Q4 2020 Charter Communications Inc Earnings Call

January 29, 2021

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Ladies and gentlemen, please standby. This is the operator today's conference is scheduled to begin momentarily until that time your lines will be again placed on on music hold thank you for your patience.

Okay.

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Ladies and gentlemen, thank you for standing by and welcome to the charter Communications fourth quarter, 'twenty and 'twenty earnings call. All lines have been placed on mute to prevent any background noise and after the Speakers' remarks, there will be a question and answer session to ask a question. During the session you will need to press star one on your.

Telephone keypad, if you require operator assistance, please press star zero and.

And I'd like to turn the call over to your speaker today, Steph and manager. Please go ahead and good morning, and welcome to Charter's fourth 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 a number of risk factors and other cautionary statements contained in our SEC filings, including our most recent 10-K filed this morning we.

We will not review those risk factors and other cautionary statements on this call. However, we encourage you to read them carefully.

Various remarks that we make on this call concerning expectations predictions plans and prospects constitute forward looking statements.

These forward looking statements are subject to risks and uncertainties that may cause actual results to differ from historical and anticipated results.

Any forward looking statements reflect management's current view only and charter undertakes no obligation to revise or update such statements or to make additional forward looking statements and the future.

During the course of today's call, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. These.

These non-GAAP measures as defined by charter may not be comparable to measures with similar titles used by other companies is also note that all growth rates noted on this call and and 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 Steffen.

2020 was an unusual year, but demonstrated and enhance the strength of our business and we performed better than expected and a number of areas.

The past year was also highlighted the importance of the services, we provide and our robust network handling and immediate conversion to a remote based economy, enabling work from home remote education and telehealth services over the last 10 months, our broadband infrastructure was tested and it performed very well that's because.

We've spent over $35 billion on our network and infrastructure since the close of our transactions and 2016.

And it showed up and our 2020 performance for the full year of 2020, we added $1 9 million new customer relationships for growth of six 5% and.

And we added $2 2 million, new internet customers from growth of eight 3%.

And you also performed well financially we grew our adjusted EBITDA by 10% and on a free cash flow by 53 per cent a.

Our residential business performed particularly well with strength and Internet and we were we had 800000 more customers than we did the prior year we.

We remain very optimistic about our opportunity to grow our internet business, given the quality and value of our product. Despite the outsize growth and some pull forward of demand into 'twenty, and 'twenty, which will drive continued benefits to our revenue and EBITDA going forward, our expectation and plan for 2021.

And we'll revert to the trend we were on pre COVID-19 and meet or exceed the customer relationship and Internet net adds that we achieved in 2019, and we believe our long term broadband penetration and market position has actually been enhanced.

COVID-19 hurt our small business and enterprise businesses.

But trends in those parts of our businesses are improving and we're on our way back to our previous gross rates or better on.

Core AD business also suffered but it's now bouncing back and core advertising is 95 per cent of what we would've expected from a revenue perspective, we anticipate our advertising business will make a full recovery with the timing of that recovery dependent on the full recovery of the economy.

2020, also resulted and the acceleration of efficiency and our core operations, our self installation program expanded dramatically from about 50% of sales before the pandemic to a new steady state of over 80% of sales during the fourth quarter of 2020, driving cost savings and improving customer satisfaction.

We saw a significant increase and the use of our online and digital sales and self service platforms, which drives cost savings and higher customer satisfaction.

As we reflect on our 2020 operating performance. We also demonstrated our commitment to our customers and the communities, we serve and our employees, we launched a number of community programs, including our remote education offer and to keep America connected pledge and.

In addition, we significantly expanded.

On a spectrum news coverage areas and opened up our spectrum news websites to ensure people have access to high quality local news and information, we rapidly connected and upgraded fiber services to health care providers and donated and significant airtime to run public service announcement announcements to our full footprint from 16 million video customers.

For our employees, we offered additional paid sick time for Covid related illnesses and and flex time program to address other COVID-19 issues.

<unk> increased our wage for all hourly field operations and customer call Center employees. Our efforts have been recognized by our employees to the local communities and customers, we serve and related stakeholders, which brings long term benefits book.

Looking forward, we remain committed to offering a 20 dollar minimum wage and our strategy of employing and in sourced U S. Based work force that offers a long term career paths for our employees and our call centers and all of our employees are now 100% U S based on.

Our plans to expand our footprint and rural areas will increase broadband access and help connect well over a million homes, which have gone on served until now and that doesn't even include a regular buildout to lower density areas, which accelerated in 2020.

We continue to offer our spectrum.

Internet assist program to millions of lower income households households at affordable prices.

And as we look forward to the rest of 2021, we remain focused on driving customer growth by offering high quality services and products under and an operating strategy, which works well and various market conditions.

Over the coming months, we plan to add multiple streaming video applications to our deployed world boxes, and all incremental video connections, making it easier for our video customers to access today's most popular streaming content through one device.

Our Internet product also continues to improve during the fourth quarter, we expanded the delivery of our minimum speed offerings from 200, Megabits from about 60% of our footprint to close to 75% of our footprint.

And the near term, we have a large opportunity to improve data throughput and latency on our network by using our DOCSIS three one technology, which still offers us a long runway to improve our product set will also continue to invest and DOCSIS four dot O with key vendors and the rest of the industry or even greater capacity and functionality.

And down the road.

We're also improving the quality of our Wi Fi routers and Wi Fi reception in the home. We recently launched our new Wi Fi six router and our first market and we will have Wi Fi six router.

Available and nearly all markets by mid 2021, and we now offer companion Wi Fi pods to improve Wi Fi and reception in the home.

Our advanced in home Wi Fi service, which is a managed Wi Fi service that provides customers the ability to optimize their networks, while providing greater control of their connected devices has now been launched across more than 65 per cent of our footprint for new connects and we will continue to expand that footprint. This year.

And our mobile service now offers free access to nationwide five G service.

We recently spent for.

$165 million to purchase 200, 10-C, brs priority access licenses.

We intend to use those licenses along with significant unlicensed <unk> spectrum on a targeted five <unk> small cell site strategy with our HFC network, providing power and backhaul those.

Small sales combined with improving Wi Fi capabilities enable better throughput, while driving significantly better economics for charter. This year will focus on scaling our systems to actively manage traffic on handsets using our <unk> Wi Fi C Brs spectrum.

We'll also build some targeted <unk> small cell sites, which will help us learn how to pace our purely return on investment based cvr's deployment.

In closing as we look back on 'twenty and 'twenty, we're very pleased with our performance as it demonstrates that our operating strategy works well for charter communities employees and shareholders, even in challenging economic and operating environment and despite the one time impacts to our P&L, which Chris will cover.

We ended the year well ahead of where we expected from a customer growth perspective, providing a higher level of subscription based revenue and underlying EBITDA and what we would've expected now I will turn the call over to Chris.

Tom due to significant timing impacts of Covid and the different quarterly reporting methodologies for COVID-19 programs across the industry, our customer and financial results.

On a full year basis is the better overview. So I'll give a brief readout of the fourth quarter and then ill discuss our very good 'twenty and 'twenty results set up 2021, and where that leaves us in 'twenty and 'twenty two.

Looking at slide six including residential and SMB, we grew our internet customers by 246000, and the fourth quarter Internet net adds were down 93000 versus last year's fourth quarter, because our first three quarters of this year were above last year's first three quarters by 900000 and net adds.

For the full year, we grew our internet customers by $2 $2 million or by eight 3% our highest ever on an absolute basis.

The significant creation of new broadband customers and shifts from competitors to charter earlier, and the year plus lower market churn, resulting in fewer selling opportunities drove lower net adds and the fourth quarter when compared to last year.

Trends have been improving more recently and subject to Covid and economic developments. We currently expect full year 2021 customer relationship and Internet net adds to meet or exceed 2019.

Residential and SMB video customers declined by 35000, and the fourth quarter grew by 556000 or 0.3 per cent for the full year.

Voice customers declined by 103000, and the quarter by 148000 and for the full year.

Local line net net adds grew by 315000 and during the quarter more than last year's fourth quarter.

Our yield on mobile sales opportunities continues to improve across our channels. The lower sequential net additions reflects the lower fourth quarter cable sales I just mentioned.

So we're growing mobile nicely and we're not giving away free handsets to do it.

For the full year, we added $1 3 million mobile lines and we believe we were the fastest growing mobile operator, and our footprint during the fourth quarter and for the full year.

Turning to slide seven and fourth quarter revenue increased by seven 3% year over year or five 6% excluding political advertising.

Year revenue grew by five 1% or four 3% excluding political.

Fourth quarter EBITDA as shown on slide eight increased by 10, 2% year over year and nine 9% for the full year.

