Q1 2022 Charter Communications Inc Earnings Call

April 29, 2022

[music].

Good day, and thank you for standing by welcome to the Charter's first quarter 2022 investor call.

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.

Just to be advised that today's conference is being recorded if you require any further assistance. Please press star Zero I will now hand, the conference over to your first speaker today.

Van <unk>, Sir you may begin good morning, and welcome to Charter's first quarter 2022 investor call the presentation.

<unk> 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 and also our 10-Q filed this morning.

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

<unk> remarks 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.

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.

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

Thank you Stephan we continue to grow our business by offering superior converged connectivity products.

During the quarter, we added 129000 customer relationships and a 185000 internet customers customer.

Customer relationship churn remains low due to current consumer behavior, well connect activity opportunities also remained low as a result.

We continued to see very strong mobile line growth with net additions of 373000.

Over the last year, we've grown our mobile lines by nearly 50%, we now have over $4 million total mobile lines.

<unk> were also strong in the first quarter first quarter revenue and EBITDA each grew by five 4% and when excluding a one time payment free cash flow grew by 9% year over year.

As always we remain focused on our primary goal of driving customer growth and market share leading to higher free cash flow, we're doing that in a number of ways, including expanding our footprint with good returns on investment upgrading our network to ensure that we're offering our latest <unk> fastest high quality connectivity.

Services and continuing to invest in high quality customer service and finally investing in the mobile business to drive convergence of fixed and mobile connectivity products and earn a higher share of monthly household communication spend by saving customers money.

Our rural construction initiative is also progressing as planned and we've started to work in all 24 of the states, where we won rural digital opportunity fund bids are multi year multibillion dollar rural construction project will deliver gigabit high speed broadband access to more than 1 million Unserved Rural Cup.

<unk> locations across the country.

Through Argos will add over 100000 miles of new network infrastructure to our approximately 800000 existing miles over the next five or so years and our construction is not limited to Argos commitments. We continue to build another rural areas and are pursuing opportunities to receive other broadband stimulus funds.

In addition, we regularly expand our network to additional residential SMB and enterprise passing wherever it's economically attractive ultimately our rural construction initiatives is not only good for one billions 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.

Five additional customer growth by growing customers in unserved and underserved areas.

Demand for our customers for greater connectivity speed and data throughput continues to grow at a very fast pace during the quarter Internet customers, who do not buy traditional video from us used approximately 700 gigabytes per month.

35% higher than pre pandemic levels, nearly 25% of those customers now use a terabyte or more of data per month.

To meet that growing demand.

We're both expanding the capacity and reallocating capacity within our network and the <unk> and the technology to both expand and reallocate plant bandwidth is developing rapidly today, we're implementing high splits what we prefer to call spectrum splits, which allocate more plant capacity to the upstream.

All use our DOCSIS three one infrastructure in turn we're able to offer our customers higher symmetrical speeds and multi gigabit speeds. Additionally, by expanding and reallocating plant capacity will reduce our network augmentation capital spending including node split spending going forward.

And the vast majority of our deployed modems are already spectrum split capable, allowing us to provide faster service to our existing customers without swapping out there CPE.

We've been increasing the number of spectrum splits.

<unk> in our service areas and we will continue to do so.

But as the technology develops further it will shift our strategy dynamically to further expand the capacity of our plant and reallocate bandwidth as necessary to meet customer needs by deploying additional technologies, including DOCSIS Port, Idaho, which will allow us to deliver even greater capacity offering consumers the fastest and lowest latency connectivity.

In a highly capital efficient way.

Driving customer and market share growth and free cash flow.

In mobile, we continue to improve and enhance our products and a number of ways differentiating our offering helping to drive customer growth and improving mobile business economics.

In April we began the market rollout mobile speed boost mobile speed boost allows spectrum mobile customers to receive speeds up to one gigabit per second on the spectrum mobile service devices when inside their homes.

Even when they are provisioned wireline internet speed is less than a gigabit.

The rollout of our first trial of our CBS small cells and full market area continues to progress nicely.

In the first quarter, we completed the build out of our mobile core network for the upcoming trial, we expect the trial to begin in the middle of next year and to offer faster speeds are better all over our mobile experience all the while saving us costs ultimately with our mobile product, we're offering to consumers a unique and superior fully converged con.

Activity service package, while saving customers hundreds or thousands of dollars per year.

Our share of household connectivity spend including mobile and fixed broadband is still very low in fact, we capture well less than 30% of household spend on wireline and mobile connectivity within our footprint.

So theres, a large opportunity for us to increase market share by saving customers money and through our latest offering we can do that which in turn raises connects reduces churn and drives customer growth.

Before turning the call over to Jessica I wanted to make a few comments about the joint venture with Comcast that we announced earlier this week.

Our joint venture will provide video delivered by apps.

<unk> App store on TV applications and is capable of aggregation navigation search and curation billing in content security.

It will give.

Consumers, new devices and content providers, new opportunities to create customer relationships on a platform designed to help them sell video effectively.

Comcast has created excellent IP for this venture and we have high expectations that we can work together to continuous development and distribution.

We have a history of success in our mobile JV operating systems demonstrated by the fact that between our two respective mobile businesses. We added more mobile lines in the first quarter of this year than the rest of the mobile industry added collectively now I will turn the call over to Jessica.

Thanks, Tom, Let's now turn to our customer results on slide five.

We grew total residential and SMB customer relationships by 129000 in the first quarter include.

Including residential and SMB, we grew our internet customer relationships by 185000 in the quarter.

