CHTR - NASDAQ

Hello, and welcome to Charter Communications Second Quarter 2025 Investor Conference Call. [Operator Instructions] 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.

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.

Thanks, Stefan. During the second quarter, we remained the fastest-growing mobile provider in the United States. We added 500,000 Spectrum Mobile lines in the quarter and 2.1 million lines over the last 12 months for growth of nearly 25%, all because we offer seamless connectivity with the fastest speeds at the best price. In the second quarter, Internet customer losses of 117,000 improved from 149,000 last year. Our video customer losses improved fivefold year-over-year to 80,000, driven by better connects and lower churn. Revenue was up slightly year-over-year, while second quarter EBITDA grew by 0.5%, and we expect to grow EBITDA for the full year. The operating environment remains competitive. In Q2, we drove higher levels of sales year-over-year and lower voluntary churn, partly offset by higher levels of non-pay Internet churn, absent ACP. We have not seen a material change in the competitive landscape, and we remain confident that we'll return to Internet customer growth over time through our operating strategy of delivering the best networks and products at the best value for customers, combined with unmatched service. The new pricing and packaging we launched last September continues to produce good results, including a higher number of total products sold at Connect, a gig attach rate that's nearly doubled, more mobile lines per Customer Connect and a video sell- in rate that's improved substantially with lower churn across both our traditional expanded basic packages and our skinny bundles. Our video product continues to improve. In June, we announced the inclusion of Hulu with our traditional packages. Hulu should become available for those customers prior to the launch of ESPN Unlimited. And together with Fox, our inclusion offer will then be essentially complete. As Slide 6 shows, we'll offer over $100 of monthly value inside of our seamless entertainment packages at no additional cost to customers. Our streaming app activation process for customers has improved, and we'll be ramping our marketing of seamless entertainment together with our programming partners. This month, we began launching the sale of a-la-carte programmers' streaming applications to customers without traditional video packages, including broadband-onlys. In the coming months, we'll also launch our video marketplace. It's a place where customers can discover, activate, migrate, upgrade and downgrade their streaming inclusion apps. We'll also be a starting place for video-centric sales leads and a place to learn about and buy Spectrum TV video packages like TV Select and Stream and a-la-carte programmers' streaming applications. So why have we worked so hard to improve an ecosystem that's been in structural decline for years? The reason is because we recreated the video product into something of much higher quality with unique video packaging, flexibility and value. Together with Xumo, which solves a growing content discovery problem, our video product can be yet another competitive advantage for our Internet and mobile sales, and it drives churn lower. It's the convergence of our connectivity services and video through seamless entertainment. I do want to highlight that our programming deals over the past 2 years, including recent extensions and co-marketing efforts reflect our programming partners' belief in our customer video proposition, and those relationships are probably in the best place I've seen. Turning to Internet, specifically, we offer gig capable seamless connectivity, wireline and wireless across 100% of our footprint, and we're not standing still. Our wireline network evolution is effectively a very low-cost spectrum acquisition across 58 million passings, adding up to 1 gigahertz of additional spectrum when we move to 1.8 gigahertz. We're deploying symmetrical and multi-gig speeds everywhere we operate. In July, we completed the addition of 2x1 gigabit per second service to all of our step 1 markets, approximately 15% of our footprint. Step 2, including DOCSIS 3.1 distributed access architecture, is now underway to the next 50% of our footprint, and we'll deliver 5x1 gigabit per second service there as well as fiber on-demand capabilities. Step 3, adding DOCSIS 4.0 to the equation will expand capacity even more, allowing us to offer 10x1 gigabit per second service. We're also in full deployment mode of our hybrid mobile network operator, or HMNO network, deploying CBRS small cells across an additional 23 markets. In mobile, our rapid growth continues. And for the last 5 quarters, the majority of our line net adds have come from Unlimited Plus lines with higher value and ARPU at a fraction of competitive prices with faster speeds and better connectivity. We've also been selling more mobile lines per connect with our new packaging and upselling additional lines to existing mobile households. Convergence reduces churn and higher mobile lines per customer benefits churn further. On convergence and higher line counts, earlier this week, we announced a long-term MVNO relationship with T-Mobile, which enhances our Spectrum business package of connectivity services and can accelerate Spectrum Mobile growth over time. We look forward to working with T-Mobile. From a financial perspective, mobile EBITDA less mobile CapEx is positive. And for the last couple of quarters, that figure has been positive, even including the impact of customer device financing. Outside of our multiline phone balance buyout, we don't see a need to subsidize acquisition given our market-leading speed and value. So the mobile business is now becoming a real tailwind to our free cash flow growth, and it will continue to increase. Turning to customer service. We have a unique opportunity to create a competitive advantage here. The significant investments to improve our customer service were largely made over the past few years, those being technology, including digitization, AI, network intelligence and direct investments in our U.S.-based employees. Our technology investments have been primarily directed at applications that directly benefit customers in various self-help channels and machine learning and AI-based frontline service tools to make servicing customers easier and more efficient for our employees. We're currently focused on using machine learning and AI to take full advantage of all of our network and in-home telemetry to identify and address service issues before they ever occur. Our investments in employees themselves are focused primarily on driving employee tenure, which drives better craftsmanship and customer service. It starts with good paying U.S. jobs and benefits, and then we expanded that with career paths, including self- progression, training and education and enhanced retirement benefits. We recently extended that notion of better service from better craftsmanship and commitment to a unique frontline ownership program geared towards tenure with the company matched based on tenure and a 3-year investment holding period. In the first election window of our employee stock purchase plan, nearly 15,000 largely frontline employees opted to directly invest and become owners of our company. Our employees understand the investments we're making, and they believe. They own not just their career and retirement here, they increasingly act like owners of the business, and that's good for our customers, the communities we serve and our shareholders. Ultimately, our investments in employees, and technology are all resulting in significant and sustainably improved service. Cable billing and repair calls were down 14% year-over-year in the second quarter with a near 10% decrease in truck rolls despite significant weather impacts. And we're seeing tangible improvements in how customers perceive our service, products and pricing. We also have a public customer commitment backed by service credits, including if we can't be at your home or business the same day. But internally, we're moving that standard to 2-hour windows. Why? Because we can. We're now doing it a large percentage of the time. We believe it will take our competitors' years of investment to catch up. Taking a step back, we still recognize the competitive environment we're in. Our operating and capital allocation strategy means we've been making the investments to put us in a position of confidence today, network evolution to ensure the fastest wireline speeds, convergence to make the same speed and reliability available seamlessly, extending our network to rural footprint, which often becomes suburban density in the future and transforming video to provide value and utility in a complex ecosystem, driving connectivity sales and retention and then pairing those network and product investments with market-leading pricing and packaging to save customers' money, all with the commitment backed best-in-class U.S.-based service from employees who are tenured, committed and act like owners because they are, all of which has yet to fully take hold. So how do you know as an investor whether it works? Because everything we're doing is what you as a customer want. And as a customer demand for bandwidth, reliability and low latency service seamlessly connected continues to increase. I believe we're in the best competitive position. And I think that's true with or without a step change from AI, VR, edge compute or other transformational shifts, which have always occurred when we have ubiquitously expanded the capabilities for our network for advanced products. A logical expansion of our strategy was our announcement in May to acquire Cox Communications. This combination offers significant benefits for customers, employees, local communities and shareholders. The transaction will marry Spectrum's operating strategy with the B2B capabilities and community investment heritage of Cox, together with our shared philosophy of long-term investment in our network and employees. It will bring Spectrum products and prices to the Cox footprint, where we don't operate today. Increasing competition in those markets to the benefit of consumers and increasing onshore labor to the benefit of employees. This transaction is good for America. It's also a great outcome for both our current shareholders and for the Cox family. The transaction is priced at an attractive valuation, and it's accretive to top line growth, margin and to levered free cash flow per share, even when absorbing the impact of a modest delevering of the combined business and without factoring in the benefits of a lower cost of capital and the value of Cox as a sophisticated long-term shareholder. As we spend more time thinking through the integration, assuming regulatory approval, we continue to see areas of additional opportunity. And in the meantime, the employees of both companies are focused on business as usual and delivering value for our respective shareholders. Now I'll pass it over to Jessica.

