Q2 2020 Charter Communications Inc Earnings Call
Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily.
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Thank you for your patience.
[music].
And welcome to charters second quarter 2020 Investor call.
At this time all participants are in listen only mode and after the speakers presentation. There will be a question and answer session to ask the question during the session you'll need to press Star then one on your telephone.
Sure for any further assistance please press star zero.
I'd now like to hand, the conference over to your speaker today.
Definitely <unk>. Please go ahead Sir.
Good morning, welcome to charters second quarter 2020, Investor call. The presentation that accompanies this call can be found on our website IR dot charter dot com under the financial information section.
Before we proceed I would like to remind you that there are 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 now 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 could differ from historical or anticipated results any forward looking statements reflect management's current you only and charter undertakes no obligation to revise or update such statements for to make additional forward looking statements in the future [laughter]. 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 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 CFO with that let's turn the call over to Tom.
Thanks, Stephanie.
We remain focused on serving our customers and the communities, where we operate through a difficult period of time.
Services have been able to promote working distant learning telehealth services and family communication.
In support of the broader economy, and the welfare of our communities.
In mid March as part of our effort to keep Americans connected during that shelter in place orders, we pledged to do a number of things we committed to offer spectrum Internet for free for 60 days to households, with students were educators did not already have a spectrum internet subscription.
Through that program, which ended for new subscriptions on June Thirtyth, we added 450000 customers.
We also committed to suspend collection activities and not terminates service residential or small or medium business customers. We're experiencing Colgate 19 related economic challenges and through the keep America evidence.
Americans connected programs, which also ended on June Thirtyth, we helped approximately 700000 customers, who indicated economic hardship due to covert 19.
In addition, we opened our wife I hot spots across our footprint for public use.
Opened up our spectrum news website to ensure people have access to high quality local news and information.
We rapidly connected and upgraded fiber services to health care providers, we donated significant airtime to run public service in outlets announcements to our full footprint.
16 million video subscribers.
For our employees, we implemented two weeks of additional paid sick time for Kogan related illnesses and an additional 15 days of flex time to address other kogut issues, we increased our wages for all hourly field operations and customer service costs in our employees by $1.50 in April going back to February.
Very committed to raise our minimum wage for hourly workers to at least $20 an hour over the next two years.
We continued to perform well in the second quarter, we added 850000 residential an SMB internet customers driven by the demand for our high quality products.
Our ability to connect and service to customers we created in the quarter. That's been the result of investments that we've made over the last several years in our Insourced in U.S. based high quality workforce significant systems integration automation, our online and digital sales and self service platforms and our self installation.
Program, which ran at about 90% of installations during the quarter.
Data usage and traffic at our network also remained elevated during the quarter in June residential data usage for Internet only customers was 600 gigabytes per month down 10% from the April peak, but up nearly 20% from the fourth quarter.
Our customers are benefiting from out continually decreasing price per gigabyte peak traffic levels remained well below maximum capacity.
And our network continued to perform well because of the capacity at our recent investments, including all digital and Docsisthree Dot one created.
And because we continue to invest significantly to stay ahead of that usage curve.
Over the coming years, we'll invest in our network as we build the lower density in rural communities and pursue our 10, she plan, which provides a cost efficient pathway for us to offer multi gigabit speeds and lower latency to consumers and business customers.
Additionally, with our inside out strategy, we will continue to use and develop small wireless cells powered by our network together with our emptying out to connect customers in and beyond the home delivering our throughput and economics for customers in fixed nomadic and mobile environments.
Moving back to Q2 results.
We added 100000 video and 40000 voice customers, both of which benefited from significant broadband sales in the quarter.
Also added 325000 mobile lines to despite some disruption to our mobile sales channel in the quarter.
We also performed well from a financial perspective.
We grew adjusted EBITDA by 7.3%, despite some nonrecurring items, Chris will will cover.
And our second quarter free cash flow grew by nearly 70% year over year.
As we look out for the rest of the year, we expect our broadband and mobile products to continue to drive demand.
But our outlook depends on what happens to unemployment in income and for bonds and the impact such back to seven customers the ability to pay for the services in the coming months, including government support to consumers.
Sold formation may slow if it does we would expect lower activity for both new sales and sure and due to our various self installation if initiatives, we expect service transactions and cost to serve customer relationship to continue to decline.
S&P has held up better than we expected and we're currently selling more year over year again tied to how the economy and stimulus develops.
In enterprise business has been slow during the second quarter, we struggled to gain access to customers and business premises sales activity is picking up back each month, but it will continue to be lower growth until businesses are fully back to normal operations.
Our advertising business is inherently local and primarily supported by small and medium businesses, which have also been slow to return to local advertising.
