Charter Communications, Inc.

Hello, and welcome to Charter Communications' third quarter 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 is being recorded today. If you have any objections, please disconnect at this time. I will now turn the call over to Stefan Eninger.

Thanks, Operator, and welcome, everyone. The presentation that accompanies this call can be found on our website, ir.charter.com. I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, and 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, which 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. On today's call, we have Chris Winfrey. our president and CEO, and Jessica Fisher, our CFO. With that, I'll turn the call over to Chris.

Thanks, Stephan. We had a busy quarter, executing our operating strategy and building on the foundational investments of the past couple years. We're also successfully managing the transition of customers previously on the government's affordable connectivity program in a period of new competition. And while we expect some normalization of external factors as we head into 2025 and much lower capital intensity beyond 2025, we're not standing still, evidenced by the series of announcements we made in September. A market-leading customer service commitment, new pricing and packaging that makes better use of our unique assets in the marketplace, encapsulated in a brand refresh through Spectrum's life-unlimited promise. There was a lot of flattering press about the importance of wireline networks and convergence this past quarter. We remain the only true convergence pure planar footprint with a fully distributed gig-capable wireline and wireless network across a growing 58 million passings everywhere we operate, soon to be symmetrical and multi-gig in all of our communities. Our seamless connectivity capabilities are evidenced by our continued market-leading mobile growth. And in just over a year, we completed a full cycle of programming renewals and the launch of Zumo to fundamentally reposition video again as an important part of the connectivity bundle, whether full value hybrid DTC linear packages, smaller non-sport streaming packages, or the addition of a la carte programmer apps to our broadband and video customers. We're well positioned to provide seamless connectivity and this new form of seamless entertainment to customers wherever they want to go. Before discussing the quarter, I want to express our sympathy and commitment to the communities across the Southeast impacted by hurricanes Helene and Milton. These were devastating storms. The initial impact was significant, mostly because of power outages downed poles and trees and drops. All but approximately 10,000 of our customers, including homes and businesses fully lost, have had their service restored. In particular, we're still very active in the Asheville, North Carolina area and some remaining pockets of Tampa Bay. I'd like to thank our frontline personnel for their dedication and effort in keeping our customers connected. That includes our employees who live in the area and were directly impacted themselves and the teams of employees from across the country who volunteered to help in the restoration. During the third quarter, we lost 110,000 internet customers. We added 545,000 Spectrum mobile lines and over 2.1 million lines year over year. Revenue grew by 1.6% in the quarter, while adjusted EBITDA grew by 3.6%. Were it not for the impact at the end of the ACP program in June, we would have grown our internet customers during the third quarter. Importantly, we've been successful in keeping low-income households connected. We continue to compete well against both wireline overbuild and cell phone internet, each with expanded footprints. And we remain confident in our ability to return to healthy, long-term growth. Our internet product is faster and more reliable. Our pricing is lower and similarly bundled with mobile. We expect market activity and selling opportunities to pick up over time. The cell phone companies will face challenges as customer bandwidth demands continue to grow. As I mentioned, in the meantime, we're not standing still. In mid-September, we made a series of important announcements, including the brand relaunch, a unique customer service commitment, and the new pricing and packaging structure. Our strategy has not changed. We offer high quality products to customers in a package and at a price point that our customers can't replicate. We pair that with unmatched customer service. Our fully deployed high bandwidth network with ubiquitous and seamless connectivity and entertainment products creates opportunities and removes barriers to help customers in every aspect of their lives, which led us to our new brand platform, Life Unlimited. While part of that is a new look and feel for the Spectrum brand, it's also about our increasingly converged set of products and building more trust with our customers. Our new customer commitment is comprised of four key promises. Reliable connectivity. We're committed to keeping our customers connected 100% of the time and promptly resolving any issues. Transparency at every step. We're committed to clear and simple pricing and timely service updates. And we will take responsibility when things go wrong. Exceptional service. We're committed to providing exceptional customer experiences. And finally, always improving, meaning we act on our customers' feedback to improve our products and customer service. We back up those commitments with guarantees. For example, to fix any service disruptions quickly, we commit to dispatch a technician the same day if the customer requests it prior to 5 p.m. If a customer needs help on a professional installation, a technician will be available the same or next day. We now back those commitments with proactive service credits if we miss the mark. We also don't have residential or SMB contracts. And if a customer is not completely satisfied with any services within the first 30 days, we give them their money back. We're making these commitments because we can, because we already made the investments in 100% U.S.