Thanks, Chris. Please recall that last quarter, we made a number of expense reclassifications to reflect changes in how we manage our business in connection with the recent launch of the Spectrum business brand. Again, these reclassifications did not result in any changes to total operating expenses or adjusted EBITDA for any period. Let's please turn to our customer results on Slide 9. Including residential and small business, we lost 117,000 Internet customers in the still seasonal second quarter, compared to a loss of about 100,000 in last year's 2Q when adjusted to remove last year's impact of about 50,000 ACP-related disconnects. When comparing this year's second quarter Internet net adds versus last year's 2Q, we have not adjusted our second quarter 2024 Internet net adds for the 50,000 ACP-related gross adds headwind we called out last year when comparing to 2023 as neither the second quarter of 2025, nor 2024 had the benefit of ACP-related gross additions. In mobile, we added 500,000 lines with higher gross additions year-over-year, offset by a lower year-over-year churn rate on a larger line base. Video customers declined by 80,000 versus a loss of 408,000 in 2Q '24, our best video quarter since 2021, with the improvement primarily driven by better connects year-over-year resulting from the new pricing and packaging we launched last fall and lower churn year-over-year, driven in part by our programmer app inclusion packaging. Wireline voice customers declined by 220,000. In rural, we activated our 1 millionth subsidized rural passing during the second quarter. Our success in rural has benefited from both the scale and experience we bring to the complex process of network construction. During the quarter, we grew our subsidized rural passings by 123,000 and by over 440,000 over the last 12 months. And we generated 47,000 net customer additions in our subsidized rural footprint in the quarter. We continue to expect rural passings growth of approximately 450,000 in 2025, in addition to continued nonrural construction and fill-in activity. Moving to second quarter revenue results on Slide 10. Over the last year, residential customers declined by 2.1%, 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 nonvideo customers, growth of lower-priced video packages within our base and $67 million of costs allocated to programmer streaming apps and netted within video revenue. This allocation should grow over time as more customers authenticate into our streaming application offers, but is neutral to EBITDA. As Slide 10 shows, in total, residential revenue declined by 0.4%. Turning to commercial revenue. Total commercial revenue grew by 0.8% year-over-year. With mid-market and large business revenue, formerly Spectrum Enterprise growth of 2.9% and when excluding all wholesale revenue, mid-market and large business revenue grew by 3.5%. Small business revenue declined by 0.6%, reflecting a decline in small business customers with revenue per customer remaining essentially flat year-over-year. Second quarter advertising revenue declined by 6.7%, including the impact of less political revenue. Excluding political, advertising revenue decreased by 4.4% due to a more challenged national and local advertising market, partly offset by our higher advanced advertising and better inventory selling capabilities. Other revenue grew by 18.9%, primarily driven by higher mobile device sales and a $45 million onetime benefit. In total, consolidated second quarter revenue was up 0.6% year-over-year. Moving to operating expenses and adjusted EBITDA on Slide 11. In the second quarter, total operating expenses increased by 0.6% year-over-year. Programming costs declined by 8.8% due to a 5.1% decline in video customers year-over-year and a higher mix of lighter video packages and $67 million of costs allocated to programmers' streaming apps and netted within video revenue, partly offset by higher programming rates. Other cost of revenue increased by 7.3%, primarily driven by higher mobile device sales and mobile direct service costs. Cost to service customers, which combines field and technology operations and customer operations, increased 3.8% year-over-year, primarily due to higher bad debt expense due to prior year cash basis accounting treatment for certain ACP customers and higher mobile device sales, higher network utility costs, labor-related costs, primarily driven by recent storm activity and banking card fees, partly offset by productivity from our 10-year investments. Excluding bad debt, cost to service customers grew 2.4% year-over-year. Marketing and residential sales expense grew by 8.6% due to slightly higher sales volume as we make investments in marketing and sales, including in higher cost sales channels to drive growth. Finally, other expense increased by 0.6%. Before turning to adjusted EBITDA, I wanted to note that there were a number of storms and tornadoes, particularly in the St. Louis area, Ohio and the broader Midwest that impacted our footprint in the second quarter. We extend our sympathies to those impacted. The combination of bill credits and storm cleanup expenses spread across our expense lines resulted in a $13 million headwind to EBITDA year-over-year. The CapEx impact was very small. Adjusted EBITDA grew by 0.5% year-over-year in the quarter. We expect to grow adjusted