Charter Communications Inc ($CHTR) Q2 2025 Earnings Call

Thanks, Stefan. During the second quarter, we remained the fastest growing mobile provider in the United States. We added 500,000 Spectrum Mobile lines in the quarter and 2.1 million lines over the last 12 months for growth of nearly 25%. All because we offer seamless connectivity with the fastest speeds at the best price. In the second quarter, internet customer losses of 117,000 improved from 149,000 last year. Our video customer losses improved five-fold year-over-year to 80,000 driven by better connects and lower churn. Revenue was up slightly year-over-year while second quarter adjusted EBITDA grew by 0.5%. And we expect to grow adjusted EBITDA for the full year. The operating environment remains competitive. In Q2, we drove higher levels of sales year-over-year and lower voluntary churn, partly offset by higher levels of non-pay internet churn. Absent ACP, we have not seen a material change in the competitive landscape and we remain confident that we'll return to internet customer growth over time through our operating strategy of delivering the best networks and products at the best value for customers combined with unmatched service.

The new pricing and packaging we launched last September continues to produce good results, including a higher number of total products sold at connect, a gig attach rate that's nearly doubled, more mobile lines per customer connect, and a video sell-in rate that's improved substantially with lower churn across both our traditional expanded basic packages and our skinny bundles. Our video product continues to improve. In June, we announced the inclusion of Hulu with our traditional packages. Hulu should become available for those customers prior to the launch of ESPN Unlimited. And together with Fox One, our inclusion offer will then be essentially complete. As slide six shows, we will offer over $100 of monthly value inside of our seamless entertainment packages at no additional cost to customers. Our streaming app activation process for customers has improved, and we'll be ramping our marketing of Seamless Entertainment together with our programming partners. This month we began launching the sale of a la carte programmer streaming applications to customers without traditional video packages including broadband only. In the coming months we'll also launch our video marketplace. It's a place where customers can discover, activate, migrate, upgrade and downgrade their streaming inclusion apps. It will also be a starting place for video-centric sales leads and a place to learn about and buy Spectrum TV video packages like TV Select and Stream and a la carte programmer streaming applications.

So why have we worked so hard to improve an ecosystem that's been in structural decline for years? The reason is because we recreated the video product into something of much higher quality with unique video packaging flexibility and value together with Xumo which solves a growing content discovery problem. Our video product can be yet another competitive advantage for our internet and mobile sales and it drives churn lower. It's the convergence of our connectivity services and video through seamless entertainment. I did want to highlight that our programming deals over the past two years, including recent extensions and co-marketing efforts, reflect our programming partners' belief in our customer video proposition. And those relationships are probably in the best place I've seen.

Turning to internet specifically, we offer gig capable seamless connectivity, wired and wireless across 100% of our footprint. We're not standing still. Our wired network evolution is effectively a very low-cost spectrum acquisition across 58 million passings adding up to 1 gigahertz of additional spectrum when we move to 1.8 GHz. We're deploying symmetrical and multi-gig speeds everywhere we operate. In July, we completed the addition of 2x1 gigabit per second service to all of our step one markets, approximately 15% of our footprint. Step two, including DOCSIS 3.1 distributed access architecture is now underway to the next 50% of our footprint and will deliver 5x1 gigabit per second service there as well as fiber on demand capabilities. Step three, adding DOCSIS 4.0 to the equation will expand capacity even more, allowing us to offer 10x1 gigabit per second service. We're also in full deployment mode of our hybrid mobile network operator or HMNO network deploying CBRS small cells across an additional 23 markets.

