Q4 2021 Charter Communications Inc Earnings Call

January 28, 2022

[music].

Good day, and thank you for standing by and welcome to Charter's fourth quarter 2021 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.

Ask a question during the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded.

If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today and the manager. Please go ahead.

Good morning, and welcome to Charter's fourth quarter 2021, Investor call. The presentation that accompanies this call can be found on our website IR 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 will not review those risk factors and other cautionary statements on this call. However, we encourage you to read them carefully.

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

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

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

During the course of today's call, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. These non-GAAP measures as defined by charter may not be comparable to measures with similar titles used by other companies.

Please also note that all growth rates noted on this call and in the presentation are calculated on a year over year basis, unless otherwise specified.

On today's call, we have Tom Rutledge, Chairman and CEO , Chris Winfrey.

And Jessica Fisher, our CFO with that let's turn the call over to Tom.

Thank you Steffen.

Continue to execute well in the fourth quarter with solid customer growth and strong financial growth in October we launched a new spectrum mobile multiline pricing and packaging, which allows spectrum mobile customers to save hundreds or even thousands of dollars per year on their personal communications spend when we had our strongest mobile quarter ever with three.

380000 line net adds for the full year 2021, we added 940000, new customer relationships.

We added over $1 2 million internet customers for growth of over 4%.

We also grew our mobile lines by $1 2 million.

Financials were also strong in 2021 grew full year revenue and EBITDA by seven 5% and 11, 4%, respectively and free cash flow grew by 23% year over year to $8 seven.

$7 billion.

As we look forward to the rest of this year, we remain focused on several strategic priorities and goals, including product development and network evolution.

Construction initiatives and driving customer growth and penetration.

And although the business environment in which we're operating remains unusual we believe our goals and priorities will continue to foster our growth and prepare us well when the marketplace was returns to historical levels of marketplace activity and sales.

Fundamental to our success is the delivery of products and services that are superior to what.

Our competitors can offer delivering more speed and throughput to our customers remains a key area of focus December internet customers, who do not buy traditional video from us used over 700 gigabytes per month more than 35% higher than pre pandemic levels.

And nearly 25% of our non video internet customers now use a terabyte or more of data per month. So.

So we continue to see very high demand for throughput by our customers in order to increase the capacity of our network for next generation products and services. We have developed a multifaceted approach to network our network evolution comprised of a number of technologies.

It will be deployed whether they make the most sense strategically and economically delivering the very fastest.

Speeds and lowest latency at the lowest cost and time to deploy.

2022 will increase the number of projects to deploy high splits in our service areas I splits are powerful cost efficient upgrades use our existing DOCSIS three one infrastructure and allow us to comfortably offer gigabit speeds.

Symmetrical speeds.

And multi gigabit speeds and the downstream. Additionally, high splits will significantly reduce our network augmentation capital spending including node spending.

We also continued to act simply develop our DOCSIS four <unk> technology plant architecture, and rollout, which will allow us to cost efficiently offer higher multi gigabit speeds in the future.

We recently ran a DOCSIS four dot O test.

<unk> frequency division multiplex Duplexes and we successfully delivered over eight gigabits in the downstream and over six gigabytes in the upstream and Theres more to come from that technology.

Other areas of product development in 2022 include speed boosting our Wi Fi connections all spectrum mobile customers are on their spectrum mobile devices connected to any spectrum Wi Fi access point enabled from normal service.

We also just turned on five C band for all spectrum mobile customers, who have a C band enabled device.

It means they can get.

Mr <unk> speeds, while on the go.

Both of them.

Of the speed boosting enhancements I just mentioned are included in our mobile pricing at no extra charge.

We're also rolling out our <unk> hybrid mobile network operation using CVR of small cells and a full market area, allowing selected participants.

Connect to our <unk> small cell access points, when they're outside of Wi Fi coverage.

By furthering the convergence of our fixed and mobile broadband service, we not only improve the economics of our mobile business, but improve the customer experience.

In fact for the last 10 quarters Global Wireless solutions is ranked our mobile service the fastest in the country, because we combine our internet and mobile connectivity together with our state of the art Wi Fi service.

Another key piece of our long term strategy is treating customer service as a product itself and giving our customers the flexibility to manage their spectrum services and interactions with us.

Whenever and however, they want we continue to work on improving the quality and efficiency of our interactions with customers by expanding our customer self service and self care capabilities, and digitizing and monetize modernize and monetizing a number of elements of our customer field and network operations groups.

Our rural construction initiatives also remains a key focus our multiyear multibillion dollar construction project will deliver gigabit high speed broadband access to more than 1 million Unserved rural customer locations across the country.

Throw the rural digital opportunity fund or art off we will add over 100000 miles of new network infrastructure to our approximately 800000 existing models over the next five years. We're also in the midst of hiring more than 2000 employees and contractors to support our rural expansion.

But our rural construction initiative is not limited to Argos commitments will continue to build in other rural areas as well and we will pursue opportunities to receive broadband stimulus funds, including the American Rescue plan Act funds and funds for infrastructure Investment Act and jobs Act will also extend our network passed homes in areas adjacent to.

Our subsidized builds that are network does not currently reach today ultimately our rural construction initiative is not only good for the millions of rural customers that we'll finally have access to fast and reliable internet, but it's also good for charter and its shareholders. The expansion of our footprint will help us drive additional customer growth and financial returns.

Finally, as we look to the balance of the year, we remain focused on driving customer growth market share growth and penetration by offering high quality products and services at attractive prices. Our network allows us to deliver a unique fully converged connectivity service package, while saving customers hundreds of thousands of dollars.

Per year.

Share of household connectivity spend including mobile and fixed broadband is still very low in.

In fact slide four in the presentation shows we only capture about 27% of household spend on wireline and mobile connectivity within our footprint. So theres, a large opportunity for us to increase the market share.

With superior products saving customers money and through our latest offering we can do that.

And the average household's mobile broadband spin with two lines of mobile broadband and wireline broadband is approximately $200 a month.

Our new multi line pricing and packaging launched in October a spectrum customer can purchase our internet product in two lines of our unlimited mobile product with faster service for nearly 50% less and save at least $700 a year. So far we've seen a very strong response to our offering.

Our fourth quarter being our strongest quarter for mobile lines net adds yet in fact, despite a very competitive environment. We continue to gain lines at a very rapid pace because of the value in our bundled service offering.

Drives more EBITDA and free cash flow per customer and per passing value for shareholders now I will turn the call over to Jessica.

Thanks, Ken.

Let's turn to our customers.

Okay.

Please note that we will continue to reference COVID-19 related financial impacts from 2020 and included again on slides 19, and 20 of todays presentation to help with year over year financial comparison.

We grew total residential and SMB customer relationships by 120000 in the fourth quarter and by 939000 in the last 12 months.

Including residential and F&B, we grew our internet customers by 190000 in the quarter and by $1 2 million or four 2% over the last 12 months.

Although our internet customer growth remains strong in the fourth quarter the business environment in which we are operating is not yet normalized similar to the third quarter, we thought lower internet, Sharon and lower Internet connect than in fourth quarter of 2020 and 2019.

Turning to video video customers declined by 58 out and in the fourth quarter wireline voice declined by 154000, and we added 380000 mobile lines.

As of the end of the fourth quarter, we had $3 6 million mobile lines.

And despite the lower numbers of selling opportunities from cable sales, we continue to drive mobile growth with our high quality attractively priced service rather than using device subsidy.

Moving to the financial results starting on slide eight over the last year, we grew residential customers by 847000 or two 9%.

Residential revenue per customer relationships increased by 2% year over year, driven by promotional rate step up video rate adjustment that pass through program a rate increase at <unk>.

$22 million of Covid related impacts in the prior period.

These effects were partly offset by the same bundle and mixed trends that we've seen over the past year, including a higher mix of non video customers and a higher mix of lower priced video packages within our base.

Additionally, this quarter included $31 million and adjustments related to sports network rebate, which we intend to credit to qualified video customers.

These rebates are also reflected in lower programming expenses this quarter with no impact to adjusted EBITDA.

Also keep in mind that our residential actually it does not reflect any mobile revenue.

As slide eight shows residential revenue grew by five 1% year over year, reflecting customer relationship growth and <unk> growth.

Turning to commercial F&B revenue grew by five 8%.

This growth rate reflects COVID-19 related impacts at $8 million that negatively impacted the fourth quarter of 2020.

Excluding this impact from last year F&B revenue grew by four 9%.

Enterprise revenue was up by three 2% year over year.

Excluding all wholesale revenue enterprise revenues grew by six 1%.

And enterprise Psus grew by five 3% year over year, a bit faster than last quarter.

Fourth quarter advertising revenue declined by 28, 2% year over year, primarily due to strong political revenue in the fourth quarter of 2020, partly offset by Covid impacts last year.

When compared to the fourth quarter of 2019 advertising revenue increased by three 3% primarily due to our growth in advanced advertising capabilities, partly offset by local lower in local AD revenue, particularly automotive.

