What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-04-28 compared with 2022-10-28 · 157 added, 215 removed, 220 unchanged (63% of the section changed)

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(together with its controlled subsidiaries, “Charter”) is a leading broadband connectivity company and cable operator serving more than 32 million customers in 41 states through our Spectrum brand.

Over an advanced high-capacity, two-way telecommunications network, we offer a full range of state-of-the-art residential and business services including Spectrum Internet, TV, Mobile and Voice.

Over an advanced communications network, we offer 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.

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All significant intercompany accounts and transactions among consolidated entities have been eliminated.

In 2022, we remain focused on driving customer relationship growth.

Residential and small and medium business ("SMB") customer relationships increased by 17,000 during the third quarter of 2022 and 192,000 from September 30, 2021 to September 30, 2022, which excludes mobile-only customers.

Beginning in the first quarter of 2023, we removed separate mobile reporting, among several other changes, to better reflect the converged and integrated nature of our business and operations.

We made the following changes to our reporting:

• Residential and small and medium business (“SMB”) monthly revenue per customer calculations now include mobile service revenue

• Residential mobile service revenue previously included in mobile revenue is now separately reported in residential revenue

• SMB mobile service revenue previously included in mobile revenue is now included in SMB revenue

• Mobile equipment revenue previously included in mobile revenue is now included in other revenue

• Mobile expenses are no longer reported separately and are included in applicable expense categories

• Other costs of revenue includes regulatory, connectivity and produced content costs as well as mobile device costs and direct costs associated with mobile and selling advertising

• Costs to service customers now also includes costs related to field operations, network operations and customer operations for mobile customers but no longer includes costs to service bulk properties

• Sales and marketing expense, which previously included sales and marketing for Spectrum Enterprise, Spectrum Reach and Spectrum Networks as well as costs associated with selling to and servicing bulk properties, now only consists of residential and SMB sales and marketing expenses, including sales and marketing for mobile

• Other expense now also includes sales and marketing for Spectrum Enterprise, Spectrum Reach and Spectrum Networks as well as costs associated with selling to and servicing bulk properties but no longer includes direct costs associated with selling advertising

• Reclasses within capital expenditure categories were made to reclassify all costs associated with our network evolution initiative to upgrade/rebuild

• Line extensions capital expenditures are now broken out between subsidized rural construction line extensions and other line extensions

• Subsidized rural construction initiative capital expenditures subcategory only includes rural construction projects for which we are receiving subsidies from federal, state or local governments

There were no changes to total revenue, Adjusted EBITDA, capital expenditures or net income.

Prior periods have been revised to conform with the presentation noted above.

During the first quarter of 2023, we added 686,000 mobile lines, 76,000 Internet customers and 16,000 residential and SMB customer relationships, which excludes mobile-only customers.

Our Spectrum One offering, which brings together Spectrum Internet, Advanced WiFi and Unlimited Spectrum Mobile to offer consumers fast, reliable and secure online connections on their favorite devices at home and on-the-go in a high-value package, contributed to our increase in mobile lines in the first quarter.

We continue to see lower customer move rates and switching behavior among providers, which has reduced our selling opportunities.

Our rural construction initiative is underway which we expect will expand our footprint by approximately 1 million homes and businesses over the next six years, and we expect to participate in additional government subsidy programs that would further expand our footprint.

We continue to evolve our network to provide increased Internet speeds and reliability and invest in our products and customer service platforms.

We offer Spectrum Internet products with speeds up to 1 Gbps across our entire footprint.

Our Advanced WiFi, a managed WiFi service that provides customers an optimized home network while providing greater control of their connected devices with enhanced security and privacy, is available to nearly all Internet customers.

We continue to invest in our ability to provide a differentiated Internet connectivity experience for our mobile and fixed Internet customers with the availability of over 500,000 out of home WiFi access points across our footprint.

In October, we introduced Spectrum One, which brings together Spectrum Internet, Advanced WiFi and Unlimited Spectrum Mobile™, to offer consumers faster, more reliable and secure online connections on their favorite devices at home and on the go in a high-value package.

In addition, we continue to work towards the construction of our own 5G mobile data-only network leveraging the Citizens Broadband Radio Service (“CBRS”) Priority Access Licenses (“PALs”) purchased in 2020.

By continually improving our product set and offering consumers the opportunity to save money by switching to our services, we believe we can continue to penetrate our expanding footprint and attract more spend on additional products for our existing customers.

During the nine months ended September 30, 2022, we added 1,113,000 mobile lines and 239,000 Internet customers, and for the quarter ended September 30, 2022, we added 396,000 mobile lines and 75,000 Internet customers.

We believe Spectrum-branded mobile services will drive higher sales of our core products, create longer customer lives and increase profitability and cash flow over time.

During the three and nine months ended September 30, 2022, our mobile product line increased revenues by $750 million and $2.2 billion, respectively, reduced Adjusted EBITDA by approximately $96 million and $237 million, respectively, and reduced free cash flow by approximately $208 million and $768 million, respectively.

During the three and nine months ended September 30, 2021, our mobile product line increased revenues by $535 million and $1.5 billion, respectively, reduced Adjusted EBITDA by approximately $72 million and $219 million, respectively, and reduced free cash flow by approximately $145 million and $606 million, respectively.

Mobile Adjusted EBITDA may continue to be negative primarily as a result of growth-related sales and marketing and other customer acquisition costs for mobile services, and depending on the pace of that growth.

We also expect to continue to see negative free cash flow from the timing of device-related cash flows when we sell devices to customers pursuant to equipment installment plans and capital expenditures related to CBRS build-out.

