Charter Communications, Inc. (CHTR) Q3 2026 Earnings Call Transcript

Operator: Hello, and welcome to Charter Communications' Third Quarter 2026 Investor Conference 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. Also, 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: 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. During the course of today's call, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. These non-GAAP measures, as defined by Charter, may not be comparable to measures with similar titles used by other companies. We will also refer to pro forma results. While our Cox transactions closed on August 19, 2026, these pro forma results present information regarding the combined operations as if our transactions had closed at the beginning of the earliest period presented in our materials in order to provide a more useful discussion of our results. Please refer to the pro forma disclosures throughout today's materials. 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, Kevin Howard, our Interim CFO, and Jeff Murphy, our Senior Vice President of Corporate Finance and Development, will also join us during Q&A to help us answer finance questions. With that, let's turn the call over to Chris.

Chris Winfrey: Thanks, Stefan. Before we discuss our results, I want to start with an important update on our business priorities and the significant changes we're making to how Charter operates and competes. We're announcing a new path forward for Charter to address a more competitive and complex market. We recognize that we've not generated the customer growth and performance we expect, and our customer satisfaction is not where it needs to be. Returning Charter to growth requires more than incremental improvements to how we operate. Today, I'm announcing a new operating model for Charter. We're fundamentally rethinking how we compete, how we allocate resources, and how we run our business. This represents a significant change, and with greater urgency and sharper focus, we will transform our ability to compete in the market with growing customer expectations for service delivery, experience, and value. Going forward, we'll maintain a relentless focus on two clear priorities: doubling down on returning our company to growth, and secondly, transforming Charter into a simpler, more efficient organization. Let me walk through how we intend to deliver on each of these objectives, which will strengthen our competitive position, unlock efficiency with faster decision-making, and significantly increase cash flow over time. Our top priority is to return to growth in our core business by winning more internet customers. We have over 70 million passings, 37 million customer relationships, and 34 million internet customers, leaving significant runway for more penetration of our footprint. We'll win more internet customers by reformulating our value proposition and go-to-market approach to significantly accelerate the pace of new connects and grow market share. We'll make our offer stronger, more simple, and more transparent, and we'll perfect our single-play internet go-to-market, including the offer proposition, the marketing, and distribution, and then layer in our unique convergence capabilities, mobile, as well as our market-leading video product. We also plan to modify our sales channel capabilities to drive better connects and maintain the same or higher ARPU as that connect and over the course of the customer relationship by delivering additional value over time. More details to come when we fully launch, but we will grow our internet sales rate. To really accelerate growth, we must also reduce churn. While we have low historical churn, we can be even more competitive through smarter pricing, enhanced customer service, and an even better network. Too often, our most loyal long-term customers are at risk from aggressive price competition, and we also fully recognize the importance of internet ARPU. While our average ARPU is competitive, we'll reconfigure our offers at promotion and retail by adding value into the relationship and earning ARPU. We'll also significantly enhance our service with an even more disciplined focus on what drives customer calls and dissatisfaction. We'll continue investment in AI technology to give our teams the tools to provide the best service and to reduce unnecessary service events. Our second major priority is becoming a simpler, more agile, and efficient organization. We're undertaking a fundamental redesign of how we operate at every level. We'll reduce complexity, accelerate decision-making, and focus our resources on the activities that contribute most directly to growth and stronger performance. We've already begun putting these changes into motion, starting with our leadership. On September 1st, Nick Jeffery, the former CEO of Frontier and Vodafone UK, joined Charter as our new Chief Operating Officer. Nick is already acting as an important change agent at Charter, bringing a fresh perspective and challenging us to fundamentally rethink how we operate, compete, and deliver for our customers. He's helping me put this new model in place, which we introduced earlier this week to our 100,000+ teammates nationwide. That comes down to the two priorities of growth and efficiency that I mentioned, and we're bringing that to life across the entire company through four strategic imperatives: winning more internet customers, improving customer service, upgrading our networks, and becoming more efficient. We'll find an appropriate venue, whether at a conference or an earnings call, for you to hear from Nick and me directly on the operating strategy and transformation. Alongside Nick's appointment, we've announced other changes to our leadership team and operating structure to address the evolving needs of our business as we build an organization to win in the future. We've also established dedicated leadership for Spectrum Consumer, Spectrum Business, and Spectrum Wholesale. Another critical component here is our ongoing investment to ensure we retain the best network for our customers across our footprint. As we complete our network evolution, we'll deliver even better reliability and faster upstream and downstream speeds, and our network investments are set to decline after next year, consistent with our previous outlooks. The critical part of our transformation is capturing the full value of our combination with Cox while driving meaningful cost reductions. That means realizing the benefits of our expanded scale, simplifying our combined operations, and eliminating duplicative activities. In addition to the more than $1 billion in transaction synergies that we anticipate from the Cox transaction, we're now targeting an incremental $2 billion in annualized run rate operating expense savings over the next 18 months. Much of that will come from simply eliminating projects that don't contribute to internet growth, and we'll be also organizing our leadership and teams for maximum effectiveness, increasing spans of control, and reducing layers. We will drive even more meaningful partnership from a more focused and a narrowed set of vendors, requiring better speed, quality, and pricing. I want to be very clear, these savings are not targeted at frontline service and sales employees, and we'll continue to invest in employee progression and market-leading benefits like education. Our frontline employees will benefit from simpler offerings, faster responsiveness to the market, and continued technology deployment where we already use AI, allowing our team members to serve happier customers more effectively and reducing unnecessary service transactions. We'll continue to drive higher quality and lower service transactions, higher job satisfaction, and we'll reduce hiring needs as a result, all while moving Cox service calls from offshore to our 100% U.S. employee base