Q2 2021 Charter Communications Inc Earnings Call
[music].
Good day, and thank you for standing by and welcome to charter second quarter 2000.
And 21 Investor call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star 1 and your telephone.
Please be advised today's conference is being recorded.
If you call any further assistance please press star zero.
I would now like to hand, the conference over to your Speaker Stephane and Andrew. Please go ahead.
Good morning, and welcome to charter second quarter 2021, Investor call. The presentation that accompanies this call can be found on our website IR day charter dot com under the financial information section.
Before we proceed I would like to remind you.
And that there are a number of risk factors and other cautionary statements contained in our SEC filings, including our most recent 10-K and also our 10-Q filed this morning.
We will not review those risk factors and other cautionary statements on this call. However, we encourage you to read them carefully.
<unk> remarks, and we make on this call concerning expectations predictions plans.
Prospects constitute forward looking statements. These forward looking statements are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results any forward looking statements reflect management's current view only and charter undertakes no obligation to revise or update such statements or to make additional forward looking statements and the future.
During the course of today's call, we will be referring to non-GAAP measures as defined and reconciled and 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.
Also note that all growth rates noted on this call and and the presentation and are calculated on a year over year basis, unless otherwise specified.
And price.
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 Stephan our operating strategy continues to deliver good customer growth and even better financial growth, while second quarter residential.
Productivity remained lower than normal residential sales activity.
And is slowly picking up.
And because churn continues to be so low those trends are having a meaningful impact on our net additions and even larger impact on our financial growth rates are.
Our commercial business also saw improvements and the second.
Customer small business sales were up versus second quarter of 2019 and enterprise sales continued to steadily improve advertising also improved with second quarter revenue exceeding second quarter 2019 levels, driven by our advanced advertising products and.
So our view is the economy has improved.
Quarter, and our business trajectory is normalizing.
For the full quarter, we added over 330000 customer relationships with customer growth of 4.2% year over year. We also added 400000, internet customers and the quarter and $1.5 million over the last year for year over year.
Moving both from 5.5%.
We added 265000 mobile lines and we grew our adjusted EBITDA by 11, 8% and our free cash flow by over $200 million.
Year over year, we remain focused on driving customer growth by offering high quality.
Here, <unk> and service under and operating strategy works, well and various market conditions, we spoken significantly about wireless convergence and the capital efficient nature of our expanding network capabilities and products.
A key piece of our strategy also includes treating service as a product itself and giving.
And our customers the flexibility to manage their spectrum services and interactions with us whenever and however, they want and we.
We are improving the quality and efficiency of our interaction with customers by expanding our customer self service and self care capabilities, and digitizing and modernizing our number of elements our customers field and network operations.
Operations groups.
Can use.
And those efforts improve the customer experience and the quality of our products, while reducing transactions with customers lowering churn extending average customer life and reducing costs and we've responded to digital and self.
Trends in several ways today over 20% of our residential relationship sales are generated through our online channel with fully automated provisioning and installation scheduling and zero touch by charter and close to 85% of our sales take advantage of our self installation program.
<unk>, reducing costs and driving higher customer satisfaction.
Today customers also choose their preferred medium are interacting with us when they have questions or service issues, including digital chat phone online in person at 1 of our stores.
The spectrum App.
Our.
Our ability to avoid and managed network impairments has improved significantly over the last several years by using machine learning to pinpoint potential service degradation and real time and often in advance, allowing us to avoid disruption altogether. We're now coupling that information with customers preferred communications.
To proactively notify them of maintenance and restoration.
Today over 60% of our customers engage with us exclusively via digital means when they have a service question or issue.
Customers that still want to interact with us by phone can do so and service from our call centers continues.
To become more efficient given new tools.
<unk>, which enhance our ability to properly answer questions and solve the first for the first time.
Customer calls.
And the fact that our Carlson and work force is U S based and fully and sourced with employees, who have training and career paths.
Charter.
Enhances that.
In aggregate.
All of our efforts have reduced total customer transactions, including billing and service calls repeat service calls truck rolls and network impairments all of which improve the quality of our products.
And we're executing well.
Here and yet we remain early and the process of optimizer and optimizing our services product.
So together with our network and product capabilities, we remain confident and our ability to grow our customers EBITDA and free cash flow from many years to come that confidence stems from a number of factors, including the demand for our connectivity products, including.
Our long term growth rate and usage on both wireline and wireless networks, our ability to deliver unique fully converged connectivity services.
Connectivity service package.
Saving customers hundreds or even thousands of dollars a year.
And our share of household connectivity spend.
Spend including mobile and fixed broadband is still low from a passenger perspective, we remain underpenetrated to our long term opportunity finally, our capital efficient path to expand network capability and improve the quality of our products and manner Theres more capital efficient than our competitors gives us a structural.
<unk> advantage to compete over the long term ultimately our strategy is founded on the principal and providing superior services and highly competitive prices now I will turn the call over to Chris.
