Charter Communications, Inc. today reported financial and operating results for the three and nine months ended September 30, 2020.

Key highlights:

• Third quarter total residential and small and medium business ("SMB") customer relationships increased by 457,000, compared to 310,000 during the third quarter of 2019. Over the last 12 months, total customer relationships grew by 6.8%.
• Third quarter total residential and SMB Internet customers increased by 537,000, compared to 380,000 during the third quarter of 2019. Over the last 12 months, total Internet customers grew by 2.3 million, or 8.8%, to 28.6 million.
• Charter added 363,000 mobile lines in the third quarter, compared to 276,000 during the third quarter of 2019. As of September 30, 2020, Charter served a total of 2.1 million mobile lines.
• Third quarter revenue of $12.0 billion grew by 5.1% year-over-year, driven by residential revenue growth of 4.0%, mobile revenue growth of 91.8% and advertising revenue growth of 16.8%.
• Third quarter Adjusted EBITDA1 of $4.6 billion grew by 13.6% year-over-year, while third quarter cable Adjusted EBITDA1 of $4.7 billion grew by 11.7% year-over-year.
• Net income attributable to Charter shareholders totaled $814 million in the third quarter, compared to $387 million during the same period last year.
• Third quarter capital expenditures totaled $2.0 billion and included $139 million of mobile-related capital expenditures.
• Consolidated free cash flow1 in the third quarter of 2020 totaled $1.8 billion, compared to $1.3 billion in 2019. Cable free cash flow1 totaled $2.0 billion in the third quarter of 2020, versus $1.5 billion in 2019.
• During the third quarter, Charter purchased approximately 6.1 million shares of Charter Class A common stock and Charter Communications Holdings, LLC ("Charter Holdings") common units for approximately $3.6 billion.

"Our long-term strategy of growing customer relationships by delivering high-quality products and service remains on track," said Tom Rutledge, Chairman and CEO of Charter Communications, Inc. "We've added two million customer relationships in the past year and remain focused on executing a proven operating and investment strategy that works for customers, employees and the communities we serve, creating shareholder value for the long term."

During the third quarter of 2020, Charter's residential customer relationships grew by 416,000, while third quarter 2019 residential customer relationships grew by 282,000. As of September 30, 2020, Charter had 28.9 million residential customer relationships, with year-over-year growth of 1.9 million, or 6.9%.

Charter added 494,000 residential Internet customers in the third quarter of 2020, versus third quarter 2019 residential Internet customer net additions of 351,000. As of September 30, 2020, Charter had 26.8 million residential Internet customers, with over 85% subscribing to tiers that provided 100 Mbps or more of speed, and over 50% subscribing to tiers that provided 200 Mbps or more of speed. Currently, 200 Mbps is the slowest speed offered to new Spectrum Internet® customers in approximately 60% of Charter's footprint, with 100 Mbps the slowest speed offered in the remaining 40% of its footprint.

Residential video customers increased by 53,000 in the third quarter of 2020, while third quarter 2019 residential video customers decreased by 77,000. As of September 30, 2020, Charter had 15.7 million residential video customers.

During the third quarter of 2020, residential wireline voice customers declined by 63,000, while third quarter 2019 residential wireline voice customers declined by 213,000. As of September 30, 2020, Charter had 9.3 million residential wireline voice customers.

Third quarter 2020 residential revenue per residential customer (excluding mobile) totaled $109.03, and declined by 2.7% compared to the prior year period, driven by $218 million of estimated credits to be provided to Charter's video customers upon finalization of expected rebates from sports programming networks which result from fewer games broadcast during COVID-19. Excluding the planned credit to video customers, residential revenue per residential customer (excluding mobile) totaled $111.56, and declined 0.4% year-over-year given a higher percentage of non-video customers and a higher mix of lower priced video packages within Charter's video customer base, lower pay-per-view and video on demand revenue and lower installation revenue partly offset by promotional rate step-ups and rate adjustments.