without increasing headcount. We're building a winning culture, raising our competitive metabolism with faster execution and a stronger sense of urgency across the company. This transformation represents an opportunity for us to take an uncompromising approach to strengthening our culture and ignite stronger performance across the business. By simplifying how we operate, we'll be able to make decisions faster, execute more effectively, and create greater capacity to focus on our internet business and return to growth. We recognize that ultimately our progress will be measured by results, and we intend to provide you with greater visibility into our performance as we execute against these two main priorities. Right now, we're focused on a variety of measures of success to drive the right outcomes, but the most obvious ones are increasing the rate of customer connects, reducing churn, increasing customer lifetime while maintaining ARPU, increasing convergence across our existing and new footprint, and bringing planned cost efficiencies online. We look forward to updating you on our progress on these as we go forward. The ultimate success of these initiatives will be reflected in stronger revenue, EBITDA, and significantly higher free cash flow generation over time, supported by declining capital expenditures, all of which also ties into prudent capital allocation, including debt reduction, which has already started. Next, let's quickly review our newest high-value asset, Cox, and our third quarter performance. On August 19, we closed our acquisition of Cox Communications, adding 11 million passings and over 5 million customers, making Spectrum the leading internet and video provider in the U.S. We now pass over 70 million homes and businesses with a 50% customer penetration rate, more importantly, a great opportunity for our base. With the addition of Cox, our footprint now includes key attractive and growing markets like Phoenix and Las Vegas, large adjacent markets like Virginia, Kansas, Oklahoma, and Rhode Island, and better in-market sales and service coverage in places like Los Angeles, San Diego, New Orleans, and North Florida. We've been busy welcoming Cox's former customers and our new team members to Spectrum. The Cox transaction offers us significant transaction synergies, but also significant operating synergies, like the growth opportunity offered by Cox's lower penetration across all of its residential products. The combination of Cox's well-known B2B capabilities with Legacy Charter gives us the ability to offer highly competitive business services on a much more national basis. There are many other opportunities, like a recent porting over of Cox's successful AI network reliability team and local advertising upside. During the third quarter, Legacy Charter added 440,000 mobile lines and over 1.6 million lines over the last 12 months for growth of nearly 15%. In video, our 38,000 loss at Legacy Charter was half the size of last year's third quarter loss, driven by significant video product improvement over the past couple years. In internet, where competition remains intense, Legacy Charter lost 156,000 customers, more than last year's loss of 109,000. We're not satisfied with that result, and we're taking active steps to shift momentum and gain share. Legacy Cox lost 77,000 internet customers in the quarter, and it's fair to think of Cox as about one-fifth the size of Legacy Charter. We knew Cox subscriber results and underlying financials were more challenged when we agreed to acquire the asset, which is partly what creates the opportunity in front of us. Importantly, since the launch of Spectrum Day on September 16, internet sales are up significantly, already cutting the run rate internet losses at Cox by half. Still a higher loss than Spectrum when size adjusted, but it's getting better quickly, and the lower starting penetration is a big opportunity. The monthly net add rate of mobile lines for Legacy Cox is now increasing, and it's up three times. Video customers grew slightly in October at Legacy Cox, and we see opportunity for that trend to continue. Those trends will certainly vary after initial launch period, but building the Spectrum brand through improved product and service offerings and an improved go-to-market for Spectrum at large means we'll do well with the former Cox assets. Pro forma Charter revenue was down 1.5% year-over-year, driven by lower residential revenue. Third quarter EBITDA, excluding Cox transition expenses, declined 3%. Kevin will cover more, but run rate transaction synergies are expected to be over $1 billion, with little of that realized in the third quarter stub period, but beginning to ramp in the fourth quarter, with the separate cost transformation benefits I talked about beginning next year. Beyond the immediate benefits of the Cox integration and our transformation program, I want to take a moment to remind you of our key assets and the competitive advantages those assets provide, and why we win long term. We are America's internet company with a capability no other company has to deliver internet to more Americans, a purpose that we call Connecting Gigabit America. Our fully deployed fiber-powered gigabit network is 100% converged and will be multi-gig capable everywhere, unlike our competition. Demand for data and overall data usage continues to grow, particularly in the upstream, given massive secular trends. Electric vehicles uploading data at night, AI applications, and other new low-latency demands, like physical AI in the future, will ultimately separate our network from those with slower speeds and more latency. We also have unique mobile and video products that support internet customer growth. Today, we're the fastest-growing mobile provider in our footprint in an increasingly converged world. We have an economically advantaged capital-light mobile business with the fastest mobile speeds, driven in part by our near nationwide automatic Wi-Fi connection, including our Speed Boost feature with partners like Comcast. It isn't just better speed and seamless connectivity nationwide. We also have the best value proposition in the market, and our video product is arguably the best video product in the country, with extraordinary utility and value, driven in part by our Seamless Entertainment offering, providing over $130 per month in included programmer app value. We combine those great products and value with our internet relationships, together with customer service platform that's 100% U.S.-based, operating 24 hours a day, seven days a week, all backed by our industry-first and industry-leading customer service commitment. Stepping back, we're reinvigorated by our new approach, and we're excited to shift the company into offense, where we can take full advantage of our leading assets and significant advantages, can ignite our competitive culture, and improve service execution for our customers. Finally, I'd like to address our CFO transition. Kevin Howard, our interim CFO, who's here with us today, has been our Chief Accounting Officer since 2006. He's highly experienced and knows our business extremely well. Kevin was our interim CFO in 2010, just before I joined as Charter CFO, and I understand finance operations and know the team well. We have top-notch capabilities across accounting, tax, planning, procurement, capital markets, and IR. With the in-house talent that we have in place and a premier CFO position available at a compelling inflection point for the company, we should be able to move pretty quickly in identifying a new CFO. Kevin will run through the quarter and also cover more on our balance sheet strategy, but I'd note that we've already come down to 3.9x leverage already, and we're committed to making steady progress using our significant free cash flow towards our 3.5x target leverage. Now I'll turn it over to Kevin.

