Q2 2024 Earnings: Charter Communications and Tradeweb Markets Navigate Challenges and Growth

Charter Communications, Inc. (CHTR) Q2 2024 Earnings Call Transcript

Stefan Anninger - Vice President of Investor Relations Chris Winfrey - President and Chief Executive Officer Jessica Fischer - Chief Financial Officer Hello. And welcome to Charter Communications' Second Quarter Investor Call. We ask that you please hold all questions until the completion of the formal remarks, at which time you'll be given instructions for the question-and-answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I will now turn the call over to Stefan Anninger. Stefan Anninger Thanks, operator, and welcome, everyone. The presentation that accompanies this call can be found on our website, ir.charter.com. I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, which we encourage you to read carefully. Various remarks that we make on this call concerning expectations, predictions, plans, and prospects constitute forward-looking statements, which 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. On today's call, we have Chris Winfrey, our President and CEO, and Jessica Fischer, our CFO. Thanks, Stefan. During the second quarter, we lost 149 ,000 internet customers, most of which was driven by the end of the Affordable Connectivity Program. We added over 550,000 Spectrum Mobile lines and close to 2.2 million lines year-over-year. Revenue was up slightly in the quarter, while adjusted EBITDA grew by 2.6%. We put a lot of effort into the ACP program, and it wasn't renewed. Beginning early this year, we've been actively working with customers to preserve their connectivity. Our service and retention teams are handling the volume of calls well, and we've retained the vast majority of ACP customers so far. The real question is customers' ability to pay, not just now, but over time. I expect we'll have a better view of the total ACP impact once we're inside the fourth quarter. The lack of ACP will also drive higher levels of market churn and selling opportunities for connectivity services over time. Turning back to today's results, the second quarter already tends to be a seasonally weak quarter. The loss of ACP impacted both churn and low-income broadband connects, helping drive the Mobile-only broadband category back to pre-pandemic levels. That shift added to an already low level of move activity and overall market connect volume. That said, we performed better than our expectations for Internet in a quarter, and we competed well compared to previous quarters against both wireline overbuild and cell phone Internet, each with expanded footprints. Overall churn remains at low levels, even with the end of the ACP program, and we remain confident in our ability to return to healthy, long-term growth. Our Internet product is faster and more reliable. Our pricing is lower when similarly bundled with mobile. We expect market activity and selling opportunities to pick up over time, and the cell phone companies will face challenges. as a customer bandwidth demands continue to grow. If we take a step back, our success will be premised on our high capacity, fully deployed network and the products it can deliver. We already have a one gigabit network everywhere we operate across 58 million passings. And when our network evolution initiatives complete, we'll have a ubiquitous, symmetrical, multi-gig capable network supporting continued growth in data demand from customers and new applications such as AR, VR and AI. All at an incremental investment of just a $100 per passing. Those wireline network capabilities are combined with mobile capabilities everywhere we operate, creating the nation's first converged network. Uniquely providing seamless connectivity and the fastest mobile service where 87% of traffic is delivered by our own gigabit capable WiFi network. And our converged connectivity product set is poised to get better through speed upgrades and over 43 million access points, which will grow with our own and our partner's ongoing WiFi router and CBRS access point deployment. That converged network is also expanding, covering more passings as we grow our footprint with high ROI construction opportunities in both rural and non-rural areas. As we show on slide 4 of today's investor presentation, we are very well positioned competitively with higher quality products, lower pricing, and the ability to deliver a converged bundle of products. In Internet, data usage continues to grow and demand for faster speeds will grow with it. During the second quarter, roughly 30% of residential internet customers who do not buy traditional video from us, used over a terabyte of data per month, which together with overall usage is increasing. This quarter, we saw the most additions to our gig speed tier ever, an area we can grow. Our mobile offering continues to evolve, driving strong results. Our second quarter mobile line Net Ad performance was better than the first quarter results, even without the incremental benefit of our free mobile retention offer to former ACP customers. And we also had our highest port ends quarter ever. In April, we began offering Anytime Upgrade to new and existing Unlimited Plus customers. Anytime Upgrade allows Unlimited Plus customers to upgrade their phones whenever they want, eliminating traditional wait times, upgrade fees, and condition requirements. And during the second quarter, customers increasingly chose our Unlimited Plus package priced at $40 versus $30. In April, we also launched a new repair and replacement plan for just $5 per month. That price point is very competitive in driving higher take rates. These new affordable value-added services enhance our profitable growth and competitively open access to new customer segments. Along those lines, in May, we launched our new phone balance buyout program. Now when a customer switches to the Spectrum Mobile from another provider and purchases at least three lines, we'll pay off their existing phone balance on ported lines up to $2,500 for five lines. This new program helps multiline mobile customer prospects with device balances and other providers to more easily switch to Spectrum Mobile. And of course, Spectrum One continues to perform well at both Connect and at promotional roll-off, offering the fastest connectivity with differentiated features. Today, approximately 8% of our total passings take our converged offering of internet and mobile. We've remained underpenetrated despite having a differentiated and superior offering with market -leading pricing at promotion and at retail. Finally, turning to video, losses continued in video where we've seen downgrade churn from programmer rate increases, we passed through. The loss of ACP in the second quarter also impacted video downgrades as customers made choices based on affordability. Over the last several years, due to margin pressure from programming increases, we've moved away from selling bundles with traditional discounts. But as we look to better differentiate ourselves in a competitive marketplace, we are considering ways to better leverage our unique capabilities across our full set of products, including video, particularly now that we're adding significant value back into the video product for consumers with hybrid linear DTC bundles, more economical package choices, and with our Xumo Box. In May, we reached a new agreement with Paramount that gives us the ability to offer the ad-supported versions of Paramount's direct-to-consumer services, Paramount Plus and VET Plus, to our traditional cable package customers at no additional cost. We plan to launch the Paramount DTC inclusion offer to our customers around Labor Day. Earlier this month, ViX, the leading Spanish language DTC product from TelevisaUnivision became available to a large number of customers with eligible spectrum video packages at no extra cost. We launched Disney Plus Basic to TV Select customers as a DTC inclusion in January, and will begin to offer Disney Plus Premium to add free version of Disney Plus to customers as a $6 upgrade later this quarter. We also have planned to offer Hulu to our TV Select customers at the incremental retail price for Disney's duo basic bundle $2 in the fourth quarter. So our efforts to deploy a new hybrid DTC linear model first for the industry remain on track and we expect it to be fully deployed next year. Together with Xumo our goal is to deliver utility and value for our customers irrespective of how they want to view content and better and more stable economics for programming partners. But the associated DTCs have to be part of the full package service. Customers can't be forced to pay twice and if the DTC standalone pricing is less expensive at retail, then that's what we really should help programmers sell instead. Fundamentally, we believe that evolving the video business even if it isn't growing helps customer acquisition of retention, still has positive cash flow, it provides us with option value. And over time, we believe a high quality video product gives us the opportunity to reintroduce more value into the converged connectivity relationship. So stepping back, we're executing well on many multiyear transformational programs. We're growing EBITDA despite the loss of ACP and a competitive cycle by driving efficiency without impacting our service and sales capabilities. We remain fully focused on driving growth using our unique set of scaled assets and the highest quality products and services in order to create long-term value for shareholders. With that, I'll turn the call over to Jessica. Jessica Fischer Thanks, Chris. Let's turn to our customer results on slide 6. Including residential and SMB, we lost 149,000 Internet customers in the second quarter. While in Mobile, we added 557,000 mobile lines. Video customers declined by 408,000 and wireline voice customers declined by 280,000. As Chris mentioned, our second quarter Internet losses were primarily driven by the end of the ACP program. ACP program connects ended in early February. In May, the program's original $30 subsidy was reduced to $14. And in June, that subsidy was reduced to zero. We estimate that the end of the program's impact on our second quarter internet gross additions and churn drove over 100,000 of our 149,000 internet losses in the quarter. And from a financial perspective, there was an approximately $30 million headwind to second quarter revenue from onetime non-recurring ACP related items in the quarter. In addition, similar to the end of the Keep Americans Connected program in June 2020, many of our ACP customers had past due balances that had been fully reserved for accounting purposes. We took steps to eliminate a portion of those back balances for certain customers and put a portion of their remaining balances on payment plans. For certain customers with a low likelihood to pay post ACP, we have been recognizing revenue on a cash basis, resulting in slightly less revenue and less bad debt in the second quarter than we would have otherwise had. So far, we are performing well with ACP retention, but the largest driver of Internet customer losses associated with the end of the ACP program will be in non-pay disconnects, and they will occur in the third and fourth quarters, likely weighted to the third. We continue to do everything we can to preserve connectivity for former ACP subsidy recipients. We have a number of products and offers to assist those that have lost their ACP subsidy, including our Spectrum Internet Assist program, our Internet 100 products, and we've been offering all of our ACP customers a free mobile line for one year. And we continue to market offers targeted at low income customers, a segment that we have historically served well. Turning to rural, we ended the quarter with 582,000 subsidized rural passings. We grew those passings by 89,000 in the second quarter and by 345,000 over the last 12 months. We had 36,000 net customer additions in our subsidized rural footprint in the quarter. We continue to expect to activate approximately 450,000 new subsidized rural passings in 2023, about 50% more than 2023. We also continue to expect our RDOF build to be completed by the end of 2026, two years ahead of schedule. Moving to second quarter financial results starting on slide 7. Over the last year, Residential customers declined by 1.3%. Residential revenue per customer relationship grew by 0.4% year-over-year, given promotional rate step-ups, rate adjustments, and the growth of Spectrum Mobile, partly offset by a higher mix of non-video customers, growth of lower-priced video packages within our base, and some internet ARPU compression related to retention offers extended to customers that previously received an ACP subsidy. As slide 7 shows, in total, Residential revenue declined by 0.6% year-over-year. Turning to commercial, SMB revenue grew by 0.6% year-over-year, reflecting SMB customer growth of 0.2% year-over-year and higher monthly SMB revenue per SMB customer, primarily due to rate adjustment. Enterprise revenue grew 4.5% year-over-year, driven by enterprise PSU growth of 6.1% year-over-year. And when excluding all wholesale revenue, enterprise grew by 5.9%. Second quarter advertising revenue grew by 3.3% year-over-year, given political revenue growth. Core ad revenue was down about 2% year-over-year. Other revenue grew by 6% year-over-year, primarily driven by higher mobile device sales. And in total, consolidated second quarter revenue was up 0.2% year-over-year and 0.1% year-over-year when excluding advertising revenue. Moving to operating expenses and adjusted EBITDA on slide 8, in the second quarter, total operating expenses declined by 1.4% year-over-year. Programming costs declined by 9.8% year-over-year due to a 9.5% decline in video customers year-over-year and a higher mix of lighter video packages, partly offset by higher programming rates. Other costs of revenue increased by 12.6%, primarily driven by mobile service direct costs and higher mobile device sales. Cost-to-service customers declined 4.2% year-over-year given productivity from our 10-year investments, including lower labor costs and lower bad debt expense, as we saw some favorability and our mobile bad debt as a portion of revenue due to an improved customer tenure and credit profile. And, as I mentioned earlier, a portion of our uncollectible billings offset revenue in the quarter. Sales and marketing costs grew by 1.9% as we remain focused on driving customer acquisition. Finally, other expense grew by 4.7%, mostly driven by an insurance expense benefit from the prior year quarter. Adjusted EBITDA grew by 2.6% year-over-year in the quarter, and when excluding advertising, EBITDA grew by 2.4% year-over-year. While we don't manage the business at a single product line P&L level, we continue to compute allocations internally, and this quarter, for the first time, our standalone mobile adjusted EBITDA was positive, even when including the headwind of subscriber acquisition costs and without the benefit of GAAP revenue allocation to mobile revenue. Our mobile profitability this quarter marks a significant milestone. It shows that we're on the path to establishing a mobile business that is very profitable. Overall, our goal is to deliver solid EBITDA growth, and we believe we can continue to do that even as we make significant investments in the business and face a challenging competitive environment and the end of the ACP program. Our expense management process is working with growing realization of impacts in the second quarter. We continue to expect accelerating EBITDA growth in the back half of the year, given our expense management initiatives, Spectrum 1 promotional roll-off, and political advertising revenue. Turning to net income on slide 9, we generated $1.2 billion of net income attributable to Charter shareholders in the second quarter, in line with last year, as higher adjusted EBITDA was mostly offset by higher other operating expense, primarily due to restructuring and severance costs and net amounts of litigation settlements. Turning to slide 10, capital expenditures totaled $2.85 billion in the second quarter, in line with last year's second quarter spend. Line extension spend totaled $1.1 billion, $37 million higher than last year, driven by our subsidized rural construction initiative and continued network expansion across residential and commercial green sales and market fill-in opportunity. Second quarter capital expenditures, excluding line extensions, totaled $1.7 billion, which was similar to the prior year period. For the full year 2024, we now expect capital expenditures to total approximately $12 billion, down from between $12.2 billion and $12.4 billion previously. Our reduced outlook for 2024 capital spending reflects lower internet and video customer net additions, including the impact of the end of the ACP program, which drives lower CPE costs. We're also actively managing vendor rates and construction materials to make our capital expenditures more efficient. We still expect line extension spend of approximately $4.5 billion, and network evolution spend of approximately $1.6 billion. Turning to free cash flow on slide 11, free cash flow in the second quarter totaled $1.3 billion, an increase of approximately $630 million compared to last year's second quarter. The year-over-year increase was primarily driven by higher adjusted EBITDA, lower cash taxes due to timing, and a favorable change in working capital. On that front, we've been managing the balance sheet to provide us better overall cash flow and increased flexibility. Over the last several quarters, we sold our towers portfolio, which generated almost $400 million in proceeds. We launched our EIP securitization program in the second quarter, which backs a new $1.25 billion credit facility at favorable interest rates. And we've been working with our vendor base to extend our payment terms, utilizing a supply chain financing tool to support our working capital favorability. We will continue to identify and capitalize on balance sheet opportunities to help fund our unique one-time capital investments. We finished the quarter with $96.5 billion in debt principle. Our current rent rate annualized cash interest is $5.1 billion, and we repurchased $1.5 million Charter shares and Charter Holdings common units, totaling $404 million at an average price of $271 per share. Given our long dated and 86% fixed rate debt structure, our sensitivity to higher rates is relatively low. If we refinanced all of our debt due in 2025 and 2026 at current rates, the impact to our rent rate interest expense would be less than $60 million. As of the end of the second quarter, our ratio of net debt to last 12 months adjusted EBITDA moved down to 4.32x. We expect to continue to move closer to the middle of our 4x to 4.5x target leverage range through the end of this year. And we remain fully committed to maintaining our split rated debt structure, including access to the investment grade market, given the significant benefits that it offers to all of our capital providers. We continue to be confident in the long-term trajectory of the business. We have the best products at the best prices in our industry, and we remain under penetrated relative to our long-term potential. That combined with the investments that we're making in the business and our expense savings initiative will continue to drive strong EBITDA growth and value creation for many years to come. And with that, I'll turn it over to the operator for Q&A. Our first question will come from Craig Moffett with MoffettNathanson. Craig Moffett Hi. Thank you. Perhaps no surprise. I'd like to drill down a little bit more on the ACP impacts. A couple of questions. First, to what extent are you seeing ACP showing up in reduced gross editions that is just lower market activity because new customers can't sign up for or ACP customers who are moving can't continue to sign up for the program even before you start to see non-pay disconnects. And then second, what impact is it having on ARPU? You reported 1.7% broadband ARPU the same as last quarter. Had it not been for ACP, could you just tell us what that would have been as you're starting to now lap some of the Spectrum 1 discounts that were included in the numbers in the past? Chris Winfrey Sure. Hey, Craig. I'll take the first one. Jessica can take the second. For ACP, we estimated the impact was well over 100,000 inside the quarter to net editions loss. And for us to say that means that we have a high level of confidence probably higher than that. So half of which was from voluntary churn and the other half was coming from reduced gross editions, as you mentioned, from low income segments that had been connecting at a higher rate at a much lower rate once ACP disappeared. Of course, we saw some of that impact already inside of Q1. And we saw the same inside of Q2. So that's the drivers inside there, about half and half. And it's really the combination of those when I mentioned that we saw a reversion to the pre-pandemic mobile only broadband category where you've seen that category increase, which is taking out volume from the marketplace in terms of a source of acquisition. It's temporary. It's one time in nature. And so as we've spoken about before, it's really about just managing through that one-time impact and trying to make sure that we're doing all the right things for preserving that base, and keeping them connected, which we're doing, but also making sure that we're making the right investments and the right moves for the business as usual underlying growth trajectory. Jessica on the ARPU. Jessica Fischer Yes. So Internet ARPU increased 1.7% year-over-year in the quarter. If you adjusted, Craig, for the $30 million in one-time ACP related items that I mentioned and for the impact of the mobile revenue allocation, that ARPU growth would have been 2.7%. I didn't incorporate the cash basis accounting impact that I mentioned earlier. It's small, and unless those customers do end up paying at a rate that's higher than our expectation, I think it recurs in revenue going forward. But so I think you would have been, but for those two items, that's a 2.7% Stefan Anninger Thanks Craig. Operator, we will take our next question, please. Our next question comes from the line of Sebastiano Petti with JP Morgan. Sebastiano Petti Hi, thanks for taking the question. I think, Chris, in the prepared remarks, you said you competed well against fixed wireless and fiber, even though their footprints are expanding. Given the prevalence of what we're seeing in terms of open access and other host cell provider getting into the mix and increasing the fiber availability, have you seen a demonstrable change in the fiber deployments year-to-date as you think about that insurgent or non-incumbent fiber bill to some extent? And again, just trying to think about that increase in open access and wholesaler, how does it change, if at all, how you're thinking about the competitive environment on a go-forward basis in terms of other converged players or options moving into your footprint? Chris Winfrey Sure. Look, the competitive fiber overbuild has maintained a relatively steady pace. If anything, it's slightly lower than what it had been. And so we don't see any dramatic change there. When I talked about maintaining our competitiveness means having a similar impact, despite the fact that you have an expanding footprint. So you could, if I was being bullish, I would argue that that's an improvement, and as opposed to just staying steady. And so we're competing well, both in the wireline overbuild space, which is more permanent, as well as the cell phone internet space as well. In terms of some of the experiments that you're seeing as it relates to wholesale access and whatnot, it's still a fiber overbuild at the end of the day. And there's still economics that need to be deployed. And those economics are, in my mind, are not very good. They haven't been for decades of the economics of an overbuilder on an existing footprint. So I don't think it, A, dramatically changes the outputs that they can provide because the economics aren't any different, and B, it's really small. What you're talking about that's been done is just a very small percentage of the U.S. footprint. So the ability to project products both from a sales and marketing and service perspective really is impacted by the ubiquitous nature of the technology that you have and the ability to provide those products in the marketplace. And so from our perspective, when we look at it and say, what's unique about us is we have a gigabit network deployed everywhere we operate. In addition to that, we're upgrading that wireline network to have symmetrical and multi-gig speeds everywhere, not just in redline pockets, but everywhere that we operate, and then you combine that with our WiFi and CBRS capabilities and a very strategic relationship that we have with a great partner in Verizon, it gives us the ability to provide seamless connectivity, converged broadband everywhere you go inside of our footprint, and that's unique. The only other operator who has those type of capabilities really is Comcast. And so I think that's the real strategic advantage for us, and it's not because we have that capability in 2%, 3%, or 5% of our footprint. We have it everywhere we operate, and it allows us to be loud in the marketplace, talk about not only the product advantages of having that seamless connectivity, but the ability to save customers hundreds and thousands of dollars really with a better product. And so I don't see anything that's really changed. Other than some of these joint ventures announcements that you've seen, if you really sit back and think about it from both a strategy and from a valuation perspective, I think it's flattering. It tells you the strategic asset that we have. And so if you take a look at the slide that we have on page 4 of the deck today, you think about everything that I said and our capabilities, and then you think about where others are trying to go, many of the MNOs, I do think that's flattering both from a strategic, from an operating and from evaluation perspective of what we have and what we're capable of doing. It has people's attention. Sebastiano Petti And if I could ask a quick follow-up on wireless, it sounds, I think you noted that even excluding the retention offer for the ACP subscribers, mobile lines would have been up. I mean, can you help us think about what you're seeing in terms of just the contract buyout and some of the other offers you have in the market, and does your maybe go-to-market need to evolve at all as we think about obviously fears or concerns about what an upgrade cycle might mean from the Apple iPhone in the back half of the year. Thank you. Chris Winfrey Sure. Well, mobile wasn't just up. What I was saying is it was up quarter-over-quarter. We had a very good first quarter. It was clearly up even more this quarter. And if you excluded the benefit of the ACP mobile only, mobile retention offers, we still would have been better than a very strong first quarter. That reflects just the general momentum that we have, but also, we have evolved the product. And so we've rolled out the Anytime Upgrade Program, which is unique in the market. We have even though it sounds small, it's attractive to customers, service, and repair function that's, I think, competitive. And now with the phone balance buyout program, which is also pretty unique in the marketplace. And all of those rolled out sequentially during the course of the quarter and have continued to improve our selling capabilities along the way. I think that positions us well in any market. We've not been, I think, where you were going, we've not been, we don't intend to be in the business of subsidizing phones. But we do have really good programs that make it attractive for customers to not only come in to be a customer spectrum mobile, but also to stay with us because we have the ability through the Anytime Upgrade Program to really at a low competitive cost, keep them current with their models of phones now and in the future. And stating the obvious, the biggest advantage here beyond just the devices really is the ability to provide a higher quality, faster mobile service, seamless connectivity, and to be able to save them hundreds or thousands of dollars a year. I mean, if you think about our pricing at $30 for unlimited and $40 for unlimited plus on one line and each incremental line, it's really competitive. It's very good. So we're happy with where we are with the product. We will continue to evolve it. I think some of those feature sets that will evolve really include things like mobile speed boost, which ties to the capabilities that we have with WiFi and wireline, and the ability to have spectrum mobile as an SSID. So those of you in the New York and LA markets, for example, what you'll notice is as you travel outside of your home with Spectrum Mobile, an auto-authenticated attachment to Spectrum Mobile SSID, which boosts your speed wherever you go, and it increases your access and your reliability, which is the nature of seamless connectivity. Stefan Anninger Thanks, Sebastiano. Operator, we'll take our next question, please. Our next question comes from the line of Jonathan Chaplin with New Street Research. Jonathan Chaplin Thanks, guys. Two questions. One just on broadband market growth for Chris, and then one on free cash flow for Jessica. Chris, could you give us a little bit more context around the ACP impact from lower gross ads in 1Q? I think you said it was sort of roughly the same as in 2Q, so maybe it was 50,000, but what I'm trying to get to is an understanding of what's going on with underlying growth. It looks like it actually improved for you a little bit sequentially, and so either broadband market growth in aggregate isn't getting any worse, maybe it's getting a little better, or you're just doing better on market share relative to your competitors. And we'd love to understand that a little bit better. And then Jessica, it sounded like from your discussion of working capital that this isn't a timing impact in 2Q. You've changed how you manage working capital, and so you should expect to be able to sort of retain this benefit to free cash flow as we go through the year. I just wanted to confirm that. And then do you have to get all the way back to 4.2x to 4.25x leverage before you would accelerate share repurchases again? Thanks. Chris Winfrey So Jonathan, there's I think a few derivatives inside of your question. And so let me try to give you what you're looking for in the way that we think about it. And inside of the first quarter, we had performed better relative to prior quarters and prior year on competitive switching. And so that was in the marketplace, so available subscriber ads and disconnects. But we saw, as you highlighted as well, once everybody had reported, we saw a significant reduction in the first quarter of this year in the available gross ads, a significant drop year-over-year and that was due to housing starts, rental vacancies, but also the removal of ACP for new connects, all of which driving your version to mobile-only back to pre-pandemic levels. That broadband market growth rate overall we still saw is significantly reduced for all those factors inside of Q1 but a dramatic drop, and so that put our performance in relative light given the overall market backdrop, a lot of which was one time in nature. In Q2, and while it's early because we don't have all the data, I think our evidence shows that for the first time and due to, again, all of the one-time factors and most dramatically the loss of ACP, the broadband market actually shrunk as a one-time event. And so if you put our performance and then our statements about relative competition in context with that, and I think we're doing pretty well. And that was the nature of the comments that I provided in the prepared remarks. I do think that, as I mentioned, moves will come back. It's hard to predict exactly when, but moves will come back, housing starts will return, apartment rental rates will go back up, and most importantly, the most dramatic effect is once you flush out the ACP impact between Q2 and Q3 predominantly, then you'll be able to get back into a much more normalized environment. And I think the product investments that we're making and the attractiveness of the value that we provide puts us in great position for when that volume returns, and we're doing everything we can in the meantime to preserve all the ACP customers doing really well, but at the same time making sure that we're ready to come out in a good light on the back end once the volume does pick back up. Jessica Fischer On the free cash flow side, Jonathan, so I think we had previously talked about working capital for the year, coming back to being in a place that was relatively flat. As I said, we're working on the balance sheet and trying to make sure we can extract appropriate cash from the balance sheet to support what we're doing across the business. I think that we'll probably do better than that sort of flat working capital expectation, but I'm not prepared to say by exactly how much. The variability in working capital has a lot to do with exactly how expense timing and capital timing lands over the course of the year, and so while I think that we'll get good benefits out of just the balance sheet management side, I'm not going to take up the total thoughts that we've had on working capital today. On your other question, sort of how do we think about, I think it was sort of a one and then the other. Do you have to get all the way back to the middle of your range before you accelerate buybacks? I'm in the same place that I was last quarter, which is that I think that we can continue to do buybacks over the course of the rest of the year and still do what we have said that we would do from a leverage perspective. And I don't think of it as do you have to do one and then the other. I'm pretty confident in the trajectory of the business for the second half of the year. And so, I think that we can have sort of good pacing on buybacks and meet what we've said about leverage at the same time. That being said, the capital allocation strategy hasn't changed. We still go after high ROI, organic investment first. We still look then at whether there's a creative M&A opportunity is next. And those come before sort of this balance sheet management and share buybacks that happens as the last set of priorities there. And so, we haven't given a guide around where we think that we'll go in terms of total buybacks. It's because we want to make sure that we