Charter Communications Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
April 29, 2022

There are 12 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Charter's First Quarter 2022 Investor Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I I will now hand the conference over to your first speaker today, Stefan Anninger. Sir, you may begin.

Speaker 1

Good morning, And welcome to Charter's Q1 2022 investor call. The presentation that accompanies this call can be found on our website, ir. Charter .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, 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.

Speaker 1

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 Chairman and CEO, Chris Winfrey, our COO and Jessica Fisher, our CFO.

Speaker 1

With that, let's turn the call over to Tom.

Speaker 2

Thank you, Stefan. We continue to grow our business by offering superior converged connectivity products. During the quarter, we added 129,000 customer relationships and 185,000 Internet customers. Customer relationship churn remains low due to current consumer behavior, while Connect activity opportunities also remain low as a result. We continue to see very strong mobile line growth with net additions of 373,000.

Speaker 2

Over the last year, we've grown our mobile lines by nearly 50%. We now have over 4,000,000 total mobile lines. Financials were also strong in the Q1. 1st quarter revenue and EBITDA each grew by 5.4% 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 Good returns on investment, upgrading our network to ensure that we're offering a latest and fastest high quality connectivity services and continuing to invest and high quality customer service.

Speaker 2

And finally, investing in the mobile business to drive convergence of fixed and mobile connectivity products and are on 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. Our multi year, multi $1,000,000,000 rural construction project will deliver gigabit high speed broadband access to more than 1,000,000 unserved Rural customer locations across the country. Through RDOF, we'll add over 100,000 miles of new network infrastructure to our approximately 800,000 existing miles over the next 5 or so years. And our construction is not limited to RDOF commitments.

Speaker 2

We continue to build in other 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 initiative is not only good for the millions of rural customers that will 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 by growing customers in unserved and underserved areas. Demand for our customers for greater connectivity speeds and data throughput continue to grow at a very fast pace.

Speaker 2

During the quarter, Internet customers who did not buy traditional video from us used approximately 700 gigabytes per month, More than 35% higher than pre pandemic levels and 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 mode. And the technology to both expand and reallocate plant bandwidth is developing rapidly. Today, we're implementing high splits or what we For the call, spectrum splits, which allocate more plant capacity to the upstream, all use our DOCSIS 3.1 infrastructure. In turn, we're able to offer our customers higher symmetrical speeds and multi gigabit speeds.

Speaker 2

Additionally, by expanding and reallocating plant capacity, We reduced 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 their CPE. We've been increasing the number of spectrum splits projects in our service areas and we'll continue to do so. And As the technology develops further, we'll 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 4.0, which will allow us to deliver even greater capacity, offering consumers the fastest and lowest latency connectivity products 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 In April, we began the market rollout of Mobile Speed Boost.

Speaker 2

Mobile Speed Boost allows Spectrum Mobile customers to receive speeds up to 1 gigabit per second On their Spectrum mobile service devices when inside their homes, even when their provisioned wireline Internet speed is less than a gigabit. The rollout of our first trial of our CVS small cells in full market area continues to progress nicely. In the Q1, 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, A better all mover mobile experience, all the while saving us costs. Ultimately, with our mobile product, we're offering to unique and superior fully converged connectivity service package while saving customers 100 or 1,000 of dollars per year.

Speaker 2

And our share of household connectivity spend, including mobile and fixed broadband is still very low. In fact, we capture well less 30% of household spend on wireline and mobile connectivity within our footprint. So there's 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.

Speaker 2

Our joint venture will provide video delivered by apps, a competitive app store, on TV applications It is capable of aggregation, navigation, search and curation, billing and 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 continue its development and distribution. We We added more mobile lines in the Q1 of this year than the rest of the mobile industry added collectively. Now I'll turn the call over to Jessica.

Speaker 3

Thanks, Tom. Let's now turn to our customer results on Slide 5. We grew total residential and SMB which has reduced our selling opportunities and very low non pay churn across our footprint. Similar to the Q4, we saw both lower Internet Churn and lower Internet connects than in the 1st quarters of 2021, 2020 2019, and this was True across our footprint regardless of competing technology. Turning to video.

Speaker 3

Video customers declined by 112,000 in the Q1. Wireline voice declined by 150,000 and we added 373,000 mobile lines. Despite the lower number of selling opportunities from reduced activity levels, we continue to drive mobile growth with our high quality, attractively priced by $674,000 or 2.3 percent. Residential revenue per customer relationship increased by 1% year over year, driven by promotional rate step ups and video rate adjustments that pass through programmer rate increases. These effects were partially offset by the same bundle and mix 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 within our base.