AD sales are improving and we still expect political advertising to be meaningful which will help our third and fourth quarter results.
First half financial results would have been better were it not for cobot 19, but we feel good about her current performance and long term growth trajectory the value of demand for services is clear and we're operating efficiently and serving our communities wealth.
[noise] I'm 2016, we put three cable companies together to scale our business under one operating strategy our ability to grow our connectivity services. This year for both new and existing customers is a testament to our operating strategy the quality of our products and our significant investment and systems and people over the last several years.
Sure.
Before turning the call over to Chris I'd like to thank charters employees for their hard work dedication and diligent throughout this crisis, they've been asked to go above and beyond their regular duties. They delivered using the strain for millions of families. In this challenging time.
Now I'll turn the call over to Chris.
Thanks, Tom I turn into customer results on slide five his presentation, including the impact of covert 19 related customer offers and retention programs. We grew total resin to residential in SMB customer relationships over 1.8 million over last 12 months by 6.3% and by 755000 in the second quarter.
Including residential and SMB, we grew our internet customers by 850000 in the quarter.
Over 2.1 million Reight, 0.3% over the last 12 months.
Video grew by 94000 in the quarter better than last year second quarter decline of 141000 video customers. The positive performance was driven by turned benefits at a time when consumer demand was high as well as of the pull through effect of our current programs.
Wireline voice grew by 45000 also benefiting from the same like be temporary factors as video.
Mobile net adds accelerated again to 325000.
Beginning in mid March we introduced three cobot 19 related offers and programs for our customers. Each of these offers ended on June thirtyth as we didn't our first quarter materials. We've provided an agenda showing the customer counts for each of these three kobin related offers as of the ended the second quarter.
First was our remote education offer which provided 60 days a free internet for new Internet customers for students are educators and household over 90% of these customers are runner flagship speed tier or higher.
This channel looked very much like traditional acquisition with nearly 50% having subscribe to it paid for additional products along the way.
At the ended the first quarter, we've reported a 119000 internet customers in the offer which rolled off either as paying customers or disconnects during Q2.
For Q2 net of some small in quarter roll off churn, we added 329000 more internet customers to the 60 day free program with a 160000 remaining on the free offer at the end of Q2.
And by July 27, 90% of the cumulative connex on this program.
From Q1, all the way through Q2 remained as either paying customers were still on the free offer within the 60 days.
The second offer for customer category in the agenda reflects customers who participated in our keep Americans connected pledged to the FCC.
These are customers are indicated their inability to pay for service for coated 19 related reasons.
This program protected as Tom mentioned, approximately 700000 residential in SMB customers from collections and disconnect activity through June Thirtyth.
60% of these customers continue to pay something half of which were paid in full.
And at the peak there were over 200000, who would have been disconnected under our normal collection practices.
In an effort to assist covered 19 impacted customers with average balances, we waived $85 million of receivables, which was recorded as a reduction of revenue in the second quarter.
As a result these customers no longer have enough for develops we believed that will retain most as long term customers. Some of the over 200000 may become disproportionately delinquent compared to a typical customer with disconnection in late Q3 or more likely in Q4 under our normal disconnect practices.
Repayment trends on the space is however, very good.
Final category customers, we've isolated in our dental our SMB and enterprise customers, who requested a seasonal suspension of service or temporary downgrade of a line of service while their operations were closed or diminish.
Don't expect there will be anything to report as an intend them in Q3, given these programs has effectively wrapped up.
How do we think about customer relationship performance in 2020, given covered 19 and our various programs well in the beginning of Q1, our customer relationship growth was accelerating and our pre cobot expectation was that would continue throughout 2020.
In March and the second quarter, we absorbed a tremendous amount of new connection and service fine providing free service and credits our goal was to do our part in helping customers in our local communities through a difficult economic period.
As of the third quarter, we have a lot of customers, who now have high quality attractively price connectivity services from us and our third quarter fourth quarter performance will largely be a function of the economy unemployment and any additional stimulus packages.
It's clear to us that the actions, we took to connect and protect customers. During the crisis will result in long term benefits for charter better ending relationships in 2020, we expect to higher customer growth rate this year compared to last.
So our success in the second half 2020 will be measured on third and fourth quarter year to date last 12 months net additions comparisons.
Particularly not a particular quarterly comparison, which is consistent with how we manage the business.
Turning to the financials as we expected there were lot of moving parts in the quarter I'll be referencing various kobin related items, which we've laid out on slide nine of today's presentation residential revenue grew by 4.1% in the quarter, primarily driven by accelerating relationship growth in similar PS you bundle video mixed trends we've seen over several.