Thanks, Tom as we discussed last quarter, given the effects of Covid and 2000, 22019 remains and better customer growth comparison.
And for 2021.
And we'll continue to reference to Covid schedules, we provided last year and included again on slide 17, and 18 of today's presentation to help with the year over year financial comparisons.
Turning to our results on slide 5.
<unk> total residential and SMB customer relationships by $1.3 million.
Past 12 months.
And by over 330000, and the second quarter income.
<unk> residential and SMB, we grew our internet customers by 400000, and the quarter by $1.5 million or 5.5% over the last 12 months.
Video declined by 50000, and the second quarter and wireline voice decline.
And the 11.88000.
And residential Internet, we added a total of 365000 customers and the quarter higher than the 221000 and that we gained during the second quarter of 2019.
Our residential video customers declined by 63000 and less than the loss of 150000, and we saw and the second quarter of 2000.
And 19.
And wireline voice and we lost 99000 residential customers and the quarter also less than the loss of 207000 and in the second quarter 2019, and that was driven by continued fixed to mobile substitution.
Turning to mobile we added 265000 mobile lines and the quarter.
And by soon as of the end of the quarter, we had $2.9 million mobile lines.
The lower number of selling opportunities from cable sales, we continue to drive mobile growth with our high quality attractively price service rather than using device subsidies.
A few things to keep in mind when reviewing this quarter's customer results first we estimate that 60000.
And of our residential Internet net adds would not have occurred without the emergency broadband benefit program or <unk>, which launched in may and these.
And these incremental Internet net adds had little impact on our video and voice net adds.
Some of what we estimate this business as usual sales also enrolled and the EBV program as did some of our existing customers.
And as customers did not impact our second quarter customer net adds.
Our second quarter customer net adds also benefited from certain state mandate moratoriums on Internet video and voice disconnects.
Net benefited by about 40000 with video and voice net additions also benefiting but by less <unk>.
Some states and recently ended.
And at their moratoriums, so similar to our K AC customers last year, we will work with these customers to forgive portions of their bills and provide financing options to customers and we expect it to keep them as customers same as we did with the KFC program.
Looking at the bigger picture residential customer activity levels, and the marketplace, including sales.
<unk> churn and particularly non pay churn are taking a bit longer than we expected to return to normal levels.
As a result, our first half 2020, 1 financials have been better than we expected driven by lower operating expense given lower transactions significantly lower bad debt.
We continue to expect transaction volume.
Pick up and the second half of this year driving more selling opportunities in the market for cable and mobile and we still expect full year internet and customer relationships to be at or above 2019 net additions.
So the financial effects that we expected a higher churn environment and expected higher sales for charter as a share taker.
Could occur later in 2021 or even into 2022.
Moving to financial results starting on slide 6 over the last year, we grew total residential customers by $1.2 million or 4.1%.
Residential revenue per customer relationship increased by 1.8% year over year given last year's.
Second quarter residential revenue write down of $76 million for customers and to keep Americans connected program as well as bill credits that we provided last year as part of the remote education offer which provided 2 months of free Internet.
Those onetime and comparison benefits were partly offset by the same bundle and mixed trends.
Seen over the past year, including a higher mix of non video customers and a higher mix of choice essentials and stream customers within our video base.
Keep in mind that our residential <unk> does not reflect any mobile revenue.
Slide 6 shows residential revenue grew by 6.8% year over year.
Reflecting customer relationship growth.
And last year's Covid impacts.
Turning to commercial SMB revenue grew by 6% and this growth rate reflects COVID-19 related impacts of $17 million that negatively impacted the second quarter of 2020.
Excluding this impact from last year F&B.
Revenue grew by 4.2% faster than last quarter's growth.
Enterprise revenue was up by 5.1% year over year and was also negatively impacted last year by $18 million due to Covid credits. Excluding this impact from last year enterprise revenue grew by 2% and by 5.8% when Additionally.
Excluding wholesale revenue enterprise.
Enterprise Psus grew by 3.7% year over year.
First quarter advertising revenue increased by 65% year over year, primarily due to COVID-19 impacts last year when compared to the second quarter of 2019 advertising revenue grew by 4% primarily due to our growing adverse.
<unk> advanced advertising capabilities, partly offset by lower local ad revenue.
Mobile revenue totaled $519 million with $214 million of that revenue being device revenue and.
Total second quarter revenue was up 9.5% year over year.
Moving to operating.
Princess on slide 7 and the second quarter total operating expenses grew by $575 million or 8% year over year.
Similar to revenue the year over year operating expense growth rate is elevated due to 2020 COVID-19 effects.
Programming increased 3.6% year over year due to higher rates.
Offset by a higher mix of lighter video packages, such as choice Essentials and St.
Regulatory connectivity and produced content grew by 36, 9% driven by more Lakers games than normal this quarter given the delayed start to the NBA season, combined with no Lakers or Dodger games expense and.
And the prior year due to COVID-19.
Excluding sports rights costs related to our RSA and this expense line item grew by 3.2% year over year.
