you called out your CBRS buildout for the first time in today's materials. What level of traffic do you think you can actually offload onto that network?

Chris Winfrey:

Yes. Craig, on the broadband growth, I'd just add that similar to what we were talking about with Vijay, the market transaction volume eventually is going to pick up. So our Internet net adds will pick up again. We're confident in that. And our recipe for broadband growth has always been about being competitive and price competitive in the marketplace. And we've had new entrants and overbuild for many, many years. So when you asked the question about ARPU, I assume it relates a little bit to competitive. And I don't see a major change there in terms of our strategy and how we go to market or how we need to go to market. In fact, I would argue because of the mobile product and the converged mobile product that Tom was talking about and the ability to put these together and that we can save customers money, significant dollars, that has both good volume and ARPU impacts for broadband over time. So I think the outlook is still very, very strong. .

Doug Mitchelson:

A couple of questions. One, just curious, based on your comment about the test on DOCSIS 4.0, what percent of your footprint is covered at plus 4? And when do you think that equipment will be ready for prime time? And then I guess, Tom, but maybe just a jump ball, I'm just curious when we think about stressing the consumer whether inflation impact in their walls are ultimately Fed interest rate increases impact on the economy and overall consumer spending, where would you expect to see any pressures from the consumer in your business first? Have you seen anything so far? And where would you expect to see it? And I'm just curious if you reflect back, you think about the great recession and consumer walls got tighter and there was some readdressing of pay TV spending and tiering. Do you see across your businesses, any risk of tiering down? And how would you manage against that? So I know not a fun question, but I'm just curious how you think about that given your history.

Jessica Fischer:

The thing that I would add to that, we've been big proponents on the affordability side. And as part of that, we are a larger participant in the affordable connectivity program than many of the other -- well, to the best of our knowledge, all of the other wireline providers. And we've done a lot to try to push the program to our existing subscribers so not as an acquisition program that is a way to alleviate some of the stress on the consumer while it's in our customer base. And I think that, that also puts us in a better position than we would have been in 2008 to retain customers and to do so by providing value to them in a more challenged environment or where the wallet is more challenged. .

Doug Mitchelson:

Yes. And just a final clarification, Tom. At 4 amplifiers for DOCSIS 4.0, I get that it will be a while before it arrives. Would that cover the vast majority of your network? Or would you be invested in seeing 6 amplifiers?

Tom Rutledge:

Yes, it could get better.

Tom Rutledge:

And it probably will. That would be our expectation and our experience with these kind of platforms.

Jonathan Chaplin:

Two quick ones, if I may. First, it seems like wireless is becoming an increasingly important piece of the business. And one of the pieces that maybe investors don't understand so well is how it contributes to EBITDA because, on an aggregate basis, it's still a drag. Can you give us some idea of what the incremental margin is on a wireless level, what the contribution to EBITDA per sub is from wireless, what gives fiber sub? And then on broadband, can you give us a sense of sort of how you saw trends progress as you came out of June into July?

Jessica Fischer:

Volume in June-July.

Chris Winfrey:

Yes. Look, that's a tough question because you've got a seasonal disconnect period that goes through June and July. You've heard me mention earlier that we have had a more return to seasonal disconnects in our college markets, which actually bodes well for August and September, assuming that comes back. I would say that our medium and long-term confidence is very high, will be back market overturn with net activity. Short term, it's just difficult to see with volume and July is a very difficult month to go ask that question. So we'll see.

Operator:

Our next question will come from Bryan Kraft with Deutsche Bank. Your line is now open.

Tom Rutledge:

Well, we've always said we love cable, which is why we've been buying our own stock back because we haven't been able to buy cable. And that it's a great business. And we think that the future of what these assets can do is significant and a huge opportunity. So nothing about our view on M&A has changed .

Jessica Fischer:

No. I mean, I will add to that, that obviously, it has to be cable at attractive prices that will be accretive to the shareholders in the long term. So we're -- we are always out there looking for and looking at cable assets, whether they be small cable assets or others. But ultimately, we do think it has to bring value to shareholders. And so we'll be prudent.

Phil Cusick:

I wonder if we can go back and talk about the progression of broadband through the quarter, and forgive me if this is just too much. In May, we talked about green shoots. And in mid-June, it looked like broadband would be slightly positive I assume it's fair to say that June was worse than expected and the July is probably not trending well. I'm curious if June being worse is bigger seasonality in that type of market or was it worse in the other markets or the underlying business? And then second, if I can, sort of a big picture question. How much do you take competitive response into account when you price a product like wireless? As you price wireless at $30, Verizon responds with $25 broadband, and it seems to be cycling down, is this really the situation you want to create? And do you think you have an advantage in that over time?

Chris Winfrey:

I'll start off on the pricing and then I suspect Tom will chime in as well. The -- to build a question on competitive pricing, of course, we think about not only the moves that we're making but the secondary moves and the market responses. And our pricing for mobile is $29.99 when you take through lines or more. It's very simple. There's no taxes and fees. And it's so long as you have or take broadband of really any kind together with that product. Some of the other offers out in the marketplace mean that on a wireless product, you got to go spend $10, $20 more and then you can get discounted prices on broadband. So when you put the all-in package together, our all in package of broadband plus wireless service is dramatically cheaper, taxes and fees included, and no upcharge on the core service required. It's really attractive. So I think even with some of those responses in the marketplace, which may or may not be related to us, we can be very attractive and save customers thousands of dollars a year with a better product, integrated as a converged broadband product for years to come. The other big benefit is that we have the ability to offer mobile in 100% of our footprint. So we have 54 million passings. We have gigabit service everywhere we operate. We did not red line. We're fully upgraded. We have a path to multi-gig symmetrical services. And in addition to that, we have mobile everywhere we operate at a price point that is very, very competitive with a product that's actually not only the fastest-growing mobile but the fastest mobile service in the country. If you put all that together, and we feel pretty good about our competitive positioning long term.

