Earnings Call Transcript - CHTR Q4 2024

Operator, Operator

Hello, and welcome to Charter Communications Fourth Quarter and Full Year 2024 Investor Call. We ask that you please hold all questions until the completion of the formal remarks, at which time, you will be given instructions for the question-and-answer session. As a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I will now turn the call over to Stefan Anninger.

Stefan Anninger, Chairman

Thanks, operator, and welcome, everyone. The presentation that accompanies this call can be found on our website, ir.charter.com. I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, and we encourage you to read them carefully. Various remarks that we make on this call concerning expectations, predictions, plans, and prospects constitute forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management's current view only, and Charter undertakes no obligation to revise or update such statements. As a reminder, all growth rates noted on this call and in the presentation are calculated on a year-over-year basis unless otherwise specified. On today's call, we have Chris Winfrey, our President and CEO, and Jessica Fischer, our CFO. With that, let's turn the call over to Chris.

Chris Winfrey, CEO

Thank you, Stefan. In 2024, we effectively managed the conclusion of the Affordable Connectivity Program. Excluding normal churn, we retained about 90% of former ACP customers. Our Spectrum Mobile division continued to expand rapidly, adding over 2 million lines this year. We are the fastest growing mobile provider in the United States, offering the quickest connectivity at the best prices. Our expansion efforts yielded significant growth in passings, supported by our subsidized rural initiative along with regular construction and fill-in work. In 2024, our revenue grew by 1%, and full-year EBITDA growth increased to 3.1%, thanks to strong mobile growth, our cost efficiency efforts, and political advertising. Late last year and early this year, we faced unexpected natural disasters including Hurricane Helene affecting Florida, the Carolinas, and the broader Southeast, Hurricane Milton across Central Florida, and the recent fires in Los Angeles. Jessica will address the subscriber and financial impacts, but it’s personal for us as our employees live and work in these communities. There are many stories of our employees' dedication, including those who helped restore connectivity for customers despite losing their own homes and others who traveled from different regions to help. I am incredibly proud of our frontline employees' response. From the experience in Stamford, we learned valuable lessons on how to better reassure customers, and we improved our communications throughout the process. A key part of our customer commitment is to continually enhance our service, and we are doing just that. Looking ahead to 2025 and beyond, the landscape for broadband, mobile, and video remains competitive, but we have greater visibility compared to last year. The impact of the ACP's termination is now in the past. Cell phone internet net additions seem to have peaked or stabilized, and we continue to perform well against new fiber competition. Meanwhile, we haven't been stagnant, positioning us well for the future. Our multi-year investment efforts, such as network evolution and expansion, along with investments in our frontline employees, are producing significant results. Last September, we relaunched the Spectrum brand with a commitment to our customers through Life Unlimited, introducing a market-first customer service initiative and maximizing our unique assets for seamless connectivity across our entire network, alongside improved entertainment and video capabilities. The positive effects of our customer commitment and brand refresh investments will take time to manifest, but the positive influence of our new pricing and packaging is already visible in our video outcomes. In late 2022, we initiated several strategic initiatives and announced a substantial one-time capital investment to enhance our long-term growth potential. While these investments will temporarily pressure our near-term free cash flow growth, they are unique, non-recurring, and transformative for the industry. This includes the largest broadband expansion since the 1980s, the most significant physical network upgrade since the 1990s, market-leading convergence of wireline and wireless capabilities, and a dynamic video transformation set to drive our connectivity business. In 2025, we will see a slightly increased level of investment compared to 2024, which will also mark our peak capital investment year. Thus, it’s an appropriate moment to outline our competitive, operational, and financial positioning for the upcoming years. We possess a unique array of assets and substantial scale, as illustrated on Slide 4. Spectrum offers the fastest internet, the best WiFi, the fastest mobile service, and leads the video market in the US, with over 900,000 miles of network infrastructure, 57 million residential and SMB passings, and over 300,000 fiber-lit buildings. Naturally, we face significant competition from fiber overbuilding, mobile internet, and satellite providers across all our offerings. However, the strength of our network continues to enhance, with symmetrical and multi-gig speeds enabling product developers to create applications and use cases that demand high capacity, low latency, high reliability, and edge computing. Product and software developers can depend on the broad deployment across major US cable networks, positioning us