Charter Announces Third Quarter 2023 Results

STAMFORD, Conn., Oct. 27, 2023 /PRNewswire/ -- Charter Communications, Inc. (along with its subsidiaries, the "Company" or "Charter") today reported financial and operating results for the three and nine months ended September 30, 2023.

• Third quarter total residential and small and medium business ("SMB") Internet customers increased by 63,000. As of September 30, 2023, Charter served a total of 30.6 million residential and SMB Internet customers.
• Third quarter total residential and SMB mobile lines increased by 594,000. As of September 30, 2023, Charter served a total of 7.2 million mobile lines.
• As of September 30, 2023, Charter had a total of 32.2 million residential and SMB customer relationships, which excludes mobile-only relationships.
• Third quarter revenue of $13.6 billion grew by 0.2% year-over-year, driven by residential Internet revenue growth of 3.7%, residential mobile service revenue growth of 33.8% and other revenue growth of 28.8%, primarily driven by higher mobile device sales.
• Net income attributable to Charter shareholders totaled $1.3 billion in the third quarter.
• Third quarter Adjusted EBITDA¹ of $5.4 billion grew by 0.7% year-over-year.
• Third quarter capital expenditures totaled $3.0 billion and included $1.1 billion of line extensions.
• Third quarter net cash flows from operating activities totaled $3.9 billion, compared to $3.8 billion in the prior year.
• Third quarter free cash flow¹ of $1.1 billion decreased from $1.5 billion in the prior year, primarily due to higher capital expenditures, mostly driven by Charter's network evolution and expansion initiatives.
• During the third quarter, Charter purchased 2.0 million shares of Charter Class A common stock and Charter Communications Holdings, LLC ("Charter Holdings") common units for $854 million.

"We continue to make significant progress against the multi-year strategic initiatives we outlined last year," said Chris Winfrey, President and CEO of Charter. "These initiatives drive continuing improvements in the quality of our products, and when combined with our customer-friendly pricing and packaging and high-quality service, will drive significant, long-term growth in shareholder value."

As of September 30, 2023, Charter had 30.0 million residential customer relationships.

Third quarter residential Internet customers increased by 57,000, including some impact from the temporary loss of Disney programming in early September, compared to an increase of 61,000 during the third quarter of 2022.

Spectrum Internet^® delivers the fastest Internet¹ and WiFi download speeds in Charter's footprint. Charter offers Spectrum Internet products with speeds up to 1 Gbps across its entire footprint and is on plan to evolve its network to offer symmetrical and multi-gigabit speeds across its entire footprint at a lower cost and more quickly than its competitors. Charter's Advanced WiFi, a managed WiFi service that provides customers an optimized home network while providing greater control of their connected devices with enhanced security and privacy, became available to SMB customers in March, and is available to all Spectrum Internet customers. In the first quarter of 2023, Charter completed the deployment of Mobile Speed Boost to all Advanced WiFi routers.

Residential video customers decreased by 320,000 in the third quarter of 2023, compared to a decline of 211,000 in the third quarter of 2022, partly driven by video disconnects related to the temporary loss of Disney programming in early September. As of September 30, 2023, Charter had 13.8 million residential video customers. In October, Charter began deploying Xumo Stream Boxes to video customers. The Xumo Stream Box combines a live TV experience with access to hundreds of direct-to-consumer TV applications, and features simplified search and discovery along with a curated content offering based on the customer's interests and subscriptions.

During the third quarter of 2023, residential wireline voice customers declined by 288,000, compared to a decline of 271,000 in the third quarter of 2022. As of September 30, 2023, Charter had 7.0 million residential wireline voice customers.

During the third quarter of 2023, Charter added 577,000 residential mobile lines, compared to growth of 382,000 during the third quarter of 2022. Spectrum Mobile^TM is available to all new and existing Spectrum Internet customers and offers the fastest overall speeds,² with plans that include 5G access, do not require contracts and include taxes and fees in the price. Charter's converged offer, Spectrum One, and Spectrum Mobile are central to Charter's converged network strategy to provide consumers a differentiated connectivity experience with highly competitive, simple data plans and pricing.

Third quarter 2023 monthly residential revenue per residential customer totaled $119.28, and decreased by 0.6% compared to the prior year period, given a higher mix of non-video customer relationships, a higher mix of lower priced video packages within Charter's video customer base and $63 million of residential customer credits related to the temporary loss of Disney programming in September 2023, partly offset by promotional rate step-ups, rate adjustments and the accelerated growth of Spectrum Mobile.