EBITDA for the full year 2025 and year-to-date, we're on track with the first half EBITDA growth of 2.6%. EBITDA growth will be pressured in the third and fourth quarters given last year's political advertising strength. Turning to net income. We generated $1.3 billion of net income attributable to Charter shareholders in the second quarter compared to $1.2 billion last year, given this quarter's higher adjusted EBITDA and lower interest expense. Turning to Slide 12. Capital expenditures totaled just under $2.9 billion in the second quarter, flat with last year's second quarter, with higher network evolution and CPE spend, offset by lower line extension spend. We now expect total 2025 capital expenditures to reach approximately $11.5 billion versus $12 billion previously, primarily due to the timing of network evolution spend and lower line extension spend spread in commercial and subsidized rural. The majority of the $500 million spending shortfall this year will be spent next year in 2026. On a stand-alone basis, we still expect 2025 to be our peak capital spend year in dollar terms. 2025 should also be our peak year of capital intensity, even including the impact of the Cox transaction and associated integration capital, assuming that it's closed with capital intensity falling going forward. And given the powerful economic and strategic benefits of our Cox transaction, the pro forma entity will generate higher free cash flow per share in spite of delevering, which will reduce our cost of capital. Turning to free cash flow on Slide 13. Second quarter free cash flow totaled $1 billion, a decline of $250 million year-over-year. The decline was primarily driven by higher cash taxes, higher cash interest and a working capital headwind related to mobile handsets. Turning to second quarter and full year 2025 cash taxes. On our last call, I noted that we expected to pay approximately $1 billion in second quarter cash taxes. In the end, we ended up paying less than that, approximately $650 million, given the timing of certain tax- related items. Looking forward, new federal tax legislation passed by Congress and signed into law in July, has improved our cash tax outlook for the full year. We now expect that our calendar year 2025 cash tax payments will total a bit over $1 billion, down from a range of $1.6 billion to $2 billion previously driven by our ability to depreciate more for tax purposes this year, given the permanent restoration of 100% bonus depreciation. Our ability to now deduct more interest for tax purposes, given the permanent restoration of the EBITDA-based limitation and our ability to now fully deduct research and experimentation expenditures for tax purposes. The new tax legislation will ultimately save us several billion dollars in cash taxes over the next 5 years, helping to finance our capital expenditures and investments and supporting our free cash flow for at least the next 5 years, while creating higher free cash flow per share essentially permanently. We appreciate the efforts of the President Trump and Congress to restore these key business tax provisions, which will provide capital-intensive companies like ours, the visibility to continue pursuing our long-term investments, including the significant investments we will make in the Cox network, driving benefits for customers and employees and improving our competitiveness. We finished the second quarter with $94.3 billion in debt principal. Our weighted average cost of debt remains at an attractive 5.2% and our current run rate annualized cash interest is $4.9 billion. During the quarter, we repurchased 4.5 million Charter shares and Charter Holdings common units totaling $1.7 billion at an average price of $375 per share. As of the end of the second quarter, our ratio of net debt to last 12-month adjusted EBITDA increased sequentially to 4.1x and stood at 4.18x pro forma for the pending Liberty Broadband transaction. As I mentioned on our Cox transaction investor call on May 16, during the pendency of the Cox deal, we plan to be at or slightly under 4.25x leverage pro forma for the Liberty transaction. Post close, however, we will move to our long-term target leverage to 3.5 to 4.0x. And we would expect to delever to the middle of that range within 2 to 3 years following close. I'll leave you with a few things. Our share of converged connectivity revenue within our footprint is still low, less than 30%. And with better products and pricing, we have a long runway for organic customer, top line, EBITDA and free cash flow growth for many years to come. We've made and are making the investments required to accelerate the growth of the business going forward, including network evolution, new pricing and packaging, innovations and seamless connectivity and entertainment, mobile, service investments in AI and employee tenure. Our free cash flow is about to surge. We are now in the midst of our peak capital intensity period and moving beyond that peak on its own sets us up for rapid free cash flow and free cash flow per share growth over the next several years as capital intensity declines meaningfully. And finally, we plan to add with all of that, our combination with Cox, which provides meaningful share price and free cash flow accretion to our shareholders. With that, I'll turn it over to the operator for Q&A.