Kevin Howard: Thanks, Chris. Good morning, everyone. Please refer to slide 10 for a summary of our reporting approach as it relates to the Cox and Liberty Broadband transactions. Let's start with our customer results on slide 11. At Legacy Charter, including residential and small business, we lost 156,000 Internet customers in the third quarter, driven by lower connects year-over-year, while the churn rate was essentially flat. As Chris noted, we see opportunities in both, with our plan to return to Internet growth. During the quarter, we continued to see expanded fixed wireless competition versus a year ago, including lower sales from lower-income consumers, ongoing mobile substitution, and fiber overlap at a rate similar to prior quarters, and with continued aggressive promotions by certain competitors. We haven't observed meaningful share loss to Starlink, including in our subsidized rural footprint, but we continue to monitor it closely and take it seriously. In Mobile, Legacy Charter added 440,000 lines, with higher gross additions year-over-year, more than offset by higher disconnects, even with a lower churn rate, given our larger mobile line base. Video customers declined 38,000 versus a loss of 70,000 in 3Q 2025, with the improvement primarily driven by lower video downgrades, lower customer churn, and higher upgrades year-over-year, resulting from continued Seamless Entertainment product improvements, including our programmer app inclusion package. In rural, we continue to see strong customer relationship growth, generating 48,000 net customer additions in our subsidized rural footprint in the quarter. Subsidized rural passings grew by 116,000 in third quarter and by 479,000 over the last 12 months. Turning to slide 12, Legacy Cox lost 77,000 Internet customers and 39,000 video customers during the quarter, but gained 70,000 mobile lines. Legacy Cox remains an under-penetrated asset across virtually all of its products. As Chris mentioned, we've seen significant sales improvements across Internet, Mobile, and video since our Spectrum Day launch in the Legacy Cox footprint on September 16th, and we expect it to continue to get better. Moving to third quarter pro forma revenue results on slide 14. Over the last year, pro forma total Charter residential revenue declined 2.7%. Residential revenue per customer relationship declined 1.6% year-over-year, but was essentially flat when excluding GAAP allocation of the programming costs related to the streaming apps netted in video revenue, which was a headwind of $286 million this quarter, almost entirely at Legacy Charter, versus $106 million in prior year period. There were other puts and takes, including rate adjustments at Legacy Charter in the third quarter of this year and last, the growth of Spectrum Mobile lines, pricing and packaging mix within our customer base, and decline in video customers during the last year. As slide 14 shows, in total, pro forma residential revenue declined 4.1% and was down 2.6% when excluding GAAP allocation of programming costs related to the streaming apps in both periods. Turning to commercial, we've not yet harmonized Legacy Charter's and Legacy Cox commercial business reporting practices, so I'll discuss those businesses separately today. Legacy Charter's mid-market and large business revenue grew 2.1% year-over-year, and when excluding all wholesale revenue, grew by 3%. Legacy Charter's small business revenue grew by 0.1%. Legacy Cox's commercial business declined 1.1% year-over-year. And I would note that given the sizable business that Legacy Cox has with hyperscalers and the unique timing of revenue recognition associated with the hyperscaler business, we anticipate some lumpiness as it relates to Legacy Cox commercial revenue. In total, pro forma commercial revenue grew by 0.3% year-over-year. Third quarter pro forma advertising revenue grew by 21%, given higher political revenue year-over-year. Excluding political, advertising revenue declined 5.2% year-over-year. Other revenue grew by 18.1%, driven by higher mobile device sales. In total, pro forma consolidated third quarter revenue was down 1.5% year-over-year, or 1% when excluding both advertising revenue and programmer app GAAP allocation. Looking at revenue by legal entity, Legacy Charter revenue declined 0.9% year-over-year in the third quarter, while Legacy Cox revenue declined 4.5%, primarily driven by a decline in residential customers. But as Chris mentioned, the Legacy Cox customer trajectory is already looking more similar to Legacy Charter. Moving to pro forma operating expense and adjusted EBITDA on slide 15. On a pro forma basis, third quarter total operating expenses were relatively flat year-over-year, growing 0.2%, with very little Cox transaction synergy realization in the quarter. Programming costs declined 10.3% due to the growth in costs allocated to the programming streaming apps and netted within video revenue previously discussed, a 1.8% decline in video customers year-over-year, and a higher mix of lighter video packages, partly offset by higher programming rates. Other costs of revenue increased 15%, primarily driven by higher mobile device sales, mobile service direct costs, and higher advertising sales costs given the higher political revenue. Cost to service customers, which combines field and technology operations and customer operations, grew 1.8% year-over-year, driven by higher fuel and vehicle maintenance expense and higher pole rent, driven by our rural construction initiative, partly offset by lower labor expense. Marketing and residential sales expense declined 1.8% year-over-year due to lower marketing expense from procurement initiatives late last year, but our volume of impressions and our marketing activity generally was much higher year-over-year. Transition expense related to the Cox transaction totaled $76 million in the quarter, driven by system disentanglement from Cox Enterprises, system integration with Cox Communications, and branding and marketing expense related to Spectrum Day in the Legacy Cox footprint. Finally, other expense declined 6.3%, primarily driven by lower labor expense. Adjusted EBITDA declined 4% year-over-year in the quarter and declined 3% when excluding transition