You'll notice and today's materials that were no longer isolating and cable specific revenue EBITDA and free cash flow metrics, but we will continue to isolate and mobile revenue expenses working capital and Capex for investors through 2021.

A few comments on the most notable fourth quarter expense items, including certain COVID-19 related expense impacts during the fourth quarter and for the full year 2020 on slide nine.

Regulatory connectivity and produced content expenses declined by 10, 7%, primarily driven by NBA games pushed into 'twenty and 'twenty one.

Cost to service customers increased by four 4% year over year, driven by six 5% customer relationship growth.

On the hourly wage increase we instituted earlier in the year and Covid flex time and benefits to employees.

Partly offset by lower bad debt, which is due to better payment trends during COVID-19.

For the full year, we generated $3 2 billion and net income attributable to charter shareholders.

And as shown on slide 11, our 2020 capital expenditures totaled $7 4 billion.

Including just over $500 million and mobile as we continue to invest to support current and future growth we.

And we invested significantly and capacity upgrades at the national and local levels to stay ahead of higher data usage, and we havent slowed down on newbuild, including construction and rural areas.

We continued to purchase significant DOCSIS three one modems for new connects and equipment upgrades and saw a high attach rate for our advanced in home Wi Fi service.

For the full year 2021, we expect cable capital expenditures as a percentage of cable revenue to be similar or lower than in 2020.

We're still on the R&D and their art off quiet period and will.

Isolate those effects for investors and the future.

Expect our 2021 mobile capital expenditures to be similar to 2020 levels as we build out more and mobile stores than we originally anticipated and we.

We will spend some dollars to scale, our <unk> efforts and mobile back office systems.

Leaving aside the pace of ROI based deployment of small cells, we would expect mobile capex for stores and systems to be materially lower and 22 and beyond.

We generated $7 $1 billion of consolidated free cash flow and 2020 up 53% from 2019 currently we don't expect to be a meaningful federal taxpayer until 2022.

For the full year 2020, we repurchased 21 million charter shares and charter holdings common units approximately 7% of our shares and units for $12 1 billion.

On September 2016, we have repurchased nearly $40 billion of stock.

And with 32% and per shares and units at an average price of $394 per share.

Let me now focus on how 2020 sets up 2021, and where that leaves us in 2022.

Last year's customer growth was extraordinary and we saw a significant demand for our products early on across the existing base and those newly acquired customers. We had record low churn of all types through the remainder of the year, which also reduced sales opportunities and the market and the second half.

Tom mentioned, we added nearly 2 million and customer relationships compared to $1 $1 million and 2019 and we.

We added $2 2 million broadband customers compared to $1 4.002 million 19.

And yet total transaction activity in 2020, which is the sum of gross connects and churn is actually lower than in 2019, driven by very low churn during the pandemic.

Last year's financial activity was also unique from a revenue perspective 2020 was pressured by the sale of NAV, a site and 2019 and Covid related reductions for the keep Americans connected program and sports programming credits earlier and the year.

From a cost perspective, we saw a savings and a number of areas and programming the interruption and cancellation of sporting events drove $163 million of sports cost savings. Similarly, the cancellation and shift of games also drove cost reductions and timing benefits of over $200 million and a regulatory connectivity and produced content line.

Related to our Lakers and Dodgers RF.

Cost to service customers benefited from lower customer transactions, and historically low bad debt, but that was more than offset by wage increases and come and flex time, we provided to our employees.

And total 2020, adjusted EBITDA grew by nine 9%.

For 2021, our baseline assumption is that the COVID-19 vaccine will be widely dispensed and that the economy and returned to normal activity by the middle of this year.

But the reality is that we don't know, but that assumption and suggest that the full year 2021 customer net adds should look more like full year 2019, net adds with a return to more normal churn levels driving higher transaction activity, including higher connect activity and in 2020, despite lower net adds.

Not only were quarterly net add growth comparisons to 2020 to be somewhat irrelevant, but the current environment will drive abnormal variances when comparing individual quarters to 2019.

And our underlying 2021 financial performance will be difficult to discern without the use of our 2020 COVID-19 schedules shown on slides nine and on a quarterly basis again on slide 19.

From a financial perspective, we expect 2021 revenue growth to benefit from the significant customer growth we had in 2020.

The lack of Covid related credits and 'twenty one and.

And and improving F&B core advertising and enterprise outlook.

Partly offset by the absence of political advertising revenue in 2021, all of which means we will see significant year over year growth rate swings between quarters.

From a cost perspective, we expect 2021 programming to grow at a higher rate than last year and part because we don't expect last year's sports programming and credits to recur.

Regulatory connectivity and produced content will also face a onetime step up to a full return of sports rights costs, and 2021 and the delayed start to the current and NBA season, pushing Lakers games from 2020 into 2021.

Cost to service customers will also increase as transaction activity rises despite less net adds as I mentioned, we're also providing an additional outsized raise to our hourly employees as we nearly closed the gap to a $20 minimum hourly wage and is non pay churn and returns to normal levels, but we'll also see a one time step.

Up and bad debt expense also returning to normal levels.

All that in mind, we expect 2021, adjusted EBITDA growth to be good but lower than in 2020, primarily driven by the net effects of COVID-19, including related wage increases higher programming and RSA and cost normalized bad debt and the lack of political advertising in 2021.

So while we still expect 2021 to be a good year 2022 should be even stronger assuming our 2021 Internet net adds are similar to 2019.

And the economy returns to normal our momentum in 2022 will be very strong SMB and enterprise revenue growth rates should be back to our expectations core advertising should return to full growth and 2022 should be a strong non presidential political advertising and gear. We won't face. The same one time step up and returned to normal programming and sports rights costs.

We'll be past the large one time step up and our hourly wages that will occur in 2021 and.

And we also won't have the same one time step up and customer transactions and bad debt expense also and the cost to service customer demand.

So while it's very early to get excited about 2022, given the ongoing macroeconomic uncertainty 2022 could be the year on the financial and operating performance that we originally expected for 2020.

So when we look back at 2020, we were pleased with $2 2 million Internet net additions, 10% EBITDA growth and our performance generally and what was a unique year, we're well positioned for 2021 and as a result of the consistency and customer friendly nature of our operating model. We remained very active.

Optimistic about the medium and long term growth prospects for charter.

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 just a moment, while we compile the Q&A roster.

Yeah.

And our first question comes from the line of Jonathan Chaplin with New Street.

And please your line is open.

Thanks.

Two quick questions, if I may Chris first.

You finished off by saying that 2022 could be the Gary you'd live their performance you expected in 2020 can you remind us what you were anticipating and.

'twenty and 'twenty and 'twenty in terms of financial performance and.

And then with the C brs deployments.

Kicking in and it sounds like from the pacing of Capex and a lot of the deployment will happen perhaps towards the end of 2020, how do you expect that to impact wireless margins alright.

Appointment happened towards the end of 2021, how do you expect that to impact wireless margins in.

In 2022, and what could the wireless margin.

The margin from the wireless business looked like once the CBRE.

And is fully deployed.

And so the first question was what we were expecting in 2020, but the trends were that we were expecting in 2020, where and acceleration of customer and internet net additions.

Additions relative to 2019.

And.

Political advertising year, which indeed, we had.

And the continued benefits of our service model driving lower transactions.

Increasing the underlying profitability of the services by providing great customer service, all of which actually happened and some to different degrees, but we had a a.

Tremendous amount of other unrelated noise that was and the system for 2020, some of which was you know difficult put pressure on the financials some of which was artificially good.

And in 2021.

We will have is the reversal of many of those trends good and bad.

And so it's just going to create a whole bunch of noise inside of 2021, including the pressure on political advertising and I think if you use the schedule that we've provided on 2019 and the previous disclosure we've had around political advertising.

And Theres a lot of detail there and it will require some work, but I think it puts everybody and are positioned to really understand how 'twenty 'twenty, one and we will develop and then when you get into 2022, you really wont have it shouldn't have depending how this year goes as I mentioned you shouldnt have any of that noise should continue to have really good momentum and the marketplace on.

All of the underlying trends around cost of service remain and in fact, maybe even accelerated through Covid will have another political advertising year, and 2022, and so I don't want to get over our skis about looking that far out given what uncertainties still in front of us and.

But I think 'twenty and 'twenty, one there'll still be a good year and I think 2022.

And we'll be evening, even cleaner year really demonstrate and everything thats really happening.

Behind the curtains at charter and its multiyear operating model deployment.

The <unk> deployment in 2021, it's captured and what I talked about the mobile capex for this year.

I think it's going to be pretty small.

In line with what Tom mentioned in terms of what we're looking to achieve this year as it relates to 2022.