[Operator Instructions] Our first question will come from Craig Moffett, with MoffettNathanson.

I'm going to let others focus on the obligatory broadband questions and ask you about the T-Mobile deal that you announced for business and the new MVNO. Can you just talk about that deal a little bit? It's -- I guess, it's reasonable from our side to presume that part of the appeal was lower prices, relative to the existing Verizon deal. But can we read anything into your targeting small businesses with T-Mobile about a potentially larger relationship? And what should we conclude that the deal means for the relationship with Verizon?

Sure. I'll give the upfront caveat. And clearly, we have a good legal agreement with both of those parties with T-Mobile and Verizon, and Verizon has been a great partner to us, and I think we've been the same. So we're going to continue to do that. Just entered into, I think, a very strategic relationship with T-Mobile, and so we intend to be good partners with them as well. We're really excited about the deal that we announced with T-Mobile, and we're looking forward to getting to market and to small, medium and for us, large business space with the ability to enter into a market selling many more lines than we've been able to sell the ability to combine those mobile products together with already our market and price leading wireline services that we have in small, medium and large businesses, I think, is attractive the same way it is for residential, and we've been somewhat limited in terms of our ability to go to market in the business space. And so this opens the door for us to go do that. I'm not going to comment on pricing for the reasons I said at the outset, other than to say we're happy with the partnership that we have both with T-Mobile now in the business segment as well as with Verizon. But I also think it's always good to have strategic relationships, but have multiple strategic relationships. And we feel that this is helpful to the future of the business overall. In terms of impact to Verizon. It's not a space that we were heavily driving today. If you take a look at our really small business segment, where you can see our mobile lines that we publish. There is some business that exists there with Verizon. It's been relatively limited for the reasons that I just mentioned. That business on the increment will be moving towards T-Mobile and hopefully expanding at a more rapid rate. But the residential business that we have with Verizon is there, and it's a great relationship. It's worked obviously very, very well. I think it's strategic for them. It's strategic for us. They've said as much, and we look forward to being a great partner to both of those companies.

And if I could just ask 1 quick follow-up question on that topic. I assume it's reasonable to assume that, that deal contemplates the addition of Cox under the same relationship.

Not going to get into the agreement, but we signed it after the announcement at Cox, you should assume that we're thinking about a lot of things for the future.

Our next question will come from John Hodulik with UBS.

Great. Two quick ones, if I can. First, for Jessica, thanks for the numbers on the tax reform. Do you have a number for '26 and maybe more detail on the sort of the use of the cash tax savings. And then as Craig suggested, switching to broadband, Chris, you gave some sort of high-level sort of detail on sort of gross adds, non-pay churn and voluntary churn. And it seems like the nonpay churn might have been one of the drivers of the sort of core declines. Is there any way you could give a little bit more color on that? It sounds like you're having such success getting new customers in, but that nonpaid churn, maybe stemming from ACP, stepped up a bit. So any color on sort of that dynamic would be great.

