Charter Announces Second Quarter 2022 Results

STAMFORD, Conn., July 29, 2022 /PRNewswire/ -- Charter Communications, Inc. (along with its subsidiaries, the "Company" or "Charter") today reported financial and operating results for the three and six months ended June 30, 2022.

• Second quarter total residential and small and medium business ("SMB") mobile lines increased by 344,000. As of June 30, 2022, Charter served a total of 4.3 million mobile lines.
• Second quarter total residential and SMB Internet customers increased by 38,000 when excluding 59,000 customer disconnects related to the discontinuation of the Emergency Broadband Benefit program and additional requirements of the Affordable Connectivity Program. Including the unfavorable transition impact, second quarter total residential and SMB Internet customers decreased by 21,000. As of June 30, 2022, Charter served a total of 30.3 million residential and SMB Internet customers.
• As of June 30, 2022, Charter had a total of 32.1 million residential and SMB customer relationships, which excludes mobile-only relationships.
• Second quarter revenue of $13.6 billion grew by 6.2% year-over-year, driven by residential revenue growth of 4.5%, mobile revenue growth of 39.8% and commercial revenue growth of 4.2%.
• Net income attributable to Charter shareholders totaled $1.5 billion in the second quarter, an increase of 44.2% year-over-year.
• Second quarter Adjusted EBITDA¹ of $5.5 billion grew by 9.7% year-over-year.
• Second quarter capital expenditures totaled $2.2 billion and included $357 million of rural construction initiative capital expenditures and $95 million of mobile-related capital expenditures.
• Second quarter net cash flows from operating activities totaled $3.7 billion, compared to $4.0 billion in the prior year quarter.
• Second quarter free cash flow¹ of $1.7 billion decreased by 19.8% year-over-year, primarily due to higher cash taxes and capital expenditures associated with Charter's rural construction initiative.
• During the second quarter, Charter purchased 8.3 million shares of Charter Class A common stock and Charter Communications Holdings, LLC ("Charter Holdings") common units for approximately $4.3 billion.

"Our growth has always been driven by offering value-rich packages at prices customers can afford," said Tom Rutledge, Chairman and CEO of Charter Communications. "Looking forward, we remain well-positioned to grow our business using that same strategy. Our fixed and mobile broadband services continue to converge, and we offer a unique connectivity package while meaningfully reducing customer bills. So there is a large opportunity for us to save customers money, which in turn raises connects, reduces churn and drives overall customer relationship growth." 

As of June 30, 2022, Charter had 29.9 million residential customer relationships, with year-over-year growth of 1.0%.

Second quarter residential Internet customers increased by 17,000 when excluding 59,000 customer disconnects related to the discontinuation of the Emergency Broadband Benefit program and additional requirements of the Affordable Connectivity Program. Including the unfavorable transition impact, second quarter residential Internet customers decreased by 42,000, compared to an increase of 365,000 customers during the second quarter of 2021. Currently, 300 Mbps is the minimum speed offered to new Spectrum Internet^® customers across Charter's footprint. As of June 30, 2022, over 80% of total Internet customers subscribed to tiers that provided 300 Mbps or more of speed. Charter also offers Spectrum Internet Ultra (500 Mbps) and Spectrum Internet Gig (1 Gbps) across its entire footprint. Charter's Advanced Home WiFi, a managed WiFi service that provides customers an optimized home network while providing greater control of their connected devices, is available to nearly all Spectrum Internet customers.

Residential video customers decreased by 240,000 in the second quarter of 2022, compared to a decline of 63,000 in the second quarter of 2021, partly driven by downgrades following an April pass through of higher programming expense. As of June 30, 2022, Charter had 14.9 million residential video customers.

During the second quarter of 2022, residential wireline voice customers declined by 265,000, compared to a decline of 99,000 in the second quarter of 2021. As of June 30, 2022, Charter had 8.2 million residential wireline voice customers.

Second quarter 2022 residential revenue per residential customer (excluding mobile) totaled $116.00, and increased by 2.8% compared to the prior year period, given promotional rate step-ups and rate adjustments that in part pass through programmer rate increases, partly offset by a higher mix of non-video customer relationships and a higher mix of lower priced video packages within Charter's video customer base.

SMB customer relationships grew by 19,000 in the second quarter of 2022, while second quarter 2021 SMB customer relationships grew by 33,000. Enterprise PSUs grew by 3,000 in the second quarter of 2022 versus 4,000 added in the second quarter of 2021.

