Charter Communications, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; compared with Q1 2020. Charter is a broadband and cable operator serving more than 31 million customer relationships in 41 states through Spectrum. Figures are in U.S. dollars; financial amounts are in millions unless stated otherwise.
Financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $12,522 | $11,738 | +6.7% |
| Adjusted EBITDA (non-GAAP) | $4,945 | $4,396 | +12.5% |
| Income from operations | $2,068 | $1,802 | +14.8% |
| Net income attributable to Charter shareholders | $807 | $396 | +103.8% |
| Diluted EPS | $4.11 | $1.86 | +121.0% |
| Cash from operating activities | $3,751 | $3,220 | +$531 |
| Free cash flow (non-GAAP) | $1,855 | $1,371 | +$484 |
| Capital expenditures | $1,821 | $1,461 | +$360 |
Approximate operating margin was 16.5% versus 15.3%; Adjusted EBITDA margin was 39.5% versus 37.5%. Revenue growth chiefly reflected residential Internet and mobile customer growth and price adjustments. The earnings increase also benefited from a $366 million year-over-year improvement in gains and losses on financial instruments, largely reflecting cross-currency derivative valuation changes.
Revenue and customer trends
- Internet revenue rose 15.4% to $5,086; residential Internet customers increased by 1.886 million year over year to 27.357 million.
- Mobile revenue rose 90.7% to $492; mobile lines increased to 2.675 million from 1.372 million.
- Video revenue fell 1.8% to $4,344; video customers declined by 12,000 to 16.062 million. Residential video customers fell by 67,000.
- Voice revenue declined 12.6% to $399; total voice customers fell by 171,000 to 10.351 million.
- Total customer relationships reached 31.432 million, up from 29.721 million. Monthly residential revenue per customer was $112.18 versus $112.73.
Debt, liquidity and capital allocation
- Principal debt was $84.3 billion at quarter-end, versus $82.1 billion at December 31, 2020; balance-sheet long-term debt, including current portion, was $84.9 billion. Cash was $772 million, down from $1.001 billion.
- Charter reported approximately $4.7 billion of availability under its credit facilities and a 4.4x net-debt-to-last-twelve-month Adjusted EBITDA leverage ratio. Management’s target leverage range remained 4.0x–4.5x, with a target of up to 3.5x at the Charter Operating first-lien level.
- Current assets were $3.663 billion and current liabilities $9.916 billion. The filing reports substantial debt obligations and notes that subsidiary distributions are subject to covenant and legal restrictions.
- Q1 debt financing included $3.0 billion of long-dated senior secured notes; proceeds supported general corporate purposes, including repurchases and debt repayment. In April, CCO Holdings issued $1.0 billion of 4.5% notes due 2033.
- Charter spent $3.652 billion on treasury stock purchases and purchased $507 million of Charter Holdings units from A/N. It reported $1.2 billion of remaining repurchase authorization at March 31. It also bought 0.7 million additional shares from Liberty Broadband for about $460 million in April.
Management commentary, outlook and risks
- Management said Q1 customer activity remained below normal amid COVID-19, contributing to fewer service transactions and lower bad debt. It expected these effects to gradually return toward pre-pandemic levels during 2021 as the economy reopened.
- Management expected continued customer-relationship growth from bundled services and retention efforts, while anticipating further video and wireline voice customer losses.
- Mobile increased revenue but reduced Adjusted EBITDA by about $80 million and free cash flow by about $184 million in Q1. Charter expected mobile Adjusted EBITDA to remain negative during growth and anticipated ongoing free-cash-flow pressure from device installment-plan timing and retail-store and CBRS network investment.
- Charter expected 2021 cable capital expenditures, excluding RDOF investment expected to begin later in the year, to be relatively consistent as a percentage of cable revenue with 2020. Q1 capex rose to $1.821 billion, primarily due to network capacity, customer growth and rural line extensions.
- Programming costs increased 3.3% to $2.988 billion. Management expected programming rates per customer to keep rising and said it may not be able to pass all increases to customers without risking customer losses.
- Operating costs increased by $279 million, including a $198 million increase in mobile costs. Other operating expenses included $255 million of net special charges, primarily a tentative $220 million settlement with Sprint and T-Mobile and employee termination costs. The settlement was not finalized as of the filing; Charter gave no assurance it would be completed.
- Key disclosed risks include intense competition, customer retention, programming-cost inflation, network disruption, regulation, COVID-19 effects, access to financing and compliance with debt covenants. Charter also disclosed intellectual-property litigation and other legal matters; potential outcomes and losses are not all estimable.
Most important facts for investors to verify
- Whether the tentative $220 million Sprint/T-Mobile settlement is finalized and whether additional litigation exposure emerges.
- Whether Internet and mobile customer growth continues, and how video and voice losses affect revenue per customer and margins.
- Whether mobile losses and device-related working-capital needs improve as the service scales.
- How capex, programming costs and COVID-related bad-debt and service-cost trends develop through 2021.
- Debt refinancing, leverage and repurchase pace relative to cash generation, covenant constraints and Charter’s stated leverage targets.