We are beginning to see benefits from the targeted investments we are making in employee wages and benefits inside of our operations to build employee skill sets and tenure, as well as the continued investments in digitization of our customer service platforms and proactive maintenance, all with the goal of improving the customer experience, reducing transactions and driving customer growth and retention.

We spent $391 million on our subsidized rural construction initiative during the three months ended March 31, 2023.

We expect that over time, our subsidized rural construction initiative will support customer growth, and in the first quarter of 2023, we activated approximately 44,000 subsidized rural passings.

In addition, we continue to evolve and upgrade our network to provide higher Internet speeds and reliability and invest in our products and customer service platforms.

We currently offer Spectrum Internet products with speeds up to 1 Gbps across our entire footprint and over the next three years, we plan to upgrade our network to provide multi-gigabit speeds.

We continue to invest in our ability to provide a differentiated Internet connectivity experience for our mobile and fixed Internet customers with increasing availability of out-of-home WiFi access points across our footprint.

In addition, we continue to work towards the construction of our own 5G mobile data-only network leveraging our Citizen Broadband Radio Service ("CBRS") Priority Access Licenses.

By continually improving our product set and offering consumers the opportunity to save money by switching to our services, we believe we can continue to penetrate our expanding footprint and capture more spend on additional products for our existing customers.

We realized revenue, Adjusted EBITDA and income from operations during the periods presented as follows (in millions;

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minor differences may exist due to rounding):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 % Change 2022 2021 % Change

Three Months Ended March 31,

2023 2022 % Change

Revenues $ 13,653 $ 13,200 3.4 %

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Income from operations $ 2,926 $ 2,771 5.6 %

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, other income (expenses), net and other operating (income) expenses, net, such as special charges and (gain) loss on sale or retirement of assets.

Adjusted EBITDA is defined as net income attributable to Charter shareholders plus net income attributable to noncontrolling interest, interest expense, net, income taxes, depreciation and amortization, stock compensation expense, other income (expenses), net and other operating (income) expenses, net, such as special charges and (gain) loss on sale or retirement of assets.

See “Use of Adjusted EBITDA and Free Cash Flow” for further information on Adjusted EBITDA and free cash flow.

Growth in total revenue was primarily due to growth in our residential Internet, mobile and commercial customers and price adjustments.

Adjusted EBITDA growth and changes in income from operations were impacted by growth in revenue and increases in operating costs and expenses, primarily mobile, costs to service customers and marketing.

The following table summarizes our customer statistics for Internet, video, voice and mobile as of September 30, 2022 and 2021 (in thousands except per customer data and footnotes).

Growth in total revenue was primarily due to pass-through of programming cost increases to video customers and other price adjustments and growth in our residential mobile, Internet and commercial customers.

Adjusted EBITDA growth and changes in income from operations were impacted by growth in revenue and increases in operating costs and expenses, primarily other costs of revenue and costs to service customers partly offset by a decrease in programming expense.

The following table summarizes our customer statistics for Internet, video, voice and mobile as of March 31, 2023 and 2022 (in thousands except per customer data and footnotes).

Approximate as of

September 30,

Customer Relationships (b)

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(a) We calculate the aging of customer accounts based on the monthly billing cycle for each account.

On that basis, as of September 30, 2022 and 2021, customers include approximately 151,700 and 119,200 customers, respectively, whose accounts were over 60 days past due, approximately 55,500 and 21,100 customers, respectively, whose accounts were over 90 days past due and approximately 149,300 and 31,800 customers, respectively, whose accounts were over 120 days past due.

On that basis, as of March 31, 2023 and 2022, customers include approximately 119,800 and 132,500 customers, respectively, whose accounts were over 60 days past due, approximately 42,100 and 29,000 customers, respectively, whose accounts were over 90 days past due and approximately 217,800 and 74,500 customers, respectively, whose accounts were over 120 days past due.

Bad debt expense associated with these past due accounts has been reflected in our consolidated statements of operations.

The increase in past due accounts is predominately due to pre-existing and incremental unsubsidized amounts of customers’ bills for those customers participating in government assistance programs, including video services.

The increase in accounts past due is predominately due to pre-existing and incremental unsubsidized amounts of customers’ bills for those customers participating in government assistance programs, including video services.

These customers are downgraded to a fully subsidized Internet-only service.

(b) Customer relationships include the number of customers that receive one or more levels of service, encompassing Internet, video and voice services, without regard to which service(s) such customers receive.

(b) Customer relationships include the number of customers that receive one or more levels of service, encompassing Internet, video, voice and mobile services, without regard to which service(s) such customers receive.

Customers who reside in residential multiple dwelling units (“MDUs”) and that are billed under bulk contracts are counted based on the number of billed units within each bulk MDU.

Total customer relationships exclude enterprise and mobile-only customer relationships.

(c) Monthly residential revenue per residential customer is calculated as total residential quarterly revenue divided by three divided by average residential customer relationships during the respective quarter and excludes mobile revenue and customers.

(d) Monthly SMB revenue per SMB customer is calculated as total SMB quarterly revenue divided by three divided by average SMB customer relationships during the respective quarter and excludes mobile revenue and customers.

(e) Mobile lines include phones and tablets which require one of our standard rate plans (e.g., "Unlimited" or "By the Gig").

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The following table sets forth the consolidated statements of operations for the periods presented (dollars in millions, except per share data):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Revenues $ 13,653 $ 13,200

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Operating costs and expenses (exclusive of items shown separately below)

8,247 7,958 24,574 23,551

Depreciation and amortization 2,206 2,294

Other operating (income) expenses, net 202 (9) 141 284

Other operating expenses, net 10 1

10,727 10,429

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153,538,359 174,500,472

Total revenues grew $404 million and $1.9 billion for the three and nine months ended September 30, 2022, respectively, compared to the corresponding periods in 2021 primarily due to increases in the number of residential Internet, mobile and commercial customers and price adjustments.

