CHARTER COMMUNICATIONS, INC. /MO/ 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. General Charter Communications, Inc. (together with its controlled subsidiaries, “Charter”) is a leading broadband connectivity company and cable operator with services available to more than 57 million homes and businesses in 41 states through our Spectrum brand. 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. Spectrum Reach delivers tailored advertising and production for the modern media landscape. We also distribute award-winning news coverage and sports programming to our customers through Spectrum Networks. Charter is a holding company whose principal asset is a controlling equity interest in Charter Communications Holdings, LLC (“Charter Holdings”), an indirect owner of Charter Communications Operating, LLC (“Charter Operating”) under which substantially all of the operations reside. All significant intercompany accounts and transactions among consolidated entities have been eliminated. Overview During the second quarter of 2024, we lost 149,000 Internet customers while adding 557,000 mobile lines. Our Internet customer growth was challenged by the end of the Federal Communication Commission’s Affordable Connectivity Program ("ACP"), lower customer move rates and the competitive environment. While our retention programs for the customers impacted by the end of ACP subsidies have been successful in retaining the vast majority of ACP customers, the end of the ACP subsidy program was disruptive to our business and resulted in customer losses during the quarter. We expect to see additional one-time impacts on customer net gains, revenue per customer and bad debt in the third and fourth quarters of this year. Our mobile line growth continued to benefit from our Spectrum One offering and new offerings launched in the second quarter of 2024, including our Anytime Upgrade offering and Phone Balance Buyout program. Our Spectrum One offering provides a differentiated connectivity experience by bringing 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. Anytime Upgrade allows certain customers to upgrade their devices whenever they want, eliminating traditional wait times, upgrade fees and condition requirements. Our Phone Balance Buyout program makes switching mobile providers easier by helping customers pay off balances on ported lines. We spent $567 million and $994 million on our subsidized rural construction initiative during the three and six months ended June 30, 2024 and activated approximately 89,000 and 162,000 subsidized rural passings, respectively. We currently offer Spectrum Internet products with speeds up to 1 Gbps across our entire footprint. Our network evolution initiative is progressing. We are upgrading our network to deliver symmetrical and multi-gigabit speeds across our footprint and recently began offering symmetrical speeds in our first high split markets. We also continue to evolve our video product and are deploying Xumo stream boxes ("Xumo") to new video customers. Xumo combines a live TV experience with access to hundreds of content applications and features unified search and discovery along with a curated content offering based on a customer’s interests and subscriptions. In the first quarter of 2024, we began offering Disney+ and ESPN+ to customers in certain packages at no additional cost, and in the second quarter of 2024, we reached an agreement with Paramount+ that allows us to include Paramount+ in certain packages and recently launched ViX, a Spanish language direct-to-consumer application, for our Spanish language customers. 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 sell additional products to our existing customers. We see operational benefits from the targeted investments we made in employee wages and benefits to build employee skill sets and tenure, as well as the continued investments in digitization of our customer service platforms, all with the goal of improving the customer experience, reducing transactions and driving customer growth and retention. 13 We realized revenue, Adjusted EBITDA and income from operations during the periods presented as follows (in millions; all percentages are calculated using whole numbers; minor differences may exist due to rounding): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 % Change 2024 2023 % Change Revenues $ 13,685 $ 13,659 0.2 % $ 27,364 $ 27,312 0.2 % Adjusted EBITDA $ 5,665 $ 5,522 2.6 % $ 11,162 $ 10,872 2.7 % Income from operations $ 3,263 $ 3,240 0.7 % $ 6,394 $ 6,166 3.7 % 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 mobile service, residential Internet, enterprise and other revenues mostly offset by lower residential video revenue. Adjusted EBITDA and income from operations growth was driven by growth in revenue and decreases in operating costs and expenses, primarily programming expense, partly offset by an increase in mobile device and other mobile direct costs. Income from operations was also affected by an increase in other operating expenses, net. 14 The following table summarizes our customer statistics for Internet, video, voice and mobile as of June 30, 2024 and 2023 (in thousands except per customer data and footnotes). Approximate as of June 30, 2024 (a) 2023 (a) Customer Relationships (b) Residential 29,615 30,009 SMB 2,222 2,219 Total Customer Relationships 31,837 32,228 Monthly Residential Revenue per Residential Customer (c) $ 120.77 $ 120.25 Monthly SMB Revenue per SMB Customer (d) $ 165.28 $ 164.56 Internet Residential 28,318 28,549 SMB 2,049 2,037 Total Internet Customers 30,367 30,586 Video Residential 12,718 14,071 SMB 591 635 Total Video Customers 13,309 14,706 Voice Residential 6,170 7,248 SMB 1,276 1,294 Total Voice Customers 7,446 8,542 Mobile Lines (e) Residential 8,531 6,410 SMB 278 216 Total Mobile Lines 8,809 6,626 Enterprise Primary Service Units ("PSUs") (f) 312 294 (a) We calculate the aging of customer accounts based on the monthly billing cycle for each account in accordance with our collection policies. On that basis, as of June 30, 2024 and 2023, customers include approximately 79,400 and 128,600 customers, respectively, whose accounts were over 60 days past due, approximately 10,000 and 47,000 customers, respectively, whose accounts were over 90 days past due and approximately 13,500 and 229,200 customers, respectively, whose accounts were over 120 days past due. The decrease in accounts past due is predominately due to revisions to customer account balances associated with the end of the ACP, including balance write-offs and conversion to payment plans. Bad debt expense associated with these past due accounts was predominantly reflected in our consolidated statements of operations in prior periods. (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-only 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-only customers. (e) Mobile lines include phones and tablets which require one of our standard rate plans (e.g., "Unlimited" or "By the Gig"). Mobile lines exclude wearables and other devices that do not require standard phone rate plans. 15 (f) Enterprise PSUs represent the aggregate number of fiber service offerings counting each separate service offering at each customer location as an individual PSU. Critical Accounting Policies and Estimates For a discussion of our critical accounting policies and the means by which we develop estimates therefore, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Annual Report on Form 10-K. There have been no material changes from the critical accounting policies described in our Form 10-K. Results of Operations The following table sets forth the consolidated statements of operations for the periods presented (dollars in millions, except per share data): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Revenues $ 13,685 $ 13,659 $ 27,364 $ 27,312 Costs and Expenses: Operating costs and expenses (exclusive of items shown separately below) 8,173 8,305 16,569 16,816 Depreciation and amortization 2,170 2,172 4,360 4,378 Other operating (income) expenses, net 79 (58) 41 (48) 10,422 10,419 20,970 21,146 Income from operations 3,263 3,240 6,394 6,166 Other Income (Expenses): Interest expense, net (1,328) (1,298) (2,644) (2,563) Other expenses, net (85) (85) (174) (189) (1,413) (1,383) (2,818) (2,752) Income before income taxes 1,850 1,857 3,576 3,414 Income tax expense (427) (444) (873) (818) Consolidated net income 1,423 1,413 2,703 2,596 Less: Net income attributable to noncontrolling interests (192) (190) (366) (352) Net income attributable to Charter shareholders $ 1,231 $ 1,223 $ 2,337 $ 2,244 EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CHARTER SHAREHOLDERS: Basic $ 8.58 $ 8.15 $ 16.24 $ 14.89 Diluted $ 8.49 $ 8.05 $ 16.03 $ 14.69 Weighted average common shares outstanding, basic 143,329,828 150,091,880 143,920,073 150,761,406 Weighted average common shares outstanding, diluted 144,914,860 151,975,698 145,742,397 152,727,540 Revenues. Total revenues grew $26 million and $52 million for the three and six months ended June 30, 2024, respectively, compared to the corresponding periods in 2023 primarily due to growth in residential mobile service, residential Internet, enterprise and other revenues, partly offset by lower residential video revenue. 16 Revenues by service offering were as follows (dollars in millions; all percentages are calculated using whole numbers; minor differences may exist due to rounding): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 % Change 2024 2023 % Change Internet $ 5,806 $ 5,733 1.3 % $ 11,632 $ 11,451 1.6 % Video 3,867 4,188 (7.7) % 7,775 8,442 (7.9) % Voice 350 365 (4.2) % 724 738 (1.9) % Mobile service 737 539 36.9 % 1,422 1,036 37.4 % Residential revenue 10,760 10,825 (0.6) % 21,553 21,667 (0.5) % Small and medium business 1,101 1,094 0.6 % 2,189 2,185 0.2 % Enterprise 721 690 4.5 % 1,429 1,372 4.2 % Commercial revenue 1,822 1,784 2.1 % 3,618 3,557 1.7 % Advertising sales 397 384 3.3 % 788 739 6.5 % Other 706 666 6.0 % 1,405 1,349 4.2 % $ 13,685 $ 13,659 0.2 % $ 27,364 $ 27,312 0.2 % The increase in Internet revenues from our residential customers is attributable to the following (dollars in millions): Three months ended June 30, 2024 compared to three months ended June 30, 2023 Increase / (Decrease) Six months ended June 30, 2024 compared to six months ended June 30, 2023 Increase / (Decrease) Increase related to rate and product mix changes $ 99 $ 189 Decrease in average residential Internet customers (26) (8) $ 73 $ 181 The increase related to rate and product mix was primarily due to promotional rate step-ups and rate adjustments, partly offset by lower bundled revenue allocation. Residential Internet customers decreased by 231,000 customers from June 30, 2023 to June 30, 2024. 