exceptionally well. Historically, US cable companies have constructed the fully-deployed platforms that have facilitated the development of next-generation products and services, even while contending with the challenges of regional operators competing against national and global entities. Our ability to provide the best products throughout our entire footprint is unique. This includes the new features we're developing for seamless connectivity and entertainment. Convergence is a term being widely adopted by our competitors now. While we appreciate its recognition, the evidence on Slide 5 of our presentation stands clear. We remain significantly under-penetrated in our converged connectivity capabilities. Merely having the best network and product capabilities isn't sufficient, which is why we prioritize providing maximum value in our packages, pairing the best products with options for customers to save hundreds or even thousands of dollars annually, whether through promotional or retail prices. Whenever new entrants emerge, consumers might be tempted to try a new provider, even if it's at lower quality and higher all-inclusive prices, but in the long run, we believe the top products and competitive pricing across service packages will prevail. Slide 6 of our presentation illustrates that advantage across typical broadband and mobile packages. Combined with our forthcoming seamless entertainment offerings, emphasizing this value is the aim of our recent pricing and packaging under the Life Unlimited brand refresh. I mentioned the sequencing of our seamless entertainment launches in last quarter's call, and that timeline for 2025 remains unchanged, so I won’t reiterate those steps and priorities. However, we are eager to fully implement this in the first half of the year and provide even greater value to consumers, offering up to $80 of retail app value with our video packages. This customer proposition is depicted on Slide 7 of our presentation. As in mobile, integrating video into the package now ensures a lower price for internet, both during promotions and at retail pricing, all coupled with high-quality service. We believe that investing in customer service and satisfaction fosters a virtuous cycle in our business: improved customer service leads to fewer transactions; fewer interactions result in higher customer satisfaction and decreased churn; lower churn lowers costs and enhances penetration; and reduced costs allow us to offer better pricing, benefiting customer acquisition, service, and satisfaction, setting us up for growth. Our sales and service teams are entirely US-based, promoting made in America, using our own employees who are well-compensated and benefit from decent jobs. Our employees are also Spectrum customers, dedicated to nurturing their local communities and their careers with us. This provides a competitive advantage as we've invested in wages, benefits, and real estate, making it hard for others to replicate. This existing investment also facilitated our market-leading customer commitments. We stand by our promises, providing service credits when we fall short. A summary of those commitments is available on Slide 8. For years, we have been investing in machine learning and now in AI, streamlining the frontline work for better efficiency, its rewards include heightened customer and employee satisfaction. Some examples include real-time service network data, CPE, and billing telemetry instantly available to the agent answering calls. Additionally, AI continuously listens to conversations, offering optimized proactive solutions, assessing customer sentiment, providing ChatGPT-style technical support, summarizing calls, and identifying training opportunities post-call. AI-driven call summaries also aid field technicians in assessing issues before arrival, enhancing customer interactions. We are also rolling out our own ChatGPT on handheld devices to help technicians accurately identify problems and recommend the best solutions. Each year, we handle millions of transactions, and the reality is we don’t always achieve the best outcomes. Therefore, we can enhance the effectiveness and speed of transactions, leading to higher customer satisfaction and reduced churn, as well as improved employee satisfaction, which results in lower attrition and better service. In summary, that is our strategic competitive position: superior network, top products, and unmatched service delivering greater household penetration, enhanced product penetration per household, reduced service transactions and churn, and lower operational and capital costs per customer, which enables us to maintain the most competitive pricing—a virtuous circle. The financial outcome is robust revenue per home passed, increased free cash flow growth, and strong returns on investment. While we're not flawless and continuously seek improvement in execution and speed, I genuinely believe we possess a solid growth strategy for our existing products due to our prior investments and strategic assets such as our robust network and dedicated US-based sales and service personnel. These will fuel future products and revenue streams, as well as operational efficiencies that are not yet reflected in our financial forecasts. Meanwhile, we are positioning the company for growth in customer numbers and profitability, with clear visibility for free cash flow growth, and a refined approach to capital allocation and returns. This is an effective formula supported by a dedicated and motivated team. We are looking forward to 2025 and beyond. Now, I will hand it over to Jessica.