Total revenues grew $453 million for the three months ended March 31, 2023 compared to the corresponding period in 2022 primarily due to price adjustments and increases in the number of residential mobile, Internet and commercial customers.

Revenues by service offering were as follows (dollars in millions;

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minor differences may exist due to rounding):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 % Change 2022 2021 % Change

Three Months Ended March 31,

2023 2022 % Change

Internet $ 5,718 $ 5,452 4.9 %

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Voice 373 391 (4.6) %

Mobile service 497 387 28.3 %

Residential revenue 10,842 10,576 2.5 %

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Advertising sales 355 383 (7.2) %

Mobile 750 535 40.2 % 2,166 1,546 40.1 %

Other 683 510 34.0 %

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Increase in average residential Internet customers 40

The increase related to rate and product mix was primarily due to reduced bundle discounts and promotional roll-off.

Residential Internet customers grew by 355,000 customers from September 30, 2021 to September 30, 2022.

Video revenues consist primarily of revenues from basic and digital video services provided to our residential customers, as well as franchise fees, equipment service fees and video installation revenue.

The increase related to rate and product mix was primarily due to promotional roll-off and rate adjustments.

Residential Internet customers grew by 178,000 customers from March 31, 2022 to March 31, 2023.

Video revenues consist primarily of revenues from video services provided to our residential customers, as well as franchise fees, equipment service fees and video installation revenue.

The decrease in video revenues is attributable to the following (dollars in millions):

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Increase related to rate and product mix changes 131

$ (123) $ (15)

Residential video customers decreased by 645,000 from September 30, 2021 to September 30, 2022.

The increase related to rate and product mix was primarily due to price adjustments and promotional roll-off and was partly offset by a higher mix of lower cost video packages within our video customer base.

Residential video customers decreased by 833,000 from March 31, 2022 to March 31, 2023.

The increase related to rate and product mix was primarily due to pass-through of programming cost increases and promotional roll-off and was partly offset by a higher mix of lower cost video packages within our video customer base.

The decrease in voice revenues from our residential customers is attributable to the following (dollars in millions):

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Increase related to rate 26

$ (18) $ (22)

Residential wireline voice customers decreased by 855,000 customers from September 30, 2021 to September 30, 2022.

Residential wireline voice customers decreased by 992,000 customers from March 31, 2022 to March 31, 2023.

Residential mobile service revenues increased $110 million during the three months ended March 31, 2023 compared to the corresponding period in 2022 primarily due to an increase of 1,977,000 mobile lines from March 31, 2022 to March 31, 2023.

The increase in SMB revenues is attributable to the following (dollars in millions):

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Decrease related to rate and product mix changes (7)

SMB customers grew by 69,000 from September 30, 2021 to September 30, 2022.

Enterprise revenues increased $17 million and $73 million during the three and nine months ended September 30, 2022, respectively, compared to the corresponding periods in 2021 primarily due to an increase in Internet PSUs offset by a $16 million one-time benefit incurred during the three and nine months ended September 30, 2021 as well as lower wholesale PSUs.

Enterprise PSUs increased 13,000 from September 30, 2021 to September 30, 2022.

SMB customers grew by 52,000 from March 31, 2022 to March 31, 2023.

Enterprise revenues increased $21 million during the three months ended March 31, 2023 compared to the corresponding period in 2022 primarily due to an increase in Internet PSUs partly offset by lower wholesale PSUs.

Enterprise PSUs increased 14,000 from March 31, 2022 to March 31, 2023.

Advertising sales revenues consist primarily of revenues from commercial advertising customers, programmers and other vendors, as well as local cable and advertising on regional sports and news channels.

Advertising sales revenues increased $90 million and $178 million during the three and nine months ended September 30, 2022, respectively, as compared to the corresponding periods in 2021 primarily due to an increase in political revenue.

During the three and nine months ended September 30, 2022, mobile revenues included approximately $303 million and $894 million of device revenues, respectively, and approximately $447 million and $1.3 billion of service revenues, respectively.

During the three and nine months ended September 30, 2021, mobile revenues included approximately $201 million and $643 million of device revenues, respectively, and approximately $334 million and $903 million of service revenues, respectively.

The increases in revenues are a result of an increase of 1,493,000 mobile lines from September 30, 2021 to September 30, 2022.

Other revenues consist of revenue from processing fees, regional sports and news channels (excluding intercompany charges or advertising sales on those channels), subsidy revenue, home shopping, video device sales, wire maintenance fees and other miscellaneous revenues.

Other revenues decreased $5 million and increased $24 million during the three and nine months ended September 30, 2022, respectively, compared to the corresponding periods in 2021.

The increase during the nine months ended September 30, 2022 compared to the corresponding prior period in 2021 is primarily due to subsidy revenue related to our rural construction initiative and an increase in processing fees offset by a decrease in sales of video devices.

Advertising sales revenues decreased $28 million during the three months ended March 31, 2023 as compared to the corresponding period in 2022 primarily due to a decrease in political and local ad revenue partly offset by higher advanced advertising.

Other revenues consist of revenue from mobile and video device sales, processing fees, regional sports and news channels (excluding intercompany charges or advertising sales on those channels), subsidy revenue, home shopping, wire maintenance fees and other miscellaneous revenues.

Other revenues increased $173 million during the three months ended March 31, 2023 compared to the corresponding period in 2022 primarily due to higher mobile device sales.