Yes. So I'll start on the tax question. As I said in the change to the guidance this year, we did come down pretty dramatically in our expectations for 2025 cash taxes. We expect several billion dollars in the next 5 years. And if you look at what piece of that is in 2026, I think it's reasonable to assume that there's savings that's similar to or slightly larger than what we saw in this year. I mean I think the big story is around sort of what it does to overall free cash flow. And in our modeling, the new rules can drive $10 or so of free cash flow per year for each of the next 6 years. So I think the impact is pretty dramatic.

$10 free cash flow per share.

Yes, sorry. I said free cash flow per share. Sorry, there you go. In terms of how we deploy the savings, our capital allocation strategy hasn't changed. We have and we will continue to prioritize investments in organic investments in the business that generate positive ROI. As a result of the permanent bonus depreciation and interest deductibility rules, I would expect more projects to meet that positive ROI hurdle. That being said, we're not updating our multiyear outlook, except for the sort of timing items that I discussed in my remarks. We already invest a significant amount in our network. We plan to invest in our network in rural builds. And in our proxy disclosures, we did the same for Cox, assuming that the transaction closes. And ultimately, our expectations around making those investments included expectations that we would continue to get favorable rules, and we're happy to see that, that that's played out well.

Just to tag on that. We had -- going into the Cox transaction, we had a good sense and maybe it was hope, maybe it was a well- placed bet that the tax rules would be extended in a way that was helpful to our infrastructure investors. And that enabled us to be as committed as we are to making the investments in the Cox network that you've seen when we published the proxy statement. So it was factored in there. And so there will be an uptick in investment that's directly tied to that, and it's reflected really in the Cox transaction. John, on the nonpay commentary, when you're in an environment, where you're on the cusp of slight losses or slight adds, small movements in any category, whether it's sales, voluntary churn or nonpay can have an outsized impact on net adds. So the nonpay, just taking a step back, is still at relatively low historic levels. However, it's stepped up year-over-year. And the reason that nonpay has stepped up year-over-year is because twofold. One is you have former ACP customers, who are economically challenged and have a higher nonpay rate systemically without the benefit of the subsidy from a year-over-year standpoint. But in addition to that, from a year-over-year standpoint, you have newly acquired customers, who would have qualified for the ACP, who don't have ACP today and therefore, they have -- those newly acquired customers have a higher nonpay rate than they would otherwise. But just take a step back to be clear, non-pay is up year-over-year. It's not dramatic, and it's not at a level that exceeds, where we were certainly pre-pandemic, but it's enough that on the cusp of net gain versus net loss that it has some impact that's offsetting the benefit that we have from higher sales and lower voluntary churn.

Our next question will come from Jessica Reif Ehrlich with Bank of America.

Maybe switching to video for a second. You had obviously a really fantastic video improvement. Still losing subs, but very modest. How do you see the offer evolving in terms of whether it's personalized recommendations or something else? Like where do you see the most potential to improve the video experience? And can you just discuss the attach rate with broadband like -- because there should be a ripple -- you think there would be a ripple effect.

Yes. There's a ton in what you just asked. I think the video strategy that we're deploying is designed to do a few things. One is to meet customers wherever they want to go and wherever the market wants to go with the video product. So when you think about the packages that we offer, clearly, the most beneficial to us and to programmers and we think to consumers is to have the full-fledged expanded video product because it has the most content in there at the best value and include with that now over $100 worth of programmer apps, including Max, Disney+, Hulu, Peacock, Paramount+, ViX, I'm leaving out everybody else, ESPN. But that whole thing, if you take a look at that slide, all that value is included. That's going to be the stickiest product. It's going to be the best for customers and for programmers, us, and it's going to be the best for our broadband churn as well. Having said that, in moments of time where a customer can't afford that full package, we have some skinnier bundles that allow for generalized general entertainment packages, which we can then add on the programmer apps from time to time, sell-through of the programmer apps directly at retail through our video store to those consumers. And then finally, to the extent you have broadband customers, who are looking to purchase a-la-carte programming apps, which they do today and do it in a single place that we'll have the ability to provide that utility and that value to customers. So wherever the market goes, wherever the product goes, we're in a position to provide that package and utility to the customers really for the benefit of consumers, but also to the benefit of programmers as well. And obviously, for us, having a high-quality video product that matches the customers' need enhances the value of our connectivity relationship being Internet and mobile. If you then add Xumo into the equation, so the first piece that I just talked about was solving the value equation for customers. And the second piece is solving utility with Xumo. Xumo has the ability to integrate live TV together with all of these apps, which are included an increasingly more simplified authentication for customers to have in a single spot. So you have unified search and discovery across live, SVOD as well as programmer apps in a way that's pretty unique in the marketplace. And with a with a voice remote that works, I think, better than any other voice remote that's out in the marketplace, credit to Comcast towards our partner in Xumo, 50-50 partner with Xumo, who really developed that technology. I think Xumo is a powerful tool to solve that utility and even more so when you combine it with the value. You asked about the attach rate. When we started to include in our new pricing and packaging in September, a more focused effort in including video in the package together with mobile as a way to lower your Internet pricing today at $30 for 500 megabit a second, $40 for a gig Internet when you bundle with either video or Internet, the uptake in video attach rate was significant just because we focused on it. In fact, at the time, it really wasn't because of what we -- yet because of what we had done with the product. In fact, we haven't really started to put the full marketing engine between what we call seamless entertainment, the combination of your live video service plus all these apps, the digital store, the video store isn't even launched yet. And we don't yet have the full backing, which we will, of our programming partners and all of their marketing capabilities behind. So I think the video space for us can continue to improve and improve significantly. And what I said in my prepared remarks was meant to make sure people don't think that we're thinking about this the wrong way. Our driver for having a high-quality video product is to be able to sell and retain more Internet and mobile relationships. And that's the big driver for us. And we said 2 years ago that we wanted to get an environment either where we were going to not have video and focus on broadband or have video and have it as a competitive tool and asset towards our broadband and mobile relationships. And it's taking some time, but it's going well. And I think it's going to continue to get better for the benefit of not just video, but for the benefit of broadband and mobile relationships.