Cost to service customers declined by 1.2% year over year compared to 4.2% customer relationship growth.
The decline was driven by lower transaction.
And it costs and lower bad debt, partly driven by government stimulus packages.
Excluding bad debt cost to service customers was flat year over year, despite a higher number of customers and outsized hourly wage increases that we put through earlier this year.
Marketing expenses grew by 3.1%.
Year over year, driven by second quarter, 2020, COVID-19 impacts, including lower media placement rates, and 2020 and and payroll tax credit.
Mobile expenses totaled $586 million and were comprised of mobile device cost tied to device revenue.
Customer acquisition and service and operating cost and other expenses grew by.
By 13, 5% driven primarily by higher corporate costs and advertising sales expense given the strength of AD sales this quarter combined with the weakness and the AD market and the prior year.
Adjusted EBITDA grew by 11, 8% and the quarter and <unk>.
Turning to net income on slide 8 we generated $1 billion.
Income attributable to charter shareholders, and the second quarter versus $766 million last year the.
The year over year increase was driven by higher adjusted EBITDA.
Turning to slide 9 capital expenditures totaled $1.9 billion and the second quarter in line with last year's second quarter capital spend driven by higher scalable.
And net structure spend primarily related to augmentation of our network capacity at a normal pace for customer growth and usage with incremental spending to reclaim the network headroom, we maintained prior to COVID-19.
And this was offset by lower spend on modems routers and self installation kits given the elevated sales volume and the second quarter of last year.
We spent $124 million on mobile related Capex. This quarter, just mostly accounted for and support capital and was driven by investments and back office systems and mobile store build outs.
For the full year of 2021, we continue to expect cable capital expenditures, excluding any art off investments to be relatively consistent as.
As a percentage of cable revenue versus 2020.
Slide 10 shows we generated nearly $2.1 billion of consolidated free cash flow this quarter and increase of 10, 8% year per year.
We finished the quarter with $87.5 billion and debt principal our current run rate annualized cash interest pro forma.
Financing activity completed in July and $4 billion 4.0 to be exact.
And so at the end of the second quarter, our net debt to last 12 months adjusted EBITDA was $4.3 8 times, we intend to stay at or just below the high end of our 4% to 4.5 times leverage range.
In June.
For converted advanced new houses preferred partnership units, which had a face value of $2.5 billion and.
And page, 6% coupon.
They were converted into $9.3 million common partnership units, which means we no longer pay a $150 million and preferred dividends per year.
During the quarter, we repurchased $6.1 million.
And charter shares and charter holdings common units totaling about $4 billion.
And an average price of $656 per share.
In September of 2016, we've repurchased $47 billion or 36% of charter equity at an average price of $421 per share.
So we have a successful operating model and growth oriented investment approach, which when coupled with a unique balance sheet structure and improving capital allocation strategy has and will produce cash flow growth and shareholder value for years to come.
Operator, we're now ready for Q&A.
And as a reminder, if you'd like to ask a question.
And please press star 1 on your telephone keypad.
Our first question comes from the line of Craig Moffett with Moffett Nathanson.
Hi, Thank you I'm going to instead of talking about broadband, which everybody wants to talk about I wanted to ask about your other 2 big revenue drivers wireless and business services first.
With business services.
I think you said last quarter. The repricing is now largely over for the time Warner cable customers.
Can you just talk a little bit about what youre seeing and business services.
And it looks like with with particularly weak results from Verizon and AT&T and debt.
First share gains may have meaningfully accelerated now in the wake of Covid, and then with CVR S and wireless I Wonder if you could just talk about how much traffic. You think you can offload from the N V and <unk> and agreement and and.
And what kind of timeline do you think you'll you'll be.
Before you'll start to see those.
Traffic reductions onto your own network.
So let me I'll start with business and.
And then I take Tom will cover wireless day.
On the business service segment, you have to really distinguish between SMB and enterprise So I'll start with what.
We are seeing on SMB, and then move to enterprise.
And for us and be as businesses recover new business is open and the.
Share flow opportunity for us is growing and you see us returning to higher growth rates.
And at the same time most of.
The re pricing and the SMB space and for legacy TWC base is behind us with the.
Exception of the voice products. So it's largely behind this and what Youre seeing is accelerating net add growth accompanied by less price pressure, which is resulting in accelerating sequential revenue growth and SMB.
And we're steadily marching down a path to.
Continue to go higher on both.
And I think the runway for us on SMB. It continues to be very long, even though where we are.
A meaningful percentage and participation in that marketplace.
And the enterprise side were lower penetrated and.
And.
Our value added opportunities.
Due to our significant amount of deployed fiber throughout our footprint to be able to drive connectivity services as well as software defined network overlay products, including SD Wan and unified communications and so our opportunity there is not only to provide more fiber connectivity, but too.
<unk> established ourselves in the marketplace for these additional services and and increase the stickiness, if a fiber connectivity with additional product and we're early on and that.