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): Three months ended June 30, 2024 compared to three months ended June 30, 2023 Increase / (Decrease) Six months ended June 30, 2024 compared to six months ended June 30, 2023 Increase / (Decrease) Decrease in average residential video customers $ (370) $ (680) Increase related to rate and product mix changes 49 13 $ (321) $ (667) Residential video customers decreased by 1,353,000 from June 30, 2023 to June 30, 2024. The increase related to rate and product mix was primarily due to promotional rate step-ups and video rate adjustments that pass-through programming rate increases, partly offset by a higher mix of lower priced video packages within our video customer base. 17 The decrease in voice revenues from our residential customers is attributable to the following (dollars in millions): Three months ended June 30, 2024 compared to three months ended June 30, 2023 Increase / (Decrease) Six months ended June 30, 2024 compared to six months ended June 30, 2023 Increase / (Decrease) Decrease in average residential voice customers $ (52) $ (101) Increase related to rate adjustments 37 87 $ (15) $ (14) Residential wireline voice customers decreased by 1,078,000 customers from June 30, 2023 to June 30, 2024. The increase in mobile service revenues from our residential customers is attributable to the following (dollars in millions): Three months ended June 30, 2024 compared to three months ended June 30, 2023 Increase / (Decrease) Six months ended June 30, 2024 compared to six months ended June 30, 2023 Increase / (Decrease) Increase in average residential mobile lines $ 190 $ 399 Increase (decrease) related to rate 8 (13) $ 198 $ 386 Residential mobile lines increased by 2,121,000 mobile lines from June 30, 2023 to June 30, 2024. The increase related to rate for the three months ended June 30, 2024 compared to the corresponding period in 2023 is primarily related to higher bundled revenue allocation and successful conversion of free lines. The decrease related to rate for the six months ended June 30, 2024 compared to the corresponding period in 2023 is primarily related to the Spectrum One offering and is partly offset by higher bundled revenue allocation. The increase in SMB revenues is attributable to the following (dollars in millions): Three months ended June 30, 2024 compared to three months ended June 30, 2023 Increase / (Decrease) Six months ended June 30, 2024 compared to six months ended June 30, 2023 Increase / (Decrease) Increase in SMB customers $ 2 $ 7 Increase (decrease) related to rate and product mix changes 5 (3) $ 7 $ 4 SMB customers grew by 3,000 from June 30, 2023 to June 30, 2024. Enterprise revenues increased $31 million and $57 million during the three and six months ended June 30, 2024, respectively, compared to the corresponding periods in 2023 primarily due to an increase in Internet PSUs. Enterprise PSUs increased 18,000 from June 30, 2023 to June 30, 2024. 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 $13 million and $49 million during the three and six months ended June 30, 2024, respectively, as compared to the corresponding periods in 2023 primarily due to an increase in political ad revenue and advanced advertising partly offset by lower local ad revenue. 18 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 $40 million and $56 million during the three and six months ended June 30, 2024, respectively, compared to the corresponding periods in 2023 primarily due to higher mobile device sales. Operating costs and expenses . The decrease in our operating costs and expenses, exclusive of items shown separately in the consolidated statements of operations, are attributable to the following (dollars in millions): Three months ended June 30, 2024 compared to three months ended June 30, 2023 Increase / (Decrease) Six months ended June 30, 2024 compared to six months ended June 30, 2023 Increase / (Decrease) Programming $ (268) $ (497) Other costs of revenue 171 301 Costs to service customers (88) (89) Sales and marketing 17 (9) Other 36 47 $ (132) $ (247) Programming costs were approximately $2.5 billion and $2.7 billion for the three months ended June 30, 2024 and 2023, representing 30% and 33% of total operating costs and expenses, respectively, and $5.0 billion and $5.5 billion for the six months ended June 30, 2024 and 2023, representing 30% and 33% 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 video 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. Other costs of revenue increased $171 million and $301 million during the three and six months ended June 30, 2024, respectively, compared to the corresponding periods in 2023 primarily due to higher mobile service direct costs and mobile device sales due to an increase in mobile lines. Costs to service customers decreased $88 million and $89 million during the three and six months ended June 30, 2024, respectively, compared to the corresponding periods in 2023 primarily due to lower labor costs and, during the three months ended June 30, 2024, lower bad debt expense. The increase in other expense is attributable to the following (dollars in millions): Three months ended June 30, 2024 compared to three months ended June 30, 2023 Increase / (Decrease) Six months ended June 30, 2024 compared to six months ended June 30, 2023 Increase / (Decrease) Property tax and insurance $ 33 $ 36 Corporate costs 16 20 Stock compensation expense (15) (9) Other 2 — $ 36 $ 47 Property tax and insurance increased during the three and six months ended June 30, 2024, respectively, compared to the corresponding periods in 2023 primarily as a result of an adjustment in 2023 related to favorable development on prior year workers' compensation claims. 