Q1 2020 Earnings Call
Ladies and gentlemen, please standby. This is the operator todays conference is scheduled to begin momentarily until that time your lines will be again play Suning musical. Thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by.
And welcome to charters first quarter Twentytwenty investor call.
Our first time, all participants are in listen only mode. In our two speakers presentation, there will be a question and answer session.
Yes. Good question during the session you'll need to press star one on your telephone.
Please be advised that today's conference is being recorded.
If you require further assistance please press star zero.
I'd now like to hand, the conference over to your Speaker today definitely manager. Please go ahead, good morning, and welcome to charters first quarter 2020 investor call. The presentation that accompanies this call can be found on our website I, our Dod chartered dot com onto 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 FCC filings, including our most recent 10-K and also our 10-Q filed this morning.
We will not review those risk factors another cautionary statements on this call. However, we encourage you to read them carefully.
These 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 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'll 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 measure is it similar titles used by other companies.
Also note that all growth rates noted on this call. It 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 CFO with that let's turn the call over to Tom.
Thank you Stephanie first on behalf of all of US a charter let me express our concerns for those been impacted by the Coke 19 crisis.
Communities, we serve as we indoor together, an extremely serious health social and economic crisis.
Hard work dedication of charters 95000 employees, it's been a remarkable.
All proud of how we're serving our customers at this time.
It is employees are in trucks in the field call centers.
Dispatched work operation centers their homes and retail stores.
Where we provide customer equipment numerous support functions and enable our company to service our customers.
We remain focused on our customers in communities and we've been able to deliver our connectivity services without interruption to our customers Cross country.
You know our role as a provider of communication services and the importance of keeping kind of can be services fully functioning, both new and existing households and businesses.
Which enables social distancing, including remote working distance learning Telehealth services family Communications.
In mid March as part of our effort to keep American connected during this crisis, we pledged to do a number of things we committed to offer spectrum Internet for free for 60 days to households, with students regimen leaders, who do not already have a spectrum internet subscription.
We recently announced that we were extending the availability this offer through June thirtyth.
As of March 31st we added approximately 120000 customers connected under this offer with many more installed in April I knew the school year. We expect that this offer will have helped approximately 400000 students and teachers and their families continue schooling through <unk> learning.
60 days, we also committed to suspend collection activities not terminate service for residential or small and medium business customers. We're experiencing cobot 19 related economic challenges. We also extended the availability of this offer to June thirtyth nationally.
Opened our Wi Fi hot spots across our footprint for public use and we prioritized over 1000 request from government health care and educational institutions for new fiber connections bandwidth upgrades new services that includes major hospital groups and the to U.S. naval hospitals.
In New York and Los Angeles.
Spectrum News has opened its web sites to ensure people have access to high quality local news and information.
But also donated significant airtime to one public service announcements were full footprint.
16 million video subscribers.
Charter provides a central service and we've been working to keep America connected working in learning while at the same time protecting our employees.
To the guidelines and our call centers that enhance social distancing between employees, including enabling a significant percentage those employees remote work.
So altered our field operations protocol by aggressively moving to customer self installation. So while we continue to operate at nearly fully capability, we're taking the necessary precautions to promote the safety our employees.
We're also providing our employees with outstanding benefits, we've implemented an additional two weeks of paid sick time for coping related illnesses well when we asking employed itself corn team.
We've given every employee an additional 15 days coping 19 related flex time to address other co bid related issues, including Karen could should do children independence.
In early April we increased our wage for all hourly field operations and customer service calls for employees by $1.50 per hour back to February.
Also committed to raising our minimum wage for hourly workers to at least $20 an hour over the next two years.
We're paying.
Poison parts of our business like residential and that's.
Smbs direct sales is work has been put on hold and to reinforce our commitment to employees, we announced that for 60 days no employees will be laid off for fertilizer.
We have a great business with employees committed to our mission that will ensure that we're able to excel through the eventual economic recovery.
We continue to perform well operationally well through the end of Q1 and now in first quarter. We added 580000 residential and SMB Internet customers, we had a good quarter driven by demand for higher quality products. We also saw an increase the number of residential and business customers.
Upgrading their speed.
Our ability of provision the outsized demand we saw in the corner. It's been resulted the investments that we've made over the last several years in our Insourced, an onshore high quality workforce significant systems integration and automation, our online and digital sales in self service platforms and our self installation program.
In fact, we accelerated the expansion of our customer self installation from 55% of sales at the beginning of the quarter nearly 70% at the end of the quarter to over 90% today data usage and traffic on our network also grew significantly during the quarter in March residential data usage for.
No not only customers was over 600 gigabytes per month.
Up over 20% since the fourth quarter, our customers are benefiting from a continually decreasing price per gigabyte.
Peak traffic levels remained well below maximum capability.
Our network as well as those of other cable operators U.S. have performed better than networks and other countries because a significant investments we've made and continue to make in our plan like the recent roll out of one gig everywhere. The pro investment regulatory climate has made this possible over.
Over the coming years, we'll invest in our network as we built the lower density in rural communities and pursue our 10 GE plan, which provides a cost efficient pathway rust off for multi gigabit speeds.
Lower latency, hi, compute services to consumers and businesses customers.
Our inside out strategy, we will continue to use and develop small wireless cells powered by our network together with our EMV you know, it's connect customers and beyond the home delivering our throughput and economics for customers and fixed American mobile environments.
Our strategy when there will be enhanced by the FCC recently, freeing up 1200 megahertz of six gigahertz spectrum for wildfire.
The fccs actions, a transformational step toward broadband America. It was a bold move and we look forward to making significant use of the spectrum.
Moving back to Q1 results. We also performed well from a financial perspective during the quarter. We grew adjusted EBITDA by 8.4% and combined with our lower cable capital expenditures are first quarter free cash flow grew by over 100% year over year.