As we scale the ROI based deployment of the radio access networks and it really just be based on.

And the achievement.

Lower operating cost and we expect to payback on that to be relatively quick, but it'll still be fairly de minimis in terms of its overall impact both on Capex and <unk>.

The Grand scheme of things as well as the wireless margins and the pace of that rollout will really be dictated based on how quickly. We can go and how quickly we can realize those type of return and so its little early to.

The outlet and that fully I don't think its going to have a material impact either way inside of 2021.

I would just add to that that the returns on <unk> deployment.

After 2021 really mostly.

We will be.

Specific to the demand utilization and the location, where the radios are placed and.

And.

And so to some too.

Tim.

And a complete sense and opportunistic.

And just ex strategy.

And wherever our costs would be lower by <unk>.

Investing in more Cvr's radio deployment.

Our costs will go down.

And such a way that will get a return on investment.

And I guess just to sort of.

Phil on Chris's response on trends.

If you think about the long run trend that we've been on a <unk> and <unk>.

Accelerating growth rate in terms of.

Broadband growth.

That trend is still in place and.

And it exists for 19, 2021, and we think as well into 2022 and what's really happened is you've got a lot of <unk>.

<unk> and the 'twenty and.

'twenty one p&l's.

But the net of all of it is if you.

<unk>.

Spread it out over a multiyear period is that the trend continues but we have 800000 more internet customers and we would have otherwise.

Sure.

Okay great.

Operator, we're ready for the next question.

Our next question comes from the line of Vijay Jayant with Evercore go ahead. Please your line is open.

Thanks.

Just wanted to come back with broadband numbers obviously.

Attachment to broadband E D and I think 70% to 90% this quarter like 145, and I think you mentioned that I thought it was low.

<unk> sort of piece on elevated Q&A and broadband tied to keep America connected and how much of that is on them.

And I think well hard to scale and sort of in the system and needs to be sort of plays out.

And any any thoughts on that and then I'll.

Honestly the.

Video subs in 2020.

Good and.

And I think you've started to use some of your black on your carriage minimums on the annuity on off with can you just talk about is that a trend we should continue to see in 'twenty one.

Saturated and that opportunity given.

How much you've done on the military and video.

Thank you.

So Vijay let me answer.

Question on the.

Keep America connected and the RVO effect and weather.

And that's in or out of the system I think that's the thrust of your question.

I think the.

The Oreo pulled demand forward.

From a acquisition point of view and.

And the keep America connected pulled reduced churn and forward and therefore pushed net gain up forward.

And if you think about the way churn works.

If you have more disconnects you have more connects to keep the same growth.

Keep the same net ads.

And so there is less net adds in the fourth quarter because of those net adds were pulled forward.

The.

Keep America connected program and therefore, there was less activity and the fourth quarter as a result of the normal.

Way that churn interacts with sales.

But as we look at 'twenty, one and look at how our sales have returned and we look at the behavior of our customers.

We think that the effects of all of that are pretty much out of our numbers.

Already.

And and we expect to return to a more normal kind of connect and disconnect rate and a more normal.

Net adds right.

Consistent with the kinds of growth rates that we had in 2019.

And we see that already and are are.

And so far through 2022 through the date today in 2021.

And then on video trend video, yes, sorry.

We had.

We had good results and video for two reasons, one we had outsized growth and connectivity and as a result of that.

By having market share shift to us from other video providers as they bought our broadband.

We grew our video against a macro trend of declining.

Multi channel video growth.

And that macro trend hasnt gone away and.

And I expect and general Vinny.

<unk> growth for the industry will continue to decline maybe at a.

At a moderate pace.

And and I don't think we will have quite the internet growth.

We had in 2020 in 2021, so I think that just that fact alone is going to put more pressure on our video growth.

Going forward.

But on the other hand, and we've been able to grow with OTA.

OTT products and smaller packages and.

And we still have opportunities there and we're forecasting our internal growth and those areas to continue to ask.

Accelerate.

And so that net of those two things is this.

Difficult to say, but.

But I think we'll do better than the industry in general.

If you just look at multi channel video growth.

Whether that'll be positive or negative I am not sure.

Got it.

Hey, Daniel.

And I can take a look at what both Tom and I said, not just now and the Q&A, but also on the prepared remarks, but to just list them out to Q4 impacts for broadband and relationships.

There's some from Florida sales that we've talked about earlier and the year. Two there was less market churn that drives lower sales funnel, particularly for a share taker like us that has an impact and three the nuance to that Tom was going through the keep Americans connected customers and then.

We kept those subs already in Q2, and Q3, which was helpful to our net adds but subset might have turned around and reconnected and Q4 as a sale opportunity we had already we'd already and retain them some day stock and.

So they didn't turn into a quote unquote sales or net add opportunity inside the fourth quarter last one true, but nuanced and those three reasons are the big drivers.

And what gives us confidence confidence around us returning back to more like 2019.

Great. Thanks.

Yes.

Operator, we will take our next question.

Our next question comes from the line of Brett Feldman with Goldman Sachs.

And please your line is open.

Yes, I think and just some points of clarification around just the answer you gave before.

It sounds like all of the churn.

You might have experienced from keeping America connected and other payment plans.

And of address prior to the fourth quarters and the first question and was there any residual churn from that customer base and the fourth quarter or do you feel like you have just gotten to a normalized churn rate and then you talked about lower overall churn and the market I was hoping to get your thoughts on that day.

You think this has to do with Lockdowns or anything that was COVID-19 related and are you seeing so far this year admittedly early and this year evidence that market behavior is returning to normal. Thank you.

And so let me talk about the keep Americans connected churn and the remote education offer.

Tackle both of those at the same time and remote education offer the retention of those customers very much looked like normal acquisition.

<unk> had been the case earlier and the year that continue to be the case through Q4 and for all the obvious reasons, we have been tracking that.

Very diligently and they keep Americans connected customers, who where we wrote off significant portions of their balance put them back into a current state state.

They've been paying them and they've been retained as customers and they've been paying much better than we expected.

And they have a slightly higher non pay rates and your average customer base you would expect that.

Does of where they came from.

But it's actually really good and it's only a few percentage points difference of overall retention. So that was not a driver inside of Q4 and because we've been watching this payment trends really since July August when we started.

That program to reset the receivables.

See that raising its head now or in the future. So those are good customers. They always were and I think we did the right thing to put them back into a current receivable state.

The lower overall market churn.

And really the two big drivers of our three drivers there one is that.

Because stimulus has been on and off but overall People's account balances are high and they don't have places to spend money on.

And because of the importance of the services that we provide we've been paid.

And our payment profile for customers is good it's better than it's ever been and that applies to probably anybody inside the broadband and probably video space right now and so non pay disconnect for the market places at record lows moving churn is down significantly so theres, not a lot and movers and the market.

And people are itching to have people on their homes switching out their services. So general voluntary churn tends to be down across the market, we believe as well and.

And so that lower overall market share and drives less selling opportunities for a share taker like us chats and impact on your ability to to.

And to sell and to bring on new customers. We have started to see transaction activity start to return to normal is not by any means normal.

And which is why I said our outlook for 2021 on net adds and for Internet and customer relationships really it's a full year outlook and I would not get too tied up at all as it relates to a quarter by quarter comparisons. So that's not what we're talking about and the beginning of 'twenty. One will look more like 2020 in terms of customer.

Activity and I think normalization takes place and progressively over the course of the year.

Great. Thank you for that color.

Thanks, Brett Cairns and will take our next question. Please.

Our next question comes from the line of Craig Moffett with Moffett Nathanson go ahead. Please your line is open.

Hi, Thank you two questions if I could first I just want to step.

Step back from the broadband conversation for a moment.

You've historically said that your your preference is to keep prices low and to try to grow.

Quickly, particularly when the opportunity or is it kind of break net growth of 2020 was available is there any consideration now that growth is returning to a more normal pace that it might be time to.

Perhaps to be a little more reliant on price as most of the peers are and the industry and.

And optimizing total revenue growth and.

And then second if I.

I could return to the conversation on <unk> small cells, maybe we could just think about it and.

In terms of and objective or how much traffic and you think you might be able to offload from from the variable life and Vienna.

Oh traffic to what you've said essentially put over.

And just the <unk> portion not so much Wi Fi, but just the <unk> portion out of home.

Alright, well.

Greg Tom here.

We have had outsized growth and I don't think any broadband provider and America connected.

Our net gain them charter.

So I think our strategy in terms of pricing and packaging has worked in terms of growth.

And we deferred a rate that we had planned in 2021 actually because of the opportunity and because of the so called social circumstance and.

And our obligation during that social circumstance.