expenses. Due to the mid-quarter closing of the Cox transaction, we only saw a small benefit from the operating cost synergies in our third quarter results. Synergies will materialize in the fourth quarter, and we will highlight estimates of how much is captured within each quarter going forward. We have already identified a run rate annualized operating expense transaction synergies of over $1 billion, with nearly half that run rate expected to be achieved in the first half of 2027, and 90% of that expected to be captured over the next 24 months. As a reminder, we define transaction synergies as those which result purely from the combination of the companies. They do not reflect operating synergies, which will come from operating decisions and investments that increase revenue and lower service transaction costs. Chris also mentioned our additional $2 billion run rate cost savings plan to be achieved over the next 18 months. We will report progress on that initiative as well. Turning to third quarter net income, pro forma net income declined year-over-year by $1 billion in the third quarter of 2025 to a net loss of $2.1 billion in the third quarter of 2026. The decline was driven by a one-time non-cash franchise impairment charge at Legacy Charter of approximately $6.3 billion, which was less than 10% of Charter's overall franchise valuation on the balance sheet. One-time M&A expenses related to the transactions booked in other operating expense and lower EBITDA year-over-year, partly offset by a $1.4 billion gain related to the debt exchange that we completed in August and the non-cash tax benefit associated with franchise impairment charge. Our total share count on an as-converted, as-exchanged basis grew by a little over 40 million shares this quarter, given the closing of the Cox and Liberty Broadband transactions. Slide 18 on our presentation shows a buildup of our total share count. Turning to slide 16, pro forma capital expenditures totaled $3.2 billion, including $33 million of transition capital expenditures. Excluding transition CapEx, our third quarter pro forma CapEx declined $440 million, driven primarily by lower spend on line extensions, given the declining spend on our subsidized rural construction initiative. For full year 2026, we expect total pro forma capital expenditures, excluding transition CapEx, to total approximately $13 billion, well below the sum of our 2026 CapEx guidance for Legacy Charter of $11.4 billion and the $2.5 billion of 2026 CapEx they were originally expecting for Legacy Cox. We're building the combined operating plan for 2027. We'll have more to say on that in the fourth quarter investor call. But for the moment, when excluding transition capital, we expect 2027 capital expenditures to land at or below $11 billion, which is the sum of our previous Legacy Charter guidance of approximately $9.5 billion and $1.5 billion of capital expenditures at Legacy Cox. Turning to cash taxes, third quarter cash taxes totaled $431 million. We continue to expect our actual calendar year 2026 cash tax payments will total between $500 million and $800 million, even when including Cox. Slide 17 shows actual free cash flow, $674 million we generated in the third quarter. The year-over-year decline in free cash flow was mostly driven by one-time or temporary impacts, including working capital timing with supply chain financing benefits in the prior year, higher cash taxes this quarter, and third quarter cash costs related to the closing of the Cox transactions. As we've said before, we expect significant free cash flow growth over the next several years, driven in part by declining capital expenditures as we complete our subsidized rural construction initiative and our network evolution project, which, in addition, will be supported by over $1 billion in Cox transaction synergies, do not include CapEx synergies, and $2 billion cost transformation that we announced today. Further, those savings do not assume any significant efficiencies from agentic AI. We finished the third quarter with $109 billion in debt principal, which includes impacts related to the Cox transactions and the Liberty Broadband transaction, our third quarter debt exchange, and some Legacy Cox debt paydown in September. As of September 30, our weighted average life for debt was 11.1 years, and our weighted average cost of debt remains at an attractive 5.3%. Our current run rate annualized cash interest totals $5.8 billion, and as of the end of the third quarter, our ratio of net debt to last 12 months adjusted EBITDA, excluding transition expense, was 3.93x, as expected. Our leverage target is a net debt-to-EBITDA ratio of 3.5x, which we expect to achieve within three years of the close of the Cox and Liberty Broadband transactions, while making consistent deleveraging progress along the way. We continue to evaluate the pace of that delevering, and as a reminder, we repurchased over $1.2 billion of our own debt in the open market for $1 billion in cash in the second quarter, reducing our total leverage by capturing approximately $250 million of discount. During the third quarter, we executed a debt exchange, which further reduced our debt principal by approximately $1.5 billion. As part of normal operations, we expect to use a substantial portion of our free cash flow and liability management to delever. In the fourth quarter, we expect that the majority of our free cash flow will go to efficient debt reductions. We expect to exit 2026 below 3.9x leverage. The combination of proactive balance sheet management and opportunistic repurchases will underpin our deleveraging and maturity management efforts on our way to 3.5x leverage. During the quarter, we repurchased 140,000 Charter shares, totaling $19 million at an average price of $135 per share, driven by repurchase from Liberty in July and August prior to the transaction closing. Since then, we have not purchased any shares or partnership units. We do expect to repurchase some shares this quarter while we simultaneously deleverage. Importantly, we anticipate being in a position to continue to repurchase shares as we progress to our 3.5x leverage target over the next three years. Now I'll pass it back to Chris for a few final remarks.