Quarters. This growth rate includes the negative impact of $76 million onetime write down for residential customers into keep Americans conducted program.
SMB revenue grew by 2% given slower customer growth and $17 million of write downs and credits for customers and to keep Americans connected and the coated related seasonal plan.
Created some temporary ARPU pressure so far we've been pleased with RSP S&P performance, while things could definitely be change if local economy shut that down early third quarter SMB sales and net addition performance has actually been better year over year.
Spectrum enterprise revenue declined by 7.1% year over year, driven by the sale of Navios site and the continued pressure from the wholesale side of the business, excluding both NAV site and cell tower backhaul enterprise grew by 2.2% that includes $18 million and onetime credits, which we extended to certain customers in return for Contra.
Back to extensions.
While the comparability for Natus like goes away. After Q3 wholesale in particular cell tower backhaul continues to be challenged.
Retail enterprise when excluding the $18 million a onetime bill credits is growing revenue around 7%, let's say sustaining that growth are accelerating will be difficult until our customers are back to normal operations. We also have some exposure to the hotel segment, which we've tried to deal with in the second quarter.
Spectrum reach second quarter advertising revenue declined by 37% driven by the covert pandemic, which reduced core AD sales growth in April sales were about 50% of prior year.
May was about 60% of prior year in June was about 70% of prior year. So the trend has been improving but our core won't be fully back to normal until later in the year early next year.
Horse, we will benefit from political along the way, which will help the prior year comparisons.
Mobile revenue totaled $310 million, but the $158 million that being device revenue.
In total consolidated second quarter revenue was up 3.1% year over year.
Moving to operating expense in the second quarter total operating expenses grew by $45 million or 0.6% year over year cable operating expenses, excluding mobile declined by 1.3% year over year or 0.8% excluding now the site.
Programming increased 1.6% year over year, reflecting the same rate volume and mix considerations that we've seen in prior quarters.
We did not accrue any arson fee savings in our programming expenses in the second quarter certainty amounts and timing of any credits is not yet clear.
If and when any co. Good rebate for loss games occurs we will pass that are long term video customers with no are minimal expected EBITDA impact.
Regulatory connectivity and produce content expenses decreased by 18.3% year over year, primarily driven by $125 million benefit from the timing of sports rights payments for our Dodgers and Lakers ourselves, which had been pushed out to the second half and later, depending on the sport and adjusted season.
Cost of service customers increased by 4.6% year over year meaningful productivity compared to 6.3% customer relationship for.
The higher level of expense growth was driven by record levels of transaction volume bridging from acquisition upgrades billing and service.
And that expense includes roughly $44 million for recently accelerated hourly wage increases in covert 19 benefits, which Tom mentioned, partially offset by lower medical cost in a onetime payroll tax credit.
Bad debt expense was essentially flat year over year, but some $48 million lower than what we would have expected based on higher customer counts in the unemployment rate this quarter bad debt benefited from the significant revenue write off for customers, who were in the protection program and generally better payment trends due to the stimulus package under the cares Act.
Bad debt going forward will be a function of the economy and any new stimulus package.
Excluding bad debt variability cost to service customers should continue to grow at a slower rate in customer relationship growth due to lower transaction volume and higher self service trends. Despite the step up in minimum wages and covered flextime.
Cable marketing expenses declined by 6.3% year over year, given better media placement rates and a onetime payroll tax credit.
Other expense declined by 6.6% year over year, primarily due to lower advertising sales costs.
Cost related to NAV site, which were sold travel and insurance costs.
Mobile expenses totaled $413 million and were comprised of mobile device cost tied to device revenue customer acquisition, and NVNO usage cost and operating expenses.
In total we grew adjusted EBITDA by 7.3% into quarter, when including our mobile EBITDA loss of $103 million cable adjusted EBITDA grew by 6.7%, including a 2.7% negative growth rate impact from advertising revenue net of its associated expense in both periods.
We generated $766 million of net income attributable to charter shareholders in the second quarter and capital expenditures totaled $1.9 billion into second quarter.
Our our second quarter capital expenditure shows we continue to invest through the second quarter. Despite a disruptive environment. We invested significantly in continued capacity upgrades at the national and local levels to stay ahead of contention and we didn't slow down on new build including construction in rural areas.
Obviously, the level of broadband installations drove much higher modem routers purchases in self installation kits.
Expect 2020 cat cable capital expenditures as a percentage of revenue to decline year over year and the underspend relative to our original plan that I mentioned last quarter may not be a significant as a result, as the now much higher growth rates.
We generated close to $1.9 billion, a consolidated free cash flow in the quarter and excluding our investment in mobile we generated $2.1 billion, a cable free cash up about $700 million versus last year's second quarter.
