Charter Communications - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered modest top-line growth and margin expansion amid subscriber headwinds. Total revenue rose 1.6% to $13.926B; Adjusted EBITDA grew 3.4% to $5.760B; net income margin improved to 10.5% (vs. 7.7% YoY).
• Internet subs fell by 177K, chiefly due to the end of ACP and hurricane impacts; mobile lines added 529K as Spectrum Mobile continued to scale; video losses improved versus prior year with new pricing/packaging.
• Reported hurricane-related effects were material: approximately $35M EBITDA headwind, ~$125M incremental Q4 capex, and $37M of customer credits; ACP drove an estimated ~140K Internet losses in Q4, mostly non-pay.
• 2025 guidance anchors on peak investment year: capex ~$12B (incl. ~$4.2B line extensions, ~$1.5B network evolution) and expected growth in Adjusted EBITDA; multi-year trajectory points to run-rate capex <$8B post-evolution with strong FCF upside.
• Stock narrative catalysts: converged connectivity (mobile + broadband + seamless entertainment), AI-enabled service efficiency, rural expansion passings, and visibility into post-2025 FCF expansion; buybacks paused pending Liberty Broadband vote, then expected to resume.

What Went Well and What Went Wrong

What Went Well

• Mobile growth and mix: Mobile service revenue +37.4% YoY to $860M; Spectrum Mobile added 529K lines in Q4 and 2.1M in 2024, supporting consolidated EBITDA and customer-level margin expansion.
• Advertising uplift: Advertising revenue +26.4% YoY on stronger political spend; excluding political, the market remained challenged, but the contribution supported overall growth.
• Video re-bundling impact: Video losses improved (−123K vs. −257K prior year) aided by “Life Unlimited” pricing/packaging and streaming app inclusion strategy to enhance value and attach rates.
• Quote (CEO): “By having the best network, the best products and delivering customers the most value with unmatched service, we are well-positioned for customer and profitability growth and have clear visibility to free cash flow growth following this unique one-time investment cycle.”.

What Went Wrong

• Internet subscriber headwinds: Total Internet customers declined by 177K in Q4, driven by ACP elimination and hurricanes; ACP contributed ~140K Internet losses (primarily non-pay) and depressed gross adds in low-income segments.
• Free cash flow softness: Q4 FCF dipped to $984M (−7.3% YoY) as operating cash flow declined and capex increased, including storm-related restoration.
• Other cost pressures: Other costs of revenue +16.2% YoY (mobile device sales, direct mobile costs, political ad expense); EBITDA impact down ~$35M from storms.
• Analyst concern: Management highlighted that 2025 lacks political advertising tailwinds seen in 2024, and ACP churn impacts should normalize but create near-term uncertainty for Internet net adds.

Transcript

Operator (participant)

Hello, and welcome to Charter Communications' Q4 and Full Year 2024 Investor Call. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question-and-answer session. As a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I will now turn the call over to Stefan Anninger.

Stefan Anninger (SVP)

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

With that, let's turn the call over to Chris.

Chris Winfrey (President and CEO)

Thanks, Stefan. In 2024, we managed the end of the Affordable Connectivity Program successfully. Outside a normal turn, we kept roughly 90% of former ACP customers connected. Our Spectrum Mobile business continued to grow at a rapid rate. We added over two million Spectrum Mobile lines in 2024. We're the fastest-growing mobile provider in the U.S., with the fastest connectivity at the best price. Our expansion initiative continued to deliver good passing growth, driven by our subsidized rural initiative and normal construction and fill-in activity. In 2024, we grew revenue by 1%, while full-year EBITDA growth accelerated to 3.1%, driven by continued strong mobile growth, our cost efficiency initiatives, and political advertising. Late last year and early this year, we had unexpected natural disasters from Hurricane Helene impacting Florida, The Carolinas, and the broader Southeast, with Hurricane Milton across Central Florida, and most recently, the Los Angeles fires.

There are, of course, subscriber and financial impacts, which Jessica will cover, but our employees work and live in these communities, so it's also personal. Stories of our frontline employees' commitment abound, including employees helping to reestablish connectivity for customers despite losing their own homes, and countless employees traveling in from other regions to stay and to help. I'm really proud of how our frontline employees have responded. And from Stamford, we learned some lessons on how to put customers at ease sooner, and we got better with our communications along the way. Part of our customer commitment is to always improve, and we are. As we look to 2025 and beyond, the environment for broadband, mobile, and video remains competitive, but we have better visibility than this time last year. The impact of the elimination of the ACP is now behind us.

Cell phone internet net additions appear to have peaked or at least stabilized, and we continue to compete well against new fiber overlap. In the meantime, we haven't stayed still, which sets us up well for the future. Our multi-year investment initiatives, including network evolution, network expansion, and execution, including the investment in frontline employees and tenure to benefit our service, are all delivering tangible results, and last September, we relaunched the Spectrum brand and its promise to customers through Life Unlimited. With our first and market-first customer service commitment and making better use of our unique assets through converged, seamless connectivity across 100% of our network, and now seamless entertainment and video. The positive impacts from our customer commitment and brand refresh investments take time to be recognized, but you can already see the positive effect from our new pricing and packaging and video results.