Chris Winfrey: Thanks, Kevin. Just a few final comments before we turn it over to Q&A. Charter has the assets, the advantages, and the scale to win, and we're taking decisive action to improve our execution. Our priorities are clear. Returning to Charter to growth and simplifying our organization to move faster while reducing cost. That'll drive free cash flow growth, which, as Kevin said, is supported by declining capital spend, cost synergies, and the additional expense transformation announced today, and while maintaining a prudent and disciplined approach to capital allocation, benefiting both debt and equity holders. We're moving with urgency, and we're confident that our actions will drive stronger operating and financial performance. We look forward to updating you on the progress there in the quarters ahead. Now, we'll open it up to Q&A. Operator?

Operator: Thank you. At this time, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk, and then you will hear your name called. Please accept, unmute your audio, and ask a question. As a reminder, we are allowing analysts to ask one question today. Our first question will come from Sean Diffley with Morgan Stanley. Please unmute to ask your question.

Sean Diffley: Great. Thanks very much, team, and helpful on the new operating model. I was hoping you could dig in on how you are balancing volume and pricing going forward. It sounds like the new goal is to win more customers. Maybe just talk about the go-to-market, and in the past, you have talked about more of a perception than a product problem in the marketplace. What is the new strategy for winning these new customers while also maintaining ARPU? Thank you very much.

Chris Winfrey: Sure. Look, you kind of hinted at it. Our competitive advantages, they remain. We have got a fully deployed network with gigabit capability. We are increasing to multi-gig convergence. The change here is how we bring them to market and how we operate. It is a fundamental rethinking of how we compete. It is not just an offer strategy difference. It is a way that we are going about allocating the resources, putting priority squarely on internet growth, and how we run our business. They are not small changes, and it is not tied to one particular activity. If you think about it, the first priority of growth, which is internet growth, we are transforming the go-to-market. That includes the customer proposition. It includes the propositions we have for existing customers over time, the marketing, and the full distribution across sales channel. I think we have significant upside, not only in our sales, but also in our service execution and to drive churn a lot lower. I will not go back through all the efficiency side again, but the $2 billion of savings, it is all coming from a bottoms-up plan. It is designed to create additional flexibility and flow to the EBITDA line, but really to make us faster, more decisive, and have more efficient execution, and kind of reinvigorate the culture towards competition. The ARPU side, we understand the importance. We take a look at it really from a connectivity ARPU and from a customer relationship ARPU. It is not lost on us the importance of internet ARPU, particularly towards investors. The goal here is to grow volume, to your point, have higher sales. More importantly is the best sale you can make is by not losing the customer that you already have, but also by maintaining ARPU at the point of connect, and do that by adding value into the relationship, both at the point of connect as well as over time into the existing relationship. We are not at a point, for competitive reasons and where we are at on the rollout, to really get into a whole lot more detail. The only thing I can tell you is that I am very excited about where Nick and our team is going and taking this, and confident that we can drive both sales as well as maintain ARPU along the way as key objectives here.

Sean Diffley: Thank you very much.

Chris Winfrey: Thanks, Sean.

Stefan Anninger: Thanks, Sean. Operator, we will take our next question.

Operator: Our next question comes from Craig Moffett with MoffettNathanson. Your line is now open.

Craig Moffett: Hi. Thank you. I am going to see if I can squeeze in two questions, if I could. First, maybe Kevin and/or Chris, could you talk a little bit more about how you think about the trade-off between buying back debt in the open market versus buying back equity in the open market? Is there a scenario where you would delever faster because of the dislocations in the credit market? We certainly heard from equity investors that they would love to see lower leverage sooner. Then, I do not know if Nick is there in the room, but I would love to hear from Nick about what his own insights have been since he started and where his priorities are for the next year.

Chris Winfrey: Let me start there, Craig, and I am actually going to hand over to Jeff Murphy, who runs all of our corporate finance and development, so all of our financing and M&A. Nick is not in the room. He is squarely focused on getting us back to internet growth, and our view has always has been the best investor relations is to deliver great results, and then you do not have to say a whole lot. That is where we are squarely focused. I mentioned in the prepared remarks that I think I do understand the importance of hearing more details, both for me as the operating strategy is deployed, but also together with Nick. We will find the right venue to go do that periodically to make sure that we are helpful to investors without providing a lot of distractions to the operating team, because we have a clear focus. It is on internet growth, and it is about becoming more efficient, and it is hard to be in two places at the same time. As it relates to the balance sheet strategy, before Jeff chimes in, look, we are highly aware of the different feedback that we are getting, pretty universal from debt investors recognize this has got a boatload of free cash flow attached to it, but would still like to see a decline in leverage. A mixed view from equity investors, many of which would like to have both the cake and eat it too, and some that would like us to focus squarely on buybacks exclusively. And so what we're trying to do is find a really balanced approach here, given the confidence that we have in the business plan, the significant free cash flow that we have today, the explosion of free cash flow that's about to take place as CapEx steps down, capital expenditure steps down, and the savings programs layer in, and really trying to find the right balance here of using free cash flow for both debt reduction and for equity. And I may have just stolen everything that Jeff was about to say, but I'm going to pass it over to Jeff in case he's got other thoughts around the topic.