In mobile, our rapid growth continues and for the last five quarters, the majority of our line net adds have come from unlimited plus lines with higher value and ARPU at a fraction of competitive prices with faster speeds and better connectivity. We've also been selling more mobile lines per connect with our new packaging and upselling additional lines to existing mobile households. Convergence reduces churn and higher mobile lines per customer benefits churn further. On convergence and higher line counts, earlier this week, we announced a long-term MVNO relationship with T-Mobile, which enhances our Spectrum business package of connectivity services and can accelerate Spectrum Mobile growth over time. We look forward to working with T-Mobile. From a financial perspective, mobile EBITDA less mobile capex is positive. And for the last couple of quarters, that figure has been positive, even including the impact of customer device financing. Outside of our multi-line phone balance buyout, we don't see a need to subsidize acquisition given our market leading speed and value. So, the mobile business is now becoming a real tailwind to our free cash flow growth and it'll continue to increase.

Turning to customer service, we have a unique opportunity to create a competitive advantage here. The significant investments to improve our customer service were largely made over the past few years. Those being technology, including digitization, AI, network intelligence, and direct investments in our US-based employees. Our technology investments have been primarily directed at applications that directly benefit customers in various self-help channels and machine learning and AI based frontline service tools to make servicing customers easier and more efficient for our employees. We're currently focused on using machine learning and AI to take full advantage of all of our network and in-home telemetry to identify and address service issues before they ever occur. Our investments in employees themselves are focused primarily on driving employee tenure which drives better craftsmanship and customer service. It starts with good paying US jobs and benefits and then we expanded that with career paths including self-progression, training and education and enhanced retirement benefits.

We recently extended that notion of better service from better craftsmanship and commitment to a unique frontline ownership program geared towards tenure with the company matched based on tenure and a three-year investment holding period. In the first election window of our employee stock purchase plan, nearly 15,000 largely frontline employees opted to directly invest and become owners of our company. Our employees understand the investments we're making and they believe they own not just their career and retirement here. They increasingly act like owners of the business. And that's good for our customers, the communities we serve, and our shareholders. Ultimately, our investments in employees and technology are all resulting in significant and sustainably improved service. Cable billing and repair calls were down 14% year-over-year in the second quarter with a near 10% decrease in truck rolls despite significant weather impacts. And we're seeing tangible improvements in how customers perceive our service, products, and pricing.

We also have a public customer commitment backed by service credits, including if we can't be at your home or business the same day. But internally, we're moving that standard to two-hour windows. Why? Because we can. We're now doing it a large percentage of the time. We believe it'll take our competitors years of investment to catch up.

Taking a step back, we still recognize the competitive environment we're in. Our operating and capital allocation strategy means we've been making the investments to put us in a position of confidence today. Network evolution to ensure the fastest wired speeds. Convergence to make the same speed and reliability available seamlessly. Extending our network to rural footprint which often becomes suburban density in the future. And transforming video to provide value and utility in a complex ecosystem driving connectivity sales and retention. And then pairing those network and product investments with market-leading pricing and packaging to save customers money. All with a commitment-backed best-in-class US-based service from employees who are tenured, committed, and act like owners because they are. All of which has yet to fully take hold. So, how do you know as an investor whether it works? Because everything we're doing is what you as a customer want. And as customer demand for bandwidth, reliability, and low latency service seamlessly connected continues to increase, I believe we're in the best competitive position. And I think that's true with or without a step change from AI, VR, edge computing, other transformational shifts, which have always occurred when we have ubiquitously expanded the capabilities of our network for advanced products.

A logical expansion of our strategy was our announcement made to acquire Cox Communications. This combination offers significant benefits for customers, employees, local communities, and shareholders. The transaction will marry Spectrum's operating strategy with the B2B capabilities and community investment heritage of Cox together with our shared philosophy of long-term investment in our network and employees. It will bring Spectrum products and prices to the Cox footprint where we don't operate today, increasing competition in those markets to the benefit of consumers and increasing onshore labor to the benefit of employees. This transaction is good for America. It's also a great outcome for both our current shareholders and for the Cox family. The transaction is priced at an attractive valuation and it's accretive to top-line growth, margin, and to levered free cash flow per share even when absorbing the impact of a modest delevering of the combined business and without factoring in the benefits of a lower cost of capital and the value of Cox as a sophisticated long-term shareholder. As we spend more time thinking through the integration, assuming regulatory approval, we continue to see areas of additional opportunity. And in the meantime, the employees of both companies are focused on business as usual and delivering value for respective shareholders. Now, I'll pass it over to Jessica.

