Charter Communications, Inc.

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© transcript Emily Beynon

Please stand by. Your program is about to begin. If you need assistance during the conference today, please press star zero. Hello and welcome to the Charter Communications first quarter 2023 investor call. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session. Also, as a reminder, this conference call is being recorded today. If you have any objections, please disconnect at this time. I would now turn the call over to Stephan Anager. Please go ahead.

Good morning, and welcome to Charter's first quarter 2023 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 Chris Winfrey, our president and CEO, Tom Rutledge, our executive chairman, and Jessica Fisher, our CFO. With that, let's turn the call over to Chris.

Thanks, Stefan. During the first quarter, we added 76,000 internet customers with contributions from our Spectrum One offering and our rural construction initiative. We continue to operate in a low transaction environment, and yet we added 686,000 Spectrum mobile lines. At the end of the first quarter, we had 6 million total mobile lines. Just over 10% of our internet customers now have mobile service, and we expect mobile penetration to meaningfully grow over the next several years, and our increasing convergence capabilities will contribute to internet growth. We grew revenue and EBITDA by 3.4% and 2.6% respectively during the first quarter, and our capital expenditures reflect progress on our key initiatives. This is a very unique time for the cable industry, with generational opportunities across our three key initiatives, each of which is designed to drive customer growth and long-term cash flow growth. The first initiative is evolution, which includes the most significant spectrum enhancement to the cable network since the late 1990s at a very low cost. Network evolution also includes the convergence of our connectivity products. Second is the largest expansion of our footprint since the 1980s, bringing broadband to unserved and underserved areas. And finally, execution, which is all about investing in and delivering great service. I'll provide a brief update on these initiatives. Our network evolution plan is progressing well. We have now completed the physical work for high split in two midsize markets. We increased the network capacity to 1.2 gigahertz, which is equivalent to the acquisition of 400 megahertz of spectrum. We also allocated more spectrum for upstream use. In these markets, we're now capable of delivering 2 by 1 gigabit per second service, and we're launching the same CMTS-based 1.2 gigahertz high split to an additional six markets. These DMAs represent about 15% of our footprint. In parallel, we're preparing the second step of our network evolution plan, which will cover about 50% of our footprint, and which adds the deployment of distributed access architecture, allowing us to deliver five by one gigabit per second speeds. Step three of our network evolution plan covers about 35% of our footprint and should begin in late 2024. That step adds a further expansion of our network to 1.8 gigahertz. We expect our network evolution initiative will be essentially complete by the end of 2025, at the previously noted $100 per passing target, excluding the benefit of any network savings, which will come. Our converged product offering also continues to evolve. Spectrum One is performing well in the marketplace. It offers the fastest connectivity and includes differentiated features like mobile speed boost and Spectrum mobile network, each of which run on our advanced Wi-Fi product. Today, over 40% of our residential Internet customers have our advanced Wi-Fi product, which just last month we also launched to the SMB marketplace. Over 70% of our mobile customers now use the Spectrum mobile network outside of their homes. Spectrum One also offers significant savings for customers at both promotional and retail pricing, so our opportunity in converged connectivity in mobile is very large. We particularly like our ability to mix the lease economics of our 5G MVNO for the 10 to 15% of the time that our mobile customers don't have access to our faster spectrum mobile network. We have a strategic partner in Verizon, and we're a meaningful contributor to active lines on its network and its financials. When we look at the pricing and the usage of fixed wireless access disclosed by T-Mobile, it's clear that the MVNO price we pay per gigabyte is dramatically better than the economics mobile operators achieve with fixed wireless access offerings. In the expansion category, our plans are on track. During the quarter, we activated 44,000 subsidized rural passings. Subsidized rural passings growth is accelerating, with 20,000 subsidized rural passings activated in March. Costs are coming in as planned, and we have the labor, the equipment, and the supply necessary to execute our build. If we get the poll permit support we need, we can complete our RDOF commitments two years ahead of the RDOF deadline. The pace of penetration gains and subsidized rule passings continues to exceed our expectations with six-month penetrations at approximately 40%. And finally, we remain committed to the execution of our core operating strategy, which prioritizes customer experience and customer satisfaction, ultimately driving faster customer growth. Our proactive maintenance efforts are fundamentally changing the customer experience. And using telemetry, we can address service impairments before customers even know they exist. pulling forward service calls that otherwise would have occurred, and preventing service-related disconnects. We expect the mix of proactive truck roles will increase significantly in the coming years. We're also seeing the benefits of our investments in training and tenure faster than expected. Employee retention among our frontline service employees during the first quarter was the best I've ever seen. And while investments in our employees generate upfront expense, they ultimately deliver longer tenured employees which produce higher quality transactions, fewer repeat transactions, lower average handle times, and better sales yields. So increasing tenure also allows for a greater amount of our network evolution project to be performed with our own employees, which will save money and increase the quality of the upgrade. Additionally, the increasing digitization of our service platforms, where we've invested significantly in machine learning and the precursors to AI, will further reduce transactions. More to come in that in the future quarters, but the key point here is that the combination of longer employee tenure, network evolution benefits, the conversion of our video platform to IP, and digital service investments all create a long runway for us to continue to reduce service transactions, operating costs, and churn, which increases customer satisfaction, customer lifetime value, and our returns. So ultimately, we're focused on doing everything that a customer would want us to do, investing in the network to offer even faster speeds, providing seamless connectivity products not available elsewhere, then bringing that same seamless connectivity to markets that have never had broadband before, and delivering better customer service by investing in digital service platforms and a more tenured, more qualified service employee, all while helping save customers significant money in an inflationary environment. So our strategy is focused on delivering differentiated, converged connectivity products that essentially improves people's lives and creates value for shareholders. Now I'll turn the call over to Jessica.