19 Depreciation and amortization. Depreciation and amortization expense decreased by $2 million and $18 million during the three and six months ended June 30, 2024, respectively, compared to the corresponding periods in 2023 primarily due to certain assets becoming fully depreciated partly 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): Three months ended June 30, 2024 compared to three months ended June 30, 2023 Increase / (Decrease) Six months ended June 30, 2024 compared to six months ended June 30, 2023 Increase / (Decrease) Special charges, net $ 128 $ 131 (Gain) loss on disposal of assets, net 9 (42) $ 137 $ 89 See Note 10 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements” for more information. Interest expense, net. Net interest expense increased by $30 million and $81 million for the three and six months ended June 30, 2024, respectively, compared to the corresponding periods in 2023 primarily due to an increase in weighted average interest rates. Other expenses, net. The change in other expenses, net is attributable to the following (dollars in millions): Three months ended June 30, 2024 compared to three months ended June 30, 2023 Increase / (Decrease) Six months ended June 30, 2024 compared to six months ended June 30, 2023 Increase / (Decrease) Gain on extinguishment of debt (see Note 3) $ 9 $ 9 Loss on financial instruments, net (see Note 7) (11) 12 Net periodic pension benefits — (1) Loss on equity investments, net 2 (5) $ — $ 15 See Note 11 and the Notes 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 $427 million and $873 million for the three and six months ended June 30, 2024, respectively, and $444 million and $818 million for the three and six months ended 2023, respectively. 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. For more information, see Note 6 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.” Net income attributable to Charter shareholders. Net income attributable to Charter shareholders increased $8 million and $93 million during the three and six months ended June 30, 2024, respectively, compared to the corresponding periods in 2023 primarily as a result of the factors described above. 20 Use of Adjusted EBITDA and Free Cash Flow We use certain measures that are not defined by U.S. generally accepted accounting principles (“GAAP”) to evaluate various aspects of our 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 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. Adjusted EBITDA eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of our businesses as well as other non-cash or special items, and is unaffected by our 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 our 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 our performance and our ability to service our debt, fund operations and make additional investments with internally generated funds. In addition, Adjusted EBITDA generally correlates to the leverage ratio calculation under our 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 Securities and Exchange Commission (the “SEC”)). 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 $366 million and $737 million for the three and six months ended June 30, 2024, respectively, and $335 million and $709 million for the three and six months ended 2023, 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 June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net income attributable to Charter shareholders $ 1,231 $ 1,223 $ 2,337 $ 2,244 Plus: Net income attributable to noncontrolling interest 192 190 366 352 Interest expense, net 1,328 1,298 2,644 2,563 Income tax expense 427 444 873 818 Depreciation and amortization 2,170 2,172 4,360 4,378 Stock compensation expense 153 168 367 376 Other, net 164 27 215 141 Adjusted EBITDA $ 5,665 $ 5,522 $ 11,162 $ 10,872 Net cash flows from operating activities $ 3,853 $ 3,311 $ 7,065 $ 6,634 Less: Purchases of property, plant and equipment (2,853) (2,834) (5,644) (5,298) Change in accrued expenses related to capital expenditures 296 191 233 (4) Free cash flow $ 1,296 $ 668 $ 1,654 $ 1,332 Liquidity and Capital Resources Introduction This section contains a discussion of our liquidity and capital resources, including a discussion of our cash position, sources and uses of cash, access to credit facilities and other financing sources, historical financing activities, cash needs, capital expenditures and outstanding debt. 21 Recent Events In May 2024, Charter Operating and Charter Communications Operating Capital Corp. jointly issued $1.5 billion of 6.100% senior secured notes due June 2029 at a price of 