maintain that flexibility to do what we think is most important for the business, which is to make the right investments to drive growth of the business going forward. Our next question will come from Ben Swinburne with Morgan Stanley. Benjamin Swinburne Thanks. Good morning. Chris, I believe you guys took some cost action. I don't know if there were headcount reductions this year at Charter, but I know you guys have had a cost plan you've been working on. I'm wondering if you could just talk about what you guys are doing and how you're approaching that. And I think you had suggested you guys weren't going to touch any sort of customer-facing resources. So just give us a sense of where you are on that and your philosophy as you look through the rest of the year and how we might think about that impacting the financials. And then maybe for Jessica, I don't know if you have any visibility at this point into Q3, ACP impact from that 100,000, but if you do, I'd love to hear it. And try to understand the decline in bad debt. I know you touched on it in your prepared remarks. I don't know if that tells us something about your third quarter ACP expectation, or if you still expect cost of service to be flat for the year, we just want a little more color around those trends. Thank you both. Chris Winfrey Hey, Ben. So there's kind of three parts to that, which is, I'll start with the second one you had, is the Q3 ACP. I'll handle that. And Jessica can comment on bad debt and then cost reductions. Jessica can go through and I can tag team there a bit. But from a Q3 ACP outlook, we're not going to be providing any customer net additions guidance today, but for sure there's going to be, as we both mentioned, I think Jessica and I, that there'll be more non-pay disconnect in the third quarter. But there are a lot of other moving parts and we're competing well. I think that maybe the interesting tidbit here is maybe talking a little bit more about recent trends. June was oddly the best loss of the second quarter. And internet net ads trends in July have been similar to what we saw in June. Sounds great. But the reality is the ACP related non-pay disconnect activity hasn't started yet. And we'll know really more about sustainable payment trends than nothing to be scared of today, but sustainable payment trends really through August with the non-pay beginning then and trailing into a little bit into Q4. So when you step back, I know you know this, but ultimately this ACP transitions are onetime event. And so we're very focused on really isolating the ACP impact internally and evaluating not only obviously our performance on retaining those customers because we want to keep them connected. We think it's very valuable and we can, but also what's the underlying trend absent the ACP impact to make sure that we're getting better every day. So Jessica on the ACP does bad debt piece. Jessica Fischer Yes. So if you think about what happened in bad debt in the year-over-year, Ben, there's a few things going on. One really with tenure and credit profile in our mobile customer base that's been improving, particularly for customers that have EIP plans with us. And on the ACP front, we took a lot of bad debt along the way, particularly for customers who entered the ACP program and they had outstanding unpaid balances. And so those have really been reserved throughout the ACP program. I mentioned it in the remarks but there also is a portion of the ACP customer base where we have a very low expectation of payment for them and so instead of taking their revenue into revenue and then taking bad debt expenses and offset, we actually didn't recognize revenue for those customers. So when you see that it means that bad debt expense, I think absent that you might have had -- you would have had more bad debt expense if we had put that back in the other direction. And then the last point I mean we did have overall lower resi revenue in 2Q in the year-over-year and some mixed changes and so with other things being equal that also drives a little bit of downward pressure on bad debt. All of that is to say I wouldn't read anything sort of into what is it that you think about Q3 and looking at what happened with bad debt in the year-over-year, I think there are a number of factors going on there. As you think about then what's happening on the overall cost reduction side which I think was your other question. The expense management process is pretty extensive. While we're not doing anything that will impact our sales or service capabilities, we have things that are big things that are small some short some medium some long-term opportunities all across the business. We've made progress with some vendor cost reductions with reduced spend around discretionary categories like real estate and third-party services, some reductions to overhead expenses and implementing some tools to increase our efficiency and actually I think the benefits from those came a little faster into 2Q than what we had anticipated, but we're already realizing the benefits of some of the changes will continue to build on additional opportunities over time. As you look at the rest of the year, I think we had given some thoughts on our outlook for expenses. We had expected programming costs per video customer to grow in the 1% to 2% range year-over-year. I now expect that to be flattish year-over-year. We previously had said that we expected costs to serve to be flat with 2023. I now expect that to decline by 1% to 2% inclusive of bad debt expense. And in sales to marketing, I think we had said 2% to 3% growth. And at this point, I would expect us to be in the low end of that range, if not a bit below. I also, as an aside, just want to clarify something I said earlier. My comments on working capital. I want to be clear that the comments on working capital are on cable working capital. Mobile continues to have the detriment of the EIP notes. And so those will continue to be a drag, though the securitization plan that we did in the quarter does help that. Chris Winfrey And on the cost if you just take one a different layer of look, the, so Jessica's right, we're doing lots on vendor savings, overheads, organizational effectiveness lower growth environment, all that's true, but just want to make sure everybody understands that the key focus for us in terms of real permanent lasting and accelerating cost reduction is just to be a better service operator. So continue to invest in our frontline, have better tools, process and systems to make the investments that we've made in tenure. And we see that, and so we are having real results from some of the one time and permanent cost reductions, but we're also probably having bigger success on reducing the amount of service calls, reducing our truck roles, increasing the quality of the service that we provide, that's where the money's at. And then when you think about operating leverage, which is a term that you've used before the best way to have a better operating leverage is to have more customers and to have more products per household and have higher revenue. And that way you can, together, being a better service operator and having higher penetration of your products, you actually lower your cost to serve per customer, you lower your cost of capital per customer as well and you become a better cash flow operator. So all of those things still hold true. And it's why, when we talk about expense management, that we talk about really not doing anything that would impact sales or service, because that's the true efficiency opportunity and that's the opportunity to deliver long-term free cash flow and our views on that and our frontline hasn't changed at all. Stefan Anninger Thanks, Ben. Operator, we'll take our next question, please. Our next question will come from Jessica Reif Ehrlich with Bank of America Securities. Jessica Ehrlich Question on video, I guess, can you talk about the take-up of direct-to-consumer in these hybrid linear offers? And you've mentioned a couple that are coming, Paramount Plus and Hulu, is there anything else on the horizon? And then secondly, you mentioned political advertising should pick up in the second half. Given the current political environment, can you give us some color and expectations and if that's increasing? Chris Winfrey Sure. On the first one, Jessica, the DTC take-up is going very well. The first one, I know a lot of people think about Disney deals in September, but we launched I think late in January on Disney Plus Basic and it's going well and it's growing every month. We're adding some additional features into it, which will be helpful to even further accelerate the monthly growth that we see. That includes, as I mentioned, in the prepared remarks, the addition of the Disney Plus Premium as an incremental add-on. That will be coming soon, as well as the Disney Duo Basic bundle of plus $2 for Hulu. So that allows you to have a comprehensive package the same way that exists inside of retail and that's helpful, it was always the design. But there's complexity in terms of implementing all of this, also because some of the authentication principles that vary between different operators in terms of credentials and TV everywhere and whatnot. But it's going well and accelerating, ESPN Plus, I didn't mention that on the call, it's also having very good take-up, it's high value into our RSN packages, it's a small portion of the base, but the penetration is going well. And Paramount Plus will launch soon and ViX we just launched and we've always had Max and so that has existed already within the TV everywhere authenticated universe and our expectation is over the next year or so that we'll have a fully baked set of products which really what we're working towards and the more scale we get there the more effective it's going to be. We're not sitting here saying that we're going to arrest completely the loss of video but I think what we are saying is to the extent we're going to put video on our broadband bill, it better have value and if it doesn't have value to the customer then we'd rather they just go take that through the direct-to-consumer applications and we need to be proud of what we're putting on the bill and that's not where the MVPD space has been in a long time as we see a path to being able to be proud of what we're putting on the broadband bill as a video product that it may be expensive but it has a significant amount of value and using that to drive the converge connectivity relationships. So while it may not be growing it's still really important and I think it can be very valuable to our converge connectivity relationships. In terms of what's up next, we're not going to go give a programming renewal schedule but we're optimistic that this has been adopted both from an understanding that the DTCs really do need to be included as part of the full video package. And that's actually better for programmers because of reduced churn and upsell opportunities into the ad-free versions of these products as well. And that look, at the end of the day, if a customer can go out and get the same product at a cheaper price in the marketplace, I think they should. I don't think we should ask them to pay more through us. And so those are some of the core principles that we've had. I'm not committing, but those are some of the bigger ones. And political advertising it's always, as you know, it's always a jump ball as to exactly where it's going to go. And it's evaluated on a state-by-state basis. And so you can't really say that it's an -- it's the same nationally everywhere. So it depends on some of the swing states. Admittedly the events of the past week have jumbled what you thought that might look like. And certainly when you take a look at fundraising and the volatility in what could be swing states, it looks like political advertising net-net nationally is going to be higher than what it probably would have been just a 10 days ago. But it doesn't mean it happens necessarily in the right states for us. And so we're keeping an eye on that. And it's nice when it happens, but it's one time in nature. And so that's why we always try to talk about our results with and without the impacts of political advertising. Because what is this year's windfall will be next year's headwind. And we want to make sure everybody's focused on the right thing, which is the underlying growth profile of the subscription business. Which includes the core advertising, which continues to do well with or without political advertising. Stefan Anninger Thanks, Jessica. Operator, we'll take our last question, please. Our final question will come from the line of Peter Cipino with Wolfe Research. Peter Cipino Thanks and good morning. I have an ACP question that looks beyond the third quarter. Arguably, ACP has been history's greatest retention program for broadband operators and you took good advantage of it. Looking beyond the wave of involuntary disconnects in Q3 and not to say 2025, does that retention benefit go away? I mean, certainly it does. And then what needs to step up in its place or should we expect a slightly higher underlying churn rate attributable to those four or five million former ACP subs who go from having essentially no churn to maybe having a normal churn rate? Chris Winfrey Sure. Well, look, once upon a time there wasn't an ACP, but it's been a long time. When you think about, we had the, during the pandemic we had the, we were a big participant in the remote education offer, the Keep Americans Connected, the EBB, which evolved and became the Emergency Broadband Benefit, which evolved and became the ACP. And we've been a significant participant in all of those, as has the industry. I think we all have a lot to be proud of for stepping up and really driving those programs, but they didn't exist before. And broadband is a really important product. And from a charter perspective, we have ways to continue to address that marketplace. Before I go there, you asked about the market level activity. I do think that in an environment where ACP or an equivalent doesn't exist, that by definition you have more customers coming in and out of broadband based on affordability. That's rise up transaction volume, both from a non-pay disconnect, as well as from a gross ad sales perspective. When you have better products and better price, that can work towards your advantage. So it's not all bad from our perspective. And but we also have the ability to, at acquisition and for retention, offer unique products. Our Internet 100 is attractively priced. It's not for everybody, but it's affordable. We also, and you can pair that together with Spectrum One, so the ability to have a free mobile line for the first year, and then that line rolls to $30 after a year. If you think about a typical one-line environment or even in a typical two-line environment, the average cost of a line is over $60. And so even at retail rate of $30, we've built in a savings of $30 per month through taking mobile together with our attractively priced, high-powered broadband product. And that's as much, if not more, than the ACP benefit, which means that if you take our products, we can effectively -- we have the built -in ACP savings available to you when you really take full advantage of our product set. And so that is a product and a combination that didn't fully exist prior to all of these programs. And I think we can, by having a wider availability for low income population of these broadband offers, which we have together with our Spectrum 1 offer combined, I think we can save customers as much if not more than they were they're getting through ACP relative to the past. So I think we're in good position to be able to address the base. But the market activity, for sure, is going to be higher than what has been the past couple of years. Stefan Anninger Thanks, Peter. And that concludes our call. We'll see you next quarter.

Earnings call: Charter Communications navigates ACP end, sees growth By Investing.com

Charter Communications , Inc. (CHTR) reported mixed results in its latest earnings call, facing customer losses in its internet segment but showing resilience with the addition of new mobile lines and growth in adjusted EBITDA. The company is addressing the challenges posed by the end of the Affordable Connectivity Program (ACP) and is optimistic about its long-term growth prospects, driven by its strategy to offer competitive bundles and expand its network. Key Takeaways Company Outlook Bearish Highlights Bullish Highlights Misses Q&A Highlights Charter Communications is navigating through a period of transition following the end of the ACP, which has affected its internet customer base. However, the company's strategic focus on offering competitive product bundles, expanding its network, and growing its mobile and enterprise services highlights its adaptability and commitment to long-term value creation for shareholders. With a solid financial performance and a clear strategy in place, Charter is poised to manage the current challenges while maintaining a trajectory towards growth. InvestingPro Insights Charter Communications, Inc. (CHTR) has demonstrated resilience in its latest earnings report, balancing customer losses in its internet segment with new mobile line additions and EBITDA growth. As the company navigates the post-ACP landscape, several metrics and insights from InvestingPro provide a deeper understanding of its financial health and market position. InvestingPro Data indicates a Market Cap of approximately $58.32 billion, reflecting the company's substantial size within the Media industry. The P/E Ratio stands at 11.47, which, while indicating a valuation that may be considered high relative to near-term earnings growth, also suggests investor confidence in the company's profitability. Adjusted for the last twelve months as of Q1 2024, the P/E Ratio is slightly lower at 9.93, offering a more attractive valuation perspective. An InvestingPro Tip highlights that management has been aggressively buying back shares, which could be a signal of the company's belief in its own undervaluation or a strategic move to enhance shareholder value. Another tip to consider is that analysts have revised their earnings downwards for the upcoming period, which may warrant caution for investors looking at the near-term outlook. For those interested in gaining more insights, there are additional InvestingPro Tips available for Charter Communications, which can be found at https://www.investing.com/pro/CHTR. These tips can provide investors with a more nuanced view of the company's financials, strategy, and market performance. To access these valuable insights, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. In summary, Charter Communications is a prominent player in the Media industry, with a strong return over the last three months and a profitable track record over the last twelve months. The company's strategic initiatives and financial metrics present a mixed picture, with both challenges and opportunities ahead. Full transcript - Charter Communications Inc (NASDAQ:CHTR) Q2 2024: Operator: Hello. And welcome to Charter Communications' Second Quarter Investor Call. We ask that you please hold all questions until the completion of the formal remarks, at which time you'll be given instructions for the question-and-answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I will now turn the call over to Stefan Anninger. Stefan Anninger: Thanks, operator, and welcome, everyone. The presentation that accompanies this call can be found on our website, ir.charter.com. I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, which we encourage you to read carefully. Various remarks that we make on this call concerning expectations, predictions, plans, and prospects constitute forward-looking statements, which 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. On today's call, we have Chris Winfrey, our President and CEO, and Jessica Fischer, our CFO. With that, let's turn the call over to Chris. Chris Winfrey: Thanks, Stefan. During the second quarter, we lost 149 ,000 internet customers, most of which was driven by the end of the Affordable Connectivity Program. We added over 550,000 Spectrum Mobile lines and close to 2.2 million lines year-over-year. Revenue was up slightly in the quarter, while adjusted EBITDA grew by 2.6%. We put a lot of effort into the ACP program, and it wasn't renewed. Beginning early this year, we've been actively working with customers to preserve their connectivity. Our service and retention teams are handling the volume of calls well, and we've retained the vast majority of ACP customers so far. The real question is customers' ability to pay, not just now, but over time. I expect we'll have a better view of the total ACP impact once we're inside the fourth quarter. The lack of ACP will also drive higher levels of market churn and selling opportunities for connectivity services over time. Turning back to today's results, the second quarter already tends to be a seasonally weak quarter. The loss of ACP impacted both churn and low-income broadband connects, helping drive the Mobile-only broadband category back to pre-pandemic levels. That shift added to an already low level of move activity and overall market connect volume. That said, we performed better than our expectations for Internet in a quarter, and we competed well compared to previous quarters against both wireline overbuild and cell phone Internet, each with expanded footprints. Overall churn remains at low levels, even with the end of the ACP program, and we remain confident in our ability to return to healthy, long-term growth. Our Internet product is faster and more reliable. Our pricing is lower when similarly bundled with mobile. We expect market activity and selling opportunities to pick up over time, and the cell phone companies will face challenges. as a customer bandwidth demands continue to grow. If we take a step back, our success will be premised on our high capacity, fully deployed network and the products it can deliver. We already have a one gigabit network everywhere we operate across 58 million passings. And when our network evolution initiatives complete, we'll have a ubiquitous, symmetrical, multi-gig capable network supporting continued growth in data demand from customers and new applications such as AR, VR and AI. All at an incremental investment of just a $100 per passing. Those wireline network capabilities are combined with mobile capabilities everywhere we operate, creating the nation's first converged network. Uniquely providing seamless connectivity and the fastest mobile service where 87% of traffic is delivered by our own gigabit capable WiFi network. And our converged connectivity product set is poised to get better through speed upgrades and over 43 million access points, which will grow with our own and our partner's ongoing WiFi router and CBRS access point deployment. That converged network is also expanding, covering more passings as we grow our footprint with high ROI construction opportunities in both rural and non-rural areas. As we show on slide 4 of today's investor presentation, we are very well positioned competitively with higher quality products, lower pricing, and the ability to deliver a converged bundle of products. In Internet, data usage continues to grow and demand for faster speeds will grow with it. During the second quarter, roughly 30% of residential internet customers who do not buy traditional video from us, used over a terabyte of data per month, which together with overall usage is increasing. This quarter, we saw the most additions to our gig speed tier ever, an area we can grow. Our mobile offering continues to evolve, driving strong results. Our second quarter mobile line Net Ad performance was better than the first quarter results, even without the incremental benefit of our free mobile retention offer to former ACP customers. And we also had our highest port ends quarter ever. In April, we began offering Anytime Upgrade to new and existing Unlimited Plus customers. Anytime Upgrade allows Unlimited Plus customers to upgrade their phones whenever they want, eliminating traditional wait times, upgrade fees, and condition requirements. And during the second quarter, customers increasingly chose our Unlimited Plus package priced at $40 versus $30. In April, we also launched a new repair and replacement plan for just $5 per month. That price point is very competitive in driving higher take rates. These new affordable value-added services enhance our profitable growth and competitively open access to new customer segments. Along those lines, in May, we launched our new phone balance buyout program. Now when a customer switches to the Spectrum Mobile from another provider and purchases at least three lines, we'll pay off their existing phone balance on ported lines up to $2,500 for five lines. This new program helps multiline mobile customer prospects with device balances and other providers to more easily switch to Spectrum Mobile. And of course, Spectrum One continues to perform well at both Connect and at promotional roll-off, offering the fastest connectivity with differentiated features. Today, approximately 8% of our total passings take our converged offering of internet and mobile. We've remained underpenetrated despite having a differentiated and superior offering with market -leading pricing at promotion and at retail. Finally, turning to video, losses continued in video where we've seen downgrade churn from programmer rate increases, we passed through. The loss of ACP in the second quarter also impacted video downgrades as customers made choices based on affordability. Over the last several years, due to margin pressure from programming increases, we've moved away from selling bundles with traditional discounts. But as we look to better differentiate ourselves in a competitive marketplace, we are considering ways to better leverage our unique capabilities across our full set of products, including video, particularly now that we're adding significant value back into the video product for consumers with hybrid linear DTC bundles, more economical package choices, and with our Xumo Box. In May, we reached a new agreement with Paramount that gives us the ability to offer the ad-supported versions of Paramount's direct-to-consumer services, Paramount Plus and VET Plus, to our traditional cable package customers at no additional cost. We plan to launch the Paramount DTC inclusion offer to our customers around Labor Day. Earlier this month, ViX, the leading Spanish language DTC product from TelevisaUnivision became available to a large number of customers with eligible spectrum video packages at no extra cost. We launched Disney Plus Basic to TV Select customers as a DTC inclusion in January, and will begin to offer Disney Plus Premium to add free version of Disney Plus to customers as a $6 upgrade later this quarter. We also have planned to offer Hulu to our TV Select customers at the incremental retail price for Disney's duo basic bundle $2 in the fourth quarter. So our efforts to deploy a new hybrid DTC linear model first for the industry remain on track and we expect it to be fully deployed next year. Together with Xumo our goal is to deliver utility and value for our customers irrespective of how they want to view content and better and more stable economics for programming partners. But the associated DTCs have to be part of the full package service. Customers can't be forced to pay twice and if the DTC standalone pricing is less expensive at retail, then that's what we really should help programmers sell instead. Fundamentally, we believe that evolving the video business even if it isn't growing helps customer acquisition of retention, still has positive cash flow, it provides us with option value. And over time, we believe a high quality video product gives us the opportunity to reintroduce more value into the converged connectivity relationship. So stepping back, we're executing well on many multiyear transformational programs. We're growing EBITDA despite the loss of ACP and a competitive cycle by driving efficiency without impacting our service and sales capabilities. We remain fully focused on driving growth using our unique set of scaled assets and the highest quality products and services in order to create long-term value for shareholders. With that, I'll turn the call over to Jessica. Jessica Fischer: Thanks, Chris. Let's turn to our customer results on slide 6. Including residential and SMB, we lost 149,000 Internet customers in the second quarter. While in Mobile, we added 557,000 mobile lines. Video customers declined by 408,000 and wireline voice customers declined by 280,000. As Chris mentioned, our second quarter Internet losses were primarily driven by the end of the ACP program. ACP program connects ended in early February. In May, the program's original $30 subsidy was reduced to $14. And in June, that subsidy was reduced to zero. We estimate that the end of the program's impact on our second quarter internet gross additions and churn drove over 100,000 of our 149,000 internet losses in the quarter. And from a financial perspective, there was an approximately $30 million headwind to second quarter revenue from onetime non-recurring ACP related items in the quarter. In addition, similar to the end of the Keep Americans Connected program in June 2020, many of our ACP customers had past due balances that had been fully reserved for accounting purposes. We took steps to eliminate a portion of those back balances for certain customers and put a portion of their remaining balances on payment plans. For certain customers with a low likelihood to pay post ACP, we have been recognizing revenue on a cash basis, resulting in slightly less revenue and less bad debt in the second quarter than we would have otherwise had. So far, we are performing well with ACP retention, but the largest driver of Internet customer losses associated with the end of the ACP program will be in non-pay disconnects, and they will occur in the third and fourth quarters, likely weighted to the third. We continue to do everything we can to preserve connectivity for former ACP subsidy recipients. We have a number of products and offers to assist those that have lost their ACP subsidy, including our Spectrum Internet Assist program, our Internet 100 products, and we've been offering all of our ACP customers a free mobile line for one year. And we continue to market offers targeted at low income customers, a segment that we have historically served well. Turning to rural, we ended the quarter with 582,000 subsidized rural passings. We grew those passings by 89,000 in the second quarter and by 345,000 over the last 12 months. We had 36,000 net customer additions in our subsidized rural footprint in the quarter. We continue to expect to activate approximately 450,000 new subsidized rural passings in 2023, about 50% more than 2023. We also continue to expect our RDOF build to be completed by the end of 2026, two years ahead of schedule. Moving to second quarter financial results starting on slide 7. Over the last year, Residential customers declined by 1.3%. Residential revenue per customer relationship grew by 0.4% year-over-year, given promotional rate step-ups, rate adjustments, and the growth of Spectrum Mobile, partly offset by a higher mix of non-video customers, growth of lower-priced video packages within our base, and some internet ARPU compression related to retention offers extended to customers that previously received an ACP subsidy. As slide 7 shows, in total, Residential revenue declined by 0.6% year-over-year. Turning to commercial, SMB revenue grew by 0.6% year-over-year, reflecting SMB customer growth of 0.2% year-over-year and higher monthly SMB revenue per SMB customer, primarily due to rate adjustment. Enterprise revenue grew 4.5% year-over-year, driven by enterprise PSU growth of 6.1% year-over-year. And when excluding all wholesale revenue, enterprise grew by 5.9%. Second quarter advertising revenue grew by 3.3% year-over-year, given political revenue growth. Core ad revenue was down about 2% year-over-year. Other revenue grew by 6% year-over-year, primarily driven by higher mobile device sales. And in total, consolidated second quarter revenue was up 0.2% year-over-year and 0.1% year-over-year when excluding advertising revenue. Moving to operating expenses and adjusted EBITDA on slide 8, in the second quarter, total operating expenses declined by 1.4% year-over-year. Programming costs declined by 9.8% year-over-year due to a 9.5% decline in video customers year-over-year and a higher mix of lighter video packages, partly offset by higher programming rates. Other costs of revenue increased by 12.6%, primarily driven by mobile service direct costs and higher mobile device sales. Cost-to-service customers declined 4.2% year-over-year given productivity from our 10-year investments, including lower labor costs and lower bad debt expense, as we saw some favorability and our mobile bad debt as a portion of revenue due to an improved customer tenure and credit profile. And, as I mentioned earlier, a portion of our uncollectible billings offset revenue in the quarter. Sales and marketing costs grew by 1.9% as we remain focused on driving customer acquisition. Finally, other expense grew by 4.7%, mostly driven by an insurance expense benefit from the prior year quarter. Adjusted EBITDA grew by 2.6% year-over-year in the quarter, and when excluding advertising, EBITDA grew by 2.4% year-over-year. While we don't manage the business at a single product line P&L level, we continue to compute allocations internally, and this quarter, for the first time, our standalone mobile adjusted EBITDA was positive, even when including the headwind of subscriber acquisition costs and without the benefit of GAAP revenue allocation to mobile revenue. Our mobile profitability this quarter marks a significant milestone. It shows that we're on the path to establishing a mobile business that is very profitable. Overall, our goal is to deliver solid EBITDA growth, and we believe we can continue to do that even as we make significant investments in the business and face a challenging competitive environment and the end of the ACP program. Our expense management process is working with growing realization of impacts in the second quarter. We continue to expect accelerating EBITDA growth in the back half of the year, given our expense management initiatives, Spectrum 1 promotional roll-off, and political advertising revenue. Turning to net income on slide 9, we generated $1.2 billion of net income attributable to Charter