Thanks, Chris. Before discussing our first quarter results, I want to remind everyone that starting this quarter, we've made some changes to the way we report our P&L. First, we now include mobile service revenue in the residential and SMB revenue as appropriate. and mobile equipment revenue is now reported in other revenue. On the expense side, we no longer report mobile expenses separately, and those are now included in the applicable expense category. Ultimately, these changes better reflect the converged and integrated nature of our mobile business and our operations and offer structure. For additional information regarding these changes, please review footnote A on page seven of the trending schedule we posted this morning. Now let's turn to our customer results on slide five. Including residential and SMB, we added 76,000 internet customers in the first quarter. Video customers declined by 241,000, partly driven by a programming expense increase passed through in January of this year. Wireline voice declined by 220,000, and we added a record 686,000 mobile lines. Although our internet customer growth continued to be positive in the first quarter, market activity levels remain low. During the quarter, total churn was slightly higher than last year, but still near record lows and well below pre-pandemic level. We've seen a small impact from fixed wireless access competitors in the price-sensitive customer segment. Generally speaking, however, these customers typically exhibit higher levels of churn regardless of competition. And given the issues with fixed wireless product speeds, as confirmed by third parties, and questions surrounding that product's reliability and scalability, we expect fixed wireless customers to find their way back to us over time. We continue to drive very strong mobile growth with our high-quality, differentiated, and attractively priced service. The majority of new lines continue to come from existing Internet customers, though the percentage of lines coming from acquisition has increased significantly since the introduction of our Spectrum One product. And as we mentioned last quarter, our converged customers have meaningfully lower internet and customer relationship churn. As Chris mentioned, we also continue to perform well in rural areas. The new rural disclosures we issued today on page five of our trending schedule show that we continue to see robust growth in rural passings. During the quarter, we activated 44,000 subsidized rural passings despite winter's construction seasonality. Penetration of subsidized rural passings continues to exceed our original targets, and these rural customers are purchasing products beyond Internet, including mobile, video, and wireline voice. Moving to financial results, starting on slide six, over the last year, residential customers were down slightly, with new customer growth driven by Internet offset by video-only customer churns. residential revenue per customer relationship grew by 2.5%, with promotional rate step-ups, rate adjustments, and the accelerated growth of Spectrum Mobile partly offset by a higher mix of non-video customers and growth of lower-priced video packages within our base. As slide 6 shows, residential revenue grew by 2.5% year-over-year. And as a reminder, starting this quarter, our residential revenue now includes mobile service revenue, which grew from $387 million in the first quarter of 2022 to $497 million in the first quarter of 2023. Turning to commercial, SMB revenue grew by 2% year over year, reflecting SMB customer growth of 2.4%. Enterprise revenue was up by 3.1% year over year. Enterprise PSUs grew by 4.9% year over year. and excluding all wholesale revenue, enterprise revenue grew by 7.3%. First quarter advertising revenue declined by 7.2% year-over-year due to less political revenue. Core ad revenue was down 2.1% year-over-year, driven by lower local and national advertising revenue, offset by our growing advanced advertising capabilities. Other revenue grew by 34% year-over-year, primarily driven by higher mobile device sales, and higher rural subsidies. In total, consolidated first quarter revenue was up 3.4% year over year. Looking to second quarter revenue growth, I would remind you that we will lap April 22 rate adjustments and face the headwind of strong political advertising revenue in the prior year. Moving to operating expenses and EBITDA on slide seven, in the first quarter, total operating expenses grew by $316 million, or 3.9% year-over-year. Programming costs declined by 6% year-over-year due to a decline in video customers of 5.2% year-over-year and a higher mix of lighter video packages, partly offset by higher programming rates. Note that our first quarter programming costs included $50 million of favorable adjustments, which is similar in size to Sports Network rebates and other favorable adjustments we saw in the first quarter last year. Looking at the full year 2023, we continue to expect programming costs per video customer to be approximately flat year over year. Other costs of revenue increased by 19.9%, primarily driven by higher mobile device sales and other mobile direct costs. Cost of service customers increased by 6.9% year over year, driven by adjustments to job structure, pay, and benefits to build a more skilled and longer tenured workforce. resulting in lower frontline employee attrition compared to 2022, and additional activity to support the accelerated growth of Spectrum Mobile. Partly offset by productivity improvements, as a result of the programs we discussed at our December investor meeting, our employee attrition declined more quickly than we had expected, which is allowing us to lower our normal hiring in the first half of this year and increase overall tenure and quality. Longer term, we continue to expect additional efficiencies in cost-to-service customers over time as a result of our continuing lower service transactions, service tenure and digital service investments, proactive maintenance, and network evolution investments. Sales and marketing costs grew by 7.6%, primarily driven by higher staffing across sales channels and the accelerated growth of Spectrum Mobile. and other expenses grew by 6.7%, driven by higher labor costs. Adjusted EBITDA grew 2.6% year-over-year in the quarter. Turning to net income on slide 8, we generated $1 billion of net income attributable to charter shareholders in the first quarter, down from $1.2 billion last year, with higher adjusted EBITDA more than offset by higher interest expense. Turning to slide 9, capital expenditures totaled $2.5 billion in the first quarter, above last year's first quarter spend of $1.9 billion. The increase was primarily driven by higher spend on line extensions, which totaled $890 million in the first quarter of 2023, compared to $541 million in the prior quarter, driven by Charter's subsidized rural construction initiative. and continued network expansion across residential and commercial greenfield and market fill-in opportunities. I would also note that in the first quarter, we saw a sequential decline in total capex associated with our subsidized rural construction initiative, as we purchased a significant amount of rural construction equipment inventory as supply chain issues improved in the fourth quarter. First quarter capital expenditures excluding line extensions totaled $1.6 billion compared to $1.3 billion in the first quarter of 2022. We spent more on upgrade rebuild given our network evolution initiative. Customer premise equipment, which includes installation costs, was higher year over year, and support capital was also up just given timing. Our expectations for full year 2023 capital expenditures have not changed. in part because the costs associated with our network evolution and rural construction initiatives are coming in as planned. For the full year, we continue to expect capital expenditures excluding line extensions to be between $6.5 and $6.8 billion. Following the expected completion of our network evolution initiative at the end of 2025 or the beginning of 2026, CapEx excluding line extensions as a percentage of revenue should decline to below 2022 levels and continue to decline thereafter. And we expect 2023 line extension capital expenditures to reach approximately $4 billion. We continue to expect 2024 and 2025 line extension CapEx to look similar to our outlook for 2023 at approximately $4 billion per year. And our 2024 and 2025 line extension capital expenditure expectations assume that we win funding for or otherwise commit to additional rural spending. As slide 10 shows, we generated $664 million of consolidated free cash flow this quarter versus $1.8 billion in the first quarter of last year. The decline was primarily driven by higher CapEx, mostly driven by our network expansion and network evolution initiatives. and an unfavorable change in working capital, excluding the impact of mobile devices, which was typical seasonality for a first quarter, but larger than last year. The year-over-year headwind was partly driven by outgoing payments related to the larger inventory buildup in Q4 of 2022 that I just mentioned. For the full year, however, we expect the change in working capital, excluding the impact of mobile devices, to be roughly neutral, as our capital and payroll accruals should rise over the course of the year. Mobile device working capital will remain a headwind given the mismatch in timing between when we receive EIP payments and when we pay handset providers. Also, in the first quarter, we didn't make significant cash tax payments, and generally speaking, we make four federal cash tax payments a year, with two quarterly payments made in the second quarter and one payment made in each of the third and fourth quarters. We're not changing our cash tax outlook that we provided on last quarter's call. We're simply providing a bit more clarity on the timing of cash tax payments. We finished the quarter with $97.8 billion in debt principal. Our current run rate annualized cash interest is $5.1 billion. As of the end of the first quarter, our ratio of net debt to last 12-month adjusted EBITDA was 4.47 times, and we intend to stay at or just below the high end of our 4 to 4.5 times target leverage range. During the quarter, we repurchased 2.6 million charter shares and charter holdings common units, totaling about $1 billion, at an average price of $375 per share. Charter's bandwidth-rich two-way network passes nearly 56 million homes and businesses with gigabit and converged services everywhere. And given the significant investments we've made in that network over a multi-year period, we're now in a position to upgrade it further in both a cost-efficient and time-efficient manner to offer the fastest speeds and the most advanced telecommunication services in the country. Additionally, Our scale and our capabilities are allowing us to rapidly expand that network, both to unserved and underserved areas through our rural construction initiative and to other high ROI expansion opportunities. Those initiatives, combined with our service-oriented operating strategy and prudent capital allocation, are poised to drive long-term customer growth, higher free cash flow, and shareholder value. Operator, we're now ready for Q&A.

Thank you. At this time, if you would like to ask a question, please press star 1 on your touchtone phone. You may remove yourself from the queue at any time by pressing star 2. Again, that is star 1 to ask a question. We will pause for a moment to allow questions to queue. Thank you. Our first question will come from Doug Mitchelson with Credit Suisse. Your line is now open.

Thanks so much. If I could... you know, do one for Chris, one for Jessica. You know, Chris, on the go-to-market strategy for wireless, I'm just curious what percentage of the wireless lines being created by the 12-month promotion you're hoping will convert to full pay after the promotional period expires? You know, I think, you know, as part of that, we think about, you know, what's the data usage? You know, how's that tracking for the promotional wireless lines versus the non-promotional lines? Or, you know, how many of your gross ads are phone numbers being ported in versus creating new phone numbers? Just trying to understand the revenue opportunity from that promotion, I certainly get the retention benefits. And then, Jessica, you're not really sure what you're willing to say, but when you think about your prior commentary about labor investments impacting both 1Q and 2Q, should we start to think about a little bit more margin expansion in the back half of the year, or any comments you're willing to make on swing factors for margins the remainder of the year would be helpful. Thank you.

So Doug, I'll start it out with the go-to-market on Spectrum One. We have two offers out there today. One is for ad acquisition, a free line together with internet, and essentially the other one is if you purchase the line, you get the second one for free for an existing customer. Those customers are great customers. They have good usage, and they're getting the fastest product in the country from a connectivity standpoint. And when, I said it before, but when the promotional period rolls off, they're going to have not only the fastest connectivity product, but they're going to have the best price in the marketplace as well at $29.99. That includes taxes and fees, no contracts. So it's a very, very attractive offer from a quality standpoint and from a pricing standpoint, not only at promotion, but at retail. So our expectation is these are great customers. They're normal lines. and they're not going to be able to replicate the service or pricing that they're getting from us at retail or promotion anywhere else in the marketplace. Our expectation is that it all sticks.

Yeah, I mean, Doug, we understand that there's some false market chatter. We should be clear on some other things. The majority of our gross ads are coming from paying lines. Less than 5% of our lines today are tablets, and those have the same rate plans as phones. And we don't include wearables in our numbers either. So the lines that we're putting up are good lines.

One other thing to add to that. This is not a moment in time. We were talking about it before the call. Our intent here is to grow and to grow more and to continue the path that we're on. So I think this is just the beginning. And we're excited about what we're doing, not just from a mobile perspective, but from a overall connectivity standpoint and the value that we can bring to customers both in quality of the product and save them a lot of money.

To your question on margin and what happens in the second half of the year, the increases that you see both in sales and marketing expense and cost to serve right now in the year over year are really driven by strong mobile sales. But if you think about what happens to them for the rest of the year, In sales and marketing, if you look back at last year, 2Q22 sales and marketing expense was sequentially lower than 1Q, which might put a little bit of pressure on the year-over-year comp in Q2. But the year-over-year growth rate of sales and marketing expense should moderate over the course of the second half of the year. We'll have lapped our mid-year 2022 staffing adjustments, and in Q4, we'll lap the Spectrum 1-related sales cost increase. Similarly, on the cost-to-serve side, I expect year-over-year growth and cost-to-serve to moderate in the second half of 2023, which I think is consistent with what we said before, and end the year at growth levels that are more consistent with where we've been previously, which is largely flat. So I do think that as we go through the year, in line with what we've said, the business continues to become more efficient, And we continue to expect to be able to operate it more efficiently and generate growth from that.

And I'd just add two quick things to that, Doug. One is, you know, on the cost side, if you think about all the OPEX and the CAPEX investments that we've talked about, it's really setting us up for a prolonged, you know, multi-year period of continuing lower costs to serve for customer relationships. which will benefit our cash flow for years to come. But the other piece at the end of this year, which ties back to your first question, we have a wall of good customers who are receiving a promotional rate today that are going to roll to a retail rate at $29.99 and stick. So you've not only got the cost side that starts to lap the prior year investments, but you also have the revenue side that starts to kick in at the fourth quarter of this year, and that just gets better and better as we go.

Yeah, thank you both, and thanks for the rural disclosures as well.

Absolutely.

Thanks, Doug. Katie, we'll take our next question, please.

Thank you. Our next question will come from Ben Swinburne with Morgan Stanley. Your line is now open.