Speaker 3

Additionally, this quarter's revenue was negatively impacted by $20,000,000 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 ARPU grew by 1.2% year over year. Also keep in mind that our residential ARPU does not reflect any mobile revenue or video programming pass through increases announced late in the Q1. As Slide 6 shows, residential revenue grew by 3.7% year over year and by 3.9 Year over year when excluding the Sports Network credit.

Speaker 3

Turning to commercial, SMB revenue grew by 4.6% year over year, reflecting SMB customer growth of 4.4%. Enterprise revenue was up by 3 7% year over year. Excluding all wholesale revenue, enterprise revenue grew by 6.5% and enterprise PSUs grew by 5.2 1st quarter advertising revenue grew by 11.5% year over year or by 5.1 percent excluding political revenue, primarily due to our growing advanced advertising capabilities. Mobile revenue totaled $690,000,000 with $292,000,000 of that revenue being device revenue. Other revenue increased by 5.2% year over year and includes 2 months of rural construction initiative subsidies totaling $19,000,000 In total, consolidated 1st quarter revenue was up 5.4% year over year.

Speaker 3

Moving to operating expenses and EBITDA on Slide 7. In the Q1, total operating expenses grew by $410,000,000 A higher mix of lighter video packages, a $20,000,000 benefit related to sports network rebates that I mentioned and $34,000,000 of other favorable adjustments, much of which was not unique year over year. All of that was mostly offset by higher programming rates. Excluding both of the adjustments I just mentioned, programming costs grew by 1.4%. And looking at the full year 2022, we now expect programming costs per video customer to grow in the lowtomidsingledigitpercentagetrange versus mid single digits previously.

Speaker 3

Regulatory connectivity and produced content declined by 7.4%, primarily driven by lower Lakers RSN costs, lower video CPE sold to customers and lower regulatory and franchise fees. The decline in Lakers cost 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 the RSN costs from both years, Regulatory connectivity and produced content declined by 5.6%. 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 benefiting from government stimulus packages. In fact, payment trends in the Q1 continue to be very good.

Speaker 3

And excluding bad debt from both years, cost to service customers grew by 1.8%, 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 year bad debt expense normalizes and should drive meaningfully slower growth 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 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 Q2. Mobile expense totaled $760,000,000 and were comprised of mobile device costs tied to device revenue, customer acquisition and service and operating costs. And other expenses increased by 12.5%, primarily driven by a favorable non recurring adjustment in the prior year period, making for a challenging comparison this year and higher labor costs.

Speaker 3

Adjusted EBITDA grew by 5.4% 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 our starting wage and our long term relationships and contracts for goods and services, we haven't yet seen a significant impact I would also note that our consumers are experiencing inflationary pressure, but given the availability of subsidies for broadband and our focus on saving customers 100 of dollars per year by switching to our converged connectivity product, we believe we're well positioned for the changing market. Turning to net income on Slide 8.

Speaker 3

We generated $1,200,000,000 of net income attributable to Charter shareholders in the Q1 versus $800,000,000 last year. The year over year increase was driven by a non recurring litigation settlement charge Operating in other operating expenses for the Q1 of 2021 and higher adjusted EBITDA. Turning to Slide 9, capital expenditures totaled $1,900,000,000 in the Q1, just above last year's Q1 spend of $1,800,000,000 We spent a total of $232,000,000 on our rural construction initiative in the quarter. Most of that spend relates to design, walkout and make ready and as expected has not yet resulted in significant passings growth. And the vast majority of that spend is accounted for in line extension.

Speaker 3

We spent $74,000,000 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 $1,800,000,000 of consolidated free cash flow this quarter, a decrease of $55,000,000 $165,000,000 or 8.9 percent year over year. Please note that in the Q2, we'll begin making quarterly cash tax payments for fiscal year 2022. These payments are consistent with the cash tax outlook that we provided in our Q4 investor call. We finished the quarter with $94,900,000,000 in debt principal.

Speaker 3

Our current run rate annualized cash interest is $4,400,000,000 As of the end of the Q1, our ratio of net debt to last 12 month adjusted EBITDA was 4.43 times. We intend to stay at or just below the high end of our 4 to 4.5 times target leverage range. During the quarter, we repurchased 6,000,000 Charter Shares and Charter Holdings common units totaling about $3,600,000,000 at an average purchase price of $600 per share. And since September of 2016, we've repurchased $60,400,000,000 or nearly 42% of Charter's equity. Our path to continue to grow our business remains strong and we will do that by furthering convergence in our extending customer lives.