That marketplace has really slowed down significantly during COVID-19.
And our.
Our selling.
Activity is.
He is back and above 2019 levels. Despite the fact that certain key markets of ours, La New York City are not back to where they were so despite that we're above where we were in 2019, both from a units as well as our revenue takeout on selling what youre not seeing as the full impact of that yet inside.
And of our revenue for enterprise because those sales have long cycle times to installation and therefore revenue conversion into billing so our outlook on and that's pretty strong and it's going to continue slowly, but continuously get better and better and the enterprise space.
But we're optimistic about both SMB and enterprise.
We can be a share.
And for many years to come.
Yes and.
With regard to see Brs and.
Offload.
We have our first infrastructure project.
<unk>.
That we're building that will use <unk>.
And that won't be active till.
Early next year.
And.
And I don't anticipate any meaningful.
National offload until beginning in 'twenty.
<unk> 23.
But that said.
And this is a long term opportunity and we are.
Sure.
And nascent player and the mobile space.
And just beginning our acceleration.
And.
We are and incentives to move significant amounts of traffic onto our network and we already do through our Wi Fi network.
Which we can also optimize for traffic flow going forward.
Forward and.
And we can do the same with CVR S and.
And potentially other.
Parties as well.
We have a.
The opportunity to.
Continuously lower our costs going forward.
And.
2.
Even even if we were not using C. Brs, we have an opportunity just through our <unk>.
Volume.
Activity to continuously move down the price curve. So we're optimistic.
Domestic about our ability to grow our mobile business and and at the same time to take cost.
Cost out of our mobile business as it grows and.
And.
And there are a variety of tools, including <unk> that allow us to do that but I would say that.
Without giving you exact number it would be material.
Alright Thats helpful. Thank you.
Tablet that we will take our next question. Please.
The next question comes from the line of Jonathan Chaplin with New Street.
Thank you.
Chris I'm wondering if you can give us.
And update on when you think you will switch from splitting nodes to potentially.
<unk>, adding capacity of the plant.
And with maybe an upgrade to 1.2 gigahertz with the highest split.
And if that happens later this year is that contained within the Capex envelope.
And that you've guided to for the year. Thank you.
Yeah.
So I'll start off.
But tom that into it and I don't think it's gonna be 1 we haven't announced a definitive plan as of yet to if and when we're moving into high school and territory, it's not going to be like youre going to flip the switch nationally you'll start off market by market.
And it's not gonna be heavy inside of this.
And in any event. So I don't think it's going to have any material impact to our capex. This year as you look out over a 5.6 year period.
Really what you would be doing is using high split to replace augmentation that you'd be doing otherwise to increase the capacity of our network and.
So when you look at it over a 5 to.
Year time period.
It would be at very low if any incremental cost.
There may be pockets in that 5 to 6 year window, where you'd be doing effectively capital pull forward and.
And you know what I'd.
And I'd like to use the word lumpiness you might happen and some of your capital expenditure and but we're going to do what's right and if.
And to 60 fast and get additional <unk>.
Mentation and capacity and do it but I don't see any material impact this year and over a 5 to 6 year period I don't think it changes the trajectory of our investment cycle and give us additional capabilities additional speeds at a at a lower cost and what we would otherwise.
We can move.
And the only thing I would add is you know the 1 thing it does it gives you the ability to sell.
Symmetrical.
Data speeds and over a gig and.
And <unk>.
And you can do that without really spending up much incremental capital.
And at.
And at the moment, we really don't need that from us.
Market facing perspective or from I mean, there is a percentage.
<unk> issue and the market, but in terms of product use.
And there's none.
And so.
If we don't need it yet from a marketing perspective, and it's not the only tool and our toolbox.
We have other technologies.
Including DOCSIS 4 donohoe.
And and full duplex, which we can use selectively.
And efficiently wherever augmentation or product definitions require.
I think the main thing to keep in mind is that pathway we have.
And to continuously upgrade our network capabilities.
Efficient.
From a capital perspective and flexible.
Great. Thank you.
Thanks, Jonathan Tabitha and we'll take our next question, please and east.
Question comes from the line of Michael Rollins with Citi.
Like what you might be on net.
Thanks, Good morning.
Curious if you could talk a bit more.
About what youre seeing and in the broadband market and your performance in terms of just overall market expansion versus market share and then separately on the video side.
Can you share you know what.
And you find is contributing to the better trend line.
Video losses, and how you see that going forward. Thanks.
And Michael that I think are.
The broadband market continues to expand both through.
Through housing growth population growth and adoption.
The big issue and general adoption is.
More of a digital literacy issue than it is a cost issue.
And it's continuing to.
Improve.
In terms of the market adoption because of the way people can use.
The tools on the Internet today.
At any level and it and at any age and.
I think you have a.
Continuous March.
Of broadband adoption right.
Up to.
Occupied housing.
Over the next.
5 years.
And.
And so you have that and then you'll have our ability to have a superior service.
Capital efficient ability to continuously.
