Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Charter Communications Inc (CHTR, Financial) added over 550,000 Spectrum Mobile lines in the second quarter, with a year-over-year increase of close to 2.2 million lines.
- Revenue was up slightly in the quarter, while adjusted EBITDA grew by 2.6%.
- The company has a high capacity fully deployed network, with a 1 gigabit network available across 58 million passings.
- Charter Communications Inc (CHTR) launched several new mobile offerings, including Anytime Upgrade and a new repair-and-replacement plan, which have been well-received.
- The company is actively managing vendor rates and construction materials to make capital expenditures more efficient, reducing the 2024 capital expenditure outlook to approximately $12 billion.
Negative Points
- Charter Communications Inc (CHTR) lost 149,000 Internet customers in the second quarter, primarily due to the end of the affordable connectivity program (ACP).
- Video customers declined by 408,000 and wireline voice customers declined by 280,000 in the second quarter.
- The end of the ACP program resulted in a $30 million headwind to second quarter revenue from one-time nonrecurring ACP-related items.
- The company faces higher levels of market churn and selling opportunities for connectivity services over time due to the lack of ACP.
- Charter Communications Inc (CHTR) continues to experience losses in video, driven by downgrade churn from programmer rate increases and the impact of the end of the ACP program.
Q & A Highlights
Q: To what extent are you seeing ACP showing up in reduced gross additions? And what impact is it having on ARPU?
A: We estimated the impact was well over 100,000 inside the quarter to net addition's loss, with half from voluntary churn and the other half from reduced gross additions. Internet ARPU increased 1.7% year over year in the quarter. Adjusted for $30 million in one-time ACP related items and mobile revenue allocation, ARPU growth would have been 2.7%.
Q: Given the prevalence of open access and other wholesale providers increasing fiber availability, have you seen a demonstrable change in fiber deployments year to date?
A: The competitive fiber overbuild has maintained a relatively steady pace, if anything, slightly lower. We are competing well in both wireline overbuild and cellphone Internet spaces. The economics of overbuilds remain challenging, and the scale of these initiatives is small. Our unique advantage is a gigabit network deployed everywhere we operate, combined with WiFi and CBRS capabilities.
Q: Could you give us more context around the ACP impact from lower gross adds in 1Q? And how do you manage working capital to support free cash flow?
A: In Q1, we saw a significant reduction in available gross adds due to housing starts, rental vacancies, and the removal of ACP for new connects. In Q2, evidence shows the broadband market actually shrunk due to the loss of ACP. On working capital, we are managing the balance sheet to extract appropriate cash, and we expect to continue buybacks while meeting our leverage targets.
Q: Can you talk about the take-up of direct-to-consumer in these hybrid linear offers? And what are your expectations for political advertising in the second half?
A: The DTC take-up is going well, with Disney Plus basic growing every month. We are adding features like Disney Plus premium and the Disney Duo Basic Bundle. Political advertising is expected to be higher than previously anticipated due to recent political events, but it varies by state.
Q: What are you doing in terms of cost actions, and how do you approach expense management without impacting customer-facing resources?
A: We are focusing on vendor cost reductions, discretionary spend, and overhead expenses. The benefits from these actions came in faster than anticipated in Q2. We are also investing in our frontline to reduce service calls and truck rolls, which is where the significant cost savings lie.
Q: Looking beyond the third quarter, does the retention benefit of ACP go away, and what needs to step up in its place?
A: The ACP has been a significant retention tool, but we have ways to address the market without it. Our Internet 100 product and Spectrum One offer provide affordable options. The market activity will be higher without ACP, but we are well-positioned to address the base with our product set.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