Operator:

Our next question will come from Peter Supino with Wolf Research. Your line is now open.

Chris Winfrey:

So nothing to announce today, Peter, but clearly, we think a lot about mobile and its ability not only to attach to existing Internet customers, which has been the predominant path so far. But as the market understands better our product, the fact that it is the fastest mobile product in the country and that it's real, that it really does save customers a lot of money, no contracts, no taxes, no fees, I do think there's a really powerful case that we can use to have mobile actually drive significant Internet net adds and particularly in the market with low volume to be able to kick start in volume in the marketplace by using mobile to do just that. So we're constantly testing different concepts in the marketplace. Economically, it's a no-brainer and it makes a lot of sense, but it is a new package structure for educating customers to get them to think about buying a household service and an individual service together so that they can get those savings and they can get that better product, and that may take a little bit of time for us to find the right connection as well as to educate the marketplace. And then the second question, I should have made a note what the second question was on.

Chris Winfrey:

Retail pricing for broadband?

Chris Winfrey:

Our goal has always been to have the best pricing in the marketplace and to the extent that we can withstand some of the inflationary pressures and save customers lots of money with that converged product, which includes both Internet as well as mobile, that's going to be our path. It doesn't mean that we're dogmatic about never taking rate increases when we need to. And so that issue is always available, but our preference has always been to be competitive and value leader in the marketplace.

Kutgun Maral:

A big picture one on broadband. The magnitude of the slowdown in subscriber growth has been fairly meaningful. A lot of the factors like low market activity, comping the pandemic pull forward and competition are pretty well understood at this point. I know there's been an expectation that we'll get some normalization or stabilization with at least some of these issues, but it's just taking a bit longer than we would have hoped for. So I guess with that, is there a sense of greater urgency to reaccelerate that subscriber growth? And based on answer earlier, it seems like you're satisfied with the current retail playbook. But is there a desire to rethink things like accelerating network investments, the rural build leaning even more into mobile or anything else? Or is the view that the long-term opportunity remains intact and we just need to the course and cycle through the current dynamics?

Tom Rutledge:

And there's some execution opportunity, too.

Tom Rutledge:

The pandemic created employment issues for us and operational issues for us that have an impact on our ability to generate orders as well. And so we're aggressively trying to improve our ability to execute.

Operator:

There are no further questions at this time. I'll now turn the call back over to Stefan Anninger. Please go ahead. .

Operator:

Thank you, ladies and gentlemen. This concludes today's event. You may now disconnect.

Stefan Anninger:

Good morning and welcome to Charter's First Quarter 2022 Investor Call. The presentation that accompanies this call can be found on our website ir.charter.com under the Financial Information section. Before we proceed, I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings including our most recent 10-K and also our 10-Q filed this morning. We will not review those risk factors and other cautionary statements on this call. However, we encourage you to read them carefully. Various remarks that we make on this call concerning expectations, predictions, plans and prospects constitute forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management's current view only and Charter undertakes no obligation to revise or update such statements or to make additional forward-looking statements in the future During the course of today's call we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. These non-GAAP measures as defined by Charter may not be comparable to measures with similar titles used by other companies. Please also note that all growth rates noted on this call and in the presentation are calculated on a year-over-year basis unless otherwise specified. On today's call, we have Tom Rutledge, Chairman and CEO; Chris Winfrey our COO; and Jessica Fischer our CFO. With that let's turn the call over to Tom.

Jessica Fischer:

Thanks, Tom. Let's now turn to our customer results on slide five. We grew total residential and SMB customer relationships by 129,000 in the first quarter. Including residential and SMB, we grew our Internet customer relationships by 185,000 in the quarter. We continue to see record low combined competitive and move churn, which has reduced our selling opportunities and very low non-pay churn across our footprint. Similar to the fourth quarter, we saw both lower Internet churn and lower Internet connects than in the first quarters of 2021, 2020 and 2019. And this was true across our footprint regardless of computing technology. Turning to video. Video customers declined by 112,000 in the first quarter. Wireline voice declined by 150,000 and we added 373,000 mobile lines. Despite the lower number of selling opportunities from reduced activity levels, we continue to drive mobile growth with our high-quality attractively priced service. Moving to financial results starting on slide six. Over the last year we grew total residential customers by 674,000 or 2.3%. Residential revenue per customer relationship increased by 1% year-over-year, driven by promotional rate step-ups and video rate adjustments that pass through programmer rate increases. These effects were partially offset by the same bundle and mix trends we've seen over the past year, including a higher mix of non-video customers and a higher mix of low-priced video packages within our base. Additionally, this quarter's revenue was negatively impacted by $20 million in adjustments related to sports network rebates, which we intend to credit to qualified video consumers. These rebates are also reflected in lower programming expense this quarter, with no impact to adjusted EBITDA. Excluding the impact of sports network credit I just mentioned, our residential ARPU grew by 1.2% year-over-year. Also keep in mind that our residential ARPU does not reflect any mobile revenue or video programming pass-through increases announced late in the first quarter. As slide six shows, residential revenue grew by 3.7% year-over-year and by 3.9% year-over-year, when excluding the sports network credit. Turning to commercial. SMB revenue grew by 4.6% year-over-year, reflecting SMB customer growth of 4.4%. Enterprise revenue was up by 3.7% year-over-year. Excluding all wholesale revenue, enterprise revenue grew by 6.5% and enterprise PSUs grew by 5.2% year-over-year. First quarter advertising revenue grew by 11.5% year-over-year or by 5.1% excluding political revenue, primarily due to our growing advanced advertising capabilities. Mobile revenue totaled $690 million with $292 million of that revenue being device revenue. Other revenue increased by 5.2% year-over-year and includes two months of rural construction initiative subsidies totaling $19 million. In total, consolidated first quarter revenue was up 5.4% year-over-year. Moving to operating expenses and EBITDA on Slide 7. In the first quarter, total operating expenses grew by $410 million or 5.4% year-over-year. Programming costs declined by 0.4% year-over-year, due to a decline in video customers of 2.1%, a higher mix of lighter video packages, a $20 million benefit related to sports network rebates that I mentioned and $34 million of other favorable adjustments, much of which was not unique year-over-year. All of that was mostly offset by higher programming rates. Excluding both of the adjustments I just mentioned, programming costs grew by 1.4%. And looking at the full year 2022, we now expect programming cost per video customer to grow in the low to mid single-digit percentage range versus mid single-digits previously. Regulatory connectivity and produced content declined by 7.4%, primarily driven by lower Lakers RSN costs, lower video CPE sold to customers and lower regulatory and franchise fees. The decline in Lakers costs was primarily driven by the delayed start to the NBA season in 2020, which drove more Lakers games charges into Q1 of 2021, making for an easier comparison this year. Excluding the RSN costs from both years, regulatory, connectivity and produced content declined by 5.6%. And for the full year 2022, we expect regulatory connectivity and produced content expense to decline in the mid single-digit percentage range versus 2021, primarily due to lower video CPE sold to customers and lower RSN costs given the abnormal Lakers game scheduled last year. Cost to service customers increased by 5.3% year-over-year. The increase was primarily driven by higher bad debt given unusually low bad debt in the first quarter of 2021 when bad debt was down $100 million versus the first quarter of 2020, benefiting from the government stimulus packages. In fact, payment trends in the first quarter continue to be very good. And excluding bad debt from both years, cost to service customers grew by 1.8%, primarily due to a larger customer base, previously planned wage increases to $20 per hour starting wage, for hourly field operations and call center employees and higher health benefit and fuel costs. As the year progresses, prior year bad debt expense normalizes and should drive meaningfully slower growth in cost to service expense line during the second half of the year. Marketing expenses grew by 10.1% year-over-year due to higher labor costs, driven by previously planned wage increases and temporarily greater staffing levels, as Charter completes the in-sourcing of its inbound sales and retention call centers with a focus on providing better service to new and existing customers. For the full year 2022, we expect marketing expense to grow in the mid single-digit percentage range versus 2021, although marketing expense growth is likely to remain at elevated levels in the second quarter. Mobile expense totaled $760 million and were comprised of mobile device cost tied to device revenue, customer acquisition and service and operating costs. And other expenses increased by 12.5%, primarily driven by a favorable non-recurring adjustment in the prior year period making for a challenging comparison this year and higher labor costs. Adjusted EBITDA grew by 5.4% year-over-year in the quarter. A quick note about inflation before moving on to net income. Certain costs of operating our business such as labor and fuel costs are currently subject to inflationary pressure. But given our previously planned move to a $20 per hour starting wage and our long-term relationships and contracts for goods and services, we haven't yet seen a significant impact on inflation in our P&L. I would also note that our consumers are experiencing inflationary pressure but given the availability of subsidies for broadband and our focus on saving customers hundreds of dollars per year by switching to our converged connectivity product, we believe we are well positioned for the changing market. Turning to net income on Slide 8. We generated $1.2 billion of net income attributable to Charter shareholders in the first quarter versus $800 million last year. The year-over-year increase was driven by a non-recurring litigation settlement charge in other operating expenses for the first quarter of 2021 and higher adjusted EBITDA. Turning to Slide 9. Capital expenditures totaled $1.9 billion in the first quarter just above last year's first quarter spend of $1.8 billion. We spent a total of $232 million on our rural construction initiative in the quarter. Most of that spend relates to design, walk out and make ready and as expected has not yet resulted in significant passings growth. And the vast majority of that spend is accounted for in line extension. We spent $74 million on mobile-related CapEx, which is mostly accounted for in support capital and was driven by investments in back-office systems. As Slide 10 shows,, we generated $1.8 billion of consolidated free cash flow this quarter, a decrease of $55 million or 3% year-over-year. Excluding a one-time litigation payment of $220 million made in the first quarter free cash flow grew by $165 million or 8.9% year-over-year. Please note that in the second quarter we'll begin making quarterly cash tax payments for fiscal year 2022. These payments are consistent with the cash tax outlook that we provided in our fourth quarter investor call. We finished the quarter with $94.9 billion in debt principal. Our current run rate annualized cash interest is $4.4 billion. As of the end of the first quarter our ratio of net debt to last 12-month adjusted EBITDA was 4.43 times. We intend to stay at or just below the high end of our four to 4.5 times target leverage range. During the quarter, we repurchased six million Charter shares and Charter Holdings common units totaling about $3.6 billion at an average purchase price of $600 per share. And since September of 2016, we've repurchased $60.4 billion or nearly 42% of Charter's equity. Our path to continue to grow our business remains strong and we will do that by furthering convergence in our connectivity business allowing us to capture additional share, focusing on expanding our footprint and by continuing to improve the customer experience and extending customer lives. By executing on those items we will drive customer and share growth, free cash flow growth and shareholder value. Operator, we're now ready for Q&A.