Sure. I'll give the upfront caveat. Clearly, we have a good legal agreement with both of those parties, with T-Mobile and Verizon. And Verizon's been a great partner to us and I think we've been the same. So, we're going to continue to do that. We've just entered into, I think, a very strategic relationship with T-Mobile and so we intend to be good partners with them as well. We're really excited about the deal that we announced with T-Mobile and we're looking forward to getting to market in the small, medium, and for us large business space with the ability to enter into a market selling many more lines than we've been able to sell. The ability to combine those mobile products together with our market and price leading wireline services that we have in small, medium and large businesses I think is attractive the same way it is for residential and we've been somewhat limited in terms of our ability to go to market in the business space and so this opens the door for us to go do that. Not going to comment on pricing for the reasons I said at the outset other than to say we're happy with the partnership that we have both with T-Mobile now in the business segment as well as with Verizon. But I also think it's always good to have strategic relationships but have multiple strategic relationships and we feel that this is helpful to the future of the business overall. In terms of impact to Verizon, it's not a space that we were heavily driving today. If you take a look at our really small business segment where you can see our mobile lines that we publish, there is some business that exists there with Verizon. It's been relatively limited for the reasons that I just mentioned. That business on the increment will be moving towards T-Mobile and hopefully expanding at a more rapid rate. But the residential business that we have with Verizon is there and it's a great relationship. It's worked obviously very very well. I think it's strategic for them. It's strategic for us. They've said as much and we look forward to being a great partner to both of those companies.

Not going to get into the agreement, but we signed it after the announcement of Cox, so you should assume that we're thinking about a lot of things for the future.

Yep.

I just did tag on that. We had going into the Cox transaction, we had a good sense and maybe it was hope, maybe it was a well-placed bet that the tax rules would be extended in a way that was helpful towards infrastructure investors and that enabled us to be as committed as we are to making the investments in the Cox network that you've seen when we published the proxy statement. So it was factored in there and so there will be an uptick in investment that's directly tied to that and it's reflected really in the Cox transaction.

John, on non-pay commentary, when you're in an environment where you're on the cusp of slight losses or slight adds, small movements in any category whether it's sales, voluntary turn, or non-pay can have an outsized impact on net adds. So the non-pay, just taking a step back, is still at relatively low historic levels. However, it's stepped up year-over-year. And the reason that non-pay has stepped up year-over-year is twofold. One is you have former ACP customers who are economically challenged and have a higher non-payment rate systemically without the benefit of the subsidy from a year-over-year standpoint. But in addition to that, from a year-over-year standpoint, you have newly acquired customers who would have qualified for the ACP who don't have ACP today. And therefore, those newly acquired customers have a higher non-pay rate than they would otherwise. But just take a step back to be clear, non-pay is up year-over-year. It's not dramatic and it's not at a level that exceeds where we were certainly pre-pandemic, but it's enough that on the cusp of net gain versus net loss that it has some impact that's offsetting the benefit that we have from higher sales and lower voluntary turn.

Thanks, John. Leila, we'll take our next question, please.

Yes. There's a ton in what you just asked. I think the video strategy that we're deploying is designed to do a few things. One is to meet customers wherever they want to go and wherever the market wants to go with the video product. So when you think about the packages that we offer, clearly the most beneficial to us and to programmers and we think to consumers is to have the full-fledged expanded video product because it has the most content in there, the best value, and included with that now over $100 worth of programmer apps including Max, Disney Plus, Hulu, Peacock, Paramount Plus, ESPN, you know, the whole thing. You take a look at that slide. All that value is included. That's going to be the stickiest product. It's going to be the best for customers and for programmers, us, and it's going to be the best for our broadband churn as well. Having said that, in moments of time where a customer can't afford that full package, we have some skinnier bundles that allow for general entertainment packages, which we can then add on the programmer apps from time to time, sell through of the programmer apps directly at retail through our video store to those consumers. And then finally, to the extent you have broadband customers who are looking to purchase a la carte programming apps, which they do today, and do it in a single place, that will have the ability to provide that utility and that value to customers. So wherever the market goes, wherever the product goes, we're in a position to provide that package and utility to the customers really for the benefit of consumers, but also to the benefit of programmers as well. And obviously for us, having a high quality video product that matches the customer's need enhances the value of our connectivity relationship being internet and mobile.