Exclude automotive fourth quarter advertising revenue grew by 13, 3% over the fourth quarter of 2019.

Mobile revenue totaled $632 million with $266 million of that revenue being device revenue.

Other revenue declined by six 2% year over year, driven by lower levels of CPE sold to customers.

In total consolidated fourth quarter revenue was up four 7% year over year, and when excluding advertising, which benefited from political revenue in the fourth quarter of 2020 revenue grew by six 4%.

Moving to operating expenses and EBITDA on slide nine in Q4 total operating expenses grew by $203 million or two 7% year over year.

Programming costs decreased by <unk>, 5% year over year due to a decline in video customers of two 3%.

Higher mix of lighter video packages at $31 million benefit related to sports network rebates that I mentioned earlier.

$19 million of other favorable adjustments.

All of which was partially offset by the higher by higher programming right.

Excluding both of the adjustments I just mentioned programming costs grew by one 2%.

Looking at the full year 2022, we expect programming cost per video customer to grow in the mid single digit percentage range.

Regulatory connectivity and produced content grew by 11, 3%, primarily driven by higher Lakers RF and costs.

Partially offset by lower original programming costs and regulatory and franchise fees.

The Lakers cost growth was primarily driven by the delayed start at the NBA season into 2020, which drove fewer Lakers games charges in Q4 of 'twenty, making for a challenging comparison to this year.

Excluding RF and costs from both years regulatory connectivity and produced content declined by three 5%.

Cost to service customers declined by 5% year over year compared to 3% customer relationship growth.

The decline was driven by lower transaction costs, mostly offset by previously announced wage increases which will ultimately provide all hourly employees at charter starting minimum wage of $20 per hour by the end of the first quarter.

Marketing expenses grew by four 3% year over year.

Mobile expenses totaled $724 million and were comprised of mobile device.

Tied to device revenue customer acquisition and service and operating costs.

And other expenses declined by six 5% driven primarily by lower advertising sales expense year over year, given the decline in political AD revenue this year and a one time corporate costs in the prior year period.

Adjusted EBITDA grew by seven 7% year over year in the quarter.

Turning to net income on slide 10, we generated $1 $6 billion of net income attributable to charter shareholders in the fourth quarter.

So it's $1 $2 billion last year.

The year over year increase was driven by higher adjusted EBITDA.

Turning to slide 11 capital expenditures totaled $2 $1 billion in the fourth quarter in line with last year's fourth quarter spend although the components of that and where that difference.

Upgrade and rebuild grew by $66 million year over year due to plant replacement in those portions of our footprint that were damaged by Hurricane Ida.

Scalable infrastructure spend declined by $45 million, given a stabilized level of network traffic growth and investments made earlier this year.

We spent $127 million on mobile related Capex, which is mostly accounted for in support capital and was driven by investments in back office systems and mobile store Buildout.

For the full year 2021 cable and cable capital intensity was lower than in 2020 and in line with our outlook.

As we look to the full year 2022, we expect cable capital expenditures, excluding capital expenditures associated with our Royal construction initiative to be between seven one and $7 $3 billion.

We hope to spend about $1 billion in 2022 on capital expenditures related to our rail construction initiative or a construction within census block groups that are defined as rural.

That spending includes all write offs and other subsidize royal construction projects, such as Arthur related though.

And spend associated with extending our plant to rural homes adjacent to our subsidize felt that our network does not reach today.

We may not reach that targeted spend given a number of factors, including pole permitting and equipment and labor availability.

Conversely, we continue to bid on additional broadband stimulus projects.

The increased 2022 capital spending forever all construction initiative.

Given the variables are actual rural construction initiatives spending may differ meaningfully from our target.

As Tom mentioned, the expansion of our footprint into rural areas will help us drive additional customer growth and financial returns and we view our Royal construction initiative is similar to our equivalent.

To acquiring a rural cable operator.

We plan to begin disclosing additional operating information associated with our Royal construction initiatives in 2022.

Turning to mobile we expect our full year 2022 mobile capital expenditures to be about $100 million less than our full year 2021, mobile capital spend which totaled $482 million.

Our 2022 mobile capital spend will consists primarily of back office systems and the startup of our <unk> small cell construction and some additional store build out.

We will continue to update you on our capital spending expectations as the year progresses.

And as always if we find new core cable rural or mobile projects with attractive rois well pursue them, even if that means spending capital above our stated outlook.

As slide 12 shows we generated nearly $2 $3 billion of consolidated free cash flow this quarter, an increase of about 200 million or 10% year over year.

We finished the third quarter with $91 $2 billion in depth next fall.

Current run rate annualized cash interest pro forma for financing activity completed in January is $4 $2 billion.

As of the end of the fourth quarter, our ratio of net debt to last 12 month adjusted EBITDA was 439 times.

We intend to stay at or just below the high end of our four to four five times target leverage range.

During the quarter, we repurchased seven 6 million charter shares and charter holdings common units totaling about $5 $3 billion at an average price of $702 per share.

For the full year 2021, we purchased 25 3 million shares.

At an average price of $683 per share.

For total spend at $17 $3 billion.

And between September of 2016 in December 2021, we have repurchased $56 $8 billion or about 40% of charter's equity at an average price of $452 per share.

Turning briefly to taxes, we expect it to come a meaningful cash taxpayer in 2022.

Subject to any corporate tax rate changes for the years 2022 through 2024, we expect our federal and state cash taxes to be approximately equal to.

Our consolidated EBITDA less capital expenditures and cash interest expense multiplied by 23% to 25%.

We expect our cash tax rate in 2022 to be in the mid to high teens range percentage range given some of our tax attributes that are carried over from 2021.

Those estimates would include partnership tax distributions to advance New house captured separately in cash flows from financing in the financial statements.

There are multiple factors that impact what I, just described and we're always looking for ways to improve our cash tax profile.

So we're looking forward to the rest of 2022, and we remain well positioned to succeed and grow given strong demand for our products, which is why we continue to aggressively build out more broadband passing and ensure that our network remains state of the art.

Our well proven strategy, which offers customers the highest quality products at very attractive prices drives customary in share growth free cash flow growth and shareholder value.

Operator, we're now ready for Q&A.

As a reminder to ask a question. Please press Star then the number one on your telephone keypad and your first question is from Doug Mitchelson with credit Suisse.

Thanks, so much I guess too.

Two questions first any update on our momentum in the broadband marketplace and how you feel the market is trending in terms of the competitive environment versus the market related slowdown that you guys have been highlighting and then secondly, just sort of structurally as you sit back and think about your wireless strategy, obviously, a lot of success in the fourth.

And Tom you talked about wireless a lot in your prepared remarks, I think theres sort of two dynamics are that your your big wireless competitors would know one is owners' economics across wireless and wireline for two of your competitors and then.

Secondly, how.

How do you manage wireless customers when it's time for them to get a new phone when the wireless companies are waiving, a pre new iPhone under their noses. Thank you so much.

Hey, Doug. This is this is Chris.

We anticipated your question it doesn't have a few thoughts but.

Just put it in perspective, so we added over $1 2 million Internet customers last year and over the last two years, we've added nearly $3 5 million and the rate of market activity and net additions growth, it's not been consistent through the pandemic with early on or 60 day offers keep Americans connected resulting payment plans.

And more recently subsidy plans.

We have the lowest market churn rate of all types that any of us have seen in cable.

So that lower market churn has resulted in lower selling opportunities, which Jessica mentioned with lower connects and as a share gainer that results in lower net ads and our financial results. They actually demonstrate fully that lower transaction volume.

So clearly there was a pull forward of demand in 2020 due to the pandemic.

Customer activity environment, we saw throughout 2021 put into fourth quarter is being driven by a number of factors that include lower household move rates and housing completion rates.

It includes lower voluntary churn everywhere, we operate and much lower non pay churn given the amount of subsidy programs that have been and remain available.

And so it does lower churn rates across each type of churn they've been uniformly lower relative to 2019, and even compared to the fourth quarter of 2020 across every region and every competitive footprint. So as a result, our sales in connect activity have also been muted by similar amounts in each part of the geographical income.

<unk> footprint.

In the fourth quarter, we continued to grow customer relationships across our footprint, regardless of competitive technology or infrastructure.

Member activity levels were better than October December was better than November and then omicron provided a setback to transaction volume in late December .

We had good growth in operating and financial results last year and our expectation is that we'll have a steady return to more normal transaction volume and selling opportunities.

2022 progresses, and we get further into the year.

Doug with regard to wireless.

Competitive dynamics.

I think that.

Our pricing structure in the monthly recurring fee piece of the pricing value equation is superior net net too.

What our competitors are offering.

And we're getting some traction with that and of course, that's combined two with our superior broadband product.

Continued investment we make in our broadband product in terms of its capabilities and how we make the wireless product work with our wireline product through the mobile speed boost technology opportunities in the other.

Technology opportunities that we have all affect the price value relationship.

We're presenting to the customer.

But it's true that.

Replacement phones.

