Charter Communications Inc (CHTR) — Q2 2020 Earnings Call Transcript

Thanks, Stefan. We've remained focused on serving our customers and the communities where we operate through a difficult period. These services have enabled remote working, distant learning, telehealth services, and family communications in support of the broader economy and the welfare of our communities. In mid-March, as part of our effort to keep Americans connected during the shelter-in-place orders, we pledged to do a number of things. We committed to offer Spectrum Internet for free for 60 days to households with students or educators who did not already have a Spectrum Internet subscription. And through that program, which ended for new subscriptions on June 30, we added 450,000 customers. We also committed to suspend collection activities and not terminate service for residential or small and medium business customers who are experiencing COVID-19-related economic challenges. And through the Keep Americans Connected programs, which also ended on June 30, we helped approximately 700,000 customers who indicated economic hardship due to COVID-19. In addition, we opened our WiFi hotspots across our footprint for public use, opened up our Spectrum News website to ensure people have access to high-quality local news and information, and we rapidly connected and upgraded fiber services to health care providers. We've donated significant airtime to run public service announcements to our full footprint of 16 million video subscribers. And for our employees, we implemented 2 weeks of additional paid sick time for COVID-related illnesses and an additional 15 days of flex time to address other COVID issues. We increased our wages for all hourly field operations and customer service call center employees by $1.50 in April going back to February and committed to raise our minimum wage for hourly workers to at least $20 an hour over the next 2 years. We continued to perform well in the second quarter. We added 850,000 residential and SMB Internet customers driven by the demand for our high-quality products. Our ability to connect and service the customers we created in the quarter has been the result of investments that we've made over the last several years in our in-sourced and U.S.-based high-quality workforce, significant systems integration and automation, our online and digital sales and self-service platforms, and our self-installation program, which ran at about 90% of installations during the quarter. Data usage and traffic in our network also remained elevated during the quarter. In June, residential data usage for Internet-only customers was 600 gigabytes per month, down 10% from the April peak, but up nearly 20% from the fourth quarter. Our customers are benefiting from a continually decreasing price per gigabyte. Peak traffic levels remain well below maximum capacity. And our network continued to perform well because of the capacity that our recent investments, including all-digital and DOCSIS 3.1, created and because we continue to invest significantly to stay ahead of that usage curve. Over the coming years, we'll invest in our network as we build to lower density in rural communities and pursue our 10G plan, which provides a cost-efficient pathway for us to offer multi-gigabit speeds and lower latency to consumers and business customers. Additionally, with our inside-out strategy, we will continue to use and develop small wireless cells powered by our network together with our MVNO to connect customers in and beyond the home, delivering our throughput and economics for customers in fixed, nomadic, and mobile environments. Moving back to Q2 results. We added 100,000 video and 40,000 voice customers, both of which benefited from significant broadband sales in the quarter. We also added 325,000 mobile lines despite some disruption to our mobile sales channel in the quarter. We also performed well from a financial perspective. We grew adjusted EBITDA by 7.3% despite some nonrecurring items Chris will cover. And our second quarter free cash flow grew by nearly 70% year-over-year. As we look out for the rest of the year, we expect our broadband and mobile products to continue to drive demand. But our outlook depends on what happens to unemployment and income and for how long and the impact such factors have on customers' ability to pay for those services in the coming months, including government support to consumers. Household formation may slow. If it does, we would expect lower activity for both new sales and churn. And due to our various self-installation initiatives, we expect service transactions and costs to serve per customer relationship to continue to decline. SMB has held up better than we expected, and we're currently selling more year-over-year, again tied to how the economy and stimulus develops. In Enterprise, business has been slow. During the second quarter, we struggled to gain access to customers and business premises. Sales activity is picking up each month, but it will continue to be lower growth until businesses are fully back to normal operations. Our advertising business is inherently local and primarily supported by small and medium businesses, which have also been slow to return to local advertising. Ad sales are improving, and we still expect political advertising to be meaningful, which will help our third and fourth quarter results. Our first half financial results would have been better were it not for COVID-19. But we feel good about our current performance and long-term growth trajectory. The value and demand for our services is clear, and we're operating efficiently and serving our communities well. In 2016, we put 3 cable companies together to scale our business under 1 operating strategy. Our ability to grow our connectivity services this year for both new and existing customers is a testament to our operating strategy, the quality of our products, and our significant investment in systems and people over the last several years. Before turning the call over to Chris, I'd like to thank Charter's employees for their hard work, dedication, and diligence throughout this crisis. They've been asked to go above and beyond their regular duties, and they've delivered, easing the strain for millions of families in this challenging time. Now I'll turn the call over to Chris.

Thanks, Tom. Now turning to customer results on Slide 5 of our presentation. Including the impact of COVID-19-related customer offers and retention programs, we grew total residential and SMB customer relationships by over 1.8 million over the last 12 months or by 6.3% and by 755,000 in the second quarter. Including residential and SMB, we grew our Internet customers by 850,000 in the quarter and by over 2.1 million or 8.3% over the last 12 months. Video grew by 94,000 in the quarter, better than last year's second quarter decline of 141,000 video customers. The positive performance was driven by churn benefits at a time when consumer demand was high as well as the pull-through effect of our COVID programs. Wireline voice grew by 45,000, also benefiting from the same likely temporary factors as video. Mobile net adds accelerated again to 325,000. Beginning in mid-March, we introduced 3 COVID-19-related offers and programs for our customers. Each of these offers ended on June 30. As we did in our first quarter materials, we had provided an addendum showing the customer counts for each of these 3 COVID-related offers as of the end of the second quarter. The first was our Remote Education Offer, which provided 60 days of free Internet for new Internet customers with students or educators in the household. Over 90% of these customers are on our flagship speed tier or higher. This channel looked very much like traditional acquisition with nearly 50% having subscribed to and paid for additional products along the way. At the end of the first quarter, we reported 119,000 Internet customers in the offer, which rolled off either as paying customers or disconnects during Q2. For Q2, net of some small in-quarter roll-off churn, we added 329,000 more Internet customers to the 60-day free program, with 160,000 remaining on the free offer at the end of Q2. And by July 27, 90% of the cumulative connects on this program from Q1 all the way through Q2 remained as either paying customers or still on the free offer within the 60 days. The second offer or customer category in the addendum reflects customers who participated in our Keep Americans Connected Pledge to the FCC. These are customers who indicated their inability to pay for service for COVID-19-related reasons. This program protected, as Tom mentioned, approximately 700,000 residential and SMB customers from collections and disconnect activity through June 30. 60% of these customers continued to pay something, half of which were paid in full. And at the peak, there were over 200,000 who would have been disconnected under our normal collection practices. In an effort to assist COVID-19-impacted customers with overdue balances, we waived $85 million of receivables, which was recorded as a reduction of revenue in the second quarter. As a result, these customers no longer have an overdue balance. We believe that we'll retain most as long-term customers, but some of the over 200,000 may become disproportionately delinquent compared to a typical customer with disconnection in late Q3 or more likely in Q4 under our normal disconnect practices. Early payment trends on this base are, however, very good. The final category of customers we've isolated in our addendum are SMB and enterprise customers who requested a seasonal suspension of service or temporary downgrade of a line of service while their operations were closed or diminished. I don't expect there will be anything to report as an addendum in Q3 given these programs have effectively wrapped up. So how do we think about customer relationship performance in 2020 given COVID-19 and our various programs? Well, in the beginning of Q1, our customer relationship growth was accelerating, and our pre-COVID expectation was that would continue throughout 2020. In March and the second quarter, we absorbed a tremendous amount of new connection and service volume, providing free service and credits. Our goal was to do our part in helping customers in our local communities through a difficult economic period. As of the third quarter, we have a lot of customers who now have high-quality, attractively priced connectivity services from us. And our third quarter and fourth quarter performance will largely be a function of the economy, unemployment, and any additional stimulus packages. It is clear to us that the actions we took to connect and protect customers during the crisis will result in long-term benefits for Charter, better-ending relationships in 2020, and we expect a higher customer growth rate this year compared to last. So our success in the second half of 2020 will be measured on third and fourth quarter year-to-date for last 12 months' net additions comparisons, not a particular quarterly comparison, which is consistent with how we manage the business. Turning to the financials. As we expected, there were a lot of moving parts in the quarter. I'll be referencing various COVID-related items, which we've laid out on Slide 9 of today's presentation. Residential revenue grew by 4.1% in the quarter primarily driven by accelerating relationship growth and similar PSU bundle and video mix trends we have seen over several quarters. This growth rate includes the negative impact of $76 million of one-time write-down for residential customers in the Keep Americans Connected program. SMB revenue grew by 2% given slower customer growth and $17 million of write-downs and credits for customers in the Keep Americans Connected and the COVID-related seasonal plan. That created some temporary ARPU pressure. So far, we've been pleased with our SMB performance. And while things can definitely change if local economies shut back down, early third quarter SMB sales and net addition performance has actually been better year-over-year. Spectrum Enterprise revenue declined by 7.1% year-over-year driven by the sale of NaviSite and the continued pressure from the wholesale side of the business. Excluding both NaviSite and cell tower backhaul, Enterprise grew by 2.2%. That includes $18 million in one-time credits, which we extended to certain customers in return for contract extensions. While the comparability for NaviSite goes away after Q3, wholesale, in particular cell tower backhaul, continues to be challenged. Retail Enterprise, when excluding the $18 million of one-time bill credits, is growing revenue around 7%, but sustaining that growth or accelerating will be difficult until our customers are back to normal operations. We also have some exposure to the hotel segment, which we've tried to address in the second quarter. Spectrum Reach second quarter advertising revenue declined by 37% driven by the COVID pandemic, which reduced core ad sales growth. In April, sales were about 50% of the prior year. May was about 60% of the prior year. And June was about 70% of the prior year. So the trend has been improving, but our core won't be fully back to normal until later in the year or early next year. Of course, we will benefit from political along the way, which will help the prior year comparison. Mobile revenue totaled $310 million with $158 million of that being device revenue. And in total, consolidated second quarter revenue was up 3.1% year-over-year. Moving to operating expense. In the second quarter, total operating expenses grew by $45 million or 0.6% year-over-year. Cable operating expenses, excluding mobile, declined by 1.3% year-over-year or 0.8%, excluding NaviSite. Programming increased 1.6% year-over-year, reflecting the same rate, volume, and mix considerations that we've seen in prior quarters. We did not accrue any RSN fee savings in our programming expenses in the second quarter as the certainty, amount, and timing of any credits is not yet clear. If and when any COVID rebate for lost games occurs, we will pass that along to our video customers with no or minimal expected EBITDA impact. Regulatory, connectivity, and produced content expenses decreased by 18.3% year-over-year primarily driven by a $125 million benefit from the timing of sports rights payments for our Dodgers and Lakers RSNs, which have been pushed out to the second half and later depending on the sport and adjusted season. Costs to service customers increased by 4.6% year-over-year with meaningful productivity compared to 6.3% customer relationship growth. The higher level of expense growth was driven by record levels of transaction volume ranging from acquisition, upgrades, billing, and service. That expense includes roughly $44 million for recently accelerated hourly wage increases and COVID-19 benefits, which Tom mentioned, partially offset by lower medical costs and a one-time payroll tax credit. Bad debt expense was essentially flat year-over-year but some $48 million lower than what we would have expected based on higher customer counts and the unemployment rate. This quarter, bad debt benefited from the significant revenue write-off for customers who were in the protection program and generally better payment trends due to the stimulus package under the CARES Act. Bad debt going forward will be a function of the economy and any new stimulus package. Excluding bad debt variability, costs to service customers should continue to grow at a slower rate than customer relationship growth due to lower transaction volume and higher self-service trends despite the step-up in minimum wages and COVID flex time. Cable marketing expenses declined by 6.3% year-over-year given better media placement rates and a one-time payroll tax credit. Other expense declined by 6.6% year-over-year primarily due to lower advertising sales cost, costs related to NaviSite, which was sold, travel, and insurance costs. Mobile expenses totaled $413 million and were comprised of mobile device costs tied to device revenue, customer acquisition, and MVNO usage cost and operating expenses. In total, we grew adjusted EBITDA by 7.3% in the quarter when including our mobile EBITDA loss of $103 million. Cable adjusted EBITDA grew by 6.7%, including a 2.7% negative growth rate impact from advertising revenue, net of its associated expenses in both periods. We generated $766 million of net income attributable to Charter shareholders in the second quarter, and capital expenditures totaled $1.9 billion in the second quarter. Our second quarter capital expenditure shows we continued to invest through the second quarter despite a disruptive environment. We invested significantly in continued capacity upgrades at the national and local levels to stay ahead of contention, and we didn't slow down on new build, including construction in rural areas. Obviously, the level of broadband installations drove much higher modem and router purchases and self-installation kits. We expect 2020 cable capital expenditures as a percentage of revenue to decline year-over-year, and the underspend relative to our original plan that I mentioned last quarter may not be as significant as a result of the now much higher growth rates. We generated close to $1.9 billion in consolidated free cash flow in the quarter. And excluding our investment in mobile, we generated $2.1 billion of cable free cash, up about $700 million versus last year's second quarter. We finished the quarter with $2.1 billion of cash and $4.7 billion of availability under our revolver. And as of the end of the second quarter, our net debt-to-last 12-month adjusted EBITDA was 4.3x or 4.2x if you look at cable only. So we delevered a bit in Q2. Earlier this month, we issued $3 billion of long-dated, high-yield debt at very attractive rates. Pro forma for our recent financing activities, our current run rate annualized cash interest is $3.8 billion. During the quarter, we repurchased 2.3 million Charter shares and Charter Holdings common units totaling about $1.2 billion at an average price of $499 per share. We completed a lower amount of buybacks in Q2 than we did in Q1 as we wanted to survey both defensive and offensive opportunities in a unique climate. Our visibility to various scenarios surrounding COVID-19 has obviously improved. We will always evaluate the best use of our capital to generate long-term returns for shareholders, be it organic investments, such as the launch of our mobile or network edge-outs, purchasing someone else's shares or our own and probably in that order in terms of preference. And we remain comfortable in the middle or high end of our target leverage range. As I mentioned last quarter, we know that we have a high-quality, resilient asset with dedicated employees across our local communities, and we've invested significantly in our network and our people over the years. We also know there's a high demand for our product across every part of our footprint in both homes and businesses in good times and in bad, which is why we continue to aggressively build out more broadband passings and ensure that our network is well invested, ready and working for future opportunities. As the environment continues to evolve across the 41 states where we operate, our goal is to stay focused on what we do well and execute a proven operating strategy that works for customers and employees across various economic and regulatory climates to create shareholder value. Operator, we're now ready for questions.

Two quick questions, if I may, Chris. Firstly, can you provide more insight into how you expect the third quarter, and the rest of the year, to progress regarding the COVID-related benefits and costs? Specifically, it seems there are about 360,000 subscribers still on various offers. Do you think this could lead to higher churn in the third quarter? Additionally, do you anticipate any further write-offs for revenues or negative impacts from bad debt based on the initiatives we’ve seen so far, without considering any external economic conditions? We also noticed that you registered for the RDOF subsidies. Your household growth has been close to or exceeding 2% recently. If you succeed in those auctions, what could the growth potentially reach?

I will start with the last question first. We are currently in a quiet period regarding the RDOF, so we won't provide any additional comments beyond what was stated in the 8-K. Now, regarding the programs we implemented, they concluded on June 30. As I mentioned earlier, the customers we gained by the end of the first and second quarters through the Remote Education Offer have retained a 90% retention rate, and a significant number are actively paying for the service. Additionally, about 50% of these customers have opted for additional products from us. Although I can't predict the future, these customers appear to be performing as well as our regular acquisitions; they are not part of a low-tier offering. Over 90% of them are using our flagship product. While there is inherent risk in these programs, we are currently not observing any issues, and it looks promising regarding the Remote Education Offer.

I would just add that from a profile perspective, they resemble our regular customer base and behave like our typical customers. The 50% who purchased video, voice, or mobile services from us underwent the same credit check process as all our customers. Thus, they are acting like our standard customer base. I view that offer as a conventional promotional offer with a broadband benefit for two months, and it has attracted genuine new customers who subscribe and resemble our existing customers.

Yes, the other program was Keep Americans Connected. At its peak, we had 200,000 customers who had surpassed the point at which we typically would have disconnected them. We wrote off the balance for anyone who had an extended balance, which amounted to $85 million. By July, all those customers were in good standing, partly because some had made payments along the way and partly because of the write-offs. As we assess the situation today, those who were written off in revenue that cycled through the June billing cycle are paying again, and at a very good rate. If we were to evaluate the situation now, it seems similar to our regular customers in terms of behavior and customer churn. However, we acknowledge that there has been significant federal economic stimulus in the environment, and its future impact remains uncertain, as does the ongoing development of COVID and how nonpayment trends will evolve with the economy and stimulus measures.

And the way I would describe the macroeconomic risk factors going forward is that they apply to the entire business just like they apply to the customers that we had created in this quarter, and we don't see a big difference in the customer base that we created in the quarter and the average customer base.

The final question that you asked, Jonathan, was do we see any more revenue write-off or exceptional bad debt later this year. No, none attached to any of these programs. To the extent that what we just talked about if the economy is difficult and there isn't stimulus, would we expect a higher nonpay rate in that environment which would result in bad debt? Yes, but that would be the same for any business. And that'd be the same for us in any environment where you have the economy which is more difficult.

First, Chris, can you dig into the video strength? Well, I assume the inflection was pull-through from customers coming in on some kind of promotion for broadband and taking that video as well. With that program done, should we assume video trends return to normal going forward? And then second, Tom, your contract expires next year. Can you give us an idea? Do you plan to keep running the company after that? Or give us any update on how you and the Board think about succession planning?

Sure. I'm going to address both of your questions. The long-term trends in video haven't changed. We've always believed that it's possible to grow video if our overall customer growth is strong enough, even though the proportion of video customers to total customers continues to decline. If we can grow our customer base faster than this decline, we can still achieve video growth. That’s what has occurred here. The overall trend remains the same, although there was probably less downgrading during this period because many people were at home in front of screens. But the general trend hasn’t shifted. What really happened is that we accelerated our growth rate in customer relationships, and as a result, we managed to outpace the decline in video customers. In the past, we indicated that we expected satellite to decrease but believed we could still achieve slight growth in video. Overall growth has declined more rapidly than I anticipated over the past few years, but that fundamental trend hasn’t altered. All that has shifted is our overall relationship growth rate. And with regard to me, I intend to continue to be here, and the Board would like me to stay.

So a question for Chris. You used plain English and I know you're specific with your comments, but I'm still going to ask for a clarification on the comments on offensive opportunities being reviewed in 2Q, and I think you said in this order: purchase someone else's shares versus purchasing our own. So should we read that as the company's reviewing and interested in M&A at a higher level than previously? And then Tom in his prepared remarks mentioned investing in the networks. Is that emphasis on investing in the networks suggesting a different outlook for CapEx than previously stated? Or is that just within the profile that you've previously set?

Thank you, Doug. Since Tom and I have been here, our focus on cash flow has not changed. We have consistently stated that the best use of excess free cash flow is to invest in growth opportunities within the business. The next priority would be to acquire companies that offer a better return than buying back our own stock, and the last would be to buy back our own stock. The rationale for this order is that successfully pursuing the first two options enhances the quality and return on any buybacks we undertake. Our perspective on this remains the same, so I wanted to reaffirm how we approach it.

Yes. I wasn't saying that we were changing our profile investment strategy. I was merely commenting that we've been investing in capacity upgrades, and those capacity upgrades have served us well, and they serve the whole communications infrastructure of the country well. And you have a very competitive facilities-based market in the United States, and it results in very high-quality products, and it will result in future high-quality products.

When we look at the success you had in the first half of the year with your broadband subscriber growth, one of the reasons is you identified a demographic, which is students and teachers, where it seems like you may have been particularly underpenetrated and you came up with this promo that was really made for the moment, and it worked. You still have very low broadband penetration relative to what I think you believe it's ultimately going to be, and so I'm wondering whether you think there's an opportunity on the heels of the REO program to come up with other promos that are uniquely appealing to other demographics where maybe that gap is a bit wider. And then just on the wireless. Obviously, the net adds there were very strong. I'm wondering if that's because there was a very high attach rate with the broadband ad that you had and, as a result, if broadband ads are going to be more moderate in the back half, we should also have the same outlook for more moderate wireless adds.

Yes, we will take advantage of opportunities to segment promotional activities that can lead to faster growth. The recent promotion we conducted was successful because we executed it quickly and conveniently through self-installation for customers. There's still potential for further growth acceleration. We feel optimistic about our ongoing ability to grow and accelerate, and nothing that has occurred so far has changed that outlook.

And without downplaying our own capabilities, consider the demographics of those who have someone in their household who identifies as a student or educator. This encompasses a wide range of the population. It was a highly appealing offer made at a time when it was needed, presenting a great opportunity to create new...

It was not the majority of our sales by any means.

No. But it still created a new market and drove additional share shift.

It was a nice fit for the moment. Oh, I think no.

I don't either.

The way we look at the mobile growth opportunity, it's really a function of activity levels and how often we get a chance to communicate with our customers about mobile and what the rate of that attach rate is. And that continues to improve. And it's a relatively new business for us, and we are continuing to improve our tactics at that business and we're continuing to get improvement every week in terms of our results. And so we have high expectations for continued growth in that area.

Chris, can you provide any insight on whether you anticipate any impact or benefits from the sports rights situation regarding the Dodgers and Lakers in the third quarter? I know you mentioned some delays, but it seems like there have been canceled games as well. Should we be considering that in our projections? And for Tom, are you looking to accelerate the evolution of your network over time? You indicated that your overall capital expenditure profile remains unchanged, but I noticed that your scalable infrastructure investments have increased. You mentioned getting ahead of competition, particularly with 10G. Given the substantial free cash flow the business is generating, are you planning to advance your network development, both wired and wireless, to capitalize on future opportunities?

Yes, we want to take advantage of the technological opportunities that the network provides and find cost-efficient ways to upgrade it compared to our competitors. If there is demand for new products, or if we can create demand for them to drive revenue, we want to upgrade our network accordingly. Right now, we have a lot of capacity, and I don't foresee any changes to our current profile. Generally, we believe that with efficient capital investments, we can continue to upgrade our network over time. The 10G initiative exemplifies this opportunity, serving as a cost-effective upgrade platform that enables us to achieve high capacity and low latency more efficiently than others.

Ben, in response to your first question about the costs associated with the delayed Dodgers and Lakers, these have been deferred to varying degrees depending on the regional sports network and the sport involved, as well as the adjusted season. The main factor impacting the first half of this year is the profit and loss recognition for the Dodgers. We have paid the cash for these costs, but expenses related to unplayed games will be spread out over the remaining life of the contract. Thus, it is unlikely that there will be a significant catch-up in the second half of this year. Regarding potential programming rebates, these are quite complicated, and in many instances, we won’t have clarity for some time on whether we will receive any rebates or credits from the leagues. The same situation applies to programming networks concerning programming costs. However, we have indicated that if we do receive any rebates or credits for canceled games or programming related to the COVID-19 pandemic, we will pass those savings on to our customers. Therefore, I do not anticipate a significant impact on EBITDA, though it could result in an offsetting revenue credit and expense credit if it occurs.

Two quick questions, if I could. First, I'll go back to the question about footprint expansion, maybe not in the context of the RDOF auction but just in general. Can you share with us how much of the broadband growth came from the 2.2% footprint expansion that you're seeing now year-over-year? And absent any benefit from the RDOF auction, how fast do you think that footprint expansion could go? And then just second, could you update us on the path to profitability for the wireless business and your current view of how profitable that business can be with the current contract and then how much traffic you think you might be able to offload onto your own facilities in a way to reduce those monthly variable costs?

We are currently in a quiet period regarding RDOF, and our 2% growth rate in passings also accounts for new construction, which is primarily driving that figure at this time.

To add to that, the homes passed include those considered marketable. As you acquire additional homes, even without new construction, we are currently building around 500,000 to 600,000 homes per year. This should be viewed as the contribution from a construction perspective. It's not a significant factor for our net additions this quarter, and it hasn't been so far. However, over time, as we progress into the newer constructions, it will have a cumulative impact. What we have achieved over the past year has not substantially influenced our broadband net add growth. Yet, if we continue at this pace over an extended period, it will have a compounding effect.

We are seeing good returns on investment capital spending over time. The activity levels in the second quarter were consistent with our plans and mirrored those of the first quarter. Therefore, construction did not actually slow down, particularly in terms of new home construction during the quarter.

Craig, the profitability of wireless, our views on it hasn't changed. We're not dependent on any additional offload above and beyond the WiFi that we already utilize. And even under that rather limited model, our expectation continues to be that our breakeven, if you had no additional subscriber acquisition, so no marketing and sales cost, no cost of provisioning new customers, that the breakeven point would be around 2 million lines. That's a bit of a fictitious or academic scenario because we're always going to be selling it, we're always going to be marketing. But that gives you a sense of where the business, absent growth, would break even.

We're rapidly approaching.

Which we're rapidly approaching. So the economics of wireless are good. But like any start-up subscription business, it costs money to get going and you acquire customers, and they have a positive payback on every single one of them that we acquire. And so our views on the profitability hasn't changed. To the extent that we're able to improve the economics along the way, which we've talked about extensively in the past, that would make that even better, but we don't rely a ton on that.

I had one Tom and one for Chris. Tom, Charter recently requested the FCC waive 2 of the conditions related to the approval of the Time Warner Cable deal on data caps and paid peering. What's the motivation behind that request? And if it was granted, how would that impact the business in the future? And then, Chris, I was wondering if you could just give us some updated color on how you're thinking about working capital usage for 2020.

So Bryan, when we reached the agreement with the FCC, it was a 7-year agreement. Those provisions automatically expire in 7 years, but our agreement included a clause that allowed us to terminate it after 5 years if the market showed that those conditions were no longer necessary. I would describe our goal as housekeeping, and since the market did not require those conditions and in my opinion never did, we wanted to ensure we were on the same level playing field as all of our competitors. However, this request did not lead to any change in our business, marketing, or product strategies.

And Bryan, regarding working capital, if you look at the last two years, specifically 2018 and 2019, there were some unique circumstances affecting us, such as the wind down of all-digital and last year's billing standardization project, both of which impacted working capital. This year has been quite different, with nothing abnormal in that regard. We do see large fluctuations in our working capital during the quarter due to seasonality, which was evident in Q2 when we had a positive contribution to working capital compared to a negative one last year related to the billing standardization. To give you an idea, there are times when we can collect $300 million in one day. Therefore, our working capital will vary both within a quarter and throughout the year depending on when we make programming payments and when we collect funds. I don't want to set overly optimistic expectations for working capital, but I can say there aren't any significant changes this year that would lead to abnormalities. Whether the fluctuation is positive or negative by a few hundred million, I don't anticipate it having a major impact on our free cash flow this year.

Chris, maybe just a quick comment on the customers that are, I guess, at risk. When you look at the consumer versus the SMB piece of it, is there a different behavior or are there different behaviors between those 2 cohorts? And then maybe one for Tom, on the programming cost side. We're seeing in the last 12 months about 6.5 million subs come out of the video ecosystem. How does that change your thought process going forward, I guess, maybe in your own content strategy. And obviously, any thoughts about pushing back against the programmers? And then if you don't mind, just one last on Enterprise. Is that Enterprise weakness just delayed decision-making? Or are you actually seeing customer disconnects?

Okay. The last question, it's delayed decision-making.

Yes. People in large enterprises are not in the office. Even when their IT staff are present, it's not the time when they are most actively seeking to save money, change providers, or switch to Spectrum. We are still making a substantial number of sales, and they are increasing each month as we return to a more typical environment. However, the situation has been sluggish, and it will likely remain so until enterprise businesses resume normal operations.

There's opportunity there...

In creating new products and services for enterprises, these organizations will utilize their telecommunications infrastructure differently in the future. Therefore, I believe there are more opportunities in the long run. The question on the thought process around programming and whether or not the whole sort of ecosystem argues for a more aggressive stance or not, I think, is the implication of your question. I think that's coming. And at some point, somebody oversteps the bounds of reason and there'll be some sort of breakage that will occur. You inquired about the distinction between at-risk customers for nonpayment in relation to residential and small to medium-sized businesses. Regarding the residential sector, we have a product that is in high demand and highly competitive. It is well-priced and well-packaged. Due to our operational approach, we expect sustained demand; the main factor is people's ability to pay, especially given current economic uncertainties. Even in a weak economy with substantial stimulus, we typically receive payments quickly due to the value our product delivers. This context shapes our view of the residential market, influenced by the economy and stimulus levels. For small to medium-sized businesses, the critical issue is whether they are operating and how long they can survive on their own liquidity if they aren't. This presents uncertainty for us. However, the quality of our products and our capacity to capture market share in an environment where customers seek faster and more competitively priced options suggest that there could be an increase in our market share in the SMB sector over time.

Yes. Chris mentioned that our small and medium-sized business (SMB) segment continues to grow compared to last year. This growth is not only due to businesses reopening but also because we have a greater opportunity to increase our market share in this area, as we have less penetration in SMB compared to residential, and we offer the best products.

And Chris, those percentages that you laid out as far as those that are paying, is that a residential-only number that you were referring to? I'm trying to remember which because I gave a lot of percentages today. So I gave the...

I figured like 50% are paying something.

No. That was residential in SMB. However, the majority of those units were in the residential space, which means it is heavily weighted towards residential. But it included both segments. About 60% of customers have been making some payment, with half of that, approximately 30% of the total base, making full payments. These statistics encompass both residential and SMB.

I'd like to come back to the video numbers. I just wanted to ask if you think your numbers are helped somewhat by what appears to be a bit more of a skinny bundle strategy that you offer rather than offering some more OTT services, OTT bundles as some of your competitors are doing.

Yes, we have a variety of video products, including a traditional bundle. However, in the long run, there are limitations to the skinny packages we can offer due to contract language, our programming deals, and the minimum distribution required in a large bundle. Balancing these factors has posed a challenge, but we have managed it successfully so far. Nonetheless, the challenges in video persist.

And do you think you might be looking at offering some OTT types of one-offs or bundles within your video offering? Or is that something you're going to stay away from?

Oh, yes. Yes, absolutely. I think you'll see us selling more and more packages of OTT products that we don't necessarily own but more on a consignment basis or potentially even a packaging basis.

Thanks, Tim.

Thanks, Tim.

Thank you, everyone.