Charter Communications(US:CHTR)2024-04-26 11:03PART I FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited consolidated financial statements for Q1 2024 and 2023, including balance sheets, statements of operations, cash flows, and explanatory notes Consolidated Statements of Operations Q1 2024 saw total revenues of $13.68 billion, increased income from operations to $3.13 billion, and diluted EPS of $7.55 Q1 2024 vs Q1 2023 Statement of Operations Highlights | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Revenues | $13,679 million | $13,653 million | | Income from operations | $3,131 million | $2,926 million | | Net income attributable to Charter shareholders | $1,106 million | $1,021 million | | Diluted EPS | $7.55 | $6.65 | Consolidated Balance Sheets As of March 31, 2024, total assets reached $148.04 billion, with long-term debt at $97.97 billion and shareholders' equity at $15.61 billion Balance Sheet Summary (in millions) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $148,044 | $147,193 | | Long-Term Debt | $97,965 | $95,777 | | Total Shareholders' Equity | $15,606 | $14,718 | Consolidated Statements of Cash Flows Q1 2024 saw operating cash flow decrease to $3.21 billion, investing cash flow increase to $2.91 billion, and financing cash flow decrease to $353 million Q1 Cash Flow Summary (in millions) | Cash Flow Category | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash flows from operating activities | $3,212 | $3,323 | | Net cash flows from investing activities | $(2,907) | $(2,739) | | Net cash flows from financing activities | $(353) | $(695) | Notes to Consolidated Financial Statements Detailed notes disclose revenue segmentation, operating costs, total debt of $98.0 billion, share repurchases, and derivative instruments Revenues by Product Line (Q1, in millions) | Product | 2024 | 2023 | | :--- | :--- | :--- | | Internet | $5,826 | $5,718 | | Video | $3,908 | $4,254 | | Mobile service | $685 | $497 | | Commercial | $1,796 | $1,773 | | Advertising sales | $391 | $355 | Operating Costs and Expenses (Q1, in millions) | Category | 2024 | 2023 | | :--- | :--- | :--- | | Programming | $2,570 | $2,799 | | Other costs of revenue | $1,458 | $1,328 | | Costs to service customers | $2,094 | $2,095 | - As of March 31, 2024, total debt principal was $97.8 billion, with a carrying value of $98.0 billion53 - During Q1 2024, the company repurchased 1.6 million shares of its Class A common stock for $516 million, including buybacks and shares withheld for taxes57 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q1 2024 performance, including 0.2% revenue growth, customer trends, the impact of ACP termination, network evolution, and financial resources Overview and Key Metrics Q1 2024 saw a loss of 72,000 Internet customers but a gain of 486,000 mobile lines, with network evolution ongoing and the ACP termination posing a significant challenge - In Q1 2024, Charter lost 72,000 Internet customers but added 486,000 mobile lines, with growth challenged by competition and the freeze on new Affordable Connectivity Program (ACP) enrollments110 - The company is upgrading its network to deliver symmetrical and multi-gigabit speeds and spent $427 million on its subsidized rural construction initiative in Q1 2024111 - The expected end of government subsidies for 5.0 million ACP customers in May 2024 is projected to have a one-time negative impact on customer net gains, revenue, and bad debt in Q2 and Q386 Customer Statistics (in thousands) | Customer Type | March 31, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Total Internet Customers | 30,516 | 30,509 | | Total Video Customers | 13,717 | 14,906 | | Total Voice Customers | 7,726 | 8,763 | | Total Mobile Lines | 8,252 | 5,978 | Results of Operations Q1 2024 total revenues marginally increased by 0.2%, driven by mobile and Internet growth, offset by video decline, leading to a 7.0% increase in income from operations to $3.1 billion Q1 Revenue by Service Offering (in millions) | Service | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Internet | $5,826 | $5,718 | 1.9% | | Video | $3,908 | $4,254 | (8.1)% | | Mobile service | $685 | $497 | 37.8% | | Advertising sales | $391 | $355 | 10.0% | | Total Revenues | $13,679 | $13,653 | 0.2% | - The 8.1% decrease in video revenue was driven by a net loss of 1,149,000 residential video customers from March 31, 2023 to March 31, 202497120 - Programming costs decreased by $229 million due to fewer video customers and a higher mix of lower-cost video packages, partially offset by contractual rate adjustments148125 - Other operating income included a $67 million gain on the sale of towers during Q1 20247862 Liquidity and Capital Resources As of March 31, 2024, the company had $661 million cash, $2.9 billion credit, $97.8 billion debt, a 4.4x leverage ratio, and Q1 free cash flow of $358 million - The company's leverage ratio was 4.4 times Adjusted EBITDA as of March 31, 2024, within its target range of 4.0 to 4.5 times156 Free Cash Flow Reconciliation (Q1, in millions) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net cash flows from operating activities | $3,212 | $3,323 | | Less: Purchases of property, plant and equipment | $(2,791) | $(2,464) | | Change in accrued expenses related to capital expenditures | $(63) | $(195) | | Free cash flow | $358 | $664 | - Capital expenditures increased to $2.8 billion in Q1 2024 from $2.5 billion in Q1 2023, driven by network evolution, customer premise equipment (Xumo), and subsidized rural construction189190 - Full-year 2024 capital expenditures are expected to be between $12.2 billion and $12.4 billion, including approximately $4.5 billion for line extensions and $1.6 billion for network evolution164 Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk, specifically interest rate risk, have occurred since the 2023 Annual Report on Form 10-K - There have been no material changes to the interest rate risk as previously disclosed in the 2023 Annual Report on Form 10-K195 Item 4. Controls and Procedures Management, including CEO and CFO, concluded disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal controls - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the reporting period196 - No material changes to internal control over financial reporting were identified during the first quarter of 2024197 PART II OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various lawsuits and regulatory inquiries, with individual cases not expected to be material, but the aggregate impact could be - The company is party to lawsuits and regulatory inquiries arising in the ordinary course of business. While individual lawsuits are not expected to be material, the aggregate effect could be83 Item 1A. Risk Factors Updated risk factors emphasize legal and regulatory changes, with the termination of the federal Affordable Connectivity Program (ACP) subsidy being a significant new risk - A key updated risk is the potential elimination of the federal broadband Affordable Connectivity Program (ACP) subsidy for low-income consumers, which could adversely affect the business169 - The ACP program is expected to end after May 2024 unless Congress provides additional funding. This will be disruptive, leading to lost customers and revenues170 - Participation in government programs like ACP and RDOF creates risks of non-compliance, which could result in penalties, fines, or suspension from future government programs172203 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2024, Charter repurchased 1.4 million shares for $472 million, with $263 million remaining authorized for repurchases as of March 31, 2024 Issuer Purchases of Equity Securities (Q1 2024) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 1 - 31, 2024 | 872,123 | $374.21 | | Feb 1 - 29, 2024 | 377,577 | $291.59 | | Mar 1 - 31, 2024 | 307,854 | $288.60 | - In Q1 2024, Charter purchased approximately 1.4 million shares of its Class A common stock for $472 million. As of March 31, 2024, $263 million remained authorized for repurchases175 Item 6. Exhibits This section indexes exhibits filed with Form 10-Q, including CEO and CFO certifications and iXBRL financial statements - The report lists filed exhibits, including CEO and CFO certifications pursuant to Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act, as well as iXBRL financial data209