As we look forward, we would expect that demand for our residential broadband product remains strong as people work and learn from home and need to stay connected.
Broadly speaking the health of our residential business will be impacted by what happens to unemployment and income and how long and the impact that such factors will have on customer's ability to pay for service in the coming months, including government support the consumers.
Slowing household formation May also play a role and our ability to drive new customer growth by slowing activity for both new sales and also churn.
We also recognized at the recent strengthen video and wireline voice trends, maybe temporary do lockdowns in reverse and an economic downturn.
So our SMB business is more difficult.
We serve approximately 2 million SMB customers and many of those customers are currently closed at least temporarily as a result, SMB customer growth in revenue growth will be lower than our previous expectations.
It will likely take time for this part of our business recover, but it will and maybe with a faster growth rate than before the crisis I expect our enterprise business to remain more stable than SMB enterprise customers are larger and most but not all will be able to stand the recession more than smaller businesses that have less liquidity, but our expectation.
As for enterprise customers and revenue growth have also been temper.
As enterprise customers of complex products are less likely to switch grant installation access in this environment.
Our advertising business is inherently local and primarily supported by small and medium businesses, which have been hurt in the crisis, but we still expect political advertising to be meaningful.
Which will help us, particularly in the back half of the year.
So clearly our revenue growth rate will be less than what we anticipated but.
Service transactions and sales slope of the market as a whole and customer adoption of self service accelerates. There are number of operating cost improvement capital expenditure delays that will help cash flow growth now and in the future. We also believe that on a relative basis, we're not far better positioned than most companies there's the value.
Demand for services significant and we're operating efficiently and serving our communities well as we always having a crisis.
Chris will cover the potential impacts to our 2020 financials.
And reporting in more detail, but I want to be clear that well, we don't know the depth and duration of the economic impacts.
Social dispensing with pressure tested our business model.
Liquidity and balance sheet through various scenarios our analysis confirms what we have always believed that we remain well position overall, we fully expect to be in good shape over the long term and we believe our business will continue to do very well given the assets and products, we have and the continued investment in those assets our customers.
Our employees.
Before turning the call over to Chris I'd like to think charters employees for their hard work and dedication and diligence through this crisis they've been asked to go.
Well above and beyond the regular their regular duties and they delivered easing the strain for millions of families.
Positive feedback we've received from our customers very gratifying.
And we continue to treat our customers with respect compassion support continued to deliver great products and services will come out stronger on the other side of this crisis, we still have lot of work in front of us I'm heartened by how we present to the challenge and know that we'll continue to deliver for our customers him for American regardless what comes our way we'd also like to.
So my regards and best wishes to all of those listening to this call may you and your family's remain safe and healthy now overturned the I'll turn the call over to Chris.
Thanks.
Our first quarter results were strong in reflect where we were heading as a company before the corporate banking crisis started here in the U.S. a residential customer relationship net additions increased versus the prior year in each month of the first quarter and we were driving increasingly efficient operations, given our customer friendly operating strategy and growing our free cash flow quick.
Okay.
Residential revenue grew by 4.2% to quarter, primarily driven by accelerating relationship growth. It's similar PS you bundle and video mixed trends, we've been seeing over several quarters.
SMB revenue grew by 5.4% enterprise revenue declined by 3.2% year over year, driven by the sales now the site and by continued pressure from the wholesale side of business.
Excluding those cell tower backhaul and at the site enterprise grew by 6.9%.
First quarter advertising revenue grew by 5.7% driven by political.
In the month of March Nonpolitical advertising revenue declined by 18.7% year over year, primarily due to covert 19 related softness, including the abrupt postponement of sporting events.
Mobile revenue totaled $258 million with $131 million adapting device revenue.
Total consolidated first quarter revenue was up 4.8% year over year.
Moving to operating expenses in the first quarter total operating expenses grew by $191 million were 2.7% year over year.
[noise] cable operating expenses, excluding mobile grew by 1.1% year over year for 1.7%. Excluding now the site, that's despite faster relationship and revenue growth.
Programming increased airport, 9% year over year, reflecting the same great volume and mix considerations that we've seen and talked about in prior quarters and we also had over $20 million nonrecurring programming benefits this quarter.
Regulatory connectivity and produced content expenses decreased by 1.7% year over year, driven by lower regulatory fees and a $20 million benefit from the timing of sports rights payments.
Cost of service customers increased by 1.4% year over year compared to 4.5% customer relationship.
That expense includes roughly $30 million for recently extended <unk> accelerated hourly wage increases and cobot 19 benefit as well as $25 million of incremental estimated bad debts for cobot impacts as of March 31st.
Excluding bad debt expense in both years Q1 cost to service customers declined by 0.7%.
We continue to meaningfully lower our per relationship service cost cable marketing expenses increased by 4.2% year over year, driven by higher labor costs in commissions and mobile expenses totaled $374 million and they were comprised of mobile device cost tied to device revenue.
Customer acquisition, and MD energy usage cost.
Operating expenses.
In total we grew adjusted EBITDA by 8.4% into quarter, when including our mobile EBITDA loss of $116 million cable adjusted EBITDA grew by 8.1%.
We generated $396 million net income attributable to charter shareholders, and first quarter and capital expenditures totaled $1.5 billion.
We generated $1.4 billion, a consolidated free cash flow and excluding or investment in local we generated $1.6 billion, a cable free cash up about $700 million versus last year's first quarter.
During the quarter, we repurchased 5.2 million charter shares and charter holding common units totaling about $2.6 billion at an average price of $490 per share.
Let me briefly turn to our customer results before addressing our business outlook in more detail.
According the impact of Cobot 19 related customer offer some programs. We grew total residential in SMB customer relationships by close to $1.3 million over last 12 month by 4.5%. It by 486000 relationships in the first quarter.