So.

We did do a.

Data only rate increase.

The fourth quarter of 2020.

And.

Our relative prices compared to.

And our competitors and compared to our peers is still.

And situationally gives us an opportunity to continue to grow rapidly.

So we'll evaluate that through time, but.

We like the model, we have and we think theres a lot of growth in front of us.

And.

With regard to to see Brs and how much traffic we can unload.

I think that's.

Through time kind of question.

I think over the long haul meaning for five years.

And it could be up to a third of our traffic.

That's current that would currently be on an <unk> kind of basis.

But again that's not.

And Thats opportunistic depends on traffic flows depends on the quantity and flows and where they are and whether it pays for us to pull.

The capital to reduce those costs.

But.

It isn't necessary and if you think through our Wi Fi deployment as well.

There is a mixture between Wi Fi and <unk> in terms of offload and how that works.

That's.

Not that easy to forecast, but.

80% of all mobile traffic today is on Wi Fi.

Mobile traffic.

Device traffic is.

On Wi Fi and as a result of that.

We are on the wireless connectivity company. If you really think about it we have 400 million wireless devices connected to our network.

And <unk> is just a tool along with Wi Fi.

For us too.

To improve that connectivity experience and it's not as that happens.

And we've looked at CBRE.

Strictly is it incremental.

Opportunity from.

Return on investment point of view.

To move traffic onto our network, but it also does have the potential of increasing the consumers.

Spirits.

And in terms of their satisfaction because of the quality of that connection.

And.

And so that's sort of an unstated opportunity going forward and hard to quantify but.

Part of our strategy.

Thanks, Tom.

James will take our next question please.

Our next question comes from the line of Doug Mitchelson with.

Credit Suisse go ahead. Please your line is open.

And so much couple of questions I just wanted to follow.

The wireless threat here, a little bit you know pretty interesting comments, there, Tom and Chris that earlier, and we're not giving away free phones to get cut.

On the wireless net adds is there a business model where at some point you. It makes sense to do so I would think from an enviable low standpoint, just selling and.

Just going on service and a new broadband subs runs out of gas at some penetration level it might last quite a while and it might be a profitable business for you, but its I don't know if the updated and.

And with Verizon and puts you in a position with different economics of offload and a 30 year wireless traffic with new and different economics is there a point, where you can get more aggressive going after customers.

Relative to what the big three are doing that and then separately on some of your marketing spend was up 1%, but the connects were down and you indicated the <unk> environment was still pretty light.

Just talk about your marketing strategy, and how that might evolve and Ah in 2021 that'd be helpful. Thank you.

And.

Okay.

Start off with the.

The wireless business model as a standalone business model. We've always said, we don't think is very good.

And that includes the subsidy of handsets and something that we're not a huge fans of if we can afford it and real value to charter is to increase the overall connectivity.

This service we already provide today.

80% of traffic mobile traffic, that's already carried over our network.

And extend our reach with Internet and our connectivity and have the opportunity to provide <unk>.

Customers, a broadband and a wireless connection and mobile connection and a cheaper price than they usually pay for and the household for just mobile alone.

And Thats, a way for us to drive connectivity penetration.

Today and.

Our goal is not to use we think there's so much value and the mobile and broadband combined offer that we have there is not a need to go subsidize the handset.

And sensor have a longer life now than they have and the past.

We'd like to avoid that for all the obvious reasons and does that mean over time that could evolve it could given the value that we create through that customer relationship, but it's not a it's not a focus for us and we don't take that and and of itself is a great business model.

On the marketing and sales tied to the lower sales inside of the fourth quarter, just because sales were lower doesn't mean that we werent trying to acquire more and.

And so we were.

We were active in the marketplace, we didn't pull back.

And so we continue to spend a pretty similar amount of marketing and sales dollars. Despite the fact that we had lower connects inside the quarter.

Okay.

And then quarter over quarter on fourth quarter over last year's fourth quarter, yes.

And and is there anything new or different you would expect to do as the market normalizes in 2021 relative to your behavior, and 2020 and other different channels or different prices or the model is working and it's steady as she goes.

And it's working very nicely for us our sales yield as we look at it which is the amount of sales that we make per available transaction.

<unk> continues to improve.

And our whole opportunity.

Structure.

Around selling mobile connections continues to improve.

We have even during the pandemic, we managed to build 180, new stores from 2020.

And we expect.

To finish off our store construction and 21.

And so we'll have a fully deployed.

Walk in.

Retail environment.

Which is not yet fully realized so we would expect that would have an impact on our growth rate in 2021, and a positive way.

Our yield meaning.

The amount of mobile connections that we sell.

As a percentage of every person who enters one of our stores continues to go up and.

And the same is true of.

Every phone call we received through our call centers.

And as a result of that we're pretty optimistic about our ability to continue to grow the business.

The way, it's currently structured inside of our.

Pricing and marketing machine.

Last one how many stores that in 2021 are left to bill.

I'm not sure, but I think we ended up with 750.

I think a couple of on a couple of hundred one.

180, 200, that's my recollection.

And you bought so much.

James will take our next question please.

Our next question comes from the line of Phil Cusick with Jpmorgan go ahead. Please your line is open.

Okay.

Hey, guys. Thanks, I understand you're still restricted on on art off but you called out the extensions to rural markets and your penetration are in your presentation can you confirm that the steady Capex intensity guide includes anything you might do in rural and should we expect to see a step change and line extension Capex as you can.

Push harder on those new home build outs, both brownfield and Greenfield.

And then any change and we should expect next year.

And maybe becomes more important.

And so Phil the capital intensity outlook that I gave did not on one hand does did not include any incremental amount for art off on the other hand.

Not sure given the amount of planning work and we will need to stand up this year I don't know that its going to be that material. This year anyway, and you need to be at the back end of this year.

As you look out and generally our core cable capital intensity.

Is continuing to decline.

<unk> between different years, and 2020 and.

We delayed certain network projects to be able to accommodate the significant amount of scalable infrastructure spend to accommodate the significant traffic increase and to some extent and 2021, we're addressing those projects that were delayed out of 2020 and continuing because of the high traffic demand to spend more on outsized amount on node splitting and.

Traffic capacity expenditure and 21 that we've been doing what we expect.

And so there will be over time things like art off or <unk> deployment or different levels of DOCSIS, three one or DOCSIS $4 zero deployment that may knock us temporarily off on track, but the reality is core cable capital intensity as a percentage of revenue the trend is on.

The decline and.

And nothing has really changed and to the extent that we have <unk> spend or <unk> spend and.

We're going to isolate that for the market to be able to have clear visibility as to not only what we're spending but what we think we're getting out of those projects as well.

Thanks, guys Yep, Thanks, Bill James well take our next question. Please.

Our next question comes from the line of Ben Swinburne with Morgan Stanley Go ahead. Please your line is open.

Thanks, Good morning, Tom.

Tom I wanted to come back to your comments on video in 'twenty, one and I guess beyond I think you talked about I think it was either you or Chris talking about streaming apps on world box.

And sort of accelerating those trends what is how would you describe your video strategy sitting here today any sense of how big the world box kind of installed base is and is this a strategy that could be.

Relevant for broadband only customers over time.

Yeah.

Yes, yes, the answer is yes, it can be.

So our video strategy is to continue obviously to sell the products that we've historically sold and to sell them.

And with a reasonable margin attached to them.

And two.

To make money with them but to.

And also include them as part of our overall connectivity relationship with our customer base and a way that.

Allows us to satisfy the needs of as many customers as possible as a result of our network.

And that includes the addition of new video.

Tears.

Products that may be skinny here or differentiated or targeted and a way that.

They create customer satisfaction at reasonable prices because of the long run price trend.

The core video product continues to be negative.

Meaning.

Programming costs continue to go up.

And and that's obviously, creating a lot of the friction in the marketplace and the decline of that business.

We also think that we want to have a transactional.

Marketplace on.

Consumer friendly.

Interface, so that a customer of ours have access to all the products. They may want to buy that are direct to consumer and there is an opportunity for us and that as well to be sellers of that and and.

And to operate a store a consignment store and to create value for us and customers through that.

And as them.

World boxes deployed.

I'm not sure what the full talent is several million dollars yeah, it's millions.

Multiple millions of households.

And.

And those world boxes deployed and those on the increment.

Have and App store and I'm now on our in App.

And App section and the mall, where we can place.

On the products that people want to get on the same set top box as our traditional.

<unk>.

Cable TV services.

And.

In addition to that.

We have the opportunity to offer and App based platform to our data only customers and.

We haven't offered that IP only.

Product, although we've opened up some of our video products.

Through apps to our.

Internet only customer base like our news channels for instance.