Operating costs and expenses .

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Programming $ (178)

Regulatory, connectivity and produced content (47) (160)

Other costs of revenue 220

Costs to service customers 136

Marketing 73 213

Mobile 239 638

$ 289 $ 1,023

Programming costs were approximately $2.9 billion and $3.0 billion for the three months ended September 30, 2022 and 2021, representing 35% and 37% of total operating costs and expenses, respectively, and $8.8 billion and $8.9 billion for the nine months ended September 30, 2022 and 2021, representing 36% and 38% of total operating costs and expenses, respectively.

Programming costs consist primarily of costs paid to programmers for basic, digital, premium, video on demand, and pay-per-view programming.

Programming costs decreased as a result of fewer customers and a higher mix of lower cost video packages within our video customer base along with favorable one-time impacts offset by contractual rate adjustments, including renewals and increases in amounts paid for retransmission consent.

We expect programming rates per customer will continue to increase due to a variety of factors, including annual increases imposed by programmers with additional selling power as a result of media and broadcast station groups consolidation, increased demands by owners of broadcast stations for payment for retransmission consent or linking carriage of other services to retransmission consent, and additional programming.

We have been unable to fully pass these increases on to our customers and do not expect to be able to do so in the future without a potential loss of customers.

Regulatory, connectivity and produced content decreased $47 million and $160 million during the three and nine months ended September 30, 2022, respectively, compared to the corresponding periods in 2021 primarily due to lower costs of video devices sold to customers and regulatory pass-through fees.

Regulatory, connectivity and produced content for the nine months ended September 30, 2022 compared to the corresponding prior period also decreased due to lower sports rights costs as a result of more basketball games during 2021 as compared to 2022 as the prior period had additional games due to the delayed start of the 2020 - 2021 NBA season as a result of COVID-19.

Costs to service customers increased $83 million and $271 million during the three and nine months ended September 30, 2022, respectively, compared to the corresponding periods in 2021 primarily due to higher bad debt and higher fuel costs offset by lower labor costs as a result of productivity improvements driven by improved network performance and digital self-service platforms.

Marketing increased $73 million and $213 million during the three and nine months ended September 30, 2022, respectively, compared to the corresponding periods in 2021 primarily due to higher labor costs associated with higher staffing levels and our commitment to a minimum $20 per hour wage in 2022 as well as insourcing of inbound sales and retention call centers.

Mobile costs of $846 million and $2.4 billion for the three and nine months ended September 30, 2022, respectively, and $607 million and $1.8 billion for the three and nine months ended September 30, 2021, respectively, were comprised of mobile device costs and mobile service, customer acquisition and operating costs.

The increase is attributable to an increase in the number of mobile lines.

Sales and marketing 66

Programming costs were approximately $2.8 billion and $3.0 billion for the three months ended March 31, 2023 and 2022, representing 33% and 37% of total operating costs and expenses, respectively.

Programming costs consist primarily of costs paid to programmers for basic, premium, video on demand, and pay-per-view programming.

Programming costs decreased as a result of fewer customers and a higher mix of lower cost video packages within our video customer base partly offset by contractual rate adjustments, including renewals and increases in amounts paid for retransmission consent.

First quarter 2023 programming costs include $50 million of favorable adjustments, which is similar in size to sports network rebates and other favorable adjustments in the first quarter of 2022.

Other costs of revenue increased $220 million during the three months ended March 31, 2023 compared to the corresponding period in 2022 primarily due to higher mobile device sales and higher other mobile direct costs due to an increase in mobile lines.

Costs to service customers increased $136 million during the three months ended March 31, 2023 compared to the corresponding period in 2022 primarily due to 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.

Sales and marketing increased $66 million during the three months ended March 31, 2023 compared to the corresponding period in 2022 primarily due to higher staffing across sales channels and the accelerated growth of Spectrum Mobile.

The increase in other expense is attributable to the following (dollars in millions):

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Corporate costs $ 9 $ 67

Advertising sales expense 27 54

Stock compensation expense $ 61

Corporate costs 36

Enterprise 14

Corporate costs increased during the nine months ended September 30, 2022 compared to the corresponding prior period primarily due to higher labor costs and computer and software expense.

Advertising sales expense increased due to higher costs of sales fees driven by higher political revenue and higher labor costs.

Stock compensation expense increased during the three months ended March 31, 2023 compared to the corresponding prior period primarily due to an increase in equity awards granted.

Corporate and enterprise costs increased primarily due to higher labor costs.

Depreciation and amortization.

Depreciation and amortization expense decreased by $93 million and $354 million during the three and nine months ended September 30, 2022, respectively, compared to the corresponding periods in 2021 primarily due to certain assets acquired in acquisitions becoming fully depreciated offset by an increase in depreciation as a result of more recent capital expenditures.

Other operating (income) expenses, net.

The change in other operating (income) expenses, net is attributable to the following (dollars in millions):

Depreciation and amortization expense decreased by $88 million during the three months ended March 31, 2023 compared to the corresponding period in 2022 primarily due to certain assets acquired in acquisitions becoming fully depreciated partly offset by an increase in depreciation as a result of more recent capital expenditures.

Other operating expenses, net.

The change in other operating expenses, net is attributable to the following (dollars in millions):

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Special charges, net $ 11

(Gain) loss on disposal of assets, net 5 (36)

$ 211 $ (143)

Loss on disposal of assets, net (2)

See Note 9 to the accompanying consolidated financial statements contained in “Item 1.

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Interest expense, net.

Net interest expense increased by $144 million and $326 million for the three and nine months ended September 30, 2022, respectively, compared to the corresponding periods in 2021.