shareholders in the second quarter, in line with last year, as higher adjusted EBITDA was mostly offset by higher other operating expense, primarily due to restructuring and severance costs and net amounts of litigation settlements. Turning to slide 10, capital expenditures totaled $2.85 billion in the second quarter, in line with last year's second quarter spend. Line extension spend totaled $1.1 billion, $37 million higher than last year, driven by our subsidized rural construction initiative and continued network expansion across residential and commercial green sales and market fill-in opportunity. Second quarter capital expenditures, excluding line extensions, totaled $1.7 billion, which was similar to the prior year period. For the full year 2024, we now expect capital expenditures to total approximately $12 billion, down from between $12.2 billion and $12.4 billion previously. Our reduced outlook for 2024 capital spending reflects lower internet and video customer net additions, including the impact of the end of the ACP program, which drives lower CPE costs. We're also actively managing vendor rates and construction materials to make our capital expenditures more efficient. We still expect line extension spend of approximately $4.5 billion, and network evolution spend of approximately $1.6 billion. Turning to free cash flow on slide 11, free cash flow in the second quarter totaled $1.3 billion, an increase of approximately $630 million compared to last year's second quarter. The year-over-year increase was primarily driven by higher adjusted EBITDA, lower cash taxes due to timing, and a favorable change in working capital. On that front, we've been managing the balance sheet to provide us better overall cash flow and increased flexibility. Over the last several quarters, we sold our towers portfolio, which generated almost $400 million in proceeds. We launched our EIP securitization program in the second quarter, which backs a new $1.25 billion credit facility at favorable interest rates. And we've been working with our vendor base to extend our payment terms, utilizing a supply chain financing tool to support our working capital favorability. We will continue to identify and capitalize on balance sheet opportunities to help fund our unique one-time capital investments. We finished the quarter with $96.5 billion in debt principle. Our current rent rate annualized cash interest is $5.1 billion, and we repurchased $1.5 million Charter shares and Charter Holdings common units, totaling $404 million at an average price of $271 per share. Given our long dated and 86% fixed rate debt structure, our sensitivity to higher rates is relatively low. If we refinanced all of our debt due in 2025 and 2026 at current rates, the impact to our rent rate interest expense would be less than $60 million. As of the end of the second quarter, our ratio of net debt to last 12 months adjusted EBITDA moved down to 4.32x. We expect to continue to move closer to the middle of our 4x to 4.5x target leverage range through the end of this year. And we remain fully committed to maintaining our split rated debt structure, including access to the investment grade market, given the significant benefits that it offers to all of our capital providers. We continue to be confident in the long-term trajectory of the business. We have the best products at the best prices in our industry, and we remain under penetrated relative to our long-term potential. That combined with the investments that we're making in the business and our expense savings initiative will continue to drive strong EBITDA growth and value creation for many years to come. And with that, I'll turn it over to the operator for Q&A. Operator: [Operator Instructions] Our first question will come from Craig Moffett with MoffettNathanson. Craig Moffett: Hi. Thank you. Perhaps no surprise. I'd like to drill down a little bit more on the ACP impacts. A couple of questions. First, to what extent are you seeing ACP showing up in reduced gross editions that is just lower market activity because new customers can't sign up for or ACP customers who are moving can't continue to sign up for the program even before you start to see non-pay disconnects. And then second, what impact is it having on ARPU? You reported 1.7% broadband ARPU the same as last quarter. Had it not been for ACP, could you just tell us what that would have been as you're starting to now lap some of the Spectrum 1 discounts that were included in the numbers in the past? Chris Winfrey: Sure. Hey, Craig. I'll take the first one. Jessica can take the second. For ACP, we estimated the impact was well over 100,000 inside the quarter to net editions loss. And for us to say that means that we have a high level of confidence probably higher than that. So half of which was from voluntary churn and the other half was coming from reduced gross editions, as you mentioned, from low income segments that had been connecting at a higher rate at a much lower rate once ACP disappeared. Of course, we saw some of that impact already inside of Q1. And we saw the same inside of Q2. So that's the drivers inside there, about half and half. And it's really the combination of those when I mentioned that we saw a reversion to the pre-pandemic mobile only broadband category where you've seen that category increase, which is taking out volume from the marketplace in terms of a source of acquisition. It's temporary. It's one time in nature. And so as we've spoken about before, it's really about just managing through that one-time impact and trying to make sure that we're doing all the right things for preserving that base, and keeping them connected, which we're doing, but also making sure that we're making the right investments and the right moves for the business as usual underlying growth trajectory. Jessica on the ARPU. Jessica Fischer: Yes. So Internet ARPU increased 1.7% year-over-year in the quarter. If you adjusted, Craig, for the $30 million in one-time ACP related items that I mentioned and for the impact of the mobile revenue allocation, that ARPU growth would have been 2.7%. I didn't incorporate the cash basis accounting impact that I mentioned earlier. It's small, and unless those customers do end up paying at a rate that's higher than our expectation, I think it recurs in revenue going forward. But so I think you would have been, but for those two items, that's a 2.7% Stefan Anninger: Thanks Craig. Operator, we will take our next question, please. Operator: Our next question comes from the line of Sebastiano Petti with JP Morgan. Sebastiano Petti: Hi, thanks for taking the question. I think, Chris, in the prepared remarks, you said you competed well against fixed wireless and fiber, even though their footprints are expanding. Given the prevalence of what we're seeing in terms of open access and other host cell provider getting into the mix and increasing the fiber availability, have you seen a demonstrable change in the fiber deployments year-to-date as you think about that insurgent or non-incumbent fiber bill to some extent? And again, just trying to think about that increase in open access and wholesaler, how does it change, if at all, how you're thinking about the competitive environment on a go-forward basis in terms of other converged players or options moving into your footprint? Chris Winfrey: Sure. Look, the competitive fiber overbuild has maintained a relatively steady pace. If anything, it's slightly lower than what it had been. And so we don't see any dramatic change there. When I talked about maintaining our competitiveness means having a similar impact, despite the fact that you have an expanding footprint. So you could, if I was being bullish, I would argue that that's an improvement, and as opposed to just staying steady. And so we're competing well, both in the wireline overbuild space, which is more permanent, as well as the cell phone internet space as well. In terms of some of the experiments that you're seeing as it relates to wholesale access and whatnot, it's still a fiber overbuild at the end of the day. And there's still economics that need to be deployed. And those economics are, in my mind, are not very good. They haven't been for decades of the economics of an overbuilder on an existing footprint. So I don't think it, A, dramatically changes the outputs that they can provide because the economics aren't any different, and B, it's really small. What you're talking about that's been done is just a very small percentage of the U.S. footprint. So the ability to project products both from a sales and marketing and service perspective really is impacted by the ubiquitous nature of the technology that you have and the ability to provide those products in the marketplace. And so from our perspective, when we look at it and say, what's unique about us is we have a gigabit network deployed everywhere we operate. In addition to that, we're upgrading that wireline network to have symmetrical and multi-gig speeds everywhere, not just in redline pockets, but everywhere that we operate, and then you combine that with our WiFi and CBRS capabilities and a very strategic relationship that we have with a great partner in Verizon (NYSE:VZ), it gives us the ability to provide seamless connectivity, converged broadband everywhere you go inside of our footprint, and that's unique. The only other operator who has those type of capabilities really is Comcast (NASDAQ:CMCSA). And so I think that's the real strategic advantage for us, and it's not because we have that capability in 2%, 3%, or 5% of our footprint. We have it everywhere we operate, and it allows us to be loud in the marketplace, talk about not only the product advantages of having that seamless connectivity, but the ability to save customers hundreds and thousands of dollars really with a better product. And so I don't see anything that's really changed. Other than some of these joint ventures announcements that you've seen, if you really sit back and think about it from both a strategy and from a valuation perspective, I think it's flattering. It tells you the strategic asset that we have. And so if you take a look at the slide that we have on page 4 of the deck today, you think about everything that I said and our capabilities, and then you think about where others are trying to go, many of the MNOs, I do think that's flattering both from a strategic, from an operating and from evaluation perspective of what we have and what we're capable of doing. It has people's attention. Sebastiano Petti: And if I could ask a quick follow-up on wireless, it sounds, I think you noted that even excluding the retention offer for the ACP subscribers, mobile lines would have been up. I mean, can you help us think about what you're seeing in terms of just the contract buyout and some of the other offers you have in the market, and does your maybe go-to-market need to evolve at all as we think about obviously fears or concerns about what an upgrade cycle might mean from the Apple (NASDAQ:AAPL) iPhone in the back half of the year. Thank you. Chris Winfrey: Sure. Well, mobile wasn't just up. What I was saying is it was up quarter-over-quarter. We had a very good first quarter. It was clearly up even more this quarter. And if you excluded the benefit of the ACP mobile only, mobile retention offers, we still would have been better than a very strong first quarter. That reflects just the general momentum that we have, but also, we have evolved the product. And so we've rolled out the Anytime Upgrade Program, which is unique in the market. We have even though it sounds small, it's attractive to customers, service, and repair function that's, I think, competitive. And now with the phone balance buyout program, which is also pretty unique in the marketplace. And all of those rolled out sequentially during the course of the quarter and have continued to improve our selling capabilities along the way. I think that positions us well in any market. We've not been, I think, where you were going, we've not been, we don't intend to be in the business of subsidizing phones. But we do have really good programs that make it attractive for customers to not only come in to be a customer spectrum mobile, but also to stay with us because we have the ability through the Anytime Upgrade Program to really at a low competitive cost, keep them current with their models of phones now and in the future. And stating the obvious, the biggest advantage here beyond just the devices really is the ability to provide a higher quality, faster mobile service, seamless connectivity, and to be able to save them hundreds or thousands of dollars a year. I mean, if you think about our pricing at $30 for unlimited and $40 for unlimited plus on one line and each incremental line, it's really competitive. It's very good. So we're happy with where we are with the product. We will continue to evolve it. I think some of those feature sets that will evolve really include things like mobile speed boost, which ties to the capabilities that we have with WiFi and wireline, and the ability to have spectrum mobile as an SSID. So those of you in the New York and LA markets, for example, what you'll notice is as you travel outside of your home with Spectrum Mobile, an auto-authenticated attachment to Spectrum Mobile SSID, which boosts your speed wherever you go, and it increases your access and your reliability, which is the nature of seamless connectivity. Stefan Anninger: Thanks, Sebastiano. Operator, we'll take our next question, please. Operator: Our next question comes from the line of Jonathan Chaplin with New Street Research. Jonathan Chaplin: Thanks, guys. Two questions. One just on broadband market growth for Chris, and then one on free cash flow for Jessica. Chris, could you give us a little bit more context around the ACP impact from lower gross ads in 1Q? I think you said it was sort of roughly the same as in 2Q, so maybe it was 50,000, but what I'm trying to get to is an understanding of what's going on with underlying growth. It looks like it actually improved for you a little bit sequentially, and so either broadband market growth in aggregate isn't getting any worse, maybe it's getting a little better, or you're just doing better on market share relative to your competitors. And we'd love to understand that a little bit better. And then Jessica, it sounded like from your discussion of working capital that this isn't a timing impact in 2Q. You've changed how you manage working capital, and so you should expect to be able to sort of retain this benefit to free cash flow as we go through the year. I just wanted to confirm that. And then do you have to get all the way back to 4.2x to 4.25x leverage before you would accelerate share repurchases again? Thanks. Chris Winfrey: So Jonathan, there's I think a few derivatives inside of your question. And so let me try to give you what you're looking for in the way that we think about it. And inside of the first quarter, we had performed better relative to prior quarters and prior year on competitive switching. And so that was in the marketplace, so available subscriber ads and disconnects. But we saw, as you highlighted as well, once everybody had reported, we saw a significant reduction in the first quarter of this year in the available gross ads, a significant drop year-over-year and that was due to housing starts, rental vacancies, but also the removal of ACP for new connects, all of which driving your version to mobile-only back to pre-pandemic levels. That broadband market growth rate overall we still saw is significantly reduced for all those factors inside of Q1 but a dramatic drop, and so that put our performance in relative light given the overall market backdrop, a lot of which was one time in nature. In Q2, and while it's early because we don't have all the data, I think our evidence shows that for the first time and due to, again, all of the one-time factors and most dramatically the loss of ACP, the broadband market actually shrunk as a one-time event. And so if you put our performance and then our statements about relative competition in context with that, and I think we're doing pretty well. And that was the nature of the comments that I provided in the prepared remarks. I do think that, as I mentioned, moves will come back. It's hard to predict exactly when, but moves will come back, housing starts will return, apartment rental rates will go back up, and most importantly, the most dramatic effect is once you flush out the ACP impact between Q2 and Q3 predominantly, then you'll be able to get back into a much more normalized environment. And I think the product investments that we're making and the attractiveness of the value that we provide puts us in great position for when that volume returns, and we're doing everything we can in the meantime to preserve all the ACP customers doing really well, but at the same time making sure that we're ready to come out in a good light on the back end once the volume does pick back up. Jessica Fischer: On the free cash flow side, Jonathan, so I think we had previously talked about working capital for the year, coming back to being in a place that was relatively flat. As I said, we're working on the balance sheet and trying to make sure we can extract appropriate cash from the balance sheet to support what we're doing across the business. I think that we'll probably do better than that sort of flat working capital expectation, but I'm not prepared to say by exactly how much. The variability in working capital has a lot to do with exactly how expense timing and capital timing lands over the course of the year, and so while I think that we'll get good benefits out of just the balance sheet management side, I'm not going to take up the total thoughts that we've had on working capital today. On your other question, sort of how do we think about, I think it was sort of a one and then the other. Do you have to get all the way back to the middle of your range before you accelerate buybacks? I'm in the same place that I was last quarter, which is that I think that we can continue to do buybacks over the course of the rest of the year and still do what we have said that we would do from a leverage perspective. And I don't think of it as do you have to do one and then the other. I'm pretty confident in the trajectory of the business for the second half of the year. And so, I think that we can have sort of good pacing on buybacks and meet what we've said about leverage at the same time. That being said, the capital allocation strategy hasn't changed. We still go after high ROI, organic investment first. We still look then at whether there's a creative M&A opportunity is next. And those come before sort of this balance sheet management and share buybacks that happens as the last set of priorities there. And so, we haven't given a guide around where we think that we'll go in terms of total buybacks. It's because we want to make sure that we maintain that flexibility to do what we think is most important for the business, which is to make the right investments to drive growth of the business going forward. Benjamin Swinburne: Thanks. Good morning. Chris, I believe you guys took some cost action. I don't know if there were headcount reductions this year at Charter, but I know you guys have had a cost plan you've been working on. I'm wondering if you could just talk about what you guys are doing and how you're approaching that. And I think you had suggested you guys weren't going to touch any sort of customer-facing resources. So just give us a sense of where you are on that and your philosophy as you look through the rest of the year and how we might think about that impacting the financials. And then maybe for Jessica, I don't know if you have any visibility at this point into Q3, ACP impact from that 100,000, but if you do, I'd love to hear it. And try to understand the decline in bad debt. I know you touched on it in your prepared remarks. I don't know if that tells us something about your third quarter ACP expectation, or if you still expect cost of service to be flat for the year, we just want a little more color around those trends. Thank you both. Chris Winfrey: Hey, Ben. So there's kind of three parts to that, which is, I'll start with the second one you had, is the Q3 ACP. I'll handle that. And Jessica can comment on bad debt and then cost reductions. Jessica can go through and I can tag team there a bit. But from a Q3 ACP outlook, we're not going to be providing any customer net additions guidance today, but for sure there's going to be, as we both mentioned, I think Jessica and I, that there'll be more non-pay disconnect in the third quarter. But there are a lot of other moving parts and we're competing well. I think that maybe the interesting tidbit here is maybe talking a little bit more about recent trends. June was oddly the best loss of the second quarter. And internet net ads trends in July have been similar to what we saw in June. Sounds great. But the reality is the ACP related non-pay disconnect activity hasn't started yet. And we'll know really more about sustainable payment trends than nothing to be scared of today, but sustainable payment trends really through August with the non-pay beginning then and trailing into a little bit into Q4. So when you step back, I know you know this, but ultimately this ACP transitions are onetime event. And so we're very focused on really isolating the ACP impact internally and evaluating not only obviously our performance on retaining those customers because we want to keep them connected. We think it's very valuable and we can, but also what's the underlying trend absent the ACP impact to make sure that we're getting better every day. So Jessica on the ACP does bad debt piece. Jessica Fischer: Yes. So if you think about what happened in bad debt in the year-over-year, Ben, there's a few things going on. One really with tenure and credit profile in our mobile customer base that's been improving, particularly for customers that have EIP plans with us. And on the ACP front, we took a lot of bad debt along the way, particularly for customers who entered the ACP program and they had outstanding unpaid balances. And so those have really been reserved throughout the ACP program. I mentioned it in the remarks but there also is a portion of the ACP customer base where we have a very low expectation of payment for them and so instead of taking their revenue into revenue and then taking bad debt expenses and offset, we actually didn't recognize revenue for those customers. So when you see that it means that bad debt expense, I think absent that you might have had -- you would have had more bad debt expense if we had put that back in the other direction. And then the last point I mean we did have overall lower resi revenue in 2Q in the year-over-year and some mixed changes and so with other things being equal that also drives a little bit of downward pressure on bad debt. All of that is to say I wouldn't read anything sort of into what is it that you think about Q3 and looking at what happened with bad debt in the year-over-year, I think there are a number of factors going on there. As you think about then what's happening on the overall cost reduction side which I think was your other question. The expense management process is pretty extensive. While we're not doing anything that will impact our sales or service capabilities, we have things that are big things that are small some short some medium some long-term opportunities all across the business. We've made progress with some vendor cost reductions with reduced spend around discretionary categories like real estate and third-party services, some reductions to overhead expenses and implementing some tools to increase our efficiency and actually I think the benefits from those came a little faster into 2Q than what we had anticipated, but we're already realizing the benefits of some of the changes will continue to build on additional opportunities over time. As you look at the rest of the year, I think we had given some thoughts on our outlook for expenses. We had expected programming costs per video customer to grow in the 1% to 2% range year-over-year. I now expect that to be flattish year-over-year. We previously had said that we expected costs to serve to be flat with 2023. I now expect that to decline by 1% to 2% inclusive of bad debt expense. And in sales to marketing, I think we had said 2% to 3% growth. And at this point, I would expect us to be in the low end of that range, if not a bit below. I also, as an aside, just want to clarify something I said earlier. My comments on working capital. I want to be clear that the comments on working capital are on cable working capital. Mobile continues to have the detriment of the EIP notes. And so those will continue to be a drag, though the securitization plan that we did in the quarter does help that. Chris Winfrey: And on the cost if you just take one a different layer of look, the, so Jessica's right, we're doing lots on vendor savings, overheads, organizational effectiveness lower growth environment, all that's true, but just want to make sure everybody understands that the key focus for us in terms of real permanent lasting and accelerating cost reduction is just to be a better service operator. So continue to invest in our frontline, have better tools, process and systems to make the investments that we've made in tenure. And we see that, and so we are having real results from some of the one time and permanent cost reductions, but we're also probably having bigger success on reducing the amount of service calls, reducing our truck roles, increasing the quality of the service that we provide, that's where the money's at. And then when you think about operating leverage, which is a term that you've used before the best way to have a better operating leverage is to have more customers and to have more products per household and have higher revenue. And that way you can, together, being a better service operator and having higher penetration of your products, you actually lower your cost to serve per customer, you lower your cost of capital per customer as well and you become a better cash flow operator. So all of those things still hold true. And it's why, when we talk about expense management, that we talk about really not doing anything that would impact sales or service, because that's the true efficiency opportunity and that's the opportunity to deliver long-term free cash flow and our views on that and our frontline hasn't changed at all. Jessica Ehrlich: Question on video, I guess, can you talk about the take-up of direct-to-consumer in these hybrid linear offers? And you've mentioned a couple that are coming, Paramount Plus and Hulu, is there anything else on the horizon? And then secondly, you mentioned political advertising should pick up in the second half. Given the current political environment, can you give us some color and expectations and if that's increasing? Chris Winfrey: Sure. On the first one, Jessica, the DTC take-up is going very well. The first one, I know a lot of people think about Disney deals in September, but we launched I think late in January on Disney Plus Basic and it's going well and it's growing every month. We're adding some additional features into it, which will be helpful to even further accelerate the monthly growth that we see. That includes, as I mentioned, in the prepared remarks, the addition of the Disney Plus Premium as an incremental add-on. That will be coming soon, as well as the Disney Duo Basic bundle of plus $2 for Hulu. So that allows you to have a comprehensive package the same way that exists inside of retail and that's helpful, it was always the design. But there's complexity in terms of implementing all of this, also because some of the authentication principles that vary between different operators in terms of credentials and TV everywhere and whatnot. But it's going well and accelerating, ESPN Plus, I didn't mention that on the call, it's also having very good take-up, it's high value into our RSN packages, it's a small portion of the base, but the penetration is going well. And Paramount Plus will launch soon and ViX we just launched and we've always had Max and so that has existed already within the TV everywhere authenticated universe and our expectation is over the next year or so that we'll have a fully baked set of products which really what we're working towards and the more scale we get there the more effective it's going to be. We're not sitting here saying that we're going to arrest completely the loss of video but I think what we are saying is to the extent we're going to put video on our broadband bill, it better have value and if it doesn't have value to the customer then we'd rather they just go take that through the direct-to-consumer applications and we need to be proud of what we're putting on the bill and that's not where the MVPD space has been in a long time as we see a path to being able to be proud of what we're putting on the broadband bill as a video product that it may be expensive but it has a significant amount of value and using that to drive the converge connectivity relationships. So while it may not be growing it's still really important and I think it can be very valuable to our converge connectivity relationships. In terms of what's up next, we're not going to go give a programming renewal schedule but we're optimistic that this has been adopted both from an understanding that the DTCs really do need to be included as part of the full video package. And that's actually better for programmers because of reduced churn and upsell opportunities into the ad-free versions of these products as well. And that look, at the end of the day, if a customer can go out and get the same product at a cheaper price in the marketplace, I think they should. I don't think we should ask them to pay more through us. And so those are some of the core principles that we've had. I'm not committing, but those are some of the bigger ones. And political advertising it's always, as you know, it's always a jump ball as to exactly where it's going to go. And it's evaluated on a state-by-state basis. And so you can't really say that it's an -- it's the same nationally everywhere. So it depends on some of the swing states. Admittedly the events of the past week have jumbled what you thought that might look like. And certainly when you take a look at fundraising and the volatility in what could be swing states, it looks like political advertising net-net nationally is going to be higher than what it probably would have been just a 10 days ago. But it doesn't mean it happens necessarily in the right states for us. And so we're keeping an eye on that. And it's nice when it happens, but it's one time in nature. And so that's why we always try to talk about our results with and without the impacts of political advertising. Because what is this year's windfall will be next year's headwind. And we want to make sure everybody's focused on the right thing, which is the underlying growth profile of the subscription business. Which includes the core advertising, which continues to do well with or without political advertising. Stefan Anninger: Thanks, Jessica. Operator, we'll take our last question, please. Operator: Our final question will come from the line of Peter Cipino with Wolfe Research. Peter Cipino: Thanks and good morning. I have an ACP question that looks beyond the third quarter. Arguably, ACP has been history's greatest retention program for broadband operators and you took good advantage of it. Looking beyond the wave of involuntary disconnects in Q3 and not to say 2025, does that retention benefit go away? I mean, certainly it does. And then what needs to step up in its place or should we expect a slightly higher underlying churn rate attributable to those four or five million former ACP subs who go from having essentially no churn to maybe having a normal churn rate? Chris Winfrey: Sure. Well, look, once upon a time there wasn't an ACP, but it's been a long time. When you think about, we had the, during the pandemic we had the, we were a big participant in the remote education offer, the Keep Americans Connected, the EBB, which evolved and became the Emergency Broadband Benefit, which evolved and became the ACP. And we've been a significant participant in all of those, as has the industry. I think we all have a lot to be proud of for stepping up and really driving those programs, but they didn't exist before. And broadband is a really important product. And from a charter perspective, we have ways to continue to address that marketplace. Before I go there, you asked about the market level activity. I do think that in an environment where ACP or an equivalent doesn't exist, that by definition you have more customers coming in and out of broadband based on affordability. That's rise up transaction volume, both from a non-pay disconnect, as well as from a gross ad sales perspective. When you have better products and better price, that can work towards your advantage. So it's not all bad from our perspective. And but we also have the ability to, at acquisition and for retention, offer unique products. Our Internet 100 is attractively priced. It's not for everybody, but it's affordable. We also, and you can pair that together with Spectrum One, so the ability to have a free mobile line for the first year, and then that line rolls to $30 after a year. If you think about a typical one-line environment or even in a typical two-line environment, the average cost of a line is over $60. And so even at retail rate of $30, we've built in a savings of $30 per month through taking mobile together with our attractively priced, high-powered broadband product. And that's as much, if not more, than the ACP benefit, which means that if you take our products, we can effectively -- we have the built -in ACP savings available to you when you really take full advantage of our product set. And so that is a product and a combination that didn't fully exist prior to all of these programs. And I think we can, by having a wider availability for low income population of these broadband offers, which we have together with our Spectrum 1 offer combined, I think we can save customers as much if not more than they were they're getting through ACP relative to the past. So I think we're in good position to be able to address the base. But the market activity, for sure, is going to be higher than what has been the past couple of years. Stefan Anninger: Thanks, Peter. And that concludes our call. We'll see you next quarter. Chris Winfrey: Thanks, everyone.