Jessica Fischer, CFO

Thanks, Chris. Before discussing our fourth quarter results, I want to mention that today's results include a number of Hurricane Helene and Hurricane Milton impacts, which hit the Southeast US in late September and early October. Our fourth quarter customer results include over 20,000 additional disconnects related to the storms. Fourth quarter adjusted EBITDA was reduced by approximately $35 million, primarily driven by hurricane-related customer credits and revenue, and the storms drove approximately $125 million in total incremental capital expenditures in the fourth quarter. Today's results do not include any impact related to the wildfires that hit Southern California in January. Our first quarter results will include some lost customers and passings related to the fires. We're still assessing impacted areas, and we expect to incur capital expenditures to recover and rebuild lost passings. We've been providing bill credits to customers in impacted areas and those one-time credits will offset some first quarter revenue. We may also have some incremental operating expense, although we expect that to be relatively small. And we'll isolate the impact of the fires when we report our first quarter results. Unrelated, we recently completed an extensive review of our serviceable passings to clean up duplicate passings and other data and to identify new passings. As a result, we reduced total estimated passings in our trending schedule for all periods presented by 1.7 million passings. Additionally, because of the GAAP requirement, our cost to service customers expense line has been divided into two new cost lines, field and technology operations and customer operations. The best way to forecast these two new line items is to combine them into one figure as presented in the past as cost to service customers, and that's how I will refer to them today when reviewing our expense results. Let's please return to our customer results on Slide 10. Including residential and SMB, we lost 177,000 Internet customers in the fourth quarter. In mobile, we added 529,000 lines. Video customers declined by 123,000, with the improvement driven by the rebundling we launched in September along with our Life Unlimited brand refresh. Video performance does not yet reflect the benefits of incorporating seamless entertainment apps in our product. Wireline voice customers declined by 274,000. In addition to the 20,000 Internet disconnects driven by the hurricanes, the end of the ACP program drove higher fourth quarter non-pay and voluntary churn among former ACP customers for a total estimated fourth quarter ACP impact of approximately 140,000 Internet losses, primarily non-pay disconnects and some voluntary churn. Looking forward, we believe we're past the one-time ACP-related impacts to our customer base. Beyond ACP and hurricane impacts, we were generally pleased with our fourth quarter customer results, and core Internet results, which exclude ACP and storm-related losses, were better than last year. We continue to compete well across our footprint. As Chris discussed, we continue to pursue initiatives that are intended to drive customer and financial growth, including network evolution, new pricing and packaging, converged connectivity product development, and footprint expansion, including our subsidized rural initiative. As of year-end, we had launched symmetrical 1-gigabit speeds in all eight of our Step 1 markets. Earlier this year, we launched 2 x 1 gigabit service in two of these markets, Lexington, Kentucky and Cincinnati. And we plan to launch 2 x 1 service in additional markets later this year. Demand for faster Internet speeds continues to grow as data usage grows. In the fourth quarter, monthly data usage by our residential Internet customers, who don't have our traditional video product, reached over 800 gigabytes. Our WiFi also continues to improve, driven by our advanced WiFi product and our new WiFi 7 router. Our WiFi supports our converged connectivity product including Spectrum Mobile, which is only in about 8% of passings, but remains the fastest-growing mobile service in the United States and offers the fastest overall speeds. Turning to rural, we ended the quarter with a total of 813,000 subsidized rural passings. We grew those passings by 117,000 in the fourth quarter and by nearly 400,000 over the last 12 months, and we generated 41,000 net customer additions in our subsidized rural footprint in the quarter. 2025 customer growth should benefit from 2024 rural passings growth as well as passings growth in 2025. We expect rural passings growth of approximately 450,000 in 2025, our biggest year so far, in addition to continued non-rural construction and fill-in activity. Moving to fourth quarter revenue results on Slide 11. Over the last year, residential customers declined by 2.2%, while residential revenue per customer relationship grew by 1.7% year-over-year, given promotional rate step-ups, rate adjustments, and the growth of Spectrum Mobile. Those factors were partly offset by a higher mix of non-video customers, growth of lower-priced video packages within our base, $34 million of hurricane-related residential customer credits, and $37 million of costs, which accounting principles required to be allocated to programmer streaming apps and netted within video revenue. As Slide 11 shows, in total, residential revenue declined by 0.4%. Turning to commercial, total commercial revenue grew by 1.9% year-over-year, with SMB revenue growth of 0.3%, reflecting higher monthly SMB revenue per SMB customer, primarily due to rate adjustments. Enterprise revenue grew by 4.4%, driven by enterprise PSU growth of 5.2%. And when excluding all wholesale revenue, enterprise revenue grew by 5.2%. Fourth quarter advertising revenue grew by 26%, given political revenue growth. Excluding political, advertising revenue decreased by 8.2% due to a more challenged national and local advertising market. Other revenue grew by 14.6%, primarily driven by higher mobile device sales. And in total, consolidated fourth quarter revenue was up 1.6% year-over-year, and 1% when excluding advertising revenue and hurricane-related customer credits. Moving to operating expenses and adjusted EBITDA on Slide 12. In the fourth quarter, total operating expenses grew by 0.3% year-over-year. Programming costs declined by 