Great that service and we think we and.
With a full range of products, including mobile and video and.
And we think we can continue to take share.
As a result of our ability to have.
High quality low cost products available to consumers across the marketplace.
With regard to video.
Why do we.
While our numbers relatively better we are.
We're selling more packages.
That allow us to tailor video to customer needs.
A difficult business, because and general video is very expensive or cost per video to provide it to customers or are very high.
Continuously going up.
And so there is people being priced out of the market, we've put lower price packages into the market.
The new products that have been developed direct to consumer products are churning at higher levels.
And so our products also are.
Sure.
In that re adoption process.
That occurs as a result of churn.
So to some extent we think.
R R.
Our video businesses.
Stabilizing but at the other on the other hand.
Fundamental trends.
Hi, and Bopped, which is that prices are being <unk>.
Continuously pass through to consumers and there is real pressure on the total cost of the bundle.
The reason, we're relatively better as we have.
We have been moderate with our pricing and we've been moderate.
And we've created new packages.
Is it costs less.
Thank you.
Tabitha and we'll take our next question please.
Your next question comes from the line of Ben Swinburne with Morgan Stanley.
Hey, good morning, guys.
2 questions I was wondering if you could talk a little bit about wireless cell and I don't know if you'd be willing to give us a number on.
And stuck percentage of new customers or connects that are taking wireless or any trends youre seeing are your ambitions and long term it would seem.
Like that business is really starting to get a lot of momentum and.
And I was wondering if you if all your sales channels are turned on and just sort of how to think about the potential acceleration and that business anything you can share would be helpful.
And then and probably.
Probably for Chris Chris just as we think about the third quarter.
<unk> net adds do we need to think about anything as it relates to either the <unk> number you called out or the New York order like a it definitely we need to factor and our thought process for third quarter at all or any any thought to be a b and I appreciate it.
Sure.
And I'll take a crack at both of those and then Tom May want to.
And additional.
And the wireless cell and so the answer is no we're not going to give you that.
The percentage of sell and for obvious competitive reasons, but I can provide some color on it we're essentially selling through all of our channels.
It is a focus we have to make sure that on every conversation that we have and.
Side of our selling channels that were.
Bringing up the conversation and how we can save customers money, if they take mobile with us.
Our sales success rate, our compliance for that conversation taking place and the sales success rate is going up.
And what happened inside of Q2 and.
Also inside of Q1, as we just have less selling opportunities, but our success rate and selling and is growing up on a steady march across all of those channels, which includes retention by the way so and all of our sales channel and we're using it as a retention tool as well and customers, calling in and wanted to save money. This is.
A great way to save hundreds and thousands of dollars a year for a customer by taking a local product.
And it's working well and we have a lot of confidence that it's going to keep on increasing.
And as soon as the market flow.
<unk> opens back up in terms of selling opportunities I think we're well positioned.
And.
Q3 broadband I don't expect.
<unk> to have any negative impact on us and in Q3, the customers that we're protected from a state mandate perspective, we've already inside of our Q2 results. It was small but we've written off a portion of their balances were working with those customers.
We've been successful and keeping those customers.
Customers those type of customers through to keep Americans connected programs, we want those customers to stay with us and we're working with them to make sure that takes place and.
And worked in the past and I don't expect any major impact there I guess, the only thing that I would say and.
Well 2 things I would say about Q3 and and not so much you from Q3 is just when you think about.
And the coming quarters.
Q2.2019.
Wasn't our strongest quarter, so we really outpaced that.
This quarter versus 2019 and.
I think Q3.2019 was better than Q2.2019, so I'd just caution not to get over your skis on it.
And relative.
Net adds and comparison to 2019.
And.
And there.
And there will be a moment where.
We were just talking about it yesterday the day there'll be a moment, where there's dislocation where that market share and picks up.
Sales should pick up and so there's always this question of just the timing lineup exactly.
Right and as a share taker over a period of time that means we're going to have higher sales and we're going to have higher net adds but in order to get there the market churn rate has to pick up and Theres a timing question and it does it all flow through inside of a quarter. The way you think it should and site and what we always say I wouldn't pay too much attention to a particular quarter.
Our growth.
<unk> is a.
Is good it's going to continue to be good.
And we tend to look over longer periods of time as opposed to just a particular quarter.
Got it thanks, Chris.
Thanks, Pat and Tabitha and we will take our next question. Please.
Your next question comes from the line of Doug Mitchelson with credit Suisse.
Oh, thanks, so much.
First question 1 clarification did you say that Capex this year.
And would be I think stable, including art offer excluding heard off because I think the press release and excluding.
Excluding art off okay.
And I thought I heard, including which would have been sunrise.
And I'm just a question.
Question on wireless.
On the on the go to market strategy, and and the position and look you've been pretty clear on not offering votes from subsidies, which obviously is somewhat self limiting for subscriber growth.
Or are you all.
Already.
Leveraging all of your marketing channels for wireless.