Tradeweb Markets (TW) Q2 2024 Earnings Call Transcript | The Motley Fool

Good morning. And welcome to Tradeweb's second quarter 2024 earnings conference call. As a reminder, today's call is being recorded and will be available for playback. To begin I'll turn the call over to head of treasury, FP&A and investor relations, Ashley Serrao. Thank you and good morning. Joining me today for the call are our, CEO, Billy Hult, who will review our business results and key growth initiatives; and our CFO, Sara Furber, who will review our financial results. We intend to use the website as a means of disclosing material nonpublic information and complying with our disclosure obligations under Regulation FD. I'd like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements related to among other things, our guidance and the ICD acquisition are forward-looking statements. Actual results may differ materially from these forward-looking statements. Information concerning factors that could cause actual results to differ from forward-looking statements is contained in our earnings release, earnings presentation and periodic reports filed with the SEC. In addition on today's call we will reference certain non-GAAP measures as well as certain market industry data. Information regarding these non-GAAP measures including reconciliations to GAAP measures is in our earnings release and earnings presentation. Information regarding market and industry data including sources is in our earnings presentation. Now let me turn the call over to Billy Hult -- Chief Executive Officer Thanks, Ashley. Good morning, everyone and thank you for joining our second quarter earnings call. This was another outstanding quarter as Central Bank step back private sector intermediation continues to be in vogue. From evolving inflation print to snap elections across Europe and the U.K., the macro debate continues to flourish globally and our one-stop solution is resonating with our clients. At our core, we are a technology company that caters to the financial service industry. We have a simple job how can we continue to save our clients, time and money and provide them with more efficient means of trading in the financial markets. Change is constant and we are focused on being on the forefront of that change via technological, market structure or behavioral. As the markets and our clients evolve, we continue to position Tradeweb for the future. After closing our acquisitions of Yieldbroker and r8fin, we are pleased to have announced the signing of an agreement to acquire ICD in April. We are on track to close ICD shortly, which will add corporates as our fourth client channel. Diving into the second quarter, we achieved our best second quarter in our history. Specifically strong client activity, share gains and risk on environment drove 30.4% year-over-year revenue growth on a reported basis. We continue to balance investing for growth and profitability as adjusted EBITDA margins expanded by 98 basis points relative to the second quarter of 2023. Turning to slide 5. Rates and credit led the way, accounting for 61% and 29% of our revenue growth, respectively. Specifically the rates business was driven by continued organic growth across global government bonds, swaps and mortgages and was also supplemented by the addition of r8fin and Yieldbroker. Credit was led by strong U.S. and European corporate credit with record quarterly market share in electronic U.S. investment grade and aided by strong growth across municipal bonds, China bonds and credit derivatives. Money markets was led by continued growth in institutional repos, equities posted low single-digit revenue growth despite challenging industry volumes in our core ETF business. Finally, market data revenues were driven by growth in our LSEG market data contract and proprietary data products. Turning to slide 6. I will provide a brief update on two of our focus areas; U.S. treasuries and ETFs and then I will dig deeper into U.S. credit and global interest rate swaps. Starting with U.S. treasuries. Record second quarter revenues increased by 28% year over year led by records across all our client channels. Our institutional business saw record adoption of our streaming protocol and growing usage of our RFQs offering. The leading indicators of the institutional business remains strong. We gained share and achieved record quarterly market share of U.S. treasuries versus Bloomberg crossing the 50% threshold for the first time, which we have maintained. Client engagement was healthy with institutional average daily trades up 45% year over year. Automation continues to be an important theme with institutional U.S. Treasury AIX average daily trades increasing by nearly 100% year over year. Our wholesale business produced record volumes led by our streaming offering. Our other protocols also saw strong growth, particularly our CLOB which has begun to trend higher. Our recent acquisition of r8fin is off to a strong start, contributing approximately 2.3% to our overall U.S. Treasury market share, complementing our CLOB and streaming protocols. The team remains focused on onboarding more CLOB liquidity providers over the coming quarters, as they deliver on a holistic strategy across our wholesale protocols. Within equities, our ETF revenues grew mid-single digits, but faced a tough industry backdrop given lower equity market volatility. Other initiatives to expand our equity brand beyond our flagship ETF franchise continue to bear fruit with second quarter convertible bond revenues increasing by 10% year over year. Looking ahead, the client pipeline remains strong as the benefits of our electronic solutions continue to resonate. We believe, we are well-positioned to capitalize on the long-term secular ETF growth story, not just in equities, but across our fixed income business. Turning to slide 7 for a closer look at another strong quarter for credit. Strong double-digit revenue growth was driven by 33% and 29% year-over-year revenue growth across U.S. and European Credit, respectively. We also achieved strong double-digit growth across munis, China Bonds, and credit derivatives. Automation continued to surge with global credit AiEX average daily trades increasing by about 45% year over year. We set another fully electronic quarterly market share record in U.S. IG helped by record IG block market share of 9%. We also achieved our second highest fully electronic market share in U.S. high yield. Our institutional business continues to scale as clients adopt our diverse set of protocols to improve liquidity, price transparency, and efficiency. Our primary focus on growing institutional RFQ continues to pay off with average daily volumes growing 30% year over year, with strong double-digit growth across both IG and high yield. Moreover, portfolio trading average daily volume rose 100% year over year with IG portfolio trading reaching record levels. We continue to focus on leading with innovation, and this is resonating with our clients. We saw portfolio trading users grow by over 20% year over year, a record number of line items traded in the quarter, and our largest ever portfolio trade in excess of $3 billion. Retail credit revenues were up over 20% year over year as financial advisors continue to allocate investments toward credit to complement their buying of U.S. Treasuries and retail certificate of deposits. AllTrade produced a solid quarter with nearly $190 billion in volume, up over 45% year over year. Specifically, our all-to-all volumes grew over 20% year over year and our dealer-RFQ offering grew over 10% year over year. The team continues to be focused on broadening out our network and increasing the number of responders on the AllTrade platform. In the second quarter, the average number of responses per all- to-all A2A inquiry rose by 35% year over year. We also continue to increase our engagement and wallet share with ETF market makers. Finally, our sessions average daily volume grew over 60% year over year and produced the second highest quarterly average daily volume ever. Looking ahead, U.S. credit remains our biggest focus area and we like the way we are positioned across our three client channels. We believe we have a long runway for growth with ample opportunity to innovate alongside our clients. Our strategy is focused on expanding our network, increasing our wallet share, enhancing our pre and post-trade analytics and continuously improving our protocols and client experience. In the second quarter, we enhanced our RFQ offering with our rollout of RFQ Edge, where we're already seeing over 25% of our RFQ users utilizing RFQ Edge. RFQ Edge takes the traditional RFQ list ticket and incorporates real-time trading data, charting functionality, and execution cost analysis. We also remain very focused on chipping away at high yield, and we believe we are well positioned to replicate the success we've had in IG. Specifically, we're making progress in our Aladdin integration with the goal of improving the client experience and increasing electronification in these markets. We're still on Phase 2, which is focused on all trade and RFQ, but our teams are already out on the road meeting with respective clients and walking them through all the enhancements made to date. With our Aladdin integration closing a gap and providing a foundation for growth, we expect high yield growth from here to be driven by the expansion of our client network led by strategic sales hires, functionality enhancements and stronger penetration with ETF market makers. Beyond U.S. credit, our EM expansion efforts continue with growing adoption of our portfolio trading and RFQ offerings and early positive signs across wholesale EM. On the product side, we are focused on leveraging our diverse product expertise, enhancing our integration with FXR and continuing to build out functionality for multi-asset package trading. Moving to Slide 8. Global swaps produced record revenues driven by a combination of strong client engagement in response to the macro environment and continued market share gains. Strength here was partially offset by a 3% reduction in duration and elevated quarterly compression activity. All in global swaps revenues grew 56% year over year and market share rose to 23.6% with record share across dollar G-11 and EM-denominated currencies. Central to our ethos is our focus on helping clients by connecting the dots across fixed income products. Given the heightened market volatility across money markets, our repo clients have been increasingly referencing swap curves, when evaluating fixed-rate repo trades. Yet their process was cumbersome, and our clients asked for a better solution. During the quarter, we became the first electronic trading platform to make overnight index swap curves available during the repo trade negotiation process, helping institutional clients assess the price competitiveness of different repo rates across different currencies and maturities. Finally, we continue to make progress across emerging markets swaps and our rapidly growing RFM protocol. Our second quarter EM swaps revenues more than doubled year over year, and we believe there is still significant room to grow given the low levels of electronification. Our RFM protocol saw average daily volume rise over 115% year over year with adoption picking up. Looking ahead, we believe the long-term swaps revenue growth potential is meaningful. With the market still about 30% electronified, we believe there remains a lot we can do to help digitize our clients' manual workflows, while the global fixed income markets and broader swaps market grow. And with that, let me turn it over to Sara to discuss our financials in more detail. Sara Furber -- Chief Financial Officer Thanks, Billy, and good morning. As I go through the numbers, all comparisons will be to the prior-year period, unless otherwise noted. Slide 9 provides a summary of our quarterly earnings performance. As Billy recapped earlier, this quarter we saw record second quarter revenues of $405 million that were up 30.4% year over year on a reported basis and 30.8% on a constant-currency basis. We derived approximately 38% of our second quarter revenues from international clients, and recall that approximately 30% of our revenue base is denominated in currencies other than dollars, predominantly in euros. Our variable revenues increased by 40% and total trading revenues increased by 31%. Total fixed revenues related to our four major asset classes were up 4.2% on a reported and 4.5% on a constant-currency basis. Fixed revenue growth was primarily driven by previously disclosed dealer fee increases in credit that were instituted at the start of the third quarter of 2023. And other trading revenues were up 9%. As a reminder, this line fluctuates as it reflects revenues tied to periodic technology enhancements performed for our retail clients. Year-to-date adjusted EBITDA margin of 53.6% increased by 117 bps on a reported basis when compared to the 2023 full year margins. Moving on to fees per million on Slide 10 and a highlight of the key trends for the quarter. You can see slide 16 of the earnings presentation for additional detail regarding our fee per million performance this quarter. For cash rates products, fees per million were up 4%, primarily due to an increase in European and Australian government bond fees per million. For long-tenor swaps, fees per million were down 2% primarily due to a slight increase in compression as well as a 3% decline in duration. For cash credit average fees per million decreased 12% due to a mix shift away from munis and sessions traded. For cash equities, average fees per million were flat due to lower U.S. ETF fees per million given an increase in notional per share traded. Recall in the U.S., we charge per share and not for notional value traded. This was offset by a mix shift toward higher fee per million EU ETFs. And finally within money markets, average fees per million decreased 8% driven by a mix shift away from higher fee per million U.S. CDs and toward our growing institutional repo business. Slide 11 details our adjusted expenses. At a high-level, the scalability and variable nature of our expense base allows us to continue to invest for growth and grow margins. We have maintained a consistent philosophy here. Adjusted expenses for the second quarter increased 25.8% on a reported basis and 27% on a constant-currency basis. Adjusted compensation cost increased 32.2% due to increases primarily in performance-related compensation headcount and severance. Excluding $2.9 million related to severance compensation costs increased 29.4%. Technology and communication costs increased 29.6% primarily due to our previously communicated investments in data strategy and infrastructure. Adjusted professional fees increased 6% mainly due to an increase in consulting costs. We expect professional fees to continue to grow overtime, as we spend more on technology consulting to support our organic growth. General and administrative costs increased due to a pickup in travel and entertainment which on a reported basis was partially offset by FX gains year on year. Favorable movements in FX resulted in a $1.7 million gain in the second quarter of 2024 versus a $150,000 loss in the second quarter of 2023. Slide 12 details capital management and our guidance. On our cash position and capital return policy. We ended second quarter in a strong position with a $1.72 billion in cash and cash equivalents and free cash flow reached approximately $722 million for the trailing 12 months. Recall, we intend to pay $785 million in cash consideration for ICD once it closes. Our net interest income of $21 million increased due to a combination of higher cash balances and interest yields. This was primarily driven by the higher interest rate environment and more efficient management of our cash. With this quarter's earnings the board declared a quarterly dividend of $0.10 per Class A and Class B shares. Turning to updated guidance for 2024, in light of strong business momentum and the anticipated closing of ICD shortly, we are increasing our adjusted expense guidance from $805 million. We now expect to be in the $830 million to $860 million range for 2024. Including the anticipated closing of ICD, we are currently trending toward the midpoint of this range which would represent an approximate 22% increase versus our 2023 adjusted expenses. Focusing on organic growth the midpoint of this range would represent an approximately 16% increase. Bridging the gap from $805 million to the midpoint of our new range, 63% of this increase is coming from the inclusion of ICD with 30% and 7% coming from better business momentum and the recently announced management changes respectively. Provided that ICD closes shortly, revenue from ICD is expected to be approximately $40 million over the next five months. Recall, we plan to invest in technology and marketing during the first 12 months post closing which we expect may temporarily push ICD's adjusted EBITDA margin down to 47% to 49%. All in, primarily factoring in the better business momentum we now expect our 2024 adjusted EBITDA margin expansion to slightly exceed 2023 levels. At the same time we expect to capitalize on the anticipated healthy revenue environment by accelerating investments to support our current and future organic growth. This includes infrastructure-related investments such as further enhancements to our global credit tech stack, expanding our integration capabilities to allow for cloud-based Python integration and retail platform enhancements to support the growth in trading activity we've seen in recent years. We are also selectively making small investments in emerging digital technologies such as blockchain and digital assets in order to leverage and benefit from their technical expertise without having to make significant investment to experiment in-house. We now expect our capex and capitalized software development to be about $77 million to $85 million for 2024. Acquisition and Refinitiv transaction-related D&A, which we adjust out due to the increase associated with pushdown accounting, is now expected to be $158 million. We continue to expect 2024 and 2025 revenues generated under the new master data agreement with LSEG to be approximately $80 million and $90 million respectively. Now, I'll turn it back to Billy for concluding remarks. Billy Hult -- Chief Executive Officer Thanks Sara. Tradeweb thrives unchanged and we look forward to solving complex problems. Change can happen very fast or very slowly but we want to be that trusted partner that our clients look toward to drive innovation in the market. It's a great time to be in the risk intermediation business. I feel good about our future growth outlook. With a couple of important month-end trading days left in July which tend to be our strongest revenue days average daily revenue growth is trending at a high teens growth rate relative to July 2023. The diversity of our growth remains a theme. We are seeing strong volume growth across global government bonds mortgages interest rate swaps corporate credit and repos. Our IG and high-yield share are trending above 18% and 7% respectively in July. I would also like to welcome Amy Clack to the team who will be joining Tradeweb in August as chief administrative officer and as a member of the executive committee. Amy brings more than 25 years of experience and will oversee operations business integration risk and corporate services. Finally, I would like to conclude my remarks by thanking our clients for their business and partnership in the quarter and I want to thank my colleagues for their efforts that contributed to the best second quarter revenues and volumes at Tradeweb. With that, I will turn it back to Ashley for your questions. Ashley Serrao -- Head of Treasury, FP&A, and Investor Relations Thanks, Billy. As a reminder please limit yourself to one question only. Feel free to hop back in the queue and ask additional questions at the end. Q&A will end at 10:30 a.m. Eastern Time. Operator, we can now take our first question. Operator [Operator instructions] Our first question comes from the line of Craig Siegenthaler of Bank of America. Your line is now open. I'm good. So we had a question on a key competitive advantage. Tradeweb's ability to provide a one-stop shop platform across multiple asset classes. So how important is the wide asset class offering to your sales pitch and ability to penetrate traders on the buy side? And also to what degree has multi-asset trading become more or less common over time? Billy Hult -- Chief Executive Officer Craig, good to hear your voice. I hear you on the question, I've been saying this like pretty clearly for a while that technology is making the markets more connected than ever and Tradeweb is really well positioned because of our product depth as being this kind of like one-stop shop. I said it on CNBC. And actually it was like that sounds amazing maybe just don't say shop say platform, because this isn't like the '90s. You're not going to go home and watch Seinfeld at night. But the thesis, I think you understand really well. And so when we think about this for a moment I would say kind of part of the company's history forever. So let me just say this very clearly, like for sure, being in government bonds way back when helped us get into, for example, TBA mortgages. Being in European government bonds helped us get into European slots. Then there's sort of like more kind of seismic moments where we wanted to get into interest rate swaps at a point in time where the Fed was cutting rates and mortgage originators became this like massive consumer of interest rate swaps and kind of kind of put us on the map so you can kind of feel the history in terms of what I'm describing in terms of our commitment to multi-asset class trading. When we think about like today for a moment from our perspective the stats are basically 16% of global AUM is now sitting in multi-asset bonds. That's up from about 10% in 2018. We think that's going to kind of trend continually higher. From our perspective, Craig, for a second, on a firm level, I think the stats are around 60% of our clients trade at least two products and about one in five trade at least five products. So those are pretty kind of interesting numbers. On a trader level, it's even a little bit more interesting. 30% of our traders are now trading three products with us. We can understand that. If you think about like the macro businesses, that makes a lot of sense. And over 10% of our traders trade over five products, right? I think it was Samir that gave me a stat that we actually have one trader who's now trading like 11 different markets with us. Like I think that that guy needs like at least five fleece vests from Tradeweb. But those are the stats. And I would say just, you know, very straightforward from me, the stats matter. And then there's the kind of the ethos piece of this, which is part of how we build and grow businesses here. So when we wanted to get into credit and we saw that there was a door opener for us to compete in credit, if the question is when you walk into PIMCO, and you're a partner to them in terms of building a mortgage business, does it help us make a sale into credit? 100%. Because I think that there is a reality that credibility leads to opportunity. I think that's a straightforward comment. Credibility leads to opportunity. And then the balance of the world, when we think about the firm's relationships with the sell side and you think about the big banks and we think about how the firm interfaces with the Jim DeMars of the world or the Troy at J.P. Morgan or Ashok at Goldman, I can't leave out Andy Morton, look we interface really well. I think we're partly that's because we have a very strategic resonance with them when you think about the businesses that we are in and when you think about how those businesses kind of touch their P&L. And so that's been a big advantage for us in a certain way forever. And you kind of even heard what we're doing, for example, if you think about the money market business and how it sort of funnels through all of the markets that we are in, the ability for us to connect kind of our repo world into interest rate swaps, you're talking about two worlds that have been kind of historically pretty sleepy and now we're showing like massive innovation in terms of how those markets are operating. So my instinct is it's been a big advantage for us and the very strong instinct is given the trend of technology and the way these markets are sort of more connected than ever, it's a further advantage for us as we continue to grow our market share and build ourselves into new markets. So that's the view. Appreciate the question, Craig. Thank you. One moment for our next question. Our next question comes from the line of Ben Budish of Barclays. Your line is now open. Ben Budish -- Barclays -- Analyst Hi. Good morning, and thank you for taking the question. Billy, in your prepared remarks, you called out a number of stats on portfolio trading, the growth in ADV, increasing number of line items, the largest portfolio trade ever on your platform. I was wondering if you could talk about kind of your medium to longer term outlook for the protocol. How is usage changing? What are these new types of firms engaging with portfolio trades that weren't before? And how are some of the newer market makers the large trading firms that are joining the platform recently, how are they engaging with the protocol? Thank you. Billy Hult -- Chief Executive Officer Yeah. That's a good question, Ben. How are you? So we're positive on portfolio trading, right? And because the thesis is -- and you guys have kind of heard me say this very clearly, we stand for balance, right? So we love the concept of ultimately the buy side acting like the buy side and the banks acting as market makers, we think that there's going to be significant volume that goes through in that basic direction. And so from our perspective, portfolio trading now represents a little bit less than 10% of trace in the second quarter of 2024, that's up from 5% in the second quarter of 2023. We're getting a lot of sort of opinions that that can land in that sort of like 20% to 25% zone of total trace volume. I have an instinct that it can be higher. Again, thinking about the concept of balance the banks coming back into the equation from an electronic perspective. And then the concept of, kind of, risk trading really, kind of, entering into that protocol is a big deal, right? So when we think about the progression of it all, right, originally if you remember the protocol was sort of built for asset managers for, kind of, month or quarter end rebalancing kind of period. It's shifted and changed a lot from there, right? So now you have hedge fund clients using the protocol for how we think about risk on trade tactical trades. More recently we've seen insurance firm using it for asset liability management. These are like pretty big kind of progressions in terms of behavior. Your second part of the question is quite interesting right because now we're seeing and we're talking about the emergence of how we think about sort of the alternative market makers. I think that's still the right way to describe them but the alternative market makers kind of entering the space with a lot of emphasis around technology. We think about sort of the citadels of the world, the changes of the world that are doing an excellent job in terms of warehousing risk. Virtue has been very clear about their plans. I think Doug used the word Switzerland to describe himself in terms of his relationship between Tradeweb and Market Access. I'm going to -- I always thought we were kind of Switzerland but I'll have that conversation with him off-line. But they're very, very important players in the space, right? You have these kind of firms filling a void. You do not have the sort of legacy kind of traditional way of doing business kind of issues. And then you have companies that have significant DNA and expertise and experience on the anonymous side of the trading world getting into disclosed trading and the wallet around disclosed trading and that's a big deal. So my instinct is they're going to take the concept and the premise of portfolio trading very seriously. And that's a big deal for us in terms of how we partner with them going forward. So feeling quite good about directionally where we're going with portfolio trading and thanks for the question. Thank you. One moment for our next questions. Our next question comes from the line of Tyler Mueller of William Blair. Your line is now open. Unknown speaker -- -- Analyst Good morning. This is Tyler Mueller on for Jeff Schmidt. We were curious what has the client response been to the rollout of RFQ Edge? Is the additional functionality in analytics helping penetration of larger block trades? Thank you. Billy Hult -- Chief Executive Officer Sure. Hey, Tyler. Good question. Well, by the way I love the sort of RFQ Edge. I think that's a great kind of marketing protocol for the company. It's early days and it's a good question. The initial feedback has been quite positive. From our perspective the enhancements are all about kind of adding analytics real-time charging into the RFQ ticket. We think that like directionally investing in clients more upstream is important. That's a very kind of strong kind of strategic move for us. RFQ Edge enhancements they basically reflect similar analytics to what we provide to our clients across portfolio trading. It allows you to trade with multiple dealers and the all-to-all market all at once. Again, it's all about sort of enhancing and investing into the client experience. We have a few clients who are utilizing it like a portfolio trade where they're going to fewer dealers sending larger sized trades, fewer dealers larger sized trades that concept of sort of information leakage minimizing information leakage. These are like very, very important principles and something that we've invested in for a long time really understanding client flow I think in a very straightforward way. That's the ultimate edge for us. So we're feeling good about that protocol early days more to come on it, and appreciate the question. Chris Allen -- Citi -- Analyst Good morning, everyone. Thanks for taking the question. I want to talk about the third-party market data business a little bit. I'm wondering what the kind of key growth drivers are here. Any new products you may be able to introduce now, how are you maybe able to expand the penetration of existing products? And also, can you kind of remind us some of the mix today between different data offerings and how much they contribute? Sara Furber -- Chief Financial Officer Sure. Hey Chris, it's Sara. Thank you for the question. Market Data has been a great business for us. And I think as we always talk about first and foremost our top priority with utilizing market data is to improve the execution for our clients. But obviously, we have direct normalization of market data as well. In the second quarter, we had about $29 million of revenue overall from market data. The bulk of that, about $20 million coming from LSEG, and $9 million in the quarter, from the third party data line that you're asking about. That line obviously, a much smaller base but it's grown really nicely for us about 17% over the last five years on average. If you think about what's in that bucket there, a few components. The biggest element driving that third-party line is really pricing product. So pricing would constitute about 60% of that $9 million, and it's really things like benchmark and reference products. So think about our ability to have a closing price on U.K. Gilt or U.S. treasuries. Newer products like iNAV, our intraday ETF type of pricing, new AI pricing. This concept of creating benchmarks and then ultimately in terms of a growth strategy, as they get further adopted it adds growth in two ways: one, directly from licensing fees as you create indices as people consume closing and reference prices, but also increased trading flow, which obviously is great for our other lines. That's the biggest bucket. That's the biggest growth driver the thing we're most excited about, obviously, partnered with FTSE, which is owned by LSEG to do a lot of that. The other components in that line are really around analytics and some post-trade regulatory-type products, things like PCA. So I think overall, we're quite bullish in our ability to grow the opportunity here. There's new types of licensing reference data that we can create. In some ways, it's limitless. Any asset class that we're trading, we can help create a closing price or benchmark for. It doesn't happen overnight. But you can see in terms of that model, you can create more products. And then as it gets further and further entrenched in the network, more adoption then there's inherent growth. And we're seeing the benefit of both of those things in that line today. Thank you. One moment for our next question. Our next question comes from the line of Alex Blostein of Goldman Sachs. Your line is now open. Alex Blostein -- Analyst Hey. Good morning. Hi, Billy and everybody else. So I wanted to talk a little bit more about the interest rate swap business. I know it's a topic that come up a bunch in the past and I've asked you guys this numerous times in the past as well. But it seems like this business just kind of continues to set new records and second quarter was an exception of that. So what drove the strength in the second quarter? That's one. And maybe you can just kind of zoom out and talk broadly how you're thinking about the revenue growth algorithm in this business over the next couple of years, because it seems like it continues to do much better than what the baseline should be. Billy Hult -- Chief Executive Officer Yeah, it's been a great, great kind of environment for us, obviously, Alex, and it's a very good question. So was kind of like the second quarter is almost like a perfect microcosm of like what our clients care about the most. There's geopolitical uncertainty varying inflation prints, changing election odds, all of that stuff and our business has really been kind of clicking in. It's primarily been a market share story for us, I would say. As you know very well, our swaps business we think about it as sort of almost like a complementary to our global government bond business and our mortgage franchise. I made the point and I want us to kind of keep thinking about this when the Fed gets into rate cut mood. Our instinct is that those sort of mortgage originators are really going to kind of step into the equation around swaps. But we've gained market share and growing revenue really kind of in three ways. It's first and foremost, by adding new customers and migrating them from voice to E. That's like Tradeweb kind of one-o-one stuff and that's been a big driver of our market share. I would say second, it's always by kind of building new products and that from our perspective would be EM. And then I think very, very importantly, and I've used the expression before micro trading protocols. So the example of that would be like request for market. We call it RFM something like code words a trade web but request for market where a buy-side client can go to one dealer ask for a two-sided market and then trade on one side of the marketplace it really ultimately replicates the exact behavior that large kind of macro funds trade big size in the market on. And those kind of trades would happen on the phone or through bluebird messaging, and now they're happening through Tradeweb. As we kind of plot the future a little bit, it's going to be about continued sort of success around EM swaps. We feel bullish on inflation swaps. I think swaptions is a very kind of interesting not to crack for us. And then there's going to be, again, we talked about sort of technology and this kind of concept of multi-asset pack swaps. So a lot more for us to do in the area and feeling really, really good about how we've continued to perform gaining market share in swaps. As you know Alex very well, and I sometimes feel like a little bit like the Tradeweb, I've made the joke to Tradeweb story. And this was the sort of back alley of all the rates markets -- of all the macro markets for a long time. And to see this business flourish in volatile and interesting environments has been quite rewarding for the company and feeling really good about where it's going from here. So thanks for the question. Thank you. One moment for our next question. Our next question comes from the line of Patrick Moley of Piper Sandler. Your line is now open. Patrick Moley -- Piper Sandler -- Analyst Yes. Good morning. Thanks for taking the question. So I had a question. FMX is launching in September. I understand that a lot of the conversation with FMX has been around the futures business, but they do have a club treasury business that you compete with currently. So I understand that -- it's not a huge part of your business, but I was just curious to get your thoughts on FMX broadly and what this new consortium of dealers in the rate space means for competition in the industry? And then if I could add a follow-on to that you mentioned in your prepared remarks that the CLOB was starting to trend higher for you. I know that's been a business that you haven't been completely satisfied with since you bought it from Nasdaq a few years ago. So maybe if you could just expand on the strength you're seeing there and your expectations for that business going forward? Thanks. Billy Hult -- Chief Executive Officer Yeah. Hey, Patrick. Good to hear your voice. Hope you're doing really well. Maybe a comment about sort of Switzerland before. I was watching CNBC yesterday with Mr. Duffy kind of talking about this business and thinking myself there's like there's no Switzerland kind of in this moment. Howard is a big personality kind of everyone knows that. I think we've known him well and we have a very respectful relationship both with him and with the CME. My instinct is the kind of clear goal is to -- from an FMX's perspective is to take on the incumbent in the futures market. And that's our business model and we'll see how all of that will play out. I think it's going to play out a bit on TV and it will be an interesting kind of story to watch. We feel to make an obvious point and it's a good question we feel really, really good about the strength of our treasury business both on the client side and on the wholesale side. I have a very strong message that I delivered to the company, which is be super conscious and super aware of the competitive landscape. And so to