Speaker 3

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 and A.

Operator

Thank you. And your first question will come from Craig Moffett With Moffett, your line is open.

Speaker 4

Hi, thank you. Well, I have a few questions, if I could. First, With respect to broadband, the pace of homes passed excluding RDOF decelerated a little bit. I'm wondering if you can just Talk about the rate at which you expect homes passed for broadband to grow and how you think about that as a Floor for broadband growth rate going forward. And then with respect to the JV that you announced with Comcast, is there a vision where you take the Flexbox and actually make it your primary video delivery platform, And then finally one related question, Tom.

Speaker 4

I sort of I can't resist asking if you just want to comment on password sharing and a little bit of I told you so, question with

Speaker 2

you. Yes. Well, yes, I did tell you So yes, Craig, the pace of broadband homes passed, I think is an interesting driver of potential growth and you're right to point it out. Over the last 5 years or so, we've added about 1,000,000 passings 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 passings that are contiguous to some of that development. And so that's a driver of future growth.

Speaker 2

There's really 4 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 today in the mid-80s, but I think that will continue to increase as 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. And We also have then this whole RDOF opportunity, which we've just begun to develop. We've just started to activate The subsidized plant expansion through RDOF and we've actually won quite a few bids at the state level And there's $42,000,000,000 of additional funding that's going to be distributed probably next year for additional Expansion into rural areas, and that's an opportunity of growth for us.

Speaker 2

And then finally, we have the opportunity of which we expect to realize the opportunity of increasing our share of market of existing broadband customers. And we can do that By packaging, which we've always done successfully our products and into a value proposition that's better Then what the individual component pieces that they're currently buying from various providers. And so The current mobile growth is a key factor in that opportunity. So that's how we expect to grow it. And mode.

Speaker 2

What's going on in the homes past marketplace? I mean, there are construction issues going on right now. There are supply chain issues that are affecting activations of housing developments and that kind of thing. But Over the longer term, I think that that pace that we've experienced over the last 5 years continues. The second part of your question about the JV and IP, yes, yes, the answer is yes.

Speaker 2

I expect that incrementally most of our customer base will be all IP And that spectrum will be recaptured and that's currently used over time and there's various ways of compressing that spectrum as you market your way into the IP space. And That plant capacity that's being realized will be available to increase broadband speeds and or handle broadband capacity that's required as a result of the use of overall data. And lastly, on password sharing, yes, we knew it's a problem. It's not just a problem for the company that's not controlling their passwords, but it's a problem for everybody in the industry because all that content that's used without anybody paying for it It affects the supply and demand of all content, not just the provider that's selling the content, which diminishes the value of content for everybody, Which is the point we have been trying to make for years. So Next question.

Speaker 5

We'll take our next question please. Thanks.

Operator

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

Speaker 6

Hi, good morning guys. Thanks for taking the question. I know Traditionally, you prefer not to give context around sort of like a forward looking view The broadband market, but given that we're just in an environment of heightened uncertainty, I'm wondering if you'd stray from your normal policy and at least give us some more context for What you're seeing from in the market generally in terms of The move activity as we came out of 1Q into 2Q, 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 2Q? And then how should we think about seasonality off of the result that you guys Just produced in one piece, we think of seasonality to the year as being the normal trend.

Speaker 6

Thanks.

Speaker 2

Look, Chris, why don't you take that?

Speaker 7

Hey, Jonathan. We expected a question along 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.

Speaker 7

Our churn 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 Q1 with already low market activity, our gross addition rate in the Q1 of this year remains lower selling opportunities from overall market activity and churn. Jonathan, there are additional factors which could also contribute to lower gross addition rates.

Speaker 7

1st, Lower household growth rates, Tom just talked about, which we along with others have seen, there's still a lingering pull forward effect The shift to our higher quality broadband during the pandemic comes from DSL, VDSL and mobile only customers, which accelerated the conversion rates of that same base, which we would have seen today. Finally, the mix related impact of a 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 We don't see direct impacts from fixed wireless access in our churn or our gross additions. So does that mean could Frix Wireless Access be converting DSL and mobile only customers that would normally come to us? No, it's possible And it would be hard to see it low volume across our entire footprint, but we would see that as a potential parking lot for conversion to our faster, More reliable and more ubiquitously marketed and deployed broadband offering.