We continue to see record combined competitive and move churn, which has reduced our selling opportunity and very low non pay churn at Kraft Heinz side panting.

Similar to the fourth quarter, we saw both lower Internet, Sharon and lower Internet connects than in the first quarters of 2021, 2020, and 2019 and this was true across our footprint regardless of competing technology.

Turning to video video customers declined by 112000 in the first quarter wireline voice declined by 150000, and we added 373000 mobile lines.

The lower number of selling opportunities primarily reduced activity level, we continue to drive mobile growth with our high quality attractively priced service.

Moving to financial results starting on slide six over the last year, we grew total residential customers by 674000 or two 3%.

Residential revenue per customer relationships increased by 1% year over year, driven by promotional rate step ups and video rate adjustment that pass through program of rate increases.

These effects were partially offset by the same bundle and mixed trends, we've seen over the past year, including a higher mix of non video customers and a higher mix of low priced video packages with an IV.

Additionally, this quarter's revenue was negatively impacted by $20 million in adjustments related to sports network rebates, which we intend to credit to qualified video consumers.

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

Excluding the impact of sports network credit I, just mentioned our residential ARPA grew by one 2% year over year.

Also keep in mind that our residential ARPA. It does not reflect any mobile revenue or video programming pass through increases announced late in the first quarter.

As slide six shows residential revenue grew by three 7% year over year and by three 9% year over year, when excluding the sports network credit.

Turning to commercial SMB revenue grew by four 6% year over year, reflecting SMB customer growth at four 4%.

Enterprise revenue was up by three 7% year over year, excluding all wholesale revenue enterprise revenues grew by six 5% and enterprise Psus grew by five 2% year over year.

First quarter advertising revenue grew by 11, 5% year over year by five 1%, excluding political revenue, primarily due to our growing advanced advertising capabilities.

Mobile revenue totaled $690 million with $292 million of that revenue being device revenue.

Other revenue increased by five 2% year over year and includes two months of Royal construction initiatives subsidies totaling $19 million.

In total consolidated first quarter revenue was up five 4% year over year.

Moving to operating expenses and EBITDA on slide seven.

In the first quarter total operating expenses grew by $410 million or five 4% year over year.

Programming costs declined by 4% year over year due to the decline in video customers of two 1%.

A higher mix of lighter video packages.

$20 million benefit related to sports network rebates that I mentioned.

$34 million of other paper it bodes favorable adjustments much of which was not unique year over year.

All of that was mostly offset by higher programming right.

Excluding both of the adjustments I just mentioned programming costs grew by one 4% and.

And looking at the full year 2022, we now expect programming cost per video customer to grow in the low to mid single digit percentage range versus mid single digits previously.

Regulatory connectivity and produced content declined by seven 4%, primarily driven by lower Lakers RF and Cai.

Lower video CPE sold to customers and lower regulatory and franchisees.

The decline in Lakers costs was primarily driven by the delayed start to the NBA season in 2020, which drove more Lakers games charges into Q1 of 2021, making for an easier comparison this year.

Excluding their RF and costs from both years regulatory connectivity and produced content declined by five 6%.

And for the full year 2022, we expect regulatory connectivity and produced content expense to decline in the mid single digit percentage range versus 2021.

Primarily due to lower video CPE sold to customers and lower RSA costs, given the abnormal Lakers games scheduled that Jack.

Cost to service customers increased by five 3% year over year.

The increase was primarily driven by higher bad debt given the unusually low bad debt in the first quarter of 2021, when bad debt was down $100 million versus the first quarter of 2020 benefiting from the government stimulus packages.

In fact payment trends in the first quarter continued to be very good and excluding bad debt from both years cost to service customers grew by one 8% primarily due to a larger customer base previously planned wage increases to $20 per hour starting wage for hourly field operations and call center employees and higher health benefit.

And fuel costs.

As the year progresses prior that prior year bad debt expense normalizes and should drive meaningfully slower growth in cost of service expense line during the second half of the year.

Marketing expenses grew by 10, 1% year over year due to higher labor costs, driven by previously planned wage increases and temporarily greater staffing levels as charter completes the in sourcing of its inbound sales and retention call centers with a focus on providing better and better service to new and existing.

Customers.

For the full year 2022, we expect marketing expense to grow in the mid single digit percentage range versus 2021, although marketing expense growth is likely to remain at elevated levels in the second quarter.

Mobile expense totaled $760 million.

And were comprised of mobile device cost tied to device revenue customer acquisition and service and operating costs.

And other expenses increased by 12, 5%, primarily driven by a favorable nonrecurring adjustment in the prior year period, making for a challenging comparison this year and higher labor costs.

Adjusted EBITDA grew by five 4% year over year in the quarter.

A quick note about inflation before moving on to net income certain costs of operating our business such as labor and fuel costs are currently subject to inflationary pressure.

But given our previously planned move to a 20 dollar per hour, starting wage and our long term relationships and contracts for goods and services, we haven't yet seen a significant impact on inflation in our P&L.

I would also note that our consumers are experiencing inflationary pressure there given the availability of subsidies for broadband and our focus on saving customers hundreds of dollars per year by switching to our converged connectivity products. We believe we are well positioned for the changing market.

Turning to net income on slide eight we generated $1 $2 billion of net income attributable to charter shareholders in the first quarter.

$800 million last year the.

The year over year increase was driven by a nonrecurring litigation settlement charge in operating and other operating expenses for the first quarter of 2021.

And higher adjusted EBITDA.

Turning to slide nine capital expenditures totaled $1 9 billion in the first quarter, just above last year's first quarter spend of $1 $8 billion.

We spent a total of $232 million on our rural construction initiative in the quarter.

Most of that spend relates to design walk out and make ready and as expected has not yet resulted in significant passing is growth.

And the vast majority of that spend is accounted for in line extension.

We spent $74 million on mobile related Capex, which is mostly accounted for in support capital and was driven by investments in back office systems.

As slide 10 shows we generated $1 $8 billion of consolidated free cash flow this quarter, a decrease of $55 million or 3% year over year.

Excluding a onetime litigation payment of $220 million made in the first quarter free cash flow grew by $165 million or eight 9% year over year.

Please note that in the second quarter, we will begin making quarterly cash tax payments for fiscal year 2022.

These payments are consistent with the cash tax outlook that we provided in our fourth quarter investor call.

We finished the quarter with $94 9 billion in debt principal.

Our current run rate annualized cash interest is $4 $4 billion as of the end of the first quarter our ratio of net debt to last 12 month adjusted EBITDA was 443 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 6 million charter shares and charter holdings common units totaling about $3 $6 billion at an average purchase price of $600 per share.

And since September of 2016, we repurchased $64 billion or nearly 42% of charter's equity.

Our path to continue to grow our business remains strong and we will do that by further in convergence and our connectivity business, allowing us to capture additional share.

Focusing on expanding our footprint and by continuing to improve the customer experience and extending customer lives.

By executing on those items, we will drive customer and share growth free cash flow growth and shareholder value.

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

Thank you.

Reminder, to ask a question you will need to press star one on your telephone.

That is star then the number one.

Draw your question press the pound key please standby, while we compile the Q&A roster.

And your first question will come from Craig Moffett with Margaret Your line is open.

Alright, thank you.

A few questions if I could.

First with respect to broadband.

This of homes passed excluding <unk> decelerated, a little bit I'm wondering if you could just talk about.

The rate at which you expect homes passed for broadband to grow.

And how you think about that as a floor.

Floor for <unk>.

For broadband growth rate going forward.

And then with respect to the.

The JV that you announced with Comcast is there a vision, where you take the flex box and actually make it your primary video delivery platform, where all your video is IP and and that use of reclaim that capacity.

And then finally, one related question, Tom I sort of I can't resist asking you. If you just want to comment on password sharing and a little bit of a and I told you. So.

Yeah.

Yes.

Yes, I did tell you so.

Yeah.

So.

Yes, Craig.

So.

Broadband homes passed I think is an interesting driver.

Potential growth.

Alright pointed out.

For the last five years or so we've added about 1 million passengers a year.

And that's comprised of new construction of housing developments plus fill in plus.

Plant expansion into areas, where it's economic to serve.

Passing that are contiguous to some of that development.

And so that's a driver of future growth there is really four drivers.

That drive the future growth of our broadband business and that's a significant one.

Another one is the household and growth.

The growth in households, using broadband which is.

In the mid eighties, but I think that will continue to increase.

Digital literacy increases and people continue to want to be part of the connected world and so I think that moves up to the vacancy rate over time.

Yeah.

And.

We also have this whole art off opportunity, which we've just begun to develop we've just started to activate.

The subsidized plant expansion through art off and we've actually won quite a few bids yet.

At the state level, and there's $42 billion of additional funding thats going to be distributed probably next year for additional.

Expansion into rural areas, and that's an opportunity of growth for us and then finally.

We have the opportunity of.

Which we expect to realize the opportunity of increasing our share of market.

Existing broadband customers and we can do that.

Packaging, which we've always done.

Successfully our products into a value proposition, that's better than what the individual component pieces that they're currently buying from various providers and so.

The current mobile growth.

A key factor in that opportunity.

So that's how we expect to grow it and what's the what's going on in the homes passed marketplace. There are construction issues going on right now.

There are supply chain issues that are affecting activations of housing developments in that kind of thing but.

But.

Longer term I think that that pace that we've experienced over the last five years our continues.

The second part of your question.

About the JV and IP Yeah. The answer is yes I expect.

Incrementally most of our customer base will be all IP.

And.

And that spectrum will be recaptured.

That's currently used.

Time, and there's various ways of compressing that spectrum.

As you market your way into them.

IP space.

And.

That that plant capacity.

Being realized will be available to increase broadband speeds.

Or.

Handle broadband capacity.

Required as a result of the use of.

Overall data.

And lastly on password sharing yeah.

We knew it's a problem it's not just a problem for the company not controlling their passwords, but it's a problem for everybody in the industry because all of that content.

Used without anybody paying for it.

The supply and demand of all content not just the provider that selling the content.

Which diminishes the value of content for everybody.

Which is the point, we have been trying to make a few years.

Okay.

So.

Next question.

Take our next question. Please thanks.

Your next question will come from Jonathan Chaplin with New Street. Your line is open.

Okay.

Hi morning, guys. Thanks for taking the question.

I know.

Traditionally.

Prefer not to give context around.

Sort of like a forward looking view.

<unk> market, but given that we're just in an environment.

Heightened uncertainty.

I'm wondering if you had strayed from your your normal policy in the east to give us.

Some more context for.

What you're seeing.

From from.

In the market generally in terms of the.

The move activity as we came out of <unk> into <unk>.

Competition.

Are you seeing an impact now that's more discernible from fixed wireless broadband.

And has that changed over the course of the quarter going into <unk>.

And then.

How should we think about seasonality also.

The result that you guys. Just just produced in one sense should we think of seasonality to the.

As being as being the normal trend. Thanks.

But Chris why don't you take that.

Hey, Jonathan.

We expected a question along these lines and I have some thoughts.

We expected the market to return to normal actually last year, including seasonality, so difficult to say, but as Jessica mentioned transaction volume in the market. It remains low, particularly mover churn, which is a key source of net subscriber acquisition for US there are some facts that put our lower year over year growth in context.

Turn rates of all kinds and across all footprint types remains at record lows.

The pace of gigabit overlap increases within our footprint. So far has remained consistent with the past few years despite commentary about acceleration.

So we have competition everywhere, we operate we always have.

And our largest wireline competitor had negative residential wireline net additions in the quarter, while we continue to grow.

So compared to last year's first quarter was already low market activity. Our gross addition rate in the first quarter of this year was lower in both overbuild and our non overbuild footprint by the same amount.

Together with record low churn. This illustrates the biggest driver remains lower selling opportunities from overall market activity and churn.

Jonathan There are additional factors, which could also contribute to lower gross addition rates first lower household growth rates, Tom just talked about which we along with others have seen.

There is still a lingering pull forward effect from the shift to a higher quality broadband during the pandemic comes from DSL, DSL and mobile only customers, which accelerated the conversion rates of that same base, which we would've seen today.

Finally, the mix related impact of the small increase in more competitive overlap on gross addition rates would be the smallest contributor and really no different than what we've seen in the prior years.

We do not see.

I know, it's a question we don't see direct impacts from fixed wireless access in our churn or gross additions. So does that mean could fixed wireless access be converting DSL and mobile only customers that would normally come to us.

Its possible and it would be hard to see at low volume across our entire footprint, but we would see that as a potential parking lot for conversion to a faster more reliable and more ubiquitously marketed and deployed broadband offering.

So we take all competition seriously and it's not new for us, but I don't believe <unk> fixed wireless access as having any material impact on us today when compared to the factors I mentioned.

So overall activity levels remain low and we will trial different tactics to stimulate more competitive churn.

Market activity and move return will return and when it does we expect our internet net additions were it to normalize.

Our already very strong mobile line growth should get even better with higher attach and upgrades upgrade rates to the fastest and really the only real converged internet product and our footprint. It also saves customers significant money.

As Tom mentioned, our various construction initiatives should provide a larger recurring footprint expansion for customer acquisition.

We get to the end of this year.

Don't have a guidance or an outlook, but I think those are the biggest drivers of what we're seeing today and hopefully that is helpful to the question you asked.

That's really helpful. I appreciate it Chris.

Okay.

Jonathan Peter we will take our next question. Please.

Your next question will come from Brett Feldman with Goldman Sachs. Your line is open.

Yes, thanks for taking the question.

Obviously continued to show great traction with the wireless net adds even as you're selling opportunity against customer gross adds has gone down so it looks like the recent adjustments you've made to pricing and packaging is resonating with the base.

You're still going to market differently than the big three the increasingly are looking at things like handset promos attacked a lot of value into their higher tiers, whether its tethering or true unlimited video. So I guess I'm. Just wondering how are you thinking about whether it makes sense to start going after the wireless consumer P value.

<unk> did things and the assessment you are doing as to whether the additional costs you incur would ultimately be worth it and does that math start to change. If you were at the point, where you actually were putting in a more significant amount of their macro traffic onto our CBS network. Thank you.

Yeah, well I think the.

But the answer to your question is.

We will use those tactics that make economic sense to us to.

To drive our.

Our business and to drive our relationship growth.

In this mobile broadband space.

And.

As I said in my comments.

We have very good growth.

And we have greater growth in the rest of the mobile industry currently.

So we're on track and doing the right things currently from a marketing perspective.

And we think we can accelerate that growth. So there are various tactics that you see people, who sell wireless do and they are all related to trying to create a value proposition for customers and some of them cost more than others.

Fundamentally we think that.

<unk> and <unk>.

Our Wi Fi offload.

Continue to allow us to have low cost.

Mobile products with high capacity available to our customers, which gives us.

The ability to sell those products at value propositions for consumers.

Ultimately is what we think drives our ability to ship drive market share.

So.

I don't put any marketing tactic.

On the side and say, we won't do it or because we're not doing it today, we won't do it in the future, but our fundamental strategy is.

To use our network effectively.

We provide a high quality better best in class service better than anyone else in fact, right now in terms of speed capability and sell that for a lower price and we think that that value is what consumers will ultimately recognize.

How we package that up in various marketing tactics I think is open to what is successful.

We constantly experiment with marketing tactics to see what resonates best but.

We think the core concept is the driver of our opportunity.

A good example of that we do have we have a premium plus $10 package in our mobile so even that at $39 99 for our standard is 29 99, when you take two more calls or more but 39 99, the premium packages to take upon its very low and the reason is very low as for the reason that Tom just mentioned already they get the fastest mobile product in.

The country through the standard unlimited offer that we have the 2000 1999 and because our network works better together with Wi Fi and you've got 85% off load with the nations fastest broadband and therefore, the nations fastest mobile.

It really hasnt been much of a need or desire or even not that attractive price points to take what you would call a premium product.

Thank you.

Peter will take our next question please.

Your next question will come from Phil Cusick with JP Morgan.

Okay.

Hi, guys. Thanks, a couple if I can first I think Tom you said the mobile network trial is now in mid 'twenty. Three is that is that right and is it delayed.

And what does that mean for Capex this year for mobile.

It's not it's mid this year, if I said that I didn't need it.

Smith pointed to alright that make sense.

Maybe I misheard it.

And then second of all have you started to book art off revenue and how quickly should we see that revenue come in from here.

Yes.

Yeah, we did start thinking right off revenue in Q1.

Two months and for the total of $19 million in the run rate on the art off booking will be at that so it gets back down over the 10 year period that we receive the funds.

I'm still habit at that just over $9 million a month.

From now until until 10 years from now.

Great. Thanks, very much guys.

Peter will take our next question please.

Your next question will come from Jessica Reif Ehrlich with both of our securities.

Thank you.

I have two questions to follow up on the Comcast GP.

The press release says that you guys are investing $900 million over what time period.

How do you expect to monetize the off alright.

Next year is it mostly advertising or a revenue split and then.

Your margins on the cable side are over.

Of the 42%.

Where do you think peak cable margins won't be.

Okay.

Yeah.

Well the opportunity Jessica.

As to create.

Advertising revenue.

And to create transaction revenue.

On the product.

And.

So those are the the money drivers and.

And that requires obviously, having full set of content opportunities in it.

And using your IP and your.

Marketing skills in a digital space to drive.

Consumer activity.

And viewing.

And so that's the opportunity from the platform from a monetization perspective.

Our capital commitment, we haven't disclosed that but it's.

In the Grand scheme of things from Us.

Development point of view, it's a relatively minor, especially when you consider the <unk>.

CPE.

Business that we've always been in where we've actually had to buy CPE.

And in many cases will be retail.

Product.

So.

And lastly.

The last one was the question on margins and where we think margins ultimately could go I mean, it's hard to comment on margins in the context of our business because your mix of video product makes such a difference.

And ultimately we're trying to sell.

Right mix of products to the consumer that drives the.

The most cash flow for a customer per customer, which doesn't necessarily drive the most margin.

On a financial statement presentation sort of basis so.

I would say on that one.

It's hard to speculate on where exactly margins would go as a as a percentage.

But ultimately we think that what we're doing by capturing additional share in the mobile market.

Using the added and capturing additional share in the broadband market, which drives the most cash flow off of our asset.

And in our other services as well.

We think that that's the right thing to do to drive cash flow for the business.

And to continue to grow.

Regardless of what that margin line ultimately shows.

Yes.

We don't manage to margins, we managed to turn on investment.

And so we try to generate as much cash.

Each.

Asset that we deploy as we can.

Nothing to do with margins when you have a mix of products with different kinds of margins in them.

And.

And so it's only in a static environment that a margin realm.

Relative relative margin has any value as an analysis tool.

From our point of view you can have a really high margin by not growing at all exactly that hasnt always worked out for placebo.

Okay. Thank you.

Thanks, Jessica Theater, and we will take our next question. Please.

And your next question will come from Doug Mitchelson with credit Suisse.

Oh, thanks, so much I think a few more questions around broadband if you don't mind.

The first is how many DSL customers are left in your footprint and what do you think the broadband penetration is overall in your footprint. How much is left to go from just more folks getting broadband and a couple of follow ups.

Yeah.

Hey, Doug this is Chris.

But for competitive reasons I don't want to go deep into.

The.

The remaining broadband penetration people have statistics, they know whats out there there is still a sizable opportunity for us to grow the market, which Tom talked about.

In terms of DSO is declining, but theres still a decent base you really need to think about not just DSL, but really the DSO, that's really the new DSO.

<unk> talked a little bit about to the extent that fixed wireless access is building up potentially in the areas that we're moving into from a rural perspective.

That's the future DSO pile or parking lot of subscribers that we can go to acquire so it's DSL today, it's V DSL and it's inferior broadband product relationships that are getting created today that provides the fuel for growth for us in the future from a mix standpoint.

And Chris you mentioned I think relative to gross additions no difference in competitive fiber footprints versus noncompetitive fiber footprint is it the same per turn as well I just wanted to confirm that sort of year over year term changes or no different in the two footprints, yes, we see churn down in both types of footprints that a similar amount.

And we see almost not almost the exact same reduction and gross addition rate and both overbuild of non overbuild footprint, which really.

Completely validates that this isn't a competitive phenomenon that you've seen in the marketplace. This is a market activity, our low mover churn environment, and we're stimulating and a lot of different ways.

Some of that will have some success, but the bigger driver will just be when the market starts to normalize.

So yes.

Yes, you understood it correctly, but another part of your question was what's the overall broadband penetration and if you take all of those relative smaller speeds slow speed.

Products.

It's in the mid eighties.

As I said earlier I think that goes up.

Yeah.

Towards the vacancy rate.

And then.

Great. Thank you and the last question I wanted to get to and I appreciate taking all the questions.

Competitors have a variety of pricing and go to market strategies for broadband and mobile and you actually have I think a difference yourself and how you would build a broadband customer and how you might build a wireless customer I think wireless no contracts and no taxes or fees.

How are you thinking about evolving your pricing strategies, if at all either in response to competitors, where because youre finding more optimal ways to serve your customers.

They're like <unk>.

Thinking about marketing earlier.

A form of price.

We.

We have lots of opportunity to mix and match various tactics to create value for customers.

Perceived value, but fundamental values, where we're really trying to drive.

Product, which is having superior products at lower prices than our competitors by doing smart investments and good technologies that allow us to have a lower cost structure and have a lower.

Cost per bit so to speak.

<unk> to consumers both in the mobile space and in the broadband space and in the video space to the extent it's.

A separate business and and and.

We can mix and match those value propositions, a variety of ways, depending on what we need to do to.

Customer perceptions about with where the true value is in the product set.

Alright understood. Thank you all.

Thanks, Doug Theater, we will take our next question. Please.

Your next question will come from Vijay Jayant with Evercore.

Thanks, I have one sort of a.

A question about the video business, obviously your video losses seem to Buck the trend relative to some of your peers can you just talk about how much flex is left on these lower to your office that you have can still went out to customers and.

Any changes to sort of carriage minimums as you've renegotiated programming.

And then just for Jeff.

You called out a lot of trends on the cost side I just wanted to Hum.

Some questions on them.

On bad debt.

Back to the pre pandemic levels and then just on Capex.

Obviously, you talked about corporate cable should be assume art off capex sort of trend similar to this quarter in the low two hundreds quarter just for modeling purposes. Thanks.

Just because you want to answer the bad debt question, yes.

If I start on the expense items P J that the bad debt we're.

We're not back to pre pandemic levels I don't expect us actually to go all the way back to pre pandemic levels. The subsidies for broadband that are available in the market.

Has eased the impact.

On consumers.

Sort of what happens in the economy, and just and just made it easier to pay for services overall.

And they are targeted obviously at those consumers who are more prone to go non pay in the first place.

So non pay churn overall continues to be at.

At near record lows.

And.

And I think that.

Right now we Havent Sienna.

Yeah, it sort of moves back towards pre pandemic levels.

On the <unk> side.

I think that's been.

And the Royal construction initiative over all.

I wouldn't expect it to sort of trend at a very steady level over time, there will be opportunities that we have to accelerate spend.

Point in time, and as we have those opportunities because we think that continuing to build its important.

We likely will take them I think we've accelerated right now some of the kind of spend that I talked about happening in this quarter that design.

And make ready type expenses.

We're trying to pull those forward so that we can be ready to deploy as quickly as possible and to deploy more going into next year.

But that's not a change in guidance on where we think we're going for overall, but.

But I think I as I said when we.

When we issued when we talked about the billion dollars that we hope to expect to spend for the year.

If we could spend more or we could spend less than that and it's all based on what we're able to deal.

We're going as fast as we can.

And with regard to video.

Why were somewhat of an outlier, we try hard for one thing and.

And again, we tried to put value.

Where we can for the consumer and.

And think that there's still opportunity in video and one of the things that we've had success.

Yeah.

With is the creation of additional packaging.

And the mix of video products that we actually sell to consumers.

Continuously improving the right structures around what we're able to sell.

And it's been difficult because of the way historically video has been packaged in this very fat expensive bundle, that's driven by sports rights costs.

And as we've been able to get some of the content out of that ecosystem and put into tiers and we're successfully selling those.

And I think.

Over time, we will be able to build a very nice video business.

Great. Thanks, so much.

Thanks, Vijay Peter we will take our next question. Please.

And your next question will come from Ben Swinburne with Morgan Stanley .

Thanks, Good morning.

Tom.

I had a couple of related questions around competition in broadband.

Investing without telling you anything you don't know I think investor sentiment on cable is probably is as poor as it's been since like maybe the mid two thousands when you were getting overbuilt by Fios and U verse, particularly of Cablevision.

Tom do you see corollaries today to that period, when when you were running Cablevision and Verizon was building its network across half the footprint and how you compete in and sort of navigate that overbuild and.

Then one thing Thats happening I'm sure you guys are aware, there's a lot of the sort of tier two fiber overbuild happening around the country and so there is some in your footprint, they're not massive but.

A lot of private equity funded builds.

You, usually don't see cable companies acquire infrastructure assets in their footprint at least in the U S.

I'd just be curious if you think that's long term what happens here or not.

Not for reasons that might be obvious because it would seem that there is a lot of capacity being built now on the wireline side, then there'll be need to be some rationalization at least in some geographies long term.

Thanks for the thoughts.

Alright.

In terms of sentiment.

There've been periods.

In my business career, and cable where sentiment have gone up and down.

My sentiment remains the same.

And I think it's a great business and I think we have great opportunity to take.

And to continue to grow the business successfully.

And so when everybody's euphoric, it's probably.

And when everybody as pessimistic as odd.

I'm unchanged and my experiences with Cablevision.

And other assets managed time Warner assets as well prior to that.

And Ive managed competition my first job as a general manager.

1980 within overbuilt actually.

And so I have lots of experience with it.

Lots of success in growing our businesses in that environment. So there's nothing unusual about what's going on now and actually from a competitive environment, it's pretty much unchanged the pace of what's been going on now.

Notwithstanding that there are some small builds going on elsewhere with private equity as you say in that.

Expansion.

Continued but it hasn't gone up in pace so.

And we do quite well regardless of whether we're in a physical competition with a wireline builder or whether were in competition with satellites or whether we are in competition with.

Our fixed wireless asset.

We're pretty comfortable with that.

We can continue to drive our value proposition and continue to grow our customer relationships. So my mic sentiments unchanged and.

Yes, there are there opportunities for us to buy some infrastructure companies that would help us make our network better because they happen to be in the right place there probably is.

Yeah, I'd add to that Ben you've seen it is well known for a while.

The history of these tertiary over builders is pretty pretty demonstrated as well and my experience is that they all start out with the <unk> story and they get a lot of capital going in and the.

The early penetration because there's something new it environment start to look good and as long as you can sell fast enough you.

You can do okay as a return but the history is that.

They all go bankrupt and.

And they end up having to be recapitalized.

And so I think there's that repeat that takes place every so often in the marketplace and so you see some of that and our job is just put our head down there will be a competitive like we always have to go dig out customers continue to develop product pricing and packaging that people can't replicate so.

Like Tom I'm about as optimistic as you could be about where the business continues to grow.

Great. Thanks, Steve optimistic last year I was optimistic the year before that.

And as I pointed out I still am.

We're out of consensus now.

Thanks, Bob.

Thank you.

Peter We will take our last question. Please.

Your last question will come from Michael Rollins with Citi. Your line is open.

Thanks, and good morning, just to follow up on a couple of things first just curious if you could share more of a timetable on the piece of broadband network upgrades for certain percentages of your coverage footprint. When you think of the opportunity increase upload speeds as well as to <unk>.

<unk> download speeds.

And then secondly, as you consider.

Number of factors rate environment.

Scott <unk>, the company's view of forward growth.

What circumstances would you revise the parent capital allocation plan and Keith.

Net debt leverage target higher or lower.

I guess I'll start on that on the leverage target question.

If I think about where we are right now rates have obviously increased versus where they've been in the recent past and historical context, I think that rates are still quite low.

So maybe maybe not little but in line with where we'd expect them to be.

In the.

From a growth perspective is as you just heard from Tom and Chris I think we continue to be quite optimistic.

About our growth opportunity.

And on the sentiment side of our stock is trading at a multiple to free cash flow, even though it's.

Pretty low.

Compared to where we've been and so I think that we're happy with where we're sitting out of targeting the high end of our four to four five times leverage ratio.

We obviously continue to evaluate over time, it would be hard to sort of break out what scenario exactly what caused us to move off of that.

Faith, but I, but I think that we're happy with where we are and.

We will continue to target at that level.

And in terms of the pace of.

Upgrades, we're actually doing.

Multiple upgrades in various parts of the country right now and.

And.

We are pacing ourselves in such a way that we're learning how to do it really effectively.

The interesting thing about our capacity to do these upgrades is that there are quite simple electronic upgrades are relatively inexpensive.

We can do them rapidly across as much of our footprint as we need to do.

We're just actually putting ourselves in a position right now so that we can.

Execute at the pace, we need to execute given where the demand for that kind of capacity will exist and.

We haven't really.

Forecasted that publicly in terms of how fast we're going to do that.

Thanks, Mike.

Peter we're going to pass it back to you that concludes our call. Thank you very much.

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 the Charter's first quarter 2022 investor call.

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.

It's to be advised that today's conference is being recorded if you require any further assistance. Please press star Zero I will now hand, the conference over to your first speaker today.

<unk>, Sir you may begin.

Morning, and welcome to Charter's first quarter 2022, investor call. The presentation that accompanies this call can be found on our website IR dot charter dot com under the financial information section.

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

Remarks that we make on this call concerning expectations predictions plans and prospects constitute forward looking statements. These forward looking statements are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results.

During the course of today's call, we will be referring to non-GAAP measures 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.

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

Thank you Stephan we continue to grow our business by offering superior converged connectivity products <unk>.

During the quarter, we added 129000 customer relationships and a 185000 internet customers customer relationship churn remains low due to current consumer behavior well connect activity opportunities also remained low as a result.

We continued to see very strong mobile line growth with net additions of 373000.

Over the last year, we've grown our mobile lines by nearly 50%. We now have over 4 million total mobile lines.

<unk> were also strong in the first quarter first quarter revenue and EBITDA each grew by five 4% and when excluding a one time payment free cash flow grew by 9% year over year.

And continuing to invest in high quality customer service and finally investing in the mobile business to drive convergence of fixed and mobile connectivity products and earn a higher share of monthly household communication spend by saving customers money.

<unk> locations across the country.

Through Argos will add over 100000 miles of new network infrastructure to our approximately 800000 existing miles over the next five or so years and our construction is not limited to our dock commitments. We continue to build another rural areas and are pursuing opportunities to receive other broadband stimulus funds.

In addition, we regularly expand our network to additional residential SMB and enterprise passing wherever it's economically attractive ultimately a rural construction initiatives is not only good for one billions 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.

Five additional customer growth by growing customers in unserved and underserved areas.

Now use a terabyte or more of data per month.

To meet that growing demand.

We're both expanding the capacity and reallocating capacity within our network and the <unk> and the technology to both expand and reallocate plant bandwidth is developing rapidly today. We're implementing high splits are what we would prefer to call spectrum splits, which allocate more plant capacity to the upstream.

And the vast majority of our deployed modems are already spectrum split capable, allowing us to provide faster service to our existing customers without swapping out there CPE.

We've been increasing the number of spectrum splits it projects in our service areas and we will continue to do so.

But as the technology develops further it will shift our strategy dynamically to further expand the capacity of our plant and reallocate bandwidth as necessary to meet customer needs by deploying additional technologies, including DOCSIS, four <unk>, which will allow us to deliver even greater capacity offering consumers the fastest and lowest latency connectivity.

<unk> products and a highly capital efficient way.

Driving customer and market share growth and free cash flow.

In mobile, we continue to improve and enhance our products and a number of ways differentiating our offering helping to drive customer growth and improving mobile business economics and.

In April we began the market rollout mobile speed boost mobile speed boost allows spectrum mobile customers to receive speeds up to one gigabit per second on our spectrum mobile service devices when inside their homes.

Even when they're provisioned wireline internet speed is less than a gigabit.

The rollout of our first trial of our CBS small cells and full market area continues to progress nicely.

Activity service package, while saving customers hundreds or thousands of dollars per year.

And our share of household connectivity spend including mobile and fixed broadband is still very low in fact, we capture well less than 30% of household spend on wireline and mobile connectivity within our footprint. So theres, a large opportunity for us to increase market share by saving customers money and through our latest offering we can do that which in turn.