9.1% due to an 8.7% decline in video customers year-over-year and a higher mix of lighter video packages, along with $37 million of costs, which accounting principles required to be allocated to programmer streaming apps and netted within video revenue, partly offset by higher programming rates. Other costs of revenue increased by 16.2%, primarily driven by higher mobile device sales and mobile service direct costs, as well as higher advertising sales expense related to higher political revenue. Cost to service customers, which combines field and technology operations and customer operations, declined 0.5% year-over-year given productivity from our tenure investments, including lower labor costs. Sales and marketing costs grew by 3.2% as we remain focused on driving customer acquisition and given our Life Unlimited brand relaunch in September. Finally, other expenses declined by 0.7%. Adjusted EBITDA grew by 3.4% year-over-year in the quarter and by 1.8% when excluding advertising. As we look ahead to the full year 2025, we face headwinds that we didn't last year, including the lack of political advertising revenue and the full year impact from the prior year Internet customer losses primarily due to the end of ACP. But our plan is to grow adjusted EBITDA in this year. Turning to net income, we generated $1.5 billion of net income attributable to Charter shareholders in the fourth quarter compared to $1.1 billion last year, given this quarter's higher adjusted EBITDA and a larger pension remeasurement loss in the prior-year period. Turning to Slide 13, capital expenditures totaled $3.1 billion in the fourth quarter, up about $200 million from last year's fourth quarter. Line extension spend totaled $1.1 billion, driven by our subsidized rural construction initiative and continued network expansion across residential and commercial greenfield and market fill-in opportunities. Fourth quarter capital expenditures, excluding line extensions, totaled $2 billion, about $130 million higher than last year. The increase was mostly driven by CPE due to purchase timing and higher scalable infrastructure spend. 2024 capital expenditures totaled $11.3 billion, less than our original expectation for $12.2 billion to $12.4 billion, given lower network evolution and line extension spending, both due to timing. We expect total 2025 capital expenditures to reach approximately $12 billion, including line extension spend of approximately $4.2 billion and network evolution spend of approximately $1.5 billion. On Slide 14, we've provided our current expectations for capital spending through the year 2028, excluding any line extension spending associated with the BEAD program as we are still in the early stages of bidding, and we have a lower appetite to bid due to regulatory conditions. Our current multiyear CapEx outlook is largely unchanged in total versus our prior outlook, with retiming across years and slight changes across categories. We expect total line extension capital expenditures to decline after 2025 even inclusive of BEAD, which we wouldn't expect to be more than a few hundred million dollars per year for the four years starting in 2026. And our RDOF build is still expected to be completed by the end of 2026, two years ahead of schedule. We now expect our total network evolution initiative capital to reach $5.4 billion over the period 2024 to 2027 versus $4.6 billion previously, given our full plant walkout and the finalization of more detailed project plans. Looking beyond 2025, we expect total capital spending in dollar terms to be on a meaningful downward trajectory, even inclusive of BEAD spending. And after our evolution and expansion capital initiatives conclude, our run rate capital expenditures should be below $8 billion per year. Just to highlight, that reduction in capital expenditures on its own from approximately $12 billion in 2025 to less than $8 billion in 2028 is equivalent to $25 of annual free cash flow per share based on today's share count. And while we always prioritize our free cash flow for organic opportunities first and then accretive M&A and buybacks, there are currently no organic capital expenditure opportunities on the horizon that give us concern with that capital expenditures outlook. Fourth quarter free cash flow totaled $984 million, a decrease of approximately $80 million compared to last year's fourth quarter. The decline was primarily driven by higher capital expenditures, cash taxes and cash interest, partly offset by a larger cable working capital benefit, driven by the implementation of our supply chain financing program and higher adjusted EBITDA in this year's fourth quarter. Just a brief comment on 2025 cash taxes. We currently expect under existing tax legislation that our calendar year 2025 cash tax payments will total between $1.6 billion and $2 billion. We finished the quarter with $93.8 billion in debt principal. In December, we refinanced most of our 2027 maturity tower, extending about $13 billion of our credit facilities to 2030 and 2031. After that refinancing, our maturities in each of the next three years are less than $4 billion per year. Our weighted average cost of debt remains very attractive at 5.2%, partly driven by our long-dated fixed rate profile. Our current run rate annualized cash interest is $4.9 billion. In the fourth quarter, we repurchased 292,000 Charter shares and Charter Holdings common units, totaling $113 million at an average price of $384 per share. As of the end of the fourth quarter, our ratio of net debt to last 12 months adjusted EBITDA moved down to 4.13 times and stood at 4.24 times pro forma for the pending Liberty Broadband transaction. Our leverage ratio may decline further given our pause in buybacks, but we are still targeting the midpoint of our 4 to 4.5 times target leverage range, though now pro forma for the pending Liberty Broadband transaction. We look forward to resuming our open market buyback program following the shareholder vote for the Liberty Broadband transaction scheduled for February 26. As laid out, we've invested in a strong platform for growth, which we expect to see materialize across the business over the next several years. And as our capital spending peaks this year, we are poised for strong free cash flow growth and shareholder returns. And with that, I will turn it over to the operator for Q&A.