Are being given away in the marketing strategies of our competitors and we haven't done that.

And I.

I think customers will have to.

They're currently making the evaluation that.

We have a good product and they are buying our product.

But I think.

It's really our challenge is to.

Make sure that the customer's perception of value.

Appropriate and Thats, our marketing and branding strategy, but.

If we need to change.

Change our competitive posture.

Can.

I don't see.

I think what we're doing right now is the best strategy for us, but it doesn't preclude us from future strategies, but the.

The fundamental value proposition that we're providing is superior service.

Fully package communication service.

Everywhere we operate.

Which none of our competitors do.

And.

And making that a better value.

And driving customer relationships by having better products and services.

And the deeper we penetrate the lower our costs.

The lower our costs are better the value we can provide.

Understood. Thank you both.

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

Your next question is from Jonathan Chaplin with New Street research.

Thanks, two questions first.

Yeah.

Tom.

27% total connectivity market today.

Taking a sort of a very long term view.

Look at the market and its end state what do you think your fair share of that total revenue opportunity is and what are the what are the margins for an integrated infrastructure asset look like when we get to that end state and then.

Looking more near term.

There's been a lot of investor concern.

Around the impact to.

Future <unk> from.

Some of the competitive entry that we've seen from from fiber a bit more fixed wireless broadband can you can you give us just some insight into what you're seeing around pricing dynamics in new fiber build markets and then how you think about Verizon offering at 30 pull of products.

Over wireless thank you.

Yeah.

Well.

My point of showing the 27% share was that we have a lot of runway in that.

A huge opportunity for us too.

To grow our business both.

Or is honestly vertically and what I mean by horizontally and vertically is I think we're going to have more customers.

Horizontal and I think.

We can have.

Higher revenue because we have more products being sold even though those unit prices are going to be lower in the future than they are today.

What does a converged network look like in the future I think.

We continue to.

Enhance the experience on the mobile device.

It's used.

The most first and.

And continue to enhance that value by.

Using our superior Wi Fi network, and the new Wi Fi six the spectrum.

Favorable to us and our ability to provide better managed Wi Fi services through technological change.

Along with the use of other spectrum like <unk>.

Two.

And a smart capital efficient way apply.

Technological solutions that reduce cost to us.

And improve service to the customer and by doing that you get a very virtuous.

Development cycle.

In that you get better and better services available at lower and lower cost.

And so I think we can do that by using our network.

And using the tools available to us both on.

Unlicensed and licensed spectrum and the technology management tools that we can use to.

Manage the experience on those mobile devices as well as all the other devices that are connected to our network.

And I think that the.

When you think about mobility and wireless.

Those two notions.

Somewhat from a technology point of view, our conversion as well.

And most wireless devices are connected to our network.

And so I think.

Think we can continue to build value and build share.

Using the <unk>.

Mobile marketplaces.

Fuel for that.

Second question I'll start and others can chime in question was regarding ours group pressure in competitive markets and.

Jonathan.

Over the years, our strategy has always been about.

Providing high quality service at an attractive price in the marketplace you know.

First and foremost so that we could grow faster and thats always workforce, but secondly, it makes our mark is less attractive from an overbuilt situation and it puts us in a different position today as we sit in our markets with very competitive prices already on the entire base.

So that's how we think about.

Our positioning in the marketplace it hasnt changed.

The retail strategy as standard pricing across our entire footprint, we react to competitively as needed in the marketplace, but we already have attractive prices, we have great service and we have a product combination that Tom was just talking about that our competitors can't replicate and all of our passengers, which is the ability to extend that good broadband service.

We have.

Together with an integrated mobile and converged internet product over time, and we have the ability to upgrade our network at a faster pace and lower cost in ear for competitors across all of our passengers not just cherry picking where we think it's most attractive demographically.

That's how we think about the marketplace in the past and I know others have always said the investment community should you take rates up that hasn't been our strategy. Our strategy actually worked very well in this type of marketplace as well.

Yes, the only thing I would add to that is so funded.

What that all means is that we have.

Mentally.

Our lower cost structure.

Then our competitors are.

Our capital investment strategy is designed to maintain that capability, which we think ultimately gives us a better competitive posture.

So we can grow.

And have better products working at lower costs than can be replicated by our competitors.

Anybody can spend enough capital and replicate your service obviously.

But we can do it more efficiently, which which is I think our competitive.

Opportunity.

The.

The other thing I wish.

Say just about the current environment is that from a competitive point of view when we look at our churn.

Our move churn is down.

Our non pay churn is down and our voluntary churn is down to historic levels.

Our actual ability to operate in the environment is pretty effective with what Tom said is what I said as well earlier, that's across all competitive footprints all geographies.

<unk>.

Jonathan you asked the southern question about fixed wireless broadband I know you've written on it in the past and we agree with you.

That the the.

<unk> of scarce resources, and spectrum or somebody else's densification to get a.

One out of 50 type return on the utilization of your asset, which is what happens with fixed wireless broadband applications versus mobility, we agree with that you've written about it I know Craig wrote about it a couple of weeks ago.

Pretty concise way and there wasn't anything in there that we actually disagreed with us.

And you've made the point yourself previous.

That's right and we think that's going to become pretty evident to the nurse to everybody over time.

Thanks, Jonathan April we will go next.

Thank you.

Your next question is from Ben Swinburne with Morgan Stanley .

Thank you and good morning.

First a question on the network and high splits I think Tom you said I think it was Tom talked about.

Spending some capital on that this year I think that's inside of the seven one to 700 <unk>. So maybe you could help us with.

Kind of sizing that investment.

Either qualitatively or quantitatively and sort of how much of the footprint do you effect expect to impact with that technology deployment and what it does competitively from a product point of view.

And then I just wanted to come back to wireless I know you guys have been working hard to put the pieces in place to sort of be more.

Aggressive in the marketplace are we there now or is there more as you look into 'twenty two that youre going to do on the wireless side, whether it's billing system related or sales channel related or something else that can.

Can offer that opportunity even further accelerate would obviously, it's been a pretty impressive acceleration over the last few quarters.

Alright.

Well on the high splits.

I'll say this that we are.

We're deploying the technology.

And I said in my.

Our prepared remarks.

We can go to symmetrical speeds gigabit speeds, we can go to.

Down speed downstream speeds.

And as I said earlier, we're holding our own competitively as it is.

And the value of the high split.

Is that by putting by re.

We architected in the network that way, which is basically just an electronic drop in.

We can.

Quit spending money on augmentation or node splits at the same rate that we've been spending it so.

The best way to think about it is that.

Depending on speed of construction.

On a relative basis, yes, it's in the seven one to seven three.

And the general capital intensity over.

A multi year period associated with that kind of upgrade we will maintain the kind of capital intensity that we heretofore had.

With regard to wireless billing.

Yeah.

The wireless billing opportunities that we've just built a new billing system.

And it's just being deployed it was deployed.

To some extent at the end of the fourth quarter, but not the full fourth quarter.

And it gives us new opportunities for selling and making the selling process easier. When we initially launched mobile we launched it on our platform both us and Comcast because those who are JV launched.

A common platform that.

Hi.

With segregated from the traditional cable platform.

And so it.

Obviously, we did well with it but we've re architected all of that and deployed a brand new system that.

It gets us better integrated sales capabilities and better integrated billing capabilities.

That ultimately makes the sales process easier our ability to go faster with less friction is.

Enhanced by those capabilities so.

We're optimistic that we can continue to accelerate our growth there.

You asked about other developments the deeper deployment of our advanced in home Wi Fi, which includes giving our.

Customers more control over their Wi Fi in the home the deeper deployment of that across our base as well as.

Or functionality that will be applied to their Tom mentioned as well as the local speed boost as well as a way to enhance the value of this converged offer that we have so there's a number of product development.

Pieces that are in the pipeline that are going to continue to add value. Obviously, the CVR RF test this year, which I'm also mentioned that's a.

Our market rollout, but that's not going to be across our entire footprint just yet so I wouldn't hang too much on that just for 2022.

There's a lot of development that's in the pipeline to come.

To make this product better than our competitors and more integrated.

Thank you Bob.

Yes.

Alright, Thanks, Ben April we'll take our next question. Please.

Your next question is from Craig Moffett with Moffett Nathanson.

Hi, guys.

Couple of question staying with wireless for a minute first can you just talk about the wireless sale that is.

You're primarily selling at the time that people move in they are establishing a relationship with.

With charter for for broadband and other services and Youre selling that as a bundle are you selling into existing.

Broadband subscribers and then second.

As I think about the offload that you've already achieved can you just talk about.

The kind of margins that you think you can get to in this business and and.

And how much traffic you think youll be able to fully offload so that relative to a traditional wireless customer.

At one of the three majors, how much lower you think.

<unk>.

The cellular usage for your customers might be relative to those competitors as a benchmark.

Okay.

In terms of moving and upgrading.

The.

We're in a low churn environment so yeah.

The yield on that segment of moves and people who are in.

In a moment, where there are more likely to be changing services is lower.