99.944% of the aggregate principal amount and $1.5 billion of 6.550% senior secured notes due June 2034 at a price of 99.755% of the aggregate principal amount. The net proceeds were used to fund a concurrent tender offer to repurchase $2.7 billion in aggregate principal amount of Charter Operating's 4.908% senior secured notes due July 2025, to prepay Charter Operating's outstanding Term B-1 Loan and to pay related fees and expenses. Overview of Our Contractual Obligations and Liquidity We have significant amounts of debt and require significant cash to fund principal and interest payments on our debt. The principal amount of our debt as of June 30, 2024 was $96.5 billion, consisting of $13.1 billion of credit facility debt, $56.2 billion of investment grade senior secured notes and $27.3 billion of high-yield senior unsecured notes. Our split credit rating allows us to access both the investment grade debt market and the high yield debt market. Our projected cash needs and projected sources of liquidity depend upon, among other things, our actual results, and the timing and amount of our expenditures. Free cash flow was $1.3 billion and $1.7 billion for the three and six months ended June 30, 2024, respectively, and $668 million and $1.3 billion for the three and six months ended June 30, 2023, respectively. See the table below for factors impacting free cash flow during the three and six months ended June 30, 2024 compared to the corresponding prior periods. As of June 30, 2024, the amount available under our credit facilities was approximately $4.1 billion and cash on hand was approximately $602 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. Additionally, we may, from time to time, and depending on market conditions and other factors, use cash on hand and the proceeds from securities offerings or other borrowings to retire our debt through open market purchases, privately negotiated purchases, tender offers or redemption provisions. 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 investing 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. 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. Charter's leverage ratio was 4.3 times Adjusted EBITDA as of June 30, 2024. 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 six months ended June 30, 2024, Charter purchased in the public market approximately 1.2 million and 2.4 million shares of Charter Class A common stock, respectively, for approximately $323 million and $714 million, respectively, and during the three and six months ended June 30, 2023, Charter purchased in the public market approximately 1.0 million and 3.1 million shares of Charter Class A common stock, respectively, for approximately $324 million and $1.1 billion, respectively. Since the beginning of its buyback program in September 2016 through June 30, 2024, Charter has purchased approximately 161.5 million shares of Class A common stock and Charter Holdings common units for approximately $73.0 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”). The LBB Letter Agreement implements Liberty Broadband’s obligations under the Amended and Restated Stockholders Agreement among Charter, Liberty Broadband and A/N, dated as of May 23, 2015 (as amended, the “Stockholders Agreement”) to participate in share repurchases by Charter. 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. During the three and six months ended June 30, 2024, Charter purchased from Liberty Broadband 0.1 million and 0.3 million shares of Charter Class A common stock, respectively, for approximately $35 million and $116 million, respectively, and 0.1 million shares of Charter Class A common stock for approximately $42 million during the six months ended June 30, 2023. 22 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 six months ended June 30, 2024, Charter Holdings purchased from A/N 0.2 million and 0.4 million Charter Holdings common units, respectively, for approximately $46 million and $141 million, respectively, and during the three and six months ended June 30, 2023, Charter Holdings purchased from A/N 0.2 million and 0.5 million Charter Holdings common units, respectively, for approximately $54 million and $176 million, respectively. As of June 30, 2024, Charter had remaining board authority to purchase an additional $406 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. Purchases may include open market purchases, tender offers or negotiated transactions. As possible acquisitions, swaps or dispositions arise, we actively review them against our objectives including, among other considerations, improving the operational efficiency, geographic clustering of assets, product development or technology capabilities of our business and achieving appropriate return targets, and we may participate to the extent we believe these possibilities present attractive opportunities. However, there can be no assurance that we will actually complete any acquisitions, dispositions or system swaps, or that any such transactions will be material to our operations or results. Free Cash Flow Free cash flow increased $628 million and $322 million during the three and six months ended June 30, 2024, respectively, compared to the corresponding prior periods in 2023 due to the following (dollars in millions): Three months ended June 30, 2024 compared to three months ended June 30, 2023 Increase / (Decrease) Six months ended June 30, 2024 compared to six months ended June 30, 2023 Increase / (Decrease) Changes in working capital, excluding mobile devices $ 273 $ 450 Increase in Adjusted EBITDA 143 290 Decrease in cash paid for taxes, net 276 245 Changes in working capital, mobile devices 207 171 Increase in capital expenditures (19) (346) Increase in cash paid for interest, net (122) (167) Other, net (130) (321) $ 628 $ 322 Other, net primarily includes the payment of a litigation settlement during the six months ended June 30, 2024 compared to the corresponding period in 2023. 