Operator, Operator

Thank you. Our first question will come from Jonathan Chaplin with New Street Research. Please go ahead.

Jonathan Chaplin, Analyst

Thank you. I have a question about capital expenditures. Can you remind us about the current status of the network upgrade? Specifically, I believe 100% of the footprint will have a high split, and a portion will be upgraded to DOCSIS 4.0 by the end of 2027. How has this changed with the new guidance? Also, I notice that overall spending for line extensions is down, but the number of rural locations is increasing. Have you slowed down the pace of line extensions planned for non-rural areas? Thank you.

Jessica Fischer, CFO

Yeah. So, Jonathan, I'll start with the line extension one. Two things happened inside of that. We've pulled back a bit on our proactive commercial build. And our expectations are a bit lower for greenfield given that the housing market remains sluggish, though even that, I would say, hasn't meaningfully reduced our passings growth outlook. So, I think, what you see is correct. We do have a few more rural passings than we had before, but it's offsets in there that are bringing the total number down. As far as the net network upgrade goes, our plan for the split across the three steps hasn't changed. So, we're still 15%, that will be 1.2 gigahertz. 50% then moves to distributed access architecture, but still at 1.2 gigahertz, and 35%, that then moves up to 1.8 gigahertz, and really is, I guess, the way that you would think of it in DOCSIS 4.0. I don't know, Chris, if you have follow-up on that that you want to talk about otherwise.

Chris Winfrey, CEO

Well, look, it'll be a 100% high split. The mix hasn't changed in terms of where we're going, and the ability from there to use a combination of DOCSIS 4 and DOCSIS 3.1 extended on the increment is very low, if any incremental real capital expenditure. So, we feel really good about the plan. The one thing I would add is, keep in mind, as we go through on these nodes, we're putting in OLTs as well, which allows us to do fiber-on-demand or a fiber-drop-on-demand, almost similar to an enterprise customer, but to be able to do that in residential and SMB as well. And so, the network is very much capable in terms of wherever things go. You still maintain all the benefits that you have through the power in the network, which allows you to hang cycles of radios through our CBRS deployment, which is going very well.

Jonathan Chaplin, Analyst

And, Chris, I assume that 35% ultimately goes to 100% at 1.8 over time. The assumption is that all happens within business as usual CapEx of less than $8 billion.

Chris Winfrey, CEO

Yes. And what you have over time, one, I'm not sure if and when the need is going to take place, but two, when you get into that less than $8 billion capital expenditure environment, the benefit that you'll have is the amount of node splits and CMTS upgrades that historically took place virtually be non-existent. You can reallocate capital to the extent you want that would have been spent into those segmentation areas into doing drop-ins into the actives, but that's all it would really require. And so, it could be done on the increment within the envelope.

Jonathan Chaplin, Analyst

Got it. Thanks, guys.

Stefan Anninger, Chairman

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

Operator, Operator

Our next question will come from Benjamin Swinburne with Morgan Stanley. Your line is now open.

Benjamin Swinburne, Analyst

Good morning. I believe you experienced about 450,000 ACP-related subscriber losses or impacts in '24. I'm curious if you're considering the possibility of improving your broadband results in '25 compared to '24 without the ACP. Of course, storms are an unpredictable factor, but you will have an increasing rural footprint. Also, Chris, I can't recall the last time your video subscriber numbers surpassed both customer and broadband metrics. It seems like you might be tapping into your existing customer base and offsetting that with some broadband. Could you discuss what's occurring within your offers and the business that is leading to this mix shift and how we might view this moving forward? Thank you.