Is the is the elbow grease youre, putting into driving growth additions, it's something that we should get to there is relatively stable over time and as we scale for and it's partly selling opportunities as you indicated and it's partly turn on a growing subscriber base and that's how we run the subscriber model or should we think of this as more of a financial decision and as the economic.
So the business improve either through scale or learnings and operating smarter or off late and I and see if your <expletive> and Wi Fi as the economics of the business improve should we assume that you'll spend more and marketing and ultimately consider phone subsidies just trying to understand that top of funnel approach over the next bunch of years from wireless thanks.
Omics Doug.
Doug.
We are we haven't fully deployed all of our channels.
We have a store strategy, that's multi year and that's still rolling out and we expect to complete it.
By the end of this year, but a substantial portion of our stores are not done.
So.
Even the even the channels that we wanted to deploy or not fully rolled out.
But.
We have a variety of tools.
And to grow our market share.
And we have.
And I would not preclude any of them.
And that.
And anybody else has ever used and.
History, but fundamentally.
We haven't changed our pricing.
Since we.
And we launched the product and we have that ability to be.
To move the needle in terms of the amount of <unk>.
Mobile customers that we create as.
And our broadband growth strategy.
So I would say that we.
We set up a strategy that was based on activity levels. Those activity levels are lower than we thought because churn is lower than we thought.
But there is there are more ways to get into the market and we were using.
And I'd just add since you asked the question is are there financial decisions driving and how aggressive. We are is the essence of what you were asking the answer is no. We have a lot of confidence we know what the economics are theyre very good of what we're doing and.
Over time, it's not going to be a short term financial rate driven decision in terms of.
How we deploy those channels.
Great very helpful. Thank you.
Thanks, Doug Tabitha, we'll take our next question please.
The next question comes from the line of Phil Cusick with Jpmorgan.
Hey, guys couple of follow ups maybe.
Maybe expand on the comment about business trajectory.
<unk> was that improving through the second quarter or since and as your own churn and starting to pick up as well.
And then on mobile Capex and store spending comes to in and.
Do you expect mobile spend from those traditional uses to fall and how could your strand mounts and come in relative to that and and maybe 'twenty 2 or 'twenty 3.
Thanks.
Look I don't I don't think I wanted to go down and the heavy path of intra quarter trajectory.
S&P has been steadily improve each quarter, you can see it and our results.
Enterprise.
Clearly as more businesses become occupied which is still relatively.
Low selling opportunity for us increases and the willingness for people to take decisions on their it and network, including our services increases.
And so there's a lot of thats really been moving with Covid and and office occupancy as people are making decisions and that's going to continue to that has been improving steadily and.
And.
But from what Youre seeing and the newspaper and I think it will continue to steadily and per center price selling opportunities should continue to get better.
Go ahead and well.
I was just going to say that in terms of churn.
Fundamentally.
The recovery is slower than we thought it would be in terms.
Arms of activity levels.
And while we are performing well and all of that.
It's not what we thought.
So we're a little surprised at how slow.
Move activity.
And has rebounded and.
And so I'm.
It is rebound and everything is moving and increasing and <unk>.
Turning to normal.
But it is not there and its still an unusual marketplace.
On the Capex side and the.
The stores that we plan to rollout will be largely.
We completed this year some of that's going to roll a little bit into next year and then we'll have another investment decision to make of how deeply penetrated and the market. We want to go we've not made that decision yet.
We'll take a similar ROI approach to how we deal with that and stores, but our original plan will be complete largely ended this year as Tom said and maybe a little carryover.
3 of her into next year you.
And you rightfully pointed out that we'll be stepping up the C V. R. S investment.
And could that take the place of store capital, yes, but not into perpetuity I think so it may have been you who published that's not the way we think about it it's not the way that all and we'd think about it just happens to be some coincidence.
But I think you had Stefan told me and published a number that was relatively high for what we would spend on CVR that that the number that at least he told me it was and multibillion dollar number and that's that's way way more than what this project is going to cost and that'll be our wide based we don't have as per specific timeline other than.
And we'll roll out market by market based on where we have the best ROI.
Keep it up at the capital spending is.
Large, but and the overall context of charter, it's not that big.
That's helpful. Thanks, guys. Thanks, Thanks, Phil Tabitha and next question. Please.
Next question comes.
And I'm, John Hodulik with UBS.
Great. Thanks, guys.
During the quarter, you signed a new affiliate agreement with with Viacom and it seemed like the wording.
And it's changed a bit and <unk>.
So anything.
And anything you could tell us about maybe not the specific deal, but just affiliate deals in general are you getting more flexibility.
And we're sort of DTC participation, because there's obviously fewer blackouts and sort.
Seemingly the.
Negotiations are going better so just any evolution there that you're seeing and then.
Going back a couple of years, you guys talked about 500 basis points yourselves and sort of.
Visibility on margin improvement and.
And as your prepared remarks, you talked about all the digitalization and and efforts there that should sort of keep that.