So that opportunity is in front of us as well and.

But ultimately I expect that.

All of our customers will have on opportunities to transact with us and.

And a video marketplace.

Got it thank you.

Thanks Ben.

We'll take our last question please.

Our last question comes from the line of Bryan Kraft with Deutsche Bank Go ahead. Please your line is open.

Hi, good morning.

Chris I wanted to ask you how are you now thinking about where you want to be ideally within your target leverage range.

And on a related topic would you expect the pace of share repurchases to be similar more or less and 21 versus 'twenty and then lastly, if the corporate tax rate does increase back to 28% for 2022 tax year and beyond.

And would that change the way you think about the target leverage ratio. Thank you.

And.

So Brian the target leverage range, we're comfortable on the four to four five times.

And at the high end of that range on a consolidated basis and declining and that range on a cable only basis.

Depending on how you want to look at it you can pick which one you think is more relevant.

But we're comfortable inside the range, we don't have any plans to change that target leverage range.

That would include if the tax rate next year were to go up we've been and that tax rate before admittedly with Nols, which will be expiring, but given the strength of the cash flow subscriber growth and cash flow and the business performance.

And the sustainability of not only the operating model that the balance sheet structure that we have it's pretty unique I don't see any reason at this stage as we sit here today that would be changing our target leverage range.

On buybacks, we never give guidance and the reason for that is to make sure that.

Management and the board.

Not in a position where we feel like.

We're gonna be hand cash based on previous comments and in terms of creating shareholder value and so we want to retain flexibility as it relates to investing and high ROI projects inside the business first quarter call doing attractive M&A and to the extent that we don't have somebody else's stock to buy and thats better than buying our own stock to buybacks, which is what we've been doing.

In the past the past several years and addition to launching some really high ROI projects and spending on those where they are available right.

Right now I don't see any massive change to what we're doing as it relates to our overall capital structure of buybacks, but I'm not going to sit here and give an outlook or guidance as it relates to to buybacks for the year.

FERC for all those reasons.

Thank you for the clarification thanks, Brian.

Thanks, Brian and thanks to everyone that concludes our call. Thank you everyone. Thank you.

Ladies and gentlemen, this does conclude today's conference call. We thank you for your participation you may now disconnect.

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Ladies and gentlemen, thank you for standing by and welcome to the charter Communications fourth quarter 2020 earnings call.

All lines have been placed on mute to prevent any background noise and after the Speakers' remarks, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone keypad. If you require operator assistance. Please press star zero.

I would now like to turn the call over to your speaker today, Steph and manager. Please go ahead and good morning, and welcome to charter as fourth quarter 2020 Investor call.

Presentation that accompanies this call can be found on our website IR charter dot com under the financial information section.

Before we proceed I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, including our most recent 10-K filed this morning.

We will not review those risk factors and other cautionary statements on this call. However, we encourage you to read them carefully.

Various remarks that we make on this call concerning expectations predictions plans and prospects constitute forward looking statements.

These forward looking statements are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results.

During the course of today's call, we will be referring to non-GAAP measures and defined and reconciled and our earnings materials.

These non-GAAP measures as defined by charter may not be comparable to measures with similar titles used by other companies.

Also note that all growth rates noted on this call and and 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 Steffen.

2020 was an unusual year, but demonstrated and enhance the strength of our business and we performed better than expected and a number of areas. The past year has also highlighted the importance of the services, we provide and our robust network handle that and immediate conversion to a remote based economy, enabling work from home.

On promote education and telehealth services over the last 10 months, our broadband infrastructure was tested and it performed very well that's because charter we've spent over $35 billion on our network and infrastructure since the close of our transactions and 2016 and.

And it showed up and our 2020 performance for the full year 2020, we added $1 9 million new customer relationships for growth of six 5% and we added $2 2 million new internet customers from growth of eight 3%.

And also performed well financially we grew our adjusted EBITDA by 10% and on a free cash flow by 53%, our residential business performed particularly well with strength and Internet and we.

Where we added 800000 more customers and we did the prior year.

We remain very optimistic about our opportunity to grow our internet business, given the quality and value of our product. Despite the outsized growth and some pull forward of demand into 2020, which will drive continued benefits to our revenue and EBITDA going forward, our expectation and plan for 2021.

And we'll revert to the trend we were on pre COVID-19 and meet or exceed the customer relationship and Internet net adds that we achieved in 2019 and <unk>.

We believe our long term broadband penetration and market position has actually been enhanced.

COVID-19 hurt our small business and enterprise businesses.

But trends in those parts of our businesses are improving and we're on our way back to our previous gross rates or better on.

Our core AD business also suffered but it's now bouncing back and core advertising is 95% of what we would've expected from a revenue perspective, we anticipate our advertising business will make a full recovery with the timing of that recovery dependent on the full recovery of the economy.

We saw a significant increase and the use of our online and digital sales and self service platforms, which drives cost savings and higher customer satisfaction and.

As we reflect on our 2020 operating performance. We also demonstrated our commitment to our customers. The communities, we serve and our employees, we launched a number of community programs, including our remote education offer and to keep America connected pledge.

In addition, we significantly expanded.

<unk> from news coverage areas and opened up our spectrum news websites to ensure people have access to high quality local news and information, we rapidly connected and upgraded fiber services to health care providers and donated and significant airtime to run public service announcement announcements to our full footprint from 16 million video customers.

For our employees, we offer additional paid sick time for Covid related illnesses and flex time program to address other COVID-19 issues. We also increased our wage for all hourly field operations and customer call Center employees. Our efforts have been recognized by our employees to local communities and customers, we serve and related stakeholders.

Which brings long term benefits.

Looking forward, we remain committed to offering a $20 minimum wage and our strategy of employing and in sourced U S. Based work force that offers a long term career paths for our employees and our call centers and all of our employees are now 100% U S based.

Our plans to expand our footprint and rural areas will increase broadband access and help connect well over a million homes, which have gone and served until now and that doesn't even include a regular buildout to lower density areas, which accelerated in 2020.

We continue to offer our spectrum Internet assist program to millions of lower income households households at affordable prices and.

And the near term, we have a large opportunity to improve data throughput and latency on our network by using our DOCSIS three one technology, which still offers us a long runway to improve our product set we will also continue to invest and DOCSIS four dot O with key vendors and the rest of the industry for even greater capacity and functionality.

And down the road.

We're also improving the quality of our Wi Fi routers and Wi Fi reception in the home. We recently launched our new Wi Fi six router and our first market and we will have Wi Fi six router.

Available and nearly all markets by mid 2021, and we now offer companion and Wi Fi pods to improve Wi Fi and reception in the home.

Our advanced in home Wi Fi service, which is a managed Wi Fi service that provides customers the ability to optimize their networks, while providing greater control of their connected devices has now been launched across more than 65% of our footprint for new connects and we will continue to expand that footprint. This year.

And our mobile service now offers free access to nationwide <unk> service.

We recently spent.

$165 million to purchase 210, CBRE priority access licenses.

We intend to use those licenses along with significant unlicensed <unk> spectrum on a targeted <unk> small cell site strategy with our HFC network, providing power and backhaul those small sales combined with improving Wi Fi capabilities enable better throughput, while driving significantly better economics for charter.

This year, we will focus on scaling our systems to actively manage traffic on handsets using our <unk> Wi Fi Cbr's spectrum. We will also build some targeted <unk> small cell sites, which will help us learn how to pace our purely return on investment based cvr's deployment.

In closing as we look back on 2020, we're very pleased with our performance as it demonstrates that our operating strategy works well for charter communities employees and shareholders, even in challenging economic and operating environments and despite the one time impacts to our P&L, which Chris will cover.

Significant timing impacts of Covid and the different quarterly reporting methodologies for COVID-19 programs across the industry, our customer and financial results.

On a full year basis is the better overview, so I'll give a brief readout with the fourth quarter and then ill discuss our very good 2020 results set up 2021, and where that leaves us in 2022.

For the full year, we grew our internet customers by $2 $2 million or by eight 3% our highest ever on an absolute basis.

Trends have been improving more recently and subject to Covid and economic developments. We currently expect full year 2021, and customer relationship and Internet net adds to meet or exceed 2019.

Residential and SMB video customers declined by 35000, and the fourth quarter grew by $5 56000, or 0.3% for the full year.

Voice customers declined by 103000, and the quarter by 148000 and for the full year.

Local line net net adds grew by 315000 and during the quarter more than last year's fourth quarter.

Our yield on mobile sales opportunities continues to improve across our channels and the lower sequential net additions reflects the lower fourth quarter cable sales I just mentioned.

So we're growing mobile nicely and we're not giving away free handsets to do it.