-based sales and service with our own employees in frontline tenure through pay, progression, market-leading benefits, and tools and systems to make the job better for the employee and our customers. Our Life Unlimited brand relaunch also includes new pricing and packaging that better utilizes our unique product assets, which work better together to provide lower promotional pricing and lower persistent bundle pricing. Our new pricing and packaging will drive more sales with higher sell-in of our best products, grow customer ARPU at Connect despite lower product pricing, and reduce billing, service, and retention calls while reducing churn. For example, we now offer our gig internet product at $40 per month when bundled with two unlimited mobile lines and or video. Customers that take the new double play will receive a two-year price lock. And customers that take our new triple play will receive a three-year price lock. And in that package, customers also get our top mobile tier, Zumo and Cloud DVR at no additional charge. For customers who want our popular Spectrum One offering, that remains available. Now with a higher starting speed of 500 megabits per second, with one free unlimited mobile line included for a year. Existing customers can also opt in to our new bundles at persistent bundled pricing. And we have also increased internet speeds for existing flagship and ultra customers. It's still very early, but so far, our new pricing and packaging is showing promising results, including more video sell-in, more mobile lines per sale, and more gig sell-in. I expect those results and broadband sales to accelerate the seasoning of our marketing and sales approach over time. Our operating strategy remains simple. Sell more products to more customers, driving higher penetration against our large fixed asset, reducing the operating capital cost per product with lower churn to ultimately drive more cash flow per passing. And we're making investments in that large fixed asset through our network evolution initiative, which brings multi-gigabit speeds to 100% of our customers. We've launched symmetrical internet service in our step one markets, including Reno, St. Louis, Cincinnati, Dallas-Fort Worth, Louisville, Lexington, Rochester, Minnesota, and Rochester, New York. We're now broadly marketing our symmetrical speeds in seven of these eight markets. The high split upgrade process should be largely complete in all of our step one markets by the end of this year. We're making progress on step two DAA and remote PHY markets, and we've deliberately slowed these markets to get the software fully certified to our specs. That has pushed back equipment purchasing and operational deployment, and we now expect our network evolution initiative project to be completed in 2027. Excluding the benefit of future capital and operating cost savings, our network evolution has and will cost a very low incremental $100 per passing. We have full visibility to that outcome. We'll update our multi-year capital expenditures outlook, including the new phasing of our network evolution spend when we report our fourth quarter results in January. In video, over the past year, we transformed all of our major programming agreements in a way that works for our customers and for Charter, including a recent early renewal of Warner Brothers Discovery and then NBCU. These agreements give customers greater overall package flexibility and the ability to include all the key streaming apps from programmers within our Spectrum TV select packages. That enables us to offer what we now call seamless entertainment, the first for the industry at no extra cost. We also have paths for customers to upgrade to the ad-free version of these apps. And we will sell programmer apps a la carte to broadband and skinny package video customers. We also had the renewed support from our programming partners to get behind each other's products and distribution for a healthier video ecosystem and better choice and value for customers. More to come on this, but the inclusion of Max with its HBO content and TV Select and how we plan to promote Max to our broadband customers and vice versa will show how we and the programmers more broadly can support one another with our customers front and center. By early 2025, we'll be providing our TV Select customers up to $80 per month of retail streaming app value at no additional cost, including the ad-supported versions of Max, Disney+, Peacock Premium, Paramount+, ESPN+, AMC+, Discovery+, BET+, and VIX. Seamless entertainment, even easier with Zumo, which proves unified search and discovery with a market-leading voice remote and the highest-rated KTV streaming app in the U.S. Over the last couple of years, we'd moved away from bundling video in our offers because the value proposition to customers had fallen. We still have some work to do to operationalize the new customer proposition, including the customer front end for programmer app authentication and programmer credentials. But we're proud of what we can offer customers existing and new in terms of value and utility. And that breakthrough is why we are including video in the new bundles we launched in September. Fundamentally, we believe that maintaining and evolving the video business, even if it isn't growing, helps customer acquisition and retention by making use of our scale and capabilities and adding more value into our unique, seamless connectivity relationship. Video still has positive cash flow and provides us with option value. So a lot of exciting things happened in the third quarter. Our continued success in mobile is certainly one of those. Our mobile offering continues to evolve, driving strong results and supporting our new pricing and packaging efforts. We had our highest port-ins quarter ever. Our highest mix of ads on Unlimited Plus, driving higher customer value in ARPU. And our lines per customer continues to grow nicely. Today, approximately 8% of our total passings take our converged offering of internet and mobile. So we remain under-penetrated, despite having a differentiated and superior offering, with market-leading pricing at promotion and retail. As we work through the one-time impacts of ACP this year, new competition with expanded footprint, and our unique, non-recurring, subsidized network expansion investment, we remain confident in our ability to drive healthy, long-term connectivity customer growth. Now in the future, we have the best fully deployed network uniquely capable of delivering seamless connectivity or convergence everywhere we operate with pricing and packaging that saves customers money with the best products and a service capability investment that has yet to be fully realized as a competitive advantage. Our team is executing well in these multi-year initiatives, a team that's hungry with a tremendous drive to win for our customers, the communities we serve, our fellow employees, and for our shareholders. Jessica?