We finished the quarter were $2.1 billion cash $4.7 billion availability under our revolver.
And as of the ended the second quarter, our net debt to last 12 month. Adjusted EBITDA was 4.3 times 4.2 times. If you look at cable only so we delivered a bit in Q2.
Earlier this month, we issued $3 billion of long dated high yield debt at very attractive rates pro forma for our recent financing activities. Our current run rate annualized cash interest is $3.8 billion.
During the quarter, we repurchased 2.3 million charter shares in charter holdings common units totaling about $1.2 billion at an average price of $499 per share.
Completed a lower amount of buybacks in Q2 than we did in Q1 as we wanted to surveyed both defensive and offensive opportunities in a unique climate.
Our visibility to various scenarios surrounding covered 19 has obviously improved.
We will always evaluate divestitures of our capital generate long term return for shareholders via organic investments such as the launch of our mobile or network edge out.
Purchasing someone else's shares or our own.
Probably in that order in terms of preference.
We remain comfortable in the middle or high end of our target leverage ranch.
As I mentioned last quarter, we know that we have a high quality resilient asset with dedicated employees across or local communities Weve invested significantly in our network and our people over the years.
We also know Theres a high demand for our product across every part of our footprint in both homes and businesses in good times and that she is why we continue to aggressively build out more broadband passings and ensure that are network as well invested ready and working for future opportunities.
As the environment continues to evolve across 41 states, where we operate our goal is to stay focused on what we do well and execute a proven operating strategy that works for customers and employees across various economic and regulatory climates.
Create shareholder value.
Operator.
We're now ready for questions.
Yes 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 our first question comes from the line of Jonathan Chaplin with New Street.
Please your line is open.
Thanks, two quick ones, if I may Chris Firstly.
Can you give us just a little bit more color on how you think the steady quarter in particular, but really the rest of the will unfold as it relates to some of the coated.
Related benefits in costs you source. So specifically it sounds like there are about 360000 subs still on various offers you think that will could translate into higher churn in tweak.
And then is there any more write off for revenues or negative bad debt impacts you anticipate from the initiatives.
We've seen so far not taking into consideration anything that happens with the economy.
And.
And the macro environment and then the we were interested to see you guys registered for the our Gulf subsidies, you've been growing households at close to or policies that close to 2%.
Recently.
If you're successful in those options what could that potentially increased.
Wondering I start with the last one first we're in a quiet period as it relates to the art often so we won't be commenting any further than what we've already said in the into 8-K.
On the.
The first one and now I'll give shot at it here and Tom they want to chime in as well as is the.
The programs that we had in place have wrapped up as of June thirtyth.
And as I mentioned in the prepared remarks, the customers that we created through the end of the first quarter the second quarter on that remote education offer.
All those net all those gross additions that came through 90% of them are still with us in the vast majority of them are paying and 50% of them altogether has actually taken additional products from us and we're paying along the way so.
I don't have a crystal ball, but so far did look every bit as good as regular way acquisition, there not a low tier package from US 90 over 90% of a murder to flagship product.
And while there is risk attached to any of that because the programs. We put so far we don't see it we're just putting it out there that we're watching it and so far it looks very good on the remote education offer.
Hi, just add that from a profile perspective, they look.
Just like our regular customer base and they are like our customer base and the 50% that bought video or or date or voice from us or or mobile went through the normal credit check process.
That.
All customers go through so they very much are.
Behaving like.
All customers that we create.
And.
And I look at that offer and a lot of ways as a conventional.
Promotional offer.
With the broadband benefit associated with it for two months, but it brought in new real new customers that subscribe and look like.
Existing customers yes.
And then the other program was keep Americans conducted at the peak, we had 200000 customers who.
Had gone beyond the point, where we normally would have disconnected the customer we've written off the balance for anybody who had an extended balance that was the $85 million that I mentioned so.
The time, we got to July.
All of those customers were in good standing partly because some of them had been paying along the way and partly because we wrote off now those that were written off revenue as we sit here today and we looked at those that cycled through the journey billing cycle their pay and they're paying at a very good rate and so.
So if we had to sit here today, we'd say it looks very much like regular customer and customer churn.
The caveat that we've put out there is obviously theres a fair amount of stimulus thats been.
Federal economic stimulus that's been in the environment and we don't know what Thats going to look like we don't know how curve, it's going to continue to develop and non pay will develop going forward as it normally would with how the economy goes and how stimulus goes along with it.
And the way I would describe the macro economic risk factors going forward is that they apply to.
The entire business just like they imply applied to the customers that we created.
In this quarter.