make an obvious point very well aware of everything that Howard has done in this space and continues to try to do in this space. Be super aware of the competitive landscape, but live and breathe with your clients and always make that the most straightforward focus. So our wholesale business on the treasury side continues to do extremely well. From your question about the cloud versus the streaming business, we continue to do exceptionally well in terms of growing our streaming business. The r8fin acquisition has been helpful to us not surprisingly in all of that. I think we do still have work to do on the CLOB. I think that is an important piece of the market. There have been market share shifts in the CLOB world. And this company sort of executes and from our perspective we want the company to continue to kind of click on all cylinders. And that's an area where we tend to roll up our sleeves a little bit and make sure that we're pressing the right buttons in the CLOB and investing there correctly and hiring the right people and moving that business forward. As you know very well this is a company that stays quite focused. And there's enough news out there is the good piece of it. We're going to stay very, very focused. We're going to kind of sit back and see what happens around the kind of futures market in terms of all of that and then stick to our knitting, stay close with our clients and continue to do really well in our wholesale business. Thank you. One moment for our next question. Our next question comes from the line of Brian Bedell of Deutsche Bank. Your line is now open. Brian Bedell -- Analyst Great. Thanks. Good morning, folks. Maybe just -- not to focus too much on the short-term here but just your comments for July, Billy, on investment grade and high yield. Market share looks like a little lower than June. Maybe just if you can comment on what you think may be driving that? Is it more of a shift in the business mix either environmental or due to portfolio trading or within the client base dealer to institutional? Billy Hult -- Chief Executive Officer Yeah, good question and fully get you. Don't read too much into that -- into those numbers yet. I mean generally speaking we tend to kind of wind up outperforming from a market share perspective in that arena around some of those portfolio trading protocols toward the end of the month. I think we're going to wind up in a very good place when you see our all-in July number. I think you're going to see continued sort of growth of portfolio trading which is from our perspective our kind of go-to protocol and something that we kind of thrive in. So I don't think you're going to see a big kind of disconnect, when all is said and done. Feeling really good about where we are in credit. And I think that's important to say that. The Aladdin integration remains a high priority for us as a company, onboarding the right market makers in high yield when we get into the open trading environment that's an important concept for us. We've talked about that a lot. And we're going to continue to thrive in that portfolio trading world where we talk about the balance of it all the big buy-side clients acting like the buy side and the dealers investing in market makers the alternative market makers arriving on the scene. From our perspective these are quite good forward trends for our credit business. And that's where our focus is going to stay. Good question, and thank you. Thank you. One moment for our next question. Our next question comes from the line of Ken Worthington from J.P. Morgan. Hi. Good morning, and thanks for taking my question. I wanted to focus on business environment maybe part one, as you mentioned to Alex's question it's been election season globally. How is, the election season impacted activity levels given some changes in Europe already? And are there any clear takeaways from a Harris or Trump presidency for Tradeweb in U.S. markets? And then maybe part two is, we've seen bond issuance in net sales into fixed income funds increased substantially in 2024 versus 2023 levels. How should we expect higher issuance in sales to translate into investment grade or high-yield trading volume from Tradeweb from a timing and magnitude perspective? Billy Hult -- Chief Executive Officer Yeah. Sure you've got it just like had like an incredible kind of six weeks. And I feel like the story is changing constantly. As we said before, I think healthy debate in the market is good for our business. And so obviously we saw some record revenue days in June. We talked about the concept of geopolitical uncertainty, the different bearing inflation prints. I think -- and look, you always get the straight answer for me to start with I'm not an economist. I think the Fed is going to cut no matter who the president is. I'll say that. I think that's going to wind up being quite good for our business. I think you're going to get sort of different policy obviously, but my instinct is global debt is rising. And I talk about the concept of I think very importantly the Fed playing a lesser role in the markets that Tradeweb lives and breathes in. And so that leaves us with this feeling sort of no matter the election results that private sector risk intermediation is back in vogue. I do think you're going to see continued strong levels of issuance of debt issuance going forward. And my instinct is markets like high yield are going to have a pickup in volume a pickup of activity as we get into 2025. Not to make you laugh that those are my thoughts. I feel like I've had 10 different thoughts about what was going to happen over the last month and I'm sure kind of everyone on this call has too. So it's been a little bit in a human way I can say this. It's been a little bit of a challenging time with all the things happening in the world. And so we remind ourselves how lucky we are sometimes. But it's been a tough couple of months just in terms of all the events in the world. That's a great question. Thank you. Thank you. One moment for our next question. Our next question comes from the line of Daniel Fannon of Jefferies. Your line is now open. Daniel Fannon -- Analyst Good morning. Thanks for taking my question. Within high yield you mentioned in your prepared remarks expanding your client network is kind of key to growth. Can you impact where your current strengths are today and what client segments you're targeting to actually get that future growth? And maybe how does the Aladdin partnership accelerate that? Billy Hult -- Chief Executive Officer Yeah. So that's a good question, Dan. Straightforward strengths probably not surprising to you at all. We would say are like the long only asset managers. I'm going to push the team with Sara around continuing to form kind of deeper relationships with the ETF market makers. They're obviously extremely important in the high-yield business. I think we've done very well with them. They're critical. So we're going to keep kind of extremely focused there. Hedge funds and private banks in terms of like liquidity taking very important kind of institutions in the space. We're focused on Aladdin because we think it's going to help kind of round out that responder network in a way that's going to work for us and the perception around making sure that we have best-in-class liquidity in high yield. And I say this to you because it's always sort of a two-pronged approach. As we do that there's going to be a continued message around the benefits of portfolio trading, which we think we're going to see continued growth particularly in the high yield area around portfolio trading. So we want to make sure we're kind of thinking about that marketplace from two different protocols the right way. And then we're going to be very focused always on the client base. So deeper relationships inside of that ETF money market -- ETF market maker world and make sure we have the right responders in, which is partly why that Aladdin integration means so much to us. Sara Furber -- Chief Financial Officer And Billy maybe just one other area we've talked about in the past as well. When we think about the client base we've spent a lot of time and energy and continue to focus on building out our EM platform. That's another area I think we see some benefit in terms of high yield expansion. There's a big overlap there in some of those traders. Thank you. One moment for our next question. Our next question comes from the line of Kyle Voigt of KBW. Your line is now open. Kyle Voigt -- Analyst Hi, good morning everyone. So with ICD likely to close within the next week or so, just wondering if you can update us on your appetite for incremental M&A from here especially given that we still have a significant amount of balance sheet flexibility post-close? And with respect to ICD. Can you just remind us of the integration time line there? It sounds like there may be some incremental investment upfront. So how can we think about the margin trajectory after that? Sara Furber -- Chief Financial Officer Yes, that's great. So I was laughing thinking Billy answer to this M&A question last quarter. Look M&A -- let me start with the first part of your question. We think M&A is a tool just like organic growth as a tool partnerships and investments are tools to implement our strategic objectives. We've done three acquisitions if you include ICD in the last 18 months and we're focused on doing those well, which means executing and integrating. So it's obviously like top of mind and I'll talk a little bit more specifically around the plans of ICD. That said, while we do that, we constantly are focused on achieving our strategic objectives. So we're going to be disciplined about looking at other opportunities, but we're going to continue to look at that tool and balance -- executing well. We will continue to be opportunistic and grow our company. We think we're on our front foot. We have a great balance sheet. We have a great stock, but we're going to be very disciplined about it. Hopefully you've seen that in the few ones that we've pursued so far. ICD specifically, we expect to close shortly. In terms of where we are I think we've talked a little bit about the margin expectation for ICD out of the gate is probably a little bit lower than where ours is right now 47% to 49% I think is the range that we've talked about. That's really reflecting our increased investment in that platform. Strategically, the business is performing very well. And in the client dialogue that we've had, we've been really pleased that our thesis around their desire for our types of products really that receptivity and that strength of the client relationship, the ICD client managers have has been really strong. So in terms of where we're headed, I think the opportunity for us in the near term and medium term is really around driving those revenue synergies, really taking our international footprint introducing ICD into that client base and then obviously it was going to take a little bit longer, but certainly on our 12- to 18-month technology road map and some of it will happen sooner it's not a big bang, it's introducing connectivity to our platform. So those corporate treasurers can buy our products. They've had interest. We will likely start with U.S. treasuries which we think we're very well placed to do. But you can see how once you're in a mode on that portal of actually transacting and these corporate treasurers are transacting today in our products, U.S. treasuries can go to CDs, can go to CP, can go to corporate bonds, there's a whole range of outcomes that we see over the medium term and we're quite excited about that opportunity. Billy Hult -- Chief Executive Officer And Sara, we talked a lot about sort of the importance of the management team and the cultural fit maybe just a minute from you just on how impressive we've been with that management team starting with Tory. Sara Furber -- Chief Financial Officer Yes. I mean the management team starting with Tory who's CEO of ICD, we have been able as a broader team to spend a great deal of time with not only in the diligence process, but one of the benefits I joke because it's obviously time consuming but one of the benefits of having done these three acquisitions in a short time period is we've really honed our playbook and been able to connect with the management teams, ICD and Tradeweb at every levels. So Billy mentioned Tory, but it goes from the heads of products, the CTOs, CMOs and obviously through the finance and broader parts of the organization. So the talent that we are bringing on board as partners to grow our platform, we are really excited about. And I think having been on in part of a number of acquisitions that cultural fit, the mindset that focus on clients, that's one of the things that makes acquisitions even more successful. So I think Billy is right to point out the talent is high, but the cultural fit in the way that we approach serving our clients is actually a tremendous fit that makes us even more enthusiastic than we were when we announced the deal. Thank you. One moment for our next question. Our next question comes from the line of Michael Cyprys from Morgan Stanley. Your line is now open. Michael Cyprys -- Analyst Great. Thanks, so much for squeezing me in here. Just wanted to circle back to your earlier comments on the investments you're making in emerging technology. I was hoping you could elaborate a little bit on that. What are your aspirations there? And if successful what does that look like? I think one of the things you were articulating with blockchain. So I guess just related to that, how do you see the potential for a blockchain in your markets and your business over the long term? Sara Furber -- Chief Financial Officer Sure. Thanks for the question. I think digital assets and emerging technologies are really interesting point in the cycle. We've spent years really looking at the space and being very disciplined about how we spend our capital. But increasingly part of our strategy is to partner and invest. Those technologies don't have to be born and created in-house for us to really avail ourselves of it. And blockchain is a perfect example. From our seat, leveraging distributed ledger technology like blockchain obviously has a lot of impact in trading businesses in terms of eliminating manual reconciliations, reducing cost of transactions, and we want to be on our front foot about figuring out how that gets leveraged and how we learn. Those things also have ecosystems just like our markets today in the more traditional space have ecosystems. And so two investments that, we've done recently one with Canton Network which is a blockchain network the other around alpha ledger which is actually a blockchain infrastructure both are giving us different seats at the table and seeing how that technology can be utilized for either issuance or trading of securities in alpha ledgers cases around brokered CDs and Canton, which is like a much more well-understood network really around how that ecosystem scales and create interoperability for digital assets. So I think it's still early days around these emerging technologies but certainly we're positioning ourselves to be an important player as that market evolves whether it's a digital assets trading on the blockchain or some more traditional. Billy Hult -- Chief Executive Officer And Michael, Sara described that perfectly, I would say like, when you build markets you learn sort of an aspect of pragmatism pretty quickly. And so we're always sort of thinking about like how some of these things pragmatically can live and fit in our marketplace. Sara, and I talk about this all the time, we're going to describe for you sort of two markets that feel like they have sort of the type of market or the type of settlement process that could really kind of benefit from some of these technologies that are clearly so important. And you specifically mentioned blockchain, we would sort of point out obviously first to start with the repo market. And then the second market that we would probably point out and we think this market is going to become more and more important over the next couple of years is, if you think about how the TBA market kind of traditionally settles. I think the feeling is there are going to be sort of blockchain technologies that could create more efficiencies in that market over time. The key and most important kind of words around that would be over time, because I do think it will take time for that kind of technology to get applied pragmatically into our world, but the opportunity in a really interesting way is there. An excellent question Michael, thanks. Thank you. One moment for our next question. Our next question comes from the line of Alex Kramm of UBS. Your line is now open. Alex Kramm -- Analyst Yes. Hello, everyone. Just wanted to come back to portfolio trading and credits one more time. When I talk to some of your largest buy side clients they totally agree that this protocol is going to get bigger. So that sounds great. But at the same time obviously you have very dominant market share in that business. And when I talk to those clients, they definitely say like look over time we do like competition. We're going to have to spread all off a little bit more. So considering that that's a very concentrated market right now and I don't think it has as much network effect than maybe RFQ has. Is that something that worries you? And how do you think you can defend that as again maybe it's a little bit more of a workflow than a real network liquidity? Thanks. Billy Hult -- Chief Executive Officer That's a really good question. I mean I think like really in a certain way kind of agree with a lot of your thesis. First of all, with like the way that the buy-side clients are embracing that protocol, I think that's like spot on. And I think you hear me loud and clear around the importance of the sort of balance around the ecosystem. We're going to do sort of exactly what you would expect us to do which is to sort of continue to enhance and innovate and do things around technology to enhance the clients' experience with portfolio trading. We're also going to remind our bank partners that, it's not that we created this portfolio for you guys but absolutely, we went out of our way in a very straightforward concept to bring the big banks back into the equation, and we do think we've gotten a lot of support as we've done that. So I think the forward trend is going to be continued sort of market share growth around portfolio trading. I think we have our ways to sort of defend that forward. It's a big focus for the company to make sure we stay and we will stay as the leading venue for portfolio trading. So we're focused on it. And my general feeling is we're going to show continued market share strength in portfolio trading. Thank you. This concludes the question-and-answer session. I would now like to turn it back to CEO, Billy Hult, for closing remarks. Billy Hult -- Chief Executive Officer Thank you all very much for joining us this morning. Great questions as always. Any follow-up please obviously feel free to reach out to Ashley, Sameer and our great team. Thank you all.

Tradeweb Markets Inc. (TW) Q2 2024 Earnings Call Transcript

Ashley Serrao - Head of Treasury, FP&A & Investor Relations Billy Hult - Chief Executive Officer Sara Furber - Chief Financial Officer Good morning. And welcome to Tradeweb's Second Quarter 2024 Earnings Conference Call. As a reminder, today's call is being recorded and will be available for playback. To begin I'll turn the call over to Head of Treasury, FP&A and Investor Relations, Ashley Serrao. Please go ahead. Ashley Serrao Thank you and good morning. Joining me today for the call are our, CEO, Billy Hult, who will review our business results and key growth initiatives, and our CFO, Sara Furber, who will review our financial results. We intend to use the website as a means of disclosing material nonpublic information and complying with our disclosure obligations under Regulation FD. I'd like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements related to among other things, our guidance and the ICD acquisition are forward-looking statements. Actual results may differ materially from these forward-looking statements. Information concerning factors that could cause actual results to differ from forward-looking statements is contained in our earnings release, earnings presentation and periodic reports filed with the SEC. In addition on today's call we will reference certain non-GAAP measures as well as certain market industry data. Information regarding these non-GAAP measures including reconciliations to GAAP measures is in our earnings release and earnings presentation. Information regarding market and industry data including sources is in our earnings presentation. Thanks, Ashley. Good morning, everyone and thank you for joining our second quarter earnings call. This was another outstanding quarter as Central Bank step back private sector intermediation continues to be in vogue. From evolving inflation print to snap elections across Europe and the UK, the macro debate continues to flourish globally and our one-stop solution is resonating with our clients. At our core, we are a technology company that caters to the financial service industry. We have a simple job how can we continue to save our clients, time and money and provide them with more efficient means of trading in the financial markets. Change is constant and we are focused on being on the forefront of that change via technological, market structure or behavioral. As the markets and our clients evolve, we continue to position Tradeweb for the future. After closing our acquisitions of Yieldbroker and r8fin, we are pleased to have announced the signing of an agreement to acquire ICD in April. We are on track to close ICD shortly, which will add corporates as our fourth client channel. Diving into the second quarter, we achieved our best second quarter in our history. Specifically strong client activity, share gains and risk on environment drove 30.4% year-over-year revenue growth on a reported basis. We continue to balance investing for growth and profitability as adjusted EBITDA margins expanded by 98 basis points relative to the second quarter of 2023. Turning to slide 5. Rates and credit led the way, accounting for 61% and 29% of our revenue growth, respectively. Specifically the rates business was driven by continued organic growth across global government bonds, swaps and mortgages and was also supplemented by the addition of r8fin and Yieldbroker. Credit was led by strong US and European corporate credit with record quarterly market share in electronic US investment grade and aided by strong growth across municipal bonds, China bonds and credit derivatives. Money markets was led by continued growth in institutional repos, equities posted low single-digit revenue growth despite challenging industry volumes in our core ETF business. Finally, market data revenues were driven by growth in our LSAG market data contract and proprietary data products. Turning to slide 6. I will provide a brief update on two of our focus areas; US treasuries and ETFs and then I will dig deeper into US credit and global interest rate swaps. Starting with US treasuries. Record second quarter revenues increased by 28% year-over-year led by records across all our client channels. Our institutional business saw record adoption of our streaming protocol and growing usage of our RFQs offering. The leading indicators of the institutional business remains strong. We gained share and achieved record quarterly market share of US treasuries versus Bloomberg crossing the 50% threshold for the first time, which we have maintained. Client engagement was healthy with institutional average daily trades up 45% year-over-year. Automation continues to be an important theme with institutional US treasury AIX average daily trades increasing by nearly 100% year-over-year. Our wholesale business produced record volumes led by our streaming offering. Our other protocols also saw strong growth, particularly our CLOB which has begun to trend higher. Our recent acquisition of r8fin is off to a strong start, contributing approximately 2.3% to our overall US Treasury market share, complementing our CLOB and streaming protocols. The team remains focused on onboarding more CLOB liquidity providers over the coming quarters, as they deliver on a holistic strategy across our wholesale protocols. Within equities, our ETF revenues grew mid-single digits, but faced a tough industry backdrop given lower equity market volatility. Other initiatives to expand our equity brand beyond our flagship ETF franchise continue to bear fruit with second quarter convertible bond revenues increasing by 10% year-over-year. Looking ahead, the client pipeline remains strong as the benefits of our electronic solutions continue to resonate. We believe, we are well-positioned to capitalize on the long-term secular ETF growth story, not just in equities, but across our fixed income business. Turning to slide 7 for a closer look at another strong quarter for credit. Strong double-digit revenue growth was driven by 33% and 29% year-over-year revenue growth across US and European Credit, respectively. We also achieved strong double-digit growth across munis, China Bonds, and credit derivatives. Automation continued to surge with global credit AiEX average daily trades increasing by about 45% year-over-year. We set another fully electronic quarterly market share record in US IG helped by record IG block market share of 9%. We also achieved our second highest fully electronic market share in US high yield. Our institutional business continues to scale as clients adopt our diverse set of protocols to improve liquidity, price transparency, and efficiency. Our primary focus on growing institutional RFQ continues to pay off with average daily volumes growing 30% year-over-year, with strong double-digit growth across both IG and high yield. Moreover, portfolio trading average daily volume rose 100% year-over-year with IG portfolio trading reaching record levels. We continue to focus on leading with innovation, and this is resonating with our clients. We saw portfolio trading users grow by over 20% year-over-year, a record number of line items traded in the quarter, and our largest ever portfolio trade in excess of $3 billion. Retail credit revenues were up over 20% year-over-year as financial advisors continue to allocate investments towards credit to complement their buying of US Treasuries and retail certificate of deposits. AllTrade produced a solid quarter with nearly $190 billion in volume, up over 45% year-over-year. Specifically, our all-to-all volumes grew over 20% year-over-year and our dealer-RFQ offering grew over 10% year-over-year. The team continues to be focused on broadening out our network and increasing the number of responders on the AllTrade platform. In the second quarter, the average number of responses per all- to-all A2A inquiry rose by 35% year-over-year. We also continue to increase our engagement and wallet share with ETF market makers. Finally, our sessions average daily volume grew over 60% year-over-year and produced the second 2nd highest quarterly average daily volume ever. Looking ahead, US credit remains our biggest focus area and we like the way we are positioned across our three client channels. We believe we have a long runway for growth with ample opportunity to innovate alongside our clients. Our strategy is focused on expanding our network, increasing our wallet share, enhancing our pre and post-trade analytics and continuously improving our protocols and client experience. In the second quarter, we enhanced our RFQ offering with our rollout of RFQ Edge, where we're already seeing over 25% of our RFQ users utilizing RFQ Edge. RFQ Edge takes the traditional RFQ list ticket and incorporates real-time trading data, charting functionality, and execution cost analysis. We also remain very focused on chipping away at high yield, and we believe we are well positioned to replicate the success we've had in IG. Specifically, we're making progress in our Aladdin integration with the goal of improving the client experience and increasing electronification in these markets. We're still on Phase 2, which is focused on all trade and RFQ, but our teams are already out on the road meeting with respective clients and walking them through all the enhancements made to date. With our Aladdin integration closing a gap and providing a foundation for growth, we expect high yield growth from here to be driven by the expansion of our client network led by strategic sales hires, functionality enhancements and stronger penetration with ETF market makers. Beyond U.S. credit, our EM expansion efforts continue with growing adoption of our portfolio trading and RFQ offerings and early positive signs across wholesale EM. On the product side, we are focused on leveraging our diverse product expertise, enhancing our integration with FXR and continuing to build out functionality for multi-asset package trading. Moving to Slide 8. Global swaps produced record revenues driven by a combination of strong client engagement in response to the macro environment and continued market share gains. Strength here was partially offset by a 3% reduction in duration and elevated quarterly compression activity. All in global swaps revenues grew 56% year-over-year and market share rose to 23.6% with record share across dollar G-11 and EM-denominated currencies. Central to our ethos is our focus on helping clients by connecting the dots across fixed income products. Given the heightened market volatility across money markets, our repo clients have been increasingly referencing swap curves, when evaluating fixed-rate repo trades. Yet their process was cumbersome, and our clients asked for a better solution. During the quarter, we became the first electronic trading platform to make overnight index swap curves available during the repo trade negotiation process, helping institutional clients assess the price competitiveness of different repo rates across different currencies and maturities. Finally, we continue to make progress across emerging markets swaps and our rapidly growing RFM protocol. Our second quarter EM swaps revenues more than doubled year-over-year, and we believe there is still significant room to grow given the low levels of electronification. Our RFM protocol saw average daily volume rise over 115% year-over-year with adoption picking up. Looking ahead, we believe the long-term swaps revenue growth potential is meaningful. With the market still about 30% electronified, we believe there remains a lot we can do to help digitize our clients' manual workflows, while the global fixed income markets and broader swaps market grow. And with that, let me turn it over to Sara to discuss our financials in more detail. Sara Furber Thanks Billy and good morning. As I go through the numbers, all comparisons will be to the prior year period, unless otherwise noted. Slide 9 provides a summary of our quarterly earnings performance. As Billy recapped earlier, this quarter we saw record second quarter revenues of $405 million that were up 30.4% year-over-year on a reported basis and 30.8% on a constant currency basis. We derived approximately 38% of our second quarter revenues from international clients, and recall that approximately 30% of our revenue base is denominated in currencies other than dollars, predominantly in euros. Our variable revenues increased by 40% and total trading revenues increased by 31%. Total fixed revenues related to our four major asset classes were up 4.2% on a reported and 4.5% on a constant currency basis. Fixed revenue growth was primarily driven by previously disclosed dealer fee increases in credit that were instituted at the start of the third quarter of 2023. And other trading revenues were up 9%. As a reminder, this line fluctuates as it reflects revenues tied to periodic technology enhancements performed for our retail clients. Year-to-date adjusted EBITDA margin of 53.6% increased by 117 bps on a reported basis when compared to the 2023 full-year margins. Moving on to fees per million on Slide 10 and a highlight of the key trends for the quarter. You can see slide 16 of the earnings presentation for additional detail regarding our fee per million performance this quarter. For cash rates products, fees per million were up 4%, primarily due to an increase in European and Australian government bond fees per million. For long-tenor swaps, fees per million were down 2% primarily due to a slight increase in compression as well as a 3% decline in duration. For cash credit average fees per million decreased 12% due to a mix shift away from munis and sessions traded. For cash equities, average fees per million were flat due to lower U.S. ETF fees per million given an increase in notional per share traded. Recall in the US, we charge per share and not for notional value traded. This was offset by a mix shift towards higher fee per million EU ETFs. And finally within money markets, average fees per million decreased 8% driven by a mix shift away from higher fee per million U.S. CDs and towards our growing institutional repo business. Slide 11 details our adjusted expenses. At a high-level, the scalability and variable nature of our expense base allows us to continue to invest for growth and grow margins. We have maintained a consistent philosophy here. Adjusted expenses for the second quarter increased 25.8% on a reported basis and 27% on a constant currency basis. Adjusted compensation cost increased 32.2% due to increases primarily in performance-related compensation headcount and severance. Excluding $2.9 million related to severance compensation costs increased 29.4%. Technology and communication costs increased 29.6% primarily due to our previously communicated investments in data strategy and infrastructure. Adjusted professional fees increased 6% mainly due to an increase in consulting costs. We expect professional fees to continue to grow overtime, as we spend more on technology consulting to support our organic growth. General and administrative costs increased due to a pickup in travel and entertainment which on a reported basis was partially offset by FX gains year-on-year. Favorable movements in FX resulted in a $1.7 million gain in the second quarter of 2024 versus a $150,000 loss in the second quarter of 2023. Slide 12 details capital management and our guidance. On our cash position and capital return policy. We ended second quarter in a strong position with a $1.72 billion in cash and cash equivalents and free cash flow reached approximately $722 million for the trailing 12 months. Recall, we intend to pay $785 million in cash consideration for ICD once it closes. Our net interest income of $21 million increased due to a combination of higher cash balances and interest yields. This was primarily driven by the higher interest rate environment and more efficient management of our cash. With this quarter's earnings the Board declared a quarterly dividend of $0.10 per Class A and Class B shares. Turning to updated guidance for 2024, in light of strong business momentum and the anticipated closing of ICD shortly, we are increasing our adjusted expense guidance from $805 million. We now expect to be in the $830 million to $860 million range for 2024. Including the anticipated closing of ICD, we are currently trending towards the midpoint of this range which would represent an approximate 22% increase versus our 2023 adjusted expenses. Focusing on organic growth the midpoint of this range would represent an approximately 16% increase. Bridging the gap from $805 million to the midpoint of our new range, 63% of this increase is coming from the inclusion of ICD with 30% and 7% coming from better business momentum and the recently announced management changes respectively. Provided that ICD closes shortly, revenue from ICD is expected to be approximately $40 million over the next five months. Recall, we plan to invest in technology and marketing during the first 12 months post closing which we expect may temporarily push ICD's adjusted EBITDA margin down to 47% to 49%. All in, primarily factoring in the better business momentum we now expect our 2024 adjusted EBITDA margin expansion to slightly exceed 2023 levels. At the same time we expect to capitalize on the anticipated healthy revenue environment by accelerating investments to support our current and future organic growth. This includes infrastructure-related investments such as further enhancements to our global credit tech stack, expanding our integration capabilities to allow for cloud-based Python integration and retail platform enhancements to support the growth in trading activity we've seen in recent years. We are also selectively making small investments in emerging digital technologies such as blockchain and digital assets in order to leverage and benefit from their technical expertise without having to make significant investment to experiment in-house. We now expect our CapEx and capitalized software development to be about $77 million to $85 million for 2024. Acquisition and Refinitiv transaction-related D&A which we adjust out due to the increase associated with pushdown accounting is now expected to be $158 million. We continue to expect 2024 and 2025 revenues generated under the new master data agreement with LSEG to be approximately $80 million and $90 million respectively. Now, I'll turn it back to Billy for concluding remarks. Billy Hult Thanks Sara. Tradeweb thrives unchanged and we look forward to solving complex problems. Change can happen very fast or very slowly but we want to be that trusted partner that our clients look towards to drive innovation in the market. It's a great time to be in the risk intermediation business. I feel good about our future growth outlook. With a couple of important month-end trading days left in July which tend to be our strongest revenue days average daily revenue growth is trending at a high teens growth rate relative to July 2023. The diversity of our growth remains a theme. We are seeing strong volume growth across global government bonds mortgages interest rate swaps corporate credit and repos. Our IG and high-yield share are trending above 18% and 7% respectively in July. I would also like to welcome Amy Clock to the team who will be joining Tradeweb in August as Chief Administrative Officer and as a member of the Executive Committee. Amy brings more than 25 years of experience and will oversee operations business integration risk and corporate services. Finally, I would like to conclude my remarks by thanking our clients for their business and partnership in the quarter and I want to thank my colleagues for their efforts that contributed to the best second quarter revenues and volumes at Tradeweb. With that, I will turn it back to Ashley for your questions. Ashley Serrao Thanks Billy. As a reminder please limit yourself to one question only. Feel free to hop back in the queue and ask additional questions at the end. Q&A will end at 10:30 a.m. Eastern Time. Operator you can now take our first question. [Operator Instructions] Our first question comes from the line of Craig Siegenthaler of Bank of America. Your line is now open. Craig Siegenthaler Good morning, Billy, hop something is doing well. We had a question on a key competitive advantage. Tradeweb's ability to provide a one-stop shop platform across multiple asset classes. So how important is the wide asset class offering to your sales pitch and ability to penetrate traders on the buy side? And also to what degree has multi-asset trading become more or less common over time? Billy Hult Yes. Craig good to hear your voice -- hear you on the question I've been saying this like pretty clearly for a while that technology is making the markets more connected than ever and Tradeweb is really well positioned because of our product depth as being this kind of like one-stop shop. I said it on CNBC. And actually it was like that sounds amazing maybe just don't say shop say platform, because this isn't like the '90s. You're not going to go home and watch signs all at night. But the thesis, I think you understand, really well. And so when we think about this for a moment I would say kind of part of the company's history forever. So let me just say this very clearly like for sure being in government bonds way back when helped us get into for example TBA mortgages being in European government bonds helped us get into European slots. Then there's sort of like more kind of seismic moments where we wanted to get into interest rate swaps at a point in time where the Fed was cutting rates and mortgage originators became this like massive consumer of interest rate swaps and kind of kind of put us on the map so you can kind of feel the history in terms of what I'm describing in terms of our commitment to multi-asset class trading. When we think about like today for a moment from our perspective the stats are basically 16% of global AUM is now sitting in multi-asset bonds. That's up from about 10% in 2018. We think that's going to kind of trend continually higher. From our perspective, Craig, for a second, on a firm level, I think the stats are around 60% of our clients trade at least two products and about one in five trade at least five products. So those are pretty kind of interesting numbers. On a trader level, it's even a little bit more interesting. 