Charter Communications, Inc. — 2020 Form 10-K
Reporting period: Year ended December 31, 2020. The filing also reports fourth-quarter results. Charter is a broadband and cable operator serving more than 31 million customer relationships in 41 states through Spectrum, with residential, commercial, mobile, video, voice, advertising and enterprise services.
Financial performance
Amounts are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $48,097 | $45,764 | +5.1% |
| Operating income | $8,405 | $6,511 | +29.1% |
| Operating margin | 17.5% | 14.2% | +3.3 percentage points |
| Adjusted EBITDA (non-GAAP) | $18,518 | $16,855 | +9.9% |
| Net income attributable to Charter shareholders | $3,222 | $1,668 | +93.2% |
| Diluted EPS | $15.40 | $7.45 | +106.7% |
| Operating cash flow | $14,562 | $11,748 | +23.9% |
| Capital expenditures | $7,415 | $7,195 | +$220 |
| Free cash flow (non-GAAP) | $7,070 | $4,608 | +$2,462 |
Revenue growth was led by residential Internet and mobile. Internet revenue rose 11.1% to $18,521 million, and mobile revenue rose 87.9% to $1,364 million. Video revenue declined 1.0% to $17,432 million and voice revenue declined 5.9% to $1,806 million. Advertising revenue increased 8.3% to $1,699 million, reflecting political advertising, partly offset by lower local advertising during COVID-19.
Residential Internet customers increased by 2.115 million to 27.023 million; total customer relationships increased by 1.895 million to 31.130 million. Mobile lines more than doubled to 2.375 million. Residential video customers were nearly flat at 15.639 million, while residential wireline voice customers fell by 228,000 to 9.215 million. Monthly residential revenue per customer was $111.15, down from $112.63.
Fourth-quarter 2020 revenue was $12,624 million, operating income was $2,462 million, and net income attributable to Charter shareholders was $1,246 million. Diluted EPS was $6.05.
Debt and liquidity
- Year-end debt principal was $82.143 billion, versus $78.416 billion a year earlier; balance-sheet debt at accreted value was $82.752 billion. Charter reported leverage of 4.4x Adjusted EBITDA, within its stated 4.0x–4.5x target range.
- Cash and cash equivalents were $998 million, down from $3.483 billion. Charter reported approximately $4.7 billion available under credit facilities.
- Approximately 87% of principal debt was fixed-rate; the blended weighted-average interest rate was 4.7%. Net interest expense was $3.848 billion, up from $3.797 billion.
- Charter repurchased approximately 18.4 million shares for $10.6 billion in 2020 and bought $1.462 billion of Charter Holdings units from Advance/Newhouse. Remaining board repurchase authority at year-end was $1.5 billion. Charter does not expect to pay cash dividends in the foreseeable future.
Material changes, outlook and risks
- Operating income and margins improved as revenue and Adjusted EBITDA grew and depreciation and amortization declined. Adjusted EBITDA growth was partly offset by higher costs to serve customers and mobile costs; sports-related expense reductions during the pandemic also benefited results.
- COVID-19 programs included free 60-day Internet service for eligible households and temporarily paused collections and disconnects. Charter recorded $102 million of waived receivables as a revenue reduction and $218 million of estimated customer credits related to canceled sporting events. Management cautioned that pandemic programs could contribute to incremental churn and bad debt in 2021.
- Mobile added $1.4 billion of revenue but reduced Adjusted EBITDA by about $401 million and free cash flow by about $1.1 billion in 2020. Management expected mobile Adjusted EBITDA to remain negative through 2021, with device-installment timing and store investment also weighing on free cash flow.
- Management expected 2021 cable capital expenditures to be relatively consistent with, or lower as a percentage of cable revenue than, 2020. No specific revenue or earnings guidance was provided.
- Charter won $1.2 billion in Phase I of the Rural Digital Opportunity Fund auction and expects a multi-billion-dollar fiber build over six to eight years. Timing depends on external factors, including utility-pole make-ready and permitting; missed program milestones could result in financial penalties.
- Key risks include intense competition, continued video and wireline voice customer losses, rising programming and retransmission-consent costs that Charter says it may not fully pass through, pandemic-related economic effects, network or cybersecurity disruptions, regulation and franchise renewals, and substantial debt and refinancing needs. About 13% of debt was variable-rate; the company also identified uncertainty from the planned phaseout of LIBOR.
- Legal matters include Sprint patent and trade-secret litigation and other intellectual-property claims. Charter said it was vigorously defending the matters; outcomes and potential loss ranges were not clear, and adverse outcomes could be material.
- Charter’s 2020 qualitative impairment reviews found no impairment of goodwill or franchises. These assets are significant: franchises were $67.3 billion and goodwill $29.6 billion at year-end.
Important facts for investors to verify
- Reconcile the growth in reported earnings and free cash flow with pandemic-related credits, temporary sports-cost reductions, working-capital effects and other nonrecurring factors.
- Track Internet and mobile customer additions, video and voice attrition, customer revenue per relationship, and whether mobile growth can improve profitability and cash flow.
- Assess the sustainability of the 4.0x–4.5x leverage target alongside debt maturities, interest costs, refinancing access, buybacks and planned network investment.
- Monitor programming-cost negotiations and the company’s ability to retain video customers while managing package pricing and retransmission fees.
- Follow RDOF construction milestones, spending, pole access and permitting, as well as the stated 2021 capital-expenditure outlook.
- Review the full financial statements and notes for debt covenants, legal contingencies, tax-loss limitations and other obligations; the filing’s summary disclosures do not resolve their ultimate outcomes.