CHARTER COMMUNICATIONS, INC. annual report, FY2022

Charter Communications, Inc. — FY2022 Form 10-K

Reporting period: Fiscal year ended December 31, 2022; the filing provides annual results, not standalone fourth-quarter financial statements. Charter is a U.S. broadband and cable operator serving over 32 million customer relationships across 41 states under the Spectrum brand.

Key financial results

Amounts in $ billions unless otherwise noted. Growth and margins are calculated from reported figures.

Metric20222021Change
Revenue$54.02$51.68+4.5%
Operating income$11.96$10.53+13.6%; 22.1% margin vs. 20.4%
Adjusted EBITDA (non-GAAP)$21.62$20.63+4.8%; 40.0% margin vs. 39.9%
Net income attributable to Charter shareholders$5.06$4.65+8.6%
Diluted EPS$30.74$24.47+25.6%
Cash from operating activities$14.93$16.24Down $1.31
Capital expenditures$9.38$7.64Up $1.74
Free cash flow (non-GAAP)$6.10$8.68Down $2.58
Net interest expense$4.56$4.04Up $0.52

Revenue mix: Internet $22.22 billion (+5.3%); video $17.46 billion (−1.0%); voice $1.56 billion (−2.5%); commercial $6.98 billion (+3.5%); advertising $1.88 billion (+18.1%); mobile $3.04 billion (+39.7%). Mobile growth included both service and device sales.

Year-end liquidity and debt: Cash was $645 million, current assets $4.02 billion and current liabilities $12.07 billion. Approximately $4.0 billion was available under credit facilities. Principal debt was $97.4 billion, including $13.9 billion of credit-facility debt; reported leverage was 4.47x Adjusted EBITDA. The blended weighted-average debt rate was 5.1%, versus 4.5% a year earlier; approximately 15% of debt was variable-rate.

Material changes and operating trends

  • Internet customers increased by 344,000 during 2022; mobile lines increased by 1.728 million. Total customer relationships rose by 126,000, excluding mobile-only customers.
  • Residential video customers declined by 719,000 and wireline voice customers by 924,000. Video revenue fell despite price and product-mix increases.
  • Revenue growth reflected Internet, mobile and commercial customer growth, price adjustments, and higher advertising sales. Political advertising contributed to the advertising increase.
  • Operating costs rose $1.39 billion, led by $896 million higher mobile costs, $379 million higher customer-service costs, and $268 million higher marketing costs. Programming expense decreased $224 million as fewer video customers and lower-cost package mix partly offset contractual rate increases.
  • Free cash flow fell primarily because capital expenditures, cash taxes and cash interest increased. Charter said 2022 was its first meaningful federal cash-tax-paying year as most net operating losses had been utilized.
  • Charter repurchased approximately $10.1 billion of Class A shares in 2022, including shares withheld for taxes and exercise costs; it also bought $1.6 billion of Charter Holdings units from Advance/Newhouse. Class A shares outstanding fell to 152.7 million from 172.7 million.

Outlook, risks and unusual items

  • Capital investment: Management projected 2023 capital expenditures, excluding line extensions, of $6.5–$6.8 billion, plus approximately $4 billion for line extensions. Estimates depend on network upgrades, rural construction, supply timing and business growth.
  • Network and rural build: Charter plans multi-gigabit network upgrades, targeting substantial completion by year-end 2025. It expects to invest over $6 billion in rural expansion over several years to reach more than one million estimated passings; it spent $1.8 billion on rural construction in 2022. More than $1.7 billion in grants had been awarded through year-end, subject to build-out milestones and potential penalties for noncompliance.
  • Mobile economics: The mobile business added $3.0 billion of revenue but reduced Adjusted EBITDA by approximately $343 million and free cash flow by approximately $1.1 billion in 2022. Management expects mobile EBITDA and cash-flow impacts to remain sensitive to customer-acquisition costs, device-installment cash timing and CBRS investment.
  • Competition and costs: Key risks include fiber and fixed-wireless broadband competition, ongoing video substitution, programming and retransmission-consent cost inflation, and the ability to pass cost increases to customers. Management also cites vendor dependence, cyber and service-disruption risks, regulation, and access to capital markets.
  • Contingencies: A Texas jury initially awarded $7.0 billion in punitive damages in a wrongful-death case; the judgment was subsequently reduced, and a tentative settlement was reached in January 2023 for substantially less than the reduced judgment and within insurance coverage. It was not yet finalized in the filing. A separate shareholder lawsuit also had a tentative settlement pending court approval. Charter said it did not expect the other described investigations to have a material effect; intellectual-property claims remain difficult to estimate.
  • Other items: Charter invested $271 million in 2022 toward a $981 million non-cancelable commitment for its 50/50 Xumo streaming joint venture with Comcast. The Affordable Connectivity Program was expected to exhaust funding at some point in 2024, creating uncertainty for eligible customers and related revenue.
  • Reporting and audit: KPMG gave unqualified opinions on the financial statements and internal control over financial reporting. The auditor identified residential and commercial revenue testing as a critical audit matter because of the volume of data and multiple IT systems.

Investor verification priorities

  • Track broadband customer additions, churn and competition, and whether Internet and mobile growth can offset continued video and voice declines.
  • Compare actual 2023 capital spending with the stated ranges, especially rural line extensions, and assess build-out progress, grant receipts and milestone compliance.
  • Monitor free cash flow after mobile investment, rising cash taxes and interest costs; reconcile the company’s non-GAAP free-cash-flow measure to operating cash flow and capital expenditures.
  • Review debt maturities, refinancing terms, variable-rate exposure and leverage against Charter’s 4.0–4.5x target; consider the substantial ongoing share repurchases alongside debt and investment needs.
  • Confirm the final outcome and financial treatment of the Texas litigation and shareholder settlement, and assess whether insurance fully covers the finalized Texas settlement.
  • Monitor programming-cost renewals, ACP funding status, rural grant conditions, and the timing and cost of planned network upgrades.