If you then add Xumo into the equation. So the first piece that I just talked about was solving the value equation for customers and the second piece is solving utility with Xumo. Xumo has the ability to integrate live TV together with all of these apps which are included in increasingly more simplified authentication for customers to have in a single spot. So you have unified search and discovery across live, SVOD as well as programmer apps in a way that's pretty unique in the marketplace and with a voice remote that works I think better than any other voice remote that's out in the marketplace. Credit to Comcast who is our partner in Xumo, 50/50 partner with Xumo who really developed that technology. I think Xumo is a powerful tool to solve that utility and even more so when you combine it with the value. You asked about the attach rate. When we started to include in our new pricing and packaging in September, a more focused effort and including video in the package together with mobile is a way to lower your internet pricing. Today at $30 for 500 megabit a second, $40 for a gig internet when you bundle with either video or internet. The uptake in video attach rate was significant. It's because we focused on it. In fact, at the time, it really wasn't because of what we had done with the product. In fact, we haven't really started to put the full marketing engine between this what we call seamless entertainment, the combination of your live video service plus all these apps. The digital store, the video store isn't even launched yet. And we don't yet have the full backing, which we will of our programming partners and all of their marketing capabilities behind. So, I think the video space for us can continue to improve and improve significantly.

And what I said in my prepared remarks was meant to make sure people don't think that we're thinking about this the wrong way. Our driver for having a high quality video product is to be able to sell and retain more internet and mobile relationships. And that's the big driver for us. And we said two years ago that we wanted to get an environment either where we were going to not have video and focus on broadband or have video and have it as a competitive tool and asset towards our broadband and mobile relationships. And it's taking some time but it's going well and I think it's going to continue to get better for the benefit of not just video but for the benefit of broadband and mobile relationships.

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

Yeah. So if I'm going to talk about funnel, I really need to go talk about the overall market color. Kind of reframe, restate a little bit of what I said in the prepared remarks. When you think about the top of the funnel, mobile actually very good. Video as I just talked about, significant improvement. So everything that I'm about to say really focus on market color and funnel as it relates to internet. Just so that we set the stage that the volume as I talked about, sales are actually up percentage-wise year-over-year and in units, voluntary churn is down, non-pay as I just talked about is up a little bit due to the lack of ACP. The competitive environment is stable, not improving but not deteriorating. So we have steady fiber overlap that's not new. Cell phone internet continues at its pace for now. But just as big when you think about the overall market and funnel is the overall market is challenged because there's an incredibly low amount of moves and new build which is going very slow and then in addition to that you have a reversion to mobile-only customers and ACP accelerated that that was taking place, reverting mobile-only back to the pre-pandemic level. You put all of those market movements or in this case lack of market movement together with a new competitor even if there's inferior and it puts pressure and it's not ideal.