Craig Moffett:

Hi. Thank you. Well, I have a few questions, if I could. First, with respect to broadband the pace of homes passed excluding RDOF decelerated a little bit. I'm wondering, if you can just talk about, the rate at which you expect homes passed for broadband to grow and how you think about that as a floor for broadband growth rate going forward? And then with respect to the JV that you announced with Comcast, is there a vision where you take the Flex box and actually make it your primary video delivery platform, where all your video is IP and that you sort of reclaim that capacity? And then finally, one related question Tom. I sort of – I can't resist asking if you just want to comment on password sharing, and a little bit of an I told you so.

Stefan Anninger:

We will take our next question. Thanks.

Jonathan Chaplin:

Hi, good morning guys. Thanks for taking the question. I know traditionally you prefer not to give context around sort of like a forward-looking view of the broadband market. But given that we're just in an environment of heightened uncertainty, I'm wondering if you'd stray from your normal policy and at least give us some more context for what you're seeing from -- in the market generally in terms of the move activity as we came out of 1Q into 2Q. Competition, are you seeing an impact now that's more discernible from fixed wireless broadband? And has that changed over the course of the quarter going into 2Q? And then how should we think about seasonality off of the results that you guys just produced in 1Q, should we think of seasonality through the year as being the normal trend? Thanks.

Chris Winfrey:

Hey, Jonathan, we expected a question along these lines and I have some thoughts. We expected the market to return to normal actually last year including seasonality. So difficult to say. But as Jessica mentioned transaction volume in the market, it remains low particularly move return, which is a key source of net subscriber acquisition for us. There are some facts that put our lower year-over-year growth in context. Our churn rates of all kinds and across all footprint types remains at record lows. The pace of gigabit overlap increases within our footprint, so far has remained consistent with the past few years, despite commentary about acceleration. So we have competition everywhere we operate, and we always have. And our largest wireline competitor had negative residential wireline net additions in the quarter, where we continue to grow. So compared to last year's first quarter with already low market activity, our gross addition rate in the first quarter of this year was lower in both overbuild and our non-overbuild footprint by the same amount. Together with record low churn, this illustrates the biggest driver remains lower selling opportunities from overall market activity and churn. Jonathan, there are additional factors which could also contribute to lower gross addition rates. First, lower household growth rates, Tom just talked about, which we along with others have seen. There's still a lingering pull-forward effect from the shift to our higher-quality broadband during the pandemic. It comes from DSL, VDSL and mobile-only customers, which accelerated the conversion rates of that same base, which we would have seen today. Finally, the mix-related impact of a small increase and more competitive overlap on gross addition rates would be the smallest contributor, and really no different than what we've seen in the prior years. We do not see -- I know, it's a question. We don't see direct impacts from fixed wireless access in our churn or our gross additions. So does that mean could fix wireless access be converting DSL and mobile-only customers that would normally come to us? It's possible and it would be hard to see it load volume across our entire footprint. But we would see that as a potential parking lot for conversion to our faster, more reliable and more ubiquitously marketed and deployed broadband offering. So we take all competition seriously and it's not new for us. But I don't believe fixed wireless access is having any material impact on us today when compared to the factors I mentioned. So, overall activity levels remain low, and we will trial different tactics to stimulate more competitive churn, but market activity and move return will return. And when it does, we expect our Internet net addition rate to normalize. Our already very strong mobile line growth should get even better with higher attach and upgrade rates to the fastest and really the only real converged Internet product in our footprint that also saves customers significant money. As Tom mentioned, our various construction initiatives should provide a larger recurring footprint expansion for customer acquisition, as we get to the end of this year. So I don't have a guidance or an outlook. But I think those are the biggest drivers of what we're seeing today and hopefully that's helpful to the question you asked.

Chris Winfrey:

Yes.

Operator:

Your next question will come from Brett Feldman with Goldman Sachs. Your line is open.

Tom Rutledge :

Yes. Well, I think the -- Brett the answer to your question is we will use those tactics that make economic sense to us to drive our business and to drive our relationship growth in this mobile broadband space. And the -- as I said in my comments we have very good growth and we have greater growth than the rest of the mobile industry currently. So, we're on track and doing the right things currently from a marketing perspective and we think we can accelerate that growth. So, there are various tactics that you see people who sell wireless do and they're all related to trying to create a value proposition for customers and some of them cost more than others. Fundamentally, we think that our CBRS and our WiFi offload continue to allow us to have low-cost mobile products with high capacity available to our customers which gives us the ability to sell those products at value propositions for consumers, which ultimately is what we think drives our ability to shift -- drive market share. So we -- I don't put any marketing tactic on the side and say we won't do it or because we're not doing it today we won't do it in the future. But our fundamental strategy is to use our network effectively and provide a high-quality best-in-class service better than anyone else in fact right now in terms of speed capability and sell that for a lower price. And we think that that value is what consumers will ultimately recognize. How we package that up in various marketing tactics I think is open to what is successful. And we constantly experiment with marketing tactics to see what resonates best. But we think the core concept is the driver of our opportunity.

Brett Feldman:

Thank you.

Operator:

Your next question will come from Phil Cusick with JPMorgan.

Tom Rutledge:

No, it's not -- it's mid this year. If I said that, I didn't mean it. It's mid-2022.

Tom Rutledge:

Yes Jess?

Phil Cusick:

Great. Thanks very much guys.

Operator:

Your next question will come from Jessica Reif Ehrlich with BofA Securities.