Our next question will come from Peter Supino with Wolfe Research.

A question on taxes. You mentioned in your prepared remarks the $10 share benefit per year that might add up to several billion over 5 years, but just multiplying $10 by your share count, and then 5 years, I get maybe twice as much as what I think several billion indicates. So I wondered if you could bridge that for us. And if you have any time to talk about your top-of-funnel customer acquisition results, how you feel about the results right now and what you might need to see to change the strategy?

So Peter, I think that the amount of additional free cash flow that I stated is appropriate, what matters is what you believe about share count over that period of time and how share count might change. You want to talk about funnel?

Yes. So -- if you're going to -- if I kind of talk about funnel, I really need to go talk about the overall market color, kind of reframe or restate a little bit of what I said in the prepared remarks. When you think about the top of the funnel, mobile, actually very good. Video, as I just talked about, significant improvement. So everything I'm about to say really focus on market color and funnel as it relates to Internet. Just so that we set the stage. The volume, as I talked about, sales are actually up percentage-wise year-over-year and in units. Voluntary churn is down. non-pay, as I just talked about, is up a little bit due to the lack of ACP. The competitive environment is stable, not improving, but not deteriorating. So we have steady fiber overlap. That's not new. Cell phone Internet continues at its pace for now. But just as big when you think about the overall market and funnel is the overall market is challenged because there's an incredibly low amount of moves and new build, which is going very slow. And then in addition to that, you have a reversion to mobile-only customers and ACP accelerated that, that was taking place, reverting mobile-only back to the pre-pandemic level. You put all of those market movements or in this case, lack of market movement together with a new competitor, even if there's inferior, and it puts pressure and it's not ideal. We're not sitting still. As I talked about in the prepared remarks, we have network evolution, we have the convergence features that we've been launching, and we're increasingly using mobile and video as a competitive advantage to drive Internet sales and churn. And we also have an expanding rural footprint, which isn't just about today. A lot of what we're building today will turn into suburban footprint over a 5-, 10-year period. And so I think we're putting, investing significant legs of growth, all of which in fairness is long term. So if you think about the short term in the top of the funnel for Internet specifically, we don't have a product or pricing issue. We have the fastest speeds. We have the most reliable product, best WiFi. We're selling particularly in bundle $30, 500 megabit per second Internet, $40 gig. So it's not a product or pricing issue at the top of the funnel. It's the broader market that I talked about, some brand- new competition. But in fairness, we're working through our marketing message and how to do a better job of breaking through with our marketing message, given that there's an evolving mix in the marketplace in terms of channels and message. And we're changing some of the ways that we go to market, including some partners that we've used. And the second piece, I think, is an industry overall for the cable industry, and we're at the heart of that, is the value pitch that we're making to customers and going back to customers very clearly, both in marketing and at the time of sale and at the time of retention and saying, the only reason that you can have a cell phone Internet product at that price is because they're forcing you to pay $60, $70 per mobile line. And when you think about what is on your bill with T-Mobile or Verizon 5G home Internet, the reality is it's dramatically more expensive than what you would pay the Spectrum for an Internet and mobile product. I just said that in 30 seconds, but how do you convert that into an advertising message and how do you convert that into a sales pitch? I've said it before, and I say it internally as well. I think those are areas that we need to continue to do a better job. The good news is if you step back, what I said holds true. We have the best network. We have the best product. We have the best pricing. We're doing things long term to even expand that competitive advantage. But clearly, there's a sense of urgency that exists inside the company, and we're driving. And as an investor, I said it in the prepared remarks, but I really would say it again is I ask everyone to sit back and say, okay, as a customer, what do you want? And what you want is all the things I've been describing. And so I think we're in a great position. It's just we're doing things to move things both in the short term and the long term.

Our next question will come from the line of Sebastiano Petti with JPMorgan.

