Charter Communications, Inc.

Gentlemen, this is the operator. Please stand by. Today's conference will begin momentarily. Until that time, your lines will be again placed on a music hold. Thank you for your patience. Good day, and thank you for standing by. Welcome to Charter's first quarter 2021 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. If you require any further assistance, please press star 0. I'd now like to hand the conference over to your speaker today, Stefan Anninger. Please go ahead.

Good morning and welcome to Charter's first quarter 2021 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 file 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.

Thanks, Stephan. We continue to execute well in the first quarter, even in an environment with lower consumer move activity. We added over 300,000 customer relationships during the quarter with growth of 5.8% year over year. We also added 355,000 Internet customers in the quarter and 2 million over the last year for a year-over-year growth of 7.3%. We added 300,000 mobile lines, and we grew our adjusted EBITDA by 12.5%, and our free cash flow by nearly $500 million for 35%. COVID has continued to have an impact on our operations, but as the economy reopens and normal activities resume, we expect more sales opportunities to develop during the second half of the year, and we remain confident in our ability to grow our customers' EBITDA and free cash flow at healthy rates given the investments we've made in our network, which enable us to offer superior products and services. While the last year has focused on our successful operations and execution through the pandemic, May 18th will mark the fifth anniversary of the closing of our transaction to acquired Time Warner Cable and Bright House Networks. Since then, we've added more than 7 million Internet customers, and our annual EBITDA has expanded from $13.6 billion to over $19 billion. And our enterprise value has increased by $100 billion. Since the start of 2016, we've invested over $40 billion in infrastructure and technology. And over the last five years, we've extended serviceability to approximately 5 million homes and businesses. We've also committed to extending our network to reach more rural areas. Over the next six years, we expect to spend at least $5 billion offset by $1.2 billion in RDOF subsidies to reach over 1 million unserved consumer locations with gigabit Internet speeds. And we're actively exploring additional opportunities to further expand our rural build potential. Since our transactions closed, we've also enhanced the quality and efficiency of our operations. We've hired thousands of new employees into good jobs by bringing all of our work back to the U.S., and we committed to a minimum wage of $20 per hour to provide the best service possible, which fuels our growth. Since close, we've prepared the launch of mobile broadband products at scale, and our customers now have the fastest and least expensive mobile and wireline broadband products available in the market. Importantly, we continue to improve our connectivity products as demand for data in the home continues to grow at a very rapid pace. During the first quarter, we continued to see significant growth in data usage per Internet customer. On average, non-video customers used about 700 gigabytes per month in the first part of the quarter. And for the full quarter, average usage by non-video customers was up nearly 20% year over year. Close to 20% of our non-traditional video Internet customers now use a terabyte or more of data per month. The growth in demand for data is and will be driven by a number of factors, including the growth in IP video services, including video conferencing and gaming, also the growing number of IP devices connected to our network, which now totals nearly 450 million devices, and new and emerging products and services that are being developed as we speak, such as e-learning or telemedicine and 4K, virtual reality or holographic formats, for example. We're continuously increasing the capacity in our core and hubs and augmenting our network to improve speed and performance at a pace dictated by customers and the marketplace. We have a cost-effective approach to using DOCSIS 3.1, which we've already deployed, to expand our network capacity to 1.2 gigahertz, which gives us the ability to offer multi-gigabit speeds in the downstream and at least one gigabit per second in the upstream. In additional, In addition, we have DOCSIS 4.0 and other emerging technologies to cost-efficiently offer multi-gigabit speeds in both the downstream and in the upstream, serving the heavy data usage needs of our customers with quality connectivity services. While we have a great network asset, which is fully deployed and has a capably efficient path to deliver even higher capabilities, Our strategy is founded on saving customers money while providing state-of-the-art products. Mobile and wireline broadband are converging into a single connectivity service package, which is delivered over a combination of mobile and fixed networks. Our share of household connectivity spend, including mobile and fixed broadband, is low, and we remain very much underpenetrated relative to our long-term opportunity. An average household served by the big three mobile broadband competitors with two plus lines of mobile broadband and wireline broadband spends approximately $200 a month on its telecom services. Today, Charter only generates $33 a passing and $65 a customer of that $200 of combined monthly spend on mobile and wireline broadband service. By choosing Charter as their full-service connectivity provider, Customers can save hundreds, even thousands of dollars per year with better product capabilities and service. And so our goal is to do the same with mobile in our service area as we did with Wireline Voice, where we made Charter the predominant Wireline phone carrier by reducing consumer telephone bills by over 70%. Meaning Charter can grow for a long time because we remain underpenetrated and our growth will reduce customer costs. Now I'll turn the call over to Chris.

Thanks, Tom. Before getting into the details of the quarter, a few comments regarding our outlook and reporting. On last quarter's conference call, I spent some time walking through the outlook for 2021. That commentary related to our customer and financial growth expectations given the difficult comparability to prior year results due to the effects of COVID in 2020. Those comments were intended to help investors update their models for 2021 and understand the backdrop for what should be a very good 2022. So while I won't repeat everything I said on the last earnings call, our outlook in general has not changed. 2019 remains the better customer growth comparison for 2021, where we expect internet and customer relationships to be at or above 2019 net additions. And we will continue to reference the COVID schedules we provided last year and include it again on slides 17 and 18 of today's presentation to help with the year-over-year financial comparisons. Secondly, bundle allocation rules as required by GAAP continue to have a significant impact on our residential internet, video, and voice product revenues. Because of the declining utility of individual product revenues to investors, it's likely that at some point we'll collapse all residential product revenues into one residential revenue line. Turning to our results on slide five. Customer activity levels in the marketplace, specifically move churn and non-pay churn, have still not returned to normal levels, which means, on the one hand, we benefit from the lower operating expense from reduced service transactions and significantly lower bad debt, but it also means there are fewer selling opportunities in the market generally. Those trends are on a slow path to normalization. Despite a lower sales environment, we continue to gain share across our footprint and we remain the shared leader in Internet in all of our markets, regardless of competing infrastructure. We grew total residential and SMB customer relationships by over 1.7 million in the last 12 months and by 302,000 in the first quarter. Including residential and SMB, we grew our Internet customers by 355,000 in the quarter and by 2 million, or 7.3%, over the last 12 months. Video declined by 138,000. Wireline voice declined by 88,000. and we added 300,000 higher ARPU mobile lines. In residential internet, we added a total of 334,000 customers in the quarter, lower than the 398,000 that we gained during a strong first quarter in 2019 for the reasons I mentioned. Our residential video customers declined by 156,000, consistent with the loss of 152,000 we saw in the first quarter of 2019. In wireline voice, we lost 102,000 residential customers in a quarter, also similar to the loss of $120,000 in the first quarter of 2019. Turning to mobile, we added 300,000 mobile lines in the quarter. And as of the end of the quarter, we had 2.7 million mobile lines with a good mix of both unlimited and by-the-gig lines. We continue to be pleased with the results and trajectory of Spectrum Mobile, with less EBITDA loss per line as the business scales to expected standalone profitability. Over the last year, we grew total residential customers by 1.6 million or 5.8%. Residential revenue per customer relationship declined by 0.5% year-over-year, given a higher mix of non-video customers, a higher mix of choice, essentials and stream customers within our video base, lower pay-per-view and video-on-demand revenue, and lower installation revenue given higher self-install rates. Keep in mind that our residential ARPU does not reflect any mobile revenues. As slide 6 shows, residential revenue grew by 5.8% year-over-year, reflecting customer relationship growth. Turning to commercial, SMB revenue grew by 1.6%, a bit faster than last quarter's growth. Enterprise revenue was up by 2.5% year-over-year, also a bit better than last quarter, and grew by 7.2%, excluding wholesale revenue. Enterprise PSUs grew by 2.8% year-over-year. First quarter advertising revenue declined by 5.8% year-over-year due to less political revenue. Our nonpolitical revenue grew by 5.3% year-over-year, primarily due to some COVID impacts late last March and our growing advanced advertising capabilities. Other revenue declined by 2% year-over-year, driven by lower late fees, partly offset by higher RSN revenue. Mobile revenue totaled $492 million, with $228 million of that revenue being device revenue. In total, consolidated first quarter revenue was up 6.7% year-over-year. Moving to operating expenses on slide seven. In the first quarter, total operating expenses grew by $235 million, or 3.2% year-over-year. Programming increased 3.3% year-over-year due to higher rates offset by a higher mix of lighter video packages, such as Choice, Essentials, and Stream, and lower pay-per-view expenses year-over-year, tied to the lower pay-per-view revenue I mentioned. Regulatory connectivity and produced content grew by 8.9%, driven by more Laker games than normal this quarter, resulting from the delayed start to the NBA season, combined with fewer games in the prior year period, when sports leagues played fewer games due to COVID. Excluding those sports rights costs related to our RSNs, this expense line item grew by 2.1% year-over-year. Cost-of-service customers declined by 2.4% year-over-year compared to 5.8% customer relationship growth. The decline was driven by $100 million in lower bad debt, which continues to benefit from record payment trends similar to 2020, though our expectation remains that bad debt trends should normalize over the course of this year. Going the other direction, we saw pressure from outsized hourly wage increases that we put through in March of last year and again in March of this year, which we've discussed previously and relate to our commitment to reach a $20 minimum starting wage in 2022. Excluding bad debt, cost to service customers grew by 3.2% year over year, including the minimum starting wage increase and reflecting the 5.8% relationship growth. Marketing and sales expenses declined by 2% year over year, Mobile expenses totaled $572 million and were comprised of mobile device costs tied to device revenue, customer acquisition, and service and operating costs. And other expenses declined by 5.5%, primarily driven by a non-recurring adjustment to bonuses related to COVID. Adjusted EBITDA grew by 12.5% in the quarter. Excluding mobile and bad debt in both years, our EBITDA growth rate would have been 3.6 percentage points lower. Turning to net income on slide eight, we generated $807 million of net income attributable to charter shareholders in the first quarter versus $396 million last year. The year-over-year increase was primarily driven by higher adjusted EBITDA. Turning to slide nine, capital expenditures totaled $1.8 billion in the first quarter, an increase of $360 million year-over-year driven by higher scalable infrastructure spend, primarily related to augmentation of our network capacity at our normal pace for customer growth and usage, with incremental spending to reclaim the network headroom we maintained prior to COVID. We also spent more on line extensions due to continued network expansion, including to rural areas. This does not include any yard-off spend, which we will incur and start to disclose later this year. The cost of build-outs tends to be front-loaded, with design, make-ready, and construction before passings are activated. So we'll take well into next year before our construction cadence lets any cost-per-passing metric to be meaningful. We spent $112 million on mobile-related CapEx this quarter, which is mostly accounted for in support capital and was driven by investments in back-office systems and mobile store build-outs. For the full year of 2021, we expect cable capital expenditures, excluding any RDOF investments, to be relatively consistent as a percentage of cable revenue versus 2020. As slide 10 shows, we generated $1.9 billion of consolidated free cash flow this quarter, an increase of 35% year-for-year. We finished the quarter with $84.3 billion in debt principal, and our current run rate annualized cash interest pro forma for financing activity completed in April is $4 billion. As at the end of the first quarter, our net debt to last 12-month adjusted EBITDA was 4.38 times. and we intend to stay at or just below the high end of our four to four and a half times leverage range. During the quarter, we repurchased 6.3 million shares, charter shares, and charter holdings common units, totaling about $4 billion at an average price of $627 per share. Since September of 2016, we've repurchased $43 billion worth 34% of charter's equity at an average price of $408 per share. Turning to taxes on slide 13, we don't anticipate becoming a meaningful federal cash taxpayer until 2022, and we expect the bulk of our existing NOL to be utilized by the end of this year. Subject to any corporate tax rate changes for the years 2022 to 2024, we expect our federal and state cash taxes to approximate our consolidated EBITDA, less our capital expenditures, and less our cash interest expense, multiplied by 23% to 25%, with the tax rate in 2022 to be a bit lower than that range, given some carryover tax attributes. That estimate includes partnership tax distributions to advance new house, which are captured separately in cash flows for financing in the financial statements. There are multiple factors that impact what I just described, and we're always looking for ways to improve our cash tax profile. Our operating model of growing by saving customers money Our network capabilities now and in the future and our balance sheet strategy all work together over long periods of time. And we expect our results to reflect a growing infrastructure asset with a lot of ancillary products to use for and sell on top of our core connectivity services with good value and service to our customers to grow cash flow with tax-advantaged levered equity returns. Operator, we're now ready for Q&A.

At this time, I'd like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. And we'll pause for just a moment while we compile the Q&A roster. Our first question comes from the line of Doug Mitchelson with Credit Suite. Go ahead, please. Your line is open.

Oh, thanks so much. Good morning. One for Tom, one for Chris. Tom, I feel like you threw down the gauntlet a bit on fixed wireless convergence issues. you know, fixed wireline conversions, I think the, you know, including the entire mobile market in your target market of $200 a home of telecom spending, does your commentary suggest a more aggressive posture regarding wireless marketing? You already have a pretty healthy, you know, growth pace of lines already. And when you look out five or ten years, if that's where the market is headed, I know you've been asked this, you know, asked and answered in the past, but wouldn't that suggest at some point you need owner's economics to on the wireless side to match up with what you have on the wireline side. And then, Chris, can you talk about the returns investors should expect on the $5 billion of build-out CapEx or the $3.8 billion net CapEx spend over the next five years? Thank you both.

Sure. So, Doug, yeah, I think that our opportunity over a multi-year period is significant, and I think that we have an opportunity to When you look at the penetration of those mobile products, we have an opportunity to continue to grow rapidly, and so we are moving to make sure that happens in terms of the way we position and sell our products and in terms of their both product attributes and the price that we charge. The purpose of that exposition on how much telecom spin there is is just to show that there's lots of runway in front of us and a significant market opportunity there for us to create value for charter while at the same time creating value for consumers. In terms of convergence, you know, we already are moving toward convergence in many ways, and we have owner's economics in many ways, and we also have... a good relationship as an MVNO. The owner's economics we get are in the CBRS spectrum that we purchased and its deployment in the Wi-Fi network that we've deployed and the traffic that we carry over it. And there's continued opportunities to take advantage of that in the near term and the long term to create additional value for our customers and for the company's cost structure.

On the RDOF spend, Doug, the way we think about that $5 billion just in phase one of RDOF, we think there may be more opportunities over time, either through federal programs or through what we call white space areas that might be a product of the additional rural investing that we make that open up new opportunities. But when you think about this in terms of project financing, you know, these opportunities construction projects have a much higher cost per passing than what we've typically built, and they have a longer payback. But as a result of them being as expensive as they are, we have a real high confidence in our ability to penetrate these markets with a broadband service that's needed and desired. And so what that means is, together with low-risk assumptions on our part, you can have pretty high confidence in terms of what the financial model is going to look like both from a cost and revenue perspective over time. So I think I've mentioned in the past that we'd expect the payback, the cash from cash payback for these type of projects to be double digits in terms of years. So, you know, over 10 years. But the IRR can be, you know, mid-teens. And so we think that's attractive investment with a low risk in terms of our ability to achieve those types of returns. What we haven't factored into any of that is what is that open for additional building opportunities on the edge of those networks, as well as some of these rural communities, by having broadband, can actually have more fill-in or become more suburban-like, which could open up opportunities which aren't built into our model. We think it's consistent to build this way. It's part of our strategy, and we think it's the right thing to do for the extended communities that we serve, and we think it's attractive for shareholders as a way to continue to for our broadband footprint over time. So another alternative way to think about it is when you think about those type of economics, it's actually not that different from cable M&A at a point in time where there just hasn't been, unfortunately, as much cable M&A that we would have liked to have done.

Great. Thank you.

James, we'll take our next question, please. Our next question comes from the line of Ben Swinburne with Morgan Stanley. Go ahead, please. Your line is open.

Thanks. Good morning. Tom, I was wondering if we could get your perspective. This came up on yesterday's Comcast call on sort of the consumer demand and opportunity for Charter to offer symmetric products and sort of the need for the network to offer a symmetric service and kind of how you get there. You touched on 3.1 and 4.0 in your prepared remarks, but if you could give us a little sense of the path and timeline in your mind and I guess the cost, whether it would move capital intensity around enough that we would notice And then I was just wondering, Chris, you know, this sort of subdued activity level we're seeing, which is helping bad debt, hurting gross ads, I know it's impossible to know, but could this end up sort of lasting through the year? I mean, it seems like, you know, even though we're seeing vaccinations ramp back up, you know, we're seeing this across a lot of companies, this churn is at, like, record lows, like unusually low levels. I'm just wondering if you're seeing any signs that things are normalizing or if that's just an expectation you have. Thank you, guys.

So, Ben, the issue of capacity and where it's needed and how it's used is a complicated discussion, but basically our view is that if you think about the way networks are used and, you know, I said people are using 700 gigs a month in the presentation today, and a lot of our customers are using over a terabyte per month, most of that is television being delivered through IP to households. And the actual upstream usage is quite sufficient for all the current uses that we have. So we don't have an immediate need to expand the capacity of the plant. And the plant is actually used in a very asymmetric way by the products that are currently on it. And we don't see that changing in the near term, but we do have the capability from a technical perspective to upgrade our network based on changing market dynamics, however they may develop in terms of how products develop. We don't, you know, see an immediate need to do that, but we do think our network from a competitive point of view is well positioned from a capital intensity perspective to make those upgrade costs at much lower cost than alternative means. And so we think that we're positioned to grow in the marketplace in a very efficient way and, and serve products that we need to serve up based on the way the market develops. But today, um, we should continue to operate our network with more capacity downstream than upstream.

Ben, on the lower level of activity, it's true it's normalizing slightly slower than what we would have expected or hoped for. You know, like I said in the prepared remarks, the benefit is that we have really significant EBITDA growth as a result of last year's subscriber growth and this year, this quarter's subscriber growth, compounded by the lower level of activity in the marketplace, which is driving down transaction costs and churn and bad debt, which produces an outsized temporary financial result. Our preference would be to put a little bit of pressure on those financial results by increasing our sales and marketing through commissions and through normalizing the market through a higher level of move activity, which opens up additional selling opportunities for us as a share taker. As a share-taker, we'd like to be on the offensive and to acquire customers and save them money. And that opportunity is what contributes to net ads and what contributes to short-term financial pressure to have a higher long-term EBITDA and free cash flow. We have seen the market slowly coming back, and so it is moving in the right direction. It's just not moving as fast as some of us would like. That includes from move-turn, slight, you know, not as much on non-pay because of all the subsidy that's out there today, which is a different topic. But I think it's going to start getting back to normal here pretty quick. A lot of us who have been in the office every day through the pandemic, we're just noting this morning that the pickup in traffic, even in the New York and Connecticut area, is pretty symbolic in terms of normalizing things. We think that will continue to take place across the rest of the country, and we're optimistic about our ability to sell and net add through the rest of the year.

Thank you. Thanks, Ben. James, we'll take our next question, please.

Our next question comes from the line of Brett Feldman with Goldman Sachs. Go ahead, please. Your line is open.

Thanks. I'm going to kind of stick with a similar theme. I appreciate that. moves creates a lot of jump balls for the company. But, you know, you only serve half the households in your footprint. The vast majority of those you don't serve, I think, are poorly served, and that's probably becoming increasingly apparent to them. Does the math on marketing dollars become more favorable, meaning looking to potentially force the issue of it as opposed to just waiting for a natural shift in volumes in the market? And then also, I'm curious, how significant is an assumption that that sort of reverts to normalize levels in terms of thinking about the margin profile of the company this year. And the reason I ask you, it would seem like all the things going on in the background are favorable to bad debt, whether it's an expectation that the economy is going to continue to recover and also just the government continuing to show a prioritization and making sure that people not only have access to good broadband, but are able to sustain that access, including through additional subsidy programs. It all just seems to be moving in your favor from a bad debt standpoint. Thanks.

So two separate topics. One, and I'm not sure if Tom would differ, but we feel we're pretty aggressive on the sales and marketing side, and to the extent that we could be more aggressive and we thought that it would have the ability to add more subscribers, we would do it. And so we're always looking for that, and we're not afraid to spend if we think we can drive customer acquisition there. Some of the difficulty is that you're digging out customers and they're inert. And so you have to keep coming back and back and back. And as attractive as our products are and as much as we can save customers money, it takes a while to prime loose. And it's disruptive to swap out one, if not all, of your services in the household. And despite the economics that we can provide and the better quality speeds and service, it just takes a little bit of time. But we're always looking for ways to be more aggressive and As Tom mentioned, I think mobile, because of the additional outsized amount of dollars that we can save customers, is a really interesting tool together with the combined benefits of a product set that we can provide that most cannot. I agree with that. Okay. Good. Good for me. Bad debt. Look, there's a bull case that the market could start to move and our selling opportunities could increase, which would drive higher commissions and transaction costs to acquire and provision and install these customers. And the bull case would be at the same time you have that because the level of subsidy that is out in the marketplace and might continue, that our bad debt could remain low and it could actually open up, those subsidies could open up portions of the market from an affordability standpoint that could drive more sales And so could you end up with the best of both worlds? Maybe, but that's not something that we're betting on. It's an environment we've never really seen before, and that's not factored into any of the kind of outlook or forward-looking statements that were provided. I don't think we want to depend on third parties to drive our growth, and it may be the case that that's how it turns out, but right now we're focused on just selling more cable. and minimizing the churn to the extent that we can, things that are in our control.

What I would say is that we're in an unusual climate, and it's still unusual. And when it normalizes, which I expect it to normalize, our cost structure will revert to what it was historically. And that includes a bad debt. And as a result of that, growth could accelerate, but growth also can create cost when you're comparing it to someone who isn't growing. And so that has an impact on margins. But the overall... of our business, notwithstanding the current circumstances, which are really unprecedented, the fundamental cost to serve our customers continues to come down because of our digitization of the sales and marketing and service infrastructure of the company and our ability to do self-service and self-installation And the relative ease of delivery going forward creates long-term advantages, and the cost of CPE continues to come down on a relative basis. So we have long-run trends which are favorable to our cost structure. We have short-term trends which are favorable to our cost structure, which I expect to go away.

Thank you. Thanks, Fred. James, we'll take our next question, please.

Our next question comes from the line of Craig Moffitt with Moffitt Nathanson. Go ahead, please. Your line is open.

Hi. Two questions, if I could. Chris, I'm going to push you to just return to what you were just talking about of stimulus. And just given the size of the stimulus with about four times as much stimulus in dollars, about $20 billion, as the annual growth rate of the entire U.S. band market. How do we think about quantifying that? I know you said it's not in your numbers, but can you just talk about what you as a company have done to prepare in terms of applications and what have you for the EBPP and the E-rate and what impact you think that might have on your business? And then a second somewhat unrelated question is just if you could talk about the business services segment perhaps, and that's still growing significantly more slowly than residential. Are you more or less through the repricing of the TWC customers now so that we can expect that to return to being a growth driver rather than just mathematically today being a growth drag?

So, Craig, on the stimulus, a lot of that money is undifferentiated in the states and has broadband in front of it in the nomenclature, but it can go anywhere. And so, yeah, we're out through our business sales services groups trying to orient that money both to line extension and to products for schools and municipalities And we have a full suite of, you know, products to sell. But how that money gets allocated and, you know, how it gets spent in the states is difficult to say. And I think it will vary by location. So it's a huge opportunity, as you point out, and it's massive. And our sense is that the states don't know how to spend it all. And so they're, you know, We'll see what happens, but there's an opportunity there.

As it relates to business services growth, there's really two separate categories here. One is S&B and enterprise. The repricing of the TWC base is essentially through for S&B. We have had some pressure recently through seasonality programs that we've offered to S&B customers through COVID-19. That is winding down, as well as the repricing being through. If you take a look at the unit growth on S&B, I think you can pretty quickly see a path for us to get revenue growth and S&B more closely aligned to the unit growth rate or the customer relationship growth rate. So I think the outlook on S&B from a revenue standpoint is positive. The same applies for enterprise. Enterprise is a slightly different set of circumstances. The retail revenue growth rate like S&B, has been accelerating. It's up sequentially, same as S&B. It's now at 7.2% for the retail portion of revenue for enterprise. And it's being held back slightly by wholesale, particularly cell tower backhaul, where that's becoming a lesser and lesser portion of the overall revenue mix in enterprise. And the more strategic piece for us is retail in any event. You know, the enterprise sector Business is selling more, is doing extremely well, both certainly compared to last year, but also compared to 2019. And that's despite the fact that these are complex fiber products, where today, less than 25% of the time, we're meeting our customers, CIOs, in the office. So that's a difficult sell to make when you're not in person to have a complex fiber sale, whether it's for fiber internet access, Ethernet, unified communications, SD-WAN. And yet our sales are increasing and accelerating despite the fact that we can't be on location to make those sales. So I'm optimistic about the enterprise retail side and what that's going to do for the overall revenue growth rate, not only for enterprise, but when you look at commercial combined together with S&P, which is also improving.

Thanks, Craig.

Thanks, Craig. James, we'll take our next question, please.

Our next question comes from the line of Peter Cipino with Bernstein. Go ahead, please. Your line is open.

Hey, I wanted to ask about the mobile business. Do you expect to use device subsidies any more aggressively in the future? I know your unit economics have historically made that challenging and also have the sense that they're getting better. So any thoughts on that strategy for the long run would be great. Thanks.

You know, we... So far, we haven't done that much of that, and we like the way we're marketing it currently.

It's not a great business in and of itself.

We'll create customers if we can retain those customers, and whatever works, but we're doing well without it.

Thanks, Peter. James, we'll take our next question, please.

Our next question comes from the line of Bill Cusick with JP Morgan. Go ahead, please. Your line is open.

Hey, guys. A couple sort of follow-ups. On broadband, Chris, can you talk about the drivers of seasonality and customer growth in a typical second quarter and any differences we might see this year because of the pandemic? And do you think that could be offset somewhat by increasing win opportunities in ABB? And then second, on CapEx, higher or at least stable, not stable, to lower in the core cable business. What's changing there? Do you see more opportunities? Is that a function of mobile? What's happening? Thanks.

On broadband, I don't see the broader seasonality differences that have always existed in Q2 with disconnects and Q3 with reconnects. You know, a lot of that's college and back to school driven, as well as the move season of people repositioning. And if anything, one hand, I think it'll be normal. On the other hand, you could argue that things really do get back to a fully normalized level. There may be a pent-up demand for that type of move activity. So I don't know. The two factors you mentioned, which could, you know, around the edges have an impact slightly, although I don't think it changes the overall curve, would be to the extent that subsidies and stimulus continue to drive down non-pay, and at the same time we had an acceleration to move turn, which allowed more selling opportunities, maybe that could have a positive impact. And the other one that you pointed out was the EBB program, which could have similar type of benefits both on the non-pay as well as on the activation side. But I don't think that fundamentally the overall trend of Q2 compared to Q1 or Q3 or Q4 is going to be that much different. On CapEx, we slightly tweaked what we said from an outlook perspective, and it ties back to what I talked about with Ben in terms of the market is normalizing, but just at a slightly slower pace. But as that market remains slow to normalize, data usage remains high. And so that has an impact on the amount of headroom we plan for in terms of capacity and network augmentation. Now, it's very much possible our core cable capital intensity declines this year, but given the uncertainty, we updated the outlook slightly to say relatively consistent in quotes with last year. But, you know, I want to be clear, there's no change to our long-term outlook for core cable capital intensity to decline.

Thanks. Chris, do you think that with With mobile wireless broadband coming on, does that give you any pause on your assumption for a strong second half? Or is that sort of built in already? Mobile wireless broadband? You mean our own mobile wireless broadband? What wireless? Sorry, no. Competitive wireless broadband coming to the markets.

We're mobile wireless broadband. Is that... Are you talking about somebody else's?

Sorry, I mean T-Mobile and Verizon. T-Mobile and Verizon mid-band wireless offerings.

We're always concerned about competition, and we're watching for it. And on the increment, I think there will be added pressure. We think it's a real product for certain areas of a customer base, and so it's something we're keeping an eye on. And we have our own mobile broadband wireless together with our fixed-line broadband converged. we think competes well, and it requires us to continue to invest in that space. And we'll be on that spectrum as well. Correct. You know, from a CBAN perspective, you know, that'll be something we participate through to the MVNO, and then we have our own CBRS, which you're aware of as well. Thanks, Phil.

Thanks. James, we'll take our next question, please.

Our next question comes from the line of Michael Rollins with Citi. Go ahead, please. Your line is open.

Thanks. First, can you share your mix of broadband customers between entry-level versus higher-level tiers and how you're looking at the ARPU opportunities and taste to migrate customers to higher performance levels? And then secondly, just from your comments earlier, can you share what the fair average rate of estimated pass-throughs growth can be for Charter, if you think about it on a three to five year horizon, and you could share that with or without RDoS. Thanks.

In terms of the broadband customer base, most of our customer bases on an entry-level package, meaning 200 megabits, So our basic strategy has been to have a very rich broadband product as our base product, and we've continuously taken that up. And so in terms of opportunity to sell up, we have a lot of it. We haven't done much of that, really. We do it, and obviously we satisfy the market, but the bulk of our customer base is at the entry-level speed, which is quite high. I'm not sure I fully understood what you were going at with the passings growth, but it's really about housing starts versus if you take out the RDOF out of it. And what's that going to look like? And we Our footprint pretty much looks like the United States from a statistical perspective. And so if you look at housing starts and you have an opinion on that, that will probably mirror our passings growth.

Yeah, I agree. That will be the variability driver. Just to put it in context of what's going on today, we're building about, we're constructing about $600,000 a year, much of which is rural extensions proactive on our part already before RDOF. The remainder of what you see of our passings growth is fill-in and other type of what we call brownfield opportunities. Well, new developments. New developments in Texas and Florida. Yes. So that will all depend on the overall housing starts growth. And then, you know, during the period of RDOF, there's an additional – over a million homes that we'll construct in these rural areas to address RDOF on top of whatever the organic growth rate is, which has a big driver as the housing starts, as Tom mentioned.

Thanks, Mike.

Our next question comes from the line of Jessica Reif-Ehrlich with Bank of America. Go ahead, please. Your line is open.

Thank you. I have a question, I guess a two-parter and a video, which hasn't come up at all. Are there any plans to offer a product similar to Comcast Flex? Maybe you could talk about the pros and cons from a charter perspective. And then is there any difference in how you're approaching programmers that are now offering direct-to-consumer services that mirror or encompass a lot of the content they have on their pay TV channels?

Jessica, the video business is under a lot of challenge, and it's going through a transformation. And we have over 10 million customers now who receive our service through an application as opposed to a set-top box. And we... have direct-to-consumer relationships, and we have new relationships with programmers developing that allow us to sell traditional content in bundles. We have different kinds of bundles. Some are traditional cable TV packages. Some are over-the-top packages, and some are direct-to-consumers where we're representing a direct-to-consumer package relationship and really essentially acting in a consignment kind of mode. So we have every business model you can imagine going on simultaneously, which I think over the long term creates opportunity for us. Right now it's quite disruptive.

And on approach to programmers?

Well, I mean...

How we deal with programmers from a content perspective? Yeah, it hasn't changed because of the way that they're selling content.

Well, it's going to affect the value of content. And obviously, if content comes out of bundled packages and goes direct to consumer, its value in the bundle goes down.

Thanks, Jessica. James? All right, James, we'll take our next question, please.

Our next question comes from the line of Jonathan Chaplin with New Street. Go ahead, please. Your line is open.

Thanks, guys. Two unrelated questions. First, Tom, I thought the message on the magnitude of investment you've put into building a future-proof network at the beginning of the call was pretty powerful, both in terms of what you've invested over the course of the last five years and what you'll invest over the course of the next five years. I'm wondering... what you'd be able to share from the conversations you've been having with the administration around their ambitions for $100 billion in infrastructure investment in broadband. Wondering how specifically you guys see the opportunity to benefit from that if it were to come to pass and where you see potential threats. And then separately, I just looked back at where voice penetration of broadband customers peaked and it peaked at 50% and that probably understates your market share because it peaked at the end of 15 when the market was already declining. I'm wondering if you can remind us where market share of wired voice peaked for you guys and is that basically where you're setting your expectation for mobile penetration to go over time?

Well, my hope is to have all the share over time. And so we have significant ambition. It'll take a long, long time to get that. But, you know, if you do, I don't have the wireline share off the top of my head, but it's significant.

There were years and years and years where when we modeled, you know, and forecasted and realized what we were getting, it was always at 50% of broadband, to your point. And so until the... wireline substitution with mobile really took place in a significant way. That was pretty reliable for a long time. So I think that where you're going gives you what you were looking for.

If you look at how much of the wireline business we currently own, it's significant. And oddly, we got the right to compete in the telephone business, and we are the telephone company now. And that's kind of strange when you think about it. You know, in terms of how we're communicating with regard to broadband build out and subsidy and infrastructure subsidies, our view is that the job, one, is to get the unserved areas of the country served and that, you know, subsidies should be directed to do that. And we're willing to help and invest and to make that happen. and that the private capital that's been deployed in the United States in the communications networks, the capital that just got spent on Spectrum by the wireless companies and us and Comcast and the CBRS auction, and the capital that has gone into and continues to go into communications infrastructure in the country is good and held us in good stead through the pandemic when we were able to operate networks at high capacity instantaneously, unlike Western Europe and other places where communications services and entertainment services were actually down-resed. So we think there's a good model there and an opportunity to serve the unserved. and we'd like to help and be part of it.

Thanks, Jonathan.

Our next question will come from the line of Brian Kraft with Deutsche Bank. Go ahead, please. Your line is open.

Hi, good morning. I'm going to go off the beaten path a little bit here. Can you talk about how you're thinking about the future of your Los Angeles RSNs, given the pressures on pay TV bundle volumes that you just talked about, you know, against your fixed rights and production costs? What's the right long-term model for the business? And also under your rights agreement, could you actually bundle it as an app with broadband outside of a bundled service? Thanks.

Well, luckily it's not a material part of our business. It's difficult, and it's expensive, and the prices continue to go up. It's hard to say how we could monetize it effectively over the long run.

Thanks, Brian. Operator, we'll take our last question, please.

And our last question comes from the line of BJJN with Evercore. Go ahead, please. Your line is open.

Thanks. I've got two. Chris, given where you are on your wireless subscriber growth, I think you're sort of like 10% behind Comcast, and you're sort of broken even there. from a profitability standpoint, is that something we can extrapolate a quarter to a way that it's no longer, you know, while it's no longer going to be sort of a headwind on EBITDA growth? It's not, you know, is there any reason in economics that changes that? And for Tom, you know, your comments, even last quarter and this quarter talked about obviously healthy broadband growth this year, but interestingly talked about acceleration in 2022. Can you sort of talk about what gives you the confidence on that? Is that ARDA contributions or just sort of natural on the core base? Thanks.

So on the wireless EBITDA, you know, our goal is, this is going to sound bad, but our goal isn't to drive short-term EBITDA profitability. Our goal is to drive as much growth as we can because we know what the underlying profitability is and what it does for the overall business. So I don't think we're going to be forecasting the breakeven on a consolidated wireless business basis, which isn't even how we look at the business, because we think about it combined. That being said, we have essentially the same economics as Comcast, and so the model's very similar. But we are focused on really driving as much subscriber acquisition as we can. The business itself, absent any subscriber acquisition costs, so absent any marketing and sales, already cleared profitability absent growth costs at the 2 million lines mark. So we're well into that territory. So really what you're looking at in terms of an EBITDA drag right now is really about new subscriber acquisition. And that's something if we have the opportunity to push, we're going to go do that. And so... I don't want to give necessarily a guidance or an outlook on that, but the trend continues to improve despite the fact that we have a very strong net addition rate on wireless lines.

And if I understand your question, it was why do we have confidence that broadband growth will accelerate and why 22 will be better than 21? You know, I think that... Our basic view is that, if you go back over the last few years, that we've been on a growth track, and that growth track has been accelerating. And we had a very anomalous situation in 2020 that carries into 2021. And if you sort of trend out that long-term line, it gets back on that line in 2022. And that's really what we're saying. It's that simple.

I don't think RDOF is going to be a significant contributor in 2022, just given the limited number of activated passings that will be there. So I don't think about that as a material driver. I think about it as the momentum and the ability to use mobile, which we've treated as an an attribute to the broadband product as a way to continue to drive growth and to continue to improve retention on the broadband side.

Thank you.

Thanks, Vijay, and thanks to everyone for listening. James, I'll pass it back to you.

This does conclude today's conference call. We thank you for your participation. You may now disconnect.