Trend going but it's just you know and some any change in your visibility from margin improvement from these sort of 39% levels and as you look out over the next couple of years. Thanks.
John.
And with regard to Viacom I would say this if it was.
Our modern agreement a new agreement and.
And recognized.
That the video.
Video business is changing and it.
Okay.
Addressed our legacy relationship and it addressed our new director.
And consumer relationship.
With Viacom and and they were I think happy with that.
The discussion and and.
We were obviously since we agreed to it and.
And the.
You know, it's it's different and.
And prior agreements because they have direct to consumer products and those were integral to the discussion and.
And and consistent with our view that we'd like to be part of our.
Of the of the marketplace.
And to enhance.
Our video and customer relationship with customers.
Correct it through.
Managing transactions for them.
So it did that.
On the margin.
Thank you.
And there are small enough Johnson and no. We don't think about the business in terms of percentage margin terms. It doesn't drive how we can do.
And 2 investment planning your operating plans or budgets and.
But the heart of your question is are we going to continue to get more efficient and the answer is yes, and when you have double digit percentage increases and the number of trouble calls and service calls per customer relationship year over year and.
That continues and it hasn't.
And way I think the bigger driver for consolidated margin.
Really it's much more about revenue mix. So if you think about what we're doing we're adding.
Mobile and which has positive EBITDA on the increment, but it has a lower structural percentage margin. If you think about it that way we use.
Video and mobile to drive higher attach rates for broadband, which has a high gross margin.
Use it to drive higher retention of broadband and so we use lower standalone margin products to drive higher margin acquisition and retention and at the end of the day, that's not at all how we think about.
The next what we're thinking about is how can we create the most value and the household to drive the most products going in and that gets the most EBITDA and the most cash flow per household.
And so you could have a you.
You could have a low revenue business with a high percentage margin and have.
And this victory lap of high percentage margin.
But you could have lower EBITDA and lower cash flow per household and that's not the model that we deployed so we're looking to put as much product and much value and to get as much EBITDA and cash flow out of the household by providing products and packages that our customers can't replicate and.
You know and make it easy to.
And for customers to stay with us for a long period of time.
So I don't want to give a guidance on where margin is going other than it's going to be.
More of a function of our lower video losses and continued growth in mobile and continued growth and internet, which goes the opposite direction.
But the biggest thing to focus on us is.
Cash flow and free cash flow per share.
Right great. Thanks, guys.
Thanks, John excuse me Tabitha and we'll take our next question. Please.
Your next question comes from the line of Steven Oh Wells Fargo.
Thanks could you maybe talk about cost a little bit both in the Pea.
P&L and and Capex in the back half of the year you mentioned some of the labor cost increases and I know labor is also a big piece of Capex, and especially with the strong selling environment and just how should we think about cost growth in the back half of the year and then on share repurchase you're annualizing to a pretty big share repurchase here I know you don't guide on it.
Free curious if you could talk about what informed your thinking on share repurchase and the first half of the year and if there's anything that's shifting as we move into the back half of the year. Thanks.
Sure.
And.
The big cost commentary if you go back after the call to take a look at the prepared remarks.
I'm just what I was trying to make clear is as the.
And as is churn.
Returns into the marketplace that will give us better selling opportunities, which should ultimately lead to net adds and some of that'll be timing driven but as I talked about earlier, but it's going to increase our sales commissions and it's.
Marks were to increase the number of.
Installations that we do which has opex and to a lesser extent capex and.
And it'll increase the number of newer tenured customers, who tend to call more frequently at the beginning.
And so our operating cost and a higher transaction environment and higher churn environment and move up.
It's growing and some sense that's what we're hoping for is that we will have opex pressure because our sales will be accelerating internet ads will be higher and that's not been the environment and we've been in the first half.
And so.
We'll just do a good job of explaining that has taken place, but we've been trying to condition people for that environment.
And a year and it's happening later than we expected and and May continue to push out the other item that and the cost category with your bad debt.
It goes along with your non pay and it also attaches to it it's driven as well by people just moving in and and churn generally.
And the Capex is less impacted.
And from a volume standpoint, yes, you'll have a little bit more CPE purchase you'll have a little bit more capitalized and install but it doesn't move around quite as rapidly and in that environment as you'd see and opex.
And on share repurchase.
We've been targeting and leverage to be and to mid to high end of our target leverage range.
And so the buybacks, we think about the long term value of charter and we think it's high and so really when we look at buybacks. It's more about the target leverage range target as opposed to trying to be opportunistic for not day traders. We have a good long term view on the value of charter and.
And so our buybacks much more informed by them.
The targeted leverage targets and other rich and.
Or where we expect to be at or we expect to be at the end of day.
Thank you.
Yep.
Thanks, Steven Tabitha, we will take our next question. Please.
Our next question comes from the line of Jessica Reif Ehrlich with bank of.
Securities.
And thank you.
And it's 2 separate questions on contest has flex and the market for quite a while and altice recently announced their own streaming hardware.