SMB customer relationships grew by 41,000 during the third quarter of 2020, compared to growth of 28,000 during the third quarter of 2019. As of September 30, 2020, Charter had 2.0 million SMB customer relationships, with year-over-year growth of 4.7%. Enterprise PSUs grew by 2,000 during the third quarter of 2020 compared to growth of 6,000 during the third quarter of 2019. As of September 30, 2020, Charter had 272,000 enterprise PSUs, with growth of 3.1% year-over-year.

During the third quarter of 2020, Charter added 363,000 mobile lines, and as of September 30, 2020, Charter served a total of 2.1 million mobile lines. Spectrum Mobile™is available to all new and existing Spectrum Internet customers and runs on America's most awarded LTE network combined with Spectrum WiFi. Spectrum Mobile customers can choose one of two simple ways to pay for data, "Unlimited", or "By the Gig." All plans include 4G and 5G access, with no added taxes, fees or contracts.

Revenues

Third quarter revenue increased by 5.1% year-over-year to $12.0 billion, driven by growth in Internet, mobile and advertising.

Residential revenue totaled $9.4 billion in the third quarter, an increase of 4.0% year-over-year, despite $218 million of estimated credits to be provided to Charter's video customers upon finalization of expected rebates from sports programming networks which result from fewer games broadcast during COVID-19.

Internet revenue grew by 12.5% compared to the year-ago quarter, to $4.7 billion, driven by growth in Internet customers during the last year, promotional rate step-ups and rate adjustments.

Video revenue totaled $4.2 billion in the third quarter, a decrease of 3.2% compared to the prior year period, driven by the estimated customer credits related to sports programming, a higher mix of lower priced video packages within Charter's video customer base, a decline in video customers during the last year, lower pay-per-view and video on demand revenue and lower installation revenue partly offset by rate adjustments and promotional rate step-ups.

Voice revenue totaled $449 million in the third quarter, a decrease of 5.8% compared to the third quarter of 2019, driven by a decline in wireline voice customers over the last 12 months and value-based pricing.

Commercial revenue declined to $1.6 billion, a decrease of 0.8% over the prior year period, driven by Charter's sale of Navisite in the third quarter of 2019, lower cell tower backhaul and other wholesale revenue – both in Enterprise, and an $11 million impact from COVID-19 related seasonal plans in SMB. SMB revenue growth absent the COVID-19 seasonal plan impact was 2.6% year-over-year, reflecting customer relationship growth. Enterprise retail revenue excluding Navisite in 2019 and wholesale revenue, was 5.8%, reflecting PSU growth.

Third quarter advertising sales revenue of $460 million increased by 16.8% compared to the year-ago quarter, driven by higher political revenue and the timing of the return of multiple sports events and leagues, partly offset by lower local and national sales which are recovering from previous lows during the COVID-19 pandemic. Excluding political revenue in both periods, advertising sales revenue declined by 11.2% year-over-year.

Third quarter mobile revenue totaled $368 million, an increase of 91.8% year-over-year.

Other revenue totaled $214 million in the third quarter, a decrease of 0.7% year-over-year, driven by lower processing fees, partly offset by higher video customer premise equipment ("CPE") sold to customers.

Operating Costs and Expenses

Third quarter total operating costs and expenses increased by $36 million, or 0.5% year-over-year. Excluding mobile costs in both periods, operating costs and expenses decreased by 1.2% compared to the year-ago quarter.

Third quarter programming costs decreased by $63 million, or 2.3% as compared to the third quarter of 2019, reflecting $163 million of estimated sports network rebates which result from fewer games broadcast during COVID-19, a higher mix of lower cost video packages within Charter's video customer base and fewer video customers, partly offset by contractual programming increases and renewals.

Regulatory, connectivity and produced content expenses were essentially unchanged year-over-year, as lower regulatory and franchise fees were offset by higher video CPE sold to customers and higher sports rights costs. The impact of an expected reduction in sports rights content costs were immaterial in the quarter as this benefit will be amortized over the life of the contract, consistent with the deferral of second quarter expense for canceled games. Together with the expected rebates shown in programming expense, Charter intends to provide a credit on its video customers' invoices for all of the rebates provided by sports programming networks when details are finalized with the networks.

