Charter Communications, Inc. — Q1 2023 Form 10-Q
Business context and period: Charter is a broadband and cable operator serving more than 32 million customers across 41 states. This unaudited report covers the three months ended March 31, 2023, compared with the same period in 2022. Charter reports one consolidated operating segment.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $13.653 billion | $13.200 billion | +3.4% |
| Adjusted EBITDA (non-GAAP) | $5.350 billion | $5.213 billion | +2.6% |
| Income from operations | $2.926 billion | $2.771 billion | +5.6% |
| Operating margin | 21.4% | 21.0% | +0.4 percentage points |
| Net income attributable to Charter shareholders | $1.021 billion | $1.203 billion | -15.1% |
| Diluted EPS | $6.65 | $6.90 | -3.6% |
| Cash from operating activities | $3.323 billion | $3.647 billion | -$324 million |
| Capital expenditures | $2.464 billion | $1.857 billion | +$607 million |
| Free cash flow (non-GAAP) | $664 million | $1.800 billion | -$1.136 billion |
Revenue gains reflected price adjustments and growth in residential mobile, Internet and commercial customers. Mobile service revenue rose 28.3% to $497 million; Internet revenue rose 4.9% to $5.718 billion. Video revenue fell 2.1% to $4.254 billion, advertising revenue fell 7.2% to $355 million, and other revenue rose 34.0% to $683 million, primarily due to mobile device sales. Adjusted EBITDA increased, but its margin decreased to approximately 39.2% from 39.5% as costs grew.
Operating costs and expenses increased 4.6% to $8.511 billion, led by higher other costs of revenue, customer-service costs, sales and marketing, and stock compensation; lower programming costs partly offset the increases. Net interest expense rose $205 million to $1.265 billion, reflecting higher average rates and approximately $4.7 billion more average debt outstanding. Other expense was $104 million, including a $79 million loss on equity investments; the prior-year period had $23 million of other income.
Balance sheet, debt and liquidity
- At March 31, 2023, cash was $534 million, total assets were $144.870 billion, and total shareholders’ equity was $12.902 billion.
- Debt principal was $97.763 billion (carrying value $97.972 billion), compared with principal of $97.368 billion at year-end 2022. Charter reported leverage of 4.5 times Adjusted EBITDA and a target range of 4.0–4.5 times.
- Credit-facility availability was approximately $3.3 billion. Management said it believes cash, free cash flow, revolving-credit availability and capital-market access are sufficient for projected cash needs.
- Cash declined by $111 million during the quarter. Operating cash flow was more than offset by investing outflows of $2.739 billion, principally capital expenditures, and financing outflows of $695 million.
Material changes, outlook and risks
- Customer relationships were 32.211 million, up 13,000 year over year. Internet customers increased 235,000 to 30.509 million; video customers declined 815,000 to 14.906 million; total mobile lines increased 2.041 million to 5.978 million. In Q1, Charter added 76,000 Internet customers, 16,000 residential and SMB customer relationships, and 686,000 mobile lines.
- Charter reorganized certain revenue and expense reporting categories in 2023 to reflect its integrated business; prior periods were revised to conform. The company stated this did not change total revenue, Adjusted EBITDA, capital expenditures or net income.
- 2023 capital expenditure outlook: $6.5–$6.8 billion excluding line extensions, plus approximately $4 billion for line extensions. Charter spent $391 million on its subsidized rural construction initiative in Q1 and activated approximately 44,000 subsidized rural passings. It plans network upgrades over the next three years to provide multi-gigabit speeds.
- Management cited lower customer move and provider-switching rates as limiting sales opportunities, while investments in employee capability, digitized service and proactive maintenance are intended to improve customer experience and retention. It also noted negative working-capital effects from mobile-device installment plans and that Charter became a meaningful federal cash-tax payer in 2022.
- Charter issued $1.1 billion of 7.375% senior unsecured notes due 2031 and entered credit-agreement amendments, including a $750 million Term B-3 loan due 2030 at SOFR plus 2.25%. It repurchased approximately 2.3 million Class A shares for $863 million and bought $122 million of Charter Holdings units from a noncontrolling holder. Remaining repurchase authorization was $305 million, excluding Liberty Broadband purchases.
- Principal risks identified include competition, customer retention and experience, programming costs, network investment and execution, vendor availability, regulation, economic conditions, debt refinancing and covenant compliance. The filing reported no material changes to the risk factors or legal proceedings previously disclosed in the 2022 Form 10-K. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether subscriber trends—especially video and voice declines and continued mobile growth—translate into durable revenue and customer-retention gains.
- Whether capital spending, including rural line extensions and network evolution, delivers expected customer growth and returns, and how it affects free cash flow.
- How higher interest costs, debt maturities, leverage and refinancing-market conditions affect liquidity and capital allocation.
- Whether mobile growth and device sales sustain margins without worsening working-capital requirements.
- The effects of customer past-due balances, including the reported increase in accounts more than 120 days past due, and changes to government assistance programs.
- Non-GAAP measures: Adjusted EBITDA and free cash flow are company-defined and should be assessed alongside GAAP results; Q1 free cash flow fell substantially year over year.