The increase in net interest expense is the result of an increase in weighted average debt outstanding of approximately $8.4 billion and $9.0 billion during the three and nine months ended September 30, 2022, respectively, compared to the corresponding periods in 2021 as well as an increase in weighted average interest rates.

Net interest expense increased by $205 million for the three months ended March 31, 2023, compared to the corresponding period in 2022.

The increase in net interest expense is the result of an increase in weighted average interest rates as well as an increase in weighted average debt outstanding of approximately $4.7 billion during the three months ended March 31, 2023 compared to the corresponding period in 2022.

The increase in weighted average debt outstanding is primarily due to the issuance of notes throughout 2022 and 2023.

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Loss on extinguishment of debt (see Note 4) $ 69 $ 141

Loss on financial instruments, net (see Note 7) (129) (71)

Net periodic pension benefits (costs) 222 65

Gain (loss) on equity investments, net (42) 167

See Note 11 and the Notes referenced above to the accompanying consolidated financial statements contained in “Item 1.

Gain (loss) on financial instruments, net (see Note 6) $ (41)

Net periodic pension benefits (15)

Loss on equity investments, net (71)

See Note 10 and the Note referenced above to the accompanying consolidated financial statements contained in “Item 1.

Financial Statements” for more information.

Income tax expense.

We recognized income tax expense of $360 million and $1.2 billion for the three and nine months ended September 30, 2022, respectively, and $347 million and $844 million for the three and nine months ended September 30, 2021, respectively.

The increase is primarily a result of decreased recognition of excess tax benefits resulting from share-based compensation during 2021 and the change in pretax income.

We recognized income tax expense of $374 million and $345 million for the three months ended March 31, 2023 and 2022, respectively.

The increase is primarily a result of decreased recognition of excess tax benefits resulting from share-based compensation partly offset by lower pretax income.

Net income attributable to noncontrolling interest.

Net income attributable to noncontrolling interest for financial reporting purposes represents Advance/Newhouse Partnership's (“A/N”) portion of Charter Holdings’ net income based on its effective common unit ownership interest and the preferred dividend of $70 million for the nine months ended September 30, 2021.

For more information, see Note 5 to the accompanying consolidated financial statements contained in “Item 1.

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Net income attributable to Charter shareholders.

Net income attributable to Charter shareholders decreased $32 million and increased $815 million during the three and nine months ended September 30, 2022, respectively, compared to the corresponding periods in 2021, primarily as a result of the factors described above.

Net income attributable to Charter shareholders decreased $182 million during the three months ended March 31, 2023 compared to the corresponding period in 2022, primarily as a result of the factors described above.

Use of Adjusted EBITDA and Free Cash Flow

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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 us, may not be comparable to similarly titled measures used by other companies.

These terms, as defined by us, 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, below.

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For the purpose of calculating compliance with leverage covenants, we use Adjusted EBITDA, as presented, excluding certain expenses paid by our operating subsidiaries to other Charter entities.

Our debt covenants refer to these expenses as management fees, which were $342 million and $1.0 billion for

the three and nine months ended September 30, 2022, respectively, and $337 million and $979 million for the three and nine months ended September 30, 2021, respectively.

Our debt covenants refer to these expenses as management fees, which were $374 million and $342 million for the three months ended March 31, 2023 and 2022, respectively.

A reconciliation of Adjusted EBITDA and free cash flow to net income attributable to Charter shareholders and net cash flows from operating activities, respectively, is as follows (dollars in millions):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Net income attributable to Charter shareholders $ 1,021 $ 1,203

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Stock compensation expense 208 147

Other expenses, net 239 148 76 521

Other, net 114 (22)

Adjusted EBITDA $ 5,350 $ 5,213

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Recent Events

In August 2022, CCO Holdings, LLC ("CCO Holdings") and CCO Holdings Capital Corp.

jointly issued $1.5 billion of 6.375% senior unsecured notes due September 2029 at par.

The net proceeds were used for general corporate purposes, including to fund buybacks of Charter Class A common stock and Charter Holdings common units, to repay certain indebtedness and to pay related fees and expenses.

In February 2023, CCO Holdings, LLC (“CCO Holdings”) and CCO Holdings Capital Corp.

jointly issued $1.1 billion of 7.375% senior unsecured notes due March 2031 at par.

The net proceeds were used for general corporate purposes, including repaying certain indebtedness, funding buybacks of Charter Class A common stock and Charter Holdings common units and to pay related fees and expenses.

In February 2023, Charter Operating entered into an amendment to its credit agreement to replace London Interbank Offering Rate (“LIBOR”) as the benchmark rate applicable to the Term B loans with Secured Overnight Financing Rate (“SOFR”) and in March 2023, Charter Operating entered into another amendment to its credit agreement to incur a new Term B-3 loan with an aggregate principal amount of $750 million maturing in 2030 concurrently with the cancelation of certain of Charter Operating's existing Term B-1 and B-2 loans, among other amendments.

Pricing on the new Term B-3 loan is SOFR plus 2.25%.

After giving effect to the amendments, the aggregate principal amount of Term B-1 loans is $2.3 billion with pricing unchanged at SOFR plus 1.75% and the aggregate principal amount of Term B-2 loans is $3.1 billion with pricing unchanged at SOFR plus 1.75%.

Overview of Our Contractual Obligations and Liquidity

We have significant amounts of debt.

The principal amount of our debt as of September 30, 2022 was $96.8 billion, consisting of $13.4 billion of credit facility debt, $56.7 billion of investment grade senior secured notes and $26.7 billion of high-yield senior unsecured notes.