Speaker 7

So we take all competition seriously and it's not new for us, But I don't believe fixed wireless access is 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. The market activity and mover churn will return And when it does, we expect our Internet net addition rate 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 in 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 as we get to the end of this year.

Speaker 7

So I 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's helpful to the question you asked.

Speaker 6

That's really helpful. I appreciate it, Chris.

Speaker 1

Thanks, Jonathan. Peter, we'll take our next question please.

Operator

Your next question will come from Brett Feldman With Goldman Sachs, your line is open.

Speaker 8

Yes. Thanks for taking the question. You've obviously continued to show Great traction with the wireless net adds even as your 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, they increasingly are looking at things like handset promos.

Speaker 8

They pack a lot of value into their higher tiers, whether it's Tethering or True Unlimited or video. So I guess I'm just wondering, how are you thinking about whether it makes sense to start going after the wireless And the assessment you're doing as to whether the additional costs you incur would ultimately be worth it? And does that math start to

Speaker 2

Yes. Well, I think the Brett, the answer to your question is, We will use those tactics that make economic sense to us to drive Our business and to drive our relationship growth in this mobile broadband space. And The as I said in my comments, we have very good growth and we have greater growth than 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're all related to trying to create a value proposition for customers and some of them cost more than others.

Speaker 2

Fundamentally, we think that our CBRS and 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, which ultimately is what we think drives Our ability to drive market share, so we 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 and provide a high quality 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 It's successful and we constantly experiment with marketing tactics to see what resonates best. But We think the core concept is the driver of our opportunity.

Speaker 7

Fred, a good example of that. We do have we have a premium plus $10 package in our mobile. So even that at $39.99 so our standard is $29.99 when you take 2 mobiles or more. But at $39.99 the pre impact should take upon it is very low. And the reason it's very low is for the reason that Tom just mentioned.

Speaker 7

Already, they get the fastest mobile product in the country through the standard limited offer that we have at mobile product in the country through the standard limited offer that we have at $29.99 And because our network works better together with Wi Fi and you've 85% offload with the nation's fastest broadband and therefore the nation's fastest mobile, there really hasn't been much of a need or desire even at that attractive price point To take what you would call a premium product.

Speaker 6

Thank you.

Speaker 1

Peter, we'll take our next question please.

Operator

Your next question will come from Phil Cusick with JPMorgan.

Speaker 4

Hi, guys. Thanks. A couple, if I can. First, I think, Tom, you said the mobile network trial is now in mid-twenty 3. Is that right and is that delayed?

Speaker 4

And what does that mean for CapEx this year for mobile CapEx?

Speaker 2

No, it's not in mid, it's mid this year. If I said that, I didn't mean it. It's mid-twenty 2.

Speaker 4

All right. That makes sense. Maybe I misheard. And then second of all, have you started to book Ardagh Revenue and how quickly should we see that revenue come in from here?

Speaker 2

Yes, Jessica?

Speaker 3

Yes, we did start booking RDOF revenue in Q1, so they're 2 months in for the total of $19,000,000 and the run rate on the RDOF Booking will be at that. So it gets booked in over the 10 year period that we receive the funds. So we'll have it at that Just over $9,000,000 a month from now until 10 years from now.

Speaker 4

Great. Thanks very much guys.

Speaker 1

Peter, we'll take our next question please.

Operator

Your next question will come from Jessica Reif Erlitsch with Bofa Securities.

Speaker 9

Okay. Thank you. I have two questions. A follow-up on the Comcast JP, I think the press release said that you guys are investing $900,000,000 Over what time period is that? And How do you expect to monetize the offer?

Speaker 9

I think it starts next year. Is it mostly advertising or revenue splits? And then Your margins on the cable side are over 42%. Where do you think peak cable margins will be?

Speaker 2

Well, the opportunity Jessica is to create Advertising revenue and to create transaction revenue on the product and So those are the money drivers and that requires obviously having full set of content opportunities 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 a Development point of view, it's relatively minor, especially when you consider the CPE business that we've always been in, where we've actually had to buy CPE. This in many cases will be a retail product. So, and lastly

Speaker 3

The last one was a 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 the right mix of products to the consumer that drives The most cash flow per customer, which doesn't necessarily drive the most margin on a financial statements Presentation sort of basis. So, I would say on that one, it's hard to speculate on where exactly margins would go as a percentage. But ultimately, we think that what we're doing by capturing additional share in the mobile market, using that and capturing additional share in the broadband market, which drives the most cash flow off of our assets, and in our other services as well.

