Charter Communications, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to Charter's first quarter 2020 investor call. At this time, all participants are in a listen-only mode, and after the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require further assistance, please press star 0. I'd now like to hand the conference over to your speaker today. Stephan Aniger, please go ahead.

Good morning, and welcome to Charter's first quarter 2020 investor call. The presentation that accompanies this call can be found on our website, ir.charter.com, under the financial information section. Before we proceed, I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, including our most recent 10-K and also our 10-Q filed this morning. We will not review those risk factors and other cautionary statements on this call. However, we encourage you to read them carefully. Various remarks that we make on this call concerning expectations, predictions, plans, and prospects constitute forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management's current view only and Charter undertakes no obligation to revise or update such statements or to make additional forward-looking statements in the future. During the course of today's call, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. These non-GAAP measures, as defined by Charter, may not be comparable to measures with similar titles used by other companies. Please also note that all growth rates noted on this call and in the presentation are calculated on a year-over-year basis unless otherwise specified. On today's call, we have Tom Rutledge, Chairman and CEO, and Chris Winfrey, our CFO. With that, let's turn the call over to Tom.

Thank you, Stephan. First, on behalf of all of us at Charter, let me express our concerns for those who've been impacted by the COVID-19 crisis in the local communities we serve, as we endure together an extremely serious health, social, and economic crisis. The hard work and dedication of Charter's 95,000 employees has been remarkable. We're all proud of how we're serving our customers at this time. Charter's employees are in trucks in the field, call centers, dispatch network operation centers, their homes, and retail stores, where we provide customer equipment and numerous support functions that enable our company to service our customers. We've remained focused on our customers and communities and we've been able to deliver our connectivity services without interruption to our customers across the country. We know our role as a provider of communication services and the importance of keeping connectivity services fully functioning for both new and existing households and businesses, which enables social distancing, including remote working, distance learning, telehealth services, and family communications. In mid-March, as part of our effort to keep America connected during this crisis, we pledged to do a number of things. We committed to offer Spectrum Internet for free for 60 days to households with students or educators who do not already have a Spectrum Internet subscription. We recently announced that we were extending the availability of this offer through June 30th. As of March 31st, we added approximately 120,000 customers connected under this offer, with many more installed in April. By the end of the school year, we expect that this offer will have helped approximately 400,000 students and teachers and their families continue schooling through remote learning. For 60 days, we also committed to suspend collection activities, not terminate service for residential or small or medium business customers who are experiencing COVID-19-related economic challenges. We also extended the availability of this offer to June 30th. Additionally, we've opened our Wi-Fi hotspots across our footprint for public use, and we prioritized over 1,000 requests from government, healthcare, and educational institutions for new fiber connections, bandwidth upgrades, and new services. That includes major hospital groups and the two U.S. Naval hospitals in New York and Los Angeles. And Spectrum News has opened its websites to ensure people have access to high-quality local news and information. We've also donated significant airtime to run public service announcements to our full footprint of 16 million video subscribers. Charter provides essential service, and we've been working to keep America connected, working and learning, while at the same time protecting our employees. We've instituted guidelines in our call centers that enhance social distancing between employees, including enabling a significant percentage of those employees for remote work. We've also altered our field operations protocol by aggressively moving to customer self-installation. So while we continue to operate at nearly full capability, we're taking the necessary precautions to promote the safety of our employees. We're also providing our employees with outstanding benefits. We've implemented an additional two weeks of paid sick time for COVID-related illnesses or when we ask an employee to self-quarantine. We've given every employee an additional 15 days of COVID-19-related flex time to address other COVID-related issues, including caring for children and dependents. In early April, we increased our wage for all hourly field operations and customer service call center employees by $1.50 per hour back to February. We also committed to raising our minimum wage for hourly workers to at least $20 an hour over the next two years. Employees in parts of our business, like residential and SMB direct sales, whose work has been put on hold. And to reinforce our commitment to employees, we announced that for 60 days, no employee will be laid off or furloughed. We have a great business with employees committed to our mission, and that will ensure that we're able to excel through the eventual economic recovery. We continue to perform well operationally, both through the end of the Q1 and now. In the first quarter, we added 580,000 residential and SMB Internet customers. We had a good quarter, driven by demand for our higher-quality products. We also saw an increase in the number of residential and business customers