For the full year, we added $1 3 million mobile lines and we believe we were the fastest growing mobile operator, and our footprint during the fourth quarter and for the full year.

Turning to slide seven and fourth quarter revenue increased by seven 3% year over year or five 6% excluding political advertising.

Full year revenue grew by five 1% or four 3% excluding political.

Fourth quarter EBITDA as shown on slide eight increased by 10, 2% year over year and nine 9% for the full year.

Youll notice and today's materials that were no longer isolating and cable specific revenue EBITDA and free cash flow metrics, but we will continue to isolate and mobile revenue expenses working capital and Capex for investors through 2021.

A few comments on the most notable fourth quarter expense items, including certain COVID-19 related expense impacts during the fourth quarter and for the full year 2020 on slide nine.

Regulatory connectivity and produced content expenses declined by 10, 7%, primarily driven by NBA games pushed into 'twenty and 'twenty one.

Cost to service customers increased by four 4% year over year, driven by six 5% customer relationship growth.

And the hourly wage increase we instituted earlier in the year and Covid flex time benefits to employees that was partly offset by lower bad debt, which is due to better payment trends during COVID-19.

For the full year, we generated $3 2 billion and net income attributable to charter shareholders and.

And as shown on slide 11, our 2020 capital expenditures totaled $7 4 billion.

Including just over $500 million and mobile as we continue to invest to support current and future growth.

And we invested significantly and capacity upgrades at the national and local levels to stay ahead of higher data usage, and we havent slowed down on newbuild, including construction and rural areas.

We continued to purchase significant DOCSIS three one modems from new connects and equipment upgrades and saw a high attach rate for our advanced in home Wi Fi service.

For the full year 2021, we expect cable capital expenditures as a percentage of cable revenue to be similar or lower than in 2020.

We're still on the R&D and there are dark quiet period and will.

Isolate those effects for investors and the future.

Expect our 2021 mobile capital expenditures to be similar to 2020 levels as we build out more and mobile stores than we originally anticipated and we.

We will spend some dollars to scale, our <unk> efforts and mobile back office systems.

Leaving aside the pace of ROI based deployment of small cells, we would expect mobile capex for stores and systems to be materially lower and 22 and beyond.

We generated $7 1 billion of consolidated free cash flow and 2020 up 53% from 2019 currently we don't expect to be a meaningful federal taxpayer until 2022.

For the full year 2020, we repurchased 21 million charter shares and charter holdings common units approximately 7% of our shares and units for $12 1 billion.

Since September of 2016, we have repurchased nearly $40 billion per stock.

32% and for shares and units at an average price of $394 per share.

Let me now focus on how 2020 sets up 2021, and where that leaves us and in 2022.

Tom mentioned, we added nearly 2 million and customer relationships compared to $1 $1 million and 2019 and we.

We added $2 2 million broadband customers compared to $1 4.002 million 19.

And yet total transaction activity in 2020, which is the sum of gross connects and churn is actually lower than in 2019, driven by very low churn during the pandemic.

From a cost perspective, we saw a savings and a number of areas and programming the interruption and cancellation of sporting events drove $163 million of sports cost savings and similarly, the cancellation and shift of games also drove cost reductions and timing benefits of over $200 million and a regulatory connectivity and produced content line.

Related to our Lakers and Dodgers RF.

Cost to service customers benefited from lower customer transactions, and historically low bad debt, but that was more than offset by wage increases and kind of and flex time, we provided to our employees.

And total 2020, adjusted EBITDA grew by nine 9%.

For 2021, our baseline assumption is that the COVID-19 vaccine will be widely dispensed and that the economy and will return to normal activities by the middle of this year.

But the reality is that we don't know, but that assumption and suggest that the full year of 2021 customer net adds should look more like full year 2019, net adds with a return to more normal churn levels driving higher transaction activity, including higher connect activity and in 2020, despite lower net adds.

Not only were quarterly net add growth comparisons to 2020 to be somewhat irrelevant, but the current environment will drive abnormal variances when comparing individual quarters to 2019.

And our underlying 2021 financial performance will be difficult to discern without the use of our 2020 COVID-19 schedules shown on slides nine and on a quarterly basis again on slide 19.

From a financial perspective, we expect 2021 revenue growth to benefit from the significant customer growth we had in 2020.

The lack of Covid related credits and 21 and.

And and improving SMB core advertising and enterprise outlook.

Partly offset by the absence of political advertising revenue in 2021, all of which means we will see a significant year over year growth rate swings between quarters.

And.

From a cost perspective, we expect 2021 programming to grow at a higher rate than last year and part because we don't expect last year's sports programming credits to recur.

Regulatory connectivity and produced content will also face a onetime step up to a full return on sports rights costs, and 2021 and the delayed start to the current and NBA season, pushing Lakers games from 2020 into 2021.

And as non pay churn and returns to normal levels, but we'll also see a one time step up and bad debt expense also returning to normal levels.

All that in mind, we expect 2021, adjusted EBITDA growth to be good but low.

Lower than in 2020, primarily driven by the net effects of COVID-19, including related wage increases higher programming and RSA cost normalized bad debt and the lack of political advertising in 2021.

So while we still expect 2021 to be a good year 2022 should be even stronger assuming our 2021 Internet net adds are similar to 2019.

And the economy returns to normal our momentum in 2022 will be very strong SMB and enterprise revenue growth rates should be back to our expectations core advertising should return to full growth and 2022 should be a strong non presidential political advertising year, we won't face. The same one time step up and returned to normal programming and sports rights costs.

We'll be past the large one time step up and our hourly wages that will occur in 2021 and.

And we also won't have the same one time step up and customer transactions and bad debt expense also and the cost to service customers line.

So while it's very early to get excited about 2022, given the ongoing macroeconomic uncertainty 2022 could be the year of the financial and operating performance that we originally expected for 2020.

Optimistic about the medium and long term growth prospects for charter.

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.

We'll pause for just a moment, while we compile the Q&A roster.

Yeah.

And our first question comes from the line of Jonathan Chaplin with New Street.

And please your line is open.

Thanks.

Two quick questions, if I may Chris first.

And you finished off by saying that 2022 could be the Gary you'd live their performance you expected in 2020 can you remind us what you were anticipating and.

'twenty and 'twenty and 'twenty in terms of financial performance and.

And then with the <unk> deployment.

Kicking in and it sounds like from the pacing of Capex and love the deployment will happen, perhaps towards the end of 2020, how do you expect that to impact wireless margins sorry the.

Appointment happened towards the end of 2021, how do you expect that to impact wireless margins in.

In 2022, what could the wireless margin.

The margin for the wireless business looked like once the CBRE.

And is fully deployed.

And so the first question was what we were expecting 2020, but the trends were that we were expecting in 2020, where and acceleration of customer and internet net additions.

Additions relative to 2019.

And.

Political advertising year, which indeed, we had.

And the continued benefits of our service model driving lower transactions.

Increasing the underlying profitability of the services by providing great coverage and customer service all of which actually happened some to different degrees, but we had a tremendous amount of other unrelated noise that was and the system for 2020, some of which was difficult put pressure on the.

Some of which was artificially good.

And in 'twenty and 'twenty one.

We will have is the reversal of many of those trends good and bad.

All of the underlying trends around cost of service remain and in fact, it may have been accelerated through Covid. We will have another political advertising year, and 2022, and so I don't want to get over our skis about looking that far out given what uncertainties still in front of us and.

But I think 'twenty and 'twenty, one will still be a good year and I think 2022.

And we'll be evening, even cleaner youre really demonstrate and everything thats really happening.

Behind the curtains at charter and its multiyear operating model deployment.

The <unk> deployment in 2021, it's captured and what I talked about the mobile capex for this year.

I think it's going to be pretty small.

In line with what Tom mentioned in terms of what we're looking to achieve this year as it relates to 2022.

As we scale the ROI based deployment of the radio access networks and are really just be based on.

And the achievement of.

Lower operating cost and we expect to payback on that to be relatively quick but it will still be fairly de minimis in terms of its overall impact both on Capex and day.

Grand scheme of things as well as the wireless margins and the pace of that rollout will really be dictated based on how quickly. We can go and how quickly we can realize those type of return and so its little early to to outlet and that fully I don't think it's going to have a material impact either way and <unk>.

<unk> 2021.

I would just add to that that the returns on <unk> deployment.

After 2021 really mostly.

We will be.

Specific to the demand utilization and the location where the radios are placed.

And and.

And so to some too.

Tim.

And a complete sense, it's and opportunistic strategy.

Wherever our costs would be lower volume.

Investing in more Cvr's radio deployment.

Our costs will go down.

And such a way that will get a return on investment.