30% of our traders are now trading three products with us. We can understand that. If you think about like the macro businesses, that makes a lot of sense. And over 10% of our traders trade over five products, right? I think it was Samir that gave me a stat that we actually have one trader who's now trading like 11 different markets with us. Like I think that that guy needs like at least five fleece vests from TradeWeb. But those are the stats. And I would say just, you know, very straightforward from me, the stats matter. And then there's the kind of the ethos piece of this, which is part of how we build and grow businesses here. So when we wanted to get into credit and we saw that there was a door opener for us to compete in credit, if the question is when you walk into PIMCO, and you're a partner to them in terms of building a mortgage business, does it help us make a sale into credit? 100%. Because I think that there is a reality that credibility leads to opportunity. I think that's a straightforward comment. Credibility leads to opportunity. And then the balance of the world, when we think about the firm's relationships with the sell side and you think about the big banks and we think about how the firm interfaces with the Jim DeMars of the world or the Troy at JPMorgan or Ashok at Goldman, I can't leave out Andy Morton, look we interface really well. I think we're partly that's because we have a very strategic resonance with them when you think about the businesses that we are in and when you think about how those businesses kind of touch their P&L. And so that's been a big advantage for us in a certain way forever. And you kind of even heard what we're doing, for example, if you think about the money market business and how it sort of funnels through all of the markets that we are in, the ability for us to connect kind of our repo world into interest rate swaps, you're talking about two worlds that have been kind of historically pretty sleepy and now we're showing like massive innovation in terms of how those markets are operating. So my instinct is it's been a big advantage for us and the very strong instinct is given the trend of technology and the way these markets are sort of more connected than ever, it's a further advantage for us as we continue to grow our market share and build ourselves into new markets. So that's the view. Appreciate the question, Greg. Thank you. Thank you, Wong, for our next question. Our next question comes from the line of Ben Budish of Barclays. Your line is now open. Ben Budish Hi. Good morning, and thank you for taking the question. Billy, in your prepared remarks, you called out a number of stats on portfolio trading, the growth in ADV increasing number of line items, the largest portfolio trade ever on your platform. I was wondering if you could talk about kind of your medium to longer term outlook for the protocol. How is usage changing? What are these new types of firms engaging with portfolio trades that weren't before? And how are some of the newer market makers the large trading firms that are joining the platform recently, how are they engaging with the protocol? Thank you. Billy Hult Yeah. That's a good question, Ben. How are you? So we're positive on portfolio trading, right? And because the thesis is -- and you guys have kind of heard me say this very clearly, we stand for balance, right? So we love the concept of ultimately the buy side acting like the buy side and the banks acting as market makers, we think that there's going to be significant volume that goes through in that basic direction. And so from our perspective, portfolio trading now represents a little bit less than 10% of trace in the second quarter of 2024, that's up from 5% in the second quarter of 2023. We're getting a lot of sort of opinions that that can land in that sort of like 20% to 25% zone of total trace volume. I have an instinct that it can be higher. Again, thinking about the concept of balance the banks coming back into the equation from an electronic perspective. And then the concept of, kind of, risk trading really, kind of, entering into that protocol is a big deal, right? So when we think about the progression of it all, right, originally if you remember the protocol was sort of built for asset managers for, kind of, month or quarter end rebalancing kind of period. It's shifted and changed a lot from there, right? So now you have hedge fund clients using the protocol for how we think about risk on trade tactical trades. More recently we've seen insurance firm using it for asset liability management. These are like pretty big kind of progressions in terms of behavior. Your second part of the question is quite interesting right because now we're seeing and we're talking about the emergence of how we think about sort of the alternative market makers. I think that's still the right way to describe them but the alternative market makers kind of entering the space with a lot of emphasis around technology. We think about sort of the citadels of the world, the changes of the world that are doing an excellent job in terms of warehousing risk. Virtue has been very clear about their plans. I think Doug used the word Switzerland to describe himself in terms of his relationship between Tradeweb and Market Access. I'm going to -- I always thought we were kind of Switzerland but I'll have that conversation with him off-line. But they're very, very important players in the space, right? You have these kind of firms filling a void. You do not have the sort of legacy kind of traditional way of doing business kind of issues. And then you have companies that have significant DNA and expertise and experience on the anonymous side of the trading world getting into disclosed trading and the wallet around disclosed trading and that's a big deal. So my instinct is they're going to take the concept and the premise of portfolio trading very seriously. And that's a big deal for us in terms of how we partner with them going forward. So feeling quite good about directionally where we're going with portfolio trading and thanks for the question. Thank you. One moment for next questions. Our next question comes from the line of Tyler Muller [ph] of William Blair. Your line is now open. Unidentified Analyst Good morning. This is Tyler Mueller on for Jeff Schmidt. We were curious what has the client response been to the rollout of RFQ Edge? Is the additional functionality in analytics helping penetration of larger block trades? Thank you. Billy Hult Sure. Hi, Tyler. Good question. Well, by the way I love the sort of RFQ Edge. I think that's a great kind of marketing protocol for the company. It's early days and it's a good question. The initial feedback has been quite positive. From our perspective the enhancements are all about kind of adding analytics real-time charging into the RFQ ticket. We think that like directionally investing in clients more upstream is important. That's a very kind of strong kind of strategic move for us. RFQ Edge enhancements they basically reflect similar analytics to what we provide to our clients across portfolio trading. It allows you to trade with multiple dealers and the all-to-all market all at once. Again it's all about sort of enhancing and investing into the client experience. We have a few clients who are utilizing it like a portfolio trade where they're going to fewer dealers sending larger sized trades, fewer dealers larger sized trades that concept of sort of information leakage minimizing information leakage. These are like very, very important principles and something that we've invested in for a long time really understanding client flow I think in a very straightforward way. That's the ultimate edge for us. So we're feeling good about that protocol early days more to come on it and appreciate the question. Thank you. One moment for next question. Our next question comes from the line of Chris Allen of Citi. Your line is now open. Chris Allen Good morning, everyone. Thanks for taking the question. I want to talk about the third-party market data business a little bit. I'm wondering what the kind of key growth drivers are here. Any new products you may be able to introduce now, how are you maybe able to expand the penetration of existing products? And also, can you kind of remind us some of the mix today between different data offerings and how much they contribute? Sara Furber Sure. Hey Chris, it's Sara. Thank you for the question. Market Data has been a great business for us. And I think as we always talk about first and foremost our top priority with utilizing market data is to improve the execution for our clients. But obviously, we have direct normalization of market data as well. In the second quarter, we had about $29 million of revenue overall from market data. The bulk of that, about $20 million coming from AiEX, and $9 million in the quarter, from the third party data line that you're asking about. That line obviously, a much smaller base but it's grown really nicely for us about 17% over the last five years on average. If you think about what's in that bucket there, a few components. The biggest element driving that third party line is really pricing product. So pricing would constitute about 60% of that $9 million, and it's really things like benchmark and reference products. So think about our ability to have a closing price on UK Gilt or US treasuries. Newer products like iNAV, our intraday ETF type of pricing, new AI pricing. This concept of creating benchmarks and then ultimately in terms of a growth strategy, as they get further adopted it adds growth in two ways: one, directly from licensing fees as you create indices as people consume closing and reference prices but also increased trading flow, which obviously is great for our other lines. That's the biggest bucket. That's the biggest growth driver the thing we're most excited about, obviously, partnered with FTSE, which is owned by AiEX to do a lot of that. The other components in that line are really around analytics and some post-trade regulatory-type products things like PCA. So, I think overall, we're quite bullish in our ability to grow the opportunity here. There's new types of licensing reference data that we can create. In some ways, it's limitless. Any asset class that we're trading, we can help create a closing price or benchmark for. It doesn't happen overnight. But you can see in terms of that model, you can create more products. And then as it gets further and further entrenched in the network, more adoption then there's inherent growth. And we're seeing the benefit of both of those things in that line today. Thanks for the question. Thank you. One moment for our next question. Our next question comes from the line of Alex Blostein of Goldman Sachs. Your line is now open. Alex Blostein Hey. Good morning. Hi, Billy and everybody else. So, I wanted to talk a little bit more about the interest rate swap business. I know it's a topic that come up a bunch in the past and I've asked you guys this numerous times in the past as well. But it seems like this business just kind of continues to set new records and second quarter was an exception of that. So, what drove the strength in the second quarter? That's one. And maybe you can just kind of zoom out and talk broadly how you're thinking about the revenue growth algorithm in this business over the next couple of years, because it seems like it continues to do much better than what the baseline should be. Billy Hult Yes. It's been a great kind of environment for us, obviously, Alex and it's a very good question. So was kind of like the second quarter is almost like a perfect microcosm of like what our clients care about the most. There's geopolitical uncertainty varying inflation prints, changing election odds, all of that stuff and our business has really been kind of clicking in. It's primarily been a market share story for us, I would say. As you know very well, our swaps business we think about it as sort of almost like a complementary to our global government bond business and our mortgage franchise. I made the point and I want us to kind of keep thinking about this when the Fed gets into rate cut mood. Our instinct is that those sort of mortgage originators are really going to kind of step into the equation around swaps. But we've gained market share and growing revenue really kind of in three ways. It's first and foremost by adding new customers and migrating them from [indiscernible]. That's like Tradeweb kind of one-o-one stuff and that's been a big driver of our market share. I would say second, it's always by kind of building new products and that from our perspective would be EM. And then I think very, very importantly, and I've used the expression before micro trading protocols. So the example of that would be like request for market. We call it RFM something like code words a trade web but request for market where a buy-side client can go to one dealer ask for a two-sided market and then trade on one side of the marketplace it really ultimately replicates the exact behavior that large kind of macro funds trade big size in the market on. And those kind of trades would happen on the phone or through bluebird messaging, and now they're happening through Tradeweb. As we kind of plot the future a little bit, it's going to be about continued sort of success around EM swaps. We feel bullish on inflation swaps. I think swaptions is a very kind of interesting not to crack for us. And then there's going to be, again, we talked about sort of technology and this kind of concept of multi-asset pack swaps. So a lot more for us to do in the area and feeling really, really good about how we've continued to perform gaining market share in swaps. As you know Alex very well, and I sometimes feel like a little bit like the Tradeweb, I've made the joke to Tradeweb story. And this was the sort of back alley of all the rates markets -- of all the macro markets for a long time. And to see this business flourish in volatile and interesting environments has been quite rewarding for the company and feeling really good about where it's going from here. So thanks for the question. Thank you, Alex. Thank you. One moment for next question. Our next question comes from the line of Patrick Moley of Piper Sandler. Your line is now open. Patrick Moley Yes. Good morning. Thanks for taking my question. So I had a question. FMX is launching in September. I understand that a lot of the conversation with FMX has been around the futures business, but they do have a club treasury business that you compete with currently. So I understand that -- it's not a huge part of your business, but I was just curious to get your thoughts on FMX broadly and what this new consortium of dealers in the rate space means for competition in the industry? And then if I could add a follow-on to that you mentioned in your prepared remarks that the CLOB was starting to trend higher for you. I know that's been a business that you haven't been completely satisfied with since you bought it from Nasdaq a few years ago. So maybe if you could just expand on the strength you're seeing there and your expectations for that business going forward? Thanks. Billy Hult Yes. Hey, Patrick good to hear your voice. Hope you're doing really well. Maybe a comment about sort of Switzerland before. I was watching CNBC yesterday with Mr. Duffy kind of talking about this business and thinking myself there's like there's no Switzerland kind of in this moment. Howard is a big personality kind of everyone knows that. I think we've known him well and we have a very respectful relationship both with him and with the CME. My instinct is the kind of clear goal is to -- from FMX's perspective is to take on the incumbent in the futures market. And that's our business model and we'll see how all of that will play out. I think it's going to play out a bit on TV and it will be an interesting kind of story to watch. We feel to make an obvious point and it's a good question we feel really, really good about the strength of our treasury business both on the client side and on the wholesale side. I have a very strong message that I delivered to the company, which is be super conscious and super aware of the competitive landscape. And so to make an obvious point very well aware of everything that Howard has done in this space and continues to try to do in this space. Be super aware of the competitive landscape, but live and breathe with your clients and always make that the most straightforward focus. So our wholesale business on the treasury side continues to do extremely well. From your question about the cloud versus the streaming business, we continue to do exceptionally well in terms of growing our streaming business. The r8fin acquisition has been helpful to us not surprisingly in all of that. I think we do still have work to do on the CLOB. I think that is an important piece of the market. There have been market share shifts in the CLOB world. And this company sort of executes and from our perspective we want the company to continue to kind of click on all cylinders. And that's an area where we tend to roll up our sleeves a little bit and make sure that we're pressing the right buttons in the CLOB and investing there correctly and hiring the right people and moving that business forward. As you know very well this is a company that stays quite focused. And there's enough news out there is the good piece of it. We're going to stay very, very focused. We're going to kind of sit back and see what happens around the kind of futures market in terms of all of that and then stick to our knitting stay close with our clients and continue to do really well in our wholesale business. Thanks for the question. Good to hear your voice. Thank you. One moment for our question. Our next question comes from the line of Brian Bedell of Deutsche Bank. Your line is now open. Brian Bedell Great. Thanks. Good morning, folks. Maybe just -- not to focus too much on the short-term here but just your comments for July Billy, on investment grade and high yield market share looks like a little lower than June. Maybe just if you can comment on what you think may be driving that? Is it more of a shift in the business mix either environmental or due to portfolio trading or within the client base dealer to institutional? Billy Hult Yeah. Good question and fully get you. Don't read too much into that -- into those numbers yet. I mean generally speaking we tend to kind of wind up outperforming from a market share perspective in that arena around some of those portfolio trading protocols towards the end of the month. I think we're going to wind up in a very good place when you see our all-in July number. I think you're going to see continued sort of growth of portfolio trading which is from our perspective our kind of go-to protocol and something that we kind of thrive in. So I don't think you're going to see a big kind of disconnect, when all is said and done. Feeling really good about where we are in credit. And I think that's important to say that. The Aladdin integration remains a high priority for us as a company, onboarding the right market makers in high yield when we get into the open trading environment that's an important concept for us. We've talked about that a lot. And we're going to continue to thrive in that portfolio trading world where we talk about the balance of it all the big buy-side clients acting like the buy side and the dealers investing in market makers the alternative market makers arriving on the scene. From our perspective these are quite good forward trends for our credit business. And that's where our focus is going to stay. Good question and thank you. Thank you. One moment for our next question. Our next question comes from the line of Ken Worthington from JPMorgan. Your line is now open. Ken Worthington Hi. Good morning. Thanks for taking my question. I wanted to focus on business environment maybe part one, as you mentioned to Alex's question it's been election season globally. How is, the election season impacted activity levels given some changes in Europe already? And are there any clear takeaways from a Harris or Trump presidency for Tradeweb in U.S. markets? And then maybe part two is, we've seen bond issuance in net sales into fixed income funds increased substantially in 2024 versus 2023 levels. How should we expect higher issuance in sales to translate into investment grade or high-yield trading volume from Tradeweb from a timing and magnitude perspective? Billy Hult Yeah. Sure you've got it just like had like an incredible kind of six weeks. And I feel like the story is changing constantly. As we said before, I think healthy debate in the market is good for our business. And so obviously we saw some record revenue days in June. We talked about the concept of geopolitical uncertainty, the different bearing inflation prints. I think -- and look, you always get the straight answer for me to start with I'm not an economist. I think the Fed is going to cut no matter who the President is. I'll say that. I think that's going to wind up being quite good for our business. I think you're going to get sort of different policy obviously, but my instinct is global debt is rising. And I talk about the concept of I think very importantly the Fed playing a lesser role in the markets that Tradeweb lives and breathes in. And so that leaves us with this feeling sort of no matter the election results that private sector risk intermediation is back in vogue. I do think you're going to see continued strong levels of issuance of debt issuance going forward. And my instinct is markets like high yield are going to have a pickup in volume a pickup of activity as we get into 2025. Not to make you laugh that those are my thoughts. I feel like I've had 10 different thoughts about what was going to happen over the last month and I'm sure kind of everyone on this call has too. So, it's been a little bit in a human way I can say this. It's been a little bit of a challenging time with all the things happening in the world. And so we remind ourselves how lucky we are sometimes. But it's been a tough couple of months just in terms of all the events in the world. That's a great question. Thank you. Thank you. Our next question comes from the line of Daniel Fannon of Jefferies. Your line is now open. Daniel Fannon Good morning. Thanks for taking my question. Within high yield you mentioned in your prepared remarks expanding your client network is kind of key to growth. Can you impact where your current strengths are today and what client segments you're targeting to actually get that future growth? And maybe how does the Aladdin partnership accelerate that? Billy Hult Yes. So, that's a good question Dan. Straightforward strengths probably not surprising to you at all. We would say are like the long only asset managers. I'm going to push the team with Sara around continuing to form kind of deeper relationships with the ETF market makers. They're obviously extremely important in the high-yield business. I think we've done very well with them. They're critical. So, we're going to keep kind of extremely focused there. Hedge funds and private banks in terms of like liquidity taking very important kind of institutions in the space. We're focused on Aladdin because we think it's going to help kind of round out that responder network in a way that's going to work for us and the perception around making sure that we have best-in-class liquidity in high yield. And I say this to you because it's always sort of a two-pronged approach. As we do that there's going to be a continued message around the benefits of portfolio trading, which we think we're going to see continued growth particularly in the high yield area around portfolio trading. So, we want to make sure we're kind of thinking about that marketplace from two different protocols the right way. And then we're going to be very focused always on the client base. So, deeper relationships inside of that ETF money market -- ETF market maker world and make sure we have the right responders in, which is partly why that Aladdin integration means so much to us. Sara Furber And Billy maybe just one other area we've talked about in the past as well. When we think about the client base we've spent a lot of time and energy and continue to focus on building out our EM platform. That's another area I think we see some benefit in terms of high yield expansion. There's a big overlap there in some of those traders. Thank you. Our next question comes from the line of Kyle Voigt of KBW. Your line is now open. Kyle Voigt Hi, good morning everyone. So, with ICD likely to close within the next week or so, just wondering if you can update us on your appetite for incremental M&A from here especially given that we still have a significant amount of balance sheet flexibility post-close? And with respect to ICD. Can you just remind us of the integration time line there? It sounds like there may be some incremental investment upfront. So, how can we think about the margin trajectory after that? Sara Furber Yes, that's great. So, I was laughing thinking Billy answer to this M&A question last quarter. Look M&A -- let me start with the first part of your question. We think M&A is a tool just like organic growth as a tool partnerships and investments are tools to implement our strategic objectives. We've done three acquisitions if you include ICD in the last 18 months and we're focused on doing those well, which means executing and integrating. So it's obviously like top of mind and I'll talk a little bit more specifically around the plans of ICD. That said, while we do that, we constantly are focused on achieving our strategic objectives. So we're going to be disciplined about looking at other opportunities, but we're going to continue to look at that tool and balance -- executing well. We will continue to be opportunistic and grow our company. We think we're on our front foot. We have a great balance sheet. We have a great stock, but we're going to be very disciplined about it. Hopefully you've seen that in the few ones that we've pursued so far. ICD specifically, we expect to close shortly. In terms of where we are I think we've talked a little bit about the margin expectation for ICD out of the gate is probably a little bit lower than where ours is right now 47% to 49% I think is the range that we've talked about. That's really reflecting our increased investment in that platform. Strategically, the business is performing very well. And in the client dialogue that we've had, we've been really pleased that our thesis around their desire for our types of products really that receptivity and that strength of the client relationship, the ICD client managers have has been really strong. So in terms of where we're headed, I think the opportunity for us in the near term and medium term is really around driving those revenue synergies, really taking our international footprint introducing ICD into that client base and then obviously it was going to take a little bit longer, but certainly on our 12 to 18-month technology road map and some of it will happen sooner it's not a big bang, it's introducing connectivity to our platform. So those corporate treasurers can buy our products. They've had interest. We will likely start with US treasuries which we think we're very well placed to do. But you can see how once you're in a mode on that portal of actually transacting and these corporate treasurers are transacting today in our products, US treasuries can go to CDs, can go to CP, can go to corporate bonds, there's a whole range of outcomes that we see over the medium term and we're quite excited about that opportunity. Billy Hult And Sara, we talked a lot about sort of the importance of -- for the management team and the cultural fit maybe just a minute from you just on how impressive we've been with that management team starting with Tory. Sara Furber Yes. I mean the management team starting with Tory who's CEO of ICD, we have been able as a broader team to spend a great deal of time with not only in the diligence process, but one of the benefits I joke because it's obviously time consuming but one of the benefits of having done these three acquisitions in a short time period is we've really honed our playbook and been able to connect with the management teams ICD and [indiscernible] at every level. So Billy mentioned Tory, but it goes from the heads of products, the CTOs, CMOs and obviously through the finance and broader parts of the organization. So, the talent that we are bringing on board as partners to grow our platform, we are really excited about. And I think having been on in part of a number of acquisitions that cultural fit, the mindset that focus on clients, that's one of the things that makes acquisitions even more successful. So I think Billy is right to point out the talent is high, but the cultural fit in the way that we approach serving our clients is actually a tremendous fit that makes us even more enthusiastic than we were when we announced the deal. Thank you. One moment for next question. Our next question comes from the line of Michael Cyprys from Morgan Stanley. Your line is now open. Michael Cyprys Great. Thanks, so much for squeezing me in here. Just wanted to circle back to your earlier comments on the investments you're making in emerging technology. I was hoping you could elaborate a little bit on that. What are your aspirations there? And if successful what does that look like? I think one of the things you were articulating with blockchain. So I guess just related to that, how do you see the potential for a blockchain in your markets and your business over the long term? Sara Furber Sure. Thanks for the question. I think digital assets and emerging technologies are really interesting point in the cycle. We've spent years really looking at the space and being very disciplined about how we spend our capital. But increasingly part of our strategy is to partner and invest. Those technologies don't have to be born and created in-house for us to really avail ourselves of it. And blockchain is a perfect example. From our seat, leveraging distributed ledger technology like blockchain obviously has a lot of impact in trading businesses in terms of eliminating manual reconciliations, reducing cost of transactions, and we want to be on our front foot about figuring out how that gets leveraged and how we learn. Those things also have ecosystems just like our markets today in the more traditional space have ecosystems. And so two investments that, we've done recently one with Canton Network which is a blockchain network the other around alpha ledger which is actually a blockchain infrastructure both are giving us different seats at the table and seeing how that technology can be utilized for either issuance or trading of securities in alpha ledgers cases around brokered CDs and Canton, which is like a much more well-understood network really around how that ecosystem scales and create interoperability for digital assets. So, I think it's still early days around these emerging technologies but certainly we're positioning ourselves to be an important player as that market evolves whether it's a digital assets trading on the blockchain or some more traditional. Billy Hult And Michael, Sara described that perfectly, I would say like, when you build markets you learn sort of an aspect of pragmatism pretty quickly. And so we're always sort of thinking about like how some of these things pragmatically can live and fit in our marketplace. Sara, and I talk about this all the time, we're going to describe for you sort of two markets that feel like they have sort of the type of market or the type of settlement process that could really kind of benefit from some of these technologies that are clearly so important. And you specifically mentioned blockchain, we would sort of point out obviously first to start with the repo market. And then the second market that we would probably point out and we think this market is going to become more and more important over the next couple of years is, if you think about how the TBA market kind of traditionally settles. I think the feeling is there are going to be sort of blockchain technologies that could create more efficiencies in that market over time. The key and most important kind of words around that would be over time, because I do think it will take time for that kind of technology to get applied pragmatically into our world, but the opportunity in a really interesting way is there. An excellent question Michael, thanks. Thank you. Our next question comes from the line of Alex Kramm of UBS. Alex Kramm Yes. Hello, everyone. Just wanted to come back to portfolio trading and credits one more time. When I talk to some of your largest buy side clients they totally agree that this protocol is going to get bigger. So that sounds great. But at the same time obviously you have very dominant market share in that business. And when I talk to those clients, they definitely say like look over time we do like competition. We're going to have to spread all off a little bit more. So considering that that's a very concentrated market right now and I don't think it has as much network effect than maybe RFQ has. Is that something that worries you? And how do you think you can defend that as again maybe it's a little bit more of a workflow than a real network liquidity? Thanks. Billy Hult That's a really good question. I mean I think like really in a certain way kind of agree with a lot of your thesis. First of all, with like the way that the buy-side clients are embracing that protocol, I think that's like spot on. And I think you hear me loud and clear around the importance of the sort of balance around the ecosystem. We're going to do sort of exactly what you would expect us to do which is to sort of continue to enhance and innovate and do things around technology to enhance the clients' experience with portfolio trading. We're also going to remind our bank partners that, it's not that we created this portfolio for you guys but absolutely, we went out of our way in a very straightforward concept to bring the big banks back into the equation, and we do think we've gotten a lot of support as we've done that. So I think the forward trend is going to be continued sort of market share growth around portfolio trading. I think we have our ways to sort of defend that forward. It's a big focus for the company to make sure we stay and we will stay as the leading venue for portfolio trading. So we're focused on it. And my general feeling is we're going to show continued market share strength in portfolio trading. Thank you. This concludes the question-and-answer session. I would now like to turn it back to CEO, Billy Hult for closing remarks. Billy Hult Thank you all very much for joining us this morning. Great questions as always. Any follow-up please obviously feel free to reach out to Ashley, Sameer and our great team. Thank you all. Have a great day. Bye-bye. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Earnings call: Digital Realty sees robust Q2 with high leasing activity By Investing.com