Yeah, you're planning on introducing anything similar for your customer base.
And if.
Americas or would you build it or potentially and license flex from Comcast how are you.
And thinking about it and then separately can you call that advanced advertising or addressable advertising and a number of times as a driver and you've always been an industry leader in this area can you give us some color on current initiatives and where you see it.
Jessica with regard to our IP box solution.
<unk>.
We've got a bunch of.
Techniques and.
The market facing IP strategies.
1 is that.
We have a app based.
<unk> user interface and a lot of our customers bring their own hardware and.
And use our apps.
And get their Mvpds service and that way from us.
We also have the.
Existing world.
Box that we've deployed to our customer base.
And in that World box is and IP platform and.
And we have a we are beginning to put at.
<unk>.
Netflix.
Youtube.
And then other apps.
2.
Our existing set top box.
And we continue.
2 and.
Engage with Comcast on.
A discussion about their flex technology and what it might be.
All are doing for us.
And.
And I'll take the advertising question and maybe we can have a negative needed day.
David Klein I appreciate your compliment to the industry, leading and I'm sure Jessica.
The driver here is we've really had.
And enhanced ability to sell the long tail lines.
And inventory and payable to monetize what was previously.
And not utilized and we have a tool that's called audience App.
Because we have all of the set top box data.
And in aggregate and optimized way for all of our customer base.
The ability to present that to buyers of advertising and sell the long tail inventory and.
Way that you were never able to do because Nielsen doesn't go very deep.
We can tell and sell that on a zone basis, we can sell it on a split avail basis addressable and we.
We can really effectively guarantee.
Our buyer impressions.
Not just the traditional set top box space.
Clearly through the increasing amount of.
IP based viewing that we have office spectrum, TV, App, which is on Apple TV, Roku and Samsung TV and all these other devices iOS devices, Android and really monetize those impressions and monetize the set top box inventory and a.
The other way so.
So I do think that we're leading the charge of moving the entire advertising space to and impression based viewing.
And being able to show to a buyer we're across all of the different channels that they can't get placement and to be able to validate and verify on the backend.
That those eyeballs were actually captured and that they they had a good return we've also been investing in.
In addition to more forward thinking areas like address ability, which we're selling split of sales, which we have capabilities on a per.
But also moving into using everything that I, just described before moving into attribution as well.
And very soon and that's the Holy Grail here of being able to sell and then to go back and articulate to the customer and what exactly that drove in terms of sales for them. So we have a fully.
Full set of advertising capabilities that we offer to a client super local when.
<unk> addressable when needed and we do it and traditional set top box and impression based viewing and digital which we sell as well.
And so despite the fact that the local AD sales market isn't all the way back it's actually down relative to 2019 certain segments like auto arent performing as well because they don't have a lot of.
And neither story, but despite that our overall AD sales are up versus 2019, primarily driven by all the different capabilities that I described and the ability to make use of inventory that wasn't previously monetized.
And higher CPM at higher CPM.
Because it's more value.
Okay.
Question.
Yeah.
And I think you went soft, but I think you asked if we could license that across the industry.
We're always open to revenue opportunities.
Thanks, Jessica Tabitha and we'll take our last question. Please.
Your last question will come from the line of Bryan Kraft with Deutsche Bank.
Hi, Good morning wanted to ask a couple if I could.
Rod strokes following up on the last question can you talk about how your agreements you're reaching with programmers to carry their streaming services provide you with AD inventory that you can.
And to monetize in the future as you gain scale there and.
<unk> fixed wireless is there anything observed observable there or is it pretty much.
As usual thanks.
Well I think to your last question.
Competition.
And to see.
A similar marketplace that we've seen for a number of years now in terms of.
Competitive overbills, we're continuing to do well.
Everywhere, we operate and.
And we are the share leader everywhere, we operate.
Competitively speaking.
Hum.
The.
With regard to programmers, yes, there is an opportunity depending.
Depending on the model.
Either.
And for and advertising.
Sale.
In the App and it.
Multiple levels.
And and.
The transaction opportunity as well and creating new subscriptions so.
I guess the short answer is yes.
And.
Tom maybe just a follow up there you know as <unk>.
U E.
It sounds like Youre building some of these revenue streams now as you make the apps available through your and your current set top box infrastructure as you as you shift to sort of your your nextgen, whether it's flash or something else do you see those.
It's kind of expanding significantly.
Or.
Yes, I do I think there is.
And the opportunity to have a better advertising business and we've had historically.
And it works better for advertisers and it's more direct.
Scott attribution and.
And and we have a large.
Skilled.
Sales force on the streets and the.
Cities that we operate so yes, I think it's an opportunity to create and.
Increased revenue.
Okay. Thank you.
Thanks, Brian and thanks to everyone.
<unk>, we will see you next quarter.
Very much thank you.
Yeah.
Thank you, ladies and gentlemen that and today's conference call you may now disconnect.
[music].
And.
[music].
Okay.
[music].
Yes.
[music].
And then.
[music].