Thanks, Chris. Before discussing our third quarter results, I want to mention that today's results do not include any impact related to hurricanes Helene and Milton, which hit the southeast in late September and early October. Our fourth quarter results will include some lost customers and passings related to the storm from both suppressed gross additions and the damaged or destroyed plant that Chris mentioned. We're still assessing the impacted areas, and we expect to rebuild lost passings over time as our customers rebuild. We currently expect to incur approximately $100 million in incremental capital expenditures, the vast majority of which will be captured in our rebuild capital expenditures line. We have been providing bill credits to customers in impacted areas, and those one-time credits will offset some fourth quarter revenue. We may also have some incremental operating expense, although we expect that to be relatively small, and we'll isolate the storm impacts when we report our fourth quarter results. Let's please turn to our customer results on slide eight. Including residential and SMB, we lost 110,000 internet customers in the third quarter. While in mobile, we added 545,000 lines. Video customers declined by 294,000 and wireline voice customers declined by 288,000. The end of the ACP program drove higher third quarter non-pay and voluntary churn among former ACP customers for a total estimated third quarter impact of approximately 200,000 internet losses. Incremental non-pay disconnects drove more than half of those losses, and the rest of the impact was primarily driven by voluntary churn, with a small impact from lower connects. We continued to do a very good job in managing the end of the program, and we've retained the vast majority of our customers who were previously receiving an ACP benefit. Beyond ACP, we competed well across our footprint. But note that our third quarter internet net additions benefited from seasonal back-to-school connects and a work stoppage at one of our competitors, while fourth quarter customer results will include impacts from the storms and about 100,000 incremental non-pay disconnects and some lagging voluntary disconnects, both related to the end of ACP. After those effects in the fourth quarter, we expect the one-time impacts from ACP to be behind us. Turning to rural, we ended the quarter with 696,000 subsidized rural passings. We grew those passings by 114,000 in the third quarter and by 381,000 over the last 12 months. And we had 41,000 net customer additions in our subsidized rural footprint in the quarter. We now expect to activate close to 400,000 new subsidized rural passings in 2024, about 35% more than in 2023. but lower than our original 2024 plan of 450,000 due to shifting construction labor to rebuild activity in storm impacted markets. We expect our subsidized rural construction activity to recover by the end of the fourth quarter and that reacceleration of activity to put us on a higher pace in 2025 as planned. Our RDOF build should still be completed by the end of 2026, two years ahead of schedule. Moving to third quarter revenue on slide nine. Over the last year, residential customers declined by 1.8%, while residential revenue per customer relationship grew by 1.8% year over year, given promotional rate step-ups, rate adjustments, the growth of Spectrum Mobile, and $63 million of residential customer credits in the prior year period related to the temporary loss of Disney programming in September, 2023. These factors were partly offset by a higher mix of non-video customers, growth of lower-priced video packages within our base, and $25 million of costs allocated to programmer streaming apps which are netted within video revenue. As slide 9 shows, in total, residential revenue grew by 0.3% year-over-year. Turning to commercial, total commercial revenue grew by 2% year over year, with SMB revenue growth of 1% year over year, reflecting higher monthly SMB revenue per SMB customer, primarily due to rate adjustments. Enterprise revenue grew by 3.7% year over year, driven by enterprise PSU growth of 5.7% year over year. And when excluding all wholesale revenue, enterprise revenue grew by 5.9%. Third quarter advertising revenue grew by 18% year over year given political revenue growth. Excluding political, advertising revenue decreased by 6.3% year over year due to higher levels of inventory in the market, partly offset by higher advanced advertising revenue. Other revenue grew by 11.6% year over year, primarily driven by higher mobile device sales. And in total, consolidated third quarter revenue was up 1.6% year over year, which is 0.6% year over year when excluding advertising revenue and $68 million of customer credits in the prior year period related to the temporary loss of Disney programming in September 2023. Moving to operating expenses and adjusted EBITDA on slide 10. In the third quarter, total operating expenses grew by 0.2% year-over-year. Programming costs declined by 10% year-over-year due to a 9.5% decline in video customers year-over-year, a higher mix of lighter video packages, and costs allocated to programmer streaming apps, which are now netted within video revenue, partly offset by higher programming rates and a $61 million benefit in the prior year period related to the temporary loss of Disney programming in September 2023. Other costs of revenue increased by 15.8%, primarily driven by higher mobile device sales and higher mobile service direct costs. Cost-to-service customers declined 0.5% year-over-year, given productivity from our 10-year investments, including lower labor costs, partly offset by modest year-over-year growth and bad debt expense. Sales and marketing costs grew by 4.4% as we remained focused on driving customer acquisition and, given our Life Unlimited branch, brand relaunch in September. Finally, other expense grew by 2.3%. Adjusted EBITDA grew by 3.6% year-over-year in the quarter. And when excluding advertising, EBITDA grew by 2.7% year-over-year. Turning to net income, we generated $1.3 billion of net income attributable to charter shareholders in the third quarter, in line with last year, as higher adjusted EBITDA was mostly offset by higher other expenses, primarily due to non-cash changes in the value of financial instruments. Turning to slide 11, capital expenditures totaled $2.6 billion in the third quarter, down about $400 million from last year's third quarter. Line extension spend totaled $1.1 billion, $16 million higher than last year, driven by our subsidized rural construction initiative and continued network expansion across residential and commercial greenfield and market fill-in opportunities. Third quarter capital expenditures excluding line extensions totaled $1.5 billion, which was lower than the prior year period by about $400 million. The decline was driven by core CapEx items, including CPE timing, and lower than originally expected spend on network evolution, given what Chris discussed earlier with respect to our Step 2 software certification. We now expect total 2024 capital expenditures to reach approximately $11.5 billion, down from approximately $12 billion previously. That update reflects full-year 2024 line extension spend of approximately $4.3 billion, down from $4.5 billion, partly offset by slightly higher core CapEx, primarily due to the shift of some of our construction labor from rural efforts to hurricane rebuild activity. The update also includes 2024 network evolution estimated spend of approximately $1.1 billion, down from the previous estimate of $1.6 billion. Much of that originally planned 2024 spend is being pushed into 2026 and 2027. As Chris mentioned, we will update our multi-year capital expenditures outlook when we complete our 2025 operating plan and report our fourth quarter results in January. We now expect our total bead spend will be substantially less than our spend in RDOF, in each case, net of subsidies. That lower outlook reflects the most recent broadband map updates in terms of available unserved passings near our network and the less favorable rules framework in BEAD when compared to RDOF and state grants. We have been in regular communication with the states in which we operate, and we are generally the largest rural builder in our states through RDOF, ARPA, and other grants. While we're still finishing the 2025 operating plan, it's clear 2025 capital expenditures will not exceed the range of capital spend that we outlined in January of this year, even inclusive of a small amount of initial bead spending. Looking beyond 2025, we expect total capital spending in dollar terms to be on a meaningful downward trajectory, even inclusive of bead spending. So total capital intensity is now poised to decline significantly after 2025, even including the unique one-time opportunity that subsidized rural spend and network evolution has presented us. While we always prioritize our cash flow for organic opportunities first and then accretive M&A and buybacks, there are no organic capital expenditure opportunities on the horizon that give us concern with that capital intensity outlook. Free cash flow in the third quarter totaled $1.6 billion, an increase of approximately $520 million compared to last year's third quarter. The year-over-year increase was primarily driven by higher adjusted EBITDA and lower capex. We finished the quarter with $95.1 billion in debt principal. Our current run rate annualized cash interest is $5.0 billion. We repurchased just under 850,000 charter shares and charter holdings common units totaling $260 million at an average price of $311 per share, less than we had originally expected as we became restricted as a result of our negotiations with Liberty Broadband. As of the end of the third quarter, our ratio of net debt to last 12 month adjusted EBITDA moved down to 4.22 times. We remain committed to our levered equity strategy and to share repurchases as a component of that strategy. Our leverage ratio may decline further given our pause in buybacks, but we look forward to resuming our program when we are able, and we have not changed our target leverage. With that, I will turn it over to the operator for Q&A.