Tom Rutledge:

Well, the opportunity Jessica is to create advertising revenue and to create transaction revenue on the product. And so those are the money drivers. And that requires obviously having full set of content opportunities and using your IP and your marketing skills in the digital space to drive consumer activity and viewing. And so that's the opportunity from the platform from a monetization perspective. Our capital commitment we haven't disclosed that. But it's in the grand scheme of things from a development point of view it's relatively minor, especially when you consider the CPE business that we've always been in where we've actually had to buy CPE. This in many cases will be a retail product. So -- and lastly…

Tom Rutledge:

Yeah.

Tom Rutledge:

Yeah. We don't manage the margins. We managed to return on investment. And so we try to generate as much cash on each asset that we deploy as we can and has really nothing to do with margins when you have a mix of products with different kinds of margins in them. And so it's only in a static environment that a margin relative -- relative margin has any value as an analysis tool in our -- from our point of view.

Tom Rutledge:

Exactly.

Jessica Reif Ehrlich:

Okay. Thank you.

Operator:

And your next question will come from Doug Mitchelson with Credit Suisse.

Chris Winfrey:

Hey, Doug, this is Chris. Look for competitive reasons I don't want to go deep into the remaining broadband penetration. People have statistics. They know what's out there. There's still a sizable opportunity for us to grow the market which Tom talked about. And in terms of DSL, it's declining but there's still a decent base. You really need to think about not just DSL but really the VDSL. That's really the new DSL. I talked a little bit about to the extent that fixed wireless access is building up potentially in the areas that we're moving into from a rural perspective, that's in the future DSL pile or parking lot of subscribers that we can go acquire. So it's DSL today, it's VDSL and it's inferior broadband product relationships that are getting created today that provides that fuel for growth for us in the future from a mix standpoint.

Chris Winfrey:

Yes we see churn down in both types of footprints at a similar amount and we see the almost – well not almost the exact same reduction in gross addition rate in both overbuild and non-overbuild footprint, which really completely validates that this isn't a competitive phenomenon that you see in the marketplace. It's the market activity a low-mover churn environment. And we're stimulating in a lot of different ways and some of that will have some success but the bigger driver will just be when the market starts to normalize. So yes, you understood it correctly.

Doug Mitchelson:

Great. Thank you. And the last question I wanted to get to and I appreciate you taking the questions. Competitors have a variety of pricing and go-to-market strategies for broadband and mobile. And you actually have I think a difference yourself on how you would build a broadband customer and how you might build a wireless customer. I think wireless no contracts and no taxes or fees. How are you thinking about evolving your pricing strategies if at all either in response to competitors or because you're finding more optimal ways to serve your customers?

Doug Mitchelson:

All right. Understood. Thank you, all.

Operator:

Your next question will come from Vijay Jayant with Evercore. Thanks.

Tom Rutledge:

Jessica, you want answer the bad debt question?

Tom Rutledge:

And with regard to video, why we're somewhat of an outlier, we try hard for one thing. And again, we try to put value where we can for the consumer and think that, there's still opportunity in video. And one of the things that we had success with is, the creation of additional packaging and the mix of video products that we actually sell to consumers. And we're continuously improving the right structures around what we're able to sell. And it's been difficult because of the way historically video has been packaged in this very fat expensive bundle that's driven by sports rights costs. And as we've been able to get some of the content out of that, the ecosystem, and put into tiers and we're successfully selling those. And I think over time, we'll be able to build a very nice video business.

Stefan Anninger:

Thanks Vijay. Peter, we’ll take our next question, please.

Ben Swinburne:

Thanks. Good morning. Tom and Chris, I had a couple of related questions around competition in broadband. I think in -- I'm not telling you anything you don't know. I think investor sentiment on cable is probably as poor as it's been since like maybe the mid-2000s when you were getting overbuilt by Fios and U-verse, particularly at Cablevision. Tom, do you see corollaries today to that period when you were running Cablevision and Verizon was building its network across half the footprint and how you compete and sort of navigate that overbuild? And then, one thing that's happening, I'm sure you guys are aware, there's a lot of sort of Tier 2 fiber overbuilds happening around the country. I'm sure there's some in your footprint. They're not massive, but a lot of private equity funded builds. We usually don't see cable companies acquire infrastructure assets in their footprint, at least in the US. I'd just be curious if you think that's long term what happens here, or not, for reasons that might be obvious, because it would seem that there's a lot of capacity being built now on the wireline side. And there will need to be some rationalization, at least in some geographies long term. Thanks for the thoughts.

Chris Winfrey:

Yes. I'd add to that Ben. You've seen it as well around for a while. The history of these tertiary overbuilders is pretty demonstrated as well. And my experience is they all start out with a rosy story and they get a lot of capital going in. And the early penetration is, because there's something new and environment starts to look good. And as long as you can sell fast enough you can do okay as a return. But the history is that they all go bankrupt and they end up having to be recapitalized. And so I think there's that repeat that takes place every so often in the marketplace. And so you see some of that. And our job is just put our head down and be competitive like we always have and go dig out customers and continue to develop products pricing and packaging that people can't replicate. So like Tom I'm about as optimistic as you could be about where the business continues to go.

Tom Rutledge:

I was optimistic last year and I was optimistic the year before that and still am.

Tom Rutledge:

Thanks Ben.

Stefan Anninger:

Thanks Ben. Peter, we’ll take our last question, please.

Michael Rollins:

Thanks, and good morning. Just to follow-up on a couple of things. First, just curious if you could share more of the timetable on the pace of broadband network upgrades for certain percentages of your coverage footprint, when you think of the opportunity to increase upload speeds as well as to expand download speeds? And then secondly, as you consider a number of factors, rate environment, stock price, the company's view of forward growth under what circumstances would you revise the current capital allocation plan and take net debt leverage targets higher or lower? Thanks.