upgrading their speeds. Our ability to provision the outsized demand we saw in the quarter has been a result of the investments that we have made over the last several years in our insourced and onshore high-quality workforce, significant systems integration and automation, our online and digital sales and self-service platforms, and our self-installation program. In fact, we accelerated the expansion of our customer self-installation from 55% of sales at the beginning of the quarter to nearly 70% at the end of the quarter to over 90% today. Data usage and traffic on our network also grew significantly during the quarter. In March, residential data usage for Internet-only customers was over 600 gigabytes per month, up over 20 percent since the fourth quarter. Our customers are benefiting from a continually decreasing price per gigabit. Peak traffic levels remain well below maximum capability. Our network, as well as those of other cable operators in the U.S., have performed better than networks in other countries because of the significant investments we've made and continue to make in our plant, like the recent rollout of 1GIG everywhere. The pro-investment regulatory climate has made this possible. Over the coming years, we'll invest in our network as we build to lower density in rural communities and pursue our 10G plan, which provides a cost-efficient pathway for us to offer multi-gigabit speeds, lower latency, high compute services to consumers and businesses' customers. With our inside-out strategy, we will continue to use and develop small wireless cells powered by our network together with our MVNO to connect customers in and beyond the home, delivering our throughput and economics for customers in fixed, nomadic, and mobile environments. Our strategy will be enhanced by the FCC recently freeing up 1,200 megahertz of 6 gigahertz spectrum for Wi-Fi. The FCC's action is a transformational step toward broadband in America. It was a bold move, and we look forward to making significant use of the spectrum. Moving back to Q1 results, we also performed well from a financial perspective during the quarter. We grew adjusted EBITDA by 8.4%, and combined with our lower cable capital expenditures, our first quarter free cash flow grew by over 100% year over year. As we look forward, we would expect that demand for our residential broadband product will remain strong as people work and learn from home and need to stay connected. Broadly speaking, the health of our residential business will be impacted by what happens to unemployment and income and how long and the impact that such factors will have on customers' ability to pay for service in the coming months, including government support to consumers. Slowing household formation may also play a role in our ability to drive new customer growth by slowing activity for both new sales and also churn. We also recognize that the recent strength in video and wireline voice trends may be temporary due to lockdowns in reverse in an economic downturn. So, our SMB business is more difficult. We serve approximately 2 million SMB customers, and many of those customers are currently closed, at least temporarily. As a result, S&B customer growth and revenue growth will be lower than our previous expectations. It will likely take time for this part of our business to recover, but it will, and maybe with a faster growth rate than before the crisis. I expect our enterprise business to remain more stable than S&B. Enterprise customers are larger, and most but not all will be able to stand the recession more than smaller businesses that have less liquidity. But our expectations for enterprise customers and revenue growth have also been tempered. as enterprise customers with complex products are less likely to switch and grant installation access in this environment. Our advertising business is inherently local and primarily supported by small and medium businesses, which have been hurt in the crisis. But we still expect political advertising to be meaningful, which will help us, particularly in the back half of the year. So clearly our revenue growth rate will be less than what we anticipated, but As service transactions and sales slow for the market as a whole and customer adoption of self-service accelerates, there are a number of operating cost improvements and capital expenditure delays that will help cash flow growth now and in the future. We also believe that on a relative basis, we're in a far better position than most companies as the value of demand for our service is significant and we're operating efficiently and serving our communities well as we always have in a crisis. Chris will cover the potential impacts to our 2020 financials and reporting in more detail, but I want to be clear that while we don't know the depth and duration of the economic impacts of social distancing, we've pressure tested our business model, our liquidity and balance sheet through various scenarios. Our analysis confirms what we have always believed, that we remain well positioned. Overall, we fully expect to be in good shape over the long term, and we believe our business will continue to do very well given the assets and products we have and the continued investment in those assets, our customers and our employees. Before turning the call over to Chris, I'd like to thank Charter's employees for their hard work and dedication and diligence through this crisis. They've been asked to go well above and beyond their regular duties, and they've delivered, easing the strain for millions of families. The positive feedback we've received from our customers is very gratifying. and we continue to treat our customers with respect, compassion, and support, and continue to deliver great products and services, we'll come out stronger on the other side of this crisis. We still have a lot of work in front of us, but I'm heartened by how we've risen to the challenge and know that we'll continue to deliver for our customers and for America, regardless of what comes our way. I'd also like to send my regards and best wishes to all of those listening to this call. May you and your families remain safe and healthy. Now I'll turn the call over to Chris.