Including residential in SMB, we grew our internet customers by 582000 in the quarter by close to 1.6 million or 6.1% over last 12 months.
Video declined by 70000 in the quarter better than last year's first quarter decline of 145000.
In wireline voice declined by 65000 was also better than last year's first quarter decline of 99000.
Through February total customer relationships Internet video net additions were all better year over year.
And mobile net additions had continued to accelerate.
By mid March due to increased social distancing practices and shelter place orders throughout the country demand increased significantly for our products. We temporarily yielded less mobile sales call time focused on self installation instructions and their mobile retail channel has been partially impacted.
Also beginning in mid March we introduced three cobot 19 related offers a programs for our customers in today's materials, we provided an addendum should customer counts for each of these.
I expect we'll continue to report to sit denim for a couple of quarters to provide investors the transparency on the impact of recovered 19 related offers and programs.
The first the three offers available for customers as our 60 day free Internet offer for new Internet customers with students are educators and the household we launched the offer in mid March and it accounted for 119580 2000 total internet net additions in the quarter.
At the end of March we still had a large number of pending connect customers in the offered could continue to grow faster at a fast pace in April.
Interesting me.
And uniquely about 50% the customers who participated the offer in March chose to order additional products, but the immediate billing.
The vast majority of these customers are taking our flagship internet product at 200 Megabits per second 100, Megabits per second and a small minority subscribed to our low income offer or ultra and one gigabit premium offerings.
The profile of these customers is very similar to the profile of our typical internet customer acquisition straight.
Well some of these customers will no longer surprise to subscribe to somebody services. After 60 days the payment trends for customers, who took video and phone at the same time already indicate to us that most of these customers will remain.
The second offer a customer category reflects customers under or 60 day keep Americans connected pledged to the FCC.
These are customers, who have indicated inability to pay for the service for cope with my kids related reasons as of March 31st 140000 residential customers. We're in this program may per would have been in a collection cycle in normal circumstances, and only 1000 of which had passed the pointing the collection cycle, where we would that normally disconnected there.
Or service at March 31st to give some color approximately 25% of 140000 customers today have balances, which are fully Kurt and a total nearly 50% of make partial or full payment since entering into this protection program.
However, approximately 65000 to those customers now have passenger balances beyond that point of normal Dick disconnections, meaning at the end of April.
The number of customers requesting disconnection protection has continued to grow in April we expected grow further through the rest of future.
Tend to work with these coated 19 impacted customers to get them back in a good payment status with the objective of fully continuing their service with us.
The final category customers, we've isolated nor are done them or SMB customers have requested a seasonal suspension of service or temporary downgrade of a line of service while their operations are closed or diminished.
Certain restaurants bars and hotels are good examples where referred to service to a minimum level and reduce the monthly bill until these customers fully agree. Okay. We also expect this category to grow Q2.
So what does all this mean beyond temporary ARPU dislocation in Bakken subscriber risk first even if you exclude the impact of these offers and programs from our first quarter results residential customer relationships and Internet grew at a faster pace year over year that remains our long term opportunity.
Second customers, maybe and out or between these categories over time as the economy contract and ultimately expense or issue is not demand for our products. It will be our customers' ability pay and how we help them in that respect over time.
So until we have a better sense for the depth and the duration of the corporate 19 Cross crisis and its economic impact it's difficult for us to project what to help we offer our customers will look like.
However, we think we could end up creating more value over the long term as we continue to treat our customers in our employees well.
With that mind I'd like to expand on Tom's remarks, as it was remarks as it relates to our business outlook, and where we're likely to see pressure in opportunities over the coming months in quarters, depending how and when the economy Reus Reaccelerates.
For residential and mobile services, the quality and value of our products are clear on demand is high with Internet up in March signals in March significantly even without the curve at 19 related offers.
Videophone also so positive net adds in March at least temporarily.
Looking forward the risk showed that household formation in growth will be impacted the other issue will be customer's ability to pay either via their wages or extended employment benefits under the cares act rather stimulus packages.
It is how it over what period of time, we can get some customers to repay back balances when they're able to make payments again.
So they're all kinds of questions here about financial presentation accounts receivables from the recognition of bad debt provision and write offs.
Which really reflected in Q2, and we'll work during the coming months in quarters, and we intend to provider investors transparency as we go through a unique reporting exercise.
When the economy begins to recover and assuming our customers can pay us I expect a residential business will be in good shape.
SMB represented $3.9 billion of revenue for us last year or 8.5% of our total revenue.
In the back half in March we began to see softness in Reston be sales were essentially our entire direct salesforce has been unfold in that channel was a larger contributor to SMB sales than it is to residential.
We estimate that less than 20% of our SMB customers are restaurants hotels bars theaters and the like many of which will struggle in this downturn, we're working with all of our SMB customers in this difficult time and believe we can return to growth in an economic recovery.
We expect to retail base for enterprise to be more stable in March and April we saw significant demand from healthcare and government segments to upgrade and add new services, which is taking the place of new connects and other areas. So we expect new sales to taper off in retail services growth in the short term for enterprise will be moderated by customers willingness to make.
Changes, particularly for physical services in this climate.
We'll have an offsetting benefit in churn, but absent higher new sales it'd be difficult to grow retail enterprise significantly in the short term.
Respect to reach our advertising group second quarter be challenging March revenue was below our expectations by more than $30 million due to cancellations into April variance was more than double that amount, we're proactively working with clients to move their advertising spend from sports events to reach their audiences in different places or to move out their orders general.
Right.
We believe there's an opportunity both recover and earn more advertising business. Once the economy picks back up we still expect significant significant political spend in the back half of this year. So the full year impact won't be as dramatic on a year over year basis.