Chris Winfrey, CEO

Sure. Ben, we are very optimistic about our mid-term outlook and our capability to grow in the Internet segment. However, we are aware that there are critical periods where we may hover between net losses and gains. I won’t address the minor short-term effects on gross additions or disconnects that could lead to significant impacts. This year, we won’t face ACP losses, which is a significant advantage. The competition remains fierce between fiber and mobile Internet, but we have better visibility now than we did last year. It seems we have reached the peak impact from mobile Internet, and we expect a declining pace of fiber overbuilding. When considering growth over time, the number of rural passings, the continuous increase in data consumption, our investments in network enhancements to surpass our competitors, and the effective utilization of wireless convergence alongside the upcoming seamless entertainment offerings paint a promising picture. From a consumer standpoint, we offer fast connectivity and unique products available at all our sales points, which saves customers considerable amounts when pairing Internet with mobile. I am pleased with our position and anticipate our seamless connectivity product will gain traction in the market over time. We are pushing forward on all fronts, and not having ACP losses this year is significant. I won’t provide a short-term forecast, except to say we need to perform better this year than last. Regarding video, the improvements in our net additions during the fourth quarter largely stemmed from bundling video with our connectivity sales. Previously, we had stepped away from attaching video to our broadband offerings because we felt it wouldn’t benefit customer relationships due to the commoditization of video products and competitive pricing through direct-to-consumer applications. Having shifted to a more flexible packaging environment, we created bundles that bring value to customers and linked direct-to-consumer apps with these packages, allowing customers to maximize the full retail value of these services—for example, with Xumo, which facilitates unified search and discovery across all services. This combination enhances the value and utility we aimed for, and we believe it will only improve. As of late September, we began proactively selling video alongside our broadband subscriptions, with the intention of adding value to the overall package, including broadband. Our revised Spectrum pricing and packaging strategy in September enabled us to offer Internet at lower promotional and retail prices across bundles, alongside price locks and reduced roll-offs from promotional to retail pricing. This approach should positively influence both acquisition and retention efforts. We feel confident about future developments. Over time, as our capabilities to sell and train on re-bundling these services improve, we believe there will be substantial benefits not just to video, but also to our broadband and mobile segments.

Benjamin Swinburne, Analyst

Thanks so much.

Stefan Anninger, Chairman

Thanks, Ben. We'll take our next question, please.

Operator, Operator

Our next question will come from Craig Moffett with MoffettNathanson. Your line is now open.

Craig Moffett, Analyst

Hi. I'm going to try to squeeze in two questions. First, just given the importance of your wireless bundling strategy, I'm going to leave aside the comments that you just had about video, can you point to any real evidence of what wireless is doing for your broadband business, and the way that you think about whether it's through churn or something else that suggests that the convergence strategy is having a meaningful impact? It's obviously topical because Comcast essentially said they're going to try to emulate the strategy that you've already been pursuing for a couple of years. And then, also on the topic of Comcast, you mentioned organic growth opportunities. I have to ask because we get the question so often. How do you think about inorganic growth opportunities? And with the commentary so frequently being discussed about the possibility of combining with Comcast, how do you think about getting bigger as a cable operator?

Chris Winfrey, CEO

There's a lot in there, Craig, but they're good questions. So, from a wireless standpoint and the benefits to convergence, if you think back to what we were doing and we continue to do with Spectrum One offer, it was really using the broadband relationship and offering a time of acquisition or retention of free mobile line. And what that was driving is additional attach, obviously, the mobile line, which was actively used, but additional mobile lines that were attached. And so, we were using broadband really for the benefit of mobile. And what we had seen along the way, some of due to the convergence benefits and the seamless connectivity, and some of it, obviously, with self-selection that takes place, and there's bias there. So that's why we've been careful, is that we saw a much lower churn rate in those broadband customers when they had mobile versus when not. Now, some of that is clearly self-selection, and we've always recognized that. And that's why we've been careful not to report out on that too heavily, but it's not all self-selection. And there's a clear benefit, and it's a better product, and it saves customers tremendous amounts of money. What we did with the new pricing and packaging is we recognized that we now have a brand recognition in the marketplace of Spectrum Mobile, which is the fastest mobile product. It's now widely recognized both from a brand and capability standpoint. It does have superior speed, and it has better connectivity through the Spectrum Mobile SSID attach as well as Speed Boost. And we decided, when at acquisition or retention, we can use mobile, and it doesn't need to be always priced at $0 for the first line for free, and we can use it to drive improved acquisition and retail pricing for Internet and flip it a little bit. Doesn't mean that we've stopped using Spectrum One, but we still have Spectrum One active in the marketplace and it works well. But we can also use the Life Unlimited bundles, as I like to call them, to enhance our capabilities for Internet selling. That's early stages, but I think it's clearly going to have benefits. So, I think the convergence strategy works. The point I was making in the slide that we showed in today's presentation says we have a unique capability to deliver that where nobody else really does across their entire footprint. And so, to the extent that convergence matters, we think it does, we think we're in the best position to do that.

Jessica Fischer, CFO

And I just want to make sure that we address there as well that not only does mobile benefit the broadband subscriber, but mobile also has financial benefits all on its own. It drives additional margin at the customer level.