We actually had.

We've achieved additional sell in using.

Mobile as part of that process.

But the bulk of our mobile growth is still coming from upgrades at the moment. If you just look at net changes in broadband versus net changes.

In mobile.

But and interestingly.

The mix is changing to a more multi line.

Those are the way we priced it in the value proposition more and more full.

Unlimited service.

Uh huh.

I expect that through time, we'll get more pull through on the.

On the.

New customer creation side of it.

But.

When you do the math in terms of where the opportunity is to grow mobile.

Given our existing broadband penetration.

Just.

Just mathematically we have more upside in the upgrades.

But it has both effects.

In terms of offload in margins.

Ive said previously that we could do more than 30% of Rockwood.

I think.

Through CVR S.

We are already offloading of enormous amounts of traffic on Wi Fi.

And I think that we have the ability to take that up significantly too.

So.

I'm not going to give you a full number but it's substantial.

And I guess, the pizza and I would add to that.

Is that.

We have margin that we're generating from our mobile customers today. So yes.

You have negative EBITDA in the mobile business, that's driven really by customer acquisition costs in our rate of growth in the business.

We're generating we're generating margin from those customers today, and we can do the C D Rs.

Deployment on in a very targeted manner. So we can look at the CBRE as deployment targeted.

On a <unk> and an ROI generating fashion. So so that every radio we deploy really on increases the margin and increases the value of that mobile business.

So I think that that piece is important as you as you think about how we grow profitability in that business that.

And we will grow profitability by adding CPI at and by growing the outlet that those.

Those customers Standalone are generating margin today.

And having said this is jessica.

Go ahead.

Do you think this could be.

A 10% margin business long term are 20% margin business.

Ballpark.

Mike.

I like to try it we're not going to go down.

On guidance for the margin I imagine, there's a lot of time, but I do think that it that it's an important part of thinking about the credit story for EBITDA. It.

And long term.

Did that as we find those opportunities to increase the margin and deploying capital to see Drs.

Archives and upgrading the way that the system of offload traffic over all that that will continue to do that thing.

And I would just say, we don't have to do CVR estimate mobile work, Yeah I agree.

Margins will improve regardless.

Thanks, Craig April we'll take our next question please.

Your next question is from Bryan Kraft with Deutsche Bank.

Hi, Good morning, maybe just to follow up on that Jessica you talked about how you could be very targeted with the <unk> deployment.

Just wanted to follow up could you could you talk a bit about the coverage requirements you have with the <unk> licenses I understand the goal is to move traffic onto your network, where there's high traffic density, but I guess I'm just trying to understand what you're required to do from a coverage perspective, and how that might impact the breadth of the deployment. Thank you.

Yeah sure I'll take that we do have across the regions.

The regions that we acquired the spectrum some minimum amount of deployment across those areas. It doesn't have to be deep and it doesn't have to be expensive from a deployment standpoint. It is over a multiyear period and so.

<unk> market, where we've acquired spectrum, there's always going to be extremely high traffic areas and we feel really comfortable we can satisfy the deployment commitment at a pretty low cost.

And then go from there in terms of just picking and choosing where it makes sense either from a product capability perspective or from an ROI perspective is what Jessica Hussein.

And when we talk about our full market deployment.

We're talking about a full market deployment, where it makes sense.

What that means is we're putting these radios where traffic dictates that the radio should be.

The amount of offload would.

Reduce our costs.

Efficiently to pay back the investment in the radios quickly yes.

And so it's opportunistic capital.

Which generates.

Higher margin, though.

Mobile business.

Thank you if I could just ask one follow up could you just remind us what the what the dates are around this license for you to meet coverage milestones.

Minimal coverage milestones.

It's public and so we're not you know.

I'm not hiding it I just don't know enough I don't remember it off the top of my head.

It's a multiyear it's a multiyear outlay.

Okay. If you follow up with stuff and he can get you. The exact dates because it is public as part of the FCC process.

Okay, great. Thank you very much thanks, Brian April we'll take our next question. Please.

Your next question is from Phil Cusick with J P. Morgan.

Hi, guys. Thank you a couple of actually one follow up.

You comment on the pace of broadband through the fourth quarter and I know there was I think it was in New York runoff, there as well, but I'm curious how you think about seasonality versus typical seasonality sort of running in the business. These days or is the sort of underlying and Jeff.

Running more more normal.

Through the year.

And then second on an SMB that decelerated this quarter, maybe you can talk on any update on efforts there.

Well as conversations with enterprises, what are you seeing thanks very much.

So I'll pick up on <unk>.

First just around seasonality I mean, certainly our army.

Over the course of this year, then you would see from a seasonality perspective over at normal year and one of the things that we've been thinking about.

We see a lower number of college student enrollment and so some of those markets have looked very different from what we would normally expect and the overall environment does appear to be more impacted as Chris mentioned by things like.

Like Covid way of sand and seeing lower activity when something like omicron happened.

We also did see some impacts in other things on the New York State side, New York had a moratorium on certain disconnects. It did drive a onetime spike and internet non pay disconnects is about 20000 in the quarter.

So if you had backed that out we would've been at 210000, rather than a 190, but.

But not not a huge impact in terms of the overall.

Net adds for the year, which which we still thought were were very good and if they were just first a little less evenly.

Okay.

I guess speak to seasonality you know video was very seasonal.

In the fall season at a tremendous uptick in.

Quarter was big although.

Cable vision because of the Hamptons has the sort of the opposite effects.

But.

Okay.

Fourth quarter is a.

A big.

Issue.

In video.

But this is Jessica.

Jessica said the college students situation has been unusual lately.

In wireless has its own cadence too.

Which I'm not sure we fully.

Grasp yet, although we have people that think they do.

And.

And whether there is a underlying broadband seasonality is hard to say so I do think that the traditional seasonality in the business is going to be different.

And obviously the.

The effects of Covid have been dramatic in terms of.

Quarter to quarter changes in growth.

Even in the last quarter it was very interesting in that.

The activity levels.

We're at to hit their lowest level about October and they started with November was better than October and December was better than <unk>.

November and.

I'm, a cron affected us at the end of December so it's hard to say.

That trend will continue but my guess is it will.

Steadily improve.

There was a second question on enterprise I didn't catch that was that also tied to seasonality and SMB. Thank you.

In terms of seasonality there with those businesses.

Our enterprise has been from a radar noticed what S&P was down sequentially. Thank you.

Yes.

The SMB business is doing very well relative to last year. It may not look quite as much but last year, you had an SMB surge coming out of really the locked down tied to COVID-19 .

The year over year comparison, there is less favorable but the underlying trends that we're seeing coming out of Q4 and the SMB.

Despite everything that Covid has brought F&B is continuing to do well in the study.

Despite everything that would suggest there might be some pressure there we're performing well in SMB and the enterprise side. There are markets that are still.

Coming back underperforming New York City in L. A in particular.

But despite that if you take a look at the underlying retail PSU growth and revenue growth were on a steady march to sequentially improving over many many quarters now and that business is looking more healthy and once we get back into a normal environment, there won't be that much seasonality tied to enterprise Israel continue to get better that's our hope.

Thanks, guys. Thanks, Phil April we'll take our next question. Please.

Your next question is from Vijay Jayant with Evercore.

Hi, Good morning, I, just wanted to know that we're going to start seeing some art off capex really come through can you sort of remind us and actually Jessica you mentioned it looks like as though you did another cable acquisition can you just sort of remind us sort of what the sort of levered or Unlevered IRR you think you can get.

Especially instead of an inversion opportunity there.

Obviously, it would be the impact on.

Total company free cash, but it's probably a fantastic project can you just help us think through the long term returns on that investment.

Sure. So I would point out that you use the word long term and I and I do think that we think of the investment in write off really at that as a long term investment and then in terms of creating returns, but based on the kind of markets that those rent and the success really that we saw in the New York State build out.

We think that we can do that we can generate mid teen.

Irr's are in long term from building those patents.

And from a project perspective, I don't think we're not in it.

A lot of that has already started that.

And has to be there.

And there will be a little lumpy. So you have to spend money upfront to do things like.

Do you walk out and figure out where it and figure out how to attach to the Poles and design your construction and that all takes time.

You're going to see is you'll see sort of cash investment going in upfront that's going to happen before we light up the passing.

In the past that also had a trail behind that.

And that's all sort of factored into the way, we think about the IRR of the investment, but it will look different.

From what I think are sort of normal placing in service of passing it on a year to year decline.

If I could another one on the Capex excuse me taxes.

You talked about being meaningful taxpayer in 'twenty, two and you still have some tax credits.

Any help on.

How close to being a full taxpayer are likely to be in 'twenty two.

Yeah.

You can look back in the comments in the script.

It's if.

If you take our EBITDA and subtract from that capital expenditures and cash interest for the year.

And then multiply that by <unk>.

By a mid teens number and you get there so.

So you can see the credits and the carry forward on the balance sheet. There is some of that carrying forward, that's still subject to limitations on our usage going forward.