Just quickly on EBITDA. So you reiterated expectations to grow EBITDA within 2025. Quick just a housekeeping question. So the -- Jessica, the $45 million one-timer on other revenue. What's the flow through to the bottom line there? I'm just trying to see if EBITDA would have grown in the second quarter, excluding that. And then in the past, you've talked about cost to serve benefits having legs, and that's one of the material drivers that post mobile for the EBITDA growth through the year. Any change there versus prior expectations? Should we still think about those as the drivers? And then if you could update us on cost expectations relative to last quarter, just given cost of service and sales and marketing were a little bit higher than anticipated.

Yes. So Sebastiano, the $45 million does fall all the way to the bottom line. There was a little bit of bad debt expense against it, I think, around $7 million. So maybe it's like $38 million that falls all the way down. We did point out there was this sort of unusual storm activity as well. I think when you factor those couple of things in, you end up pretty close to flat. From a cost to serve, and I guess if I just sort of go through the outlook for expense line items, it really hasn't changed. So cost to serve had a difficult comp inside of last year. If you look across the quarters last year, this is really the only quarter that suffers from that issue. So I think still flat to slightly down in the year-over-year. Marketing and resi sales, there, I also would say still low to mid-single-digit growth for the full year. We should have a much slower year-over-year growth rate in the back half of the year versus the front half. A good portion of that is that the comps are a bit easier in the back half of the year. And we also expect overall sales and marketing expense to subside slightly as we move later in the year because of the mix of our activities. And we think that we'll do that without impacting sort of overall marketing levels or effectiveness. And then in other, there, I would say also still in the low to mid-single digits, though as I've noted before, other because of what's inside of it can be a bit more volatile than some of the other expense items.

The one thing I'd just step back on cost to serve when you think longer term, not just in the coming quarters, long term, cost to serve is a huge opportunity and remains the case because the amount of transactions, as I mentioned, is coming down double digits every year. And I think that can accelerate with the benefit of the AI tools that we're putting in front of our agents. It's making the job easier. It's making the handle time go down. It's making repeats go down, which means you've got overall transactions. And you need less labor to handle the transactions because of the lower handle time and the lower number of transactions. And all of that's set to not only continue, but to compound. So I feel really good about the long-term trajectory of cost to serve, both in the stand-alone Charter as well as assuming regulatory approval, the combination with Cox. So it remains one of the biggest opportunities in front of the company. And it's why we spent so much time talking about the investments that we've made, not just in AI and machine learning, but also the quality of craftsmanship that exists with our employees because that's the key to getting to that holy grail. And the eventual impact, obviously, in the end isn't really just about cost. It's really about having better retention and having a better Net Promoter Score and customer satisfaction in the marketplace, which drives sales as well. So it all comes together as a virtuous circle that you can have better revenue and lower cost as a result of making the right investments today, and that's what we've been doing for years.

Our next question will come from Bryan Kraft with Deutsche Bank.

I just wanted to follow up on the video topic. I was wondering if what you're seeing underlying the improvement is fewer bundled subs dropping video or more new customers taking it or more existing customers adding it? Is there any color you could provide on what specifically is driving the improvement in subscriber trends. And then just related to that, are you starting to see any favorable change in that mix shift toward the lower end and toward the full video packages as a result of the new product construct that you've launched?

Yes. I think the answer to your first question is, yes, we're seeing higher sales. We're seeing lower churn and better upgrades. So video sales at new Internet acquisition as well as video upgrades to existing Internet. And so it's all of the above, and it's going well. And I expect that to continue to improve here. In terms of shift, we're at the point where not only are we going to start marketing the benefits of seamless entertainment more broadly, together with the pending launch of our video store. But as part of that has the ability to increasingly upgrade customers who are inside of the skinnier bundles into a more fulsome package. You can think about different ways to do that, of course, traditional e-mail or text or even direct mail. But in addition to that, if you take a look on our guide today, what you'll notice in the Spectrum TV app guide and the guides generally is an ability to upgrade into different packages by using title and guide and using the programmer apps as an insertion of the title and the guide to drive that. Now that can be for existing full expanded base of customers, who haven't activated yet and have the ability to activate, and we'll use that for activation activity, but also for customers who are in a skinny package and have the ability to upgrade. A good example of that would be the inclusion of Peacock now that they're going to have 50 exclusive games and having the Peacock title and guide inside of there as somebody goes and takes a look at the tradition channels that has historically covered the NBA and have a Peacock title and guide that allows them to either activate the Peacock subscription, which included for expanded video, or to upgrade into the full expanded package from a skinny package. So that's just one tiny example you can think about how we can use MAX for sure already, Disney+ already in those genre areas as well as Hulu. I'm giving one example by using title and guide. When you think about the video store and what it can do and what we can do in My Spectrum app and .net and dot-com platforms that we have, I think we can start to get the customer to where they're going to find the most value according to what they can afford. And again, none of that's because we're outright just trying to save video, it's really because we're trying to drive better broadband and mobile performance. And we think it's a competitive advantage that we have if we do it right.

Our next question will come from Steven Cahall with Wells Fargo.