Thank you. At this time, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk, and then you will hear your name called. Please accept, unmute your audio, and ask your question. As a reminder, we are allowing analysts one question today. We will wait one moment to allow the queue to form. Our first question will come from Cutgun Morale from Evercore ISI. Please go ahead.

Good morning, Anna. Thanks for taking the question. Just one on broadband. Net ads in the quarter were very encouraging with a return to quite meaningful subgrowth, excluding ACP. Is there any color you can provide on the competitive backdrop and perhaps any early reads on the underlying broadband trends in the fourth quarter, excluding the incremental ACP net losses you called out? Thank you.

Sure. A very much anticipated question. So maybe I tried to talk about the market more generally, both inside of the third quarter what we think about the fourth quarter and where that does or doesn't position us for next year. But I think, as you mentioned, there's a lot of puts and takes inside the third quarter. Underlying all that is that we are competing very well in a marketplace that still has lots of competition, lots of new competition with expanded footprint. In the third quarter, we did have some benefits that are unique to the third quarter. Seasonality, which is typical. We also had some, not large, but some positive impact from a competitor who had a work stoppage. I think that's well understood. And then we had, obviously, the downside of significant ACP, primarily through non-pay disconnects and involuntary churn. But we're managing that well. And in the fourth quarter... When you think about the seasonality and the work stoppage benefits, we won't have those inside the fourth quarter. We'll still have approximately 100,000 non-pay to deal with from ACP that we expect to see early in the quarter, in the fourth quarter. And we also have some hurricane impact. And so that will impact subscribers, credits, as well as Jessica mentioned, some capital and rebuild benefits. And so then I think the bigger question is, you know, as you look out, you know, where does that leave us? You know, we're not about managing for short term, for quarters. We're really about thinking about the long term for the business. In 2025, you know, there won't be ACP. And we'll still have the continued tailwind of newly built passings, both organic as well as rural footprint. And then I think there's just the big questions or variables that will exist is lower interest rate environment. Does that impact mortgages in a way that drives our move rates? Have we seen the peak cell phone Internet impact? It appears that that's the case. And, you know, can we drive even higher internet sales as well as all of the additional bundling and higher product value packaging that I described through our new pricing and packaging? And really, even more so than today, start to fully realize the benefits of mobile, not just through churn, but through additional internet acquisition rates. And finally, you know... really a bogey variable, one that we wouldn't bet on, but I think is out there in terms of option values. Can video, a reconstituted video, can that really provide broadband acquisition and retention support? So that's probably much longer to look, you know, towards the tail end of like next year and beyond. But I think we're making the right investments and doing the right things to compete. We are still very much in a, in a, a, atypical low-churn environment when you exclude ACP. And despite that, it's still a competitive environment for new sales. So if you step back, it's too early to declare victory or even plateau, but certainly a better unit growth setup for 2025 than what we saw for 2024, I think, for us and probably for the rest of the cable industry.