Speaker 3

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 the margin line ultimately mode.

Speaker 2

Yes. So we don't manage the margins. We manage to return on investment. Mode. And so we try to generate as much cash on each asset that we deploy as It can and has really nothing to do with margins when you have a mix of products with different kinds of margins in them.

Speaker 2

And so it's only in a static environment that a margin relative margin has any value as an analysis tool mode. From our point

Speaker 5

of view.

Speaker 7

You can have a really high margin by not growing at all. Exactly. That hasn't always worked out for people.

Speaker 9

Okay. Thank you.

Speaker 1

Thanks, Jessica. Peter, we'll take our next question, please.

Operator

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

Speaker 10

Thanks so much. I think a few 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.

Speaker 7

Hey, Doug, this is Chris. Look, for competitive reasons, I don't want to go deep into the remaining broadband Attrition people have statistics. They know what's out there. There's still a sizable opportunity for us to grow the market, which Tom talked about. And in terms of DSL, it's declining, but there's still a decent base.

Speaker 7

You really need to think about not just DSL, but really the VDSL. That's really the new DSL. I just talked a little bit about to the extent the fixed wireless access is building up potentially in the areas that we're moving into from a rural perspective, mode. That's in the future DSL pile or parking lot of subscribers that we can go acquire. So it's DSL today, it's VDSL and it's Inferior broadband product relationships that are getting created today that provides that kind of fuel for growth for us in the future from a mix standpoint.

Speaker 10

And Chris, you mentioned, I think, relative to gross additions, no difference in competitive fiber footprints versus non competitive fiber footprints. Is it the same for churn as well? I Wanted to confirm that sort of year over year churn changes are no different in the two footprints.

Speaker 7

Yes. We see churn down in both types The footprint is at a similar amount, and we see the almost well, not almost, the exact same reduction in gross addition rate In both overbuild and non overbuild footprint, which really completely validates that this isn't a competitive phenomenon that you see in the marketplace. So market activity, a low mover churn environment and we're stimulating in a lot of different ways and some of that will have some success, but the bigger driver will When the market starts to normalize. So yes, you understood it correctly.

Speaker 2

But another part of your question was what's the overall Broadband penetration. And if you take all those smaller speeds, slow speed products, It's in the mid-80s. And as I said earlier, I think that goes up towards the vacancy rate.

Speaker 10

Great. Thank you. And the last question I wanted to get to and I appreciate you 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 in how you Would bill a broadband customer and

Speaker 2

how you might bill a wireless customer,

Speaker 10

I think wireless no contracts and no taxes or fees.

Speaker 2

Like I was speaking about marketing earlier, that's a form of price. We have lots of opportunity to mix and match various tactics to create value for customers, Perceived value, but fundamental value is where we're really trying to drive our 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, available 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 we can mix and match those value propositions in a variety of ways depending on what we need to do to Move customer perceptions about where the true value is in the product set.

Speaker 10

All right. Understood. Thank you all.

Speaker 1

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

Operator

Your next question will come from Vijay Jayant with Evercore.

Speaker 5

Thanks. I had one sort of a bigger 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 tier that you can still put out to customers and any changes to sort of carriage minimums as you renegotiate programming deals. And then just for Jessica, you call out a lot of trends on the cost side.

Speaker 5

I just wanted to ask Some questions on them. On bad debt, are we back to the pre pandemic levels? And then just on CapEx, Obviously, you talked about cork for cable. Should we assume RTOF CapEx sort of trend similar to this quarter in the low 200s a quarter, Just for modeling purposes. Thanks.

Speaker 2

Jessica, do you want to answer the bad debt question?

Speaker 3

Yes. So if I start on the expense items, Vijay, the bad debt, 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 It has eased the impact on consumers of sort of what happens in the economy 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 1st place. So non pay churn overall continues to be At near record lows.

Speaker 3

And I think that right now, we haven't seen Yes, sort of moves back toward pre pandemic levels. On the RDOF side, I think In the rural construction initiative overall, 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 At points in time and as we have those opportunities, because we think that continuing the build is 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, the 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 sort of and to deploy more going into next year. That's not a Change in guide sort of on where we think we're going for overall, but I think as I said When we issue or when we talked about the $1,000,000,000 that we hoped to spend for the year, We could spend more or we could spend less than that and it's all based on what we're able to do. We're going as fast as we can.