SMB customer relationships grew by 5,000 in the third quarter of 2023, while third quarter 2022 SMB customer relationships grew by 13,000. Enterprise PSUs grew by 4,000 in the third quarter of 2023 versus 5,000 added in the third quarter of 2022.

Charter continues to work with federal, state and local governments to bring Spectrum Internet to unserved and underserved communities. During the third quarter of 2023, Charter activated 78,000 subsidized rural passings. Within Charter's subsidized rural footprint, total residential and SMB customer relationships increased by 31,000 in the third quarter of 2023.

Revenues

Third quarter revenue increased by 0.2% year-over-year to $13.6 billion, driven by growth in residential Internet, mobile service and other revenues, primarily driven by higher mobile device sales, partly offset by lower residential video and advertising sales revenues. Year-over-year revenue growth was negatively impacted by $68 million of total customer credits related to the temporary loss of Disney programming in September 2023.

Residential revenue totaled $10.7 billion in the third quarter, a decrease of 0.3% year-over-year. Year-over-year revenue growth was negatively impacted by $63 million of residential customer credits related to the temporary loss of Disney programming in September 2023.

Internet revenue grew by 3.7% year-over-year to $5.8 billion, driven by growth in Internet customers during the last year, promotional rate step-ups and rate adjustments, partly offset by lower bundled revenue allocation.

Video revenue totaled $4.0 billion in the third quarter, a decrease of 8.6% compared to the prior year period, driven by a higher mix of lower priced video packages within Charter's video customer base, a decline in video customers during the last year and the aforementioned $63 million of residential customer credits recorded in September 2023, partly offset by promotional rate step-ups and video rate adjustments that pass through programmer rate increases.

 Voice revenue totaled $379 million in the third quarter, a decrease of 3.0% compared to the third quarter of 2022, driven by a decline in wireline voice customers over the last twelve months, partly offset by voice rate adjustments.

Third quarter mobile service revenue totaled $581 million, an increase of 33.8% year-over-year, driven by mobile line growth and higher bundled revenue allocation.

Commercial revenue increased by 0.8% year-over-year to $1.8 billion, driven by enterprise revenue growth of 3.7% year-over-year, partly offset by a SMB revenue decrease of 0.9%. The year-over-year decrease in third quarter 2023 SMB revenue was driven by lower monthly SMB revenue per SMB customer primarily due to a higher mix of lower priced video packages and a lower number of voice lines per SMB customer relationship, partly offset by customer relationship growth. Enterprise revenue excluding wholesale increased by 5.5% year-over-year, mostly reflecting PSU growth.

Third quarter advertising sales revenue of $384 million decreased by 20.3% compared to the year-ago quarter, primarily driven by lower political revenue. Excluding political revenue in both periods, advertising sales revenue decreased by 1.8% year-over-year, due to a more challenged advertising market, partly offset by higher advanced advertising revenue.

Other revenue totaled $677 million in the third quarter, an increase of 28.8% compared to the third quarter of 2022, driven by higher mobile device sales.

Operating Costs and Expenses

Third quarter programming costs decreased by $276 million, or 9.6% as compared to the third quarter of 2022, reflecting fewer video customers, a higher mix of lower cost packages within Charter's video customer base and a $61 million benefit related to the temporary loss of Disney programming in September 2023, partly offset by contractual programming rate increases and renewals.

Other costs of revenue increased by $183 million, or 15.2% year-over-year, primarily driven by higher mobile device sales and other mobile direct costs, partly offset by lower regulatory and franchise fees and lower advertising sales expense.

Costs to service customers increased by $76 million, or 3.7% year-over-year. The year-over-year increase in costs to service customers was primarily driven by previous adjustments to job structure, pay and benefits to build a more skilled and longer tenured workforce resulting in lower frontline employee attrition compared to 2022, and additional activity to support the accelerated growth of Spectrum Mobile, partly offset by productivity improvements and lower bad debt.

Sales and marketing expenses decreased by $13 million, or 1.4% year-over-year, primarily due to lower labor costs.

Other expenses increased by $27 million, or 2.5% as compared to the third quarter of 2022.

Net Income Attributable to Charter Shareholders

Net income attributable to Charter shareholders totaled $1.3 billion in the third quarter of 2023, compared to $1.2 billion in the third quarter of 2022. The year-over-year increase in net income attributable to Charter shareholders was primarily driven by higher Adjusted EBITDA and lower other operating expenses, net, partly offset by higher interest expense, net.