Thanks. Good morning. I guess for either of you, just wanted to hear more about the kind of process of accelerating those rural build-outs. I think you talked about, I think it was March, relative to the full first quarter. Is this the kind of, is it a simple, not a simple, but is it better weather allows for greater, faster construction? Just what are the puts and takes of getting that number even higher as we move through the rest of spring, summer, through the year? And and not to put too fine of a point on it, but does the six-month clock that you guys talk about start when homes are activated? I just want to make sure I got sort of the definitions around activated and marketed to, et cetera. So just trying to get a sense of the rollout for the rest of this year. Thanks.

Thanks, Ben. The point you made about the seasonality with winter is right. In my prepared remarks I mentioned in March it was that it was much higher in terms of the already coming out of the back end. The four-year target is 300,000 subsidized rural builds, and we intend to meet that. We're on plan to meet that. So from an internal planning perspective, we're right on where we need to be. If you have to keep in mind that a lot of our build has taken place in places like Ohio, Michigan, Wisconsin. In January and February, there's just a little bit harder to get around, whether you're Whether you're going on poles or whether you're going underground, it's a little harder in that environment. So, nothing that we haven't expected and already coming out the back end, we're picking up. Unless there's a more technical, you know, for Jessica, it's from activation that we start the clock with zero to six months. So, once the plant's constructed and it's opened up for marketing, that's the T minus zero, so to speak.

Got it.

Okay. Okay. the way it's being reported in the new trending schedule details. So you're getting those passings in sort of in the reporting as the six-month clock starts.

Yep. And then just as a follow-up to Doug's question, and I don't like doing the battling earnings calls thing, but since it came up quite specifically last night on the T-Mobile call, these promotional lines, the additional lines you're adding, It sounds like those are lines being used, and your expectation is as those roll to pay, those lines will continue to be lines. I think their argument was sort of these are not coming from anywhere. They're just being created. I just wanted to get your thoughts on that as you do roll to pay, because it's obviously a decent piece of your line count. Thanks.

Thanks. Look, I always find it strange when somebody tries to do your IR for you, but we had a great quarter. These are great ads. We said what we said, and they're going to stick because it's a high-quality product. It's the fastest in the market, and it saves customers a ton of money. So beyond what we've already said, I think we'll leave it at that and continue to grow our line counts, and we'll do our own IR. Thank you.

Thanks, Chris. Thanks. Thanks, Ben. Katie, we'll take our next question, please.

Thank you. Our next question will come from John Hodelick with UBS. Your line is now open.

Great. Thanks. And again, thanks for the rural disclosure. So it looks like if you pull out the rural ads, you guys added about 50,000 subs. Just anything you can talk about in the core markets. If you could talk about what you're seeing sort of incrementally from a competitive standpoint. Again, you know, the fixed wireless guys are talking about bringing on more capacity and expanding into new markets. It's Does that become more of an issue as they roll out? And then you talked about this deployment of high split infrastructure. Would you expect to see better trends in those markets as you sort of turn on that service and improve, say, upstream capacity sort of along the way? So should we expect it to be something of an iterative process where things get better as the infrastructure gets more competitive? Thanks. Hey, John.

So, you know, in the trending schedule, you'll see that the subsidized rural customers that were added inside the quarter were 17,000, which means the bulk of our net ads came from our existing footprint. So we're competing very well across the entire market. That includes both where we have existing, certainly existing fiber overbuild, as well as where there's new fiber overbuild. And we're competing more than holding our own in that footprint. We saw a little bit of softness both in the gross ads and to a lesser extent really on churn, but mostly in gross ads. Interestingly, in the non-gigabit overbuilt area, because it's the first time that somebody's had an alternative, and so fixed wireless access in that marketplace seems like an interesting alternative until people find out ultimately that the throughput and the capabilities aren't the same as the broadband that we provide. We're competing very well across all markets, just to be very clear, but that's the dynamics that we're seeing inside the legacy footprint. The passings that we're building in the subsidized rural build, not only do we expect to have continuing improving performance through Spectrum 1 in the legacy footprints, but the passings that we're building from a rural standpoint just continue to get larger and be a larger contributor to our growth over time. On high split, we're enhancing the spectrum availability of our network, which improves contention on the upstream, as well as higher both downstream and upstream capabilities, which gives us marketing claims in the marketplace. But it also signals to competitors that they're not going to have that marketing claim with us. And so the upstream is helpful, but I think it's more at this stage to have a significant marketing claim in the marketplace, and we get a fair amount of network benefits from a quality standpoint in the actual network. And so we'll get payback from both of those, both from competitiveness as well as essentially reduced truck roll and reduced node splits over time as well from what we're doing.

Got it. If I could just follow up real quick, is the goal still to have higher ads this year versus last year?

It is our goal to have higher net additions in the Internet this year than we did last year.

Thanks, John. Thanks, Chris. Thanks a lot. Katie, we'll take our next question, please.

Thank you. Our next question will come from Phil Cusick with JP Morgan. Your line is now open.

Hi, guys. Thank you. Chris, I have to tell you, it's a lot more fun from our side when companies do someone else's IR. So, you know, don't be shy. We won't step into that rut. All right. First to follow up on John, Jessica, you spoke in March about broadband activity through the quarter. Anything you can add about that and any thoughts you have on sort of typical 2Q seasonality or anything different? And then in video, I understand a lot of video decline has been fewer broadband ads to connect to. But are you also seeing an acceleration in disconnects? And what percent of the base is now on these lower-cost packages? Thank you.

Yeah. So, Phil, talking about going into Q2, you know, Q2 is always a seasonally more difficult quarter. In terms of trends, we did continue to see what I sort of had said at the end of February and that I think that our trends looked a little better across coming in and in March than they had in February, which was better than January. And we continue to see that now with the context of Q2 being kind of what it is. So I think that we continue to think that things look better. pretty good, or at least better than they was previously on that front.

Well, I'll take the video. There's a pretty clear correlation to when we've taken rate increases either on video or even the more recent increase that we had on the internet. So there is a downgrade element that takes place at the point of a programming pass-through, which we've had to do because of where the programmers have been. I also think, in addition to that, because the point-of-sale discussion with the customer has been focused on Internet and mobile, the length of that conversation is a little longer. And I think there are things that we can do to have a better attach rate to a video at the point-of-sale. Now, and certainly in the future, as we think about the rollout of Zumo towards the back half of this year, it's a very compelling product. It's very simple and straightforward. It has a tremendous amount of utility towards customers for both their OTT as well as any live video viewing and subscriptions that they have. I've said it before. It's the platform that I'd like to have on all of my TVs, and I think it's going to be very attractive to customers, and I think it has the opportunity to really improve our trajectory on video as well in a profitable way.

Will Zumo be reported as a regular video sub, or you'll have a different category for that?

We haven't gotten through all the reporting definitions yet, but I think the right way to think about it is to the extent the customer takes a video service from Charter, then it would be reported as a video PSU. And to the extent it's just a platform that we're distributing that our customers can use as connectivity customers, then likely it's just going to be a Zumo unit, and it'll be an added benefit to our existing connectivity relationships. But I reserve the right to think that out loud together with Jessica over time, but I think that's the more natural way it'll go.

Yeah, and as we get closer to a rollout, we'll try to provide some additional information on where we think that that'll land.

Thanks again. Thanks, Phil. Thanks, Phil. Katie, we'll take our next question, please.

Thank you. Our next question will come from Peter Cepino with Wolf Research. Your line is now open.

Good morning. Thank you. On the subject of your truly gaudy mobile results, could you discuss the evolution of device promotions as part of your mobile strategy and whether we should be modeling use of cash for device promotions in the future?

Sure. You know, I think the device business, you know, that's not why we got into mobile. And we got into mobile to provide the fastest connectivity service and to save customers money on their monthly overall connectivity service and to bring Convergence, a product that doesn't really exist anywhere but Charter and Cable generally today. So never say never, but we don't see a need and we don't have any plans to be aggressively into the subsidy business from a device standpoint. We don't need to because we provide significant value, the best fees, the best product. and the best amount of savings already with our go-to-market strategy today.

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

Thank you. Our next question will come from Jonathan Chaplin with Newstreet. Your line is now open.

Thanks, guys. Two questions. The early work that we've done on BEAD suggests The returns of those markets could be phenomenal, potentially double what you guys may be seeing in RDOF markets if the full subsidy is awarded. I'm wondering if you can help size what the opportunity could be. I think you got like roughly 20% of the RDOF opportunity. Could it be something of that magnitude of the beat opportunity? And then as we total up broadband ads in the industry, It looks like there's been a bit of a slowdown for the overall industry this quarter. I'm wondering if you've got any context for what might be driving that. Is it just a pull forward of growth from COVID, from the sort of period of high growth during COVID, or is there something else going on? Thanks.

So I'd start, you know, first saying the RDoS returns that we have are extremely attractive. And we're really pleased with what we're doing both on RDOF as well as the other state grants that were coming out of some of the ARPA and other COVID funds. And that's been highly successful. On BEAD, it's really too early to tell. We've been very successful where we've gone into different subsidy RFPs simply because we're aggressive and because we're the most experienced rural builder in the entire country. So when we go tell a local state or federal government that we're going to build and we're going to build within a certain timeline. We have probably the most, not probably, we have the most credibility because we're the largest rural provider today. We're the largest rural builder and we've won awards for the success and quality of what we do. And we have the ability not just to bring broadband into these rural communities, but we have the ability to save customers significant amounts of money on their already high mobile build as well as bring video into these places. So it's not just a single play internet. We bring a whole suite of connectivity services that save customers money. We've been successful. And so both economically as well as from a quality standpoint, our success rate is high and our credibility is very good. But in terms of what we win and beat, you know, it's certainly, you know, it's factored into some of our outlook on CapEx. But time will tell how successful we can really be on that front. But I'm bullish. I think we're going to do well.