And so based on that we sort of come through that thought process to get to what we think is an appropriate rate for 2022.

Alright, thanks, so much.

Thanks, Vijay April we'll take our last question. Please.

Last question is from John Hodulik with UBS.

Okay. Thanks, guys. Thanks.

Thanks for all the detail on the on the rural build out can you give us a sense I think you guys have been adding about 1 million homes passed a year for the last few years.

Does that ramp from here and if you could give us a sense on it sounds like it maybe the ramp is a little bit slower this year, but what's a good sort of run rate once you're once all the the <unk>.

Money is coming in and Youre getting it out there and sort of executing on that strategy and then a follow up on pricing I think you guys typically take a price increase in.

In November and December on the broadband side and I don't believe that happened. This year is that something we can expect early in 2002 here for you.

Has your view on when sort of slow methodical sort of price increases on the broadband side changed thanks.

Sure. So I can start on the right.

Yeah, I think that the rate that we are typically add is around $10 million a year I think.

It meant that we've made around Argos is now open.

In addition, our FCC locations and another $1 million.

Additional pass things over the course of five years.

Alright.

I think one six.

I think that.

If you if you pay said.

And that way, you'll be close, though the caveat that I would add to it.

Do continue.

It could be.

Good on additional subsidized build projects.

And in addition to that we have spaces that will be out there in the space.

Between our network today, and where the subsidized projects are alright that are in rural areas that arent part of the project.

Close to what we pass today.

So in.

In addition to those packages that we've committed under art you you might see additional path things and if we're really successful and subsidize it.

<unk> see even more but on but I think that that's a good place to start as you think about what will what will be able to place in service.

So just as a clarification is that so is it that all incremental to the 1 billion. You were you were doing previously it is incremental to the Milan.

Got it great.

Yes.

And with regard to broadband rates are.

Our view is that.

Has always been that.

We.

Our total packaged product.

Should be able to drive the bulk.

Bulk of our revenue and EBITDA growth.

And we have tried to.

Continue to make our products more valuable so that we saw more customers and our anticipation is that that's going to be our continued strategy and that will be able to grow our business nicely and grow our revenue nicely.

By combining our mobile products with our wireline products.

And.

So there is no rate increase in broadband planned in the short run.

Got it thanks.

Thanks, John Thanks to everyone that concludes our call.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Good day, and thank you for standing by welcome to Charter's fourth quarter 2021 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 one on your telephone. Please be advised that today's conference is being recorded.

If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today stepping manager. Please go ahead.

Good morning, and welcome to Charter's fourth quarter 2021, Investor call. The presentation that accompanies this call can be found on our website IR charter 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.

Please also note that all growth rates noted on this call and in the presentation are calculated on a year over year basis, unless otherwise specified.

On today's call, we have Tom Rutledge, Chairman and CEO , Chris Winfrey.

And Jessica Fisher, our CFO with that let's turn the call over to Tom.

Thank you Stephan we continued to execute well in the fourth quarter with solid customer growth and strong financial growth in October we launched our new spectrum mobile multiline pricing and packaging, which allows spectrum mobile customers to save hundreds or even thousands of dollars per year on their personal communication spend.

We had our strongest mobile quarter ever with 380000 line net adds for the full year 2021, we added 940000, new customer relationships and we added over $1 2 million internet customers for growth of over 4%.

We also grew our mobile lines by $1 2 million.

Financials were also strong in 2021, the group full year revenue and EBITDA by seven 5% and 11, 4%, respectively and free cash flow grew by 23% year over year to $8.

$7 billion.

As we look forward to the rest of this year, we remain focused on several strategic priorities and goals, including product development and network evolution, a rural construction initiatives and driving customer growth and penetration.

Although the business environment in which we're operating remains unusual we believe our goals and priorities will continue to foster our growth and prepare us well when the marketplace was returns to historical levels of marketplace activity and sales.

Fundamental to our success is the delivery of products and services that are superior to what.

Our competitors can offer delivering more speed and throughput to our customers remains a key area of focus and December internet customers, who do not buy traditional video from us used over 700 gigabytes per month more than 35% higher than pre pandemic levels.

And nearly 25% of our non video internet customers now use a terabyte or more of data per month. So.

So we continue to see very high demand for throughput by our customers in order to increase the capacity of our network for next generation products and services. We have developed a multifaceted approach to network. Our network evolution comprised of a number of technologies, which will be deployed where they make the most sense strategically and economically dilip.

During the very fastest speeds and lowest latency at the lowest cost and time to deploy.

2022, we will increase the number of projects to deploy high splits in our service areas.

That's a powerful cost efficient upgrades use our existing DOCSIS, three one infrastructure and allow us to comfortably offer gigabit speeds.

Symmetrical speeds.

And multi gigabit speeds and the downstream. Additionally, high splits will significantly reduce our network augmentation capital spending including node spending.

We also continued to act simply develop our DOCSIS four <unk> technology plant architecture, and rollout, which will allow us to cost efficiently offer higher multi gigabit speeds in the future.

We recently ran a DOCSIS four dot O test using frequency division multiplex duplex ing and we successfully delivered over eight gigabits in the downstream and over six gigabytes in the upstream and Theres more to come from that technology.

Other areas of product development in 2022 include speed boosting our Wi Fi connections, while spectrum mobile customers are on their spectrum mobile devices connected to any spectrum Wi Fi access point enabled for local service.

We also just turned on five <unk> band for all spectrum mobile customers, who have a C band enabled device, which.

It means they can get.

Mr <unk> speeds, while on the go.

Both of them both the speed boosting enhancements I. Just mentioned are included in our mobile pricing at no extra charge.

We're also rolling out our <unk> hybrid mobile network operation using CBRE small cells and a full market area, allowing selected participants.

To connect to our <unk> small cell access points, when they're outside of Wi Fi coverage.

By furthering the convergence of our fixed and mobile broadband service, we not only improve the economics of our mobile business, but improve the customer experience.

Another key piece of our long term strategy is treating customer service as a product itself and giving our customers the flexibility to manage their spectrum services and interactions with us.

Whenever and however, they want we continue to work on improving the quality and efficiency of our interactions with customers by expanding our customer self service and self care capabilities, and digitizing and monetize modernizing and monetizing a number of elements of our customer field and network operations groups.

Throw the rural digital opportunity fund or Argos, we will add over 100000 miles of new network infrastructure to our approximately 800000 existing models over the next five years. We're also in the midst of hiring more than 2000 employees and contractors to support our rural expansion.

Having customers hundreds of thousands of dollars per year, and our share of household connectivity spend including mobile and fixed broadband is still very low.

In fact as slide four in the presentation shows we only capture about 27% of household spend on wireline and mobile connectivity within our footprint. So there is a large opportunity for us to increase the market share.

With superior products saving customers money and through our latest offering we can do that.

And the average household mobile broadband spin with two lines of mobile broadband and wireline broadband is approximately $200 a month.

With our fourth quarter being our strongest quarter for mobile lines net adds yet.

Despite a very competitive environment, we continue to gain lines at a very rapid pace because of the value in our bundled service offering which drives more EBITDA and free cash flow per customer and per passing and value for shareholders now I will turn the call over to Jessica.

Thanks, Ken.

Let's turn to our investment results and five six and seven.

Yes.

We grew total residential and SMB customer relationships by 120000 in the fourth quarter and by 939000 in the last 12 months.

<unk> residential and F&B, we grew our internet customers by 190000 in the quarter and by $1 2 million or four 2% over the last 12 months.

Turning to video video customers declined by 58000 in the fourth quarter wireline voice declined by 154000, and we added 380000 mobile lines.

As of the end of the fourth quarter, we had $3 6 million mobile lines and despite the lower numbers of selling opportunities from cable sales, we continue to drive mobile growth with our high quality attractively priced service rather than using device subsidy.

Moving to the financial results starting on slide eight over the last year, we grew residential customers by 847000 or two 9%.

Residential revenue per customer relationships increased by 2% year over year, driven by promotional rate step up video rate adjustment that pass through program a rate increase.

And $22 million of Covid related impacts in the prior period.

Additionally, this quarter included $31 million and adjustments related to sports network rebate, which we intend to credit to qualify video customers.

These rebates are also reflected in lower programming expenses this quarter with no impact to adjusted EBITDA.

Also keep in mind that our residential are today does not reflect any mobile revenue.

As slide eight shows residential revenue grew by five 1% year over year, reflecting customer relationship growth and <unk> growth.

Two commercial F&B revenue grew by five 8%.

This growth rate reflects COVID-19 related impacts of $8 million.

That negatively impacted the fourth quarter of 2020, excluding this impact from last year SMB revenue grew by four 9%.

Enterprise revenue was up by three 2% year over year, excluding all wholesale revenue enterprise revenue grew by six 1%.

And enterprise Psus grew by five 3% year over year, a bit faster than last quarter.

Fourth quarter advertising revenue declined by 28, 2% year over year, primarily due to strong political revenue in the fourth quarter of 2020, partly offset by Covid impacts last year.