Tom Rutledge:

And in terms of the pace of upgrades, we're actually doing multiple upgrades in various parts of the country right now. And we're pacing ourselves in such a way that we're learning how to do it really effectively. The interesting thing about our capacity to do these upgrades is that they're quite simple electronic upgrades. They're relatively inexpensive and we can do them rapidly across as much of our footprint as we need to do. And we're just actually putting ourselves in a position right now so that we can execute at the pace we need to execute given where the demand for that kind of capacity will exist. And we haven't really forecasted that publicly in terms of how fast we're going to do that.

Operator:

This concludes today's conference call. Thank you for participating. You may now disconnect.

Stefan Anninger:

Good morning, and welcome to Charter’s fourth quarter 2021 investor call. The presentation that accompanies this call can be found on our website, ir.charter.com, under the Financial Information section. Before we proceed, I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, including our most recent 10-K filed this morning. We will not review those risk factors and other cautionary statements on this call. However, we encourage you to read them carefully. Various remarks that we make on this call concerning expectations, predictions, plans and prospects constitute forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management’s current view only, and Charter undertakes no obligation to revise or update such statements or to make additional forward-looking statements in the future. During the course of today’s call, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. These non-GAAP measures, as defined by Charter, may not be comparable to measures with similar titles used by other companies. Please also note that all growth rates noted on this call and in the presentation are calculated on a year-over-year basis unless otherwise specified. On today’s call, we have Tom Rutledge, Chairman and CEO; Chris Winfrey, our COO; and Jessica Fischer, our CFO. With that, let’s turn the call over to Tom.

Jessica Fischer:

Thanks, Tom. Let’s turn to our customer results on Slides 6 and 7. Please note that we will continue to reference COVID-19-related financial impacts from 2020 and included again on Slides 19 and 20 of today’s presentation to help with year-over-year financial comparisons. We grew total residential and SMB customer relationships by 120,000 in the fourth quarter and by 939,000 in the last 12 months. Including residential and SMB, we grew our Internet customers by 190,000 in the quarter and by 1.2 million or 4.2% over the last 12 months. Although our Internet customer growth remained strong in the fourth quarter, the business environment in which we are operating has not yet normalized. Similar to the third quarter, we saw both lower Internet churn and lower Internet connects than in fourth quarters of 2020 and 2019. Turning to video. Video customers declined by 58,000 in the fourth quarter. Wireline voice declined by 154,000, and we added 380,000 mobile lines. As of the end of the fourth quarter, we had 3.6 million mobile lines. And despite the lower numbers of selling opportunities from cable sales, we continue to drive mobile growth with our high-quality, attractively priced service rather than using device subsidies. Moving to the financial results, starting on Slide 8. Over the last year, we grew residential customers by 847,000 or 2.9%. Residential revenue per customer relationship increased by 2% year-over-year driven by promotional rate step-ups, video rate adjustments that pass through programmer rate increases and $22 million of COVID-related impacts in the prior period. These effects were partly offset by the same bundle and mix trends that we have seen over the past year, including a higher mix of non-video customers and a higher mix of lower-priced video packages within our base. Additionally, this quarter includes $31 million in adjustments related to sports network rebates, which we intend to credit to qualified video customers. These rebates are also reflected in lower programming expense this quarter with no impact to adjusted EBITDA. Also keep in mind that our residential ARPU does not reflect any mobile revenue. As Slide 8 shows, residential revenue grew by 5.1% year-over-year, reflecting customer relationship growth and ARPU growth. Turning to commercial. SMB revenue grew by 5.8%. This growth rate reflects COVID-related impacts of $8 million that negatively impacted the fourth quarter of 2020. Excluding this impact from last year, SMB revenue grew by 4.9%. Enterprise revenue was up by 3.2% year-over-year. Excluding all wholesale revenue, enterprise revenue grew by 6.1%. And enterprise PSUs grew by 5.3% year-over-year, a bit faster than last quarter. Fourth quarter advertising revenue declined by 28.2% year-over-year primarily due to strong political revenue in the fourth quarter of 2020, partly offset by COVID impacts last year. When compared to the fourth quarter of 2019, advertising revenue increased by 3.3% primarily due to our growth in advanced advertising capabilities, partly offset by local – lower local ad revenue, particularly automotive. If you exclude automotive, fourth quarter advertising revenue grew by 13.3% over the fourth quarter of 2019. Mobile revenue totaled $632 million with $266 million of that revenue being device revenue. Other revenue declined by 6.2% year-over-year driven by lower levels of CPE sold to customers. In total, consolidated fourth quarter revenue was up 4.7% year-over-year. And when excluding advertising, which benefited from political revenue in the fourth quarter of 2020, revenue grew by 6.4%. Moving to operating expenses and EBITDA on Slide 9. In Q4, total operating expenses grew by $203 million or 2.7% year-over-year. Programming costs decreased by 0.5% year-over-year due to a decline in video customers of 2.3%, a higher mix of lighter video packages, a $31 million benefit related to sports network rebates that I mentioned earlier and $19 million of other favorable adjustments, all of which was partially offset by the high – by higher programming rates. Excluding both of the adjustments I just mentioned, programming costs grew by 1.2%. Looking at the full year 2022, we expect programming costs per video customer to grow in the mid-single digit percentage range. Regulatory, connectivity and produced content grew by 11.3% primarily driven by higher Lakers RSN costs, partially offset by lower original programming costs and regulatory and franchise fees. The Lakers cost growth was primarily driven by the delayed start of the NBA season in 2020, which drove fewer Lakers games charges in Q4 of 2020, making for a challenging comparison to this year. Excluding RSN costs from both years, regulatory, connectivity and produced content declined by 3.5%. Cost to service customers declined by 0.5% year-over-year, compared to 3% customer relationship growth. The decline was driven by lower transaction costs, mostly offset by previously announced wage increases, which will ultimately provide all hourly employees at Charter a starting minimum wage of $20 per hour by the end of the first quarter. Marketing expenses grew by 4.3% year-over-year. Mobile expenses totaled $724 million and were comprised of mobile device cost tied to device revenue, customer acquisition and service and operating costs. And other expenses declined by 6.5% driven primarily by lower advertising sales expense year-over-year, given the decline in political ad revenue this year and a one-time corporate cost in the prior year period. Adjusted EBITDA grew by 7.7% year-over-year in the quarter. Turning to net income on Slide 10. We generated $1.6 billion of net income attributable to Charter shareholders in the fourth quarter versus $1.2 billion last year. The year-over-year increase was driven by higher adjusted EBITDA. Turning to Slide 11. Capital expenditures totaled $2.1 billion in the fourth quarter, in line with last year’s fourth quarter spend, although the components of that spend were a bit different. Upgrade and rebuild grew by $66 million year-over-year due to plant replacement in those portions of our footprint that were damaged by Hurricane Ida. Scalable infrastructure spends declined by $45 million, given a stabilized level of network traffic growth and investments made earlier this year. We spent $127 million on mobile-related CapEx, which is mostly accounted for in support capital and was driven by investments in back-office systems and mobile store build-outs. For the full year 2021, cable capital intensity was lower than in 2020 and in line with our outlook. As we look to the full year 2022, we expect cable capital expenditures, excluding capital expenditures associated with our rural construction initiative, to be between $7.1 billion and $7.3 billion. We hope to spend about $1 billion in 2022 on capital expenditures related to our rural construction initiative or our construction within census block groups that are defined as rural. That spending includes our RDOF and other subsidized rural construction projects such as ARPU-related bills and spend associated with extending our plant to rural homes adjacent to our subsidized builds that our network does not reach today. We may not reach that targeted spend given a number of factors, including pull permitting and equipment and labor availability. Conversely, we continue to bid on additional broadband stimulus projects that could increase 2022 capital spending for overall construction initiative. Given the variables, our actual rural construction initiative spending may differ meaningfully from our target. As Tom mentioned, the expansion of our footprint into rural areas will help us drive additional customer growth and financial returns. And we view our rural construction initiative as similar to or equivalent to acquiring a rural cable operator. We plan to begin disclosing additional operating information associated with our rural construction initiative in 2022. Turning to mobile. We expect our full year 2022 mobile capital expenditures to be about $100 million less than our full year 2021 mobile capital spend, which totaled $482 million. Our 2022 mobile capital spend will consist primarily of back office system spend, the start of our CBRS small cell construction and some additional store build-out. We will continue to update you on our capital spending expectations as the year progresses. And as always, if we find new core cable, rural or mobile projects with attractive ROIs, we’ll pursue them even if that means spending capital above our stated outlook. As Slide 12 shows, we generated nearly $2.3 billion of consolidated free cash flow this quarter, an increase of about $200 million or 10% year-over-year. We finished the third quarter with $91.2 billion in debt principal. Our current run rate annualized cash interest pro forma for financing activity completed in January is $4.2 billion. As of the end of the fourth quarter, our ratio of net debt to last 12-month adjusted EBITDA was 4.39 times. We intend to stay at or just below the high end of our four times to 4.5 times target leverage range. During the quarter, we repurchased 7.6 million Charter shares and Charter Holdings common units, totaling about $5.3 billion at an average price of $702 per share. For the full year 2021, we purchased 25.3 million shares at an average price of $683 per share for a total spend of $17.3 billion. And between September of 2016 and December of 2021, we have repurchased $56.8 billion or about 40% of Charter’s equity at an average price of $452 per share. Turning briefly to taxes. We expect to become a meaningful cash taxpayer in 2022. Subject to any corporate tax rate changes for the years 2022 through 2024, we expect our federal and state cash taxes to be approximately equal to our consolidated EBITDA less capital expenditures and cash interest expense multiplied by 23% to 25%. We expect the cash tax rate in 2022 to be in the mid-to-high teens range – percentage range, given some of our tax attributes that have carried over from 2021. Those estimates would include partnership tax distributions to advance new house that are captured separately in cash flows from financing in the financial statements. There are multiple pull factors that impact what I just described, and we’re always looking for ways to improve our cash tax profile. So, we’re looking forward to the rest of 2022 as we remain well positioned to succeed and grow given strong demand for our products, which is why we continue to aggressively build out more broadband passings and ensure that our network remains state of the art. Our well-proven strategy, which offers customers the highest quality products at very attractive prices drives customer and share growth, free cash flow growth and shareholder value. Operator, we’re now ready for Q&A.

Doug Mitchelson:

Thanks so much. I guess two questions. First, any update on momentum in the broadband marketplace and how you feel the market is trending in terms of the competitive environment versus the market-related slowdown that you guys have been highlighting? And then secondly, just sort of structurally as you sit back and think about your wireless strategy, obviously, a lot of success in the fourth quarter. And Tom, you talked about wireless a lot in your prepared remarks. I think there’s sort of two dynamics that your big wireless competitors would know. One is owners’ economics across wireless and wireline for two of your competitors. And then secondly, how do you manage wireless customers when it’s time for them to get a new phone when the wireless companies are waving a free new iPhone under their noses? Thank you so much.