The principal amount of our debt as of March 31, 2023 was $97.8 billion, consisting of $14.6 billion of credit facility debt, $55.9 billion of investment grade senior secured notes and $27.3 billion of high-yield senior unsecured notes.

Our business requires significant cash to fund principal and interest payments on our debt.

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As we continue to grow our market penetration of our mobile product, we will continue to experience negative working capital impacts from the timing of device-related cash flows when we sell devices to customers pursuant to equipment installment plans.

Further, in 2022, Charter has become a meaningful federal cash tax payer as the majority of our net operating losses have been utilized.

Free cash flow was $1.5 billion and $5.0 billion for the three and nine months ended September 30, 2022, respectively, and $2.5 billion and $6.4 billion for the three and nine months ended September 30, 2021, respectively.

See table below for factors impacting free cash flow during the three and nine months ended September 30, 2022 compared to the corresponding prior periods.

As of September 30, 2022, the amount available under our credit facilities was approximately $4.6 billion and cash on hand was approximately $480 million.

We expect to utilize free cash flow, cash on hand and availability under our credit facilities as well as future refinancing transactions to further extend the

maturities of our obligations.

Further, in 2022, Charter became a meaningful federal cash tax payer as the majority of our net operating losses have been utilized.

Free cash flow was $664 million and $1.8 billion for the three months ended March 31, 2023 and 2022, respectively.

See the table below for factors impacting free cash flow during the three months ended March 31, 2023 compared to the corresponding prior period.

As of March 31, 2023, the amount available under our credit facilities was approximately $3.3 billion and cash on hand was approximately $534 million.

We expect to utilize free cash flow, cash on hand and availability under our credit facilities as well as future refinancing transactions to further extend the maturities of our obligations.

The timing and terms of any refinancing transactions will be subject to market conditions among other considerations.

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We believe we have sufficient liquidity from cash on hand, free cash flow and Charter Operating’s revolving credit facility as well as access to the capital markets to fund our projected cash needs.

We continue to evaluate the deployment of our cash on hand and anticipated future free cash flow including to invest in our business growth and other strategic opportunities, including expanding the capacity of our network, the expansion of our network through our rural broadband construction initiative, the build-out and deployment of our CBRS spectrum, and mergers and acquisitions as well as stock repurchases and dividends.

We continue to evaluate the deployment of our cash on hand and anticipated future free cash flow including to invest in our business growth and other strategic opportunities, including our network evolution and expansion initiatives, the build-out and deployment of our CBRS spectrum, and mergers and acquisitions as well as stock repurchases and dividends.

Charter's target leverage of net debt to the last twelve months Adjusted EBITDA remains at 4 to 4.5 times Adjusted EBITDA, and up to 3.5 times Adjusted EBITDA at the Charter Operating first lien level.

Our leverage ratio was 4.5 times Adjusted EBITDA as of September 30, 2022.

Our leverage ratio was 4.5 times Adjusted EBITDA as of March 31, 2023.

As Adjusted EBITDA grows, we expect to increase the total amount of our indebtedness to maintain leverage within Charter's target leverage range.

Excluding purchases from Liberty Broadband Corporation (“Liberty Broadband”) discussed below, during the three and nine months ended September 30, 2022, Charter purchased in the public market approximately 3.3 million and 12.6 million shares of Charter Class A common stock, respectively, for approximately $1.4 billion and $6.5 billion, respectively, and during the three and nine months ended September 30, 2021, Charter purchased in the public market approximately 3.5 million and 11.5 million shares of Charter Class A common stock, respectively, for approximately $2.7 billion and $7.8 billion, respectively.

Since the beginning of its buyback program in September 2016 through September 30, 2022, Charter has purchased approximately 145.7 million shares of Class A common stock and Charter Holdings common units for approximately $67.2 billion, including purchases from Liberty Broadband and A/N discussed below.

Excluding purchases from Liberty Broadband Corporation (“Liberty Broadband”) discussed below, during the three months ended March 31, 2023 and 2022, Charter purchased in the public market approximately 2.2 million and 4.4 million shares of Charter Class A common stock, respectively, for approximately $821 million and $2.6 billion, respectively.

Since the beginning of its buyback program in September 2016 through March 31, 2023, Charter has purchased approximately 152.0 million shares of Class A common stock and Charter Holdings common units for approximately $69.4 billion, including purchases from Liberty Broadband and A/N discussed below.

In February 2021, Charter and Liberty Broadband entered into a letter agreement (the “LBB Letter Agreement”).

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Under the LBB Letter Agreement, Liberty Broadband will sell to Charter, generally on a monthly basis, a number of shares of Charter Class A common stock representing an amount sufficient for Liberty Broadband’s ownership of Charter to be reduced such that it does not exceed the ownership cap then applicable to Liberty Broadband under the Stockholders Agreement at a purchase price per share equal to the volume weighted average price per share paid by Charter for shares repurchased during such immediately preceding calendar month other than (i) purchases from A/N, (ii) purchases in privately negotiated transactions or (iii) purchases for the withholding of shares of Charter Class A common stock pursuant to equity compensation programs of Charter.

Charter purchased from Liberty Broadband 1.7 million and 5.0 million shares of Charter Class A common stock for approximately $796 million and $2.6 billion during the three and nine months ended September 30, 2022, respectively, and 1.2 million and 4.0 million shares of Charter Class A common stock for approximately $880 million and $2.6 billion during the three and nine months ended September 30, 2021, respectively.

In October 2022, Charter purchased from Liberty Broadband an additional 0.5 million shares of Charter Class A common stock for approximately $183 million.

Charter purchased from Liberty Broadband 0.1 million and 1.0 million shares of Charter Class A common stock for approximately $42 million and $602 million during the three months ended March 31, 2023 and 2022, respectively.