Races connects reduces churn and drives customer growth.

Before turning the call over to Jessica I wanted to make a few comments about the joint venture with Comcast that we announced earlier this week.

Our joint venture will provide video delivered by apps are competitive App store.

On TV applications and is capable of aggregation navigation search and curation billing in content security.

It will give consumers.

Consumers, new devices and content providers, new opportunities to create customer relationships on a platform designed to help them sell video effectively.

Comcast has created excellent IP for this venture and we have high expectations that we can work together to continuous development and distribution.

Have a history of success in our mobile JV operating systems demonstrated by the fact that between our two respective mobile businesses. We added more mobile lines in the first quarter of this year than the rest of the mobile industry added collectively now I will turn the call over to Jessica.

Thanks, Tim, Let's now turn to our customers on slide five.

We grew total residential and SMB customer relationships by 129000 in the first quarter.

Including residential and SMB, we grew our internet customer relationships by 185000 in the quarter.

We continue to see record.

Buying competitive and move churn, which has reduced our selling opportunity and very low non pay churn at crosshair side panting.

Similar to the fourth quarter, we saw a slower internet Sharon and lower Internet connects than in the first quarter of 2021, 2020, and 2019 and this was true across our footprint regardless of competing technology.

Turning to video video customers declined by 112000 in the first quarter wireline voice declined by 150000, and we added 373000 mobile lines. Despite the lower number of selling opportunities primarily data activity level, we continue to drive mobile ground with our high quality <unk>.

Actively priced service.

Moving to financial results starting on slide six over the last year, we grew total residential customers by 674000 or two 3%.

Residential revenue per customer relationships increased by 1% year over year, driven by promotional rate step ups and video rate adjustment that pass through program of rate increases.

Additionally, this quarter's revenue was negatively impacted by $20 million in adjustments related to sports network rebates, which we intend to credit to qualified video consumers.

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

Excluding the impact of sports network credit I, just mentioned our residential ARPA grew by one 2% year over yet.

Also keep in mind that our residential <unk>. It does not reflect any mobile revenue or video programming pass through increases announced late in the first quarter.

As slide six shows residential revenue grew by three 7% year over year and by three 9% year over year, when excluding the sports network credit.

Turning to commercial SMB revenue grew by four 6% year over year, reflecting SMB customer growth of four 4%.

Enterprise revenue was up by three 7% year over year, excluding all wholesale revenue enterprise revenues grew by six 5% and enterprise <unk> grew by five 2% year over year.

First quarter advertising revenue grew by 11, 5% year over year by five 1%, excluding political revenue, primarily due to our growing advanced advertising capabilities.

Mobile revenue totaled $690 million with $292 million of that revenue being device revenue.

Other revenue increased by five 2% year over year and includes two months of Royal construction initiatives subsidy its totaling $19 million.

In total consolidated first quarter revenue was up five 4% year over year.

Moving to operating expenses and EBITDA on slide seven.

In the first quarter total operating expenses grew by $410 million or five 4% year over year.

Programming costs declined by 4% year over year due to the decline in video customers of two 1% a higher mix of lighter video packages, a 20 million dollar benefit related to sports network rebates that I mentioned.

And $34 million and the other favorable favorable adjustments much of which was not unique year over year.

All of that was mostly offset by higher programming right.

Excluding both of the adjustments I just mentioned programming costs grew by one 4%.

And looking at the full year 2022, we now expect programming cost per video customer to grow in the low to mid single.

<unk> percentage range.

Versus mid single digits previously.

Regulatory connectivity and produced content declined by seven 4%, primarily driven by lower Lakers RF and costs.

Lower video CPE sold to customers and lower regulatory and franchisees.

The decline in Lakers costs was primarily driven by the delayed start to the NBA season in 2020, which drove more Lakers games charges into Q1 of 2021, making for an easier comparison this year, excluding their RF and costs from both years regulatory connectivity and produced content declined by five 6%.

And for the full year 2022, we expect regulatory connectivity and produced content expense to decline in the mid single digit percentage range versus 2021.

Primarily due to lower video CPE sold to customers and lower RSM costs, given the abnormal Lakers games scheduled last year.

Cost to service customers increased by five 3% year over year.

And fuel costs.

As the year progresses prior that prior year bad debt expense normalizes and should drive meaningfully slower growth in cost of service expense line during the second half of the year.

Customers.

Mobile expense totaled $760 million.

And were comprised of mobile device cost tied to device revenue customer acquisition and service and operating costs.

And other expenses increased by 12, 5%, primarily driven by a favorable nonrecurring adjustment in the prior year period, making Fred challenging comparison, this year and higher labor costs.

Adjusted EBITDA grew by five 4% year over year in the quarter.

A quick note about inflation before moving on to net income certain cost of operating our business such as labor and fuel costs are currently subject to inflationary pressure there.

I'd also note that our consumers are experiencing inflationary pressure there given the availability of subsidies for broadband and our focus on saving customers hundreds of dollars per year by switching to our converged connectivity products. We believe we are well positioned for the changing market.

Turning to net income on slide eight we generated $1 $2 billion of net income attributable to charter shareholders in the first quarter.

It is $800 million last year the.

The year over year increase was driven by a nonrecurring litigation settlement charge in operating in other operating expenses for the first quarter of 2021.

And higher adjusted EBITDA.

Turning to slide nine capital expenditures totaled $1 $9 billion in the first quarter, just above last year's first quarter spend of $1 $8 billion.