Thanks, Kotkin. Operator, we'll take our next question.

Our next question will come from Benjamin Swinburne with Morgan Stanley. Please go ahead.

Thanks. Can you hear me? Yep.

Great.

Hey, Chris. Chris, as we look beyond cell phone internet to fiber, not that fiber is new, but as we think about the footprint expansion within charters, can you talk a little bit about where that sits today? your sort of gig markets where you see that going over the next, I don't know, three plus years and kind of how you're, how you think your market share shakes out as you, as you, you know, analyze your historical, your, performance in fiber markets and think about sort of what's happening in the marketplace and all the things you're doing at Charter to compete. And I don't know if you'll be able to answer this, but could you talk about why the Liberty Broadband opportunity is interesting to Charter? And if you do come to an agreement, are you able to buy back stock pre-close? Is there a way to put a mechanism in place to get back in the market or does that have to close before you're able to get back in? Thank you so much.

Sure. Let me start with the easy one, which is the last question you asked about Liberty Broadband. We've said what we can say for the time being through Liberty's 8K and what there is very much public. I think we're going to have to stay quiet until there's something more to talk about in the meantime, which point, of course, we'll talk through everything that you just asked. I know those are important questions, so... unfortunately just going to have to deflect those for the time being but um if you step back to you know gig overlap uh which which includes at all types of gig overlap in our footprint, it's roughly 55% today. And where it goes, I think, depends on people's access to capital, what happens in the M&A environment. But also, I think there are, as widely understood as, I think there's probably some competing notions of that overlap footprint and where it may not be mutually exclusive. And as a result, I think people with a combination of scaled back investment plans, plus the recognizing that they're not going to be the X competitor that they thought they were going to be, may need or want to back off just because they're not going to be able to make returns. I've always thought that A wireline overbuild has very poor, if not negative returns and start when you start to have duplicative plans of multiple overbuilders. It really just makes it that much worse. It's actually terrible. So I think there is a realization that that will take place. And so where it goes depends on somewhat the rational nature of of our competitors and where they want to deploy capital. In the meantime, what can we do around that is we can continue to make the type of investments that we're making today is make sure that we have a symmetrical multi-gig wireline network across our entire footprint, have a seamless connectivity product through convergence that none of our competitors can ubiquitously use to compete. And then add to that the ability to save customers significant amounts of money, obviously with mobile, where we offer a tremendous advantage given our structure. But also in some of these rural footprints, as strange as that may sound, we offer customers the ability to save significant amounts of money with their wireline phone relative to what they pay. I know that's not in vogue to talk about, but the reality is something I think we could use specifically in that market to drive even faster penetration in the rural footprint. So overall, in our existing, inside of our new footprint, I think we have a great set of assets, a better and faster set of products, higher quality service because we're 100% onshore here in the US with sales and service, primarily with our own employees who are committed to that high quality service. Then who knows, over time, the ability to add a unique video package that appeals to customers of all budget levels in terms of what they can afford and to deliver great value and utility inside the video package, I think remains a big potential upside in terms of our ability to drive broadband and to compete against some of these competitors who don't have the same network, seamless connectivity, packaging and product set and the ability to save customers money. I think we've got the best hand as it relates to our ability to compete in these marketplaces. What we typically see With any new overbuild, and that's not new, we have a lot of experience with this. It's been going on for probably 15 years. As you see in initial uptake, it can put a few points of penetration impact at the outset when somebody comes in for the first 18, 24 months, and then the market kind of settles out. And so when we look to historical Y-line overbuilders, many of which never got to the stated penetrations that today people say are required for returns, and that includes DSL conversion, I feel pretty good about where we can go over time, how we can compete. The fact that at some point, the reality will be there that there's not a great financial return for wireline overbuilds when it's a single, much less if it's a multiple.

Thanks so much, Chris. Thanks, Ben. Operator, we'll take our next question, please.

Our next question will come from Jonathan Chaplin with New Street Research. Please go ahead.

Good morning, guys. Chris, I'd love to just touch on the brand repositioning. From our perspective, I think it's a pretty profound change in the strategy. And would love to get some context for, I mean, it's probably too early, but are you starting to see any impact on gross ads or churn yet? And when do you think, you know, how long does it, do you think it sort of takes to really start to be felt in the business? And then from the bill credits that come with the commitments that you're making, would we be expecting any impact on ARPU and costs from those? Or have you gotten your internal systems to the point where you're happy to give the bill credits because you know you're not going to have to give any?