And I guess just to sort of.

Phil on Chris's response on trends.

If you think about the long run trend that we've been on and <unk>.

Accelerating growth rate in terms of.

Broadband growth.

That trend is still in place and.

And it exists for 19, 2021, and we think as well into 2022 and what's really happened is you've got a lot of <unk>.

Noise and the 'twenty and.

'twenty one p&l's.

But the net of all of it is.

<unk>.

Spread it out over a multiyear period is that the trend continues but we have 800000 more internet customers and we would have otherwise.

Sure.

Okay great.

Operator, we're ready for the next question.

Our next question comes from the line of Vijay Jayant with Evercore go ahead. Please your line is open.

Thanks.

Just wanted to come back with broadband numbers obviously.

Wireless attached to broadband.

And I think 70% to 90% this quarter like 145, and I think you mentioned that Q1, but it was low.

<unk> set of key elevator.

Elevated Q&A and broadband pipe to keep America connected.

Much of that on it.

And I think we'll harvest sales out of interest.

And there needs to be sort of plays out.

And any any thoughts on that and then.

Lee your.

Video and.

2020.

Good and.

And I think you've started to use some of your flat on your carriage minimums on the low with Europe can you just talk about is that a trend we should continue to see in 'twenty one.

Actuated and that opportunity given.

How much you've done on the military and video.

Thank you.

So Vijay let me answer that.

<unk> question on the.

Keep America connected and the RVO effect and weather.

And that's in or out of the system I think that's the thrust of your question.

I think the.

The Oreo pulled demand forward.

From a acquisition point of view and.

And the keep America connected pulled reduce churn and forward and therefore pushed net gain up forward.

And if you think about the way churn works.

If you have more disconnects you have more connects to keep the same growth just keep the same net ads.

And so there is less net adds in the fourth quarter because of those net adds were pulled forward by the.

Keep America connected program and.

And therefore, there was less activity and the fourth quarter as a result of the normal.

Way that churn interacts with sales.

But as we look at 'twenty, one and look at how our sales have returned and we look at the behavior of our customers.

We think that the effects of all of that are pretty much out of our numbers.

Already and.

And we expect to return to a more normal kind of connect and disconnect rate and a more normal.

Net adds right that's.

Consistent with the kinds of growth rates that we had in 2019 and.

And we see that already and are are.

And so far through 2022 through the date today in 2021.

And then on video trends video, Yeah, I'm sorry.

We had.

We had good results and video for two reasons, one we had outsized growth and connectivity and as a result of that.

And by having market share shift to us from other video providers as they bought our broadband.

We grew our video against a macro trend of declining.

Multi channel video growth.

And that macro trend Hasnt gone away.

And I expect and general video growth for the industry will continue to decline maybe at a.

At a moderate pace.

And and I don't think we will have quite the internet growth that.

And that we had in 2020 in 2021, so I think that just that fact alone is going to put more pressure on our video growth.

Going forward.

But on the other hand, we've been able to grow with OTT.

OTT products and smaller packages and.

And we still have opportunities there and we're forecasting our internal growth and those areas to continue to ask.

Accelerate.

And so the net of those two things as is.

<unk>.

Difficult to say, but.

But I think we'll do better than the industry in general.

If you just look at multi channel video growth.

Whether that'll be positive or negative I am not sure.

Got it Vijay.

And I know youll.

And I can take a look at what both Tom and I said, not just now and the Q&A, but also on the prepared remarks, but to just list them out that Q4 impacts for broadband and relationships.

There's some from Florida sales that we've talked about earlier and the year. Two there was less market churn and that drives lower sales funnel, particularly for a share taker like us that has an impact and <unk>.

Three the nuanced that Tom was going through is that the keep Americans connected customers and then we kept those subs already in Q2, and Q3, which was helpful to our net adds but subset might've turned around and reconnected and Q4 as a sale opportunity we had already we'd already retained on some of their stock.

And so they didn't turn into a quarter gross sales or net add opportunity inside the fourth quarter. The last one is true, but nuanced and those three reasons are the big drivers and what gives us confidence confidence around us returning back to more like 2019.

Great. Thanks.

Yes.

Operator, we'll take our next question.

Our next question comes from the line of Brett Feldman with Goldman Sachs.

And I am pleased Youre line is open.

Yeah, Thanks, and just some points of clarification around just the answer you gave before.

It sounds like all of the churn.

You might have experienced from keeping America connected and other payment plans.

The address prior to the fourth quarters and the first question and what is there any residual churn from that customer base and the fourth quarter or do you feel like you have just gotten to a normalized churn rate and then you talked about lower overall churn and the market I was hoping to get your thoughts on that day.

And so let me talk about the keep Americans connected churn and the remote education offer.

Tackle both of those at the same time and remote education offer the retention of those customers very much looked like normal acquisition.

It had been the case earlier and the year that continue to be the case through Q4 and for all the obvious reasons, we've been tracking that.

And very diligently and they keep Americans connected customers, who where we wrote off significant portions of their balance put them back into a current state state.

They've been paying them and they've been retained as customers and they've been paying much better than we expected.

And they have a slightly higher non pay rates and your average customer base you would expect that.

Does of where they came from.

That program to reset the receivables, we don't see that raising its head now or in the future. So those are good customers. They always were and I think we did the right thing to put them back into a current receivable state.

On the lower overall market churn.

And really the two big driver three drivers there one is that.

Because stimulus has been on and off but overall People's account balances are high and they don't have places to spend money on.

And because of the importance of the services that we provide we've been paid.

And people are itching to have people and their homes switching out their services. So general voluntary churn tends to be down across the market, we believe as well and.

And so that lower overall market share and drives less selling opportunities for a share taker like us chats and impact on your ability to to.

And to sell and to bring on new customers. We have started to see transaction activity start to return to normal is not by any means normal.

And which is why I said, our outlook for 'twenty 'twenty, one on net adds and for Internet and customer relationships really is a full year outlook and I would not get too tied up at all as it relates to a quarter by quarter comparisons. So that's not what we're talking about and the beginning of 'twenty. One will look more like 2020 in terms of customer.

Activity and I think normalization takes place and progressively over the course of the year.

Great. Thank you for that color.

Thanks, Brett James we'll take our next question please.

Our next question comes from the line of Craig Moffett with Moffett Nathanson go ahead, please and your line is open.

Hi, Thank you two questions if I could first step.

Step back from the broadband conversation for a moment.

You've historically said that your your preference is to keep prices low and to try to grow.

Okay.

Perhaps to be a little more reliant on price as most of the peers are in the industry and.

And optimizing total revenue growth and.

And then second if I could return to the conversation on <unk> small cells, maybe we could just think about it and.

In terms of and objective or how much traffic and you think you might be able to offload from from the variable is enviable.

Traffic to what you've said essentially put over.

Yes <unk>.

S portion.

So much Wi Fi, but just the <unk> portion.

Out of home.

Alright, well.

Craig Tom here.

We have had outsized growth and I don't think any broadband provider and America connected.

More net gain them charter so I think our strategy in terms of pricing and packaging has worked in terms of growth.

And we deferred a rate that we had planned in 2021 actually because of the opportunity and because of the so called social circumstance.

And our obligation and <unk>.

And that social circumstance so.

We did do a.

Data only rate increase and.

On the fourth quarter of 2020 and.

And.

Our relative prices compared to our competitors and compared to our peers is still.

And situationally gives us an opportunity to continue to grow rapidly.

So we'll evaluate that through time, but.

We like the model, we have and we think theres a lot of growth in front of us.

Yeah.

With regard to to see Brs and how much traffic we can unload.

I think that is.

Through time kind of question.

I think over the long haul meaning for five years.

It could be up to a third of our traffic.

That's current net would currently beyond and NV and <unk> kind of basis.

But again thats not.

That's opportunistic depends on traffic flows depends on the quantity of flows and where they are and whether it pays for us too.

Put out the capital to reduce those costs.

But.

It isn't necessary and if you think through our Wi Fi deployment as well.

There is a mixture between Wi Fi and <unk> in terms of offload and how that works.

And.

And not that easy to forecast, but.

80% of all mobile traffic today is on Wi Fi.

Mobile traffic.

<unk> device traffic is on Wi Fi and <unk>.

As a result of that.

We are on the wireless connectivity company. If you really think about it we have 400 million wireless devices connected to our network.

And <unk> is just a tool.

Along with Wi Fi.

For us too.

To improve that connectivity experience and it's not as that happens.

And we've looked at CBRE.

Rick strictly as an incremental.

Opportunity from.

Return on investment point of view.

To move traffic onto our network, but it also does have the potential of increasing the consumers.

Spirits.

And in terms of their satisfaction because of the quality of that connection.