Jeff Murphy: I thought that was a great answer, Chris. Look, in addition, we see where our debt securities are trading. We see an equity security that trades at a level that I think is really difficult to justify given the cash flow that Chris has outlined. We think that there's advantages to going after both sides of the balance sheet, Craig, and we'll continue to pursue a balanced strategy. I think we've said that at least in the short term, we're going to deploy a majority of free cash flow against debt reduction, and we plan to do that in the most efficient manner we can do that. But it will continue to evolve with time. We're not dogmatic. We've already shown an ability to change. The leverage targets have moved over just a short 18-month period from effectively being 4.5, 3.5, make strong progress against that every quarter. So I think we'll continue to do those types of activities and be good stewards of capital.

Chris Winfrey: And honor what we say of on the way and make sure that as the internet growth picks up and company performance gets in place, that we're not pivoting back and forth as it relates to the capital allocation and market strategy as well, which is important. I just highlight what Jeff said, the opportunity for providing liquidity into the debt markets and doing debt repurchases, taking down the principal of debt, and creating equity value along the way at the same time through the debt discount is hard to ignore, and it's something that we clearly understand and have been focused on. And in some sense, that's a win-win. So, not in some sense. It is a win.

Stefan Anninger: Thanks, Craig. Operator, we'll take our next question, please.

Operator: Okay. Your next question comes from Vikash Harlalka with New Street Research. Please go ahead with your question.

Vikash Harlalka: Hi. Thanks so much for taking my question, two if I could. Chris, the word growth has been used several times in the press release today and on the conference call. Is there a timeline you can share with us when you expect to return to growth on the major metrics like broadband subscribers and EBITDA? Is this like a long-term growth, or are we talking about the next couple of years? Just a clarification, how much of the $2 billion of cost reduction do you expect to reinvest in the business versus fall into the EBITDA line? Thank you.

Chris Winfrey: Yep. We're not providing any guidance or outlook for exactly when we return to growth, but I want to be very clear, that's the objective, that's the determination of success, and we're going to be providing regular updates in terms of the steady progress that we make. So right now, the focus is day by day, just getting better from where we were, and that's the type of progress that you'll be able to see. Look, midterm, I think is what people have different definitions of that. Even in the short term, I think we'll be able to have additional success, and we'll be able to measure that, we'll be able to show that. That's really the outlook. From a Legacy Cox footprint perspective, that's already happening. From a legacy Charter perspective, the goal here is to minimize the year-over-year gap that you saw in Q3 on internet subs and start to make immediate headway on that year-over-year gap. From there, to get better and put ourselves in a position to grow at both the Legacy Cox and the Legacy Charter footprint for internet. Have the focus squarely on internet, but not lose sight of the convergence advantage and the mobile economics and the mobile stickiness that we have and its true reduction capabilities without over-complicating the offer set or the understanding of the goal inside the company. The cost transformation, I almost forgot, I need to ask that. Let me take a step back on that. The first goal is not really just taking out cost. It is putting ourselves in every way, and I talked with Sean about the different things we are looking at, but the reduction of cost is really about simplification and increasing our focus and having faster decision-making, making us agile, and getting our entire team, including leadership, closer to the customer. I think we are going to clearly produce big cost savings. This is a bottoms-up plan. This is not aspirational, putting that into place in short order. The goal is for that to fall to EBITDA line and ultimately drive free cash flow. But clearly, it also gives us additional competitiveness along the way. I do not want that to be misinterpreted. We have talked about very clearly the importance of maintaining ARPU at Connect and over time, and the fact that when you step back from an ARPU standpoint, because I think that is what underlies your question, if you look at our average ARPU, our average ARPU is healthy and it is competitive. It is really at the ends when you think about promotional and at retail rate, where we have ways that we can add value into the equation without sacrificing ARPU or sacrificing average ARPU along the way and earn ARPU as opposed to relying exclusively on rate increases and roll-offs without adding additional value.

Stefan Anninger: Thanks, Vikash. Operator, we will take our next question, please.

Operator: The next question comes from Sebastiano Petti with JPMorgan. Your line is open.

Sebastiano Petti: Excuse me. Hi. Thank you for taking the question. Chris, I mean, can you just unpack the comment that you made about improving, I guess, the Cox losses by half, or just clarify, I guess, what you kind of meant there? Thinking about from a source, is that from a Connect's perspective? Are you reducing churn as you kind of help with some of the bundling efforts, better maybe go to market on the mobile side as well as a video product? So just a quick clarification question there. Then separately, moving to the wireless business, you did buy some CBRS licenses, or at least it was reported that you did last month. Do you see the potential returns from maybe a more robust CBRS or small cell strategy, mobile strategy, now that you have the larger, maybe more attractive Cox footprint? Has that changed your calculus, how you think about maybe deploying more infrastructure on the wireless side to accelerate some of your convergence efforts and strategy there? Just if anything's different, that would be great. Thank you.