Costs to service customers increased by $8 million, or 0.4% year-over-year, despite year-over-year residential and SMB customer growth of 6.8%. The year-over-year increase in costs to service customers was primarily driven by previously announced accelerated wage benefits for hourly field operations and call center employees, higher COVID-19 related benefits and the timing of medical costs, partly offset by lower bad debt and productivity improvements.

Marketing expenses decreased by $5 million, or 0.7% year-over-year.

Other expenses decreased by $23 million, or 2.5% as compared to the third quarter of 2019 primarily driven by lower enterprise costs from the sale of Navisite, lower employee travel expense and insurance costs, partly offset by higher information technology and advertising sales expense.

Third quarter mobile costs totaled $456 million, an increase of 35.2% year-over-year, and were comprised of device costs, customer acquisition costs, and service and operating costs.

Adjusted EBITDA

Third quarter Adjusted EBITDA of $4.6 billion grew by 13.6% year-over-year, reflecting growth in revenue and operating expenses of 5.1% and 0.5%, respectively. Third quarter cable Adjusted EBITDA grew by 11.7% year-over-year reflecting growth in cable revenue of 3.7% and a decline in cable operating expenses of 1.2%.

Net Income Attributable to Charter Shareholders

Net income attributable to Charter shareholders totaled $814 million in the third quarter of 2020, compared to $387 million in the third quarter of 2019. The year-over-year increase in net income attributable to Charter shareholders was primarily driven by higher Adjusted EBITDA, partly offset by a pension remeasurement loss.

Net income per basic common share attributable to Charter shareholders totaled $4.01 in the third quarter of 2020 compared to $1.77 during the same period last year. The increase was primarily the result of the factors described above in addition to a 7.2% decrease in weighted average common shares outstanding versus the prior year period.

Capital Expenditures

Property, plant and equipment expenditures totaled $2.0 billion in the third quarter of 2020, compared to $1.7 billion during the third quarter of 2019, primarily driven by increases in support capital, scalable infrastructure, line extensions and Internet CPE. The year-over-year increase in support capital was primarily due to facility improvements, the timing of back office systems investments and mobile store build-outs. The increase in scalable infrastructure spending was primarily due to core network enhancements and node splits given growing customers and traffic. The increase in line extensions was driven by continued network expansion, including to rural areas. The increase in Internet CPE spending was due to higher Internet customer growth. Third quarter capital expenditures included $139 million of mobile costs, most of which are included in support capital.

Charter currently expects 2020 cable capital expenditures to be consistent and possibly lower as a percentage of cable revenue versus 2019, despite the significant acceleration in customer growth and network utilization during COVID-19.

Cash Flow and Free Cash Flow

During the third quarter of 2020, net cash flows from operating activities totaled $3.7 billion, compared to $2.9 billion in the prior year quarter. The year-over-year increase in net cash flows from operating activities was primarily due to higher Adjusted EBITDA and a favorable change in working capital.

Consolidated free cash flow in the third quarter of 2020 totaled $1.8 billion, compared to $1.3 billion during the same period last year. Cable free cash flow in the third quarter of 2020 totaled $2.0 billion, compared to $1.5 billion during the same period last year. The year-over-year increases in consolidated free cash flow and cable free cash flow were driven by an increase in net cash flows from operating activities.

Liquidity & Financing

As of September 30, 2020, total principal amount of debt was $79.1 billion and Charter's credit facilities provided approximately $4.7 billion of additional liquidity in excess of Charter's $1.3 billion cash position.

In July 2020, CCO Holdings, LLC ("CCO Holdings") and CCO Holdings Capital Corp. issued $3.0 billion of 4.250% senior unsecured notes due 2031. The proceeds were used to pay related fees and expenses and for general corporate purposes, including repaying certain indebtedness, including all of CCO Holdings' 5.875% senior notes due 2024, as well as funding buybacks of Charter Class A common stock and/or Charter Holdings common units.

