Chapter 3

Cash Conversion

Charter turns a high share of its earnings into cash, but the rate has swung with its build cycle: free cash flow ran to 42% of Adjusted EBITDA in 2021, fell to 16% in 2023 as capital spending peaked, and has recovered to 22% in 2025. Two forces now pull in opposite directions — a capital programme rolling off toward a sub-$8 billion run-rate, and a 5.1%-average debt stack that reprices near 7%. Through 2030 the capex relief is the larger force.

Sources: FY2025 Form 10-K, Adjusted EBITDA and free-cash-flow reconciliation [1]; Q1 2026 earnings call, cash-interest run-rate [2].

The Business and Balance Sheet chapter established the destination — roughly $94.6 billion of debt against listed equity worth about a seventh of enterprise value — and The Broadband Base tested whether the largest revenue line still grows. This chapter sits between them: it follows each dollar of Adjusted EBITDA to the cash that is actually left for debt reduction and shareholders, and asks what happens to that cash as the two capital-cycle forces play out.

How EBITDA becomes cash

Charter's reported free cash flow is a narrow figure: net cash from operating activities, less capital expenditures and the change in accrued capital costs [3]. In 2025 that produced $5,004 million from $22,708 million of Adjusted EBITDA — about 22 cents on the EBITDA dollar [4]. The two claims that consume the rest are visible in the multi-year record: capital expenditure and cash interest.

Sources: FY2025 Form 10-K [5]; FY2023 Form 10-K [6]; FY2021 Form 10-K [7].

The shape tells the story the headline number hides. Adjusted EBITDA barely moved across five years — $20.6 billion in 2021 to $22.7 billion in 2025 [8] [9] — while free cash flow more than halved from $8.68 billion to a $3.49 billion trough in 2023 and back to $5.00 billion [10] [11]. The swing was almost entirely capital expenditure, which rose from $7.6 billion to $11.7 billion over the same period [12] [13]. Charter's free cash flow, in other words, is a leveraged read on its build cycle: with EBITDA flat, the direction of capex sets the direction of cash.

One quality note on the 2025 recovery. Free cash flow rose $747 million year on year, but only $139 million of that came from higher Adjusted EBITDA; the larger contributors were a $669 million decline in cash taxes — driven by the July 2025 One Big Beautiful Bill Act restoring 100% bonus depreciation — and $398 million of favourable mobile-device working capital, partly offset by higher capital expenditure [14]. Cash taxes fell to under $900 million in 2025 and are guided to $500–800 million in 2026 [15]. Bonus depreciation is a timing benefit that reverses as the asset base matures, so part of the 2025 conversion improvement is borrowed from later years rather than earned operationally.

The capex cliff

The capital cycle is the larger of the two forces, and its direction is about to invert. Capital expenditure is guided to approximately $11.4 billion in 2026, still elevated by the network-evolution upgrade and the subsidised rural build [16]. Management states that once those programmes conclude, run-rate capital expenditure falls below $8 billion a year, which it expects to reach by 2028 [17].

Sources: FY2025 Form 10-K, actuals [18]; Q1 2026 results, 2026 guidance [19]; Q4 2025 call, sub-$8 billion run-rate (2028e is management's own approximate mid-point) [20].

Management frames the size of that step directly: the reduction from about $11.7 billion in 2025 to under $8 billion in 2028, on the current share count, is worth more than $28 of free cash flow per share [21]. That is a real and large number — roughly $3.7 billion of gross annual free cash flow against the roughly $5.0 billion the company generated in all of 2025. It is also a gross figure, and two partial offsets sit against it. Cash taxes normalise upward as the bonus-depreciation benefit unwinds, and — the second force — cash interest reprices higher as the debt stack rolls over. The net uplift is smaller than the headline $28, but on the current arithmetic it remains clearly positive through the back half of the decade.