During the second quarter of 2022, Charter added 344,000 mobile lines, compared to growth of 265,000 during the second quarter of 2021. Spectrum Mobile^TM is available to all new and existing Spectrum Internet customers. Spectrum Mobile customers can choose "Unlimited" or "By the Gig" data plans. In October 2021, Spectrum Mobile introduced new Unlimited pricing starting at $29.99/month per Unlimited line for customers with at least two lines. Additionally, customers qualify for the new multiline pricing when combining By the Gig lines for $14/GB with Unlimited lines. All Spectrum Mobile plans offer the fastest overall speeds¹, include 5G access and taxes and fees and do not require contracts. Spectrum Mobile's multiline Unlimited pricing is part of Charter's converged network strategy to provide consumers a differentiated connectivity experience with highly competitive, simple data plans and pricing.

Revenues

Second quarter revenue increased by 6.2% year-over-year to $13.6 billion, driven primarily by growth in residential, mobile and commercial revenues.

Residential revenue totaled $10.4 billion in the second quarter, an increase of 4.5% year-over-year.

Internet revenue grew by 6.5% year-over-year to $5.6 billion, driven by growth in Internet customers during the last year, promotional rate step-ups and reduced bundled discounts, partly offset by lower bundled revenue allocation.

Video revenue totaled $4.5 billion in the second quarter, an increase of 2.4% compared to the prior year period, driven by promotional rate step-ups, video rate adjustments that pass through programmer rate increases and higher bundled revenue allocation, mostly offset by a higher mix of lower priced video packages within Charter's video customer base and a decline in video customers during the last year.

 Voice revenue totaled $398 million in the second quarter, an increase of 1.0% compared to the second quarter of 2021, driven by voice rate adjustments, partly offset by a decline in wireline voice customers over the last twelve months.

Commercial revenue increased by 4.2% year-over-year to $1.7 billion, driven by SMB and enterprise revenue growth of 3.7% and 4.9% year-over-year, respectively. Second quarter 2022 SMB revenue growth was driven by customer relationship growth. Enterprise revenue excluding wholesale increased by 8.2% year-over-year, mostly reflecting PSU growth.

Second quarter advertising sales revenue of $460 million increased by 12.0% compared to the year-ago quarter, primarily driven by higher political revenue. Excluding political revenue in both periods, advertising sales revenue decreased by 0.7% year-over-year, due to lower local and national advertising revenue, particularly in the automotive category, partly offset by higher advanced advertising revenue.

Second quarter mobile revenue totaled $726 million, an increase of 39.8% year-over-year, driven by mobile line growth.

Operating Costs and Expenses

Second quarter programming costs decreased by $6 million, or 0.2% as compared to the second quarter of 2021, reflecting fewer video customers and a higher mix of lower cost packages within Charter's video customer base, mostly offset by contractual programming increases and renewals.

Regulatory, connectivity and produced content expenses decreased by $69 million, or 10.3% year-over-year, primarily driven by lower sports rights costs given a normalized game schedule in the second quarter of 2022 compared to the second quarter of 2021 when more games were played due to a delayed start of the 2020-2021 NBA season and lower video CPE sold to customers.

Costs to service customers increased by $93 million, or 5.1% year-over-year. The year-over-year increase in costs to service customers was primarily driven by low bad debt in the second quarter of 2021, which benefited from government stimulus packages and higher bad debt in the second quarter of 2022. Costs to service customers excluding bad debt increased by 1.1% year-over-year primarily due to a larger customer base and higher fuel costs, partly offset by productivity improvements.

Marketing expenses increased by $65 million, or 8.6% year-over-year, due to higher labor costs driven by previously announced wage increases to a $20 per hour starting wage and higher staffing levels as Charter completes the insourcing of its inbound sales and retention call centers with a focus on providing better service to new and existing customers.

Second quarter mobile costs totaled $797 million, an increase of 35.9% year-over-year, and were comprised of device costs, customer acquisition costs, and service and operating costs.

Other expenses increased by $13 million, or 1.3% as compared to the second quarter of 2021.

Net Income Attributable to Charter Shareholders

Net income attributable to Charter shareholders totaled $1.5 billion in the second quarter of 2022, compared to $1.0 billion in the second quarter of 2021. The year-over-year increase in net income attributable to Charter shareholders was primarily driven by higher Adjusted EBITDA. 

 Net income per basic common share attributable to Charter shareholders totaled $8.96 in the second quarter of 2022 compared to $5.48 during the same period last year. The increase was primarily the result of the factors described above in addition to an 11.8% decrease in basic weighted average common shares outstanding versus the prior year period.