So if those are the short term revenue challenges the long term opportunities what are the potential offsets and our cost structure.
Turn across all of our subscription services was already declining significantly before the crisis.
Return involuntary churn is declining even more now but new sales will also decline all of which says that we expect a much lower level of service calls truck rolls installations commissions and labor related activity.
That applies to residential SMB and enterprise.
As Tom mentioned self installation is now over 90% up from 55% in the first part part of the first quarter.
The utilization of digital self care up over 30% or integration investments in our self service platforms and portals are paying off.
The current crisis has accelerated customers adoption curve for digital service and we don't think it goes back to where it was.
So outside of bad debt and some accelerated wage increases to our front line or cost of service will decrease but less activity.
Employee turnover will decline in hiring activity is likely to slow across the business, which has direct cost in tenure benefits and we think any remaining ebitdas shortfall relative to our plans would likely be offset by capex that would be lower than previously expected due to higher self installation lower churn the timing a scalable infrastructure spend in potential construction delays.
So that's how we believe the model reflects what we don't knows the depth and duration of a recession, but we'd like our business model, how we manage the business across various climates and we believe we can grow long term.
Probably a good transition to the balance sheet and our liquidity profile.
As Tom mentioned, we've done a lot of modeling to stress test or balance sheet under various economic scenarios. We finished the quarter with $2.9 billion, a cash and $4.7 billion of availability under our revolver in early March at the beginning of the Cobot 19 crisis repriced, a long dated high yield financing at an all time low coupon.
17th we issued $3 billion of our tightest coupons ever for 10 30 year investment grade charges.
Pro forma for those investment grade bonds and recently called debt at March 31st we had $8.4 billion a total available liquidity.
As of the ended the first quarter, our net debt to last 12 month. Adjusted EBITDA was 4.4 times 4.3 times, if you look at cable only.
In that respect we've already been de leveraging slightly.
Pro forma for a recent financing activities, our weighted average cost of debt is only 4.9% and the weighted average life of our debt is 12.2 years with more than 90% of our debt maturing beyond 2022.
We have a schedule on slide 13 of today's presentation, which puts our maturity profile in perspective relative to last year's capable EBITDA.
Together with our significant liquidity in positive free cash flow. We remained in a very good position to finance our operations organically as well as through the capital markets, which remain open to charter.
As it relates to our stock repurchases, we've been under a Tenbfive one plan, which was entered into right before the covered 19 crisis began here in the U.S. due to lower share prices in March we purchased for the target volume in March and April we've never provided guidance on buybacks because we take it can encourage bad decision, making relative to better alternative uses of cash over time.
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So we're going to be thoughtful response responsive to where we think the economy is going or stock price liquidity and any organic organic opportunities inorganic opportunities, which may arise.
While the current environment does suggest caution in the short term, we're not modifying our forward afford a half times leverage target range today, and we'll continue to monitor the economic climate and the interest rate market. It regularly evaluating our leverage target.
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We know that we have a high quality resilient asset with dedicated employees across our local communities and we've invested significantly in our network in people over the years and there's high demand for our product across every part of our footprint in both homes and businesses in good times and that just why we continue to aggressively buildout more broadband passage and ensure that are.
Network as well invested ready and working for future opportunities. Our goal is to stay focused on what we did well and execute a proven operating strategy that works for customers and employees across various economic and regulatory climates to create shareholder value over the long term.
Operator, we're now ready for questions.
At this time I'd like to remind everyone in order to ask a question. Please press star followed by the number one on your telephone keypad and we'll pause for a moment well, we compile the una roster.
And our first question comes from the line of Craig Moffett with Moffat Nathanson go ahead. Please your line is open.
Hi, Thank you.
I want to sort of take a ticket bigger picture question for a moment just given the strength of your results and the enviable position that you find yourself and of having a business that is.
Relatively resilient in this kind of a market.
What are the things that you can do that that sort of take advantage of the dislocation, whether it's more edge out HM.
Essentially acquisitions, a faster move in acquiring spectrum and trying to take some share in wireless how do you think about using this dislocation as a way to make your business stronger when we come out the other side of this.
Disruption.
Craig.
Obviously, we think about that.
Today.
And and we you know we have some cash on hand to be opportunistic.
There is an opportunity.
Require investment but.
But the biggest opportunity we see is to continue doing what we're doing.
And just doing and better and well and being able to execute better and well.
And.
And continue to succeed in the marketplace, our biggest opportunity as a company just couldn't continue to create customer relationships.
And we think that.
We have a great set of assets that we've.
Put together and invested in properly and.
And therefore, we have advantages in terms of the products that we can sell relative to others.
At the moment and we have high quality high skilled workforce that is capable of.
Generating and operating activity.
And that's that's our biggest direct upside and we think we continue to operate well and execute well going forward and to the extent that we're better at that than others.
We create more value more quickly.
Thank you that's helpful. If I could just ask another maybe slightly more prosaic question I've, just given given all the attention being paid to sports right. Now can you just talk about the way you'd like to see the the issue of.
Sports payment to our us and than National sports networks, workout and with that pressure to rebate to customers and that sort of thing.
Yeah, well look I mean.
We talked or years about the reality of programming costs and how sports drives the bulk.
Of the programming cost if you look at our average.
Cost of programming per customer.
$60 I $60 range on average.
That's the wholesale cost that were planning for customer.
My guess is that if sports was not involved in the negotiations for the creation of that.
Cost that it would be less than half of what it is so sports is the major driver in the cost of content and obviously.
Thanks to the whole product.
Difficult to sell because of.
The cost that consumers have to pay and.
And.
And the effect.
Yes, I mean, just simply it's a very expensive product.
And and people have a hard time paying for it.
The reality is that we would love to pass through the.
The sports programming cost.