You know, the thing that I would add to that is that, Jonathan, we have a very disciplined sort of practice now in how we bid for these offerings. And so we're very comfortable with our ability to price the passings, with our ability to then bid for an appropriate amount of subsidy against that, and then to go on the back end and execute against building the passings in a way that's cost-effective and that generates the returns that we set out for. So there's a hypothetical math exercise that you can do to try to get to what we would win, but what I would be clear about is what we win, we'll win at good returns, and we'll execute it on the back end and bring those returns back into the company.

Yeah, we have great visibility to our costs. We have supply and labor costs. equipment all lined up and we know what it costs in each of these different markets already. So our experience to date is really going to bode well for giving us confidence in what we bid on. On the overall broadband market, I do think that there continues to be the headwind of all the COVID volume that was pulled forward in the broadband market and a combination of just a lower transaction, lower moving environment. And so I think the entire market is still suffering from that as a little bit as well as a small swing back into wireless substitution. So we're seeing some of that as well. Housing starts also been down. So that clearly contributes into this as well. And all of which I think is temporary nature. The difficulty that I think if you hear from the entire industry is when is it going to come back to normal? And none of us really have a crystal ball. But I think if I listen to what others are saying or including our peers, there's no reason to think that we don't get back into normalized market environment. It's just become very difficult to predict exactly when that happens. In the meantime, we compete well. We're growing both in legacy markets as well as obviously in our new build area and through a combination of market normalization as well as a very large pipeline of unserved rural passings that we're constructing the opportunity for growth in internet as well as in mobile is very good for us.

Thanks, Jonathan.

Katie, we'll take our next question, please.

Thank you. Our next question will come from Craig Moffitt with Moffitt Nathanson. Your line is now open.

Hi, thank you. I wonder if you could talk a little bit about wireless margins, Jessica. You shared one more quarter of wireless results, and I think While I sort of get that the remarkable pace of subscriber growth means customer acquisition cost is very high, it also leaves sort of to the imagination how the business will actually scale over time. So anything you could share with us about underlying wireless margins or customer lifetime values of wireless subscribers? And in particular, what traffic you might offload and how that might affect it going forward would be very helpful. Thank you.

Yeah, so, Craig, you know, I think back in December, we actually gave where we are in terms of margin in the business, income in the business excluding customer acquisition costs. And we showed there that if we ran it as a standalone business, which we don't, but that we would make good margins in the business. We certainly have read the work that you've been doing trying to use some of the financial information available out there to back into costs. Obviously, I'm not going to comment on exactly what those were, but you might have heard from us if we thought that you were materially incorrect on them. Or from someone else for that matter. It's important, though, to step back and think about we don't run the wireless business just for margin in the wireless business. We run our entire business to generate the most cash flow per passing that we can. Across the network, and that means that you have to have more customers, which means you have to price it a value, and it means that you have to generate more money per customer, and we believe in doing that by adding services to the customer, which we do by adding wireless to our current broadband video and voice customer base. And we also are seeing that there's benefits to having those products bundled together, not just in the form of driving better pricing for our customers, which we'll do, but in the form of reducing churn and ultimately we think also increasing what we can do in terms of customer acquisition across both the broadband and the wireless product as they become sort of a converged connectivity experience. So we're really confident in our ability to continue to have financial benefit from the wireless business going forward because of the value that it adds to what we can provide to the customer and the resulting increased cash flow that we get on a customer-by-customer basis when those customers take more products from us, including the wireless product.

Greg, on the traffic offload, I mentioned in the prepared remarks that we've now deployed Spectrum Mobile Network to all capable devices, which is our advanced Wi-Fi service, and that's in 40% of our residential customers. We've now begun to launch that advanced Wi-Fi service in Spectrum Mobile Network to S&B as well. So up until this point, the vast majority of the traffic offload has been inside of an existing customer's household and hasn't given the ability for them to do significant amounts of offload outside the household. And Spectrum Mobile Network, really over the course of the past four or five months, is accelerating that ability to have traffic offload. And that's prior to us fully deploying CVRS, which we intend to do. And we're already live in one large market. It's going very well. So, you know, whereas I think we had publicly said that we had 15% of our usage was through the lease of the 5G MVNO network, that's now decreasing already pretty quickly. And so the 85% that was on our network before is now moving up to 87% just in a matter of months. And that will continue to increase over time as we deploy more spectrum mobile network through advanced Wi-Fi as well as CBRS over time. And so it's attractive today, and it will continue to be more attractive. And the profitability and the cash flow today is really tied up in the subscriber acquisition cost.

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

Thank you. Our next question will come from Jessica Ehrlich with Bank of America. Your line is now open.

Thank you. Two questions. One on mobile pricing longer term. Do you think this is similar to broadband when you guys entered the market, I don't know, decades ago at a significant discount to telecom and then grew it over time as your share grew? So just kind of how you think about it longer term. And then second on Zumo. Can you remind us what the timing of the rollout is? But also on advertising, can you compare it to linear? Like, how are you thinking about it in terms of inventory load, CPMs? I mean, it seems like you'll have a lot more data.

I'll take the – you may need to circle back and remind us what your question was on the broadband.

I wasn't sure I completely followed it. I think it had the corollaries to mobile. But on Zumo – You know, back half of this year, we haven't announced a month. The progress through the Zumo team is going very well. The product looks great. And so we expect to be deployed, fully deployed as charter at the end of this year. The advertising business will come through several places. One is live video, where you can think of that as connected TV CPMs. We have that today. We have the largest spectrum. We have the largest app delivery platform. essentially virtual MVPD of anybody in the country because of the way that our app is used. And so we monetize through higher CPMs of connected TV spots today. That'll be amplified through the Zumo platform. And then in addition to that, Zumo will have its share similar to any other connected TV platform of advertising and subscription revenue. And some of those advertising spots will be conveyed to the affiliate, which in this case would be us. So we expect to participate both as an equity holder in Zumo and its advertising revenue model, as well as a way to amplify our own existing advertising revenue streams that we have today.

On the longer-term question on mobile pricing and sort of where we go there, I think the most important thing for us to worry about right now is that we're trying to take share in that market and to take share. We're priced to take share, and while we're doing it, we're still able to make good margins on that product. And so I don't think that there's some sort of long-term pricing game to think about right now. What we're really thinking about is what we do to take share in the market, to provide mobile service to more of our customers, you know, the fastest and best priced in the industry market. and to use that to generate cash flow for the business?

You know, longer term, if you think about it, there's two ways to think about it, just to pontificate. One is, is mobile really a product, or is it just an attribute of our connectivity service? And over time, is there ability to create an entirely new category of seamless connectivity? Today, mobile lines are sold at an individual level, and broadband is sold at a household level. Today, they're sitting on two separate bills. And I'm not sure that either of those need to be true in the future. It could be a single product that none of our competitors have, and none of our competitors have a path to replicate. So that's one way of thinking about it. Another is instead of thinking about it as broadband, is to think about it as a corollary, is to think about it what we did in the telephone space, the wireline telephone space, where we used it as a significant way to for a prolonged period of time to save customers a significant amount of money and drive connectivity in other products that we had by saving them money through an over-the-top product where we had a better mousetrap and we didn't have a bunch of high-priced legacy revenue that we had to worry about and we could be aggressive in the marketplace. I think those notions, they go hand in hand. We've talked about Spectrum One and how that may evolve over time in terms of we may try different ways to go-to-market that could include pricing, packaging, billing to really create a potentially a brand new category in the space.

Thanks, Jessica.

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

Thank you. Our last question will come from Michael Rollins with Citi. Your line is now open.

Thanks, and good morning. Two topics. First, I was curious if you could share more details on the activity you're seeing in the business segment, any changes in behavior of your customers since the beginning of the year, and if this macro backdrop is having any specific impact for Charter, positive or negative, on how it's been performing. And then just one other on the ACP. Just curious how many ACP subscribers the Charter currently has and how this program is contributing to the broadband performance. Thanks.

Hi, Michael. I'll take those. In the business, it's different between SMB and enterprise. Honestly, SMB is a little bit soft right now. We're still growing. You can see that in our numbers. But the SMB space has been a little soft. I don't think we're alone in seeing that. I also think that fixed wireless access may be selling cheap, low-quality residential products into a lower portion of the SMB space. We see some evidence of that. I think that's temporary. As it relates to enterprise, we're doing very well in enterprise, the retail side. Clearly, we have ongoing cell tower backhaul revenue pressure, but in the retail space for enterprise, whether it's fiber internet access, ethernet, our managed services, our UCAS services, we're actually doing very well. It takes a while to activate sales, but I think we had our best sales quarter ever in Q1, pre-activation. So the enterprise space is doing well, and I expect the retail piece to continue to grow well and actually to accelerate. On ACP, we're not going to get into specific numbers other than to say it's a big program for the government. It's important to the government, and we've been very active in deploying ACP at their request. It's been very successful. The vast majority of the customers we have were already existing customers who are now benefiting from that benefit. And we are, we believe, the largest ACB participant, and we're hopeful that the government continues to renew that program over time because we think it's a good program and it's been important and it's a good benefit in the marketplace.

Thanks. Thanks, Michael. Back to you, Katie.

Thank you, Darren. No further questions at this time. I'll now turn the call back over to Stephan Aniger for any closing remarks.

Thanks, everyone, and we will see you next quarter. Thank you.

