Charter Communications, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; compared with the three months ended March 31, 2023. Charter is a broadband and cable operator serving more than 32 million customers in 41 states through its Spectrum brand. Figures below are in millions of dollars unless otherwise noted.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $13,679 | $13,653 | +0.2% |
| Adjusted EBITDA (non-GAAP) | $5,497 | $5,350 | +2.8% |
| Income from operations | $3,131 | $2,926 | +7.0% |
| Net income attributable to Charter shareholders | $1,106 | $1,021 | +8.3% |
| Diluted EPS | $7.55 | $6.65 | +13.5% |
| Operating cash flow | $3,212 | $3,323 | −$111 |
| Capital expenditures | $2,791 | $2,464 | +$327 |
| Free cash flow (non-GAAP) | $358 | $664 | −$306 |
Operating margin was approximately 22.9%, versus 21.4% a year earlier; Adjusted EBITDA margin was approximately 40.2%, versus 39.2%. Adjusted EBITDA and free cash flow are company-defined non-GAAP measures.
At March 31, 2024, cash and cash equivalents were $661 million. Debt carrying value was $97.965 billion (principal amount $97.777 billion), including $14.6 billion of credit-facility debt. Available credit-facility capacity was approximately $2.9 billion. Charter reported leverage of 4.4 times Adjusted EBITDA, against a stated target range of 4.0–4.5 times. Interest expense was $1.316 billion, compared with $1.265 billion; cash interest paid was $1.236 billion. Total assets were $148.044 billion and shareholders’ equity was $15.606 billion.
Business trends and year-over-year changes
- Revenue was nearly flat overall. Mobile service revenue rose 37.8% to $685 million, Internet revenue rose 1.9% to $5.826 billion, and advertising revenue rose 10.0% to $391 million. Video revenue fell 8.1% to $3.908 billion.
- Residential video customers declined by 1.149 million year over year to 13.111 million; total video customers were 13.717 million. Internet customers were nearly unchanged at 30.516 million, but Charter lost 72,000 Internet customers during the quarter. Mobile lines increased by 2.274 million year over year to 8.252 million, including 486,000 net additions in the quarter.
- Operating costs declined $115 million, principally due to $229 million lower programming costs, partly offset by higher mobile-related costs. Net income and EPS benefited from improved operating income and fewer weighted-average shares, among other factors.
- Operating cash flow declined despite higher Adjusted EBITDA, reflecting litigation-settlement payments and increased cash interest and taxes. Capital spending increased, contributing to lower free cash flow.
Outlook, management commentary and risks
- Management expects 2024 capital expenditures of $12.2–$12.4 billion, including approximately $4.5 billion for line extensions and $1.6 billion for network evolution. Q1 spending included $427 million on subsidized rural construction, with approximately 73,000 subsidized passings activated.
- Charter expects government subsidies for approximately 5.0 million current Affordable Connectivity Program (ACP) customers to end after May 2024 unless additional funding is provided. Management anticipates a one-time impact on customer net additions, revenue per customer and bad debt in Q2 and Q3, while it implements retention programs.
- Management cited competitive pressure, lower customer move rates and the end of new ACP enrollments as constraints on Internet customer growth. It highlighted Spectrum One, network upgrades toward symmetrical and multi-gigabit speeds, rural expansion, Xumo streaming devices and new content offerings as ongoing initiatives.
- Liquidity needs include substantial debt service and investment spending. Management said it believes cash, free cash flow, revolving-credit availability and capital-market access are sufficient for projected needs; refinancing timing and terms remain subject to market conditions. Charter expects to manage debt within its leverage targets.
- Risks include broadband and wireless competition; customer losses or reduced spending after ACP expiration; programming costs and content negotiations; regulation and subsidy-program compliance; network or information-system disruptions; and access to financing and compliance with debt covenants.
- Legal contingencies include intellectual-property litigation that could result in damages, injunctions or licensing costs; the company says it cannot predict outcomes or reasonably estimate a possible loss range. Other litigation and regulatory matters could be material in aggregate.
Unusual items and other disclosures
Q1 operating results included a $67 million gain on tower sales, contributing to a $38 million net benefit in other operating income/expense, versus $10 million of expense in Q1 2023. Free cash flow was also affected by a litigation-settlement payment; the filing does not state its amount. Treasury-stock purchases were $516 million, including share repurchases and employee tax withholding. The board had $263 million of remaining repurchase authority at quarter-end, excluding purchases from Liberty Broadband. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether ACP funding is extended and how its expiration affects customer retention, bad debt and revenue in Q2 and Q3.
- Whether Internet customer trends stabilize and mobile growth converts into sustainable revenue and margins.
- Delivery against the $12.2–$12.4 billion capital-expenditure outlook and the effect of elevated investment on free cash flow.
- Debt refinancing, interest costs, leverage and continued access to credit facilities and capital markets.
- Potential outcomes and financial exposure from intellectual-property litigation and government-program compliance matters.
- The contribution of the tower-sale gain and other non-recurring items to reported operating-income growth.