And.

And so that's sort of an unstated opportunity going forward and hard to quantify but.

Part of our strategy.

Thanks, Tom.

James will take our next question please.

Our next question comes from the line of Doug Mitchelson with credit.

Credit Suisse go ahead. Please your line is open.

And so much couple of questions I just wanted to follow.

The wireless threat here, a little bit you know pretty interesting comments, there Tom and Chris said earlier, we're not giving away free phones to get cut the wireless net adds is there a business model where at some point you. It makes sense to do so I would think from an enviable low standpoint, just selling and.

Just gone and service and a new broadband subs runs out of gas at some penetration level it might last quite a while and it might be a profitable business for you, but I don't know if the updated and.

With Verizon and puts you in a position with different economics of offload and a 30 year wireless traffic with you and different economics is there a point, where you could get more aggressive going after customers.

Relative to what the big three are doing and and then separately I saw your marketing spend was up 1%, but the connects were down and you indicated the <unk> environment was still pretty light.

Talk about your marketing strategy, and how that might evolve and in 2021 that'd be helpful. Thank you.

And.

Okay.

<unk> off with the.

And the wireless business model as a standalone business model. We've always said, we don't think is very good.

And that includes the subsidy of handsets and something that we're not a huge fans of if we can afford it and the real value to charter.

Is to increase the overall connectivity of this service we already provide today.

80% of traffic mobile traffic, that's already carried over our network and two.

And extend our reach with Internet and our connectivity and have the opportunity to provide customers a broadband and a wireless connection and mobile connection and a cheaper price than they usually pay for in the household for just mobile alone.

And Thats, a way for us to drive connectivity penetration.

Day, and our goal is not to use we think there's so much value and the mobile and broadband combined offer that we have there's not a need to go subsidize the handset and headsets or have a longer life now than they have and the past and said.

We'd like to avoid that for all the obvious reasons does that mean over time that could evolve it could given the value that we create through that customer relationship, but it's not a it's not a focus for us and we don't take that and and of itself is a great business model.

On the marketing and sales tied to the lower sales inside of the fourth quarter, just because sales were lower it doesn't mean that we weren't trying to acquire more and.

And so we were.

We were active in the marketplace, we didn't pull back.

And so we continue to spend a pretty similar amount of marketing and sales dollars. Despite the fact that we had lower connects inside the quarter.

Okay.

And then quarter over quarter on fourth quarter over last year's fourth quarter, yes.

And is there anything new or different you would expect to do as the market normalizes in 2021 relative to your behavior, and 2020 and other different channels or different prices or the model is working and it's steady as she goes.

It's working very nicely for us our sales and yield as we look at it which is the amount of sales that we make per available transaction.

<unk> continues to improve and.

And our whole opportunity.

Structure.

Around selling mobile connections continues to improve.

We have even during the pandemic, we managed to build 180, new stores from 2020.

And we expect.

To finish off our store construction and 21.

And so we'll have a fully deployed.

Walk in.

Retail environment.

Which is not yet fully realized so we would expect that would have an impact on our growth rate in 2021, and a positive way.

Our yield meaning.

The amount of mobile connections that we sell.

As a percentage of every person who enters one of our stores continues to go up and.

And the same is true of.

Every phone call we received through our call centers.

And as a result of that we're pretty optimistic about our ability to continue to grow the business.

The way, it's currently structured inside of our.

Pricing and marketing machine.

Last one how many stores than in 2021 are left to bill.

I'm not sure, but I think we ended up with 750.

And I think of the couple of on a couple of hundred.

180, 200, that's my recollection.

And you bought so much.

James will take our next question please.

Our next question comes from the line of Phil Cusick with J P. Morgan go ahead. Please your line is open.

Yeah.

Hey, guys. Thanks, I understand you're still restricted on on art off but you called out the extensions to rural markets and your penetration in your presentation can you confirm that the steady Capex intensity guide includes anything you might do and rural and should we expect to see a step change and line extension Capex as you.

Push harder on those new home build outs, both brownfield and Greenfield.

And then any change and we should expect next year.

And maybe becomes more important.

And so Phil the capital intensity outlook that I gave did not on one hand did not include any incremental amount for art off on the other hand and.

Not sure given the amount of planning work and what would need to stand up this year I don't know that its going to be that material. This year anyway and in any event and be at the back end of this year.

As you look out and generally our core cable capital intensity.

And is continuing to decline.

Bush's between different years, and 2020 and.

Traffic capacity expenditure and 21 that we've been normally expect.

On the decline and.

And nothing has really changed and to the extent that we have <unk> spend or <unk> spend.

We're going to isolate that for the market to be able to have clear visibility as to not only what we're spending but what we think we're getting out of those projects as well.

Thanks, Chris Yes, Thanks, Bill James well take our next question. Please.

Our next question comes from the line of Ben Swinburne with Morgan Stanley Go ahead. Please your line is open.

Thanks, Good morning.

Tom I wanted to come back to your comments on video in 'twenty, one and I guess beyond I think you talked about I think it was either you or Chris talking about streaming apps on road box.

Relevant for broadband only customers over time.

Yes, yes, the answer is yes, it can be.

So our video strategy is to continue obviously to sell the products that we've historically sold and to sell them.

And with a reasonable margin attached to them.

And two.

To make money with them but to.

And also include them as part of our overall connectivity relationship with our customer base and.

And in a way that.

Allows us to satisfy the needs of as many customers as possible as a result of our network.

And that includes the addition of new video.

Tears or.

Products that may be skinny here or differentiated or targeted and a way that.

They create customer satisfaction at reasonable prices because of the long run price trend.

The core video product continues to be negative.

Meaning.

Programming costs continue to go up.

And and that's obviously, creating a lot of the friction in the marketplace and the decline of that business.

We also think that we want to have a transactional.

Marketplace on.

On.

Consumer friendly.

Interface, so that a customer of ours have has access to all the products. They may want to buy that are direct to consumer and there is an opportunity for us and that as well to be sellers of that and.

Sure.

And to operate a store a consignment store and to create value for us and customers through that.

Mechanism.

World box is deployed.

And I'm not sure what the full talent is several million dollars yeah, it's millions.

Multiple millions of households.

And.

Those world boxes deployed and those on the increment.

And App store and them now.

<unk>.

And App section and the mall, where we can place.

On the products that people want to get on the same set top box as our traditional.

Cable TV services.

And.

In addition to that we have the opportunity to offer and App based platform to our.

Data only customers and.

We haven't offered that IP only.

App product, although we've opened up some of our video products.

Through apps to our.

Internet only customer base like our news channels for instance.

So that opportunity is in front of us as well and.

But ultimately I expect that.

All of our customers will have on opportunities to transact with us and.

And a video marketplace.

Got it thank you.

Thanks Ben.

We'll take our last question please.

Our last question comes from the line of Bryan Kraft with Deutsche Bank Go ahead. Please your line is open.

Hi, good morning.

Chris I wanted to ask you how are you now thinking about where you want to be ideally within your target leverage range and unrelated topic would you expect the pace of share repurchases to be similar more or less and 21 versus 'twenty and then lastly, if the corporate tax rate does increase back to 28% for 2022.

<unk> tax year and beyond.

And would that change the way you think about the target leverage ratio. Thank you.

And.

So Brian and target leverage range, we're comfortable and the four to four five times.

And at the high end of that range on a consolidated basis and declining and that range on a cable only basis.

Depending on how you want to look at it you can pick which one you think is more relevant.

But we're comfortable inside the range, we don't have any plans to change that target leverage range.

And the sustainability of not only the operating model, but the balance sheet structure that we have that's pretty unique I don't see any reason at this stage as we sit here today that would be changing our target leverage range.

On buybacks, we never give guidance and the reason for that is to make sure that.

Management and the board.

Not in a position where we feel like.

We're going to be handcuffed based on previous comments and in terms of creating shareholder value and so we want to retain flexibility as it relates to investing and high ROI projects inside the business first quarter call doing attractive M&A and to the extent that we don't have somebody else's stock to buy and thats better than buying our own stock to buybacks, which is what we've been doing.

In the past the past several years and addition to launching some really high ROI projects and spending on those where they are available right.

Right now.

C and a massive change to what we're doing as it relates to our overall capital structure of buybacks, but I'm not going to sit here and give an outlook or guidance as it relates to to buybacks for the year.

For all those reasons.

Thank you for the clarification thanks, Brian.

Thanks, Brian and thanks to everyone that concludes our call. Thank you everyone. Thank you.

Ladies and gentlemen, and this does conclude today's conference call. We thank you for your participation you may now disconnect.

Q4 2020 Charter Communications Inc Earnings Call

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