Thanks. Thank you, ladies and gentlemen. This concludes today's event. You may now disconnect.

um um you Thank you. Thank you.

Hello and welcome to the Charter Communications first quarter 2023 investor call. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session. Also, as a reminder, this conference call is being recorded today. If you have any objections, please disconnect at this time. I would now turn the call over to Stephan Anager. Please go ahead.

Good morning, and welcome to Charter's first quarter 2023 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 Chris Winfrey, our President and CEO, Tom Rutledge, our Executive Chairman, and Jessica Fisher, our CFO. With that, let's turn the call over to Chris.

Thanks, Stephan. During the first quarter, we added 76,000 internet customers with contributions from our Spectrum One offering and our rural construction initiative. We continue to operate in a low transaction environment, and yet we added 686,000 Spectrum mobile lines. At the end of the first quarter, we had 6 million total mobile lines. Just over 10% of our internet customers now have mobile service and we expect mobile penetration to meaningfully grow over the next several years, and our increasing convergence capabilities will contribute to internet growth. We grew revenue and EBITDA by 3.4% and 2.6% respectively during the first quarter, and our capital expenditures reflect progress on our key initiatives. This is a very unique time for the cable industry, with generational opportunities across our three key initiatives, each of which is designed to drive customer growth and long-term cash flow growth. The first initiative is evolution, which includes the most significant spectrum enhancement to the cable network since the late 1990s at a very low cost. Network evolution also includes the convergence of our connectivity products. Second is the largest expansion of our footprint since the 1980s, bringing broadband to unserved and underserved areas. And finally, execution, which is all about investing in and delivering great service. I'll provide a brief update on these initiatives. Our network evolution plan is progressing well. We have now completed the physical work for high split in two midsize markets. We increased the network capacity to 1.2 gigahertz, which is equivalent to the acquisition of 400 megahertz of spectrum. We also allocated more spectrum for upstream use. In these markets, we're now capable of delivering 2 by 1 gigabit per second service, and we're launching the same CMTS-based 1.2 gigahertz high split to an additional six markets. These DMAs represent about 15% of our footprint. In parallel, we're preparing the second step of our network evolution plan, which will cover about 50% of our footprint, and which adds the deployment of distributed access architecture, allowing us to deliver five by one gigabit per second speeds. Step three of our network evolution plan covers about 35% of our footprint and should begin in late 2024. That step adds a further expansion of our network to 1.8 gigahertz. We expect our network evolution initiative will be essentially complete by the end of 2025, at the previously noted $100 per passing target, excluding the benefit of any network savings, which will come. Our converged product offering also continues to evolve. Spectrum One is performing well in the marketplace. It offers the fastest connectivity and includes differentiated features like mobile speed boost and Spectrum mobile network, each of which run on our advanced Wi-Fi product. Today, over 40% of our residential Internet customers have our advanced Wi-Fi product, which just last month we also launched to the SMB marketplace. Over 70% of our mobile customers now use the Spectrum mobile network outside of their homes. Spectrum One also offers significant savings for customers at both promotional and retail pricing, so our opportunity in converged connectivity in mobile is very large. We particularly like our ability to mix the lease economics of our 5G MVNO for the 10 to 15% of the time that our mobile customers don't have access to our faster spectrum mobile network. We have a strategic partner in Verizon, and we're a meaningful contributor to active lines on its network and its financials. When we look at the pricing and the usage of fixed wireless access disclosed by T-Mobile, it's clear that the MVNO price we pay per gigabyte is dramatically better than the economics mobile operators achieve with fixed wireless access offerings. In the expansion category, our plans are on track. During the quarter, we activated 44,000 subsidized rural passings. Subsidized rural passings growth is accelerating, with 20,000 subsidized rural passings activated in March. Costs are coming in as planned, and we have the labor, the equipment, and the supply necessary to execute our build. If we get the poll permit support we need, we can complete our RDOF commitments two years ahead of the RDOF deadline. The pace of penetration gains and subsidized rule passings continues to exceed our expectations with six-month penetrations at approximately 40%. And finally, we remain committed to the execution of our core operating strategy, which prioritizes customer experience and customer satisfaction, ultimately driving faster customer growth. Our proactive maintenance efforts are fundamentally changing the customer experience. And using telemetry, we can address service impairments before customers even know they exist. pulling forward service calls that otherwise would have occurred, and preventing service-related disconnects. We expect the mix of proactive truck roles will increase significantly in the coming years. We're also seeing the benefits of our investments in training and tenure faster than expected. Employee retention among our frontline service employees during the first quarter was the best I've ever seen. And while investments in our employees generate upfront expense, they ultimately deliver longer tenured employees which produce higher quality transactions, fewer repeat transactions, lower average handle times, and better sales yields. So increasing tenure also allows for a greater amount of our network evolution project to be performed with our own employees, which will save money and increase the quality of the upgrade. Additionally, the increasing digitization of our service platforms, where we've invested significantly in machine learning and the precursors to AI, will further reduce transactions. More to come in that in the future quarters, but the key point here is that the combination of longer employee tenure, network evolution benefits, the conversion of our video platform to IP, and digital service investments all create a long runway for us to continue to reduce service transactions, operating costs, and churn, which increases customer satisfaction, customer lifetime value, and our returns. So ultimately, we're focused on doing everything that a customer would want us to do, investing in the network to offer even faster speeds, providing seamless connectivity products not available elsewhere, then bringing that same seamless connectivity to markets that have never had broadband before, and delivering better customer service by investing in digital service platforms and a more tenured, more qualified service employee, all while helping save customers significant money in an inflationary environment. So our strategy is focused on delivering differentiated, converged connectivity products that essentially improves people's lives and creates value for shareholders. Now I'll turn the call over to Jessica.