Sure. There's a lot in that. Okay. Yeah. I appreciate that you appreciate that the brand repositioning and the commitments that we're making are significant. I think it's really exciting for us and where we can go. It really comes about because we made the significant investment in our own employees and investing in frontline tenure, which is progression and the ability for employees to not just think about it as a job, but to have it as a career. And that gives us a higher quality craft than what you could have with contractors or offshore personnel. But at the same time, we really had not gotten the credit, I think, in the marketplace from customer satisfaction or NPS the way that we thought that reflected the investment that we've made. And so some of that comes down to doing a better job as a management team and avoiding some of the paper cuts that exist in customer service. The quality of the service there, the investment is there. This isn't a money issue. This is a really trying to just, you know, around the edges, how can you do better? That's one. Two is making sure that we had implemented some of the softer touch for customer service and to just give customers more recognition for their tenure with us. and to remind them that we're local inside of their communities and that these are committed employees to the company. And three is to really stand behind our service and back it up with guarantees, guarantees for service and guarantees about what happens if we're honest when we fail to meet that service level that we've committed to customers and to stand behind that. And so most of that, which goes to your bell credit question, isn't going to be giving out bill credits. It's going to be reminding customers that that's the type of quality of service that they can expect from Charter, from Spectrum. And to the extent that we miss, we're going to proactively apply credits and own it and apologize for when we don't get it right and to do a better job. I don't think the bill credits, there will be some incremental impact. I don't think it's going to be particularly material as it relates to ARPU, but what it does is it puts a pretty significant flashlight on us internally to make sure that what are those paper cuts? Where are those service misses? And it provides a real incentive internally for us to go manage that down by providing even better and high quality service. So a lot of this is just making sure that we get for the investments that we've already made, but a lot of it also is forcing ourselves to be better and to do better. And then you match that service commitment at the same time with some of the ethos that was in what I described, which is around, you know, billing transparency and having high quality services and products, which we do have, but even simple things about rounding the pricing, you know, instead of 99 cents to rounding it to even dollars and to having lower promotional pricing When bundled and lower persistent pricing when bundled in a way that not only saves customers money now and we always did over time but even more money over time to the extent they take more product from us is customer friendly and competitive in the marketplace. So I'm really excited about it there is is way way too early, you know your question about any early impact of that. And I think it's less about what you say, and it's more about what you do and that takes time to be recognized in the marketplace. And so I think this is something that maybe if we're lucky. back end of next year from just the customer commitments and service aspect, we could see the benefit of that. This is a multi-year process. It's not something that we're looking to immediately. But I think the good news, as you've highlighted, is we're very, very focused on our reputation in the marketplace, which impacts both customer acquisition as well as retention, and the customer life, which has a better financial outcome for our shareholders as well, as well as just being a great operator in local communities we serve.

Maybe the one early item that I think is really clear that's worth pointing out, though, is that the bundled strategy in what was rolled out in the new pricing and packaging is being really successful today. in doing the things that we hoped that it would do, which collectively sort of drive higher customer ARPU in terms of getting customers to take higher tiered packages, getting customers to take more products inside of those packages, and also sort of expanding the number of mobile lines that we're seeing sort of taken per customer. So the one piece I think that's been easy to see up front is that that strategy around sort of pushing value back into the bundle and utilizing that to drive higher customer ARPUs, I do think will be quite effective.

Yeah, it's the old strategy that you can lower your product pricing and have higher customer ARPU, both at the time of sale as well as over time, and have longer customer lives and have lower operating costs and therefore have better returns by doing the right thing.

Thanks, guys. Thanks, Jonathan. Operator, we'll take our next question, please.

Our next question will come from Craig Moffitt with Moffitt Nathanson. Please go ahead.

Hi, thank you. I'm going to try to squeeze in two if I can. First, just this is an interesting question that we've been pondering a bit, that you've been building out FTTH networks yourselves in your edge out and expansion areas. How much of your plant today is FTTH rather than HFC? And what kinds of differences do you notice competitively in places? I know a lot of those are non-competitive markets, but what kind of differences do you see competitively when you do have fiber to compete with rather than relying on your HFC network? And then if I could squeeze in one extra, Chris, you talked about lower participation in the BEAD program. Does that open the door perhaps to say if you can't expand your footprint through subsidized building, there may be opportunities for small-scale M&A, sort of rural cable operators, for example, that might be attractive and could be acquired for less than the cost of building yourself in a lot of cases?

Sure. On the fiber to the home expansion, I don't have that number in front of me. I know when we started our rural build, we had roughly 750,000 passings or 750,000 miles of plant. I think we're well over 900,000 today. If you think about how that's evolved over time, at the time we were 750,000 miles of plant, we were about 50-50 in terms of construction. That was between HFC and FTTH, and we're now at close to 90% of the new build that we do is fiber to the home. We do that simply because on the increment, it's fine to do. The reality is what we see from a competitive standpoint, as well as from a service standpoint, we see absolutely no difference. In fact, in our fiber to the home footprint, oddly enough, we have a slightly higher trouble call rate than we do inside of our HFC plant on a 10-year adjusted basis for customers and plant construction. So I think that'll normalize over time. Some of that's more software-driven related to OLTs and whatnot. But my big point there is there is zero difference to us in terms of the service quality or what we see really in competitiveness between the FTTH plant where we operate with HFC. You know, the HFC over time is going to have certain advantages relative to fiber. And I would start by saying that remember that of our HFC plant, I don't know the exact stat, but whether it's 99.5 or 99.8% of our HFC plant really is fiber. And it's really at the end that it's coax on the run, which often is the case with fibers of the home, you know, in-home wiring as well. So we're essentially the same network, except at the end, we have the advantage of having the ability to have more telemetry because of power and the ability to hang small cells from a wireless strategy perspective in a very capillary way. So we're spending time on really thinking through over time, is the HFC network actually superior as a result of some of the capabilities that it will lend? I'm not there making that claim today, but I think there are some real advantages to the plant and Today, there's really no difference for us from what we see between one and the other.

