Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to Charter's Third Quarter 2018 Investor Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the call over to Stefan Anninger. Please go ahead.

Good morning and welcome to Charter's third quarter 2018 investor call. The presentation that accompanies this call can be found on our website, ir.charter.com, under the Financial Information section. Before we proceed, I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings including our most recent 10-K and 10-Q. We will not review those risk factors and other cautionary statements on this call. However, 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. These forward-looking statements 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 or to make additional forward-looking statements in the future. During the course of today's call, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. These non-GAAP measures, as defined by Charter, may not be comparable to measures with similar titles used by other companies. Please also note that all growth rates noted on this call and in the presentation are calculated on a year-over-year basis unless otherwise specified. Joining me on today's call are Tom Rutledge, Chairman and CEO; and Chris Winfrey, our CFO. With that, I'll turn the call over to Tom.

Thanks, Stefan. At the end of the third quarter 67% of our acquired residential customers were in our new Spectrum pricing and packaging, up from 62% at the end of the second quarter. So we’re delivering better products at better prices to more customers which will driver lower churn, faster customer growth and [Technical Difficulty] financial growth. Over the last year we’ve grown our total Internet customer base by over 1.2 million customers or 5.3%. In video, net losses this quarter were lessened than the third quarter of ‘17. In the third quarter we grew cable revenue by 4% year-over-year and adjusted cable EBITDA grew by 5.5%. During the quarter we rolled out our Gigabit speed offering to over 7 million homes passed, using very capital efficient DOCSIS 3.1 technology. Earlier this month, we launched our Gigabit service to more than 12 million additional homes passed. So we now offer Spectrum Internet Gig to over 95% of our passings and we will be offering Giga service in nearly all of our 51 million homes passed by the end of this year, and over 80% of our residential Internet customers subscribed to tiers that provide 100 megabits or more of speed. Our faster speeds are having our intended impact of driving Internet customer growth. In early September we executed a full market launch of our Spectrum Mobile service with the goal of accelerating connectivity relationship growth, and we expect our mobile product to be profitable on a standalone basis once it reaches scale. We now offer mobile services to both new and existing Spectrum Internet customers on both Apple and Android devices. Spectrum Mobile is being marketed via TV, radio, direct mail and through other advertising and marketing platforms and our selling machine is scaling across key existing sales channels including…

Thanks, Tom. A few administrative items before covering the results. So I mentioned on our last call we’re now reporting all of the results on a consolidated basis. There was a small impact to our Q3 results due to Hurricane Florence primarily in the Carolinas. The impact to the customer base was a few thousand customers and the financial impact was about $5 million to each, revenue and operating expense. So a little over $10 million in adjusted EBITDA. We had a similar impact from storms during the third quarter of last year, so the year-over-year impact is not material. We’re still in clean-up mode for Hurricane Florence and we are in restoration mode for Hurricane Michael. We will provide a similar update on our Q4 call as needed although we don’t expect material year-over-year impact from either hurricanes. Finally as a reminder starting on January 1st of this year, we prospectively adopted FASB’s new revenue recognition standard. Like last quarter, there are a number of adjustments in the quarter related to the adoption of the standard, both in revenue and expenses, which in total lowered EBITDA by about $15 million this quarter as compared to last year. That year-over-year impact from the accounting change will go way after Q4. Now, turning to our results. Total residential and SMB customer relationships grew by 234,000 in the third quarter to 903,000 over the last 12 months. Including residential and SMB, Internet grew by 380,000 in the quarter. Video declined by 54,000 and Voice declined by 77,000. As Tom mentioned, 67% of our acquired residential customers were in Spectrum pricing and packaging at the end of the third quarter. We expect to be above 70% by the end of this year and similar to what we saw at Legacy Charter Pricing and…

[Operator Instructions] Your first question comes from Vijay Jayant from Evercore. Your line is open.

Thanks. Good morning. Just wanted to unpack the video trend, obviously the losses decline in the quarter, I think you called out Stream and Choice packages become a bigger piece and that limited basic is moderating. Can you just help us understand sort of what's really going on, on the video competitive landscape and the growth on the expanded basic product? And then for Chris, I just wanted to reconfirm your comments, which was that there was 15 million hit from accounting changes and about 10 million from the hurricane. So, the EBITDA impact was about 25 million? Thank you.

So Vijay, on the macro issues, I guess there are two things to explain. One is that our desire to sell feature-rich high-value video products as part of our overall market-facing strategy, meaning when we sell or create a customer, we like to -- we believe it's appropriate to try to give that customer the full capabilities of our service. And then through time, as a result of that, keep that customer and satisfy that customer fully. In order to implement that strategy, we sell full packages of product in video which means we don't sell video or basic-only products generally incrementally. And therefore, as we grow, we're growing rich products and shrinking our broadcast-only base. And so that, that was a strategy at Legacy Charter, Legacy Cablevision actually. And so we’ve been implementing that through this transaction successfully. So if you're actually a programmer receiving funds from us, we're growing in your eyes, because we’re growing expanded basic as part of every acquisition we make generally. Every new customer to get. So that’s our product strategy. In terms of where the overall marketplace is, I think it continues to be pressured for all the reasons we expressed before by high cost of content, the fact that the content is bundled the way it is as is wholesale to us and the fact that it's not very secure incrementally on the IP level meaning that you can get it without paying for it, all this puts pressure on price along with the whole value proposition of the content because it’s continually going up in cost. And I don’t see those trends changing. And so you see a continued erosion of the overall marketplace for bundled video. That doesn’t mean we can't be successful in that marketplace using video to drive our overall customer relationship growth. And that our video products can be relatively better than other companies’ video products and that we can achieve share shifts as a result of that.

Vijay, on the accounting question. So we've had due the adoption of the rev rec standards since the beginning of the year. We had some small impact in Q1 and Q2. It's a little larger in Q3, so we just made a mention of it. But you are right it is $15 million on a year-over-year basis meaning that there is a $15 million hit to EBITDA this quarter as compared to last year. As we get into Q1 of next year that year-over-year comparison difference will go away. And the other item that you mentioned is that over $10 million related to the storms. That is true that it lowered our EBITDA this quarter but it's also true that in the third quarter of last year we had a pretty similar amount that was flowing through. So just be careful when you are adjusting that on -- it's definitely relative for forward-looking, on a year-over-year comparison, it's about the same. Does that make sense?

Right. Thanks so much.

Thanks, Vijay. Michelle, we will take our next question please.

The next question is from Philip Cusick of JP Morgan. Your line is open.

Two things around pricing and revenue. First, can you compare the price increases that we've seen in the last week to last years and any impact higher or lower on broadband or video revenue this year? And then second, can you help us sort of think about your expectations for revenue and EBITDA on the next few years. I know you are not going to give guidance, but you've talked about an acceleration, I think it would help to put some framework around it. We understand you don't expect revenue to grow 4% and EBITDA 5.5% from here. But what's the level of increase we could expect in the next few years as you come out of the transition? Thank you.

Hey, Phil. This is Chris. It sounds like you are looking for a lot of guidance. There were – our core pricing and packaging other than what I mentioned on our double play pricing and what we are doing with it [indiscernible]. Our core pricing and packaging hasn’t changed. And you are right that we've a few small increases on different services around the edges but it's not really material. The full impact of which you won’t see in our numbers until December. So I know that's starts to roll through some of the billing cycles in November but full impact really won't be there for a full month until December. And that's what we've done today. It doesn’t mean that ultimately that's where we will be for the full year in 2019 but it is slightly lower amount and what has been gone through this year and the last year so I think I had mentioned in my comments, we took, so meaning in 2017 we had some smaller increases that went in January, we had some smaller increases that went in August, certainly that impacted the comp for this year Q3 on Q3. We have got some small around the edge rate increases, which you’ve highlighted, I know you have written about it as well, but they won’t be fully impacted until December and during the course of 2019 we will see where we are. But if you were to just take that and say how does that compare to what we did in the January this year, it would do slightly less than that. Revenue and EBITDA acceleration without giving guidance, the first one ties purely to customer relationship growth and from SMB having bottomed out. We think SMB is going to continue to improve. Will it…

Michele we will take our next question please.

The next question comes from Craig Moffett from MoffettNathanson. Your line is open.

I wonder if you could just -- a little bit about the wireless business. Tom you have talked in the past about some limitations technologically with respect to the network controller and your ability to direct traffic between Verizon's network and your own network. How do you think about the MVNO in terms of sort of strategic sufficiency for your ambitions in wireless? And what might you need to do to ensure that MVNO sort of satisfies your needs?

Good question, Craig, and I have read some of your materials recently on that as well. And I would say this: We are a wireless company today and have over 300 million authenticated devices on our network prior to the launch of our MVNO. And as we move through the MVNO it does have limitations on our ability to manage that networking and certainly has limitations on our ability to get owners economics in some ways, although we can shift traffic onto our own network through Wi-Fi and increasingly look more likely through new spectrum that will be available to us also in a public way, like Wi-Fi in the form of the CBRS, so we got five spectrum, some of which will be public and some of which will be sold at auction. There are our new technologies coming along with dual SIM and eSIMs in mobile devices, which will allow somebody with an MVNO like us to actually run their own network and an MVNO simultaneously on the same device, which is an interesting thought as you go forward in terms of what you can do and how you manage traffic and how you can do that efficiently so that the MVNO was good for us and fit the consumers’ needs. But we could manage our own network and traffic on network in a more efficient way than we can today. But today we have a limited MVNO and it doesn't do what ultimately we would like it to do and -- but it’s more than we have -- more than we had a couple months ago. So it enhances the total value of our product. We can still save our customers tremendous amounts of money on their wireless bill every month and give them more services than they are currently getting because we can package that with the products that we have. And back to what I started the conversation with Vijay was, our product bundle is superior in terms of its total capability to what others are providing in the marketplace. And so therefore, we simply can grow our business. And we look at our current mobile relationship, our MVNO as a way to do that. But that doesn't mean that there aren’t opportunities going forward technologically that we will ultimately be able to take advantage of.

Thanks, Craig. Michelle we will take our next question please.

Your next question comes from Ben Swinburne from Morgan Stanley. Your line is now open.

Going back to your prepared remarks where you talked about the integration having been disruptive to the business. And as you expect to quickly see benefits in customer growth and meaningful churn benefits, maybe you guys could just spend a minute talking about where that disruption showed up in the 2018 financials and customer metrics? And so it would help us think about the improvements you should see as we head into ‘19 and I don’t know if it makes sense, but it also be worth hearing from you really when you think this company is operating sort of full steam ahead, for lack of a better phrase, without the complexity of this integration, is that literally January, is the phase-in over the course of the year. I just think helping without giving guidance we can hear your enthusiasm for the business coming around the turn of the calendar but putting a little more specifics about it would be helpful?

Sure, Ben. Look I think the biggest impact on the financials in 2018 of the integration was in capital spending. And that ties into disruption and the operations too, so let me explain. We’ve spent a lot of money to upgrade the network to all-digital. When we purchased Time Warner cable and Bright House, which you’ve got to remember too was 3 times the size, Charter is one-quarter size of the new company put together. And it had -- that new company in most of the acquisition footprint still had analog television on and analog television is very fat but doesn’t require set-top box. And so it has two negative attributes to -- three negative attributes to our ultimate strategy. One, it eats up channel spectrum that we ultimately want to use for high-speed data and IP video. It is an inferior picture and without a -- and in order to fix it you have to put a set-top box on the customers’ televisions, which in itself is very disruptive. So we decided that it was necessary to get the spectrum back for the long run benefit of the business, even though it meant that we were going to have to go out to millions of customers and put new set-top boxes on analog outlet so that we could recover the spectrum. That all-digital process is completely contrary to our operating strategy, which is to provide superior products packaged in an appropriate way that takes activity out of the business, so that the overall customer relationship is less transaction intensive and therefore longer life. And as a result of that virtue is from a consumer perspective meaning the consumer gets the price they want with less activity, they last longer, so there is more revenue per transaction and it's a…

And what Tom was just describing, it feels like a year and half two years now I have been talking about non-linear choppier in a quarter-over-quarter. We have been turning a lot of knobs and making a lot of changes. Some of which have an immediate positive impact. As an example last year fourth quarter we started to rollout some of the streaming products which cost less. On the other hand at different stages through all the things that Tom just described that has an impact on service transactions and churn. On the Internet, that customer-facing should go away in Q1. Are we at full steam in Q1? No because the impact of what we have been doing over the past few years will stick for a little bit. But I don’t think it will be Q1 but I think that incremental activity goes down in Q1 and starts to a look better through the year.

Well, activity is going down already, yes, and churn is going down, as we would expect. So we see the metrics -- the operating metrics and have confidence that the strategy will do what we think it will do.

That’s helpful. I think that the question from myself and others are all aiming at the same thing which is we are heading towards the payoff from this acquisition and people are wondering how much revenue growth benefits to CapEx? I think is pretty straightforward. But -- and it sounds like there has been enough in the system going on that has impacted net adds maybe then ARPU and we are sort of going to come out of that. So thank you for all that color. Appreciate it.

Thanks, Ben. Michelle, take our next question please.

Your next question comes from Mike McCormack from Guggenheim Partners. Your line is open.

Yes, thanks. Tom, just a comment we heard obviously from AT&T this week, pretty weak results of DirecTV now and significant losses on the linear TV product. I suspect we will see some results from dish as well. But just maybe your view on the overall video landscape what you're seeing out there from the over-the-top guys. If that can become a slowing threat do you think? And then purely the losses of AT&T, is that an opportunity for you guys, have you taken some share there? Thanks.

Mike, I have said it all along that I thought that the shrinking of the satellite business would benefit our video business. But then you got these another trends as well. Including recently price increases in the virtual MVPD space which probably impacted their results too. We have had competitors in the virtual MVPD space who have been selling product below cost to the peers and even they had to admit that that was driven and raised some of the rates which will impact the overall competitive landscape. I mean if you step up above it all and look at the whole marketplace, you still have the requirement to sell most must-have programming in fat packages and the content companies ensure to their contracts that, that retailers like us carry that product in big bundles. Were not allowed to carry it without caring other services similarly situated in the same packages or unless we don't want carry it at all. And if you look at the products sets that most MVPDs have, it’s the same, they are similar. So that price driver and the fact that content companies have been able to price through that, puts an enormous burden on a lot of people, don't -- can't really afford a television and that affects the propensity to use passwords and other things of that nature to get product without paying for it. And by the content companies going over-the-top without having an experience of being distributors, they’ve done that in way without securing the content which any distributor would theoretically do, if they knew what they were doing, but that hasn’t been the case. So you have free service all over the country through passwords and yes -- and it’s not always that easy to deal with and you got to deal with television and so there are impediments to that as well but the reality is television can be had fairly easily without paying for it and that’s true over the Internet TV as well. If you think about people charging retransmission fees for free over the air content, eventually that drives people to get antennas. So all those forces are still out there. On the other hand, satellite is very high priced single product with $100 kind of ARPUs in a world where the content is devalued and so I think you'll see continued erosion of that business and some of that will shift to us. And the question is when you look at all of that what’s the portion of that comes to us?

We are fairly sure that concerns on the password stuff. But maybe just one follow-up just on the mobile stuff. I think there's been maybe some of a dismissive attitude on the wireless carrier side. What kind of customers -- I know it’s early days but what kind of customers you’re picking up, is it the value seekers, is it prepaid migrations or is it really very quality -- high quality customers? Thanks.

I can’t describe that yet. I don't have enough information about the individual sales that we have. But look this is a fully distributed product, mobile is. It’s fully penetrated and like us everybody has one and everybody wants one. And so we think that mixing those products into our product set in the right proportions and the right prices that the whole marketplace is available to us.

Thanks, Mike. Michelle, next question please?

Next question comes from Jason Bezenett with Citi. Your line is open.

Just a question for Mr. Winfrey. You mentioned mobility would achieve profitability once it gets to scale. As you go through sort of all the variables, mix of customers and wholesale payments and handset revenue recognition, all that stuff, what's a reasonable bid ask in terms of the low high, in terms of how many subs you think you need before it does reach profitability?

Thanks, Jason. Look the question of breakeven is somewhat academic because it has to be in a context of your growth rate. But as to the additional growth cost, we expect the mobile business on a standalone basis without the benefit of cable which we think are a significant, we would expect new growth and new benefits to cable to reach financial breakeven around 2 million mobile lines which would be when you take customer relationships into account about 5% penetration of our Internet relationships. And I don’t want that to be a guidance of where we're going to breakeven because the reality is we expect to be growing and continue to grow well beyond that. I also think there’s meaningful benefit to cable. But as an academic or analytical framework that gives you a sense of where the business needs to be but it also hopefully shows our confidence around the NPV of mobile and frankly the level of risk that we are taking on of which I've expressed in the past either going to be widely profitable and very high NPV, or relatively low cost option for the company and we can think that’s going to work really well both on a standalone basis as well as creating value for cable.

Michelle next question please.

Your next question comes from Brett Feldman from Goldman Sachs. Your line is open.

Hi, thanks. Another wireless question. You were talking about your interest in the CBRS spectrum some of which will be available on a license basis. I'm curious if that's your desire to actually use and own the license spectrum because actual case is obviously you have to show up in dollars to gain access to it. So do you anticipate that that could be significant enough of an outlay that it might disrupt your capital returns program? And then obviously a follow-up is, if you are going to gain access to more spectrums you have to build it out. How does that factor into your outlook for material improvement in your CapEx going forward? Thanks.

So Brett. First of all we don’t think that spectrum will be auctioned until 2020. And so from a timing perspective that's probably the case. And one of the nice things about the way that auction will work is that it will be done on a county-by-county basis which we’re pleased to see so that in terms of the need for that spectrum, the ability to bid on it in footprints that make sense to us as conventional cable operators, makes a lot of sense. That said there's also a free spectrum available to us. And yes there would be capital, there would be cost if you’ve got spectrum and there would be capital associated with it. And back to Craig's question, it's really a question about if you had an MVNO business and had a certain cost level and you had a technological solution that was more efficient than that, gave you a return so to speak because you had less MVNO cost as a result of putting the capital out. That would be a good business opportunity. And so when we evaluate whether we want to buy spectrum or whether we want to put capital or put radios and CBRS, our strand or however, we want to do the deployment or physically by some location we would look at the traffic and the cost of the MVNO and say to ourselves what would the capital do from a cost perspective. If it is more efficient to spend the capital and reduce our expenditures on the MVNO, that would be good return on investment. So we will look at that as it comes up.

Thanks, Brett. Michelle, we have time for one last question.

Okay. So your final question will come from John Hodulik from UBS. Your line is open.

First, you guys have been helpful talking about the decline in capital intensity we should see as we sort of come out of this integration tunnel. And then on the call here, I think the focus has been more on sort of the revenue impact. But if we could just talk a little bit about the margin side. You have seen some margin improvement but you still trail Comcast by about 300 bps. Should we see a corresponding sort of improving trend in terms of margin increases as we get through this integration cycle because we talked about the OpEx spending that goes along with all-digital and sort of duplicative cost. So if you could give us a little bit more color there, it’s not as evident as it is in the sort of the CapEx line? And then over on the business side, Chris, your comments talking about the improving revenue trends as we start annualizing some of these -- the repricing of the Time Warner cable business segment. And I think you mentioned Navisite and cell backhaul there as playing a role in the deceleration we saw this year. Can you just give us a little color on sort of what's happening there and sort of how it looks coming out of this repricing?

So I'll start John, with cost to serve and margin. As we come out of the integration we pick up -- we do -- our margins -- well all other things being equal, our margins would improve as a result of the fact that our churn is going to go down. And the reason our churn is going to go down is because our service is actually better. We are not visiting customers and creating more transactions that are necessary, our repeat service call activity will go down, which means that there are less physical transactions per dollar revenue or per customer relationship. If our churn goes down because our products work better and our relationship with our customer is better and more satisfying, the product mix is correct the pricing and packaging is correct, then our churn goes down because the satisfaction goes up. That means that for the same dollar of revenue with a lower churn rate or the same customer account with the lower churn rate you have a less connects and less disconnects which means you have less activity which means you have lower cost. So we have expectations that we will have significant reductions on cost to serve. And obviously going forward technological change too and the way we’ve put the company together from a scale perspective and our service infrastructure from a scale perspective, our ability to handle more customers more efficiently gets better through time. So, we expect that we will be able to generate faster EBITDA growth tan revenue growth as a result of the satisfaction that we create through the asset deployments that we've done over the last couple of years.

Not just in 2019 improvement but that carries through.

It’s multiple years, yes.

John the question regarding enterprise, so rough order of magnitude that’s $3.5 billion business and well over $600 million of it is cell backhaul and Navisite, which are flattish. That’s the only point that we’re bringing out that. So there is a portion of it which naturally isn’t growing at the same pace as the rest of the business and the remainder is growing faster from a relationship standpoint 15% PSU growth. But the same thing that we have done in residential, that we’ve done at SMB, really past year we’ve been going to market in more aggressive way on pricing, around whether it's fiber Internet access or Ethernet or Metro Ethernet or voice. We’ve been more aggressive in the marketplace to grow and to try to compete and accelerate growth, which is worth. But we're doing that not only with better service but better pricing and that has an impact on your revenue growth rate as the existing base comes out of contract and there’s new pricing and packaging on enterprise. So same story, just a little later start and it’s going to be more prolonged or slow in terms of where it bottoms out and returns to growth just given the nature of the contracts that exist in enterprise.

So there is another thing I would say about revenue growth, so just to finish that off is that we’re selling in -- we're going to be selling in mobile which does have a higher revenue component to it in packaging going forward and the consumer from a total cost to them perspective will be getting savings. So we think that’s pretty interesting opportunity overall for us.

Thanks a lot, John. Mitchell, that concludes our call.

Alright. Thanks, everyone.

This concludes today’s conference call. Thank you for your participation and you may now disconnect.