 Net income per basic common share attributable to Charter shareholders totaled $8.42 in the third quarter of 2023 compared to $7.51 during the same period last year. The increase was primarily the result of the factors described above in addition to a 5.7% decrease in basic weighted average common shares outstanding versus the prior year period.

Adjusted EBITDA

Third quarter Adjusted EBITDA of $5.4 billion grew by 0.7% year-over-year, reflecting growth in revenue of 0.2%, and operating expenses which were virtually unchanged versus the prior year period.

Capital Expenditures

Capital expenditures totaled $3.0 billion in the third quarter of 2023, compared to $2.4 billion during the third quarter of 2022. Line extensions capital expenditures totaled $1.1 billion in the third quarter of 2023, compared to $826 million in the prior year quarter, driven by Charter's subsidized rural construction initiative and continued network expansion across residential and commercial greenfield and market fill-in opportunities. Third quarter capital expenditures excluding line extensions totaled $1.9 billion, compared to $1.6 billion in the third quarter of 2022, driven by higher spend on upgrade/rebuild (primarily network evolution) and CPE (primarily Xumo Stream Boxes).

Charter now expects full year 2023 capital expenditures, excluding line extensions, to total approximately $7.2 billion, an increase from Charter's previously expected range of between $6.5 billion to $6.8 billion. The increase reflects an acceleration of network evolution spend and higher Xumo-related CPE spend. Charter continues to expect 2023 line extensions capital expenditures to total approximately $4 billion. The actual amount of capital expenditures in 2023 will depend on a number of factors including, but not limited to, the pace of Charter's network evolution and expansion initiatives, supply chain timing and growth rates in Charter's residential and commercial businesses.

Cash Flow and Free Cash Flow

During the third quarter of 2023, net cash flows from operating activities totaled $3.9 billion, compared to $3.8 billion in the prior year quarter. The year-over-year increase in net cash flows from operating activities was primarily due to higher Adjusted EBITDA in the current year period and the payment of litigation settlements in the prior year period.

Free cash flow in the third quarter of 2023 totaled $1.1 billion, compared to $1.5 billion during the same period last year. The year-over-year decrease in free cash flow was primarily driven by an increase in capital expenditures, partly offset by the increase in net cash flows from operating activities.

Liquidity & Financing

As of September 30, 2023, total principal amount of debt was $97.6 billion and Charter's credit facilities provided approximately $3.3 billion of additional liquidity in excess of Charter's $571 million cash position.

Share Repurchases

During the three months ended September 30, 2023, Charter purchased 2.0 million shares of Charter Class A common stock and Charter Holdings common units for $854 million.

Webcast

Charter will host a webcast on Friday, October 27, 2023 at 8:30 a.m. Eastern Time (ET) related to the contents of this release.

The webcast can be accessed live via the Company's investor relations website at ir.charter.com. Participants should go to the webcast link no later than 10 minutes prior to the start time to register. The webcast will be archived at ir.charter.com two hours after completion of the webcast.

Additional Information Available on Website

The information in this press release should be read in conjunction with the financial statements and footnotes contained in the Company's Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2023, which will be posted on the "Results & SEC Filings" section of the Company's investor relations website at ir.charter.com, when it is filed with the Securities and Exchange Commission (the "SEC"). A slide presentation to accompany the conference call and a trending schedule containing historical customer and financial data will also be available in the "Results & SEC Filings" section.

Use of Adjusted EBITDA and Free Cash Flow Information

The Company uses certain measures that are not defined by U.S. generally accepted accounting principles ("GAAP") to evaluate various aspects of its business. Adjusted EBITDA and free cash flow are non-GAAP financial measures and should be considered in addition to, not as a substitute for, net income attributable to Charter shareholders and net cash flows from operating activities reported in accordance with GAAP. These terms, as defined by Charter, may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA and free cash flow are reconciled to net income attributable to Charter shareholders and net cash flows from operating activities, respectively, in the Addendum to this release.

Adjusted EBITDA is defined as net income attributable to Charter shareholders plus net income attributable to noncontrolling interest, net interest expense, income taxes, depreciation and amortization, stock compensation expense, other income (expenses), net and other operating (income) expenses, net, such as special charges and (gain) loss on sale or retirement of assets. As such, it eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of the Company's businesses as well as other non-cash or special items, and is unaffected by the Company's capital structure or investment activities. However, this measure is limited in that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues and the cash cost of financing. These costs are evaluated through other financial measures.     

