Cash Conversion

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. The build cycle is now inverting, and two forces pull the resulting cash in opposite directions — the capital programme rolling off, and the debt stack repricing as it matures — with the first much the larger through 2030. Charter's guided capex fall from about $11.7 billion in 2025 toward a sub-$8 billion run-rate frees roughly $3.7-3.9 billion of gross annual free cash flow while only about $31 billion of the $94.6 billion debt stack — a third, 87% of it fixed at 5.07% — matures through 2030, so repricing that tranche adds only about $0.6 billion of interest; but the 2025 free-cash-flow gain leaned on a $669 million cash-tax decrease from restored 100% bonus depreciation, a shield that shrinks as the capital budget itself falls, so cash taxes normalise upward against the capex benefit. [1] [2] [3] [4] [5] [6]

Netted against the gross figure, the uplift is materially smaller than the headline capex cut. Management frames the 2025-to-2028 reduction as more than $28 of free cash flow per share on the current count [7], and the gross relief is roughly $3.7 billion against the $5.0 billion Charter generated in all of 2025. But the 2025 conversion gain was mostly non-operating — of the $747 million free-cash-flow rise, only $139 million came from higher Adjusted EBITDA [8] — and as the bonus-depreciation shield unwinds, cash taxes normalise upward by an estimated $1.0 to $1.5 billion while repricing adds about $0.6 billion, so the net uplift runs well below the gross. The relief still clearly outweighs the repricing through 2030 — roughly six times the incremental interest — but it converts a business whose Adjusted EBITDA has been flat for five years, so the cash grows faster than the franchise beneath it.

Sources: FY2025 Form 10-K, Adjusted EBITDA and free-cash-flow reconciliation [9]; Q1 2026 earnings call, cash-interest run-rate [10].

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 capital cycle turns.

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 [11]. In 2025 that produced $5,004 million from $22,708 million of Adjusted EBITDA — about 22 cents on the EBITDA dollar [12]. The two claims that consume the rest are visible in the multi-year record: capital expenditure and cash interest.

Sources: FY2025 Form 10-K [13]; FY2023 Form 10-K [14]; FY2021 Form 10-K [15].

Adjusted EBITDA barely moved across five years — $20.6 billion in 2021 to $22.7 billion in 2025 [16] [17] — 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 [18] [19]. The swing was almost entirely capital expenditure, which rose from $7.6 billion to $11.7 billion over the same period [20] [21]. 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.

The 2025 recovery leaned on non-operating items. Of the $747 million free-cash-flow rise, 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 [22]. Cash taxes fell to under $900 million in 2025 and are guided to $500–800 million in 2026 [23]. 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's 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 [24]. Management states that once those programmes conclude, run-rate capital expenditure falls below $8 billion a year, which it expects to reach by 2028 [25].

Sources: FY2025 Form 10-K, actuals [26]; Q1 2026 results, 2026 guidance [27]; Q4 2025 call, sub-$8 billion run-rate (2028e is management's own approximate mid-point) [28].

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 fell to $4,983 million from $5,334 million [29] [30]. The stack is long-dated and about 87% fixed at low coupons [31]; its full maturity ladder, fixed-rate book and fair-value discount are set out in Business and Balance Sheet. What matters for cash conversion is how fast that book reprices.

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 [32]. 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 maturities are back-loaded, so the exposure arrives slowly. Only $1.06 billion of principal falls due in 2026, and cumulative maturities through 2030 total about $31 billion — a third of the stack — with the remaining $63.5 billion maturing after 2030 [33]. 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 — about one-sixth of the $3.7 billion capex tailwind arriving over the same window. The bulk of the repricing exposure 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 [34].

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 [35]. 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 [36], FY2023 [37] and FY2025 [38] 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 [39]. Net debt to trailing Adjusted EBITDA stood at 4.15x at March 2026 [40]. 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 [41].

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" [42]; 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% [43]. 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 (The Cox Combination), so per-share cash-flow gains are diluted before they arrive [44].

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 read is most sensitive to Adjusted EBITDA, not to the coupon on the debt: if 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.