Chris Winfrey: Yeah. So the improvements at Cox, what I said is it's a, from the run rate of where Cox was for internet net adds, we've cut that in half. It's still not at the legacy Charter performance, but it's a very significant improvement in a very short period of time. We just rolled out Spectrum Day and the pricing and packaging on September 16, and already we've cut the internet losses in half. Vast majority of that is coming through sales, which continue to get better and are not at the sales rate that we have at legacy Charter. The churn at Legacy Cox is about 10% higher than it is at Legacy Cox than it is at Legacy Charter. So, there's improvements on both sides. The latter will take a little bit more time, as it usually does. We have ways to get added from the sales perspective and from a disconnect perspective, which will Sales, I think, is just going to continue to increase because of what you said. First, the pricing is better under the Spectrum model for internet, but also the addition of a high-quality mobile product as well as video and the ability to save more in your bill by adding those in addition to the better internet pricing. That doesn't mean, I just want to be clear, that getting to legacy Charter performance is not the goal. We're not happy with the legacy Charter performance on the internet, and that's why we talked about rolling out the new operating model today, which is pervasive across all the aspects that I've described. The other question you had is a more robust small cell deployment. Cox also had CBRS. We have CBRS. We purchased a sliver more that was available in the market. Our strategy there hasn't changed. We're deploying the CBRS on an ROI basis and also keeping in mind, it's not a whole lot of capital overall for the full deployment, but also pacing ourselves based on the attractiveness of other capital projects that we have and knowing that while the ROI is very good today on deploying it on a needs basis or usage-based across the footprint, the more mobile customers we have, actually, the better the ROI gets faster, and you get a better IRR. Success begets more success in the ROI. It doesn't get better in state, but it gets faster and better IRR. We're pacing ourselves as we go. We are fully deploying. I think we'll be at something like 50 markets by the end of this year. But the acquisition of Cox itself hasn't accelerated to this point, hasn't accelerated our deployment plans for CBRS.

Sebastiano Petti: Thank you.

Stefan Anninger: Thank you. Thanks, Sebastiano. Operator, we will take our next question, please.

Operator: Your next question comes from John Hodulik with UBS. Your line is now open.

John Hodulik: Great. Thank you. Two quick ones, if I could. First, Chris, I would love to get your perspective on broadband competition from LEO constellations. Do you think that, or in your view, do you think that intensifies over the next couple of years? Especially in rural markets, how do you think the company is positioned, especially as it relates to your guys' return to growth? Number two, Cox sort of pioneered the penetration of the business market going back years. Now that you have added Cox and their capabilities combined with the national footprint, can you talk about potential upside to revenues in the business market as you pull those two companies together?

Chris Winfrey: Sure. Look, the low Earth orbit satellite providers are well-capitalized, and they are very well-capitalized, and they have really smart engineers. We do not discount them whatsoever. We take them at their word of what they are looking to do. Do think there is still capacity capabilities where our network, for the foreseeable future, is going to be faster on the upstream, downstream, has a lower latency, and is a much easier install and service proposition. But that does not mean that we discount them whatsoever. So far, we have seen very minimal impact, and that includes in the rural areas. The one area that we have talked about recently is that in the newest rural footprint where we are building out, we are finding that they have a higher penetration there than the past. You would expect nobody else was there. But we also find the ability to go win that market share within the rural footprint because of not only the faster speeds that we provide on internet, but in addition to that, the ability to offer mobile and video. Strangely enough, in a rural footprint, believe it or not, wireline phone, because a lot of these households have been paying for phone and paying $60 per month, and even there, we can save money. I am not saying that is our go-to-market strategy. I am saying that is an added benefit of value that we can provide into a rural household. Long story short, we do not see anything material today, but our eyes are wide open in terms of where they could go, and it is factored into, as much as it can be factored into our thinking, included in our thinking for return to growth. The Cox Business capabilities, it is really opportunity for both footprints. The small business footprint, despite all of the success that Cox has had over the year, pound for pound, the best cable operator as it relates to B2B, and that has been well-known. Small business side is under-penetrated relative to what we have done in Legacy Charter. I think there is an upside for us in there penetrating the Cox markets. On the other hand, Cox has always done well, in particular, if you think about the hospitality segment. I will not name off, for privacy reasons, I will not name off a number of high-profile clients that Cox has, but they have done extremely well in the hospitality space. Think about stadiums, arenas, hotels in particular, and a lot of that comes out of their Las Vegas footprint, where they have done very well, and that is pretty well-known. But if you think about our footprint, it is all our footprint now, the Legacy Charter footprint, and you think about Los Angeles, Orlando, New York, and from a hospitality perspective, these are some of the biggest, if not the biggest, when you think of Orlando hospitality markets in the world. The ability to take those relationships, that leadership capability, and product set over to the Charter markets is significant. On the enterprise side, I think both companies have complementary products that we can deploy across our respective bases. Segra and RapidScale, which are different assets than what we have existed Legacy Charter and offer the opportunity to penetrate across a much larger footprint. Even in the Segra base, a lot of that network was across the Legacy Charter market. It will take a little time, but there are cost synergies as well because we have owned networking place that had been previously leased. I think it is a Look, it is residential and internet in particular is what drives this engine, and that is where our focus is going to be. We have a separate B2B group that is very excited about the opportunity to add it towards the growth rate of the combined company.

John Hodulik: Great. Thanks.

Stefan Anninger: Thanks, John. Thanks. Operator, we will take our next question, please.

Operator: Your next question comes from Michael Rollins with Citi. Please go ahead.

Michael Rollins: Thanks, and good morning. I am curious, when we look at your metrics, especially Legacy Charter, you have been successful at not just the wireless bundle, but really influencing the attach rate, it would seem, for video, with the Seamless Entertainment platform. I am just curious, as you look at individual markets and you look at your portfolio more on a micro basis versus a macro basis, are you starting to see a set of conditions form where you are like, "Okay, this is where equilibrium can get to for Charter, and this is the recipe or the KPIs that are needed to start turning the market around, stabilize, and potentially get back to growth?" Thanks.