Free cash flow is defined as net cash flows from operating activities, less capital expenditures and changes in accrued expenses related to capital expenditures.   

Management and Charter's board of directors use Adjusted EBITDA and free cash flow to assess Charter's performance and its ability to service its debt, fund operations and make additional investments with internally generated funds. In addition, Adjusted EBITDA generally correlates to the leverage ratio calculation under the Company's credit facilities or outstanding notes to determine compliance with the covenants contained in the facilities and notes (all such documents have been previously filed with the SEC). For the purpose of calculating compliance with leverage covenants, the Company uses Adjusted EBITDA, as presented, excluding certain expenses paid by its operating subsidiaries to other Charter entities. The Company's debt covenants refer to these expenses as management fees, which were $345 million and $1.1 billion for the three and nine months ended September 30, 2023, respectively, and $342 million and $1.0 billion for the three and nine months ended September 30, 2022, respectively.

About Charter

Charter Communications, Inc. (NASDAQ:CHTR) is a leading broadband connectivity company and cable operator serving more than 32 million customers in 41 states through its Spectrum brand. Over an advanced communications network, the Company offers a full range of state-of-the-art residential and business services including Spectrum Internet^®, TV, Mobile and Voice.

For small and medium-sized companies, Spectrum Business^® delivers the same suite of broadband products and services coupled with special features and applications to enhance productivity, while for larger businesses and government entities, Spectrum Enterprise^® provides highly customized, fiber-based solutions. Spectrum Reach^® delivers tailored advertising and production for the modern media landscape. The Company also distributes award-winning news coverage and sports programming to its customers through Spectrum Networks. More information about Charter can be found at corporate.charter.com.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This communication includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things, our plans, strategies and prospects, both business and financial.  Although we believe that our plans, intentions and expectations as reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations.  Forward-looking statements are inherently subject to risks, uncertainties and assumptions including, without limitation, the factors described under "Risk Factors" from time to time in our filings with the SEC.  Many of the forward-looking statements contained in this communication may be identified by the use of forward-looking words such as "believe," "expect," "anticipate," "should," "planned," "will," "may," "intend," "estimated," "aim," "on track," "target," "opportunity," "tentative," "positioning," "designed," "create," "predict," "project," "initiatives," "seek," "would," "could," "continue," "ongoing," "upside," "increases," "grow," "focused on" and "potential," among others.  Important factors that could cause actual results to differ materially from the forward-looking statements we make in this communication are set forth in our annual report on Form 10-K, and in other reports or documents that we file from time to time with the SEC, and include, but are not limited to:

• our ability to sustain and grow revenues and cash flow from operations by offering Internet, video, voice, mobile, advertising and other services to residential and commercial customers, to adequately meet the customer experience demands in our service areas and to maintain and grow our customer base, particularly in the face of increasingly aggressive competition, the need for innovation and the related capital expenditures;
• the impact of competition from other market participants, including but not limited to incumbent telephone companies, direct broadcast satellite ("DBS") operators, wireless broadband and telephone providers, digital subscriber line ("DSL") providers, fiber to the home providers and providers of video content over broadband Internet connections;
• general business conditions, unemployment levels and the level of activity in the housing sector and economic uncertainty or downturn;
• our ability to obtain programming at reasonable prices or to raise prices to offset, in whole or in part, the effects of higher programming costs (including retransmission consents and distribution requirements);
• our ability to develop and deploy new products and technologies including consumer services and service platforms;
• any events that disrupt our networks, information systems or properties and impair our operating activities or our reputation;
• the effects of governmental regulation on our business including subsidies to consumers, subsidies and incentives for competitors, costs, disruptions and possible limitations on operating flexibility related to, and our ability to comply with, regulatory conditions applicable to us;
• the ability to hire and retain key personnel;
• our ability to procure necessary services and equipment from our vendors in a timely manner and at reasonable costs including in connection with our network evolution and rural construction initiatives;
• the availability and access, in general, of funds to meet our debt obligations prior to or when they become due and to fund our operations and necessary capital expenditures, either through (i) cash on hand, (ii) free cash flow, or (iii) access to the capital or credit markets; and
• our ability to comply with all covenants in our indentures and credit facilities, any violation of which, if not cured in a timely manner, could trigger a default of our other obligations under cross-default provisions.

All forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by this cautionary statement.  We are under no duty or obligation to update any of the forward-looking statements after the date of this communication.

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
FOOTNOTES

SOURCE Charter Communications, Inc.