The interest ramp

Charter's debt is where the market's anxiety concentrates, and the concern is prospective rather than present. Net interest expense has not been climbing: it was $5,042 million in 2025, below $5,229 million in 2024, and cash paid for interest actually fell to $4,983 million from $5,334 million [22] [23]. The blended weighted-average rate on the whole stack was about 5.1% at end-2025, and roughly 87% of principal was fixed [24]. The fixed portion carries an average coupon of 5.07% — and the market marks it at a discount, valuing $82.7 billion of fixed-rate principal at $73.7 billion of fair value [25]. That roughly 11% discount is the market saying, in price, that Charter's cost of new debt now sits well above its legacy coupons.

The repricing is already visible at the margin. In September 2025 Charter issued 5.850% notes due 2035 and 6.700% notes due 2055; in January 2026 it issued 7.000% notes due 2033 and 7.375% notes due 2036, both at par, and used the proceeds partly to call 5.500% notes due 2026 and 5.125% notes due 2027 [26]. Each dollar rolled from the low-5% coupons into the new 7%-plus paper adds roughly 175 to 225 basis points of cash interest. The question is how fast that happens.

Source: FY2025 Form 10-K, Note 9 debt maturities [27].

The ladder is the answer. Only $1.06 billion of principal falls due in 2026, and cumulative maturities through 2030 total about $31 billion — a third of the $94.6 billion stack; the remaining $63.5 billion matures after 2030 [28]. If that $31 billion reprices from roughly 5% to 7% by 2030 and rates hold there, the added cash interest is on the order of $0.6 billion a year — meaningful, but roughly one-sixth of the $3.7 billion capex tailwind arriving over the same window. The full repricing exposure is real, but it is a long-tail event: the bulk of it lands in the 2030s, not the thesis window. Management's own shorthand — a weighted cost of debt "at an attractive 5.2%" and cash interest running at $4.9 billion — reflects a stack that reprices slowly because it is long-dated and mostly fixed [29].

Where the cash goes

A rising free-cash-flow figure only reduces the $94.6 billion debt if it is used to. It has not been. In 2025 Charter spent $5,132 million on treasury-stock purchases — slightly more than its $5,004 million of free cash flow — while gross borrowings of $15,485 million against $14,797 million of repayments left total debt principal roughly flat [30]. Deleveraging to date has therefore come from EBITDA inching up against a stable debt balance, not from paying debt down.

Sources: repurchases and cash flows from the FY2021 [31], FY2023 [32] and FY2025 [33] Forms 10-K.

That posture is now shifting under shareholder pressure. Charter had run a 4.0–4.5x leverage target; when it announced the Cox transaction it committed to the midpoint of a 3.5–4.0x range, and on the Q4 2025 call it moved the post-transaction target to the low end of a new 3.5–3.75x band, citing shareholders' "preference for less leverage during a lower growth period" and a capacity to cut leverage by up to half a turn a year [34]. Net debt to trailing Adjusted EBITDA stood at 4.15x at March 2026 [35]. The same call kept the commitment to "significant ongoing capital returns to shareholders," so the coming free-cash-flow inflection has to fund debt reduction and buybacks from one pool — which bounds the pace of either [36].

Management is unusually candid about what the market is pricing. On the Q4 2025 call it described the task as overcoming "the perception of negative perpetuity growth implied in our valuation today" [37]; on the Q1 2026 call it argued that substituting the 2028 capex run-rate into consensus 2026 free cash flow would imply a free-cash-flow multiple of about 3.8x and a yield above 25% [38]. That is management's bull case stated in its own numbers; it rests on holding Adjusted EBITDA roughly flat while capex falls, which is exactly the assumption The Broadband Base put in question. It also predates the pro-forma share count: the Cox and Liberty Broadband transactions lift the standalone count to about 179 million shares, so per-share cash-flow gains are diluted before they arrive [39].

The evidence supports a measured read: the cash-conversion inflection is real and large enough to be the strongest structural support for the investment case, and the debt-repricing headwind is genuine but slow enough not to swamp it before 2030. The main risk to that read is not the coupon on the debt — it is the denominator. If Adjusted EBITDA does not hold, a falling capex line converts a shrinking business into cash more efficiently without changing that it is shrinking. What would change the read in the company's favour is Adjusted EBITDA re-accelerating, or free cash flow visibly directed to retiring principal rather than to buybacks; what would change it against is long rates staying near 7% into the 2030s as the $63.5 billion long-dated tranche comes due.