Speaker 2

And with regard to video, why we're somewhat of an outlier, we try hard for one thing. And again, we try to put value where we can for the consumer And I think that there's still opportunity in video. And one of the things that we've had success With is the creation of additional packaging and the mix of video products that we actually sell to consumers. And We're 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.

Speaker 2

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'll be able to build a very nice video business.

Speaker 5

Great. Thanks so much.

Speaker 1

Thanks, Vijay. Peter, we'll take our next question please.

Operator

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

Speaker 11

Thanks. Good morning. Tom and Chris, I had a couple of related questions around competition in broadband. I think investors I'm not telling you anything you don't know. I think investor sentiment on cable is probably as poor as it's been since like mode.

Speaker 11

Maybe the mid-2000s when you were getting overbuilt by Fios and U verse, particularly at Cablevision. Tom, do you see corollaries today To that period when you were running Cablevision and Verizon was building its network across half the footprint and how you And then one thing that's happening, I'm sure you guys are aware, there's a lot of Tier 2 fiber overbuilds happening around the country. I'm sure there's some in your footprint. They're not massive, but a lot of private equity funded builds. We usually don't see cable companies acquire infrastructure assets in their footprint, at least in the U.

Speaker 11

S. I'd just be curious if you think that's long term what happens here or not for reasons that might be obvious because it would seem that there's A lot of capacity being built now on the wireline side and there'll be need to be some rationalization at least in some geographies long term. Thanks for the thoughts.

Speaker 2

All right. Well, in terms of sentiment, yes, there have been periods in my business career in cable where Cinnamon has gone up and down and my sentiment remains the same. And I think it's 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 odd and when everybody's pessimistic, it's odd and I'm unchanged. And my experiences with Cablevision and other assets, I managed Time Warner assets as well Prior to that, and I've managed competition.

Speaker 2

My first job as a General Manager 1980 was an overbuilt actually. And so I have lots of experience with it and lots of success And 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, notwithstanding that there are Small builds going on elsewhere with private equity as you say and that LEC expansion Has 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 we're in competition with satellites or whether we're in competition with A fixed wireless asset, we're pretty comfortable that we can continue to drive a value proposition, continue to grow our Can you express to buy some infrastructure companies that would help us make our network better because they happen to be in the right place?

Speaker 2

There probably is.

Speaker 7

Yes. I'd add to that, Ben, you've seen it as well around for a while. The history of these tertiary overbuilders is Pretty demonstrated as well. My experience is that they all start out with a rosy story and they get a lot of capital going in and The early penetrations because there's something new in environment starts to look good. And as long as you can sell fast enough, you can do okay as a return.

Speaker 7

But The history is that they all go bankrupt 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, It'll be competitive like we always have and go dig out customers and 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 go.

Speaker 7

Great.

Speaker 11

Thank you.

Speaker 2

I was optimistic last year and I was optimistic the year before that. And I still am. Yes.

Speaker 11

We're out of consensus now, Tom.

Speaker 7

Thanks, Ben.

Speaker 11

Thank you.

Speaker 1

Thanks, Ben. Peter, we'll take our last question, please.

Operator

Your last question will come from Michael Rollins With Citi, your line is open.

Speaker 6

Thanks and good morning. Just to follow-up on a couple of things. First, When you think of the opportunity to increase upload speeds as well as to expand download speeds. And then secondly, as you consider a number of factors, rate environment, stock price, The company's view of forward growth, under what circumstances would you revise the current capital allocation plan and take

Speaker 3

If I think about where we are right now, rates have obviously increased versus where they've been in the recent past. In historical context, I think that rates are still quite low, and so maybe not a little bit in line with where we'd expect them to be. From a growth perspective, 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, our stock is trading at a multiple To free cash flow even, it's just pretty low, compared to where we've been. And so I think that we're happy with where we're sitting, Targeting the high end of our 4 to 4.5 times leverage ratio, we obviously continue to evaluate over time. It would be hard

Speaker 2

And in terms of the pace of upgrades, we're actually doing Multiple upgrades in various parts of the country right now and we're pacing ourselves in such a way that we're learning how to do it The interesting thing about our capacity to do these upgrades is that they're quite simple electronic upgrades, They're relatively inexpensive and we can do them rapidly across as much of our footprint as we need to do. And 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.

Speaker 1

Thanks, Mike. And Peter, we're going to pass it back to you. That concludes our call. Thank you very much.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
Charter Communications Q1 2022
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