So Chris, you all have a lot of experience buying and integrating, including on the customer-facing side with your historical acquisitions. I think with Cox, the Internet ARPU is above Charter. So can you just think about how you're thinking about managing that transition when it comes? I imagine you're going to see a lot of customer touch points. It's probably an opportunity to sell in more services. So maybe you can just help us think through that. And then as it relates to the CapEx outlook and capital intensity, kind of related question. So it sounds like that's going to be going down even pro forma for the acquisition. I imagine that's a lot of technology savings. So maybe you can just give a bit more color on where you see a lot of those savings for that intensity coming from?

Sure. From an integration perspective on customer pricing and packaging, you're right, we have a lot of experience doing that. When you think about Bresnan, Time Warner Cable, Bright House and even the original Charter in 2013, all of those integrations had higher starting ARPU for broadband. And we needed to find a way to migrate those customers into a package that was more competitive without doing financial damage to the company. And the way to do that is to provide more value to customers. You can do that simply with more speed or more value in the Internet product itself, but you can also do that with packaging and bundling for customers -- new customers so that when you're selling, you have a higher ARPU per relationship than you would have otherwise even though you have a lower Internet pricing. And for existing customers, it's usually the second stage where you start to offer them proactively only to the extent that they want it, the ability to have better pricing on a single product when they add additional products in. The way that we've done that historically really was through just video and wireline phone. Today, I think we have an even more powerful tool to do that when you think about mobile. And if you reflect on everything that we've been talking about on this call around the video product and what we can do with that and the mobile product and have a saving the customer hundreds or even thousands of dollars a year when they add just a couple of mobile lines, our ability to migrate customers at their discretion and to have new customer acquisition with lower product pricing, but higher overall customer relationship ARPU is fairly proven. Cox, in particular, if you think about it, their video penetration is about half of what ours is today. And their mobile penetration today because they started later, is coming from almost nowhere by definition. And so we have all the tools available, I think, to do that. And you combine that with these networks have been very well invested. It's had very good service. So it's actually a better position we're coming from in Cox relative to what we had in Time Warner Cable, for example, probably more akin to Bright House, frankly, where we had a lot of success growing that very quickly as a result of putting better product pricing and packaging on the back of very well-invested network with great employees and from a service perspective. The CapEx trajectory, the type of network activity that we do, given our scale, I believe, can occur at a lower cost per passing. And probably more important to that is the technology platforms that we're deploying, you deploy it once instead of twice when you combine together, all of which means that you have the ability to reduce the amount of capital expenditure on some of the fixed platforms and reinvest the transaction synergies from a CapEx perspective back into additional network capabilities through the eventual high split upgrade that would take place on Cox later down the road. They're all fairly traditional. Clearly, there's procurement synergies there, too, given our scale and procurement synergies that don't just apply to the Cox assets, but it's getting marginally bigger for Charter, not that huge, but marginally bigger for Charter, not factored probably into that is could we do even better as the combined company, we'll see, but that's not an explicit goal.

Yes. And I think the thing to sort of layer on top of that is you do have the natural benefit. I mean, Charter's stand-alone capital intensity, we had an expectation that it was going to decline dramatically over the next 4 years already. And that stand-alone expectation isn't diminished in any way by taking on the Cox assets. When you take on the Cox assets, you have more revenue. But actually, we have space to do what we need to from a transition capital perspective inside of still having a really nice decline in capital intensity over time.

It's probably good an opportunity to highlight. I know there's been some questions or speculation. The Charter CapEx outlook, other than some timing between years that get pushed from one year to the other, investors can depend on what we've provided for the Charter CapEx. When we -- we don't typically do that, the fact that we did and we understood the importance and you can take that one literally to the bank. I should also feel very comfortable with the outlook that was in the proxy statement for combined CapEx of the combined company. I feel pretty comfortable with the envelope that exists inside there as well. And so the free cash flow generation that Jessica has spoken about at this point, we feel like it's pretty much math. And atypical for us, we wanted to make sure that it was provided out there and that people could depend on it.

Your last question will come from Jim Schneider with Goldman Sachs.

I was wondering in light of some of the increased fiber investments you've seen from some of your competitors in the market, whether you're thinking any differently about your multiyear CapEx outlook, either in terms of the overall envelope or in terms of the composition? And specifically, maybe talk to the prospects for increased rural build investments and maybe using that as a source for the cash tax savings.

The answer to your question, the first one is no. Through our network upgrade, we have the ability to do fiber on demand to the extent that a customer needed 25 gig symmetrical speeds, which is pretty far out there at this point. So we have that capability with fiber on demand. So there's no need to update in any way or change the CapEx outlook, as I just mentioned. For increased rural investment, there will be some feed that comes in as an overlay, and we're looking through that currently, and we expect to participate. But because of how much rural we've already built today, the opportunities at the edge of our network is a lot lower than it once was, primarily because of what we ourselves have done, but as well as others through RDOF and ARPA. So the size of the opportunity of tangential network build is lower than it was just a couple of years ago.

Thanks very much, everybody. That concludes our call.

Thank you very much.