Chris Winfrey, CEO

It's become significant. To elaborate, convergence can be seen as the integration of wireline and wireless capabilities along with video. Historically, video hasn't played a significant role, but I believe it can become an asset for us again. This doesn't imply that we will see growth in video, but rather that we can leverage it as a distinctive asset alongside mobile to enhance growth, develop unique products, and save our customers money. Regarding M&A, while there's a lot of discussion, our strategy is not reliant on mergers and acquisitions. We've focused on organic growth to create value for shareholders. Achieving this involves being excellent operators, saving customers money, providing outstanding service, employing in-sourced onshore staff, and effectively managing capital. Moreover, being a strong operator can lead to acquisition opportunities over time. When considering the cable industry, it's largely made up of family-owned or family-controlled entities making the decisions on potential combinations. The environment for M&A is often portrayed as very open, but I don't believe that's the case. Any M&A activity must benefit customers and support jobs. Our emphasis on organic operating strategies that facilitate growth has proven beneficial in the past, though M&A is merely a potential addition to our overall strategy and not its foundation, nor is it the sole way to create value.

Stefan Anninger, Chairman

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

Operator, Operator

Our next question will come from Sebastiano Petti from JPMorgan. Your line is open.

Sebastiano Petti, Analyst

Thank you for taking the question. If perhaps, Jessica, you could comment, just around EBITDA, you do expect growth for the year. Any color perhaps at a OpEx level across the different buckets that we should be assuming? Obviously, as Spectrum Life Unlimited ramps, and what you and Chris have talked about creates more attach opportunities. There's probably sales and marketing costs that come with that. So, just maybe trying to frame that a little bit would be helpful against the backdrop as well of improving costs that you implemented in 2024. And then maybe just thinking about the CapEx guide, obviously, it was helpful. Does not include BEAD. Limited BEAD appetite per se, but maybe how you're thinking about any changes to tax policy? Should we get an extension of bonus depreciation? How would you perhaps maybe think about that across the buckets of shareholder returns versus maybe improving or accelerating some of your network efforts? Thank you very much.

Jessica Fischer, CFO

I can start with our plans for EBITDA growth in 2025. We aim to achieve this through a combination of growth in the mobile sector, customer advantages from the new pricing and packaging, the roll-off of the Spectrum One promotion, and various other rate benefits. Additionally, we will focus on ongoing efficiencies, particularly in our cost to serve, leveraging machine learning and AI to enhance customer commitments by reducing the number of transactions and continuing to realize benefits from our expense management efforts. I expect to see programming and customer service costs remain flat or slightly decrease, as we consider programming costs on a per video customer basis, where product mix plays a significant role. The changes in product mix resulting from the introduction of our seamless connectivity and entertainment apps will ultimately depend on performance outcomes. In sales and marketing, I foresee modest growth in the low- to mid-single-digits as we enhance cost management, grow our customer base, and continue rolling out our Life Unlimited brand. That summarizes my perspective on the expense side. Chris, would you like to add anything?

Chris Winfrey, CEO

Taxes are typically handled by Jessica, but when we discuss capital allocation, we could collaborate on this if necessary. We are uncertain about the future direction of tax legislation, but if any changes are implemented, it could lead to a significant decrease in our cash taxes compared to what Jessica has projected. The aspects of tax rate, interest deductibility, and bonus depreciation are all crucial for us as an infrastructure builder. Our focus is on constructing the infrastructure in the US to facilitate a variety of applications and traffic. Each of these tax components—ideally all three—would enhance the attractiveness of our capital projects that may have seemed less appealing before. This does not suggest that the changes would lead to a direct one-to-one increase in funding, but projects that benefit our customers and communities could see improved returns. This is beneficial for the economy, job creation, and our shareholders as well.

Stefan Anninger, Chairman

Thanks, Sebastiano. Leila, we'll take our next question, please.

Operator, Operator

Our next question will come from Jessica Reif Ehrlich from Bank of America. Your line is open.

Jessica Reif Ehrlich, Analyst

Thank you. Regarding LA, while you mentioned providing more details in the first quarter call, can you share any early insights? I'm curious about your assumptions for homes returning; is this part of a prolonged decline? Also, concerning video and M&A, it seems like the video is performing well even before you started marketing it. Could you elaborate on your marketing plans that highlight clear benefits for customers? Lastly, Chris, you mentioned national and global competition earlier. Can you discuss how you plan to compete with these larger competitors and what advantages you expect to gain? Is it primarily focused on cost or revenue? Any insights you can provide would be appreciated.