Adjusted EBITDA

Second quarter Adjusted EBITDA of $5.5 billion grew by 9.7% year-over-year, reflecting growth in revenue and operating expenses of 6.2% and 3.9%, respectively.

Capital Expenditures

Property, plant and equipment expenditures totaled $2.2 billion in the second quarter of 2022, compared to $1.9 billion during the second quarter of 2021, primarily driven by an increase in line extensions and customer premise equipment ("CPE"), partly offset by a decrease in scalable infrastructure. The increase in line extensions was due to Charter's rural construction initiative. The increase in CPE was primarily due to higher spend on Advanced Home WiFi equipment. The decrease in scalable infrastructure was primarily related to timing of spend. Second quarter capital expenditures included $357 million of rural construction initiative spend, most of which was included in line extensions. Second quarter capital expenditures also included $95 million of mobile costs, most of which related to information technology systems and CBRS small cell construction and were included in support capital and scalable infrastructure.

Charter currently expects full year 2022 cable capital expenditures, excluding capital expenditures associated with its rural construction initiative, to be between $7.1 billion and $7.3 billion.

Cash Flow and Free Cash Flow

During the second quarter of 2022, net cash flows from operating activities totaled $3.7 billion, compared to $4.0 billion in the prior year quarter. The year-over-year decrease in net cash flows from operating activities was primarily due to higher cash taxes, higher cash paid for interest and an unfavorable change in working capital, excluding the changes in accrued interest and taxes and accrued expenses related to capital expenditures, partly offset by higher Adjusted EBITDA.

Free cash flow in the second quarter of 2022 totaled $1.7 billion, compared to $2.1 billion during the same period last year. The year-over-year decrease in free cash flow was primarily driven by a decrease in net cash flows from operating activities and an increase in capital expenditures.

Liquidity & Financing

As of June 30, 2022, total principal amount of debt was $95.7 billion and Charter's credit facilities provided approximately $4.4 billion of additional liquidity in excess of Charter's $483 million cash position.

In May 2022, Charter Communications Operating, LLC ("Charter Operating") entered into an amendment to its credit agreement (the "Amendment") to: (i) upsize term A loans by $2.3 billion to $6.05 billion and extend the maturity to August 31, 2027 from March 31, 2023 and February 1, 2025, (ii) create and borrow a new tranche of $500 million of term A-6 loans maturing August 31, 2028, (iii) increase the size of Charter Operating's revolving credit facility and extend the maturity date to August 31, 2027 from March 31, 2023 and February 1, 2025 and (iv) make certain other amendments to the credit agreement. Charter used a portion of the proceeds from the Amendment to repay all of the term A-2 loans, term A-4 loans and borrowings under the revolving credit facility outstanding prior to the effective date of the Amendment.

After giving effect to the Amendment: (i) the aggregate principal amount of term A-5 loans outstanding is $6.05 billion with a pricing of Secured Overnight Financing Rate ("SOFR") plus 1.25%, (ii) the aggregate principal amount of term A-6 loans outstanding is $500 million with a pricing of SOFR plus 1.50% and (iii) the aggregate amount of the revolving credit facility increased to a total capacity of $5.5 billion and the interest rate benchmark changed from London Interbank Offering Rate ("LIBOR") to SOFR, with a pricing of SOFR plus 1.25%. The aggregate principal amount of term B-1 loans (maturing April 30, 2025) and term B-2 loans (maturing February 1, 2027) outstanding are $2.4 billion and $3.7 billion, respectively, with LIBOR-based pricing unchanged.

Share Repurchases

During the three months ended June 30, 2022, Charter purchased 8.3 million shares of Charter Class A common stock and Charter Holdings common units for approximately $4.3 billion. During the six months ended June 30, 2022, Charter purchased 14.3 million shares of Charter Class A common stock and Charter Holdings common units, or 7.2% of fully diluted shares outstanding (including as-exchanged Charter Holdings common units) as of December 31, 2021, for approximately $7.8 billion.

Charter will host a webcast on Friday, July 29, 2022 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.

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 six months ended June 30, 2022, 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.

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 $348 million and $690 million for the three and six months ended June 30, 2022, respectively, and $365 million and $642 million for the three and six months ended June 30, 2021, respectively.

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, sports and high-quality original programming to its customers through Spectrum Networks and Spectrum Originals. More information about Charter can be found at corporate.charter.com.

 

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, including the impacts of the Novel Coronavirus ("COVID-19") pandemic to sales opportunities from residential move activity, our customers, our vendors and local, state and federal governmental responses to the pandemic;
• 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;
• 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.