And we don't see a big difference in the customer base that we created in the quarter.
And.
The average customer base.
The final question that you asked Jonathan was do we see anymore revenue write off for.
Exceptional bad debt later this year.
No not attached to any of these programs.
To the extent that what we just talked about if the economy.
It's difficult and there isn't stimulus, but we expect to higher non pay rate in that environment, which would result in but yes, but that would be the same for any business.
And that would be the same for us in any environment, where you have the economy, which is more difficult.
Thanks, guys.
Thanks for exceptionally well done.
Thanks, Jonathan.
Operator, we'll take our next question please.
Next question comes from the line of Phil Cusick with JP. Morgan Go ahead. Please your line is open.
Hey, guys. Thanks.
First Chris can you dig into the video strength was I assume the inflection was pull through from customers coming in on some kind of promotion for broadband and taking that.
Video as well with that program done should we assume video trends return to normal.
Forward and then second Tom your contract expires next year can you give us an idea do you plan to keep running the company after that or give us any update on how you and the board thinking about succession planning thanks very much.
Sure.
Alright, well I'm going to answer both your questions. So.
Video.
Video.
Is.
Hey.
The secular trends for video haven't changed what happened is that we've always said that we thought it was possible to grow video if our overall relationship growth was high enough.
Because.
There are still are.
The ratio of video customers.
To overall customers it is continuing to decline, but it's.
If you grow fast enough if you grow faster than that rate of decline than you create video growth and that's really what's happened here.
Nothing has changed the secular trend although.
It probably was a little less downgrading.
During the period, because so many people were.
Stuck in front of screens.
At home, but but.
But I don't think the overall trends is changed what really just happens is.
We accelerated our growth rate overall and customer relationships and as a result of that.
And the shift in share.
Some of the video we grew faster than the rate of video decline.
And it's that simple.
In the past, we said we thought that were that satellite would decline.
And that we could grow fast enough to have small video growth overall growth.
Declined faster than I thought it was.
Over the last several years, but it's still.
I would say that that trend has not changed all that change was we grew our overall relationships faster.
And with regard to me I intend to continue to be here.
And the board, we'd like Munis day.
Sounds good thanks, Tom.
Thanks, Phil.
Operator, we'll take our next question please.
Next question comes from the line of Doug Mitchelson with Credit Suisse. Go ahead. Please your line is open.
Thanks, so much so.
A question for Chris.
Plain English and I know your specific with your comments, but I'm still going to ask for clarification on the comments on offensive opportunities being reviewed into Q.
And I.
Thank you said.
In this order purchase someone else's shares versus purchasing our own so should we read that as the company's reviewing and interested in M&A at a higher level than previously and then.
Tom and his prepared remarks mentioned investing the networks is that emphasis on investing the network, suggesting a different outlook for capex than previously stated or is that just within the profile that you previously said thank you.
Thanks, Doug So theres Theres really.
Tom and I, both had been here, there's no change in our prioritization of cash flow. We've always said the most attractive way to deploy your excess free cash flows to invest in further growth opportunities inside the business.
Second would be too.
Acquire other companies, which have a better rate of return than buying back your own stock.
The third would be to buy back your in stock and the reason for that order is because.
You can get the first two that I mentioned going it actually enhances the quality in the return of the buybacks that you do too.
Our views on that haven't changed I was just reiterating thats, how we think about it.
I don't think in Tom's comments, we were trying to foreshadow any type of major capital increase for just said that were philosophy is always been to invest in or networks. We've done services you can see the benefit of having gotten in front of capacity needs well in advance and put us in a position to add this amount of subscribers.
And there's no theres no major change that we're signaling there other than we intend to continue to invest very very well inside of our networks.
Yes, hi, I wasn't saying that we're changing our profile.
Investment strategy.
I was merely commenting that we've been investing in capacity upgrades and those capacity upgrades have served us well and thats the whole communications infrastructure of the country, well and you have a very competitive facilities based.
Market in the United States and it results in very high quality products and it will result in future high quality products.
Thank you very much.
Thanks, Doug Operator next question please.
Our next question comes from the line of Brett Feldman with Goldman Sachs. Go ahead. Please your line is open.
Yes, thanks for taking the question when we look at the success you've had in the first half of the year with your broadband subscriber growth one of the reason.
Identified a demographic would just students and teachers, where it seems like you may have been particularly Underpenetrated you came up with this promo that was really me for the moment and work.
You still had very low broadband penetration relative to what I think you believe it's ultimately going to be and so I'm wondering whether you think there's an opportunity on the heels of the Oreo program that come up with other promos.