Back to the customer if it isn't paid or to do the Vince don't occur.
You know, there's still a big question about winner the.
James you're going to be playing that they are played most likely the costs will not be rebated to the customer so.
I don't know at this point in time, we have a structure in the industry in how we pay for content.
It's all bundled together and tied together.
And contractually and we have very little control over directly.
So we'd love to see our customers relieved if if they can be.
Ultimately, it's the athletes who are getting the money and.
If.
At some point somebody has to give up their money and get back to the customer.
And.
That hasn't happened yet.
Thanks, Tom.
Thanks, Craig James will take our next question. Please.
Your next question comes on line of VJ Jan with Evercore go ahead. Please your line is open.
Thanks.
The Tom given that you obviously have exposure across the country can you just talk about how the market's a different.
As like New York in California.
Locked down started early and compared to the other markets are you sort of see any set a green shoots that some of these.
States start opening up and any sort of change in direction a business and then just a simple question on the network. Obviously, it's highly resilient right now, but I'm assuming that from the work from home. So I would as right now that the data transport is becoming more symmetrical and your upstream on in that book is not conducive.
For that kind of thing I think getting sort of help us think about as any stress on the notebook from that side and what needs to be done if any thing. Thanks.
Sure well in terms of.
Variation by.
Various parts of the country, obviously, there are a reopenings occurring and we're preparing to operate differently.
In different parts of the country, depending on what the local regulatory climate is with regard to.
What's allowed from a business practice perspective.
As you know as an essential business, we've been operating in the whole time, and obviously, we have to keep our business running so we've been running it under the tightness conditions.
That exist in terms of what we can do.
And and how we have to take care of our employees and how we have to take care of our customers. So as we begin to see places opening up we're preparing to respond to the local markets individually.
And and to project our capability locally.
I can't tell you that I can see at this moment.
Differences from one location to another in terms of.
New York cities, a unique place but.
It's unique in every way always is.
But.
Broadly speaking, we've been locked down everywhere until now and immigrant market share everywhere, we are growing consistently everywhere.
Now in terms of the future the network and and did the load on it we've been able to handle the very quick change in demand one interesting thing about the demand has gone up a lot in terms of network utilization. That's also spread out you build your network to maximum peak utilization.
And not totally utilization so.
You know, it's the mother's day, a call effect from a network build perspective, you build for the one day year when you need every bit of your network.
And.
The.
The network has been built and it is absorbed we think of as a year's worth of augmentation in a few weeks.
But the general trend that that we now see in a few weeks has been going on for quite a long time and we expected to continue and so we have a pathway in terms of our assets to developing what we think the future communications is including an upstream.
Capability as upstream utilization continues to grow.
So that's what we call 10 Gee, it's also called DOCSIS for Dato.
In terms of the way we describe it from a specifications.
Perspective.
But we are you know, we're still rapidly moving down the path of augmenting our networks smart ways, you capital efficient ways to continue to allow capacity to grow and to create new products and are hard to even envision what its and.
We think that we're very well positioned to do that over the long term, it's going to require continued investment but.
Portion will investment that's significantly less than any sort of a brand new build so we think we're in great great position to to make those investments and.
To realize the benefits up and to create the new products and then come from but we don't have an immediate upstream problem.
And we don't have the downstream problem we have.
Opportunities in both places in the long.
Thanks, so much.
Thanks, BJ James we'll take our next question please.
Our next question comes from the line of Mike Mccormack from Guggenheim Partners Go ahead. Please your line is open.
Hey, guys. Thanks, Tom maybe just a quick question on spectrum I know you mentioned the Fccs smoothed recently not changed your appetite in anyway for the Crs spectrum auction.
Earlier this year.
And then thinking about a sports rights I know you've touched on briefly what are your thoughts just more generally on the value of sports rights coming out of all this thanks.
Well in terms of that you made good if I understand your question are you, saying that the Fccs six gigahertz Wi Fi spectrum affect our valuation of Crs.
Answer is no they're really separate notions.
I look at that the.
Six gigahertz spectrum is inside house type spectrum. So.
You know all of our products are delivered wireless.
So the real issue is.
Mobility versus.
Stationary or sedentary behavior.
The.
You know the six gigahertz spectrum is really for.
In house high capacity use.
The whole new set of products that will come along.
The CBRN spectrum really allows us.
For more efficient use of the mobile platform.
At least the way we look at it although it could be used indoors as well and it can be used indoors.
Both for mobile service in enterprise environments, and externally and so we see them as separate notions and separate values and it hasn't affected one hasn't affected the other in our view.
Regarding sports rights.
You know sprint.
Everybody Miss a sports and.
It really.
No.
And obviously isn't extremely valuable chronic and.
And is the glue that holds.
The bundled together.
And.
You know.
Assuming that sports coming back and that that the leagues generally play.
The secular trends that are going on shouldn't change in my view.
The same forces will exist going forward that existed before the crisis. So.
Absent complete collapse of the sports business.
I don't see a major change.
Thanks, Scott Walker.
Thanks, Mike I will take our next question James Please.
Our next question comes from the line of Michael Rollins with Citi. Please go ahead. Please your line is open.
Thanks, and good morning was curious if you could frame.
How many scenarios that you were running for your SMB customers in trying to think through the exposure and how you frame.
Bad debt reserves in the quarter. Thanks.
Sure.
Yeah go ahead.
Mike on the SMB I mean, I just put it a little bit in perspective, it's 8.5% of our revenue and so you can't get to some pretty wicked scenarios and it's still doesn't have that material with an impact to the company certainly when you're talking about liquidity your balance sheet perspective.
It has an impact on the revenue growth rate for the entire company and so I think.
Given some of the stats that every is providing inside the prepared remarks. The idea is that people could take their own view of how how bad in particular that segments of bars restaurants in theaters, the hit and for how long it and that would give you some sensitivity of what the trough looks like.