Tom Rutledge:

And Doug, with regard to wireless competitive dynamics, I think that our pricing structure and the monthly recurring fee piece of the pricing value equation is superior net-net to what our competitors are offering. And we’re getting some traction with that. And of course, that’s combined too with our superior broadband product and the continued investment we make in our broadband product in terms of its capabilities and how we make the wireless product work with our wireline product through the mobile speed boost technology opportunities and other technology opportunities that we have all affect the price value relationship that we’re presenting to the customer. But it’s true that replacement phones are being given away in the marketing strategies of our competitors, and we haven’t done that. And I think customers will have to – they’re currently making the evaluation that we have a good product, and they’re buying our product. But I think it’s really our challenges to make sure that the customers’ perception of value is appropriate, and that’s our marketing and branding strategy. But if we need to change our competitive posture, we can. I don’t see – I think what we’re doing right now is the best strategy for us, but it doesn’t preclude us from future strategies. But the fundamental value proposition that we’re providing is superior service, a fully packaged communication service everywhere we operate, which none of our competitors do and making that a better value and driving customer relationships by having better products and services. And the deeper we penetrate, the lower our costs. And the lower our costs, the better the value we can provide.

Stefan Anninger:

Thanks, Doug. April, we’ll take our next question please.

Jonathan Chaplin:

Thanks. Two questions. First, Tom, the – 27% of the total connectivity market today. Taking a sort of a very long-term view, if we look at the market in its end state, what do you think your fair share of that total revenue opportunity is? And what are the margins for an integrated infrastructure asset look like when we get to that end state? And then looking more near term, there’s been a lot of investor concern recently around the impact to future ARPU from some of the competitive entry that we’ve seen from fiber a bit more so from fixed wireless broadband. Can you give us just some insight into what you’re seeing around pricing dynamics in new fiber build markets? And then how you think about Verizon offering a $30 product over wireless? Thank you.

Chris Winfrey:

The second question, I’ll start, and then others can chime in. The question was regarding ARPU pressure in competitive markets. And Jonathan, you know that over the years, our strategy has always been about providing high-quality service at an attractive price in the marketplace, first and foremost, so that we could grow faster. And that’s always worked for us. But secondly, it makes our markets less attractive from an overbuild situation and puts us in a different position today as we sit in our markets with very competitive prices already on the entire base. So that’s how we think about our positioning in the marketplace. It hasn’t changed. We have a retail strategy and standard pricing across our entire footprint. We react competitively as needed in the marketplace, but we already have attractive prices. We have great service. And we have a product combination that Tom was just talking about that our competitors can’t replicate in all of our passings, which is the ability to extend that good broadband service that we have, together with an integrated mobile and converged Internet product over time. And we have the ability to upgrade our network at a faster pace and lower cost than any of our competitors across all of our passings, not just cherry picking where we think it’s most attractive demographically. That’s how we think about the marketplace in the past. And I know others have always said the investment community, should you take rates up? That hasn’t been our strategy. Our strategy actually works very well in this type of marketplace as well.

Chris Winfrey:

And what Tom said is, what I said as well earlier is that’s across all competitive footprints, all geographies. Jonathan, you asked this other question about fixed wireless broadband. I know you’ve written on it in the past, and we agree with you that the utilization of scarce resources and Spectrum or somebody else’s densification to get a one out of 50 type return on the utilization of your asset, which is what happens with fixed wireless broadband applications versus mobility, we agree with that. You’ve written about it. I know Craig wrote about it a couple of weeks ago in a pretty concise way. And there wasn’t anything in there that we actually disagreed with. And you’ve made the point yourself previously, and we think that’s right. And we think that’s going to become pretty evident to most everybody over time.

Jonathan Chaplin:

Thank you.

Ben Swinburne:

Thank you. Good morning. First, a question on the network and high splits. I think, Tom, you said – I think it was Tom talked about spending some capital on that this year. I think that’s inside of the $7.1 billion and $7.3 billion. So just maybe you could help us with kind of sizing that investment, either qualitatively or quantitatively? And sort of how much of the footprint do you expect to impact with that technology deployment, and what it does competitively or from a product point of view? And then I just want to come back to wireless. I know you guys have been working hard to put the pieces in place to sort of be more aggressive in the marketplace. Are we there now? Or is there more as you look into 2022 that you’re going to do on the wireless side, whether it’s billing system-related or sales channel-related or something else that can offer an opportunity to even further accelerate what obviously has been a pretty impressive acceleration over the last few quarters.

Chris Winfrey:

You asked about other developments. The deeper deployment of our advanced in-home WiFi, which includes giving customers more control over their WiFi in the home, the deeper deployment of that across our base as well as more functionality that will be applied there. Tom mentioned as well the mobile speed boost as well as a way to enhance the value of this converged offer that we have. So there’s a number of product development pieces that are in the pipeline that are going to continue to add value. Obviously, the CBRS test this year, which Tom also mentioned, that’s a market rollout. But that’s not going to be across our entire footprint just yet. So, I wouldn’t hang too much on that just for 2022. But there’s a lot of development that’s in the pipeline to continue to make this product better than our competitors and more integrated.

Stefan Anninger:

All right, thanks Ben. April, we’ll take our next question please.

Craig Moffett:

Yes. Hi, guys. A couple of questions, staying with wireless for a minute. First, can you just talk about the wireless sale? That is, are you primarily selling at the time that people move, and they’re establishing a relationship with Charter for broadband and other services, and you’re selling that as a bundle? Or are you selling into existing broadband subscribers? And then second, as I think about the offload that you’ve already achieved, can you just talk about the kind of margins that you think you can get to in this business? And how much traffic you think you’ll be able to fully offload so that relative to a traditional wireless customer at one of the three majors, how much lower you think the cellular usage for your customers might be relative to those competitors as a benchmark?