That are uniquely appealing to other demographics, where maybe that gap is a bit wider and then just on wireless obviously the net add there were very strong I'm wondering if thats because there was a very high attach rate with the broadband adds that you had and as a result broadband adds were going to be more moderate in the back half. We should also have the same outlook for more moderate wire.
Thanks.
Well.
The.
To your implication.
Yes, if we could find ways to.
Segment promotional activity that will result in faster.
Growth, we will take advantage of those opportunities and.
One of the reasons, we were able to be successful with the promotion that we just did was our ability to not only do the promotion but to executed.
And to actually install it in a very short on time.
In a way that was convenient for customers using self installation.
And so yes, theres continued opportunity for acceleration.
But that was particularly successful resolve and.
And we will continue to explore opportunities going forward.
To accelerate growth from a marketing perspective.
But we feel pretty good about our ability to continually grow and to continue.
And to and accelerate that growth and.
Nothing that has happened to date has.
Dissuade us from that perspective.
Nothing to not to diminish our own prowess, either but if you think about the demographics that who has somebody in their household who can claim to be a student or claim to be an educator. It's a pretty broad segments of the population. It was just a very attractive offered that was out to point in time were.
People needed it and it was a good opportunity to create was not the majority of our sales by any means.
But it's still created new market and drove additional share shift it was a nice.
At the moment.
The other question was weather.
The wireless adds that we created in the second quarter were also tied similar to video voice as a function of the broadband growth and with that indicate that the second half. This year wireless net adds could be less if we had less broadband growth.
But I think no on either.
Okay.
The way we look at.
Mobile growth opportunity, it's really a function of activity levels.
And how often we get a chance this to communicate with our customers about mobile.
And what the rate of that.
Attach rate is and.
And that continues to improve and.
And it's a relatively new business for us and we are continuing to improve our tactics.
At that business and.
And we're continuing to get improvement every week.
In terms of our results and so we have.
Hi expectations for continued growth in that area.
Great.
Thank you.
Thanks, Brett.
Operator, we'll take our next question please.
Our next question comes from the line of Ben Swinburn with Morgan Stanley. You go ahead. Please your line is open.
Thank you.
I don't know if you can give us color now and maybe some uncertainty, but do you expect any benefit or shift in.
Or year over year impact on the sports on the sports rights front in the third quarter around the Dodgers and Lakers you mentioned it was delayed but I do think there have been gains have been that have been canceled. So just curious if we should be.
Thinking about that and then maybe for Tom.
Are you are you thinking about accelerating your sort of network evolution over time, I know you talked about not changing your capex profile in general, but scalable infrastructure I know notice ticked up you talked about getting ahead of contention. Thank you mentioned 10 G. Does this is throwing off tons of free cash flow I'm. Just wondering if you think about where.
You want the network to be wired and wireless overtime are you thinking that trying to bring that forward just to take advantage of all the opportunities the company has.
Yes, I was sort of in broad terms.
Yes, we want to continue to take advantage of.
The technological opportunity that that network provides us and the cost efficient way to upgrade the network on a relative basis to what we think art.
Editors can do and.
And so.
To the extent that demand exists for new products or the demand can be created for new products.
And and drive revenue associated with those new products.
We want to upgrade our network to take advantage of that.
And at the moment, we have a lot of capacity.
And so.
I don't see at the moment our profile changing.
As a general notion.
[music].
We think that with relatively.
Fishing.
Capital investments.
We can continue to upgrade our network through time.
And 10 GE is.
Reflection.
And a description of that opportunity it say cost efficient.
Upgrade.
Platform that allows us to get the very high capacity low latency on a relative basis.
More efficiently than anyone else.
And on your first question and the delayed Dodgers and Lakers costs from the first in the second quarter, they've been pushed out to varying degrees, depending on the our son and the sport and the adjusted season, but the biggest driver for the first half this year's the Pinedale recognition of the Dodgers, where we paid the cash but the expense.
For unplaced games will be amortized over the remaining life of the contract. So it's unlikely there'd be a large catch up in the back half of this year now.
The extent that there are programming rebates those are very complex in most cases, we're not going in there for some time before receiving the rebates or credits.
Back from the leagues same applies to programming networks on the programming cost side, but.
Well, we have said is to the extent that we did receive any rebates or credits for.
Cancel games or programming and the programming expense lines of between rights and programming costs due to the curve at 19 pandemic will pass those launched the customer site I don't see a.
A material EBITDA impact, although it could put.
A offsetting revenue credit and expense credit to the extent it materializes.
Got it thank you bye.
Thanks, Ben Operator, we'll take our next question please.
Your next question comes from line of Craig Moffett with Moffat Nathanson go ahead. Please your line is open.
Thanks, Hi, two quick questions if I could.