No no anymore than anybody else in terms of the depth and duration of for recession, but that's why we wanted to get some of those stats ticket a framework to think about it.
The second question was personal excessive day the second was.
Hey, what we're saying that.
Well look you know every every company has had to modify to a new GAAP standard which requires you to estimate your bad debt reserves for the receivables that you have at a period of time as opposed to when the age let's say for it everybody talks about that this quarter. We're no different we had in total between cable novel about $30 million of.
Additional bad debt as an estimate for what might not be payable on.
On the the accounts receivables that access to debt the time close.
In Q2 and.
Let me start maybe back with the first objective our goal through all of this is this is aid to do well by the customer by providing good offers for remote education as well as for in this case keep American conducted pledge, but our goal is also not going to be to quickly get into a collection environment any cut them off for coal is going to be to keep.
These customers.
And then the second quarter to the extent that we work with a customer to right size. There a receivable some of that could impact the revenue recognition inside of Q2 and some of that for a financed portion that they may need to pay back over time could impact our estimate for bad debt reserve.
That will apply for residential and SMB and so when I mentioned in the prepared remarks that we're gonna have lot of technical accounting and reporting issues to deal with in Q2, it's true.
But we're gonna be focused on not the accounting income outcome or how Q2 is going to look we're going to be focused on what's the right long term outcome for the customers.
And for the company and make sure that the accounting to us what's appropriate on the backend, but I think there'll be a little bit in noise and.
Well, we'll make sure that we disclose any revenue impacts any bad debt impacts in our Q2 reporting.
So that's kind of an accounting explanation the way I look at bad debt is.
Created customers into you keep them.
And do they pay you and that you know if you create customers and they pay you.
Yes.
That's that's good and if you don't yet what about that.
[music].
It's and he when I look at the customers that were creating.
We have they're taking our high quality products.
And.
In the residential space and they from a profile perspective, they looked like the customers what we've always created.
And so.
They're going to be affected by the macro climate obviously.
But we have products that we can sell to those customers that.
Have value and regardless of what were they fall in the income range.
We sell to very poor people when we sell the very rich people and we have product mix that can work across the entire marketplace.
So I'm confident that we can create customer relationship valuable customer relationships.
Through time, you know even in the small business arena, we're still creating customers today and even in you know if you think about the restaurant business, which is closed.
The vast majority of those customer relationships are still intact. They still want web sites and they may have takeup businesses or whatever but.
Even at the business closed it doesn't mean that they don't want to have a relationship with us.
Thank you.
Thanks, Mike James will take our next question.
Our next question comes from the line of Peterson Bernstein Go ahead. Please your line is open.
Hey, Thank you.
When you all analyze the improvements in churn what are the drivers of that other than the all digital upgrade that we've talked about at length in the in sourcing of customer service I Wonder if your performance in the legacy charter territories continues to provide any helpful data to answer this question.
So what what what's good for chart with look churn was before the impacts.
Code.
Our churn was coming down steadily.
And we've Oh, yes, everything we've done [laughter] post coated has been consistent with the strategies that we had before in terms of having high quality.
Service high quality product like quality workers in sourced in the United States.
Who are trained and capable.
Providing excellent service if you do that you have less activity.
Ultimate value proposition that drives the cost to serve as does activity.
And if you can if your services better and your products have longer lives inherently you have less activity for dollar revenue generated.
Which means that you have a higher.
Higher margin or lower cost to serve and churn is is it is one of the measurement.
Of customer satisfaction, it's also a measure of.
Oh.
No mobility in the economy and other things of that nature, but did all of those things being held constant if your churn rate is going down that means your customer satisfaction is going up because you products are better.
And that's been our objective in terms of managing the company instant list. So the legacy charter platform.
Churn was coming down and legacy time Warner platform and legacy Wright has crept platform churn was coming down across all of those businesses.
And cost to serve is coming down to because of the.
Self installation models in the did all digital models in terms of digital by flows that we created.
Allow for.
He is from a consumer perspective of dealing with us and less friction in the actual transaction because I'm an important is necessary to keep for that.
Process to occur and all of that creates.
Lets activity and higher satisfaction, which is a very virtuous cycle.
In the sense that.
If you have less activity and you have less failure in your activities.
Meaning you have less service calls you'll have less missed appointments.
Actually create more satisfaction, which even extend subscriber like even longer which by itself reduces activity.
So that that was the path we were on and it's still I believe you a path we're on its a little bit confused by the volume that we're currently younger.
We've had enormous uptick.
In activity in the last two months due to sales.
And interestingly we've created.
In the last 60 days 10000.
Broadband customers today.
So 600000 customers.
60 days.
That's a lot of work.
And we've done that.
Pretty seamlessly.
Thank you.
Thanks Peter.
Later, we'll take our next question please.
Our next question comes from the line of Jonathan Chaplin with New Street Research go ahead. Please your line is open.
Thanks.
Two quick ones, if I may Tom for you you mentioned that.
The importance of the sort of the secular trends in sports haven't changed.
I'm wondering if you can touch on some of the secular trends in the business that you have you think had changed how the business is going to look different when we come out of the current environment and then Chris.
I think you said that.
Non programming costs were down year over year, when you exclude the co did impact on from wages and bad debt.
Is that a trend that you would have expected to continue throughout the are but will be impacted the pandemic and then should we annualize that 30 million in 25 million cobot related impacts.
Or is it.
Does that sort of flow differently as we go through the the thank you.
So Jonathan on secular change I would say it this way I don't know.
That there permanently changed but they are permanently advanced.
Maybe.
You know we took years.
Secular change in compressed into a very short period of time, there and we're not going to go back.
To the original trend line, we may have just moved way up to trim line.