We're not sitting still. As I talked about in the prepared remarks, we have network evolution. We have the convergence features that we've been launching and we're increasingly using mobile and video as a competitive advantage to drive internet sales and churn. We also have an expanding rural footprint which isn't just about today. A lot of what we're building today will turn into suburban footprint over a five, ten year period. And so I think we're putting investing significant lines of growth all of which in fairness is long-term. So if you think about the short term in the top of the funnel for internet specifically, we don't have a product or pricing issue. We have the fastest speeds. We have the most reliable product, best Wi-Fi. Selling particularly when bundled, $30 500 megabit per second internet, $40 gig. So it's not a product or pricing issue at the top of the funnel. It's the broader market that I talked about, some brand new competition. But in fairness, we're working through our marketing message and how to do a better job of breaking through with our marketing message. Given that there's an evolving mix in the marketplace in terms of channels and message. And we're changing some of the ways that we go to market, including some partners that we've used. And the second piece, I think, as an industry overall for the cable industry, and we're at the heart of that, is the value pitch that we're making to customers. And going back to customers very clearly both in marketing and at the time of sale and at the time of retention and saying the only reason that you can have a cell phone internet product at that price is because they're forcing you to pay $60, $70 per mobile line and when you think about what is on your bill with T-Mobile or Verizon 5G home internet the reality is it's dramatically more expensive than what you would pay to Spectrum for an internet mobile product. I just said that in 30 seconds but how do you convert that into an advertising message and how do you convert that into a sales pitch. I've said it before and I've said it internally as well. I think those are areas that we need to continue to do a better job. The good news is if you step back what I said holds true. We have the best network. We have the best product. We have the best pricing. We're doing things long-term to even expand that competitive advantage. But clearly, there's a sense of urgency that exists inside the company and we're driving and as an investor, I said it in the prepared remarks, but I really I'm going to say it again is I ask everyone to sit back and say, okay, as a customer, what do you want? And what you want is all the things I've been describing. And so I think we're in a great position. It's just we're doing things to move things both in the short term and the long term.

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

You know, the one thing I just stepped back on cost to serve when you think longer term not just in the coming quarter, long term cost to serve is a huge opportunity and remains the case because the amount of transactions as I mentioned is coming down double digits every year and I think that can accelerate with the benefit of the AI tools that we're putting in front of our agents. It's making the job easier. It's making the handle time go down. It's making repeats go down, which means you've got lower overall transactions and you need less labor to handle the transactions because of the lower handle time and the lower number of transactions and all of that set to not only continue but to compound. So, I feel really good about the long-term trajectory of cost to serve both in the standalone Charter as well as assuming regulatory approval the combination with Cox. So it remains one of the biggest opportunities in front of the company and it's why we spend so much time talking about the investments that we've made not just in AI and machine learning but also the quality of craftsmanship that exists with our employees because that's the key to getting to that holy grail. And the eventual impact obviously in the end isn't really just about cost. It's really about having better retention and having a better net promoter score and customer satisfaction in the marketplace which drives sales as well. So it all comes together as a virtuous circle that you can have better revenue and lower cost as a result of making the right investments today and that's what we've been doing for years.

Thanks, Sebastiano. We'll take our next question please.

Yeah. I think the answer to your first question is yes. We're seeing higher sales. We're seeing lower churn and better upgrades. So video sales at new internet acquisition as well as video upgrades to existing internet and so it's all of the above. And it's going well and I expect that to continue to improve here. In terms of shift, we're at the point where not only are we going to start marketing the benefits of seamless entertainment more broadly together with the pending launch of our video store, but as part of that has the ability to increasingly upgrade customers who are inside of the skinnier bundles into a more wholesome package. You can think about different ways to do that. Of course, traditional email or text or even direct mail. But in addition to that, if you take a look on our guide today, what you'll notice in the Spectrum TV app guide and our guides generally is an ability to upgrade into different packages by using title and guide and using the programmer apps as an insertion of the title in the guide to drive that. Now that can be for existing full expanded basic customers who haven't activated yet and have the ability to activate and we'll use that for activation activity but also for customers who are in a skinny package and have the ability to upgrade. A good example of that would be the inclusion of Peacock now that they're going to have 50 exclusive games and having the Peacock titling guide inside of there. Somebody goes and takes a look at the traditional channels that have historically covered the NBA and have a Peacock titling guide that allows them to either activate their Peacock subscription what's included for expanded video or to upgrade into the full expanded package from a skinny package. So that's just one tiny example. You can think about how we'd use Max for sure already, Disney Plus already in those genre areas as well as Hulu. I'm giving one example by using title and guide. When you think about the video store and what it can do and what we can do in MySpectrum app and net and.com platforms that we have, I think we can start to get the customer to where they're going to find the most value according to what they can afford. And again none of that's because we're outright just trying to save video. It's really because we're trying to drive better broadband and mobile performance. We think it's a competitive advantage that we have if we do it right.