Do you want to jump in on? Yeah, on the lower B participation and what we would do then in small scale M&A. Craig, we always say we like cable businesses. We believe we operate them well. When there are small scale opportunities that fit well with our footprint, we will often go after those. They're typically so small that you sort of don't see them and how they fold in. But I think that we look at those opportunities the way that we look at any other opportunity and expanding our footprint in that way does make sense when it's at the right price. I don't necessarily foresee that there's a tradeoff as between BEAT and doing small scale M&A. I think we pursue both of those opportunities where they make sense and will drive returns for the company. I agree.

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

Our next question will come from John Hodelick from UBS. Please go ahead.

Great. Thanks. And two sort of related questions. One, actually, Jessica, you sort of touched on. I was just wondering, are there any sort of margin implications for the new pricing and packaging? It sounds like you expect to have better selling, which should lead to better margins. But when should we expect to see the sort of benefits of that, both in terms of margins and maybe changes in subscriber trends on the data side and video side? And then, obviously, you've seen some nice EBITDA acceleration through the year, probably will again in the fourth quarter with political advertising. Can you sort of point out any puts or takes as we try to get a sense for what EBITDA trends look like in 2025? Obviously, you don't want to give guidance now, but is there anything you can point to that suggests the momentum you've seen through the year will continue in 2025? Thanks.

Yeah, so starting on the Margin implications for the new pricing and packaging. You know, what we think about when we look at the success of the program is what Chris was describing in terms of how do you drive the most product value to the consumer that generates the most revenue? And then really, I guess I think of it as sort of the most cash flow per customer, which isn't margin as a percentage. It's margin as an absolute dollar value. And in that case, I think that we're quite confident that the new pricing and packaging will be really successful in driving additional cash flow per customer because of the value that we've pushed into the bundles and what that means for the total margin that we can generate on the services offered to those customers. Does that mean that margin as a percentage will go up? That one is less clear. I actually think that the video product is a bit more attractive in the new pricing and packaging as we pulled it together. And so because of that, your mix around how much video versus how much mobile and how much internet might change, mix tends to drive margin percentage across the company. And In this case, it might get you to the wrong answer because I think that we can drive the most collective margin by driving the most products to the customer. On the EBITDA front, thinking about the fourth quarter and next year, we still anticipate strong EBITDA growth in Q4 2021. though it might not accelerate the way that we had hoped, given that some of our expense reduction impacts, I think, came in a little earlier than we expected, and we will have the storm impacts that hit inside of Q4. Still strong, but maybe not accelerating. And then going into next year, we're of course going to target EBITDA growth, but there's some meaningful headwinds, which I think include our internet customer losses in 2024 and a non-political year for advertising. Even with that, our expense reduction efforts, which I've mentioned before, include things that are both short term and have already rolled in, as well as some medium and longer term items that are still building. I think that they'll put us in a good place. But there are meaningful headwinds as we go into next year.

John, on the first question that Jessica's right about, we focus on cash flow margin, but even with the percent over time, so I'm not talking at acquisition, but over time, I think it's important to note that our triple plate bundles of different combinations, they have the highest. dollars of EBITDA, not only the highest ROP, but the highest dollars of EBITDA contribution. They also have the lowest churn and the longest customer life, and they have the best ROI. And that still is the case today, which comes back to our launch of the new spectrum pricing and packaging is you just have to make sure that there's real value in the products that you're putting on the bill. And if there is, and it's a high quality product, there's value and you have utility all packaged together. You can be in an environment where you have higher dollars of ARPU, you have higher dollars of margin, you have lower churn and lower operating costs per PSU. And even as a result of having a mix with products with different direct costs in there, you can end up long-term with higher EBITDA margin, even as a percent. also because your operating cost is much lower. Your churn is lower. And as a result, your subscriber acquisition cost is lower because you're not having to replace customers that you lost with new ones to fill the hole. And instead, you're using your subscriber acquisition cost to acquire net new customers, which has the impact of increasing your dollar margin as well as your percent margin over the long term. And that's the unique competitive advantage I think that we have, is we have all those products, seamless connectivity and seamless entertainment in 100% of our footprint. And that's what we're trying to do is make better use of those capabilities.

Got it. Thanks, John. Thank you. Operator, we'll take our next question, please.

Our next question will come from Stephen Kale from Wells Fargo. Please go ahead.