And the and I think network utilization is one of those.
And.
I think a.
Customer self serve as the other.
And the cost to serve as a result to that we were already fairly down far down the road in the customer self service model.
And we were fortunate win.
When we got hit with what we did and with the marketing tactics that we employed that we were able to actually deal with it.
Because we had started the quarter it.
In the 50, 55% range I think of self installation.
And and we were about at 70% when everything changed and year over 90% now self installation. So the fact that we were already at 70% allowed us to get the 90% with a fair degree of.
Operational efficiency.
And and so we were prepared Fortunately.
That moment.
But I think thats, a big change in the business going forward.
And and I think.
People using.
And other kinds of.
You know two at communications in any work like environment in their homes is probably advanced by a number of years for the for the long term.
And Jonathan you talked about non God.
Go ahead is going to say just a follow up on that and this is probably directed it you can expect going from 55% to 90%.
What does that do for for margins when we.
In a year or maybe its t. as when we get out of this environment how much.
Just structurally higher because of that.
Yeah, I don't want to get into a percentage margin discussion, but you know the cost of a self installation.
It's about a third of the cost of a professional install and the benefit of that a newer both opex and capex, depending on what type of installation to those sorts of significant.
But keep in mind that we were already at 55%, we would've been at 70% by the ended the quarter absent.
The acceleration.
Your second question was on non programming expense Theres, a theres market Anders advertising expense. There is enterprise expense. That's in there. So I prefer to think about cost to service customers, which is really the residential in SMB and cost to provide network operations field operations in customer service operations to call centers and billing.
Just the bulk of our costs.
That and cost as I mentioned in the prepared remarks absent, leaving side just bad debt was down year over year in gross dollars has that was down as a you know as a.
Our relationship basis, and I know I cautioned in the past that.
What we're committed to is that per relationship to cost or serve is going to continue to decline and I've been hesitant to say that too.
Tyler cost to serve excluding that that would also declined on a gross basis clearly it would have inside of Q1 year over year and given that we do expect once we get beyond April April spin high activity, but we think that transaction sales transactions and move churn and.
All of the different service transactions will start to slow down and so that could actually accelerate excluding bad debt the cost to serve declined year over year, certainly on a per relationship basis.
So I think the trends there are good and they continue.
There is an increase in the amount of our labor expense because we accelerated the past the Tom was already putting the company onto a 20 dollar minimum wage.
That was $30 million in the quarter for really a month and a half expense. So yes that will get annualized at the appropriate rate.
But I think that say small dollar amount relative to the amount of transactions that come out of the business and I think our.
Our operating strategy fully funded status and the acceleration of the adoption of self service and self install.
Our very helpful and making dot viable for not just our employees, but for all stakeholders.
Great. Thanks wanted.
Thanks, Jonathan Operator, we'll take our next question. Please [laughter]. Our next question comes in the line of Ben Swinburn with Morgan Stanley Go ahead. Please your line is open.
Thanks, Good morning, I just want to ask you both about two comments you made a in the prepared remarks.
Tom you've been in the business for a long time and you've you've been through lots of cycles and I don't think I'm breaking news to say that the cable company. Historically has not had the best customer reputation and even reputation with sort of regulators and politicians and you mentioned sort of the reputation will benefit said the company's thing I'm just wondering if you have.
Just a conviction in that being sustainable or any real data behind that because.
Yeah, obviously, that's not in the lens with which cable operators historically have been looked at.
And then Chris you you were talking about capital allocation to buyback you mentioned organic or inorganic opportunities. Just wondering if you could just take a minute to remind us of kind of your M&A framework and sort of the kinds of things you guys.
Historically have talked about either being interested in or.
Not interested into so we can flesh out that comment a little more if you're willing.
Thanks.
Well Ben I.
I've always loved the cable industry and what it does and good [noise].
But.
And I've always thought that.
It has done great things consistently yes, if you think about.
No upside visible our reputation.
We transform telecommunications.
And.
If you think you know I remember just 15 years ago 20 years ago.
The average wireline phone Bill was $75 in the New York area.
You know today, it's 999.
And if you look at what the cost them.
Have a broadband was.
Particularly on a per gigabit basis think about dial up AOL dial up in near 2001. Their car part time Warner was 2020 Bucks a month and you got 56 bought.
And.
At 50, 6K Uh huh.
You know the cost of broadband has gone way down and the telecommunications outputs of the investments that the cable industry is made have been tremendous in terms of the benefits that it's created from consumers nobody likes pain.
Their cable bill and nobody likes paying for programming costs.
And that's always been a difficult aspect of our business.
You know since we've had competition in video since the rise of satellite.
And the cable industry hasn't invest itself of.
Programming essentially because of the vertical integration.
The.
Yeah.
Programming costs.
<unk> increased massively.
Because programming is a on a copyright which is an illegal monopoly and and they've had pricing power over a competitive video business and.
And consumers don't like that and.
But you now you have the rise of Alec car direct to consumer programming and Netflix.
And Warner home media and.
Disney and so forth and so.
A lot of our customers have.
The video they want to buy at prices they want to pay and.
So I think it's you know from.
The biggest driver of negativity in the cable business I think has been the price of video and and to some extent that's breaking up.
So I'm I'm relatively optimistic about.
Our status and and I think that when you really look at an objective Lee.
We have done great things and I think that's the facilities based competition model, but we have in the country.
Has done a really great job, producing really high quality communication services consumers.
Ben on the they M&A framework on the inorganic side I think the prospect is probably more actionable on the organic side some of the things that Tom's often talked about in the past, but on the or inorganic side would be M&A.
Nothing's changed with the way that we think about.
Opportunities read as Tom just mentioned, we'd love cable and at the right price Weve. It we would a cable all day long and and and that means tack ons, which breeze do frequently as we can as well as bigger acquisitions.