First.
I'll go back to the question about footprint expansion, maybe not in the context of the audio at auction, but just in general can you.
Share with us how much of the broadband growth.
Came from the 2.2% footprint expansion that you're seeing now year over year.
And and absent any benefit from the our dop auction.
How fast do you think that footprint expansion.
I would go and then just second a could you update us on on the path to profitability for the wireless business.
Your current view of how profitable that business can be with the current contract and then how much traffic you think you might be able to offload onto your own facilities in a way to reduce those monthly variable costs.
Well as we're in a quiet period guard off Craig.
And also our 2% Passings growth rate includes new construction as well.
Meaning new home.
Creation.
And the the bulk of that is that.
At this point in time.
So.
Maybe just to add onto that those are homes passed or including what you count as marketable so the extent that you're picking up additional homes, making without these construction. We're building about 500 600000, a year and so that's where do you should think about us being added from a construction standpoint, it's not a material driver to our overall net out.
It's inside of the quarter and it hasn't been but as it builds up over time, it's obviously a cumulative effect as you start to penetrate those vintages of construction.
What we've done over the past year hasn't been the big driver for our broadband net Dot group as if you do enough of it over a prolonged period of time and.
Snowballs.
It's good returns on investment capital spending.
Over time and it's.
The activity levels in the second quarter were similar to what they were.
Planned for and what they were in the first quarter.
So construction didnt actually slow down.
And I'm talking about new home construction.
In the quarter.
Craig the.
The profitability of wireless our views on it hasn't changed we're not dependent on any additional offload the above and beyond the Wi Fi that we already utilized.
And even under that rather limited model.
Our expectation continues to be that our breakeven. If you had no additional subscriber acquisition, so no marketing and sales cost new cost and provision in new customers. That's a breakeven point would be around 2 million lines, that's a bit of fictitious or academic scenario, because we were always going to be selling and we're always going to be marketing, but that gives you a sense of.
You know where the business absent growth would breakeven and.
So our rapidly approaching which were rapidly approaching so the economics of wireless are good but like any startup subscription business at costs money to get going and you acquire customers and they have a positive payback on every single one of them that we acquired so our views on the profitability hasn't changed to the extent that we're able to improve the economics along.
The way.
Which we've talked about extensively in the past.
That would make that even better but we don't we don't rely on upon that.
Thank you that's helpful.
Thanks, Greg Operator, we'll take our next question please.
And our next question comes from the line of Bryan Kraft with Deutsche Bank Go ahead. Please your line is open.
Hi, good morning.
One for Tom and one for Tom.
Time charter recently requested.
Two of the conditions related to the approval of the time Warner cable deal on data caps and paid peering, what's the motivation behind that request and if it was granted how would that impact the business in the future and then Chris I was wondering if you could just give us some updated color on how you're thinking about working capital usage for 2020.
So Brian we when we did the.
The.
Agreement with the FCC.
It had it was a seven year agreement so those those provisions go away.
Automatically in seven years, but there was a us.
Caveat in our agreement that allowed us to.
Terminated after five years, if the marketplace indicated that those conditions, we're no longer relevant.
And I would just describe our goal there as housekeeping.
And.
Because it's because the market can require those conditions might you never did.
We wanted to get we wanted to put ourselves from a opportunity perspective on the same.
Even playing field as all of our competitors.
But we don't have any chan change in business strategy or marketing strategy or product strategy as result of that request.
And Brian on the working capital.
If you think about the past two years made in 2018 in 2019, there were some pretty unique items that were taking place whether it was the wind down default digital or last year read into big Billings standardization product project, which both of which had impacts on working capital we haven't had.
Anything like that that's been a normal this year, we do have large screens inside the quarter due to seasonality.
You saw that inside of Q2, where we had a positive contribution to working capital last year, we had a negative one it was driven by that drilling standardization, which you talked about then.
To give you an order of magnitude there our days when we collect $300 million of cash of one day of collections and so it's going to move around a little bit both inside the quarter and for a full year based on the timing your programming payments at the time of year collections, and so I don't want to.
Poised ourselves here on Earth pardon give their working capital forecast other than to say Theres no major change this year that could cause us should cause us to be abnormal and whether it's positive or negative by a few hundred million, it's not going to be in material driver to our free cash flow. This year as my current expectation.
Yes, thanks very much.
Operator, we'll take our next question please.
Our next question comes from the line of Mike Mccormack with Guggenheim Partners Go ahead. Please your line is open.
Hey, guys. Thanks, Chris Let me just a quick comment on the customers that are I guess at risk then you look at the consumer versus the SMB piece of it is they're different behavior or are there different behaviors between those two cohorts.