Thank you. Can you hear me okay? Yep. So, Chris, you have a unique video offering at this point, and I know you've worked hard to add the streaming services to customers. When we think about where you can go from here, I'm not sure there's been an uptick kind of year on year in double and triple play customers yet. It sounds like you're thinking maybe later next year is when you might see the fruition of a lot of those efforts come together in those multi-product customers. So I was just wondering how you could add a little more color to retention and acquisition and what the timing and the impact of that looks like at the customer level over the medium term. And then just a small one. I know it's tough to unpack ARPU, but if we just think about role to pay, you know, you were very aggressive on Spectrum One about 18 months ago. Can you help us at all think about how much role to pay is contributing to either revenue or ARPU at this point? Thank you.

Why don't I take the first one, and Jessica, if you have thoughts on the second. I agree, we have a unique video offering, and at the same time, it's easy to get impatient as to how quickly we can get all that fully rolled out in a way that's easy for customers to understand, appreciate, sign up to, and utilize. And yet, when you think about that first half of 2025 that I talked about to fully operationalize it, it's really... That would only be 18 months from the time we first started to enter into these programming agreements. And so it's a relatively short period of time when we're going to be fully operationalized. So our goals, our priorities here was first to really focus on getting all these programming agreements done in a, I think what turned out to be a 12 or 13 month period. So pretty quick to really run through all of those program agreements, some of which were early in renewals because programmers were getting behind us. The second piece is to just physically get launched the programmer apps to form part of our seamless entertainment so that customers can subscribe to those. It's not the same because they have broader direct-to-consumer businesses and we need to work with them on authentication as well as programmer specific credentials which means that in its current state it's a high value proposition but it's not always easy to find and it's not always easy to subscribe and to manage your existing subscriptions potentially with those programmer apps and so that's the environment that we set today which is good take up but not exactly the most customer friendly proposition just yet which is what we're working through The second priority, or the third priority, first with programming relationships, too, was launch the direct-to-consumer app. Third is to implement the ability for customers to upgrade to the ad-free version of these apps, only a couple of which has already been launched, so we're well in the progress with that as well. And then the final piece is really to put it all inside of what I would call a video portal, which allows you to manage all of your video subscription with us, including all of the programmer apps. When it's included as part of your offer, when it's upgraded to the ad-free version, we have economics as well. and the ability to sell these programmer apps to our broadband customers or to our skinny package video customers, all in a single place where you can manage your subscriptions. And that's a compelling marketplace for video that we're developing today. And it requires some pretty significant cooperation as well as you can imagine with the programmers. And we think we'll have all that placed in the first half of 2025 and be able to present that to customers as part of our pricing and packaging. I think there was some misconception in the marketplace that thought that we were going to do some big, huge marketing campaign and that would have a financial impact next year. That's really not the case. The investment we're making is the utility of finding all of this in a place that can manage your subscriptions and then being able to activate all of that within Zumo in particular or other platforms. And the marketing and sales that we're doing really is tied to our new pricing and packaging as part of these bundles that we're putting out. So longer term, I expect all of that to have a pretty significant impact on acquisition and retention, certainly for video, but hopefully also with Internet when bundled together already. without getting to that place that we expect to be next year, we already see a significant uplift in the video sell-in just from the way that we're bundling and going to market with this new spectrum pricing and packaging, even without the benefit of that the video marketplace environment that I described, we're already seeing a pretty significant uplift. And the reason that we're comfortable with that is because we know the value is there because of what's in place already today with some of the programmer apps and what's coming, what will be launched, and the ability to actually find and manage it in a better way. So we're pretty... Look, on one hand, we're excited about the space because it adds value. On the other hand, I want to be careful we're not forecasting video growth. We're simply saying that it's a way to add utility into our seamless connectivity relationships in a way that hasn't existed. And from our past experience, we know the value that can come about to the overall bundle by doing that right.

Okay. I'll take the other one on the mobile, which is called roll-to-pay rates. We still see our free lines converting to being paying customers at very strong rates. In terms of the impact that that has on ARPUs across the system, so once you get to a, I'm going to say normalized, but once you get to a similar number of overall free lines inside of the system in a year over year, then you no longer end up with the same sort of boosts or impact of the year over year or the same year over year impact on ARPU. So if I think about Internet ARPU there as an example, Internet ARPU grew 2.8% on a GAAP basis. It would have been 3.1% excluding the GAAP allocations, which is a closer tie between the two of those than what we've seen previously. And I think going forward, you'll find those coming together. On the other side, you know, mobile ARPU actually was up and is looking really good. But the increase that you see in mobile ARPU related to the uptake of our Unlimited Plus plans, which really has been driven by anytime upgrade plans. And I think could be driven further given some of the incentives that we have around it in the new pricing and packaging plans. So we're seeing, I guess, good growth in ARPU, but not as much at this point related to the roll off of free lines in the system. Not because the free lines aren't performing well, but just because the free lines now as a portion of the total base are more normalized.

Thanks, Stephen. And that concludes our call today. Operator, we'll pass it back to you.

Thank you very much.

Thanks. This concludes our call. You may now disconnect.