That hasn't been the case today, there are the family controlled or family owned so that'll be not in our hands that'll be in the hands of others or decide to.
We have looked all around to see if there's anything on the content side, we haven't found anything that really matches up well with our assets and capabilities other than some of the local news that we've expanded organically and that makes a lot of sense for us and particularly in this environment has been a gas side.
[music].
We've thought a lot about wireless, but given the assets that we have the ability to to play small cells. The attractive ends you know that we have we havent childless scenario that made a whole lot of sense for us.
For the industry.
There are cases that we can take a look at to accelerate growth whether thats in enterprise.
Or whether that's in wireless technology, where we've made some minority and some joint investments with Comcast.
Same would apply to advertising, but none of those are going to be particularly material.
There will be great for those segments of business has the ability to accelerate growth hopefully, but it's not going to be something that really materially shows up on the balance sheet impacts our liquidity.
All of which leads you back to taking less Tom's got something else. He doesn't need you back to it or we we think the organic opportunities and if you can't buy somebody else's cable stock buying more if your stock at some point in the future is probably between organic and that is where we've ended up in the meantime.
Thank you both.
Thanks, Ben James will take our next question. Please.
Our next question comes from the line of just Curry further from Bank of America Go ahead. Please your line is open.
Thanks.
Just wondering if you could talk about maybe some of the new offers.
For customers I think is this something that you're doing with serious I could you talk about any plans you have for peak.
Do you need to wait <unk> NBC.
As of the.
And then finally on in terms of customer offers just Dizzy TNT promo offer for H.B.
The way you would sell offer.
And I had a hard time hearing so the first question was in new offers including I think the serious trial that we've run out in the marketplace. Just a question there and then the second was a.
Peacock, whether that needs to that could happen now or needs to wait until future renewal.
The third was the HBIO Max to the extent that.
Impacts to the way that we sell the we're packaged HBIO product.
[noise] [noise] in terms of our offer strategy you know I wouldnt disclose those before we do them Weve experiment with various offers.
Through time.
But you know.
Good.
Not to.
To diminish minimize the.
Our marketing promise, but.
We.
Ultimately its do you have good products are the ones with it and cost.
That's what.
Effects your ability to.
So.
Taking the marketplace, but.
We we experiment with marketing tactics, all the time and serious is one of them.
And so.
We don't have any announcements about future.
Tactics that we might employ.
In terms of Peacock weve ongoing discussions with the NBC.
And the and.
We haven't concluded anything yet.
In terms of HBIO, Max we just completed an agreement.
Hey, TNT and Oh.
We're going to convert our customers who have HBIO.
To the new product.
And then we're going to market the new product as part of our overall video offering.
And we look forward to doing that.
Thanks Jessica.
Operator, we'll take our last question. Please [noise].
And our last question comes from line of John Hodulik from Yes. Go ahead. Please your line is open.
Great I'll make a quick first I'm sure I guess, just two quick ones. The first Chris on the on the comment on March advertising, I guess or a private does I guess you said. It is it's twice is it a very variance is twice what you saw in March does that mean that were down sort of 36%. So far in April and any color you could give on what you think that.
The quarter is going to shape up there.
And then on the Capex question.
He said you know given given the outbreak it'll it'll likely come in lighter than than you previously expected, which is already lower capital intensity to any magnitude of of change there and if you could give us any color on on the buckets would be great too. Thanks.
So they and they the April comment that I made was really not related to the percentage decline year over year, because really the variance to our would have been our expectation so $30 million, we had literally come off the books in March was already sold came off the books. It's over twice that came off the books for April.
We think that are probably be the trough in April.
Small if that recovery in may and maybe depending on how the openings occurred churn start to come back. So Q2 is going to be a rough advertising, it's not a big portion part of our business, but it's got a rough advertising quarter.
We do think as things come back on line that there'll be some pent up demand for advertising on the core local which for US has been growing our core businesses are growing at 3% to 4% year over year on top of that there'll be pent up demand. So whenever the market opens back up and Thats a lot of that's tied to help of smbs and and when the recession.
Or went to the distancing starts open back up but Q2 will be the refer point in the back half into your will have political advertising, which takes a little bit for full year perspective takes a little bit of the staying out of.
The the collapse that we're seeing inside of Q2.
And is there is nothing about us that's unique there right date yet the.
Capex side I think it's way too early I think all we're signaling at this point is that we've been focused on a lot of different activities right now and there's the possibility that.
Some of that programs that we've had that might be slightly delayed construction can be slightly delayed your installation capex certainly is once you're going to be lower because of lower unit cost because self installation on the other hand doing a lot of installations. The volume is very very high as Tom mentioned.
So there's a lot of moving parts there, but if we had to guess I will probably be slightly off relative to the dollar amount that we intended to spend.
That being said Craig asked at the very beginning of stickier today or are there are there areas that we could accelerate our spend given the strength of our balance sheet strength of the businesses.
We'll be moving from a reactive mode into very much a proactive to thinking about how what are the things that we could to longer term to take more advantage.
The assets, we have so I don't want to prejudiced too much other than say right now in the past and Ron It probably looks like with this slight minimal.
Lower dollar amount and we intend to dissipate.
I would say about capital spending as we were we talked about it in terms of pressure testing really yes and that.
We haven't changed our commitment to the crop projects that we're building in the products that we're building.
And we're continuing to take the business forward, but a lot of our capital of success based.
And and so.
It's it's modulating.
Automatically by customer creation, and so to the extent that the market.
Moves around based on the macroeconomic effects.
So this capital.
Got it thanks.
Operator that concludes our call. Thank you all very much.
[laughter] and ladies and gentlemen, this does conclude today's call. We do thank you for your participation you may now disconnect.
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