Chris Winfrey: Yeah. Look, I want to make sure I understand your question, but I'm going to answer it the way I understood it, and if it's not what you're looking for, let me know. The wireless and video attach rates are pretty universal across the footprint as it relates to internet penetration. At the end of the day, the thing that matters most is internet penetration. Now, what does help and boost up internet penetration is both video and mobile when attached to a customer reduces churn, and it becomes a virtuous cycle of benefits there. All of our markets, when you think about equilibrium and the ability for growth, the factors that go into that for internet penetration, which then allows us to have video and mobile attached to that internet penetration, those factors include the quality of the local service that we provide, the amount of competition that's inside the footprint, both wireline and from others. Our ability to respond at a localized level from a sales channel perspective and a service perspective. I would say more than anything else, our execution capabilities is the biggest driver of internet acquisition, internet churn, and therefore, for video and mobile. It's not overly complicated. We have wireline overbuild in a large portion of our footprint, and it's pretty diversified in terms of where it exists across the DMA. There's a substantial amount of wireline overbuild, and that's new and not new, and we've competed very well against fiber once the newness wears off. I think we can do a whole lot better both at the point of attack when wireline overbuild is occurring and against the embedded base of wireline overbuild penetration.

Stefan Anninger: Thanks, Mike. Operator, we will take our last question, please.

Operator: Our last question comes from Steven Cahall with Wells Fargo. Your line is now open.

Steven Cahall: Thank you, Chris. I just wanted to maybe finish up the call on the go-to-market strategy a little more. We have seen a little bit of a change in go-to-market when you did Spectrum One. I know that was more about mobile churn reduction, yet a peer who announced a new go-to-market strategy about a year ago. I am just wondering what you think has really changed in how you can go to market, what you have learned through the last few years. Telco continues to be very aggressive with pricing on the fiber side. I think we would love to get confidence in that return to growth. I would just, again, like to know what you think is different now in order to achieve that with your transformation. Thank you.

Chris Winfrey: Yeah. Look, I think it is a very fair and it is an excellent question, and one that I have been thinking about also in terms of speaking with our own employees who have witnessed the same. I think the big difference, if I am honest, is that we kept taking a look and saying, "Our competitive advantages long term are very clear. We got faster speeds, more deployed network. We have got convergence capabilities. We have invested in video and turned it around, and it is a great add. Therefore, the only thing that we need to do is to find a better offer structure at promotion, and that is going to solve everything." When you think about everything that you described with the pricing and packaging changes, it really was just about an offer. That is the point I was trying to make today, because that is where all of us as investors, and I consider myself one as well, you go to, "Okay, what is the offer?" This is not about an offer. The consumer proposition is really about the end-to-end. What is the product that you are going to put in front? It is the pricing of the product. It is the way that you are going to surround it with value. Equally important is how are you going to bring it to market and to get the attention of the customer and to convince them that this is a fair price, it is a great product, and how that is going to evolve over time. It is a complete fundamental change for our distribution channels. It is a much more aggressive approach in terms of the focus on internet first. Part of that we are getting at with the efficiency inside of the organization to get the entire management team closer to the customer, to make ourselves faster, more agile in decisions. The other piece I have talked about really on that side is really how do you go to market, how you sell, and it is a dramatic change end-to-end on that front. The other one is service, and recognizing that just because we have some of the lowest churn that we have ever had, that does not mean it is good, and it does not mean that we should pat ourselves on the back, and it does not mean that it cannot get better. In fact, it should get better, and it is too high. The way that it gets better is really being maniacally focused on addressing the reasons that customers call, and addressing those pain points in a Pareto analysis. I am not saying that has not been done before, but doing it in a very different sort of way that we get after the issues and fix those, and make sure that the other second major pain point in addition to service and reliability is on pricing structure over time, and while maintaining ARPU and being very careful around that, adding more value so that customers who are at a retail rate feel that they have got a fair and competitive price along the way, can maintain that ARPU and not be exposed to competition. It is a holistic, completely different approach, and I really am glad you asked the question because it is not about a simple offer structure, and that is going to be a magic wand that changes everything. This is an end-to-end change. Nick is not here, and he is our new COO. He is very focused, and the reason he is not here is because he is very focused. But when I sat down and we talked together and I ended up hiring him, we talked about what we needed to do together, and I think what he wanted to understand was he going to have the flexibility to go make some of an end-to-end dramatic change. The reason we were talking to begin with is simply because I recognized that some of the things that you had mentioned, I felt like at the time should have worked, and it should have been a magic wand, and a simple offer change given our assets should have changed the trajectory, and it did not. Therefore, it was time to do something more fundamentally different. We made that hire in January, and Nick has been on garden leave for eight months, and he has had a lot of time to think about what he is going to go do, and he started to implement that here. Along the way, I wanted to make sure that we did not fundamentally make too many changes while we were going to have a new Chief Operating Officer. We were steady in the market as it relates to offers and operating structure and the things that we were doing because you did not want to introduce multiple rounds of change into the organization. Frankly, we also had the second-largest ever cable integration that was about to take place in August with the Cox transaction. For both of those good reasons, we stayed relatively static at the early first three quarters of this year and set the stage to be able to do something more transformational and fundamental across the entire company that you are hearing about today. It is not just offer structure. It is entirely the way that we operate, we go to market, we provide service, and how we get more efficient along the way.

Steven Cahall: Thank you.

Stefan Anninger: Thanks, Operator and Steve, and we will see you at our next call.

Chris Winfrey: Thank you very much. Thank you.