Thanks, Brian. Leila, we'll take our next question, please.

Sure. You know, from an integration perspective on customer pricing and packaging, you're right we have a lot of experience doing that. When you think about Bremen, Time Warner Cable, Bright House, and even the original Charter in 2013, all of those integrations had higher starting ARPU for broadband and we needed to find a way to migrate those customers into a package that was more competitive without doing financial damage to the company. And the way to do that is to provide more value to customers. You can do that simply with more speed or more value in the internet product itself. But you can also do that with packaging and bundling for customers, new customers, so that when you're selling, you have a higher ARPU relationship than you would have otherwise even though you have a lower internet pricing. And for existing customers is usually the second stage where you start to offer them proactively only to the extent that they want it. The ability to have better pricing on a single product when they add additional products in. The way that we've done that historically really was through just video and wireline phone. Today I think we have an even more powerful tool to do that when you think about mobile. And if you reflect on everything that we've been talking about on this call around the video product and what we can do with that and the mobile product and have a saving a customer hundreds or even thousands of dollars a year when they add just a couple mobile lines, our ability to migrate customers at their discretion and to have new customer acquisition with lower product pricing but higher overall customer relationship ARPU is fairly proven. Cox in particular, if you think about it, their video penetration is about half of what ours is today and their mobile penetration today because they started later is coming from almost nowhere by definition. And so we have all the tools available I think to do that and you combine that with these networks have been very well invested. It's had very good service. So it's actually a better position we're coming from in Cox relative to what we had in Time Warner Cable, for example. Probably more akin to Bright House, frankly, where we had a lot of success growing that very quickly as a result of putting a better product pricing and packaging on the back of very well-invested network with great employees. And from a service perspective, the capex trajectory, the type of network activity that we do given our scale I believe can occur at a lower cost per passing. And probably more important to that is the technology platforms that we're deploying. You deploy it once instead of twice when you combine together. All of which means that you have the ability to reduce the amount of capital expenditure on some of the fixed platforms and reinvest the transaction synergies from a capex perspective back into additional network capabilities through the eventual high-split upgrade that would take place on Cox later down the road. They're all fairly traditional and clearly there's procurement synergies there too given our scale and procurement synergies that don't just apply to the Cox assets, but is getting marginally bigger for Charter, not huge, but marginally bigger for Charter, not factored probably into that is could we do even better as the combined company? We'll see. But that's not an explicit goal.

It's probably a good opportunity to highlight I know there's been some questions or speculation the Charter capex outlook other than some timing between years that could push from one year to the other, investors can depend on what we've provided for the Charter capex. When we don't typically do that, the fact that we did meant we understood the importance and you can take that one literally to the bank. They should also feel very comfortable with the outlook that was in the proxy statement for combined capex of the combined company. I feel pretty comfortable with the envelope that exists inside there as well. And so, the free cash flow generation that Jessica has spoken about at this point, we feel like it's pretty much math and atypical for us, we wanted to make sure that it was provided out there and that people could depend on it.

Thanks, Stephen. Leila, we'll take our last question, please.

The answer to your question, the first one is no. Through our network upgrade, we have the ability to do fiber on demand to the extent that a customer needed 25 gig symmetrical speeds which is pretty far out there at this point. So, we have that capability with fiber on demand. So, there's no need to update in any way or change the capex outlook as I just mentioned for increased rural investment. There'll be some feed that comes in as an overlay. And we're looking through that currently and we expect to participate but because of how much rural we've already built today the opportunities at the edge of our network it's a lot lower than it once was primarily because of what we ourselves have done but as well as others through RDOF and ARPA. So the size of the opportunity of tangential network build is lower than it was just a couple years ago.