Charter Communications, Inc. — Q2 2023 Form 10-Q
Business context and reporting period. Charter is a broadband and cable operator serving more than 32 million customers in 41 states. This unaudited filing covers the three and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Charter reports one consolidated operating segment.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $13.659bn | $13.598bn | $27.312bn | $26.798bn |
| Adjusted EBITDA (non-GAAP) | $5.522bn | $5.509bn | $10.872bn | $10.722bn |
| Income from operations | $3.240bn | $3.227bn | $6.166bn | $5.998bn |
| Net income attributable to Charter shareholders | $1.223bn | $1.471bn | $2.244bn | $2.674bn |
| Diluted EPS | $8.05 | $8.80 | $14.69 | $15.66 |
| Operating cash flow | $3.311bn | $3.734bn | $6.634bn | $7.381bn |
| Capital expenditures | $2.834bn | $2.193bn | $5.298bn | $4.050bn |
| Free cash flow (non-GAAP) | $668m | $1.659bn | $1.332bn | $3.459bn |
Q2 Adjusted EBITDA margin was approximately 40.4% versus 40.5% a year earlier; operating margin was approximately 23.7% in both periods. Q2 net income attributable to Charter fell about 17%, while diluted EPS declined about 9%. These non-GAAP measures are defined by the company and should not be treated as substitutes for GAAP results.
At June 30, 2023, cash was $478m. Debt principal was $97.760bn ($97.970bn carrying value), including $14.591bn of credit facilities. Charter reported approximately $3.2bn available under its credit facilities and leverage of 4.5 times Adjusted EBITDA. Total current assets were $3.929bn and current liabilities $11.975bn.
Material changes versus prior comparable periods
- Q2 revenue rose 0.5%; first-half revenue rose 1.9%. Internet revenue increased 3.1% in Q2 and 4.0% in the first half, while mobile service revenue grew 29.8% and 29.1%, respectively.
- Video revenue declined 6.6% in Q2 and 4.4% in the first half; advertising revenue declined 16.5% and 12.3%. Residential video customers fell by 782,000 year over year, while residential Internet customers increased by 290,000 and mobile lines by 2.276m.
- Operating costs rose $112m in Q2 and $489m in the first half. Lower programming costs partly offset increases in mobile-related costs, customer service, sales and marketing, and stock compensation.
- Net interest expense increased $189m in Q2 and $394m in the first half, reflecting higher average interest rates and debt outstanding. Other income/expense also weakened, principally due to losses on equity investments, primarily the Xumo joint venture.
- First-half free cash flow fell $2.127bn, driven chiefly by $1.248bn higher capital expenditures and $424m higher cash taxes, alongside working-capital and interest impacts. First-half treasury-stock purchases were $1.238bn, versus $7.020bn in 2022.
Outlook, commentary, risks and unusual items
- Management expects 2023 capital expenditures, excluding line extensions, of $6.5bn–$6.8bn, plus approximately $4bn for line extensions. Actual spending depends on network plans, supply-chain timing and business growth.
- Management says liquidity is sufficient for projected needs, using cash, free cash flow, revolving credit availability and potential refinancing. Its target net leverage remains 4–4.5 times Adjusted EBITDA; it expects debt may increase as EBITDA grows to maintain that range. No specific revenue or earnings guidance is provided in the filing.
- Charter added 648,000 mobile lines, 77,000 Internet customers and 17,000 residential and SMB customer relationships in Q2. It is investing in customer service, network upgrades, rural expansion and mobile; it plans multi-gigabit network speeds over the next three years. Rural construction spending was $541m in Q2 and $932m in the first half.
- Key risks include intense broadband and wireless competition, video-customer losses, programming costs, high leverage and refinancing needs, interest rates, substantial capital requirements, mobile-device working-capital needs, regulatory matters, and execution of network and rural build-outs. The filing reports 229,200 accounts more than 120 days past due, versus 97,200 a year earlier, mainly associated with customers in government assistance programs.
- In February, subsidiaries issued $1.1bn of 7.375% senior unsecured notes due 2031; a $750m Term B-3 loan due 2030 was also established at SOFR plus 2.25%. Floating-rate notes due 2024 transitioned from LIBOR to SOFR beginning July 1, 2023.
- A long-running shareholder lawsuit was settled and dismissed in June, with a net payment to Charter; a separate Texas case was also settled and dismissed. Intellectual-property litigation remains, and the company says adverse outcomes could be material but cannot estimate a possible loss range. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported.
Investor verification priorities
- Track whether Internet and mobile growth can offset continuing declines in video, voice and advertising, and assess customer additions alongside revenue per customer.
- Monitor free cash flow, capital spending, taxes, working capital and device installment-plan cash flows against the stated 2023 capital expenditure outlook.
- Review debt maturities, borrowing costs, refinancing access, covenant headroom and leverage, especially given the 4.5-times reported leverage ratio.
- Assess whether rising mobile and customer-service costs, rural construction and network upgrades produce sustainable operating returns.
- Follow aged receivables and the outcome of intellectual-property and other legal matters; the filing does not quantify a potential loss range for the IP claims.