Digital Realty (ticker: NYSE:DLR) has reported a strong performance for the second quarter of 2024, achieving one of its best quarters in history with $164 million in new leasing. The company has seen positive developments across several key areas, including occupancy improvements, cash releasing spreads, and a reduced leverage ratio now standing at 5.3 times. Digital Realty has also made significant strides in expanding its European presence through the acquisition of a London data center campus and has introduced new product offerings aimed at enhancing its services. The continued demand for data center capacity, driven by the digital transformation, cloud services, and artificial intelligence, has contributed to the company's success, with 148 new clients added in the quarter. Additionally, Digital Realty has raised substantial private capital, over $10 billion, which has been instrumental in strengthening its balance sheet. Digital Realty's strong performance in the second quarter of 2024 underscores the company's robust position in the data center market. With significant leasing activity, a strategic expansion in Europe, and the introduction of innovative services, the company is well-positioned to capitalize on the growing demand for data center solutions. The financial fortitude demonstrated by the raising of substantial private capital and the reduction of leverage further solidifies Digital Realty's promising outlook. Despite potential challenges such as power constraints, the company's proactive measures and strategic focus indicate a continued trajectory of growth and success in the data center industry. Digital Realty's (ticker: DLR) impressive performance in the second quarter of 2024 aligns with several key metrics and InvestingPro Tips that highlight the company's financial health and market position. With a market capitalization of $48.79 billion and a P/E ratio standing at 40.21, the company trades at a low P/E ratio relative to near-term earnings growth, indicating potential for investors looking at earnings power. Additionally, the PEG ratio for the last twelve months as of Q1 2024 is notably low at 0.19, suggesting that the company's earnings growth may not be fully reflected in its current share price. Digital Realty has maintained its dividend payments for 21 consecutive years, showcasing a commitment to shareholder returns. This consistency is backed by a dividend yield of 3.31% as of June 2024, which is attractive for income-focused investors. Moreover, the company's status as a prominent player in the Specialized REITs industry is reinforced by its solid revenue growth of 11.67% over the last twelve months as of Q1 2024. For readers interested in a deeper dive into Digital Realty's financials and market standing, there are additional InvestingPro Tips available. These include insights on the company's high earnings multiple and valuation metrics such as EBIT and EBITDA multiples. With a total of 7 additional InvestingPro Tips to explore, investors can gain a comprehensive understanding of Digital Realty's investment profile by visiting https://www.investing.com/pro/DLR. To access these valuable insights, consider using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. This opportunity can provide investors with a broader perspective on Digital Realty's potential in the rapidly evolving data center market. Operator: Good day, and welcome to the Digital Realty Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Jordan Sadler. Please go ahead. Jordan Sadler: Thank you, operator, and welcome everyone to Digital Realty's second quarter 2024 earnings conference call. Joining me on today's call are President and CEO, Andy Power; and CFO, Matt Mercier; Chief Investment Officer, Greg Wright; Chief Technology Officer, Chris Sharp (OTC:SHCAY); and Chief Revenue Officer, Colin McLean, are also on the call and will be available for Q&A. Management will be making forward-looking statements, including guidance and underlying assumptions on today's call. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see our 10-K and subsequent filings with the SEC. This call will contain non-GAAP financial information, reconciliations to net income are included in the supplemental package furnished to the SEC and available on our website. Before I turn the call over to Andy, let me offer a few key takeaways from our second quarter. First, we continue to execute within a very favorable demand environment with $164 million of new leasing executed in the quarter, again marking one of the top quarters in our history, which together with last quarter's record leasing drove a record first half of the year. Second, our operating momentum continued through the second quarter as a record level of commencements translated into meaningful improvement in both total and same capital occupancy, while cash releasing spreads remained firmly positive and continued growth in cross connects drove interconnection revenue to a new record in the quarter. And third, through capital recycling and demand-driven equity issuance in the quarter, we reduced our leverage to 5.3 times at quarter end, below our long-term target level, helping to position Digital Realty for the opportunity that we continue to see in front of us. With that, I'd like to turn the call over to our President and CEO, Andy Power. Andrew Power: Thanks, Jordan, and thanks to everyone for joining our call. The momentum we experienced in the first quarter continued in the second quarter. In the first half of 2024, our new leasing was up over 100% from the activity we saw in the first half of 2023, with a strong and steady contribution from our 0-1 megawatt plus interconnection segment. Demand for data center capacity remains as strong as we've ever seen, especially for larger capacity blocks in our core markets. We are well-positioned to take advantage of this favorable demand environment given our track record of execution across six continents, a robust land bank and shell capacity that could support 3 gigawatts plus of incremental development, reduced leverage, and our growing and diverse array of capital partners. During the second quarter, we remain focused on our key priorities. We signed $164 million of new leasing in the second quarter, which excluded another $16 million of bookings within one of our newest hyperscale private capital ventures. While bookings integrated a megawatt category were once again the primary driver, there was no contribution from our largest hyperscale market, Northern Virginia, as Dallas led the way in the second quarter. Importantly, we posted one of our strongest quarters ever in the 0 to 1 megawatt plus interconnection segment with record new logos and near-record bookings in each of the 0 to 1 megawatt and interconnection categories. This leasing strength is a positive reflection of the value that our 5,000 and growing base of customers realize from our full spectrum product strategy. We also delivered strong operating results with 13% data center revenue growth year-over-year pro forma for the capital recycling activity completed over the last year. In addition, we have enjoyed healthy growth in recurring fee income associated with our new hyperscale ventures. In the first half, fee income was up 26% over the first half of 2023, primarily reflecting the formation of almost $10 billion of institutional private capital ventures over the last year. And we would expect this line item to continue to gather momentum. With the record commencements in the second quarter and the healthy backlog of favorably priced leases ready to commence in the second half, we are well positioned for accelerating top line and bottom line growth for the remainder of 2024 and into 2025. Subsequent to quarter end, we also strengthened our value proposition in Europe through our entrance into the sought submarket of London. With the acquisition of a densely connected enterprise data center campus, which we expect to be highly complementary to our existing co-location capabilities in the City and the Docklands. The new campus supports an existing community of more than 150 customers, utilizing over 2,000 cross-connects. Consistent with our key priorities, we continue to innovate and integrate as we unveiled our HD Colo 2.0 offering in the second quarter with advanced high-density deployment support for liquid-to-chip cooling across 170 of our data centers globally. In addition, just last week, we announced the deployment of a new Microsoft Azure ExpressRoute Cloud On-Ramp at our Dallas campus, along with the launch of the new Azure Express Route Metro Service in the Amsterdam and Zurich market. We also bolstered our balance sheet and significantly diversified our capital sources, availing Digital Realty of more than $10 billion of private capital over the past year through our new hyperscale ventures and non-core dispositions. During the quarter, we expanded our existing Chicago Hyperscale venture with the sale of a 75% interest in CH2, the remaining stabilized data center on our Elk Grove campus. We also sold an additional 24.9% interest in a data center in Frankfurt to Digital Core REIT, increasing their total position in the campus to just under 15%. These two transactions together raised over $0.5 billion. Finally, we raised approximately $2 billion of equities since our last earnings call, including the $1.7 billion fallout offering in early May and proceeds raised under our ATM. These transactions together with the others of the past year have positioned our balance sheet to capitalize on this unique environment and construct the capacity that our customers demand. Artificial intelligence innovation is reshaping the global data center landscape. As new applications are developed and proliferate across industries and around the world, AI is driving the incremental wave of demand for robust computing infrastructure. According to Gartner (NYSE:IT), global spending on public cloud services is projected to grow over 20% to reach $675 billion in 2024 and is forecast to grow another 22% in 2025 with AI-related workloads driving a significant portion of this growth. Digital transformation, cloud, and AI are fueling demand for data center capacity worldwide. Traditional data centers were already being pushed to their limits on demand for cloud and digital transformation. Whereas demand for AI-oriented data center infrastructure is being accommodated in upgraded suites in our existing facilities and in newly built facilities. These AI workloads are taking place on specialized hardware with massive parallel processing capabilities and lighting fast data transfer speeds. Fortunately, Digital Realty's modular data center design can accommodate these evolving requirements. The growth in demand is global. We're seeing strong demand across our North American metros first, but it is spread and beyond with interest in locations like London, Amsterdam, and Paris in EMEA, and Singapore and Tokyo in APAC. Our global footprint is well-suited to capture this growing demand, whether it'd be for major cloud service providers adding to an availability zone, a major enterprise digitizing their business processes, or an AI model being trained or be it or put into production. However, this exponential growth in data center demand is not without its challenges. The environmental impact of these energy-intensive facilities is growing alongside the scaling of user requirements. According to the IEA, data centers consumed almost 2% of global electricity in 2022, a figure that could double by 2026, absent significant efficiency improvements. I will touch on Digital Realty's latest sustainability highlights in a moment. As we look to the future, the interplay between AI advancements and data center evolution will continue to shape the global technology landscape. IDC predicts that by 2027, worldwide spending on digital transformation will reach nearly $4 trillion, driven by AI, further accelerating the demand for data center infrastructure. We believe that the providers who can officially scale their capacity while addressing sustainability concerns will be best positioned to benefit from these three key drivers, digital transformation, cloud, and AI in the years to come. Customers and partners are recognizing the value that Digital Realty can bring to their applications around the world. During the second quarter, we added 148 new logos, marking a new quarterly record. A growing number of these new logos are being sourced by our partners who have officially expanded our sales team to reach into enterprises and around the world. The wins this quarter include Global 2000 advanced engineering and research enterprise developing a private AI Sandbox on PlatformDIGITAL to enable experimentation and development by federal agencies and brought to us by one of our large connectivity partners, Lumen Technologies. Another partner bought a new logo that is an AI-enabled SaaS provider repatriating all public cloud to save costs and enable growth. That same partner was also assisting two large financial institutions to increase their capacity on PlatformDIGITAL in APAC and North America. And yet another example of our growing partnerships, an AI SaaS provider and recognized leader in natural language speech synthesis is growing their commitment to PlatformDIGITAL with an expansion of current AI workloads where proximity is the driving requirement. A Global 2000 manufacturer is rearchitecting their network on PlatformDIGITAL with a regional hub to improve efficiency, lower their network costs, and implement controls while eliminating the capital cost of maintaining their own facilities. And two leading financial services firms are both leveraging PlatformDIGITAL to extend their respective virtual desktop infrastructure environments to improve performance and user experience across their North American and EMEA employee base. Before turning it over to Matt, I'd like to touch on our ESG progress during the second quarter. We continue to make meaningful progress on ESG performance. We were recognized by TIME and Statista as one of the world's most sustainable companies of 2024. We also released our Annual ESG Report in June, highlighting our ongoing efforts to develop and operate responsibly. As described in our ESG report, we further increased our renewable energy supplies with 152 data centers now matched with 100% renewable energy. We improved water efficiency and expanded the use of recycled water, which accounted for 43% of our total water consumption last year. We also launched a new supplier engagement program to drive sustainability and decarbonization through our supply chain. We remain committed to minimizing Digital Realty's impact on the environment while delivering sustainable growth for all of our stakeholders. With that, I'm pleased to turn the call over to our CFO, Matt Mercier. Matthew Mercier: Thank you, Andy. Let me jump right into our second-quarter results. We signed $164 million of new leases in the second quarter with two-thirds of that falling into the greater than megawatt category, the majority of which landed in the Americas, with healthy contributions from both EMEA and APAC. Not to be overlooked, however, was the $40 million of 0 to 1 megawatt leasing and a standout $14 million of interconnection bookings. Our fourth consecutive quarter exceeding $50 million in our 0 to 1 megawatt plus interconnection segment. Turning to our backlog, we commenced a record $176 million of new leases this quarter, which was largely balanced by the strong second-quarter leasing. As such, the $527 million backlog of signed and not yet commenced leases moderated by only 2% from last quarter's peak and remains robust at more than 9% of our total revenue guidance for the full year 2024. Looking ahead, we have over $175 million scheduled to commence through the remainder of this year with over $230 million already scheduled to commence next year. During the second quarter, we signed $215 million of renewal leases at a 4% increase on a cash basis, driving year-to-date renewal spreads to 8.2%. Re-leasing spreads were once again positive across products and regions. Last quarter, we noted that the underlying renewal spread after stripping out two outliers was 3.4%. Our cash renewal spreads in the 0 to 1 megawatt segment were up 3.8% in the second quarter, while the greater than 1 megawatt segment was up 3.9%. As a reminder, the 0 to 1 megawatt segment is the primary driver of our overall re-leasing spreads, given the heavier weighting of lease expirations in this category, which are typically shorter-term leases with inflationary or better escalators. 0 to 1 megawatt deals renew reliably and predictably, making them track closer to market over time, thereby reducing the outsized movements that can come with larger or longer-term lease renewals. On the greater than 1 megawatt side, renewals reflected the strong pricing environment with leases renewed at $159 per kilowatt compared to the $133 per kilowatt achieved on greater than 1 megawatt renewals last quarter. The key difference between the quarters was the rate on the expiring leases. This quarter, leases in this segment expired at $153 per kW, while last quarter's leases expired at an average of $112 per kilowatt. For the quarter, churn remained low and well-controlled at 1.6% and our largest termination was immediately backfilled at an improved rate. In terms of earnings growth, we reported second quarter core FFO of $1.65 per share, reflecting continued healthy organic operating results, partly balanced by the impact of the meaningful deleveraging and capital-raising activity executed over the course of the last year. Revenue growth in the quarter was tempered by the decline in utility expense reimbursements, a comparison that is likely to persist throughout this year, given the decline in electricity rates in EMEA year-over-year, along with the impact of substantial capital recycling activity. Despite the deleveraging headwinds, rental revenue plus interconnection revenues were up 5% on a combined basis year-over-year. Adjusted EBITDA also increased 5% year-over-year through the first half and remains well on track to meet our 2024 guidance. Pro forma for the capital recycling completed since last July, rental plus interconnection revenue and adjusted EBITDA grew by 13% and 14% year-over-year, respectively, in the second quarter. Stabilized same capital operating performance saw continued growth in the second quarter with year-over-year cash NOI up 2% as 3.6% growth in data center revenue was offset by a catch-up in rental property operating costs, which were flat last quarter. Year-to-date, same capital cash NOI has increased by 3.5%. And as we have previously highlighted, same capital NOI growth is expected to be impacted by nearly 200 basis points of power margin headwinds year-over-year, given the elevated utility prices in EMEA in 2023. Moving on to our investment activity, we spent $532 million on consolidated development in the second quarter, plus another $90 million for our share of unconsolidated JV spending. We delivered 72 megawatts of new capacity across the globe for our customers in the quarter, while we backfilled the pipeline with 71 megawatts of new starts. The blended average yield on our overall development pipeline moderated 20 basis points sequentially to 10.4% as a result of a market mix-shift of completions and starts in North America during the quarter. In the first half of the year, we spent a bit over $1 billion in development CapEx, tracking closely towards our full-year guidance. As the second half should see a ramp from newly commenced projects along with the typical seasonal uplift. Turning to the balance sheet, we continued to strengthen our balance sheet in the second quarter with the closing of the two transactions in April that we disclosed during last quarter's earnings report and was referenced earlier by Andy. Together, these two transactions raised just over $500 million of gross proceeds. Additionally, since our last earnings report, we sold 14.7 million shares, including a 12.1 million share follow-on offering in early May and incremental ATM issuance raising $2 billion of net proceeds while using cash-on-hand to pay off a €600 million bond that matured in April and a GBP250 million that matured last Friday. At the end of the second quarter, we had more than $4 billion of total liquidity and our net debt to EBITDA ratio fell to 5.3 times, which is below our long-term target. Moving on to our debt profile, our weighted average debt maturity is over four years and our weighted average interest rate is 2.9%. Approximately 84% of our debt is non-U.S. dollar denominated, reflecting the growth of our global platform and our FX hedging strategy. Approximately 86% of our net debt is fixed rate and 96% of our debt is unsecured, providing ample flexibility for capital recycling. Finally, after paying off the euro notes in April and Sterling notes last week, we have zero remaining debt maturities through year-end. Beyond that, our maturities remain well laddered through 2032. Let me conclude with our guidance. We are maintaining our core FFO guidance range for the full year of 2024 of $6.60 to $6.75 per share, reflecting the continued strength in our core business, partly balanced by the front-half weighted capital recycling and funding activity, which helped to reduce our reported leverage by a full turn to better position the company to fund development in 2024 and beyond. We are also maintaining our total revenue and adjusted EBITDA guidance ranges for 2024, as well as the operating, investing, and financing expectations that we previously provided. Looking forward to the balance of 2024, core FFO per share remains poised to increase in the second half as the backlog commences and the impact of prior deleveraging moderates. This concludes our prepared remarks. And now we will be pleased to take your questions. Operator, would you please begin the Q&A session? Operator: [Operator Instructions] Your first question comes from Richard Choe with JPMorgan (NYSE:JPM). Please go ahead. Richard Choe: Hi. I wanted to ask about the long-term pipeline, you're seeing for the -- over 1 megawatt category. I think there is some concerns that right now we might be in a kind of pull-forward or kind of elevated cycle. And just wanted to get your sense of how far out this pipeline of deals that you're looking at in the current environment could last. Thank you. Andrew Power: Hi. Thanks, Richard. So I would say in the greater than 1-megawatt category, we're seeing a continuation of the trends we've been playing out for the last several quarters. The biggest customers are desiring, one, contiguous capacity blocks that are very large; two, they want them right now or as soon as possible; and three, the desire of fungible markets, i.e., markets where they can service certainly GenAI workloads, trading ultimately inference, but also if they miss the measure, they can support their cloud computing needs as well. So we have not seen a -- the ease in terms of the demand for those attributes in the market. Operator: The next question comes from Irvin Liu with Evercore ISI. Please go ahead. Please go ahead, Irvin. Irvin Liu: Sorry, I was muted. So I wanted to double-click on renewal rates. So, I guess, a couple of items stood out. One, in the Americas, the $146 per kilowatt monthly rate and for the greater than 1 megawatt segment, that marked a sequential decline. Similarly, you know we've seen rates on new leases decline sequentially as well. So can you help us understand what's driving the sequential declines versus a quarter ago? Was this step-down mostly a function of markets and mix or were there other sort of industry dynamics that we should be thinking about? Andrew Power: Hi, thanks, Irvin. So I think the one big deal or the one market you were pointing to is just the North America greater than 1 megawatt. Now just a mix of composition of deals. This quarter, in particular, Dallas market really led the way. It's had outside strength and this is actually a quarter where we didn't actually have any signings into our Northern Virginia market, which was not a lack of demand for that market, and we still have some great options for customers available at large capacity blocks in two parts of that market, but we just didn't penned anything in this particular quarter. So if you look more broadly, I think almost all the other, call it regions in both segments had an uptick in rates and that's always on apples-to-apples that the mix in the region could be different metros like that one example I just gave you, but that would be only outlier is the one that I just discussed. Operator: The next question comes from Michael Rollins (NYSE:ROL) with Citi. Please go ahead. Michael Rollins: Thanks and good afternoon. Curious if you could talk about some of the ideas that you shared in the past around working on ways to participate in private capital recycling, whether it's trying to establish mechanisms to be able to react to when some of your private capital partners are going to hit their kind of maturity dates of those investments, what to do with those as well as maybe other opportunities in the category where there is private investments in other data center assets? Andrew Power: Thanks, Michael. Maybe I'll kick it off and then Greg can expand upon this. So this topic is not new. I think we have embarked on this journey at least 18 -- or at least a year and a half ago and made great progress, call it accumulating north of $10 billion or call it hyperscale private ventures with numerous parties. You've seen that few places, which we called out in the prepared remarks, we've seen our fee revenue having a step up of a recurring revenue basis in the P&L. Two, you've seen that in the balance sheet. Those private capital initiatives have obviously certainly moved our balance sheet from a defensive posture to an offensive posture and allow us to now pull forward some of these great projects in our land bank that's north of 3 gigawatts of runway of growth for our customers. And maybe I'll ask Greg just to give you a slightest preview of what's next in that evolution when it comes to our private strategic product accounting initiatives. Gregory Wright: Yes. Thanks, Andy. Thanks for the question, Michael. I think the first thing I would say is consistent with as Andy said, we laid out a year ago, January. We're going to continue to bolster and diversify these private capital sources and that's just what we're doing. And as he said, we did a lot of transactions over the last 18 months. We're continuing to evolve that strategy. And when we have something to report, we will. I think it's important to note that the importance of that capital because if you take a look at the demand profile for the business right now, the hyperscale business in and of itself between now and 2030 is expected to grow almost three times and that includes AI hyperscale and non-AI hyperscale. So look, we think that the strategy that Andy laid out and that we embarked upon was the right strategy, but we're not done yet. And as we said, it's continuing to evolve. And when we have something to report on that front, we'll tell you. Operator: Your next question comes from Jon Atkin with RBC. Please go ahead. Jonathan Atkin: Yes, good afternoon. I wonder about kind of the speed at which you can kind of deliver on your new starts that you've commenced recently, supply chain, access to energy, access to heavy equipment, and so forth. Any kind of color there? Andrew Power: Thanks, Jon. So I mean, we are -- if you almost think it was like a continuous conveyor belt of trying to deliver timely product for end customers' needs, that's certainly playing out in our enterprise colocation markets model. And now apply more than ever on the larger capacity blocks. This quarter and -- this quarter the book to sign a commencement was elongated out to about 20-ish months. That was based on one particular customer that we serviced and they had a very locational sensitive need than a radius restriction. And the only thing where we had in that radius was the land state. Luckily, it was on a cadence where we own the land and we were ready to get moving on. So that obviously elongated to be called delivery timeline for that particular signing. We excluded that, where we were basically call signing commencing like 4.5 type months. So we're continuously obviously delivering capacity and adding new capacity, whether it's from land to sell active suites and making sure we're maintaining our production slots and vendor relationships from that time of delivery in our 50 plus metros around the world. Operator: The next question comes from Jon Petersen with Jefferies. Please go ahead. Jonathan Petersen: Okay. Thank you. I was hoping you could talk about some of the larger greater than 1 megawatt lease expirations that are coming up in the coming quarters. How many of those have fixed renewal options and how much can be mark-to-market rents? And if I can sneak in a follow-up question, I think there is a $168 million impairment in the income statement. Just curious what that is really into. Matthew Mercier: Yes. Sure. Thanks, Jonathan. So in terms of lease expirations, so what I'd say is less than half of our or greater than 1 megawatt leases have options with total fixed increases on them. But I would call that significantly less than that are typically renewed pursuant to those options. And that's generally for a few reasons. One, our customers must provide us notice of renewal within the proper period and that doesn't always happen to -- renewals must come in essence without any changes. So if there's any additional space, term, anything changes that opens up the contract. I think as we've talked about in the past and third, some of those customers also end up churning. So that all gives us an ability to be able to bring those contracts to market for the majority of what ends up rolling within a given period. On your second point on impairment, yes, we did have -- we did have impairment associated with a few of our non-core assets, which are part of our disposition plans and those are all located in the secondary market. We -- and I'd also put that in context to the fact that we've generated, call it, close to I think over $1.3 billion of gains from the capital recycling efforts that we've done over the last year. Operator: Your next question comes from Ari Klein with BMO Capital Markets. Please go ahead. Ari Klein: Thank you. I guess, just the comments on the pipeline coming off two very strong quarters of leasing and with the development pipeline, 66% leased, including 80% in the Americas. How should we expect CapEx to trend from here? And then what's your appetite to add new domestic markets given what seems like a broadening of demand? Andrew Power: Hi, thanks, Ari. Why don't I first let Colin just speak to the pipeline overall and then we can kind of talk about a little bit development side of that as well as new markets? Colin McLean: Yes. Thanks, Ari. I appreciate the question. Andy highlighted strong performance over 1-megawatt -- pipeline overall for 1-megawatt trends to -- is trending positively below 1 megawatt, which we deem as important as heading in the right direction as well, record pipeline driven from digital transformation, cloud, and AI. And you saw that trending positively in our results, both directly and indirectly. Indirect execution has picked up the last quarter and we're now 23% of our pipeline being indirect, which we think is a positive sign on value proposition there. One of the things that Andy highlighted is the key value of metros. With the demand cycle, we're seeing enterprises and hyperscalers like zero value of proximity and the metro play that we have in key metros across the globe being particularly important. Finally, the ability both for enterprise and hyperscalers to grow in scale and capacity is of keen value really across the spectrum of low and above 1 megawatt. Andrew Power: Then Ari, on the second part of your question, I would say, we remain very focused on our core markets, north of 50 of them around the world, nearly 30 countries on six continents. Those markets we continuously see robust and diverse customer demand. I'm talking cloud commute from the numerous CSPs, enterprise, hybrid, IT, and service providers in markets where we see really long-term barriers. And to be speaking to our actions on those, a sizable piece of our activation in shells moving from our 3-plus gigawatt land bank into shells and ultimately to be delivered in suites is all in those same core markets. Operator: The next question comes from David Barden with Bank of America (NYSE:BAC). Please go ahead. David Barden: Hi guys. Thanks a lot. So I guess, two, if I could. Andy, I guess last quarter you talked about how 50% of these record bookings were -- or roughly 50% were AI-related. It obviously stepped down sequentially. But to your point about the lengthening of the delivery period, it seems like there is still some very large customers in what was the new leasing number this quarter. Could you kind of revisit on an apples-on-apples basis, how 2Q unfolded versus 1Q from an AI versus non-AI type of new leasing pattern? And how do we think about this? Is there going to be a seasonality to this sort of thing? That would be kind of my first question. And then the second question is, I was just going back to 2019, you guys generated $6.65 of core FFO, which is kind of what you're guiding to for 2024. And I know that you've laid out a hope that there will be growth -- more meaningful growth in the forward-looking periods. Also, you said that your balance sheet is now less in a defensive and more in an offensive position. And historically, when you've been offensive, it's meant dilution to secure future growth opportunities. So I was wondering if you could kind of, Andy, revisit the bull case for growth to take all these great things that are happening with the top line and turn them into bottom line growth? Thank you. Andrew Power: Thanks, Dave. So obviously posted apples-to-apples from a 50% contribution last quarter to this quarter is probably closer a quarter of our science. We would say, we really pin on AI use cases. But I would caveat that in a few ways. One, that's in a quarter that's not our record quarter, but I think the top four quarter overall signings, great contribution of both 0 to 1 and plus 1 megawatt, as well as a near record in interconnection signings. And that means we're still winning with the traditional demand drivers of digital transformation, cloud computing, and the like, that though that demand is not nearly exhausted shelf or played out. I would also say that there was certainly a deal that I didn't count in the category of AI that is certainly pushing the envelope on power density and post-ink drawing, already thinking about evolving that capacity block or signed with them in towards what will ultimately be supporting AI down the road is my guess, which I think speaks to the modularity of design and how we're able to scale infrastructure to the demands of our customers as they needed. The second part of your question, let -- first off, I don't want to confuse the word offense with M&A. I think we've not done any real M&A or external growth for several years now. You can maybe save the resolution of the Cyxtera relationship, but that was I think making lemonade out of lemons more than anything. And when I use the word offense, I mean, that's converting this 3 plus gigawatt land bank, which we've assembled over the years, i.e., we didn't just go buy that yesterday and turning that into a great product for our customers to land and expand in -- at great returns on our investment. And you've been seeing that play out now with our ROIs and development schedule, crescendoing into the double-digits. You've seen that in the pricing power and you've seen our value proposition really resonate in all of our customer segments across our core markets. And lastly, our eye is on the price of accelerating the bottom line. That's where we reoriented our strategy 18 months ago about our value proposition, integrated, innovating, bolstering, diversifying our capital sources. And all those things were about, call it making sure we're driving per share -- FFO per share growth that's accelerating and it's going to be continuously compounding for years to come. So there is been no divergence in that conviction of what comes next for the rest of 2024 and what we've said about 2025, next year. Operator: Your next question comes from Eric Luebchow with Wells Fargo (NYSE:WFC). Please go ahead. Eric Luebchow: I appreciate it. Thanks for taking the questions. So Andy, could you maybe comment on what type of market rent growth you're seeing right now in some of your key metros on an apples-to-apples basis relative to last year and whether that continues to evolve as this year has progressed? And then as you look out into the future, do you see an opportunity for market rent growth to continue to outstrip your development costs and we can see the kind of 10% to 12% development yields you have in your pipeline move even higher? Thank you. Andrew Power: Thanks, Eric. I mean, I would outcast that market rent growth is continuing to move in our favor. You've seen two elements happening, the most precious capacity blocks in the key markets like in Northern Virginia continue to set new records in terms of rates. And you've also seen a catch-up phenomenon where other markets in North America or outside of the U.S. are catching up a fair bit in terms of their trajectory of growth. Listen, I look at this, you've got these waves of demand being cloud computing and digital transformation, hybrid IT, and now AI that are just getting going in some of these. They're large and dynamic and it's happening in a supply constraint backdrop from numerous avenues of supply constraint. And those elements are ultimately resulting in the increases in rate that we've been able to execute on for several quarters and I believe will be three quarters in common. And I also believe they will likely outstrip the -- whatever inflationary cost we see in terms of build costs and at least maintain these ROIs, if not continue to notch it up slightly higher. Operator: The next question comes from Jim Schneider with Goldman Sachs (NYSE:GS). Please go ahead. James Schneider: Good afternoon, and thanks for taking my question. On the topic of power constraints and supply environment you see relative to transmission. With the time horizon, let's say, 12 to 18 months, do you think the outlook for power availability is getting more constrained, less constrained, or staying about the same relative to new projects you have either under development or contemplating? Andrew Power: Jim, I think that there is a few phenomenons happening. One, we're getting closer, I mean, some of these constraints popped up now a years in a rearview mirror. And we're obviously inching our way close to destinations of resolutions, be it in Northern Virginia, which I think 2026 is supposedly above or within like in Santa Clara and there is other non-U.S. markets as well. At the same time as we approach the power constraints, there is obviously a good potential that the delivery dates may not deliver on time. These are multifaceted projects that require easement, substations, construction projects. At the same time, the demand didn't