Charter Communications, Inc. — 2024 Q1

Sure. Let me try to tackle those, and Jessica may want to chime in here as well. The first one is on ACP and what we estimate. John, the non-renewal of ACP, there's 23 million customers have it today. It's unfortunate. But it's certainly going to have a negative Internet customer growth impact for everyone, including us. And that's going to happen in what's already a seasonal Q2 and probably the third quarter as we work through likely non-pay activity. And so really, as you think about the extent of those losses, it's going to depend on a few things.

Yes. As you think about EBITDA across the year, as we pointed out and I would just highlight it, there are some pressures on EBITDA in Q2 because of the comps to last year as well as likely, if there is non-pay impact, there could be some bad debt pressure inside of Q2 as well. So I would expect our EBITDA growth to be more pressured in Q2.

Yes. And so EBITDA, we're very confident on that. Giving a hard estimate on subscriber impact, for all the reasons I mentioned, is difficult. But we're going to outline that quarter by quarter. We'll have the ability to isolate. We'll provide that transparency for people along so they can see what's the underlying growth rate.

So Ben, on the line item expense guidance that we gave earlier in the year, I don't have an update to any of those specific items. But what I would tell you is that, because of some of the work that we're doing around expenses across the business, I think it's possible that we come in lower than what we guided to, to begin with. I don't have a revision, but I think it's possible we come in on the low side.

So that's a fair call out. The exact amount of the bad debt related to ACP is hard to predict because it's a matter of what the mix is between customers that go non-pay and customers that sort of contact you in some other way. So that's fair call out.

You've got a lower transaction environment, plus all the expense management activity that we're doing, and that will have significant impact to cost to serve as well as sales and marketing as well.

Yes. So Jonathan, I would say our confidence in the business hasn't changed. We remain comfortable with our 4 to 4.5x range based on the outlook that we have. But I think being sort of at the height of the investment cycle, we thought that creating a little bit of headroom was appropriate.

I would just add on -- just to add, Jessica said it, 0 lack of confidence. We have good, strong free cash flow today, have even growing free cash flow, and much more so as we get through these onetime investments. It's really -- as Jessica has already said, it's about making sure that we ensure the investment-grade structure we have. And that's important to us, it's important to our debt holders, and it's important to our equity holders as well.

Jonathan, we're in regular contact with all 3 of the ratings agencies. Certainly, I think that there has been some additional conversation across debt holders and the rating agencies, given the higher CapEx that we have in the business and the sort of short-term pressure that, that puts on free cash flow.

And so I'd put that one to being responsive, and at the same time, given the current stock price, we want to do as much as we can within that responsiveness.

Yes.

So Craig, I'll start on the first one on convergence. And I think the best way to do this is I spend a lot of time internally talking about it as well, is if I asked you 15 years ago, what's the speed of your Internet connection? You would have connected to the back of the computer in your kitchen, and that would have been it. And 10 years ago, it might have been, here it is on WiFi on my couch or out on the terrace.

Craig, on the other side, wholesale is a little less than 20% of overall enterprise revenues.

And the piece of that, the piece that's pulling that is really cell tower backhaul...

Yes, and that's really a little less than half of that piece.

Right. So the traditional wholesale is relatively steady, and it's the cell tower backhaul that's in systemic decline, if you will.

Yes. So Bryan, the onetime payment that impacted free cash flow on the order of $150 million to $180 million, in that range. And then from a working capital perspective, Q1 is always for us a negative working capital quarter. And I fully expect that we'll sort of make back to close to flat over the course of the year the negative working capital that we had. Excluding working capital, excluding the mobile device or the mobile side in the first quarter. Obviously, mobile continues to be a drag on working capital because of the device sales, and so you should expect that piece to continue.

Bryan, on the net neutrality, I'd start from the get go. We don't -- the key concern isn't net neutrality. The concern is the Title II regime. We've -- we don't block. We don't do paid prioritization. We don't throttle, and we don't even have data caps. We believe that customers should have unlimited usage of the service that they're paying for.

Yes. So starting on the first one on the Internet ARPU. The Spectrum One allocation was 70 basis points of drag year-over-year on our net ARPU growth in the quarter. So the GAAP Internet ARPU increased by 1.7%. It would have been 2.4% excluding the mobile allocation for free lines. Generally, I would expect that the gap in those 2 growth rates should narrow over the course of the year because the base of free lines becomes more stable given promotional roll-off.

Or in it, in most cases.

Or already in ACP. What we would do would be to downgrade the customer to an Internet-only product that was fully covered by the ACP subsidy, which enabled them to continue their Internet service. But then they would no longer have whatever the additional services were that were on their accounts. We have held those balances, though they're fully reserved. So they're sitting in receivables, but they're also sort of fully written off already in the bad debt reserve process.

And if you think about it just from a customer perspective and how we were trying to be responsive to the government request, we wanted to make sure that these customers entering into collection cycle on video or phone didn't somehow suppress their ability to continue to receive the ACP benefit and continue to receive connectivity. And it's -- that's a classic example of the base of customers that we're going to work through, as I talked about from a collection cycle. And do the right thing for those customers to do everything we can to make sure that they stay connected to Internet over time. But there's challenges there.

We'll go through the month of May with a partial ACP in accordance with what the government outlined. It's going to be a partial credit of $14, and we've agreed to make it $15 just to round it and make it clear to -- and fair to customers. So that's what we'll do inside of May.

So on the first question, the connection was a little off, and so we're going to sell you a Spectrum Mobile after this call here.

On the buyback authorization side. I'm going to make sure we answer that question. The authorization as of the end of the quarter, as you pointed out, is a little bit lower than what you would typically see. There are multiple mechanisms by which that gets renewed, and we have increased the buyback authorization since that point in time. And just because of the readthrough to that, I want to be really clear that we expect to be able to maintain our buybacks over the course of the year even as we delever. So you should not read that through as any sort of sign about the direction of the program.

Operator, we'll take our last question, please.

So I'm not going to provide a detailed timeline for the timing to reaccelerate, just because I want to be conservative and recognize that it's a very fluid space. I mean, clearly, we have ACP going on right now, which is going to be a onetime hit. You have cell phone Internet where they will reach capacity, and the timing of that isn't entirely clear. And then there's fiber upgrades, which have been announced and are pretty far along from what was actually announced.

On the mobile working capital side, so you point out, without a doubt, the drag on working capital is driven by the number of phones or other mobile devices that you sell subject to EIP notes. And so if we were to end up with additional devices because of having additional mobile customers as a result of our work on ACP or if we end up with some additional devices because of the Anytime Upgrade program, which is also possible, there could be some acceleration in that drag.

Good. Well, thank you, everyone, for joining the call. And look forward to talking to you again on the next one.

Thanks, operator.