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 June 30, 2024, there was no default under any of these indentures, and CCO Holdings met its leverage ratio test based on June 30, 2024 financial results. There can be no assurance that CCO Holdings will satisfy its leverage ratio test at the time of the contemplated distribution. 23 In addition to the limitation on distributions under the various indentures, distributions by our subsidiaries may be limited by applicable law, including the Delaware Limited Liability Company Act, under which our subsidiaries may only make distributions if they have “surplus” as defined in the act. Historical Operating, Investing, and Financing Activities Cash and Cash Equivalents. We held $602 million and $709 million in cash and cash equivalents as of June 30, 2024 and December 31, 2023, respectively. In addition, we held $40 million in restricted cash included in prepaid and other current assets in our consolidated balance sheets as of June 30, 2024. Operating Activities. Net cash provided by operating activities increased $431 million during the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily due to an increase in Adjusted EBITDA, a decrease in cash paid for taxes and favorable changes in working capital, partly offset by the payment of litigation settlements in 2024 and an increase in cash paid for interest. Investing Activities. Net cash used in investing activities was $5.6 billion for both the six months ended June 30, 2024 and 2023 driven by an increase in capital expenditures, offset by changes in accrued expenses related to capital expenditures. Financing Activities. Net cash used in financing activities increased $284 million during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to an increase in the amount by which repayments of long-term debt exceeded borrowings, 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 $2.9 billion and $5.6 billion for the three and six months ended June 30, 2024, respectively, and $2.8 billion and $5.3 billion for the three and six months ended June 30, 2023, respectively. The increase during the six months ended June 30, 2024 as compared to the corresponding prior year period was primarily driven by higher spend on network evolution and an increase in line extensions in connection with our subsidized rural construction initiative and continued residential and commercial network expansion, as well as an increase in customer premise equipment, particularly Xumo. See the table below for more details. We currently expect full year 2024 capital expenditures to total approximately $12.0 billion, including line extensions of approximately $4.5 billion and network evolution spend of approximately $1.6 billion. The actual amount of capital expenditures in 2024 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 expenses related to capital expenditures increased by $233 million and decreased by $4 million for the six months ended June 30, 2024 and 2023, respectively. 24 The following tables present our major capital expenditures categories in accordance with National Cable and Telecommunications Association (“NCTA”) disclosure guidelines for the three and six months ended June 30, 2024 and 2023. 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 June 30, Six Months Ended June 30, 2024 2023 2024 2023 Customer premise equipment (a) $ 562 $ 576 $ 1,197 $ 1,113 Scalable infrastructure (b) 362 353 690 707 Upgrade/rebuild (c) 389 392 870 681 Support capital (d) 421 431 809 825 Capital expenditures, excluding line extensions 1,734 1,752 3,566 3,326 Subsidized rural construction line extensions 565 529 992 900 Other line extensions 554 553 1,086 1,072 Total line extensions (e) 1,119 1,082 2,078 1,972 Total capital expenditures $ 2,853 $ 2,834 $ 5,644 $ 5,298 Of which: Commercial services $ 382 $ 409 $ 757 $ 776 Subsidized rural construction initiative (f) $ 567 $ 541 $ 994 $ 932 Mobile $ 64 $ 82 $ 123 $ 159 (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. (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, excluding customer premise equipment and installation. Recently Issued Accounting Standards See Note 22 to the Annual Report on Form 10-K for the year ended December 31, 2023 for a discussion of recently issued accounting standards. There have been no material changes from the recently issued accounting standards described in our Form 10-K. Item 3. Quantitative and Qualitative Disclosures About Market Risk. There have been no material changes to the interest rate risk as previously disclosed in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2023.