Exclude automotive fourth quarter advertising revenue grew by 13, 3% over the fourth quarter of 2019.

Mobile revenue totaled $632 million with $266 million of that revenue being device revenue.

Other revenue declined by six 2% year over year, driven by lower levels of CPE sold to customers.

Moving to operating expenses and EBITDA on slide nine in Q4 total operating expenses grew by $203 million or two 7% year over year.

Programming costs decreased by 5% year over year due to a decline in video customers of two 3%.

Higher mix of lighter video packages of $31 million benefit related to sports network rebates that I mentioned earlier.

And $19 million of other favorable adjustments.

All of which was partially offset by the higher by higher programming right.

Excluding both of the adjustments I just mentioned programming costs grew by one 2%.

Looking at the full year 2022, we expect programming cost per video customer to grow in the mid single digit percentage range.

Regulatory connectivity and produced content grew by 11, 3%, primarily driven by higher Lakers RF and costs partially.

Really offset by lower original programming costs and regulatory and franchise fees.

The Lakers cost growth was primarily driven by the delayed start of the NBA season into 2020, which drove fewer Lakers games charges in Q4 of 'twenty, making for a challenging comparison to this year.

Excluding RF and costs from both years regulatory connectivity and produced content declined by three 5%.

Cost to service customers declined by 5% year over year compared to 3% customer relationship growth.

Marketing expenses grew by four 3% year over year.

Mobile expenses totaled $724 million and were comprised of mobile device.

Tied to device revenue customer acquisition and service and operating costs.

Adjusted EBITDA grew by seven 7% year over year in the quarter.

Turning to net income on slide 10, we generated $1 $6 billion of net income attributable to charter shareholders in the fourth quarter.

So it's $1 $2 billion last year.

The year over year increase was driven by higher adjusted EBITDA.

Turning to slide 11 capital expenditures totaled $2 $1 billion in the fourth quarter in line with last year's fourth quarter spend although the components of that and where that difference.

Upgrade and rebuild grew by $66 million year over year due to plant replacement in those portions of our footprint that were damaged by Hurricane Ida.

Scalable infrastructure spend declined by $45 million, given a stabilized level of network traffic growth and investments made earlier this year.

We spent $127 million on mobile related Capex, which is mostly accounted for in support capital and was driven by investments in back office systems and mobile store Buildout.

For the full year 2021 cable and cable capital intensity was lower than in 2020 and in line with our outlook.

As we look to the full year 2022, we expect cable capital expenditures, excluding capital expenditures associated with our Royal construction initiative to be between seven one and $7 $3 billion.

We hope to spend about $1 billion in 2022 on capital expenditures related to our Royal construction initiative or a construction within census block groups that are defined as rural.

That spending includes all write offs and other subsidize royal construction projects, such as our <unk> related though.

And spend associated with extending our plant to rural homes adjacent to our subsidized felt that our network does not reach today.

We may not reach that targeted spend given a number of factors, including pole permitting and equipment and labor availability.

Conversely, we continue to bid on additional broadband stimulus projects.

The increased 2022 capital spending forever all construction initiative.

Given the variables are actual rural construction initiatives spending may differ meaningfully from our target.

To acquiring a rural cable operator.

We plan to begin disclosing additional operating information associated with our Royal construction initiatives in 2022.

Turning to mobile we expect our full year 2022 mobile capital expenditures to be about $100 million less than our full year 2021, mobile capital spend which totaled $482 million.

Our 2022 mobile capital spend will consists primarily of back office systems and the startup of our <unk> small cell construction and some additional store buildout.

We will continue to update you on our capital spending expectations as the year progresses.

And as always if we find new core cable rural or mobile projects with attractive Rois, we will pursue them, even if that means spending capital above our stated outlook.

As slide 12 shows we generated nearly $2 $3 billion of consolidated free cash flow this quarter, an increase of about 200 million or 10% year over year.

We finished the third quarter with $91 2 billion in debt since Paul are.

Current run rate annualized cash interest pro forma for financing activity completed in January is $4 2 billion.

As of the end of the fourth quarter, our ratio of net debt to last 12 month adjusted EBITDA was 439 times.

We intend to stay at or just below the high end of our four to four five times target leverage range.

During the quarter, we repurchased seven 6 million charter shares and charter holdings common units totaling about $5 $3 billion at an average price of $702 per share.

For the full year 2021, we purchased 25 3 million shares.

At an average price of $683 per share.

For total spend of $17 $3 billion.

And between September of 2016 in December 2021, we have repurchased $56 8 billion or about 40% of charter's equity at an average price of $452 per share.

Turning briefly to taxes, we expect to become a meaningful cash taxpayer in 2022.

Subject to any corporate tax rate changes for the years 2022 through 2024, we expect our federal and state cash taxes to be approximately equal to.

Our consolidated EBITDA less capital expenditures and cash interest expense multiplied by 23% to 25%.

We expect the cash tax rate in 2022 to be in the mid to high teens range percentage range given some of our tax attributes that are carried over from 2021.

Those estimates would include partnership tax distributions to advance New house captured separately in cash flows from financing in the financial statements.

There are multiple factors that impact what I, just described and we're always looking for ways to improve our cash tax profile.

Our well proven strategy, which offers customers the highest quality products at very attractive prices drives customary in share growth free cash flow growth and shareholder value.

Operator, we're now ready for Q&A.

As a reminder to ask a question. Please press Star then the number one on your telephone keypad and your first question is from Doug Mitchelson with credit Suisse.

Alright, thanks, so much I guess two two.

Tom you talked about wireless a lot in your prepared remarks, I think theres sort of two dynamics that youre big wireless competitors would know one is owners' economics across wireless and wireline for two of your competitors and then.

Secondly, how do you manage wireless customers when it's time for them to get a new phone when the wireless companies are waved pre new iPhone under their noses. Thank you so much.

Hey, Doug. This is this is Chris.

We anticipated. Your question then I have a few thoughts.

Just put it in perspective, so we added over $1 2 million Internet customers last year.

The last two years, we've added nearly $3 5 million and the rate of market activity and net additions growth has not been consistent through the pandemic with early on our 60 day offers keep Americans connected resulting payment plans and more recently subsidy plans.

And we have the lowest market churn rate of all types that any of us have seen in cable.

Clearly there was a pull forward of demand in 2020 due to the pandemic, but the lower customer activity environment. We saw throughout 2021 put into fourth quarter is being driven by a number of factors that include lower household move rates and housing completion rates.

It includes lower voluntary churn everywhere, we operate and much lower non pay churn given the amount of subsidy programs that have been and remain available.

<unk> footprint.

In the fourth quarter, we continued to grow customer relationships across our footprint, regardless of competitive technology or infrastructure.

Member activity levels were better than October December was better than November and then omicron provided a setback to transaction volume in late December .

We had good growth in operating and financial results last year and our expectation is that we'll have a steady return to more normal transaction volume and selling opportunities.

2022 progresses, and we get further into the year.

And Doug with regard to wireless.

Competitive dynamics.

I think that.

Our pricing structure in the monthly recurring fee piece of the pricing value equation is superior net net too.

What our competitors are offering.

We're getting some traction with that and of course, that's combined two with our superior broadband product.

Continued investment we make in our broadband product in terms of its capabilities and how we make the wireless product worked with our wireline product through the mobile speed boost technology opportunities.

Other.

Technology opportunities.

That we have.

All affect the price value relationship.

We're presenting to the customer.

But it's true that.

Replacement phones.

Are being given away in.

The marketing strategies of our competitors and we haven't done that.

And.

I think customers will have to.

They are currently making the evaluation that.

We have a good product and they are buying our product.

But I think.

It's really our challenge is to.

Make sure that the customer's perception of value is appropriate and thats all.

Our marketing and branding strategy, but.

If we need to change.

Change our competitive posture.

Can.

I don't see.

I think what we're doing right now is the best strategy for us, but that doesn't preclude us from future strategies, but the fundamental value proposition that we're providing is superior service fully package communication service.

Everywhere we operate.

Which none of our competitors do.

And and.

And making that a better value.

And driving customer relationships by having better products and services.

And the deeper we penetrate the lower our costs.

In the lower our costs the better the value we can provide.

Understood. Thank you Paul.

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

Your next question is from Jonathan Chaplin with New Street research.

Thanks, two questions first Tom.

Tom.

The 27% of the total connectivity market today.

Taking a sort of a very long term view.

Look at the market in a sense, David what do you think your fair share of that total revenue opportunity is and what are the what are the margins for an integrated infrastructure asset look like when we get to that in state and then.

Looking more near term.

There's been a lot of investor concern.

Around the impact to future <unk> from.

Some of the competitive entry that we've seen from from fiber a bit more so from fixed wireless broadband.

Can you give us just some insight into what you're seeing around pricing dynamics in new fiber build markets and then how you think about Verizon offering at $30 products.

Over wireless thank you.

Yes.

Well.

My point of showing the 27% share was that we have a lot of runway in that there is a huge opportunity for us.

To grow our business both.

Or is on Italy, and vertically and what I mean by horizontally and vertically.

We are going to have more customers.

Horizontal and I think.

We can have.

Higher revenue because we have more products being sold even though those unit prices are going to be lower in the future than they are today.

What does a converged network look like in the future I think.

We continue to.

Enhance the experience on the mobile device.

It's used.

The most first and.

And continuing to enhance that value by.

<unk>.

Using our superior Wi Fi network, and the new Wi Fi six the spectrum available.

Available to us and our ability to provide better managed Wi Fi services through technological change.

Along with the use of other spectrum like <unk> too.

Smart capital efficient way apply.

Technological solutions that reduce cost to us.

Improved service to the customer and by doing that you get a very virtuous.

Product development cycle.

That you get better and better services available at lower and lower cost.

And so I think we can do that by using our network and.

And using the tools available to us both.

Unlicensed and licensed spectrum.

In the technology management tools that we can use to.

Manage the experience on those mobile devices as well as all the other devices that are connected to our network.

And I think that the.

When you think about mobility and wireless.

Those two notions.

Somewhat from a technology point of view or conversion as well.

And most wireless devices are connected to our network.

And so I think.

Think we can continue to build value and build share.

Using the <unk>.

Mobile marketplaces sort of fuel for that.

The second question I'll start and others can chime in question was regarding our group pressure in competitive markets and.

Jonathan.

Over the years, our strategy has always been about provide.

Providing high quality service at an attractive price in the marketplace.

First and for growth so that we could grow faster and thats always workforce, but secondly, it makes our mark is less attractive from an overbuilt situation and it puts us in a different position today as we sit in our markets with very competitive prices already on the entire base.

So that's how we think about.

Our positioning in the marketplace it hasnt changed.

We have.

Together with an integrated mobile and converged internet product over time, and we have the ability to upgrade our network at a faster pace and lower cost than any of our competitors across all of our passengers not just cherry picking where we think it's most attractive demographically.

That's how we think about the marketplace in the past and I know others have always said the investment community should you take rates up that hasnt been our strategy our strategy actually worked very well in this type of marketplace as well.

Yes, the only thing I would add to that is self funded.

What that all means is that we have.

Fundamentally.

Lower cost structure.

Than our competitors.

Our capital investment strategy is designed to maintain that capability, which we think ultimately gives us a better competitive posture.

So we can grow.

And have better products working at lower costs.

Can be replicated by our competitors.

Anybody can spend enough capital and replicate your service, obviously, but we can do it more efficiently, which which is I think our competitive.

Opportunity.

The.

The other thing I wish them well.

Say just about the current environment is that from a competitive point of view when we look at our churn.

Our move churn is down.

Our non pay churn is down and our voluntary churn is down to historic levels. So.

Our actual ability to operate in the environment is pretty effective and what Tom said is what I said as well earlier, that's across all competitive footprints all geographies.

<unk>.

Jonathan you asked the southern question about fixed wireless broadband I know you've written on it in the past and we agree with you.

That the utilization of scarce resources and spectrum versus somebody else's densification to get a.

Pretty concise way and there wasn't anything in there that reaction they disagreed with.

And you've made the point yourself previous then we think that's right and we think that's going to occur.

I'm pretty evident to the nurse to everybody over time.

Thanks, Jonathan April we'll take our next one.

Thank you.

Your next question is from Ben Swinburne with Morgan Stanley .

Thank you and good morning.

First a question on the network and high splits I think Tom you said I think it was Tom talked about.

Spending some capital on that this year I think thats inside of the seven one to 700 <unk>, maybe you could help us with.

Sizing that investment.

And then I just wanted to come back to wireless I know you guys have been working hard to put the pieces in place to sort of be more aggressive in the marketplace are we there now or is there more as you look into 'twenty two that youre going to do on the wireless side, whether it's billing system related or sales channel related or something else that can.

Offering opportunity even further accelerate would obviously, it's been a pretty impressive acceleration over the last few quarters.

Alright.

Well on the high splits.

I'll say this that we are.

We're deploying the technology.

And I said in my.

Prepared remarks that.

We can go to a symmetrical speeds gigabit speeds, we can go to.

Multi gig down speed downstream speeds.

And as I said earlier, we're holding our own competitively as it is.

And the value of the high split.

Is that by putting.

We architected the network that way, which is basically just an electronic drop in.

We can.

Quit spending money on augmentation with or node splits at the same rate that we've been spending and so I think the best.

The way to think about it is that.

Depending on speed of construction and.

On a relative basis, yes, it's in the seven one to seven three.

And the general capital intensity over.

A multi year period associated with that kind of upgrade.

We'll maintain the kind of capital intensity that we cared for had.

With regard to wireless billing.

Yeah.

The wireless billing opportunities that we've just built a new billing system.

And it's just being deployed.

It was deployed.

To some extent at the end of the fourth quarter, but not the full fourth quarter.

And it gives us new opportunities for selling and making the selling process easier. When we initially launched mobile we launched it on our platform both us and Comcast together through our JV launched.

A common platform that.

Okay.

With segregated from the traditional cable platform.

And so it.

Obviously, we did well with it but we've re architected all of that.

Floyd a brand new system.

It gets us better integrated sales capabilities and better integrated billing capabilities.

That ultimately makes the sales process easier our ability to go faster with less friction.

Is.

Enhanced by those capabilities so.

We're optimistic that we can continue to accelerate our growth there.

You asked about other developments.

The deeper deployment of our advanced in home Wi Fi, which includes giving customers more control over their Wi Fi in the home the deeper deployment of that across our base as well as well.

Or functionality that will be applied to their Tom mentioned as well as the local speed boost as well as a way to enhance the value of this converged offer that rehab. So theres a number of product development.

Pieces that are in the pipeline that are going to continue to add value. Obviously, the CVR S tests this year, which I'm also mentioned that's.

Our market rollout, but that's not going to be across our entire footprint just yet so I wouldn't hang too much on that just for 2022.

There's a lot of development that's in the pipeline to come.

To make this product better than our competitors and more integrated.

Thank you Bob.

Yes.

Alright, Thanks, Ben April we'll take our next question. Please.

Your next question is from Craig Moffett with Moffett Nathanson.

Hi, guys.

Couple of question staying with wireless for a minute first can you just talk about the wireless sale that is.

Are you primarily selling at the time that people move in they are establishing a relationship with with charter for for broadband and other services and youre selling that as a bundle are you selling into existing.

Broadband subscribers and then second.

As I think about the offload that you've already achieved can you just talk about.

The kind of margins that you think you can get to in this business and.

And how much traffic you think youll be able to fully offload so that relative to a traditional wireless customer.

At one of the three majors, how much lower you think.

<unk>.

The cellular usage for your customers might be relative to those competitors as a benchmark.

Okay.

In terms of moving and upgrading.

The.

We're in a low churn environment. So the yield on that segment of moves and people who are in.

In a moment, where they are more likely to be changing services is lower.

We actually had.

We've achieved additional sell in using.

Mobile as part of that process.

But the bulk of our mobile growth is still coming from upgrades at the moment. If you just look at net changes in broadband versus net changes.

And mobile.

But and.

Interestingly.

The mix is changing too to more multi line.

Because of the way we priced it in the value proposition.

And more full.

Unlimited service.

Uh huh.

I expect that through time, we'll get more pull through on the.

On the.

New customer creation side of it.

But just.

When you do the math in terms of where the opportunity is to grow mobile.

Given our existing broadband penetration.

Just mathematically we have more upside in the upgrades.

But it has both effects.

In terms of offload in margins.

Ive said previously that we could do more than 30% of offload.

I think.

Through CVR S.

<unk> are already offloading enormous amounts of traffic on Wi Fi.

And I think that we have the ability to take that up significantly too.

So.

I'm not going to give you a full number but it's substantial.

And I guess, the pizza and I would add to that.

Is that.

We have margin that we're generating from our mobile customers. Today. So you have you have negative EBITDA in the mobile business, but thats driven really by customer acquisition costs in our rate of growth in the business.

We're generating we're generating margin from those customers today and we can do this the brs dips.

And then on in a very targeted manner. So we can look at that to see Drs deployment targeted on.

And in ROI generating fashion, so that every radio we deploy really on increases the margin and increases the value of the mobile business.

So I think that that piece is important as you think about how we grow profitability in that business.

We will grow profitability by adding CPI at and by growing the outlet that those customers standalone are generating margin today.

And I would say this is jessica.

Go ahead.

Do you think this could be a sort of a 10% margin business long term are 20% margin business.

Ballpark.

Mike.

I like to try I don't we're not going to go down.

<unk> guidance for the margin for margin in the long term that I do think that it's an important part of thinking about the growth story for EBITDA.

And long term and that as we find those opportunities to increase margin through deploying capital to see Drs.

Alright by upgrading the way that the system of offload traffic overall that that will continue to do those things.

And I would just say, we don't have to do CVR estimate mobile work, yes I agree.