Maybe one for Tom on the programming cost side, we've seen in the last 12 months about a 6.5 million subs come out of the video ecosystem. How does that change your thought process going forward I guess I guess, maybe in your own content strategy and obviously, a any thoughts about pushing back against the programmers and then if you don't mind is one last about enterprise is that enterprise we.
This does lead decision, making sure you're actually seeing customer disconnects. Thanks.
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Okay.
Last question, it's delayed decision.
Yes, you know people in large enterprise there they're not in the office in to the extent the right people are just hasn't been the time, where they're most aggressively looking to save money and change providers and move to spectrum, we're still making a fair amount of sales and it's picking up every month is getting back to a more normalized environment, but it's.
And depressed and it's going to be probably until businesses enterprise businesses get back to normal operations.
Maybe I said theres opportunity there.
In creating.
New products and services for enterprise.
And enterprise will use their telecommunications.
Infrastructure in a different way potentially going forward so.
I think in the long run.
Theres more opportunity.
The question on the thought process around programming and whether or not.
You know the holes sort of.
Ecosystem.
Argues for a more aggressive stance or not I think as the implication of your question.
I think thats coming.
And then some point some somebody old overseas.
The balance of reason then.
And there'll be some sort of breakage will occur.
You also asked about the difference between the at risk.
Customers for non pay as it relates to residential in SMB.
On the residential side.
I mentioned, we have a product as.
Hi in high demand, that's highly competitive it's attractively priced attractively packaged and because of the way that we do all of that and operate we don't theres going to be high demand for it is just a question of people's ability to pay in Theres. Some uncertainty around Where's the economy go and even if the economy's bad and.
Our net where you have a significant amount of stimulus.
We tend to get paid very quickly in that environment because of the the devalue the product that we provide so that's really how we think about the residential environment as the economy and the level of stimulus.
SMB.
It's really a question of whether whether they're open for business or not and how if they're not open for business how long can they sustain.
From their liquidity perspective.
Of of nothing in business and and that's the uncertainty that we face on that front, otherwise the quality of our products and.
And our ability to go gain market share in an environment, where people are looking for faster products at better prices you would argue that if the share flow could actually increase in the SMB space for us along the way.
Yes.
Sorry.
This conference sorry.
Chris said that.
Our SMB continues to accelerate over last year.
And that's not just a function that businesses are back in working but it's also a share shift function and we're underpenetrated in SMB.
And so our upside there is bigger than those in residential from a market share perspective.
And.
We have the best products.
And Chris those percentages that you laid out as far as those that are paying is that a residential only number that you were referring to.
I'm trying to remember, which I gave a lot of percentages today, so if I previously.
50% or paying something that was established resin that was residential in SMB, but the vast vast majority of those unit. If you take a look at the at denim. We provided the vast majority of those customers, where the residential space and so it's heavily weighted towards residential but it was both.
Both so 60% of customers have been making some payment, including partial payments half of which so about 30% of the total base that had been making full payment not included those stats included both residential and SMB.
Okay, great. Thanks, guys.
Thanks, Mike we have time for one last question operator could we take our last question. Please.
Question comes from the line of Tim Nollen with Macquarie Go ahead. Please your line is open.
Oh, thanks, very much I want to come back to the video.
There is I just wanted to ask if you think your numbers are helped somewhat by what appears to be a bit more of a skinny bundle strategy that you all for rather than offering some more CTG services dotiki bundles as some of your.
Competitiveness are doing.
The answer is yes.
Yeah, we we have a range of video products.
Including the traditional bundle.
And and to some extent.
You know in the long run the skinny packages have limits in terms of what we can penetrate with because of the way the contract language works.
In our programming deals.
The minimums that are required in the.
The minimum distribution required.
The big bundle, so that there's a challenge for us and balancing all of that.
That so far we've been successful and dealing with.
But.
But the answer is yes, and the challenges in video have not gone away.
And do you think you might be looking at offering some MTT types the.
One off to a bundle within your.
Your video offering or is that you're going to stay away from.
You mean I'm not sure I fully understand your question, but.
You mean are we willing to do additional packaging.
Yeah, I'm not talking about any bundles in terms of traditional linear or skinny bundles, but things like bringing MTT service or offerings.
TT bundle from a network.
Oh, yes.
In the linear bundle.
Absolutely and I think you'll see us selling more and more.
Packages of TT product that we don't necessarily on but more on a consignment basis or on.
Hey.
Or potentially even a packaging basis.
Thank you.
Thanks. Thanks.
Operator that completes our call. Thank you everyone.
Ladies and gentlemen, this does conclude today's conference call you may now disconnect.
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