In late 2022, we launched a number of strategic initiatives and communicated a significant one-time capital investment to enhance our growth potential long-term. While the investments put temporary pressure on our near-term Free Cash Flow growth, these were a unique set of non-recurring and generational industry investments, and they include the largest broadband expansion since the 1980s, the largest physical upgrade of the network since the 1990s, market-leading convergence of our wireline and wireless capabilities, and an exciting video transformation, which will help drive our connectivity business. 2025 will have a slightly higher level of investment than 2024, but this year will also be our peak capital investment, so this is a fitting time to highlight where our strategy leaves us competitively, operationally, and financially for the coming years. We have a unique set of assets and significant scale, as shown on slide four.

Spectrum has the fastest internet, the best Wi-Fi, the fastest mobile product, and is the leading video provider in the U.S., with over 9,00,000 miles of network infrastructure, 57 million residential and SMB passings, and over 3,00,000 fiber-lit buildings. Of course, we have significant competition from wireline overbuild, cell phone internet, and satellite across all of our products. The power of our network, though, continues to improve with symmetrical and multi-gig speeds, allowing product developers to create applications and use cases that require high capacity, low latency, high reliability, and edge compute. Product and software developers can rely on the ubiquitous deployment across all the major cable networks in the U.S., so we're very well positioned.

In fact, it's always been the U.S. cable companies that have built the fully deployed platforms that have enabled the development of next-generation products and services, despite the handicap of being regional operators competing against national and now global competitors. The ability to provide the very best of our products across our entire footprint is unique. That includes new features we're developing for seamless connectivity and seamless entertainment. Convergence is a popular phrase among our competitors now, and while it's flattering to hear our own wording adopted by others, slide five of our presentation today speaks for itself. We are very underpenetrated relative to our converged connectivity capabilities.

Having the best network and product capabilities by itself isn't enough, and that's why we've always focused on the ability to have the most value in our packages, combining the best products with ways for customers to save hundreds or even thousands of dollars a year, whether at promotion or retail prices. And anytime you have new entrants, consumers can be enticed to try a new provider, even at lower quality and higher all-in prices, but in the long term, we believe the best products and best pricing across a package of those services will win. And slide six of our presentation is an example of that advantage across typical broadband and mobile packages. Together with our upcoming seamless entertainment offers, highlighting this value is the goal of our recent pricing and packaging under the Life Unlimited brand refresh.

I spoke about the sequencing of our seamless entertainment launches on last quarter's call, and that timing in 2025 hasn't changed, so I won't repeat the steps and priorities, but we look forward to fully rolling that out in the first half of this year and delivering even more value to consumers, up to $80 of retail app value when subscribing to our video packages. That customer proposition is shown on slide seven of our presentation, and similar to mobile, taking video as part of the package now ensures a lower price for internet, both at promotion and retail, and of course, we couple all that with high-quality service. We've always believed that investing in customer service and satisfaction creates a virtuous cycle in our business. Better customer service translates to fewer customer transactions. Fewer transactions produce higher customer satisfaction and lower churn. Lower churn reduces cost and increases penetration.

Lower cost gives us the ability to offer better pricing, which works for customer acquisition, service, and satisfaction, and positions us for growth. Our sales and service is 100% U.S.-based, made in America, if you will, using our own employees with good-paying jobs and benefits. Employees are also Spectrum customers committed to developing their local communities and their career at this company. That is a competitive advantage, an investment we already made in wages, benefits, and real estate that's difficult to replicate. That existing investment is also why it was so easy for us to make our market-leading customer commitments. We stand behind our commitments with service credits when we miss the mark. As a reminder, we've provided a summary of those commitments on slide eight.

For years, we've been investing in machine learning and now AI, and much of our effort is making frontline work easier and more efficient, which drives higher customer and employee satisfaction. Some of those examples include full-service network, CPE, and billing telemetry on the account, which is automatically presented to an agent now when answering the phone. In addition, AI is also listening to the conversation, providing proactive optimized solutions, customer sentiment, ChatGPT-style technical support, call summarization, and flagging post-call training opportunities. AI call summarization also helps the field technician assess the issue before they even get to the door, improving the customer interaction, and that's in addition to rolling out our own TechGPT on their handheld devices to more accurately pinpoint issues and recommend the best fix to the field tech. We deal with millions of transactions every year, and honestly, there aren't millions of best outcomes.

So transactions can be more effective. They can be shortened and reduced, driving higher customer satisfaction and lower churn, but also higher employee satisfaction, which drives lower attrition or tenure and therefore better service, which, of course, produces less transactions as a result. Taken together, that is our strategy and competitive positioning: the best network, best products, most value, with unmatched service, driving more household penetration, higher product penetration per household, lower service transactions and churn, and lower operating and capital costs per customer, which allows us to have the lowest pricing, a virtuous cycle. The financial output is high-quality revenue per home passed with free cash flow growth and high return on investment. Now, we're not perfect, and we've always got room for better execution and speed, but I believe we have a great recipe for growth of our existing products with the investments we've already made.

We have strategic assets in our network, our fully U.S.-based sales and service employees. Those will enable future products and revenue streams and operational efficiencies that aren't even considered in our financial plans today. In the meantime, we position the company for customer and profitability growth, clear visibility to free cash flow growth, and improving capital allocation and return philosophy. This is a winning formula with a fully dedicated and a hungry team. We're excited about 2025 and beyond. With that, let me hand it over to Jessica.

Jessica Geremia (VP and Regional Field Operations)

Thanks, Chris. Before discussing our Q4 results, I want to mention that today's results include a number of Hurricane Helene and Hurricane Milton impacts, which hit the Southeast U.S. in late September and early October. Our Q4 customer results include over 20,000 additional disconnects related to the storms.

Q4 Adjusted EBITDA was reduced by approximately $35 million, primarily driven by hurricane-related customer credits and revenue. The storms drove approximately $125 million in total incremental capital expenditures in the Q4. Today's results do not include any impact related to the wildfires that hit Southern California in January. Our Q1 results will include some lost customers and passings related to the fires. We're still assessing impacted areas, and we expect to incur capital expenditures to recover and rebuild lost passings. We've been providing bill credits to customers in impacted areas, and those one-time credits will offset some Q1 revenue. We may also have some incremental operating expense, although we expect that to be relatively small. We'll isolate the impact of the fires when we report our Q1 results.

On related, we recently completed an extensive review of our serviceable passings to clean up duplicate passings and other data and to identify new passings. As a result, we reduced total estimated passings in our trending schedule for all periods presented by 1.7 million passings. Additionally, because of a gap requirement, our cost-to-service customers expense line has been divided into two new cost lines: field and technology operations and customer operations. The best way to forecast these two new line items is to combine them into one figure, as presented in the past as cost-to-service customers, and that's how I will refer to them today when reviewing our expense results. Let's please return to our customer results on slide 10. Including residential and SMB, we lost 1,77,000 internet customers in the Q4. In mobile, we added 5,29,000 lines.

Video customers declined by 1,23,000 with the improvement driven by the rebundling we launched in September, along with our Life Unlimited brand refresh. Video performance does not yet reflect the benefits of incorporating seamless entertainment apps in our product. Wireline voice customers declined by 2,74,000. In addition to the 20,000 internet disconnects driven by the hurricanes, the end of the ACP program drove higher Q4 non-pay and voluntary churn among former ACP customers for a total estimated Q4 ACP impact of approximately 1,40,000 internet losses, primarily non-pay disconnects and some voluntary churn. Looking forward, we believe we're past the one-time ACP-related impacts to our customer base. Beyond ACP and hurricane impacts, we were generally pleased with our Q4 customer results and core internet results, which exclude ACP and storm-related losses, were better than last year. We continue to compete well across our footprint.

As Chris discussed, we continue to pursue initiatives that are intended to drive customer and financial growth, including network evolution, new pricing and packaging, converged connectivity, product development, and footprint expansion, including our subsidized rural initiative. As of year-end, we had launched symmetrical one gigabit speeds in all eight of our step one markets. Earlier this year, we launched two-by-one gigabit service in two of these markets, Lexington, Kentucky, and Cincinnati. And we plan to launch two-by-one service in additional markets later this year. Demand for faster internet speeds continues to grow as data usage grows. In the Q4, monthly data usage by our residential internet customers, who don't have our traditional video product, reached over 800 gigabytes. Our Wi-Fi also continues to improve, driven by our advanced Wi-Fi product and our new Wi-Fi 7 router.

Our Wi-Fi supports our converged connectivity product, including Spectrum Mobile, which is only in about 8% of passings but remains the fastest-growing mobile service in the United States and offers the fastest overall speeds. Turning to rural, we ended the quarter with a total of 813,000 subsidized rural passings. We grew those passings by 117,000 in the Q4 and by nearly 400,000 over the last 12 months. And we generated 41,000 net customer additions in our subsidized rural footprint in the quarter. 2025 customer growth should benefit from 2024 rural passings growth, as well as passings growth in 2025. We expect rural passings growth of approximately 450,000 in 2025, our biggest year so far, in addition to continued non-rural construction and fill-in activity. Moving to Q4 revenue results on slide 11.

Over the last year, residential customers declined by 2.2%, while residential revenue per customer relationship grew by 1.7% year over year, given promotional rate step-ups, rate adjustments, and the growth of Spectrum Mobile. Those factors were partly offset by a higher mix of non-video customers, growth of lower-priced video packages within our base, $34 million of hurricane-related residential customer credits, and $37 million of costs, which accounting principles required to be allocated to programming or streaming apps and netted within video revenue. As slide 11 shows, in total, residential revenue declined by 0.4%. Turning to commercial, total commercial revenue grew by 1.9% year over year, with SMB revenue growth of 0.3%, reflecting higher monthly SMB revenue per SMB customer, primarily due to rate adjustments. Enterprise revenue grew by 4.4%, driven by enterprise PSU growth of 5.2%, and when excluding all wholesale revenue, enterprise revenue grew by 5.2%.

Q4 advertising revenue grew by 26%, given political revenue growth. Excluding political, advertising revenue decreased by 8.2% due to a more challenged national and local advertising market. Other revenue grew by 14.6%, primarily driven by higher mobile device sales. And in total, consolidated Q4 revenue was up 1.6% year over year and 1% when excluding advertising revenue and hurricane-related customer credits. Moving to operating expenses and Adjusted EBITDA on slide 12. In the Q4, total operating expenses grew by 0.3% year over year. Programming costs declined by 9.1% due to an 8.7% decline in video customers year over year and a higher mix of lighter video packages, along with $37 million of costs, which accounting principles required to be allocated to programming or streaming apps and netted within video revenue, partly offset by higher programming rates.

Other costs of revenue increased by 16.2%, primarily driven by higher mobile device sales and mobile service direct costs, as well as higher advertising sales expense related to higher political revenue. Cost-to-service customers, which combines field and technology operations and customer operations, declined 0.5% year over year, given productivity from our tenure investments, including lower labor costs. Sales and marketing costs grew by 3.2% as we remained focused on driving customer acquisition and given our Life Unlimited brand relaunch in September. Finally, other expenses declined by 0.7%. Adjusted EBITDA grew by 3.4% year over year in the quarter and by 1.8% when excluding advertising. As we look ahead to the full year 2025, we face headwinds that we didn't last year, including the lack of political advertising revenue and the full year impact from the prior year internet customer losses, primarily due to the end of ACP.

But our plan is to grow Adjusted EBITDA in this year. Turning to net income, we generated $1.5 billion of net income attributable to Charter shareholders in the Q4, compared to $1.1 billion last year, given this quarter's higher Adjusted EBITDA and a larger pension remeasurement loss in the prior year period. Turning to slide 13, capital expenditures totaled $3.1 billion in the Q4, up about $200 million from last year's Q4. Line extension spend totaled $1.1 billion, driven by our subsidized rural construction initiative and continued network expansion across residential and commercial greenfield and market fill-in opportunities. Q4 capital expenditures, excluding line extensions, totaled $2 billion, about $130 million higher than last year. The increase was mostly driven by CPE due to purchase timing and higher scalable infrastructure spend.

2024 capital expenditures totaled $11.3 billion, less than our original expectation for $12.2-$12.4 billion, given lower network evolution and line extension spending, both due to timing. We expect total 2025 capital expenditures to reach approximately $12 billion, including line extension spend of approximately $4.2 billion and network evolution spend of approximately $1.5 billion. On slide 14, we've provided our current expectations for capital spending through the year 2028, excluding any line extension spending associated with the B program, as we are still in the early stages of bidding and we have a lower appetite to bid due to regulatory conditions. Our current multi-year CapEx outlook is largely unchanged in total versus our prior outlook, with retiming across years and slight changes across categories.

We expect total line extension capital expenditures to decline after 2025, even inclusive of B, which we wouldn't expect to be more than a few hundred million dollars per year for the four years starting in 2026, and our RDOF build is still expected to be completed by the end of 2026, two years ahead of schedule. We now expect our total network evolution initiative capital to reach $5.4 billion over the period 2024 to 2027 versus $4.6 billion previously, given our full plant walkout and the finalization of more detailed project plans. Looking beyond 2025, we expect total capital spending in dollar terms to be on a meaningful downward trajectory, even inclusive of B spending, and after our evolution and expansion capital initiatives conclude, our run rate capital expenditures should be below $8 billion per year.

Just to highlight, that reduction in capital expenditures on its own from approximately $12 billion in 2025 to less than $8 billion in 2028 is equivalent to $25 of annual Free Cash Flow per share based on today's share count, and while we always prioritize our Free Cash Flow for organic opportunities first and then accretive M&A and buybacks, there are currently no organic capital expenditure opportunities on the horizon that give us concern with that capital expenditures outlook. Q4 Free Cash Flow totaled $984 million, a decrease of approximately $80 million compared to last year's Q4. The decline was primarily driven by higher capital expenditures, cash taxes, and cash interest, partly offset by a larger cable working capital benefit driven by the implementation of our supply chain financing program and higher Adjusted EBITDA in this year's Q4. Just a brief comment on 2025 cash taxes.

We currently expect under existing tax legislation that our calendar year 2025 cash tax payments will total between $1.6 billion and $2 billion. We finished the quarter with $93.8 billion in debt principal. In December, we refinanced most of our 2027 maturity tower, extending about $13 billion of our credit facilities to 2030 and 2031. After that refinancing, our maturities in each of the next three years are less than $4 billion per year. Our weighted average cost of debt remains very attractive at 5.2%, partly driven by our long-dated fixed-rate profile. Our current run rate annualised cash interest is $4.9 billion. In the Q4, we repurchased 2,92,000 Charter shares and Charter Holdings common units, totaling $113 million at an average price of $384 per share.

As of the end of the Q4, our ratio of net debt to last 12-month Adjusted EBITDA moved down to 4.13 times and stood at 4.24 times pro forma for the pending Liberty Broadband transaction. Our leverage ratio may decline further given our pause in buybacks, but we are still targeting the midpoint of our four to four and a half times target leverage range, though now pro forma for the pending Liberty Broadband transaction. We look forward to resuming our open market buyback program following the shareholder vote for the Liberty Broadband transaction scheduled for February 26. As laid out, we've invested in a strong platform for growth, which we expect to see materialize across the business over the next several years. And as our capital spending peaks this year, we are poised for strong Free Cash Flow growth and shareholder returns.

And with that, I will turn it over to the operator for Q&A.

Operator (participant)

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 your question. As a reminder, we are allowing analysts to ask one question today. We will wait one moment to allow the queue to form. Our first question will come from Jonathan Chaplin with New Street Research. Please go ahead.

Jonathan Chaplin (Managing Partner)

Thanks, guys. A question on CapEx. So, I'm wondering if you can just remind us what the end state is for the network upgrade in terms of, I think it's 100% of the footprint will have a high split, and then a portion of the footprint will be upgraded to DOCSIS 4.0 by the end of 2027. Can you remind us what that is and how it might have changed based on the new guidance? And then for line extension CapEx, I see that the total spend is down, but the number of rural locations is up. Have you reduced the pace of line extensions that you expect to build in non-rural locations? Thank you.Yeah.

Jessica Geremia (VP and Regional Field Operations)

So, Jonathan, I'll start with the line extension one. Two things happened inside of that.

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

I don't know, Chris, if you have follow-up on that you want to talk about otherwise.

Chris Winfrey (President and CEO)

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

You still maintain all the benefits that you have through power in the network, which allows you to hang cellular radios through our CBRS deployment, which is going very well.

Jonathan Chaplin (Managing Partner)

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

Chris Winfrey (President and CEO)

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

And so it can be done on the increment within the envelope. Got it.

Jonathan Chaplin (Managing Partner)

Thanks, guys.

Chris Winfrey (President and CEO)

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

Operator (participant)

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

Benjamin Swinburne (Equity Research Analyst)

Good morning. You had, I think it's about 4,50,000 ACP-related subscriber losses or impact in 2024. I'm just wondering if you guys are thinking you can improve your broadband results in 2025 versus 2024 when you consider no ACP. Obviously, storms are a wild card, but you'll have more and more rural footprint behind you. And then, Chris, I can't remember the last time your video subscriber numbers outperformed both customer metrics and broadband metrics. It sounds like you guys are maybe selling into the base a bit and subsidizing that with some broadband.

I want you to talk a little bit about what's happening inside of your offers and inside the business that's creating this kind of mix shift and how we might think about that as we move forward. Thanks so much.

Chris Winfrey (President and CEO)

Sure. Look, Ben, from an outlook perspective, we're really confident about the mid-term our ability to grow internet, but we're also sensitive to the fact that we're on the cusp in particular periods of time between net loss versus net gain. And so I'm not going to comment on short-term small impacts to gross adds or disconnects and have a big impact. But we won't have the ACP losses this year. And so that's a huge benefit. And it's still competitive in terms of fiber and cell phone internet overlap, but that gives a little better visibility, as I mentioned, than we had last year.

At the peak cell phone internet impact, we seem to have gotten there, and there will be a declining pace of fiber overbuild. So you then add on to that in terms of growth rate over time, rural passings, the fact that data consumption continues to increase, the investments we've made in network evolution to outpace the capabilities of our competitors, and then using in a more effective way than we already are the wireless convergence, and then what's coming, seamless entertainment. I ask people to step back and think about it from a consumer perspective. We have faster connectivity of unique set of products. Those products are available everywhere we sell, which is the point I was making with the slide that we showed today. And we save customers hundreds and thousands of dollars with the internet when similarly combined with mobile.

I like where we sit, and I expect our seamless connectivity product and its value to really win in the marketplace over time. In the meantime, we're pushing through for all these things, but not having ACP losses inside this year is huge. I'm not going to give a short-term outlook other than to say we better be better this year than we were next year or last year. Then on video, the benefit that you saw to our net additions in the Q4 are simply a function of rebundling video in with our connectivity sales.

And we had moved away from actively attaching video to our broadband sales because we were unconvinced that over time that would be an asset to the customer relationship because of the value equation that existed in selling a video product that had been commoditized, had a high price, and was able to be repackaged elsewhere through direct consumer apps and otherwise at a lower cost. And so for years, we had moved away from attaching video to our broadband sales because what used to be a benefit was concerning us as maybe not being a benefit.

That being said, once we had moved to an environment where we had more flexibility to use packaging in a way that created packages that were valuable to a customer and then attach the direct consumer apps to our expanded packages in a way that allowed customers to take advantage of the full retail value of the apps as a way to save money, and the introduction of Xumo, which allows you to have unified search and discovery and combine all of those services that you now get as part of your expanded service, as well as any other DTC or SVODs that you take separately in a single place. We thought the combination of that actually did provide the value and utility that we were looking for, and that's only going to get better, and so that's just the beginning.

We haven't rolled out the full set of seamless entertainment packages and marketing yet, but we felt confident enough beginning in late September to start selling video again actively together with our broadband subscriptions as a way to create value and utility in the overall package, not just for video, but really to add value back into the broadband relationship.

What we did with our Spectrum pricing and packaging that we offered in September is it allowed us to, when you take two or three sets of products between really broadband, mobile, and video, allowed us to offer internet at a lower price, both at promotional and retail value, and to offer a price lock based on the bundle that you were taking and offer lower roll-offs on the move from promotion to retail pricing, all of which has a both short-term impact on your abilities from an acquisition standpoint as well as from a retention standpoint. We feel good about where it's going. It's only going to get better. That doesn't mean that's not a quarterly outlook on video. Don't get me wrong. It's just saying that over time, as our capabilities increase, our selling capabilities and training to rebundle these services is enhanced.

I think it gives us real benefits, not just to video, but also into broadband and to mobile.

Benjamin Swinburne (Equity Research Analyst)

Thanks so much. Yep.

Stefan Anninger (SVP)

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

Operator (participant)

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

Craig Moffett (Senior Managing Director)

Hi. I'm going to try to squeeze in two questions. First, just given the importance of your wireless bundling strategy, I'm going to leave aside the comments that you just had about video. Can you point to any real evidence of what wireless is doing for your broadband business and the way that you think about whether it's through churn or something else that suggests that the convergence strategy is having a meaningful impact? It's obviously topical because Comcast essentially said they're going to try to emulate the strategy that you've already been pursuing for a couple of years.

And then also on the topic of Comcast, you mentioned organic growth opportunities. I have to ask because we get the question so often. How do you think about inorganic growth opportunities? And with the commentary so frequently being discussed about the possibility of combining with Comcast, how do you think about getting bigger as a cable operator?

Chris Winfrey (President and CEO)

There's a lot in there, Craig, but they're good questions. From a wireless standpoint and the benefits to convergence, if you think back to what we were doing, and we continue to do with the Spectrum One offer, was really using the broadband relationship and offering a time of acquisition or retention of free mobile line. And what that was driving is additional attach, obviously, the mobile line, which was actively used, but additional mobile lines that would attach. And so we were using broadband really for the benefit of mobile.

And what we had seen along the way, some of due to the convergence benefits and the seamless connectivity, and some of it obviously with self-selection that takes place, and there's bias there. So that's why we've been careful, is that we saw a much lower churn rate in those broadband customers when they had mobile versus when not. Now, some of that is clearly self-selection, and we've always recognized that, and that's why we've been careful not to report out on that too heavily. But it's not all self-selection, and there's a clear benefit, and it's a better product, and it saves customers tremendous amounts of money. What we did with the new pricing and packaging is we recognize that we now have a brand recognition in the marketplace of Spectrum Mobile, which is the fastest mobile product. It's now widely recognized both from a brand and capability standpoint.

It does have superior speed, and it has better connectivity through the Spectrum Mobile SSID attach as well as speed boost, and we decided when at acquisition or retention, we can use mobile. It doesn't need to be always priced at $0 for the first line for free, and we can use it to drive improved acquisition and retail pricing for internet and flip it a little bit. Doesn't mean that we've stopped using Spectrum One. We still have Spectrum One active in the marketplace, and it works well, but we can also use the Life Unlimited bundles, as I like to call them, to enhance our capabilities for internet selling. That's early stages, but I think it's clearly going to have benefits, so I think the convergence strategy works.

The point I was making in the slide that we showed in today's presentation says we have a unique capability to deliver that where nobody else really does across their entire footprint. And so to the extent that convergence matters, we think it does. We think we're in the best position to do that.

Jessica Geremia (VP and Regional Field Operations)

And I just want to make sure that we address there as well that not only does mobile benefit the broadband subscriber, but mobile also has financial benefits all on its own. It drives additional margin at the customer level by attaching it to more customers. We drive sort of additional margin across the business.

And really, it's one of the key sort of cornerstones to how we can get comfortable with a plan for EBITDA growth inside of 2025 because we have that mobile revenue and therefore mobile margin as a driver of growth in the business.

Chris Winfrey (President and CEO)

It's become significant. And just to add on to that, it's not just you mentioned convergence. You could think about convergence as really the wireline and wireless capabilities together, but also with video. And that hasn't been the case. What I was mentioning to Ben, I think video can become an asset again. And it doesn't mean that we're going to grow video.

I'm not saying that, but I think we can use it as a significant asset that's also unique to us compared to most of our competitors together with mobile to find ways to drive growth with a unique set of products and to save customers a lot of money. On the M&A front, I know there's a lot of chatter out there. Our strategy, Craig, is really to create value has never been dependent on M&A. In fact, it's really been moving in purely from an organic growth perspective and how do we create value for shareholders from that perspective. And you do that by being a great operator. You do that by saving customers lots of money, providing great service, doing that with insourced onshore employees, and being hopefully a good allocator of capital. But by being a good operator, that also I think opens acquisition opportunities over time.

And the rest of the cable industry, when you sit back and think about it, it's all family-owned or family-controlled, and they'll decide. This is not like Time Warner Cable where there's another large publicly traded company out there. And so it's really in the hands of these families or family-controlled businesses who get to decide when's the time that they'd like to combine. And the other thing I would tell you is that the door for M&A, I think there's a lot of chatter that it's also wide open. I don't think it's wide open. I think any M&A transaction that you have to do in any administration, anytime, it has to be good for customers, and it has to be good for jobs.

And when you think about our organic operating strategy that drives growth, that's been helpful in that respect in the past in terms of our ability to get things done as well. But it's a potential add-on to our strategy. It's not the core of our strategy, and it's not the only way that we can create value.

Stefan Anninger (SVP)

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

Operator (participant)

Our next question will come from the line of Sebastiano Petti from J.P. Morgan. Your line is open.

Sebastiano Petti (Executive Director)

Thank you for taking the question. If perhaps, Jessica, you could comment just around EBITDA. You do expect growth for the year. Any color perhaps at an OpEx level across the different buckets that we should be assuming? Obviously, as Spectrum Life Unlimited ramps and what you and Chris have talked about, creates more attach opportunities.

There's probably sales and marketing costs that come with that. So just maybe trying to frame that a little bit would be helpful against the backdrop as well of improving costs that you implemented in 2024.And then maybe just thinking about the CapEx guide, obviously, it was helpful. Does not include limited BEAD appetite per se, but maybe how you're thinking about any changes to tax policy. Should we get an extension of bonus depreciation? How would you perhaps maybe think about that across the buckets of shareholder returns versus maybe improving or accelerating some of your network efforts? Thank you very much.

Jessica Geremia (VP and Regional Field Operations)

Yeah. So I'll start on EBITDA growth. We said we plan to grow EBITDA growth in 2025. I think we do that through a combination of growth in the mobile business, customer benefits from the new pricing and packaging.

There's Spectrum One promotional roll-off and some other rate benefits that we'll see, and then continued efficiencies in the business, particularly in cost to serve, as you heard Chris sort of talk about with some of the benefits that we see from machine learning and AI and just driving around the customer commitments to have fewer transactions with customers, but also the continuing benefits of what we've done on the expense side. In that respect, I think across programming and cost to service customers, I generally expect that we'll be flat to slightly down, acknowledging that we think about programming on a per video customer basis and that mix does matter there a lot.

And so to the extent that the mix of products that customers take changes as a result of the inclusion of the seamless connectivity app or the seamless entertainment apps, I think that one ultimately will be dependent on results, but that's what we expect. In sales and marketing, as you point out there, I think there's a little more growth, maybe low to mid single digits, given what we're doing to drive and grow customers and to roll out or continue the rollout of the Life Unlimited brand. And so that's where I'm sitting on the expense side.And I know, Chris, you want to talk about tax.

Chris Winfrey (President and CEO)

It's usually where Jessica would take. But if we're talking about capital allocation, maybe we tag team this one.

But if needed, look, we don't know where tax legislation is going to go, but if it was enacted, it is obvious that we'd have potentially a very sizable reduction in our cash taxes versus the outlook that Jessica has been talking about. And whether that's rate or interest deductibility or bonus depreciation, actually all three of those are really important to an infrastructure builder. And that's what we do is we build the infrastructure here in the U.S. to the highway, the pipeline for all of these applications and traffic. And so any of those three things, and hopefully it's all three, which is rate, interest deductibility, and bonus depreciation, would make the return on all of our capital projects that might have been less attractive to be much more attractive.

I don't think that means that you should run and say it's one for one in terms of dollar for dollar in terms of incremental, but projects that are very good for customers and very good for our communities that might have been on the edge from a returns profile, suddenly can get really enhanced. And I think that's good for the economy and for jobs and for shareholders all in one.

Benjamin Swinburne (Equity Research Analyst)

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

Operator (participant)

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

Jessica Reif Ehrlich (Analyst)

Thank you. I guess on LA, I know you said you'd be more specific on the Q1 call, but is there any early read that you can give?

I mean, I don't know what you're assuming for households coming back, but is it a multi-year step down and then a follow-up for both video and M&A? The video seems to be working before you were even marketing. Can you give us some color on what your marketing plans are for what is clear value for customers? And then on M&A, Chris, you made a remark at the beginning about national and global competition. So could you just talk about how you would compete with more national competitors, what benefits you would get? Is it all cost or revenue? Any color you can give.

Chris Winfrey (President and CEO)

Sure. So from an LA perspective, what's widely reported is there's roughly 15,000, 16,000 passings that have burned and no longer inhabitable. And you should assume that the entirety of LA is really our footprint. And so that reflects passings for us.

In the grand scheme of overall Charter at 57 million passings, that's not that large, but it's near and dear to home, and so it's, like I said, personal to us, so there's a penetration rate on that, and that should be the subscriber impact that's immediate. Those homes over time, so they'll be taken out of passings, they'll be taken out of customer relationships, and over time, if you know that area, and I know you do, it'll get rebuilt, and those will become new passings and new homes inside of our footprint, and we're already looking at the exact plans for rebuild and starting in many cases to do so. That'll drive, as Jessica mentioned, clearly some capital, which we'll be able to highlight. There'll be a subscriber impact, which we'll highlight definitively once that's in our next earnings call.

There'll be credits along the way for customers who were impacted through, obviously, if they lost their home, but in addition to that, through evacuation, and otherwise, we've got policies in place to do that. And so there'll be a number of one-time financial impacts and similar to other times. We'll just go through that list, and Jessica will do that on the next call. The video, from a marketing perspective, from a competitive standpoint, I'm not going to sit here and articulate everything that we're doing, but I think strategically positioning our video product and our package of services in a way that allows customers to have more product than they'd be able to afford otherwise and to save significant amounts of money.

When you look at that slide, the page that we've included, not all of those apps are yet deployed, including, for example, Peacock, which will come within the next month or so. But once we've got all the apps fully activated for inclusion, and once we have a consumer-friendly way for them to upgrade into the ad-free versions, which is for the benefit of us, the programmer and the consumer, and we have that in a store that allows customers to go through at least the perception of a unified authentication process that's customer-friendly, then you'll start to see us push more and more into driving that, not just for video sales, but as a way to contribute to the broadband connectivity and the mobile relationship.

One of the key features that we've had as part of our negotiations with the programmers along the way is to say, "We need to cooperate. This is a partnership, and it shouldn't be that every four or five years we're going to go do battle and try to find a net zero game." This is really about because that hasn't worked. The net zero game actually led to significant losses for everyone, including the customer, but as well as obviously programmers and even us. And so the idea here is to form a true partnership where we can get behind each other's products, that we can co-market together. They have fantastic brands. They have fantastic IP. The way that Spectrum is good as our brand is would be difficult to replicate. And we're out there selling their product every single day with 25,000 frontline sales and retention people.

We are very good at distribution, but I think having them get behind and help us advertise the value that's here can work well for the programmer, but also work well for us. Obviously, it works very well for the customer because they save money. They are able to take more product, and they can actually upgrade to the ad-free version, which creates additional revenue for the programmers and for us over time in a way that works as a much better ecosystem. Without getting into any tactics around marketing, I think you can see where we're trying to make sure that the incentives are very much aligned between the programmers, us, and the customer in a way that, from our perspective, really works to sell more connectivity relationships.

From a scale perspective, which is what you asked, if we as Charter, if we had more scale, I think the brand recognition of our mobile services, internet tends to be a little bit more local. But clearly, when you think about us competing against national mobile operators, when you think about us in the video space, there's Amazon, there's Google. And so across really all of our products, you can think about where there's marketing advantage to having some additional scale. We have scale today, and it's sufficient. I'm not saying that we're deprived of that, but I think we could do better for customers. By having that scale, I think we could save customers additional money.

I think we could insource jobs the way that we did with Time Warner Cable and Bright House and bring more U.S. jobs back from offshore call centers onto onshore environments that create good-paying jobs, as well as bringing contract labor into in-house as well. So I think we can be good for ourselves in terms of scale, for consumers in terms of scale. I think we can be good for jobs. And then finally, if you think about an environment that we've talked a lot about is AI development to actually enhance our service capabilities and to make these onshore in-house jobs better for our employees.

AI is not cheap, and the more scale you have for that, to the extent you could become less regional and closer to a national operator to compete, it'd allow you to invest more into AI and to actually have lower costs per customer to do so and to drive additional benefits for customers that way. Look, I could go on and on. We have enough scale to operate well today, and we're doing it. But having additional scale, of course, is always beneficial when you operate a large fixed network, high-capital business. Thank you.

Benjamin Swinburne (Equity Research Analyst)

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

Operator (participant)

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

Kutgun Maral (CFA)

Good morning, and thanks for taking the question. Just a follow-up on the M&A discussion from a different lens and maybe focus on wireless.

You've scaled your mobile efforts quite meaningfully, and I know that you've had a lot of success with migrating traffic onto your own network. But as that business grows and perhaps Comcast's efforts also ramp, is there a change to your view on whether owner's economics would make more sense on a standalone basis or through a partnership? I just wanted to revisit the topic because the common pushback that we get on your mobile and convergence efforts is that your margins there and the opportunity more broadly are naturally limited because of the MVNO relationship, and therefore, you just don't get as much credit on the success that you've had. So we'd appreciate your perspectives. And just a quick one on rural. New passings have continued to pick up sequentially, but customer and ads were flattish. Can you just help us think about penetration trends over there?

As your new passings accelerate to around 4,50,000 in 2025, should we still assume that rural sub-net adds will also accelerate, or are there other nuances that we should be mindful of? Thank you.

Chris Winfrey (President and CEO)

I'm trying to think of the best way to answer your question on the mobile business. When we got into the mobile business, it really was because it was an extension of our broadband business. And so when you think about our mobile business today, 87% of the traffic is really carried on our network already today. We've deployed thousands of radios for CBRS. We'll be deploying that nationwide across our entire footprint, deploying thousands more this year of radios for CBRS in a multitude of markets.

That number, the 87%, is only going to increase through CBRS deployment, but as well as our Wi-Fi capabilities and the cooperation among these regional cable operators to enable Wi-Fi auto authentication across these networks as we compete against national MNOs. The offload can continue to increase. Already, our margins aren't very good on the product. There is no driving force for us to say that we need to have owner's economics. We do not look at the product as a standalone basis. We have the capability to look at even that growth that way, which we do just for really more from a capital markets perspective. It is a significant contribution this year in 2025 to our growth rate. It is really a combined product. For us, mobile is an extension of our broadband product. It ties into our seamless connectivity capabilities.

And so there's no pressure from our perspective to feel like we need to have additional owners' economics beyond the 87% that we already have today. I don't know if you want to comment on.

Jessica Geremia (VP and Regional Field Operations)

Yeah, on the rural piece. So there are a couple of things going on. H1, if you think about where a preponderance of our rural build is, there's a large amount in The Carolinas and in Florida. And so from a sales perspective, I think there was a bit of impact there from the hurricanes inside of Q4. I do also think from a timing perspective, so second one, you have passings sometimes that get placed in service very late in a quarter. And so some of those passings might not have aged quite as much as you would think if you sort of assume that they're coming in at a steady rate.

And the last one is there's a little bit of competition in those rural markets on the cell phone internet side. I don't think that that changes where we end up sort of from a terminal penetration in those markets perspective because the desire in those spaces for wired broadband is still quite high. But as to the speed with which we terminate that we penetrate some of those passings very early on, there's a little less jump at the very beginning than what we had seen previously.

Benjamin Swinburne (Equity Research Analyst)

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

Operator (participant)

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