In October 2020, CCO Holdings and CCO Holdings Capital Corp. jointly issued an additional $1.5 billion of its 4.500% senior unsecured notes due 2032 at a price of 103.750%. The net proceeds will be used to pay related fees and expenses and for general corporate purposes, including repaying certain indebtedness, including repayment of all of CCO Holdings' 5.375% senior notes due May 1, 2025, as well as funding potential buybacks of Charter Class A common stock and Charter Holdings common units.

Share Repurchases

During the three months ended September 30, 2020, Charter purchased approximately 6.1 million shares of Charter Class A common stock and Charter Holdings common units for approximately $3.6 billion.

Use of Adjusted EBITDA and Free Cash Flow Information

The company uses certain measures that are not defined by U.S. generally accepted accounting principles ("GAAP") to evaluate various aspects of its business. Adjusted EBITDA and free cash flow are non-GAAP financial measures and should be considered in addition to, not as a substitute for, net income attributable to Charter shareholders and net cash flows from operating activities reported in accordance with GAAP. These terms, as defined by Charter, may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA and free cash flow are reconciled to net income attributable to Charter shareholders and net cash flows from operating activities, respectively, in the Addendum to this release.

Adjusted EBITDA is defined as net income attributable to Charter shareholders plus net income attributable to noncontrolling interest, net interest expense, income taxes, depreciation and amortization, stock compensation expense, loss on extinguishment of debt, (gain) loss on financial instruments, net, other pension (benefits) costs, net, other (income) expense, net and other operating (income) expenses, net, such as special charges and (gain) loss on sale or retirement of assets. As such, it eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of the Company's businesses as well as other non-cash or special items, and is unaffected by the Company's capital structure or investment activities. However, this measure is limited in that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues and the cash cost of financing. These costs are evaluated through other financial measures.

Free cash flow is defined as net cash flows from operating activities, less capital expenditures and changes in accrued expenses related to capital expenditures.

Management and Charter's board of directors use Adjusted EBITDA and free cash flow to assess Charter's performance and its ability to service its debt, fund operations and make additional investments with internally generated funds. In addition, Adjusted EBITDA generally correlates to the leverage ratio calculation under the Company's credit facilities or outstanding notes to determine compliance with the covenants contained in the facilities and notes (all such documents have been previously filed with the the SEC). For the purpose of calculating compliance with leverage covenants, the Company uses Adjusted EBITDA, as presented, excluding certain expenses paid by its operating subsidiaries to other Charter entities. The Company's debt covenants refer to these expenses as management fees, which were $308 million and $927 million for the three and nine months ended September 30, 2020, respectively, and $317 million and $916 million for the three and nine months ended September 30, 2019, respectively.

Cable Adjusted EBITDA is defined as Adjusted EBITDA less mobile revenues plus mobile operating costs and expenses. Cable free cash flow is defined as free cash flow plus mobile net cash outflows from operating activities and mobile capital expenditures. Management and Charter's board of directors use cable Adjusted EBITDA and cable free cash flow to provide management and investors a more meaningful year-over-year perspective on the financial and operational performance and trends of our core cable business without the impact of the revenue, costs and capital expenditures in the initial funding period to grow a new product line as well as the negative working capital impacts from the timing of device-related cash flows when we sell the handset or tablet to customers pursuant to equipment installment plans.

About Charter

Charter Communications, Inc. (NASDAQ:CHTR) is a leading broadband connectivity company and cable operator serving more than 30 million customers in 41 states through its Spectrum brand. Over an advanced communications network, the company offers a full range of state-of-the-art residential and business services including Spectrum Internet®, TV, Mobile and Voice.

For small and medium-sized companies, Spectrum Business® delivers the same suite of broadband products and services coupled with special features and applications to enhance productivity, while for larger businesses and government entities, Spectrum Enterprise provides highly customized, fiber-based solutions. Spectrum Reach® delivers tailored advertising and production for the modern media landscape. The company also distributes award-winning news coverage, sports and high-quality original programming to its customers through Spectrum Networks and Spectrum Originals. More information about Charter can be found at corporate.charter.com.