Thanks, Chris. Before discussing our first quarter results, I want to remind everyone that starting this quarter, we've made some changes to the way we report our P&L. First, we now include mobile service revenue in the residential and SMB revenue as appropriate. and mobile equipment revenue is now reported in other revenue. On the expense side, we no longer report mobile expenses separately, and those are now included in the applicable expense category. Ultimately, these changes better reflect the converged and integrated nature of our mobile business and our operations and offer structure. For additional information regarding these changes, please review footnote A on page seven of the trending schedule we posted this morning. Now let's turn to our customer results on slide five. Including residential and SMB, we added 76,000 internet customers in the first quarter. Video customers declined by 241,000, partly driven by a programming expense increase passed through in January of this year. Wireline voice declined by 220,000, and we added a record 686,000 mobile lines. Although our internet customer growth continued to be positive in the first quarter, market activity levels remain low. During the quarter, total churn was slightly higher than last year, but still near record lows and well below pre-pandemic level. We've seen a small impact from fixed wireless access competitors in the price-sensitive customer segment. Generally speaking, however, these customers typically exhibit higher levels of churn regardless of competition. And given the issues with fixed wireless product speeds, as confirmed by third parties, and questions surrounding that product's reliability and scalability, we expect fixed wireless customers to find their way back to us over time. We continue to drive very strong mobile growth with our high-quality, differentiated, and attractively priced service. The majority of new lines continue to come from existing Internet customers, though the percentage of lines coming from acquisition has increased significantly since the introduction of our Spectrum One product. And as we mentioned last quarter, our converged customers have meaningfully lower internet and customer relationship churn. As Chris mentioned, we also continue to perform well in rural areas. The new rural disclosures we issued today on page five of our trending schedule show that we continue to see robust growth in rural passings. During the quarter, we activated 44,000 subsidized rural passings despite winter's construction seasonality. Penetration of subsidized rural passings continues to exceed our original targets, and these rural customers are purchasing products beyond Internet, including mobile, video, and wireline voice. Moving to financial results, starting on slide six, over the last year, residential customers were down slightly, with new customer growth driven by Internet offset by video-only customer churns. residential revenue per customer relationship grew by 2.5%, with promotional rate step-ups, rate adjustments, and the accelerated growth of Spectrum Mobile partly offset by a higher mix of non-video customers and growth of lower-priced video packages within our base. As slide 6 shows, residential revenue grew by 2.5% year-over-year. And as a reminder, starting this quarter, our residential revenue now includes mobile service revenue, which grew from $387 million in the first quarter of 2022 to $497 million in the first quarter of 2023. Turning to commercial, SMB revenue grew by 2% year over year, reflecting SMB customer growth of 2.4%. Enterprise revenue was up by 3.1% year over year. Enterprise PSUs grew by 4.9% year over year. and excluding all wholesale revenue, enterprise revenue grew by 7.3%. First quarter advertising revenue declined by 7.2% year-over-year due to less political revenue. Core ad revenue was down 2.1% year-over-year, driven by lower local and national advertising revenue, offset by our growing advanced advertising capabilities. Other revenue grew by 34% year-over-year, primarily driven by higher mobile device sales and higher rural subsidies. In total, consolidated first quarter revenue was up 3.4% year over year. Looking to second quarter revenue growth, I would remind you that we will lap April 22 rate adjustments and face the headwind of strong political advertising revenue in the prior year. Moving to operating expenses and EBITDA on slide seven. In the first quarter, total operating expenses grew by $316 million, or 3.9% year-over-year. Programming costs declined by 6% year-over-year due to a decline in video customers of 5.2% year-over-year and a higher mix of lighter video packages, partly offset by higher programming rates. Note that our first quarter programming costs included $50 million of favorable adjustments, which is similar in size to Sports Network rebates and other favorable adjustments we saw in the first quarter last year. Looking at the full year 2023, we continue to expect programming costs per video customer to be approximately flat year over year. Other costs of revenue increased by 19.9%, primarily driven by higher mobile device sales and other mobile direct costs. Cost to service customers increased by 6.9% year over year, driven by adjustments to job structure, pay, and benefits to build a more skilled and longer tenured workforce. resulting in lower frontline employee attrition compared to 2022, and additional activity to support the accelerated growth of Spectrum Mobile. Partly offset by productivity improvements, as a result of the programs we discussed at our December investor meeting, our employee attrition declined more quickly than we had expected, which is allowing us to lower our normal hiring in the first half of this year and increase overall tenure and quality. Longer term, we continue to expect additional efficiencies in cost-to-service customers over time as a result of our continuing lower service transactions, service tenure and digital service investments, proactive maintenance, and network evolution investments. Sales and marketing costs grew by 7.6%, primarily driven by higher staffing across sales channels and the accelerated growth of Spectrum Mobile. and other expenses grew by 6.7%, driven by higher labor costs. Adjusted EBITDA grew 2.6% year-over-year in the quarter. Turning to net income on slide 8, we generated $1 billion of net income attributable to charter shareholders in the first quarter, down from $1.2 billion last year, with higher adjusted EBITDA more than offset by higher interest expense. Turning to slide 9, capital expenditures totaled $2.5 billion in the first quarter, above last year's first quarter spend of $1.9 billion. The increase was primarily driven by higher spend on line extensions, which totaled $890 million in the first quarter of 2023, compared to $541 million in the prior quarter, driven by Charter's subsidized rural construction initiative. and continued network expansion across residential and commercial greenfield and market fill-in opportunities. I would also note that in the first quarter, we saw a sequential decline in total capex associated with our subsidized rural construction initiative, as we purchased a significant amount of rural construction equipment inventory as supply chain issues improved in the fourth quarter. First quarter capital expenditures excluding line extensions totaled $1.6 billion compared to $1.3 billion in the first quarter of 2022. We spent more on upgrade rebuild given our network evolution initiative. Customer premise equipment, which includes installation costs, was higher year over year, and support capital was also up, just given timing. Our expectations for full year 2023 capital expenditures have not changed. in part because the costs associated with our network evolution and rural construction initiatives are coming in as planned. For the full year, we continue to expect capital expenditures excluding line extensions to be between $6.5 and $6.8 billion. Following the expected completion of our network evolution initiative at the end of 2025 or the beginning of 2026, CapEx excluding line extensions as a percentage of revenue should decline to below 2022 levels and continue to decline thereafter. And we expect 2023 line extension capital expenditures to reach approximately $4 billion. We continue to expect 2024 and 2025 line extension CapEx to look similar to our outlook for 2023 at approximately $4 billion per year. And our 2024 and 2025 line extension capital expenditure expectations assume that we win funding for, or otherwise commit to, additional rural spending. As slide 10 shows, we generated $664 million of consolidated free cash flow this quarter versus $1.8 billion in the first quarter of last year. The decline was primarily driven by higher CapEx, mostly driven by our network expansion and network evolution initiatives. and an unfavorable change in working capital, excluding the impact of mobile devices, which was typical seasonality for a first quarter, but larger than last year. The year-over-year headwind was partly driven by outgoing payments related to the larger inventory buildup in Q4 of 2022 that I just mentioned. For the full year, however, we expect the change in working capital, excluding the impact of mobile devices, to be roughly neutral, as our capital and payroll accruals should rise over the course of the year. Mobile device working capital will remain a headwind given the mismatch in timing between when we receive EIP payments and when we pay handset providers. Also, in the first quarter, we didn't make significant cash tax payments, and generally speaking, we make four federal cash tax payments a year, with two quarterly payments made in the second quarter and one payment made in each of the third and fourth quarters. We're not changing our cash tax outlook that we provided on last quarter's call. We're simply providing a bit more clarity on the timing of cash tax payments. We finished the quarter with $97.8 billion in debt principal. Our current run rate annualized cash interest is $5.1 billion. As of the end of the first quarter, our ratio of net debt to last 12-month adjusted EBITDA was 4.47 times, and we intend to stay at or just below the high end of our 4 to 4.5 times target leverage range. During the quarter, we repurchased 2.6 million charter shares and charter holdings common units, totaling about $1 billion, at an average price of $375 per share. Charter's bandwidth-rich two-way network passes nearly 56 million homes and businesses with gigabit and converged services everywhere. And given the significant investments we've made in that network over a multi-year period, we're now in a position to upgrade it further in both a cost-efficient and time-efficient manner to offer the fastest speeds and the most advanced telecommunication services in the country. Additionally, Our scale and our capabilities are allowing us to rapidly expand that network, both to unserved and underserved areas through our rural construction initiative and to other high ROI expansion opportunities. Those initiatives, combined with our service-oriented operating strategy and prudent capital allocation, are poised to drive long-term customer growth, higher free cash flow, and shareholder value. Operator, we're now ready for Q&A.

Thank you. At this time, if you would like to ask a question, please press star 1 on your touchtone phone. You may remove yourself from the queue at any time by pressing star 2. Again, that is star 1 to ask a question. We will pause for a moment to allow questions to queue. Thank you. Our first question will come from Doug Mitchelson with Credit Suisse. Your line is now open.

Thanks so much. If I could... you know, do one for Chris, one for Jessica. You know, Chris, on the go-to-market strategy for wireless, I'm just curious what percentage of the wireless lines being created by the 12-month promotion you're hoping will convert to full pay after the promotional period expires? You know, I think, you know, as part of that, we think about, you know, what's the data usage? You know, how's that tracking for the promotional wireless lines versus the non-promotional lines? Or, you know, how many of your gross ads are phone numbers being ported in versus creating new phone numbers? Just trying to understand the revenue opportunity from that promotion, I certainly get the retention benefits. And then, Jessica, you're not really sure what you're willing to say, but when you think about your prior commentary about labor investments impacting both 1Q and 2Q, should we start to think about a little bit more margin expansion in the back half of the year, or any comments you're willing to make on swing factors for margins the remainder of the year would be helpful. Thank you.

So Doug, I'll start it out with the go-to-market on Spectrum One. We have two offers out there today. One is for ad acquisition, a free line together with internet, and essentially the other one is if you purchase the line, you get the second one for free for an existing customer. Those customers are great customers. They have good usage, and they're getting the fastest product in the country from a connectivity standpoint. And when, I said it before, but when the promotional period rolls off, they're going to have not only the fastest connectivity product, but they're going to have the best price in the marketplace as well at $29.99. That includes taxes and fees, no contracts. So it's a very, very attractive offer from a quality standpoint and from a pricing standpoint, not only at promotion, but at retail. So our expectation is these are great customers. They're normal lines. and they're not going to be able to replicate the service or pricing that they're getting from us at retail or promotion anywhere else in the marketplace. Our expectation is that it all sticks.

Yeah, I mean, Doug, we understand that there's some false market chatter. We should be clear on some other things. The majority of our gross ads are coming from paying lines. Less than 5% of our lines today are tablets, and those have the same rate plans as phones. And we don't include wearables in our numbers either. So the lines that we're putting up are good lines.

One other thing to add to that. This is not a moment in time. We were talking about it before the call. Our intent here is to grow and to grow more and to continue the path that we're on. So I think this is just the beginning. And we're excited about what we're doing, not just from a mobile perspective, but from a overall connectivity standpoint and the value that we can bring to customers both in quality of the product and save them a lot of money.

To your question on margin and what happens in the second half of the year, the increases that you see both in sales and marketing expense and cost to serve right now in the year over year are really driven by strong mobile sales. But if you think about what happens to them for the rest of the year, In sales and marketing, if you look back at last year, 2Q22 sales and marketing expense was sequentially lower than 1Q, which might put a little bit of pressure on the year-over-year comp in Q2. But the year-over-year growth rate of sales and marketing expense should moderate over the course of the second half of the year. We'll have lapped our mid-year 2022 staffing adjustments, and in Q4, we'll lap the Spectrum 1-related sales cost increase. Similarly, on the cost-to-serve side, I expect year-over-year growth and cost-to-serve to moderate in the second half of 2023, which I think is consistent with what we said before, and end the year at growth levels that are more consistent with where we've been previously, which is largely flat. So I do think that as we go through the year, in line with what we've said, the business continues to become more efficient. And we continue to expect to be able to operate it more efficiently and generate growth from that.

And I'd just add two quick things to that, Doug. One is, you know, on the cost side, if you think about all the OPEX and the CAPEX investments that we've talked about, it's really setting us up for a prolonged, you know, multi-year period of continuing lower costs to serve for customer relationships. which will benefit our cash flow for years to come. But the other piece at the end of this year, which ties back to your first question, we have a wall of good customers who are receiving a promotional rate today that are going to roll to a retail rate at $29.99 and stick. So you've not only got the cost side that starts to lap the prior year investments, but you also have the revenue side that starts to kick in at the fourth quarter of this year, and that just gets better and better as we go.

Yeah, thank you both, and thanks for the rural disclosures as well.

Absolutely.

Thanks, Doug. Katie, we'll take our next question, please.

Thank you. Our next question will come from Ben Swinburne with Morgan Stanley. Your line is now open.