In December 2016, Charter and A/N entered into a letter agreement, as amended in December 2017 (the “A/N Letter Agreement”), that requires A/N to sell to Charter or to Charter Holdings, on a monthly basis, a number of shares of Charter Class A common stock or Charter Holdings common units that represents a pro rata participation by A/N and its affiliates in any repurchases of shares of Charter Class A common stock from persons other than A/N effected by Charter during the immediately preceding calendar month, at a purchase price equal to the average price paid by Charter for the shares repurchased from persons other than A/N during such immediately preceding calendar month.

A/N and Charter both have the right to terminate or suspend the pro rata repurchase arrangement on a prospective basis.

During the three and nine months ended September 30, 2022, Charter Holdings purchased from A/N 0.8 million and 2.6 million Charter Holdings common units for approximately $385 million and $1.4 billion, respectively, and during the three and nine months ended September 30, 2021, Charter Holdings purchased from A/N 0.6 million and 2.3 million Charter Holdings common units for approximately $410 million and $1.5 billion, respectively.

As of September 30, 2022, Charter had remaining board authority to purchase an additional $680 million of Charter’s Class A common stock and/or Charter Holdings common units, excluding purchases from Liberty Broadband.

During the three months ended March 31, 2023 and 2022, Charter Holdings purchased from A/N 0.3 million and 0.7 million Charter Holdings common units for approximately $122 million and $416 million, respectively.

As of March 31, 2023, Charter had remaining board authority to purchase an additional $305 million of Charter’s Class A common stock and/or Charter Holdings common units, excluding purchases from Liberty Broadband.

Although Charter expects to continue to buy back its common stock consistent with its leverage target range, Charter is not obligated to acquire any particular amount of common stock, and the timing of any purchases that may occur cannot be predicted and will largely depend on market conditions and other potential uses of capital.

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Free Cash Flow

Free cash flow decreased $969 million and $1.4 billion during the three and nine months ended September 30, 2022 compared to the corresponding prior periods in 2021 due to the following (dollars in millions):

Free cash flow decreased $1.1 billion during the three months ended March 31, 2023 compared to the corresponding prior period in 2022 due to the following (dollars in millions):

Three months ended

September 30, 2022

March 31, 2023

three months ended

September 30, 2021

Increase / (Decrease) Nine months ended

September 30, 2022

nine months ended

September 30, 2021

March 31, 2022

Increase / (Decrease)

Changes in working capital, excluding change in accrued interest and taxes $ (653)

Increase in capital expenditures (607)

Increase in cash paid for taxes, net (383) (789)

Increase in cash paid for interest, net (203)

Increase in cash paid for taxes, net (19)

Increase in Adjusted EBITDA 137

Changes in working capital, excluding change in accrued interest and taxes 96 (38)

Other, net 209

$ (969) $ (1,433)

Free cash flow was reduced by $208 million and $768 million during the three and nine months ended September 30, 2022, respectively, and $145 million and $606 million during the three and nine months ended September 30, 2021, respectively, due to mobile impacts negatively affecting working capital, capital expenditures and Adjusted EBITDA.

The increase in capital expenditures is primarily due to the rural construction initiative of $525 million and $1.1 billion during the three and nine months ended September 30, 2022, respectively.

Cash paid for taxes, net increased as Charter has become a meaningful federal cash tax payer in 2022.

Other, net for the three and nine months ended September 30, 2022 includes the payment of litigation settlements including the payment of a previously recorded litigation settlement with Sprint Communications Company L.P.

and T-Mobile USA, Inc for the nine months ended September 30, 2022.

See Note 10 to the accompanying consolidated financial statements contained in “Item 1.

Financial Statements” for more information.

Limitations on Distributions

Distributions by our subsidiaries to a parent company for payment of principal on parent company notes are restricted under CCO Holdings indentures governing CCO Holdings' indebtedness, unless there is no default under the applicable indenture, and unless CCO Holdings' leverage ratio test is met at the time of such distribution.

As of September 30, 2022, there was no default under any of these indentures, and CCO Holdings met its leverage ratio test based on September 30, 2022 financial results.

As of March 31, 2023, there was no default under any of these indentures, and CCO Holdings met its leverage ratio test based on March 31, 2023 financial results.

There can be no assurance that CCO Holdings will satisfy its leverage ratio test at the time of the contemplated distribution.

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Cash and Cash Equivalents.

We held $480 million and $601 million in cash and cash equivalents as of September 30, 2022 and December 31, 2021, respectively.

We held $534 million and $645 million in cash and cash equivalents as of March 31, 2023 and December 31, 2022, respectively.

Operating Activities.

Net cash provided by operating activities decreased $875 million during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to an increase in cash paid for taxes, changes in working capital, the payment of litigation settlements and higher cash paid for interest, offset by an increase in Adjusted EBITDA of $883 million.

Net cash provided by operating activities decreased $324 million during the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily due to an increase in cash paid for interest and changes in working capital, partly offset by an increase in Adjusted EBITDA of $137 million.

Investing Activities.

Net cash used in investing activities was $6.3 billion and $5.8 billion for the nine months ended September 30, 2022 and 2021, respectively.

The increase in cash used was primarily due to an increase in capital expenditures, offset by changes in accrued expenses related to capital expenditures that increased by $335 million.

Net cash used in investing activities was $2.7 billion and $1.8 billion for the three months ended March 31, 2023 and 2022, respectively.

The increase in cash used was primarily due to an increase in capital expenditures and changes in accrued expenses related to capital expenditures that increased by $205 million.

