The operator welcomes participants to Charter Communications' Second Quarter 2023 Investor Call and reminds them that the call is being recorded. Stefan Anninger then reminds participants to read the risk factors and cautionary statements in the SEC filings, and that forward-looking statements may be made. He then introduces the members of the call: Chris Winfrey, President and CEO; Tom Rutledge, Executive Chairman; and Jessica Fischer, CFO. He then turns the call over to Chris Winfrey.

In the second quarter, Charter Communications added 77,000 Internet customers and 648,000 Spectrum Mobile lines, bringing the total mobile lines to 6.6 million. They are focused on their three key strategic initiatives: evolution, expansion, and execution, which are designed to help them grow their business. Their network evolution plan will enable them to provide faster Internet and WiFi services, create fallow upstream and downstream capacity, upgrade actives and amplifiers, and convert analog optics to digital, all at a low cost. They are deploying these upgrades across their entire footprint.

The cable industry is deploying a tremendous amount of spectrum to each home in order to create new bandwidth-intensive, low latency, high compute services. Charter is executing this physical upgrade well, and is offering Spectrum One with Mobile Speed Boost and Spectrum Mobile network, as well as the upcoming Xumo product. Additionally, they are expanding with subsidized rural construction and remain on track for deployment later this year.

Charter is the largest and fastest-growing rural provider in the nation and is well-positioned to win additional state and local funds. They are committed to customer experience and satisfaction and have invested in training and tenure, digitization of customer service platforms, and artificial intelligence and machine learning to improve products and business models. This will lead to better customer and employee satisfaction and lower cost and churn. Their operating strategy is focused on long-term value creation for shareholders.

Charter Communications reported 77,000 Internet customers added in the second quarter, 200,000 fewer video customers, and 221,000 fewer wireline voice customers. The year-over-year improvement in Internet net additions was attributed to their rural construction initiative, Spectrum One product, higher tenured employees, and slower fiber overbuild in their footprint. Despite the improvement in net adds, overall market activity is still below pre-COVID levels due to low move rates and fixed wireless access competitors in the price-sensitive customer segment.

Spectrum Mobile continued to perform well in the quarter, with the majority of new lines coming from existing Internet customers. Additionally, rural passings growth accelerated in the quarter and Charter has won over $700 million in state subsidies for over 300,000 passings. Residential customers grew by 0.2% year-over-year, while residential revenue per customer relationship declined by 0.3%. Commercial revenue also declined by 0.3%.

SMB revenue grew by 0.2% year-over-year, driven by customer growth of 1.7% and lower monthly revenue per customer due to a higher mix of lower-priced video packages. Enterprise revenue was up 3.2%, and excluding wholesale revenue, it was up 7.2%. Advertising revenue declined 16.5%, due to less political revenue and a challenged advertising market. Other revenue was up 28.5%, driven by higher mobile device sales. Total operating expenses increased 0.6% year-over-year, driven by a decline in video customers and higher programming rates, as well as higher mobile device sales and RSN costs.

In the second quarter of 2023, cost to service customers increased by 3.6%, driven by adjustments to job structure, pay and benefits to build a more skilled and longer tenured workforce. This was partially offset by productivity improvements, lower service transactions per customer and lower bad debt. Sales and marketing costs grew by 3.6%, while other expenses declined by 0.4%. Adjusted EBITDA grew by 0.2% year-over-year in the quarter, but net income attributable to Charter shareholders declined from $1.5 billion to $1.2 billion due to higher interest expense. Capital expenditures totaled $2.8 billion, an increase from the second quarter of 2022 due to higher spend on line extensions.

Charter's second quarter capital expenditures, excluding line extensions, totaled $1.8 billion, driven by subsidized rural construction initiatives and network expansion. For the full year, capital expenditures, excluding line extensions, are expected to be between $6.5 and $6.8 billion. Line extension capital expenditures for 2023 are expected to reach $4 billion, with similar expectations for 2024 and 2025. Consolidated free cash flow for the quarter was $668 million, driven by higher CapEx and higher cash taxes. As of the end of the quarter, the ratio of net debt to last 12-month adjusted EBITDA was 4.47 times and Charter intends to stay at or just below the high end of its 4 times to 4.5 times target leverage range.

In the quarter, Charter repurchased 1.1 million of its shares for $400 million at an average of $341 per share. Despite significant mobile growth and a one-time labor investment, EBITDA grew by 1.3% year-over-year. In the future, the company expects to see benefits from digitization, network improvements, and proactive maintenance. In response to a question about promotional roll-off, the company is expecting to lap the Spectrum One promotion later this year, and will be monitoring the impact on churn. The company also has a lot going on in terms of video.

Chris Winfrey discusses the launch of Spectrum One at the beginning of October last year and the high usage of the product. He notes that the product is unmatchable in terms of quality and pricing, and that it is the fastest mobile product in the marketplace. He also explains that the company has done some testing in late July and August to perfect any reactions from customers. He believes they are well set up to handle any customer questions.

Spectrum One is working well, but the company is still looking to try new things to provide customers with the best value. Their video strategy has not changed, and they have been able to retain customers due to the flexibility and high-quality video products they offer. The issue has been with the cost, as programmers have required them to provide content that customers may not necessarily watch or value, while also increasing the pricing.