And margins will improve regardless.

Thanks, Greg.

We'll take our next question please.

Your next question is from Bryan Kraft with Deutsche Bank.

Hi, Good morning, maybe just a follow up on that Jessica you talked about how you can be very targeted with the <unk> deployment.

To follow up could you could you talk a bit about the coverage requirements you have with the <unk> licenses I understand the goal is to move traffic onto your network, where there's high traffic density, but I guess I'm just trying to understand what you're required to do from a coverage perspective, and how that might impact the breadth of the deployment. Thank you.

Yes, so I'll take that we do have across the.

In every market, where we've acquired spectrum, there's always going to be extremely high traffic areas and we feel really comfortable that we can satisfy the deployment commitment at a pretty low cost.

And then go from there in terms of just picking and choosing where it makes sense either from a product capability perspective or from an ROI perspective.

Jessica Hussein.

And when we talk about our full market deployment.

We're talking about a full market deployment, where it makes sense and what that means is we're putting these radios where traffic dictates that the radio should be.

The amount of offload would.

Reduce our costs sufficiently to pay back the investment in the radios quickly yes.

And so it's opportunistic capital.

Which generates a higher margin though.

Mobile business.

Yeah.

Thank you if I could just ask one follow up could you just remind us what the what the dates are around those license for you to meet coverage milestones.

Minimal coverage milestones.

It's public and so we're not.

I'm not hiding it I just don't know enough I don't remember it off the top of my hand.

A multi year multi year outlay.

Okay. If you follow up with stuff and he can get you. The exact dates because it is public as part of the FCC process.

Okay, great. Thank you very much thanks, Brian April we'll take our next question. Please.

Your next question is from Phil Cusick with Jpmorgan.

Hi, guys. Thank you a couple of actually one follow up.

You comment on the pace of broadband through the fourth quarter and I know there was I think it was in New York runoff, there as well, but I'm curious, how you think about seasonality versus typical.

All of these sort of running in the business. These days or is the sort of underlying and Josh.

Just running more more normal.

Through the year.

And then second on an SMB that decelerated this quarter, maybe you could talk on any update on efforts there.

Well as conversations with enterprises, what are you seeing thanks very much.

So I'll pick up on <unk>.

First just around seasonality I mean, certainly our results.

Over the course of this year, then you would see from a seasonality perspective over a normal year and.

One of the things that we've been thinking about it.

We see a lower number of college student enrollments and so some of those markets have looked very different from what we would normally expect.

And the overall environment does appear to be more impacted as Chris mentioned by things like.

Like Covid way of sand and seeing lower activity when something like omicron happened.

We also did see some impacts from anything on the New York State side, New York had a moratorium on certain disconnect. It did drive a onetime spike and internet non pay disconnects. It was about 20000 in the quarter.

So if you had backed that out we would've been at 210000, rather than 190, but.

But not not a huge impact in terms of the overall.

Net adds for the year, which which we still thought were very good and if they were disbursed a little less evenly.

Okay.

I guess speak to seasonality video was very seasonal.

In the fall season at a tremendous uptick in fourth quarter was big although.

Cable vision because of the Hampton.

The opposite effects.

But.

Okay.

Fourth quarter is a.

Big.

Issue.

In video.

But as Jessica.

Jessica said the college students situation has been unusual lately.

In wireless has its own cadence too.

Rich I'm not sure we fully.

Grasp yet, although we have people to think that through.

And.

And whether there is a underlying broadband seasonality is hard to say so I do think that the traditional seasonality in the business is going to be different.

And obviously.

The effects of Covid have been dramatic in terms of.

Quarter to quarter changes in growth.

Even in the last quarter it was very interesting in that.

The <unk>.

Activity levels.

We're at to hit their lowest level of about October and they started in November was better than October and December was better than <unk>.

November and.

I'm, a cron affected us at the end of December so it's hard to say.

That trend will continue but my guess is it will.

Steadily improve.

There was a second question on enterprise I didn't catch that or is that also tied to seasonality and SMB. Thank you.

In terms of seasonality there with those businesses and.

Our enterprise has been from a retail notochord S&P was down sequentially. Thank you.

Yes.

The SMB business is doing very well on a relative to last year. It may not look quite as much but last year, you had an SMB surge coming out of really the locked down tied to COVID-19 . So the year over year comparison, there is less favorable but the underlying trends that we're seeing coming out of Q4 and the SMB.

Despite everything that Covid has brought F&B is continuing to do well in the study.

Despite everything that would suggest there might be some pressure there we're performing well in S&P on the enterprise side. There are markets that are still.

Coming back underperforming New York City in L. A in particular.

But despite that if you take a look at the underlying retail PSU growth and revenue growth are on a steady march to sequentially improving over many many quarters now and that business is looking more healthy and once we get back into a normal environment, there won't be that much seasonality tied to enterprise. It will continue to get better is our hope.

Thanks, guys. Thanks, Phil April we'll take our next question. Please.

Your next question is from Vijay Jayant with Evercore.

Hi, Good morning, I, just wanted to know that we're going to.

That seeing some art off Capex really come through can you just sort of remind us and actually Jessica you mentioned it looks like as though you did another cable acquisition can you just sort of remind us what the sort of levered or Unlevered IRR do you think you can get especially instead of a conversion opportunity there.

Obviously, it would be the impact on.

Total company free cash, but it's probably a fantastic project can you just help us think through the long term returns on that investment.

Sure. So I would point out is that you use the word long term and I do think that we think of the investment in our it really is that as a long term investment and then in terms of creating returns, but based on the kind of markets that those rent and the success really that we saw in the New York State build out.

We think that we can do that we can generate mid teen.

Irr's are in long term from building those patents.

And from a project perspective, I don't think.

A lot of that has already started.

And has to be.

The spend there will be a little lumpy. So you have to spend money upfront to do things like.

Do you walk out and figure out where it and figure out how to attach to the Poles and design your construction and that all takes time.

What youre going to see is youll see sort of cash investment going in upfront that's going to happen before we light up the passing.

In the past that also had a trail behind that.

And that's all sort of factored into the way, we think about the IRR of the investment, but it will look different.

From what I think are sort of normal all placing in service of passing it on a year to year basis looks like.

So if I put another one on the Capex excuse me taxes.

You talked about being meaningful taxpayer in 'twenty, two and you still have some tax credits.

NOL carryforward any help on.

How close to being a full set to be taxpayers are likely to be in 'twenty two.

Yeah, I think you can look back in the comments in the script, but it's it's it's.

If you take our EBITDA and subtract from that capital expenditures and cash interest for the year.

And then multiply that by <unk>.

Yeah.

By a mid teens number.

You get there so.

So you can see the credits and the carry forward on the balance sheet. There is some of that carry forward, that's still subject to limitations on our usage going forward.

So based on that we sort of come through that that process to get to what we think is an appropriate rate for 2022.

Alright, thanks, so much.

Thanks, Vijay April we'll take our last question. Please.

Your last question is from John Hodulik with UBS.

Okay. Thanks, guys.

Thanks for all the detail on the on the rural build out can you give us a sense I think you guys have been adding about 1 million homes passed a year for the last few years.

Does that ramp from here and if you could give us a sense on it sounds like it maybe the ramp is a little bit slower this year, but what's a good sort of run rate once you're once all the money is coming in and Youre getting it out there and sort of executing on that strategy and then a follow up on pricing I think you guys typically take a price increase in November and December on the broadband side.

Believe that happened this year is that something we can expect early in 2002 here or.

Has your view on when sort of slow methodical sort of price increases on the broadband side changed thanks.

Sure. So I can start on the right.

Yeah, I think the rate that we are typically added around $1 million a year I think the commitment that we've made around Argos as to now over 1 million additional FCC location is another $10 million additional pass things over the course of five years.

I think one six.

Yeah, I think that.

If you if you pay said.

And that way, you'll be close, though the caveat that I would add to it.

We do continue.

Could be to bid on additional subsidized build projects.

And in addition to that we have spaces that will be out there.

Between our network today, and where the subsidized projects are alright that are in rural areas that arent part of the projects that are sort of close to what we pass today.

And so in.

In addition to those packages that we've committed under write off you might see additional path things and if we're really successful in a subsidized.

You might see even more but on but I think that that's a good place to start as you think about what will what will be able to place in service.

So just as a clarification is that so is it that all incremental to the $1 billion. You were you were doing previously it is incremental to the $10 million.

Okay great.

Yes.

And with regard to broadband rates are.

Our view is that.

Has always been that.

We.

Our total package product.

Should be able to drive the bulk of our revenue and EBITDA growth.

And and we have tried to.

Continue to make our products more valuable so that we sell more customers and our anticipation is that that's going to be our continued strategy and that will be able to grow our business nicely and grow our revenue nicely.

By combining our mobile products with our wireline products.

And so there is no rate increase in broadband planned in the short run.

Got it thanks.

Thanks, John Thanks to everyone that concludes our call.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Q4 2021 Charter Communications Inc Earnings Call

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