Financing Activities.

Net cash used in financing activities decreased $1.9 billion during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to a decrease in the purchase of treasury stock and noncontrolling interest and an increase in the amount by which borrowings of long-term debt exceeded repayments.

Net cash used in financing activities increased $665 million during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to a decrease in the amount by which borrowings of long-term debt exceeded repayments, partly offset by a decrease in the purchase of treasury stock and noncontrolling interest.

Capital Expenditures

We have significant ongoing capital expenditure requirements.

Capital expenditures were $2.4 billion and $6.5 billion for the three and nine months ended September 30, 2022, respectively, and $1.9 billion and $5.6 billion for the three and nine months ended September 30, 2021, respectively.

The increase was primarily due to an increase in line extensions and customer premise equipment, partly offset by a decrease in support capital.

The increase in line extensions was primarily due to the rural construction initiative.

Capital expenditures were $2.5 billion and $1.9 billion for the three months ended March 31, 2023 and 2022, respectively.

The increase was primarily due to an increase in line extensions in connection with our subsidized rural construction initiative and continued residential and commercial network expansion.

The increase in capital expenditures excluding line extensions was primarily driven by higher spend on network evolution, customer premise equipment and support capital.

See the table below for more details.

We currently expect full year 2022 cable capital expenditures, excluding capital expenditures associated with our rural construction initiative, to be between $7.1 billion and $7.3 billion.

The actual amount of our capital expenditures in 2022 will depend on a number of factors including further spend related to product development, growth rates of both our residential and commercial businesses, supply chain timing and the pace of rural construction.

We currently expect full year 2023 capital expenditures, excluding line extensions, to be between $6.5 billion and $6.8 billion.

We expect 2023 line extensions capital expenditures to be approximately $4 billion.

The actual amount of capital expenditures in 2023 will depend on a number of factors including, but not limited to, the pace of our network evolution and expansion initiatives, supply chain timing and growth rates in our residential and commercial businesses.

Our capital expenditures are funded primarily from cash flows from operating activities and borrowings on our credit facility.

In addition, our accrued liabilities related to capital expenditures increased by $284 million and decreased by $51 million for the nine months ended September 30, 2022 and 2021, respectively.

The following tables present our major capital expenditures categories in accordance with National Cable and Telecommunications Association (“NCTA”) disclosure guidelines for the three and nine months ended September 30, 2022 and 2021.

In addition, our accrued liabilities related to capital expenditures decreased by $195 million and increased by $10 million for the three months ended March 31, 2023 and 2022, respectively.

These disclosure guidelines are not required disclosures under GAAP, nor do they impact our accounting for capital expenditures under GAAP (dollars in millions):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Customer premise equipment (a)

$ 577 $ 513 $ 1,606 $ 1,496

Scalable infrastructure (b)

418 375 1,178 1,223

Line extensions (c)

826 392 2,062 1,191

Upgrade/rebuild (d)

208 178 535 484

Support capital (e)

377 403 1,075 1,169

Upgrade/rebuild (c)

Support capital (d)

Capital expenditures, excluding line extensions 1,574 1,316

Subsidized rural construction line extensions 371 192

Other line extensions 519 349

Total line extensions (e)

Total capital expenditures $ 2,464 $ 1,857

Commercial services $ 367 $ 365

Capital expenditures included in total related to:

Core cable (f)

$ 1,785 $ 1,742 $ 5,077 $ 5,208

Subsidized rural construction initiative (f)

Mobile $ 77 $ 74

Rural construction initiative (g)

525 — 1,114 —

Total capital expenditures $ 2,406 $ 1,861 $ 6,456 $ 5,563

(a) Customer premise equipment includes costs incurred at the customer residence to secure new customers and revenue generating units, including customer installation costs and customer premise equipment (e.g., digital receivers and cable modems).

(b) Scalable infrastructure includes costs not related to customer premise equipment, to secure growth of new customers and revenue generating units, or provide service enhancements (e.g., headend equipment).

(c) Line extensions include network costs associated with entering new service areas (e.g., fiber/coaxial cable, amplifiers, electronic equipment, make-ready and design engineering).

(d) Upgrade/rebuild includes costs to modify or replace existing fiber/coaxial cable networks, including betterments.

(e) Support capital includes costs associated with the replacement or enhancement of non-network assets due to technological and physical obsolescence (e.g., non-network equipment, land, buildings and vehicles).

(f) Core cable represents total capital expenditures excluding mobile and rural construction initiative capital expenditures.

(g) The rural construction initiative subcategory includes expenditures associated with our Rural Construction Initiative (for which separate reporting was initiated in 2022), excluding customer premise equipment and installation.

(a) Customer premise equipment includes equipment and devices located at the customer's premise used to deliver our Internet, video and voice services (e.g., modems, routers and set-top boxes), as well as installation costs.

(b) Scalable infrastructure includes costs, not related to customer premise equipment or our network, to secure growth of new customers or provide service enhancements (e.g., headend equipment).

(c) Upgrade/rebuild includes costs to modify or replace existing fiber/coaxial cable networks, including our network evolution initiative which started in 2022.

(d) Support capital includes costs associated with the replacement or enhancement of non-network assets (e.g., back-office systems, non-network equipment, land and buildings, vehicles, tools and test equipment).

(e) Line extensions include network costs associated with entering new service areas (e.g., fiber/coaxial cable, amplifiers, electronic equipment, make-ready and design engineering).

(f) The subsidized rural construction initiative subcategory includes projects for which we are receiving subsidies from federal, state and local governments (for which separate reporting was initiated in 2022), excluding customer premise equipment and installation.

Recently Issued Accounting Standards

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis