Charter Adds Pay TV, Broadband Subs, Expects Sports Rebates

Charter CEO Tom Rutledge
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Charter CEO Tom Rutledge

The cable giant, led by CEO Tom Rutledge, who has extended his contract with the firm through 2024, mentions an estimated $218 million in credits for video customers due to "expected rebates from sports programming networks, which result from fewer games broadcast during COVID-19."

Cable operator Charter Communications, in which John Malone's Liberty Broadband owns a big stake, on Friday reported that it grew its pay TV subscribers in the third quarter as broadband user growth amid the coronavirus pandemic once again drove its results.

The company also mentioned planned rebates for customers due to sports programming affected by the coronavirus pandemic. It mentioned "$218 million of estimated credits to be provided to Charter's video customers upon finalization of expected rebates from sports programming networks, which result from fewer games broadcast during COVID-19."

Management has in the past said it would like to provide such rebates to subscribers. Full details on the rebates weren't immediately available.

"Our long-term strategy of growing customer relationships by delivering high-quality products and service remains on track," said Charter chairman and CEO Tom Rutledge in the earnimgs update before on the earnings conference call citing the "significant challenges"of the pandemic. "We've added two million customer relationships in the past year and remain focused on executing a proven operating and investment strategy that works for customers, employees, and the communities we serve, creating shareholder value for the long term."

Charter also disclosed, in a Friday regulatory filing, a contract extension for Rutledge through the end of 2024. His previous contract ran through early 2021. According to the filing, he will receive an annual base salary of at least $2.5 million, with a target annual cash bonus opportunity of 300 percent of his salary. On Nov. 3, he will also be granted an award of stock options with a fair value of $30 million. Plus, in each of the 2021 through 2024 calendar years, "he will be eligible to receive annual grants of stock options with a grant date fair value of $30 million, generally subject to his continued service as chief executive officer."

Charter added 53,000 residential pay TV subscribers in the third quarter, compared with a loss of 77,000 in the year-ago period. Including small-and medium-sized business clients, it added 67,000 customers, a swing from a year-ago loss of 75,000. It was the second quarter of gains in a a row. As of the end of September, Charter had 15.7 million residential and more than 16.2 million total video customers.

Charter's broadband business once again led the growth charge in the latest quarter as the firm recorded 494,000 residential internet subscriber net additions, up from 351,000 in the year-ago period. Including small- and medium-sized business clients, the total gain of 537,000 compared with 380,000 in the year-ago period. "Over the last 12 months, total Internet customers grew by 2.3 million, or 8.8 percent, to 28.6 million," the company said.

Its mobile business also continued to grow. Charter added 363,000 mobile lines in the third quarter, up from 276,000 during the year-ago period. As of Sept. 30, it served a total of 2.1 million mobile lines.

Analysts lauded the customer momentum. "Residential internet net adds increased by 492,000, well ahead of consensus expectations (367,000) and even our higher figure (450,000)," Bernstein's Peter Supino said in a note to investors. "Total residential video net adds of 53,000 were positive for the second quarter in a row and far better than expectations (-200,000)."

Asked about the two quarters of video subscriber growth in a row, Rutledge said on the earnings call that the overall video market place has not changed, with "fat bundles" of video remaining under pressure. Overall, "we are just growing faster than that erosion," he said. He later added: "We are actually optimistic in the very long term on our video business," adding the firm has an opportunity to sell "a variety of video services to consumers in different formats" in addition to the traditional "rich packages," which he expects people will "continue to buy for years to come."

The company's third-quarter earnings reached $814 million, compared with $387 million in the year-ago period. Adjusted earnings before interest, taxes, depreciation and amortization, another profitability metric, rose 13.6 percent to $4.6 billion. Quarterly revenue increased by 5.1 percent to $12.0 billion, which came in slightly behind Wall Street expectations.

"Residential revenue totaled $9.4 billion in the third quarter, an increase of 4.0 percent year-over-year" despite the $218 million in "estimated credits to be provided to Charter's video customers upon finalization of expected rebates from sports programming networks, which result from fewer games broadcast during COVID-19," the firm said.

On the earnings call, Rutledge said Charter's advertising business is "improving," with its core ad business, excluding political, "about 90 percent back to normal" after a pandemic slump thanks in part to the return of sports. Political ads will be a "meaningful" contributor in the current fourth quarter, he said.

Charter's stock rose in early Friday trading despite a broader market slump. As of 9:35 a.m. ET, the stock was up 4.8 percent at $603.64.