Diamond has been working to create more flexible packages and better security for content, which would be beneficial for customers, programmers, and Diamond itself. They have achieved this in the RSN space for most of the country, and are rolling out lower cost packages for those not interested in RSNs. They also recently announced a deal with the Dodgers and Lakers which increases flexibility for affiliates and will eventually launch a direct-to-consumer app available to all affiliates.

Xumo is a joint venture between Comcast and an independent entity that provides unified search and discovery with a voice remote for customers to access their streaming services. Xumo will be the platform of choice for Comcast's video subscriptions and may be offered to broadband customers over time. Despite this, there will be no major change to their capital expenditure outlook as equipment revenue from set-top boxes has been declining. Comcast will not be willing to lose money in video and believes the product is valuable for customers.

Chris Winfrey and Ben Swinburne discuss the value of their video platform and their commitment to finding a way to package and price it in a way that is beneficial to customers and the company. Jessica Fischer provides an outlook for cost to service expense and sales and marketing expense growth, as well as a difficult comp in other expense in Q3 due to lower corporate costs. Phil Cusick then asks for a cadence of CapEx for the rest of the year and into 2024.

Jessica discussed the company's rural construction initiative and how it would lead to a more consistent level of capital expenditures across the year, with less back-end loading into the fourth quarter than in the past. John Hodulik then asked about the recent price increase of $5 for high-speed data and how it would affect revenue per customer, as well as the ACP program, which the company had over-indexed to.

Jessica Fischer explains that the August price adjustment of a $5 retail Internet increase for flagship and above customers is coupled with a new auto pay discount of $5, so customers on Auto Pay will not see a change in their overall price. She states that the reduction in ARPU on a per customer basis is due to a lighter mix of non-video customers and lower-priced video tiers, which will be partially offset by lapping the November 2022 Internet-only rate adjustment. Chris Winfrey adds that the $5 increase will not apply to anyone on promotion and the ACP strategy is to respond to governmental requests from the White House FCC and Congress.

ARPU in the second quarter was lower than expected, possibly due to how the bundled discount for Spectrum One is allocated across different products. The company has programs like Spectrum Internet Assist and low-income programs to accommodate customers. There is bipartisan support for the program, and the company is hopeful that it will be renewed as it has been successful.

Jessica Fischer discussed the components of ARPU in the quarter and Chris Winfrey added that there is a lot of activity that goes into the complicated model of ARPU growth. He was pleased with the 2.5% ARPU growth in Internet year-over-year despite some allocation differences. He also noted that a higher portion of mobile customers are coming from new customer connects through Spectrum One, which is promising.

Chris Winfrey and Jonathan Chaplin discussed the increasing portion of new customers coming through the Mobile and extra segment, as well as the increasing Mobile attach rate to existing Internet customers. Brett Feldman asked how seasonality in the broadband business is being affected and how cash taxes are likely to trend over the course of any given year.

Jessica Fischer discussed the drivers of Charter's Q2 results, such as the construction initiative, the success of Spectrum One, the performance of the sales force, and the slower pace of fiber overbuild. She also mentioned that Q2 is the natural high watermark for cash tax payments, and that the payments are spread between Q3 and Q4. Craig Moffett then asked about T-Mobile's discussion of Charter's wireless net adds, which are reportedly more non-port than the industry norm.

Chris Winfrey discusses how competitors talking about them on their earnings calls is a compliment, and that the port activity is at/or better than prior to the Spectrum One launch. He states that the customers are high-quality and resemble the marketplace, and that the product is selling very well. He also mentions that the mobile margins are based off of Verizon's disclosure, and that they have significant customer acquisition costs with the revenue attached to those customers starting in October.

Jessica Fischer and Craig Moffett discussed the overall profitability of the mobile product, which is an extension of their broadband product. Fischer pointed out that progress in profitability was made because of their effort to reduce costs to serve their mobile customers. She also noted that customer service activity has improved and that they are continuing to gain efficiency on the expense side for their internal expenses. This will lead to additional profitability for the business.

Chris Winfrey discussed seasonality and how it has been less visible in Q2 and Q3 due to the pandemic. He commented that the underlying trends are good, and that the goal is to have higher net adds this year compared to last year.

Chris Winfrey discussed the contribution to broadband net adds from rural line extensions and RDOFs, an update on Charter's CBRS efforts, and the strategic MVNO relationship with Verizon. He stated that CBRS will be deployed in a targeted way that generates fast returns, and that the economics of the Verizon relationship are good.

Chris Winfrey discusses the potential for Comcast to increase their mobile services. He notes that 11% of their internet customers already have two lines per account, and that there is an opportunity to increase the number of lines per account. Additionally, he states that there is potential to accelerate mobile gains in the SMB sector.

The company has been successful in acquiring many lines upfront in households and taking advantage of the high speeds and value of their mobile product. They want to continue to grow by increasing penetration of mobile broadband customers, adding new customers through spectrum, and increasing the number of lines per household to increase the stickiness of the product and provide savings. They are doing a good job in the SMB space, but they can continue to do even better.

This summary was generated with AI and may contain some inaccuracies.