Thanks. Good morning. I guess for either of you, just wanted to hear more about the kind of process of accelerating those rural build-outs. I think you talked about, I think it was March, relative to the full first quarter. Is it a simple, not a simple, but is it better weather allows for faster construction? What are the puts and takes of getting that number even higher as we move through the rest of spring, summer, through the year? And and not to put too fine of a point on it, but does the six-month clock that you guys talk about start when homes are activated? I just want to make sure I got sort of the definitions around activated and marketed to, et cetera. So just trying to get a sense of the rollout for the rest of this year. Thanks.

Thanks, Ben. The point you made about the seasonality with winter is right. In my prepared remarks I mentioned in March it was that it was much higher in terms of the already coming out of the back end. The four-year target is 300,000 subsidized rural builds, and we intend to meet that. We're on plan to meet that. So from an internal planning perspective, we're right on where we need to be. If you have to keep in mind that a lot of our build has taken place in places like Ohio, Michigan, Wisconsin. In January and February, there's just a little bit harder to get around, whether you're Whether you're going on poles or whether you're going underground, it's a little harder in that environment. So nothing that we haven't expected and already coming out the back end, we're picking up. Unless there's a more technical, you know, for Jessica, it's from activation that we start the clock with zero to six months. So once the plant's constructed and it's opened up for marketing, that's the T minus zero, so to speak. Got it. Okay.

Okay. the way it's being reported in the new trending schedule details. So you're getting those passings in the reporting as the six-month clock starts.

Yep. And then just as a follow-up to Doug's question, and I don't like doing the battling earnings calls thing, but since it came up quite specifically last night on the T-Mobile call, these promotional lines, the additional lines you're adding, It sounds like those are lines being used, and your expectation is as those roll to pay, those lines will continue to be lines. I think their argument was sort of these are not coming from anywhere. They're just being created. I just wanted to get your thoughts on that as you do roll to pay, because it's obviously a decent piece of your line count. Thanks.

Thanks. Look, I always find it strange when somebody tries to do your IR for you, but we had a great quarter. These are great ads. We said what we said, and they're going to stick because it's a high-quality product. It's the fastest in the market, and it saves customers a ton of money. So beyond what we've already said, I think we'll leave it at that and continue to grow our line counts, and we'll do our own IR. Thank you.

Thanks, Chris. Thanks. Thanks, Ben. Katie, we'll take our next question, please.

Thank you. Our next question will come from John Hodelick with UBS. Your line is now open.

Great. Thanks. And again, thanks for the rural disclosure. So it looks like if you pull out the rural ads, you guys added about 50,000 subs. Just anything you can talk about in the core markets. If you could talk about what you're seeing sort of incrementally from a competitive standpoint. Again, you know, the fixed wireless guys are talking about bringing on more capacity and expanding into new markets. It's Does that become more of an issue as they roll out? And then you talked about this deployment of high split infrastructure. Would you expect to see better trends in those markets as you sort of turn on that service and improve, say, upstream capacity sort of along the way? So should we expect it to be something of an iterative process where things get better as the infrastructure gets more competitive? Thanks. Hey, John.

So, you know, in the trending schedule, you'll see that the subsidized rural customers that were added inside the quarter were 17,000, which means the bulk of our net ads came from our existing footprint. So we're competing very well across the entire market. That includes both where we have existing, certainly existing fiber overbuild, as well as where there's new fiber overbuild. And we're competing more than holding our own in that footprint. We saw a little bit of softness both in the gross ads and to a lesser extent really on churn, but mostly in gross ads. Interestingly, in the non-gigabit overbuilt area, because it's the first time that somebody's had an alternative, and so fixed wireless access in that marketplace seems like an interesting alternative until people find out ultimately that the throughput and the capabilities aren't the same as the broadband that we provide. We're competing very well across all markets, just to be very clear, but that's the dynamics that we're seeing inside the legacy footprint. The passings that we're building in the subsidized rural build, not only do we expect to have continuing improving performance through Spectrum 1 in the legacy footprints, but the passings that we're building from a rural standpoint just continue to get larger and be a larger contributor to our growth over time. On high split, we're enhancing the spectrum availability of our network, which improves contention on the upstream, as well as higher both downstream and upstream capabilities, which gives us marketing claims in the marketplace. But it also signals to competitors that they're not going to have that marketing claim with us. And so the upstream is helpful, but I think it's more at this stage to have a significant marketing claim in the marketplace, and we get a fair amount of network benefits from a quality standpoint in the actual network. And so we'll get payback from both of those, both from competitiveness as well as essentially reduced truck roll and reduced node splits over time as well from what we're doing.

Got it. If I could just follow up real quick, is the goal still to have higher ads this year versus last year?

It is our goal to have higher net additions in the Internet this year than we did last year.

Thanks, John. Thanks, Chris. Thanks a lot. Katie, we'll take our next question, please.

Thank you. Our next question will come from Phil Cusick with JP Morgan. Your line is now open.

Hi, guys. Thank you. Chris, I have to tell you, it's a lot more fun from our side when companies do someone else's IR. So, you know, don't be shy. We won't step into that rut. All right. First to follow up on John, Jessica, you spoke in March about broadband activity through the quarter. Anything you can add about that and any thoughts you have on sort of typical 2Q seasonality or anything different? And then in video, I understand a lot of video decline has been fewer broadband ads to connect to. But are you also seeing an acceleration in disconnects? And what percent of the base is now on these lower-cost packages? Thank you.

Yeah. So, Phil, talking about going into Q2, you know, Q2 is always a seasonally more difficult quarter. In terms of trends, we did continue to see what I sort of had said at the end of February and that I think that our trends looked a little better across coming in and in March than they had in February, which was better than January. And we continue to see that now with the context of Q2 being kind of what it is. So I think that we continue to think that things look better. pretty good, or at least better than they was previously on that front.

Well, I'll take the video. There's a pretty clear correlation to when we've taken rate increases either on video or even the more recent increase that we had on the internet. So there is a downgrade element that takes place at the point of a programming pass-through, which we've had to do because of where the programmers have been. I also think, in addition to that, because the point of sale discussion with the customer has been focused on Internet and mobile, the length of that conversation is a little longer. And I think there are things that we can do to have a better attach rate to a video at the point of sale. Now, and certainly in the future, as we think about the rollout of Zumo towards the back half of this year, it's a very compelling product. It's very simple and straightforward. It has tremendous amount of utility towards customers for both their OTT as well as any live video viewing and subscriptions that they have. I've said it before. It's the platform that I'd like to have on all of my TVs. And I think it's going to be very attractive to customers. And I think it has the opportunity to really improve our trajectory on video as well in a profitable way.

Will Zumo be reported as a regular video sub, or you'll have a different category for that?

We haven't gotten through all the reporting definitions yet, but I think the right way to think about it is to the extent the customer takes a video service from Charter, then it would be reported as a video PSU. And to the extent it's just a platform that we're distributing that our customers can use as connectivity customers, then likely it's just going to be a Zumo unit, and it'll be an added benefit to our existing connectivity relationships. But I reserve the right to take that out loud together with Jessica over time, but I think that's the more natural way it'll go.

Yeah, and as we get closer to a rollout, we'll try to provide some additional information on where we think that that'll land.

Thanks again. Thanks, Phil. Thanks, Phil. Katie, we'll take our next question, please.

Thank you. Our next question will come from Peter Cepino with Wolf Research. Your line is now open.

Good morning. Thank you. On the subject of your truly gaudy mobile results, could you discuss the evolution of device promotions as part of your mobile strategy and whether we should be modeling use of cash for device promotions in the future?

Sure. You know, I think the device business, you know, that's not why we got into mobile. And we got into mobile to provide the fastest connectivity service and to save customers money on their monthly overall connectivity service and to bring Convergence, a product that doesn't really exist anywhere but Charter and cable generally today. So never say never, but we don't see a need and we don't have any plans to be aggressively into the subsidy business from a device standpoint. We don't need to because we provide significant value, the best fees, the best product. and the best amount of savings already with our go-to-market strategy today.

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

Thank you. Our next question will come from Jonathan Chaplin with Newstreet. Your line is now open.

Thanks, guys. Two questions. The early work that we've done on BEAD suggests The returns of those markets could be, you know, phenomenal, potentially double what you guys may be seeing in RDOF markets if the full subsidy is awarded. I'm wondering if you can help size what the opportunity could be. I think you got like roughly 20% of the RDOF opportunity. Could it be some something of that, that magnitude of the beat opportunity? And then as we total up broadband ads in the industry, It looks like there's been a bit of a slowdown for the overall industry this quarter. I'm wondering if you've got any context for what might be driving that. Is it just a pull forward of growth from COVID, from the sort of period of high growth during COVID, or is there something else going on? Thanks.

So I'd start, you know, first saying the RDoS returns that we have are extremely attractive. And we're really pleased with what we're doing both on RDOF as well as the other state grants that were coming out of some of the ARPA and other COVID funds. And that's been highly successful. On Bede, it's really too early to tell. We've been very successful where we've gone into different subsidy RFPs simply because we're aggressive and because we're the most experienced rural builder in the entire country. So when we go tell a local state or federal government that we're going to build and we're going to build within a certain timeline. We have probably the most, not probably, we have the most credibility because we're the largest rural provider today. We're the largest rural builder and we've won awards for the success and quality of what we do. And we have the ability not just to bring broadband into these rural communities, but we have the ability to save customers significant amounts of money on their already high mobile build as well as bring video into these places. So it's not just a single play internet. We bring a whole suite of connectivity services that save customers money. We've been successful. And so both economically as well as from a quality standpoint, our success rate is high and our credibility is very good. But in terms of what we win in Bede, you know, it's certainly, you know, it's factored into some of our outlook on CapEx. But time will tell how successful we can really be on that front. But I'm bullish. I think we're going to do well.