Chris Winfrey, CEO

From our perspective in Los Angeles, it's reported that about 15,000 to 16,000 homes are no longer livable due to recent events. This number reflects our operational area, and while it may seem small compared to Charter's total of 57 million homes, it holds significant importance for us. We anticipate an immediate impact on subscribers as these homes will be removed from our customer base. However, as the area rebuilds, we expect those homes to become part of our footprint again. We're already working on plans for reconstruction, which Jessica mentioned will drive capital for leasing, and we'll provide a clear update on subscriber impacts in our next earnings call. There will also be credits for customers affected by the situation, including those who evacuated or lost their homes. We'll address those financial impacts thoroughly during our call as well. Regarding our video services and marketing strategies, I won't go into all the specifics, but we're strategically positioning our video products and service packages to offer customers a better value that they might not find elsewhere. Over the coming month, we'll be launching additional apps, including Peacock. Once all apps are activated and we offer a straightforward way for customers to upgrade to ad-free versions, we will drive more sales not just in video, but also enhance our broadband and mobile relationships. It's essential for us to collaborate with programmers rather than engage in adversarial negotiations, which have proven to be unproductive in the past. We want to create beneficial partnerships that allow us to co-market effectively, leveraging the strong brands and content they provide. This strategy will also help us market our own brand as we sell their products daily through our extensive sales team. In terms of scale, having a larger recognized brand in mobile and internet services would strengthen our competitive position against national operators like Amazon and Google. While we currently have sufficient scale to operate effectively, greater scale would directly benefit our consumers by reducing costs, creating jobs, and enhancing our capabilities with advances like AI. Investments in AI would improve service quality and efficiency, ultimately benefiting our customers. We are functioning well with our current scale, but additional growth would allow us to optimize our operational model further in this capital-intensive business.

Jessica Reif Ehrlich, Analyst

Thank you.

Stefan Anninger, Chairman

Thanks, Jessica. Leila, we'll take our last question, please.

Operator, Operator

Our final question will come from Kutgun Maral with Evercore ISI. Your line is now open.

Kutgun Maral, Analyst

Good morning, and thank you for my question. I’d like to follow up on the M&A discussion from a different perspective, particularly regarding wireless. You've made significant advancements in your mobile operations and have successfully migrated traffic to your own network. With the growth of this business and the potential ramping up of Comcast's efforts, do you still believe that the economic benefits for owners would be better on a standalone basis or through a partnership? I want to revisit this topic because we often hear that the mobile and convergence efforts have limited margins due to the MVNO relationship, which affects how your success is perceived. We would appreciate your insights. Additionally, regarding rural areas, we’ve seen an increase in new passings, yet customer net additions have remained stable. Could you provide clarity on penetration trends in this area? As your new plans aim for around 450,000 in 2025, should we expect that rural subscriber additions will also increase, or are there other factors we should consider? Thank you.

Chris Winfrey, CEO

I was considering how to best respond to your question regarding the mobile business. We ventured into the mobile sector as a natural extension of our broadband services. Currently, 87% of the traffic on our network is already supported by our existing infrastructure. We have installed thousands of radios for CBRS and plan to deploy an additional 1,000 this year across various markets. This 87% figure is expected to increase with the deployment of CBRS, complemented by our WiFi capabilities and collaboration with regional cable operators to facilitate WiFi auto authentication, helping us compete with national mobile network operators. Our offload capabilities will continue to grow. Currently, the margins on this product are not particularly strong, which means we don't feel pressured to focus on owner economics. We view the product not as an isolated offering but as part of a combined portfolio. Mobile serves as an extension of our broadband services, enhancing our seamless connectivity. Therefore, we don't feel the need to change our focus on owner economics beyond the existing 87%. Would you like to add anything regarding the rural aspect?

Jessica Fischer, CFO

On the rural aspect, there are a few factors at play. Firstly, a significant portion of our rural expansion is happening in the Carolinas and Florida. Therefore, from a sales standpoint, the hurricanes in the fourth quarter had some impact. Additionally, some service installs may have been completed very late in the quarter, which means that those installations might not have aged as much as expected, assuming a steady installation rate. Lastly, there is some competition in the rural markets for mobile internet. However, I don't believe this affects our expected terminal penetration in those areas, as the demand for wired broadband remains strong. Still, the speed at which we engage with these new installations at the start is not as rapid as in the past.

Stefan Anninger, Chairman

Thanks, Kutgun. Leila, that concludes our call. Right back to you.

Operator, Operator

Thank you all for joining the call today. The session is now concluded, and you may now disconnect.