You know, the thing that I would add to that is that, Jonathan, we have a very disciplined sort of practice now in how we bid for these offerings. And so we're very comfortable with our ability to price the passings, with our ability to then bid for an appropriate amount of subsidy against that, and then to go on the back end and execute the against building the passings in a way that's cost-effective and that generates the returns that we set out for. So there's a hypothetical math exercise that you can do to try to get to what we would win, but what I would be clear about is what we win, we'll win at good returns, and we'll execute it on the back end and bring those returns back into the company.

Yeah, we have great visibility to our costs. We have supply and labor costs. all lined up, and we know what it costs in each of these different markets already. So our experience to date is really going to bode well for giving us confidence in what we bid on. On the overall broadband market, I do think that there continues to be the headwind of all the COVID volume that was pulled forward in the broadband market and a combination of just a lower transaction, lower moving environment. And so I think the entire market is still suffering from that as a little bit as well as a small swing back into wireless substitution. So we're seeing some of that as well. Housing starts also been down. So that clearly contributes into this as well. And all of which I think is temporary nature. The difficulty that I think if you hear from the entire industry is when is it going to come back to normal? And none of us really have a crystal ball. But I think if I listen to what others are saying or including our peers, there's no reason to think that we don't get back into normalized market environment. It's just become very difficult to predict exactly when that happens. In the meantime, we compete well. We're growing both in legacy markets as well as obviously in our new build area and through a combination of market normalization as well as a very large pipeline of unserved rural passings that we're constructing the opportunity for growth in internet as well as in mobile

is very good for us.

Thanks, Jonathan.

Katie, we'll take our next question, please.

Thank you. Our next question will come from Craig Moffitt with Moffitt Nathanson. Your line is now open.

Hi, thank you. I wonder if you could talk a little bit about wireless margins, Jessica. You shared one more quarter of wireless results, and I think Well, I sort of get that the remarkable pace of subscriber growth means customer acquisition cost is very high. It also leaves sort of to the imagination how the business will actually scale over time. So anything you could share with us about underlying wireless margins or customer lifetime values of wireless subscribers? And in particular, what traffic you might offload and how that might affect it going forward would be very helpful. Thank you.

Yeah, so, Craig, you know, I think back in December, we actually gave where we are in terms of margin in the business, income in the business excluding customer acquisition costs. And we showed there that if we ran it as a standalone business, which we don't, but that we would make good margins in the business. We certainly have read the work that you've been doing trying to use some of the financial information available out there to back into costs. Obviously, I'm not going to comment on exactly what those were, but you might have heard from us if we thought that you were materially incorrect on them. Or from someone else for that matter. It's important, though, to step back and think about we don't run the wireless business just for margin in the wireless business. We run our entire business to generate the most cash flow on the most cash flow per passing that we can. Across the network, and that means that you have to have more customers, which means you have to price it a value, and it means that you have to generate more money per customer, and we believe in doing that by adding services to the customer, which we do by adding wireless to our current broadband video and voice customer base. And we also are seeing that there's benefits to having those products bundled together, not just in the form of driving better pricing for our customers, which we'll do, but in the form of reducing churn and ultimately we think also increasing what we can do in terms of customer acquisition across both the broadband and the wireless product as they become sort of a converged connectivity experience. So we're really confident in our ability to continue to have financial benefit from the wireless business going forward because of the value that it adds to what we can provide to the customer and the resulting increased cash flow that we get on a customer-by-customer basis when those customers take more products from us, including the wireless product.

Greg, on the traffic offload, I mentioned in the prepared remarks that we've now deployed Spectrum Mobile Network to all capable devices, which is our advanced Wi-Fi service, and that's in 40% of our residential customers. We've now begun to launch that advanced Wi-Fi service in Spectrum Mobile Network to S&B as well. So up until this point, the vast majority of the traffic offload has been inside of an existing customer's household and hasn't given the ability for them to do significant amounts of offload outside the household. And Spectrum Mobile Network, really over the course of the past four or five months, is accelerating that ability to have traffic offload. And that's prior to us fully deploying CVRS, which we intend to do. And we're already live in one large market. It's going very well. So, you know, whereas I think we had publicly said that we had 15% of our usage was through the lease of the 5G MVNO network, that's now decreasing already pretty quickly. And so the 85% that was on our network before is now moving up to 87% just in a matter of months. And that will continue to increase over time as we deploy more spectrum mobile network through advanced Wi-Fi as well as CBRS over time. And so it's attractive today, and it will continue to be more attractive. And the profitability and the cash flow today is really tied up in the subscriber acquisition cost.

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

Thank you. Our next question will come from Jessica Ehrlich with Bank of America. Your line is now open.

Thank you. Two questions. One on mobile pricing longer term. Do you think this is similar to broadband when you guys entered the market decades ago at a significant discount to telecom and then grew it over time as your share grew? So just kind of how you're thinking about it longer term. And then second on Zumo. Can you remind us what the timing of the rollout is? But also on advertising, can you compare it to linear? How are you thinking about it in terms of inventory load, CPMs? I mean, it seems like you'll have a lot more data.

You may need to circle back and remind us what your question was on the broadband.

I wasn't sure I completely followed it. I think it had the corollaries to mobile. But on Zumo... You know, back half of this year, we haven't announced it a month. The progress through the Zumo team is going very well. The product looks great. And so we expect to be deployed, fully deployed as charter at the end of this year. The advertising business will come through several places. One is live video, where you can think of that as connected TV CPMs. We have that today. We have the largest spectrum. We have the largest app delivery platform. essentially virtual MVPD of anybody in the country because of the way that our app is used. And so we monetize through higher CPMs of connected TV spots today. That'll be amplified through the Zumo platform. And then in addition to that, Zumo will have its share similar to any other connected TV platform of advertising and subscription revenue. And some of those advertising spots will be conveyed to the affiliate, which in this case would be us. So we expect to participate both as an equity holder in Zumo and its advertising revenue model, as well as a way to amplify our own existing advertising revenue streams that we have today.

On the longer-term question on mobile pricing and sort of where we go there, I think the most important thing for us to worry about right now is that we're trying to take share in that market and to take share. We're priced to take share, and while we're doing it, we're still able to make good margins on that product. And so I don't think that there's some sort of long-term pricing game to think about right now. What we're really thinking about is what we do to take share in the market, to provide mobile service to more of our customers, the fastest and best priced in the industry market, and to use that to generate cash flow for the business?

You know, longer term, if you think about it, there's two ways to think about it, just to pontificate. One is, is mobile really a product, or is it just an attribute of our connectivity service? And over time, is there ability to create an entirely new category of seamless connectivity? Today, mobile lines are sold at an individual level, and broadband is sold at a household level. Today, they're sitting on two separate bills. And I'm not sure that either of those need to be true in the future. It could be a single product that none of our competitors have, and none of our competitors have a path to replicate. So that's one way of thinking about it. Another is instead of thinking about it as broadband, is to think about it as a corollary, is to think about it what we did in the telephone space, the wireline telephone space, where we used it as a significant way to for a prolonged period of time to save customers a significant amount of money and drive connectivity in other products that we had by saving them money through an over-the-top product where we had a better mousetrap and we didn't have a bunch of high-priced legacy revenue that we had to worry about and we could be aggressive in the marketplace. I think those notions, they go hand-in-hand. We've talked about Spectrum One and how that may evolve over time in terms of we may try different ways go-to-market that could include pricing, packaging, billing to really create a potentially a brand new category in the space.

Thanks, Jessica.

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

Thank you. Our last question will come from Michael Rollins with Citi. Your line is now open.

Thanks, and good morning. Two topics. First, I was curious if you could share more details on the activity you're seeing in the business segment, any changes in behavior of your customers since the beginning of the year, and if this macro backdrop is having any specific impact for Charter, positive or negative, on how it's been performing. And then just one other on the ACP. Just curious how many ACP subscribers that Charter currently has and how this program is contributing to the broadband performance. Thanks.

Hi, Michael. I'll take those. In the business, it's different between SMB and enterprise. Honestly, SMB is a little bit soft right now. We're still growing. You can see that in our numbers. But the SMB space has been a little soft. I don't think we're alone in seeing that. I also think that fixed wireless access may be selling cheap, low-quality residential products into a lower portion of the SMB space. We see some evidence of that. I think that's temporary. As it relates to enterprise, we're doing very well in enterprise, the retail side. Clearly, we have ongoing cell tower backhaul revenue pressure, but in the retail space for enterprise, whether it's fiber internet access, ethernet, our managed services, our UCAS services, we're actually doing very well. It takes a while to activate sales, but I think we had our best sales quarter ever in Q1, pre-activation. So the enterprise space is doing well, and I expect the retail piece to continue to grow well and actually to accelerate. On ACP, we're not going to get into specific numbers other than to say it's a big program for the government. It's important to the government, and we've been very active in deploying ACP at their request. It's been very successful. The vast majority of the customers we have were already existing customers who are now benefiting from that benefit. And we are, we believe, the largest ACB participant, and we're hopeful that the government continues to renew that program over time because we think it's a good program and it's been important and it's a good benefit in the marketplace.

Thanks. Thanks, Michael. Back to you, Katie.

Thank you there. No further questions at this time. I'll now turn the call back over to Stephan Aniger for any closing remarks.

Thanks, everyone, and we will see you next quarter. Thank you.

Thanks. Thank you, ladies and gentlemen. This concludes today's event. You may now disconnect.