standstill while the power was constrained. The second phenomenon I think they're seeing is -- this is becoming a more pervasive topic. It was very focused on one cloud center of the universe market with Northern Virginia and we're hearing more and more about other markets. And lastly, I wouldn't pin it just on power. Yes, the power has got broader generation issues in the economy that we're trying to green. It's got transmission issues that navigate municipalities and substation deliveries and transmission lines cutting through the backyards of folks that rather not have them there. But there are also other elements of sustainability concerns, moratoriums in certain parts of the world. And so I think that this is a multifaceted supply constraint, which I would also mention that even if it does get fixed, has a propensity that could -- history could repeat itself here. So I think this is going to make our value proposition with what we deliver to our customers even more compelling and valuable at the end of the day. Operator: The next question comes from Vikram Malhotra with Mizuho. Please go ahead. Vikram Malhotra: Hi, good afternoon or evening. Thanks for taking the question. I guess just a bigger picture, you've talked about leasing spreads in greater than 1 megawatt improving over time given the differential of what's expiring versus, I guess, market, but you also referenced market rent growth improving quite a bit. So with that and just some recent comments from hyperscalers, just talking about the risk of oversupply or just too much CapEx. Can you sort of just frame the near-term opportunity set in the greater than 1 megawatt from -- maybe bookings, but more so pricing standpoint versus the puts and takes over time just from a demand-supply? I'm just wondering, is there a risk that you see the spreads theoretically improve, but there is a lot of supply coming down the pipe? Andrew Power: I'll take the -- mainly the second -- first and second part of your question, I'll ask Matt to comment on our outlook on leasing spreads and really kind of talk about the stairstep in our exploration schedule, which does -- call it, become even more attractive in its coming years. But I think from -- the heart of your second question is the broader AI theme question you're hearing more on -- in the mainstream media over AI overdone, this is a bubble, what could come next? I think some of that is not unnecessarily 100% germane to what we're seeing. And the reason I say that is in our business, when it comes to AI, we are signing long-term contracts, I'm talking 15 years with some of the largest, most established technology companies ever. Two, and I mentioned before, we're doing that, we're not chasing this out to unproven territories. We're focused on core markets with robust and diverse customer demand where traditional use cases, be it cloud commuting from numerous CSPs, enterprise, hybrid IT, and service provider demand are continuing to grow over time, and even if the AI has peaks and valleys. And we're doing it in markets that we believe are real term -- real long-term supply constraints. And lastly, all this is happening probably in the most supply-constrained moment in the last 20 years of data centers. So I don't -- I'm not sure or convinced that even if AI takes a breather on its long-term innovation trajectory. I think that volatility -- we are somewhat insulated in our sector from that volatility based on how we're pursuing it. But Matt, why don't you hit on the question? Matthew Mercier: Sure. So what I look, what I call it is -- if you look at the greater than 1-megawatt leases that are expiring, call it the next 18 months, the rate -- average rate on that in the 140 to 145 area. But then it steps down pretty gradually to as low as 111 by the time you get to 2029. So I think you're going to see a continued positive trajectory on our leasing spreads, not only in the greater than 1-megawatt category, but I think also across all the categories. So I think you'd also recall within our 0 to 1 spreads have been positive. I think throughout our history, those are typically more regular steady inflationary type increases or better. So I think this puts us in a -- I think in a good position considering where market rates are, where some of the supply constraints are to where we'll see market rates now continue to remain positive and grow and continue to accrue benefits to our releasing spreads as we go through time. Operator: The next question comes from Frank Louthan with Raymond James. Please go ahead. Frank Louthan: Great. Thank you. So in talking before, you mentioned you're prioritizing retail Colo over hyperscale. How should we think about that practically and kind of track that? Is that part of the reason the sub of megawatt bookings have remained a little bit elevated? How should we think about that trend going forward? Andrew Power: Colin, why don't you -- I think that's a great question because we are obviously spending a lot of time on the bigger deals right now. But Colin, why don't you walk-through on the highlights of the quarter? Colin McLean: Sure. Frank, thanks for the question. I'm not sure I'd use the word prioritize. We definitely want to emphasize a full platform to have an offering set. So as highlighted in Andy's opening remarks, performance in Q2 was particularly strong 0 to 1, fourth consecutive quarter over $50 million, which I think was -- which is in also the third highest ever from 0 to 1. We think this consistency is really driven from our ability to serve the full spectrum of requirements for our enterprisers and service providers across the Global 5000 focus of customer set. New logos are also pretty strong as well, most solid ever in terms of 148% with 40% of that coming from the indirect side. Channel also which I highlighted earlier was a particularly strong point with over 20% booking contribution from the indirect side overall. So we view this segment as continuing on our value proposition out to our client set. And a lot of the drivers Andy talked about around digital transformation, cloud, and AI are also playing out in 0-1 segment across enterprises and service providers. And Andy highlighted a couple of those key wins on opening remarks, namely Fortune 5,000 clients, excuse me, offering their virtual desktop requirements and the global manufacturing win we had on the enterprise side. I also want to highlight the particular highlight of the Microsoft ExpressRoute launch into Dallas, which we feel like is a presumably strong representation of our platform. Operator: The next question comes from Michael Elias with TD Cowen. Please go ahead. Michael Elias: Great. Thanks for taking the questions guys. Andy, in the past, you've talked about CapEx being an accordion that you expand and contract to the end of solving for consistent bottom line growth. So as I'm thinking about it, given the leasing success that you've had over the last two quarters and also as part of that like the market opportunity in both hyperscale and enterprise. Is now the time to be expanding that Accordion and really hitting the gap on CapEx? And if so, I just want to be clear, what is the explicit FFO per share that you can grow -- that you guys are solving for as part of that algorithm? Thank you. Andrew Power: Thanks, Michael. So the -- just to clarify, I would say, CapEx is the core and I think it's how we funded, which I think the same concept you're outlining in your question. The CapEx intensity is being pulled forward, right? We talked about this of greenlining more shell capacity, ultimately suites in a super highly leased -- pre-leased development pipeline at very attractive returns. So we're seeing the CapEx intensity increase. We're intersecting at great rates, great returns for our business for good -- and supporting great customers in numerous markets. And we've now positioned ourselves in a balance sheet position of greater strength, not only just from our leverage standpoint but from our liquidity and our diverse sources of capital. And what we're trying to do is essentially use the levers of using our public capital and our private capital to get back to, call it mid-single digits, call it floor to our growth next year and then it's further acceleration on top of that. And do that in a consistent year -- method of compounding that growth for numerous years to come. So it's really those levers of using public and private capital to drive that bottom line to new levels and on a consistent framework. Operator: The next question comes from David Guarino with Green Street. Please go ahead. David Guarino: Thanks. I appreciate the industry statistics you guys included in your investor presentation. And I wanted to ask specifically about the declining global vacancy you highlighted, which it's around 6%. But when I look at your stabilized portfolio, the vacancy level is about three times higher than that. So I guess, first, why is it so much higher? And then second, given the record demand we're seeing across the industry, how long do you think it's going to take before digital's portfolio resembles more like the industry is? Andrew Power: I think Dave - you got to remember that our portfolio is not all -- just call it hyperscale. And the hyperscale portion of this business can literally be 100% leased in many buildings or markets, right? And my gut is that chart, which I think data center walk, which they're doing the best they can, is very much about more of a hyperscale lens. I was actually pretty pleased on the occupancy front. We're up 100 basis points in the same-store occupancy quarter-over-quarter and we have a big same-store pool. It's not mountain. We're also actively taking it one step backwards sometimes on occupancy to take two, three, four steps forward when vacant -- when suites come back and scale and we convert those to Colo and really support our customers' Colo growth as well. So this was the year we said that with occupancy, we're going to be moving the needle and we have been moving the needle. We got more to do in that arena. So I think we'll be seeing -- see it move up. And if you look at, you can also look to get a number of apples-to-apples. If you look at their occupancy, we show by markets. There are certain markets of way less than 60% vacancy that are just very much heavily weighted towards our hyperscale business. They just have a much, much smaller a footprint like Northern Virginia, where if you parse through it, especially on a megawatt basis. I wish, I had that type of vacancy to sell right now and we just don't. Operator: Your next question comes from Matt Niknam with Deutsche Bank (ETR:DBKGn). Please go ahead. Matthew Niknam: Hi, guys. Thanks for getting me on. I had two follow-ups. First, on the Colo side, so you cited the record new logo is 148 this quarter. I'm just wondering from a macro perspective, any change in terms of macro impacts across different customer sizes within that sub 1 megawatt base? And then secondly, you talked about leverage getting back under 5.5 turns, the prospect of improving bottom line growth from next year. How do you think about the dividend and the potential for forward growth in the dividend relative to some potential incremental investments in the business? Thanks. Andrew Power: Matt, why don't you hit the dividend question first and Colin, and I can hit a little bit on what we're seeing in the enterprise demand piece of the puzzle? Matthew Mercier: Yes, sure. So thanks, Matt. So in terms of the dividend, look I think it's back to kind of what we've said historically. I think we've got a unique opportunity here to take advantage of what we see as a tremendous growth opportunity throughout our global portfolio and one of the easiest and cheapest forms of capital within that is internally generated funds. And so we continue to look to try to maximize our cash flow as part of our funding strategy on that front. And on top of that, we're also -- I think as we've also mentioned throughout this call, we're keenly focused on growing the bottom line and accelerating that growth in outer years. So as we grow the bottom line, which is going to benefit and accrue benefits to not only core FFO but then on to AFFO, we then look to keep our dividend growth in line with that bottom line per share growth as well. Colin McLean: Great. On the new logo question, a couple of trends just maybe to highlight in that question. So first, we really believe it's in the hybrid world. So we're seeing that continued trend in the new logo base, hybrid work, cloud, data that our new logo requirements really are served well across our global platform. Number two is the mix of that 148 was very much split between commercial and Global 5000 accounts. So we're seeing continued interest in the platform across the larger customers who buy with more frequency in the smaller area of the spectrum. Not sure that we can necessarily point to a growing density in that particular base of clients yet or capacity. But I can tell you this particular base of clients sees real value, as I mentioned in our global platform, which really serves well across their requirements. Andrew Power: And just one, Chris, why don't you just chime in on the early reads on the HD Colo 2.0, with some of the -- I would say an uptick in the enterprise segment? Christopher Sharp: No, so I think I agree with you, Andy, on the macro trend of what we're doing with HD Colo is just really aligning the right capability to cool some of these higher-power density requirements coming into the market. And so we see a lot of the capabilities that we brought in across the 170 facilities. We can execute these higher-density solutions in 12 weeks or less. And I think what's interesting about that is the capacity blocks are getting larger, but like the capabilities that customers are trying to bring to market are definitely challenging for a lot of your traditional Colo offerings where we've really started to see that come to market about six to seven months ago. And so we've been able to pre-procure a lot of these capabilities to get ahead of that challenge. But just kind of current rack densities in the market today are 6 to 8 kilowatts. And I think one of the things I think you're really hitting on is like what are some of these new requirements coming in. And so healthcare, we're seeing 10 kilowatts of rack. I mean, gaming, we're seeing 15 kilowatts of rack this last quarter. And then some of the AI software capabilities, 40 kilowatts. But at the end of the day, we can meet a customer requirement of 150 kilowatts. So we have a lot of runway with that. And to put a little context to it, in the most recent state-of-the-art NVIDIA (NASDAQ:NVDA) GB200, we can support that requirement in an under 12-week fashion with our current HD Colo offering. So definitely seeing a lot of growth in that market. Operator: Your next question comes from Anthony Hau with Truist Securities. Please go ahead. Anthony Hau: Great. Thanks for taking my question. I noticed that the weighted average commencement period for new leases are 20 months away. I'm assuming most of these leases are probably for 2026 deliveries, but are customers looking to sign leases for 2027? If they are, what type of customers are looking to pick up space thus far out? Andrew Power: Thanks. So I mean customers are -- especially when it comes to larger capacity blocks, they're really trying to future proof and that's where our 3 gigawatts of growth comes in handy. So they certainly -- the nearest-term deliveries are precious, but I think in the years ahead. Now that particular example, as I mentioned, the 20 months was elongated because that customer -- one particular customer had very much their eyesight on a particular market and then various restrictions about where they could grow and where we can support that growth, we are literally their capacity. So that we were able to do deliver as fast as we could, but it certainly elongated. Look, excluding that one outlier, we're close to 4.5 months. And I think you'll -- I wouldn't count on those outliers consistently popping up, they'll be more sporadic. Operator: The next question comes from Brandon Nispel with KeyBanc Capital Markets. Please go ahead. Brandon Nispel: Hi, thanks for taking the question. Question for Matt. Can you talk about not updating the guidance at all? Maybe there is some moving pieces from FX and the recent acquisition that you call out. Just as I was looking at it, if you look at the first half of the year and annualize it, revenue really need to accelerate while adjusted EBITDA would need to be backwards, actually to hit the midpoint of your guide. So I guess, the question is, is the EBITDA FFO guidance is conservative? Are there some uncertainty in terms of timing of commencements, unusual expenses? Hoping you could just unpack that for us. Thanks. Matthew Mercier: Sure. I don't -- look there's a -- I would, again, I'd probably focus kind of on the bottom line. If you look at -- if you look at where we are halfway through the year, we're a little less than halfway through the midpoint of our core FFO guidance. And we talked about -- we expected this quarter would be -- would have a little bit of pressure because of the capital recycling efforts that where we've concluded with closing CH2 and having the related income from that come out this quarter. And so look what we're going to see is in the second half, growth we're expecting to improve and accelerate as the backlog of deals and signings come online. And as we expect -- as we haven't changed the guidance, we've obviously given a wide range. But if you look at -- I think where we are this year and the expectations for accelerating in the back half, which I think will set us up very nicely for 2025. We feel pretty good about the midpoint of guidance and being able to achieve that. Operator: Thank you. That concludes the Q&A portion of today's call. I'd like to now turn the call back over to President and CEO, Andy Power, for closing remarks. Andy, please go ahead. Andrew Power: Thank you. Digital Realty posted another strong quarter in 2Q with record leasing in the first half, demonstrating how Digital Realty is positioned to support the elevated level of demand we continue to see for data center infrastructure. Fundamental strength continued through the second quarter with robust leasing volume, healthy pricing, and record commencements poised to drive an acceleration in bottom line growth. We continue to innovate and integrate with the rollout of HD Colo 2.0 and the addition of new cloud on-ramps to PlatformDIGITAL in the quarter. Then we have repositioned the balance sheet by recycling capital out of stabilized assets, diversifying our capital sources, and reducing our leverage. All of this was done with an eye towards improving our growth profile while supporting our customers' growing needs. We are excited about this quarter's results and remain optimistic about the outlook for data center demand and our position in the market. I'd like to thank everyone for joining today and would like to thank our dedicated and exceptional team at Digital Realty, who keep the digital world turning. Thank you. Operator: The conference is now concluded. Thank you for joining today's presentation. You may now disconnect.

Earnings call: Rogers Communications Q2 2024 solid growth amid challenges By Investing.com

Rogers (NYSE:ROG) Communications Inc. (RCI) has reported robust financial and operational results for the second quarter of 2024. The company witnessed an uptick in wireless service revenue by 4% and a 6% rise in adjusted EBITDA. Mobile phone net additions totaled 162,000, including 112,000 postpaid and 50,000 prepaid net additions. Despite a competitive market, Rogers Communications managed to maintain strong margins and revenue growth. The company's focus on efficiency and disciplined market share growth has been reflected in its wireless and cable operations, with wireless margins at an industry-leading 65% and cable margins expanding to 57%. Rogers also reaffirmed its 2024 guidance range targets and is dedicated to driving growth, reducing leverage, and investing in growing markets and services. Key Takeaways Company Outlook Bearish Highlights Bullish Highlights Misses Q&A Highlights Rogers Communications, under the ticker RCI, has displayed a strong performance in the second quarter of 2024 amidst a competitive market. The company's wireless service revenue and adjusted EBITDA have shown significant growth, and its strategy to enhance customer service plans and move customers to higher-tiered services, including 5G, is proving to be effective. The company's disciplined approach to handset financing and emphasis on the Rogers brand for the back-to-school season are expected to contribute to sustained growth. With a clear focus on efficiency improvements, leveraging AI, and digital transactions, Rogers Communications is positioning itself to provide superior customer experiences while managing costs effectively. Despite the challenges faced in the cable segment, the company's overall strategy and commitment to reducing leverage through asset sales and earnings growth demonstrate its proactive approach to navigating the dynamic telecommunications landscape. InvestingPro Insights Rogers Communications Inc. (RCI) has shown a strong financial performance in the recent quarter, with notable increases in key areas. The company's market capitalization stands at a solid 19.9 billion USD, reflecting its substantial presence in the telecommunications sector. Investors looking at the fundamentals will find a P/E ratio adjusted for the last twelve months as of Q2 2024 at 22.0, which is lower than the unadjusted P/E ratio of 31.79, suggesting that the company's earnings might be more robust than they appear at first glance. The revenue growth for RCI has been impressive, with a 21.63% increase over the last twelve months as of Q2 2024. This growth is a testament to the company's ability to expand its operations and maintain revenue streams. Additionally, the gross profit margin stands at 45.44%, indicating strong profitability relative to its revenue. Investors should note the dividend yield is currently at 3.92%, which is attractive for income-focused portfolios, although there has been a slight dividend growth decrease of -2.92% in the same period. The ex-date of the last dividend was on June 10, 2024, which is relevant for investors looking to capture upcoming dividend payments. InvestingPro Tips suggest that the company's focus on efficiency and disciplined market share growth is reflected in its financials. For those considering investing, there are additional tips available on InvestingPro that can provide further insights into RCI's performance and potential investment strategies. As a special offer, readers can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, unlocking access to these valuable tips. Currently, there are 15 additional tips listed in InvestingPro for Rogers Communications Inc., which could be beneficial for investors looking to make an informed decision. Full transcript - Rogers Communications Inc (RCI) Q2 2024: Operator: Thank you for standing by. This is the conference operator. Welcome to the Rogers Communications, Inc. Second Quarter 2024 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to David Naccarato, Director of Investor Relations with Rogers Communications. Please go ahead, Mr. Naccarato. David Naccarato: Thanks, Galen, and good morning, everyone, and thank you for joining us. Today, I'm here with our President and Chief Executive Officer, Tony Staffieri, and our Chief Financial Officer, Glenn Brandt. Today's discussion will include estimates and other forward-looking information from which our actual results could differ. Please review the cautionary language in today's earnings report and in our 2023 Annual Report regarding the various factors, assumptions, and risks that could cause our actual results to differ. With that, let me turn it over to Tony to begin. Anthony Staffieri: Thank you, David, and good morning, everyone. I'm very pleased to report that Rogers delivered another strong quarter of leading financial and operating results. For 10 straight quarters, we have executed our plan with discipline in a healthy and competitive growing market. Our results speak for themselves. In the second quarter, wireless service revenue and adjusted EBITDA were both up a healthy 4% and 6%, respectively. Our focus on efficiency and disciplined market share growth is reflected in our industry-leading loading and industry-leading wireless margins of 65%. In Wireless, we led the market with 162,000 mobile phone net additions. This included 112,000 postpaid mobile phone net additions and 50,000 prepaid mobile phone net adds. The increase in prepaid net additions reflects our strategy this quarter to increasingly address the flanker market with our prepaid brand, which has also had a successful value proposition for the new to Canada market. This approach allowed us to continue to do well in the flanker category while at the same time keeping our focus on penetration growth on the Rogers brand where the majority of our subscriber loading occurred. As a result, and importantly, we continue to post positive ARPU growth, this quarter at 1%. Overall, we are delivering industry-leading loading with industry-leading financials in Wireless. This robust performance over the past 2.5 years is not an accident. We have a clear plan and we're executing with discipline day after day, week after week, quarter after quarter. And it's underpinned by our robust national distribution network, the value and flexibility of our Rogers 5G plans, and our record industry-leading investments to build Canada's largest and most reliable 5G network. Just this week, two global leaders in network benchmarking reaffirmed our network leadership position. Excuse me, Umlaut once again awarded Rogers Canada's most reliable 5G network, finding that our wireless networks outperformed those of our competitors in reliability, which is increasingly what matters most to our customers. In a separate benchmarking study, Opensignal recognized Rogers for delivering the most reliable wireless services in Canada. Opensignal also named Rogers Canada's fastest and most reliable Internet. The report found we consistently delivered the most reliable experience, the fastest overall download speeds, and the best streaming experience in Canada. With a clear strategy, sustained effort, and smart investments, we're delivering the most reliable network experience to Canadians. In Cable, we remain focused on returning to modest growth in the fourth quarter while maintaining industry-leading financials. Cable revenue was down 2% in the quarter, reflecting a slight sequential improvement from down 3% in the first quarter. Adjusted EBITDA was up an impressive 9% and Cable margins expanded to 57%, a company and industry best. Our teams continue to work diligently to drive efficiency throughout the business and we are targeting additional improvements throughout this year. In Internet, we delivered 26,000 net new subscribers, up slightly from one year ago. The environment remains competitive in both the east and west and we continue to drive growth through enterprise, MDUs, and the expansion of our TPIA and 5G home Internet offering. In addition to our fixed wireless access launch earlier in the year, we've just expanded our TPIA offering in Quebec with the launch of TV and Internet services in the province. It's early days, but we see a big opportunity to grow in Quebec, just like we do in Southwestern Ontario where we've also launched. With Shaw, we doubled our cable footprint to reach just over 60% of Canadian households. Now, with our fixed wireless access and TPIA network offerings, we're expanding our home product and coverage to reach almost 100% of Canadian households. We see this as an important strategic expansion as our wireless network covers almost 100% of all Canadians. Our satellite initiative will also further solidify our coverage leadership. We also continue to advance our DOCSIS roadmap. We're successfully trialing DOCSIS 4.0 modem technology in select Calgary customer homes using our enhanced cable plan. This is a global first and it's delivering 4 gigabits download and 1 gigabit upload speeds at an extremely low cost per home. In the more immediate term, we continue to execute on our plans to return the cable business back to organic revenue growth by year-end. We will pursue this growth in a disciplined and targeted manner. Finally, in Media, top line grew by 7% led by revenue growth at the Toronto Blue Jays and adjusted EBITDA was breakeven. The third quarter is seasonally strong for our media business and we fully expect Media to return to profitability in the second half of the year. At the same time, we continue to invest in the future and long-term growth. Our landmark content deals with Warner Bros. Discovery (NASDAQ:WBD) and NBCUniversal is part of that investment. Through these deals, we will bring Canadians the most watched lifestyle and entertainment shows on their platform of choice. Before I turn things over to Glenn, let me say that our teams have worked extremely hard to deliver strong results in a competitive market. Rogers continues to consistently deliver industry-leading financial results and best-in-class customer growth. In the past 10 quarters, we've added an impressive industry-best 1.7 million mobile phone and Internet net additions. More Canadians are choosing Rogers than any other carrier full stop. We've done this by out executing our competitors and making strategic record investments to grow our business. I'm proud of our team, and I'm confident in our plan to drive continued growth while maintaining our track record to deliver disciplined financial results. Let me now turn the call over to Glenn. Glenn Brandt: Thank you, Tony, and good morning, everyone. Thank you for joining us. Rogers' second quarter results reflect another quarter of disciplined industry-leading growth and strong operating and financial performance. As Tony has said, this marks our 10th consecutive quarter leading the Canadian telecom sector in performance. We are focused and we are determined to meet our commitments. Succinctly, we are consistently doing what we have said we would do. Wireless service revenue in the quarter grew 4% year over year, driven by disciplined execution across all of our sales channels from coast to coast. Our targeted strategy of driving higher value for our customers through feature-rich 5G services from our Rogers premium brand remains critical to driving this growth. Postpaid mobile phone customer net additions were 112,000 and prepaid net additions were 50,000. We anticipate our total net adds of 162,000 customers will once again lead the industry in market share and subscriber growth while, very importantly, still leading on financial performance. Through a very active and competitive flanker brand market, Rogers has led across a combination of postpaid and prepaid mobile phone net adds. Our prepaid net adds reflect our commitment to compete across the entire breadth of the market, and our feature-rich 5G service plans remain exclusively available under the Rogers premium brand, which remains core to sustaining our strong margins and leading performance in a growing and competitive market. Once again, our mobile phone ARPU was up 1% year-over-year, again reflecting our disciplined approach to the market and our emphasis on the premium Rogers brand. In a very competitive market, we remained disciplined in finding a path to leading growth while emphasizing premium services to protect margins. Postpaid mobile phone churn in the quarter was 1.07%, a modest increase of 20 basis points year-over-year, further reflecting our balanced, disciplined approach in the growing and very competitive market. Wireless adjusted EBITDA was up a strong 6% year-over-year, and our adjusted EBITDA margin grew by 160 basis points over the prior year to 65%. This is a company all-time high, reflecting our team's exceptional work on driving cost efficiencies. Moving to our Cable business, we remain committed to returning our Cable business back to organic revenue growth by the fourth quarter of this year, and this quarter's results reflect those efforts. Cable revenue was down negative 2% year-over-year, sequential improvement from the negative 3% decline in Q1 and prior quarters. We will continue our drive to overall cable revenue growth through the second half through a combination of subscriber growth and disciplined pricing. Cable adjusted EBITDA was up a very strong 9% year-over-year, reflecting our continued success in driving scale efficiencies and cost synergies. This strong 9% adjusted EBITDA growth drove a very strong adjusted EBITDA cable margin of 57%, up from 51% in the prior year and up from 56% sequentially from the first quarter. We anticipate additional efficiency gains and margin improvements through the second half. A key element to returning our Cable revenue to modest growth in Q4 of this year will be through customer growth, and we are encouraged by our continued improving performance in retail Internet net additions. Internet net additions were 26,000 in the second quarter, a slight increase from one year ago and consistent with our first quarter performance. This level of loading combined with our industry-best margin performance further reflects our balanced approach to driving growth while maintaining disciplined pricing. This will continue through the second half. Finally, our Sports and Media revenue was up 7% and adjusted EBITDA was breakeven. We expect our Sports and Media business to be profitable through the seasonally strong second half and for the full year, driven primarily by revenue growth at the Toronto Blue Jays and Sportsnet. The completed renovations at Rogers Center have been very well received by fans and while the Blue Jays season has not lived up to expectations through the first half, Sportsnet performance remains very strong, driven in large part by the Blue Jays and by the Edmonton Oilers Stanley Cup run. At a consolidated level, Q2 total service revenue increased 1% and adjusted EBITDA was up 6% year-over-year. This drove our consolidated EBITDA margin up by 230 basis points year-over-year to 46%. Free cash flow also remains strong, reaching $666 million in the quarter, which is up 40% from the prior year, reflecting higher adjusted EBITDA, lower capital expenditures, and lower interest on long-term debt. Capital expenditures were $1 billion in the quarter, down $80 million or 7% from last year. Turning to the balance sheet. At June 30, we had $4.3 billion of available liquidity, including $450 million in cash and short-term deposits and $3.9 billion available under our bank credit facilities. Our weighted average interest rate on all borrowings is 4.7%, down from 4.9% at year-end, and our weighted average term to maturity is 10 years. Our 4.7 times debt leverage ratio was flat to Q1 of this year, made more notable in that our Q2 leverage includes our $475 million investment made in the first half for the 3800 MHz spectrum we won at the auction last year, $380 million of which was made in Q2. Absent this $475 million investment, leverage in Q2 would have improved to 4.6 times. We remain focused on reducing leverage through the second half, targeting 4.2 times by year-end. Our target is to reduce leverage by roughly half a turn each year, supported by a combination of earnings growth and paying down debt with available free cash flow and proceeds from asset sales. As we have indicated in prior quarters, we have processes currently underway to sell targeted non-core assets, predominantly real estate assets, worth an estimated $1 billion. These asset sales are taking longer than originally anticipated as a result of continued softness in the market ahead of anticipated interest rate reductions. We remain committed to this initiative. However, we are also focused on ensuring we drive maximum proceeds. And finally, as you read in our press release this morning, we are reaffirming all of our 2024 guidance range targets. We remain confident in our continued disciplined execution, working to drive cost efficiencies and improved margins while investing in our growing markets and services. We are focused on driving growth and on delevering our balance sheet as reflected in this quarter's strong results. As I indicated in my opening and as you heard in Tony's remarks, we are meeting our commitments. We are doing what we said we would do. Let me conclude by congratulating and thanking our incredible team of dedicated and proud employees for their leadership. For the 10th consecutive quarter, we have delivered leading performance in a growing and highly competitive marketplace. Thank you for your time this morning and with that, Galen, can we please commence with the Q&A. Thank you. Operator: [Operator Instructions] The first question comes from Drew McReynolds with RBC. Please go ahead. Drew McReynolds: Yes, thanks very much and good morning. Two for me. First, maybe, I guess, Tony or Glenn. With respect to just on the wireless side and what appears to be kind of continued demand for the Rogers main brand kind of value proposition, can you just give us a little sense of what's driving that particularly because, obviously, given kind of the ARPU performance, there's demand there and uptiering still happening. Just curious, from a consumer perspective, is it speed, quality of service, data buckets other premium kind of content that's offered? I would love to kind of get a sense of that. And then second, Glenn, good to hear, just kind of continued expectation of margin expansion within Cable. It looks like you're probably spending about $1 billion on TV programming costs, which is a relatively big number. And I know you and Tony have talked about kind of modernizing kind of the TV proposition in consumers home for what people actually want to watch. Just wondering how, your expectation is on bringing down those programming costs over time or maybe set a different way, optimizing those programming costs just to align with what consumers want to watch. Thank you. Anthony Staffieri: Thanks for the questions, Drew. I'll start with the first one on Wireless. As you pointed out, and I said in my opening remarks, the majority of our net subscriber additions continue to be on the Rogers brand. A while ago, we set out on a strategy to focus on the Rogers brand and drive growth on Rogers. So, there are a few things that we're seeing that's contributing to our success there. First and foremost, it's the network. As I said in the comments, reliability is becoming more and more important, and we were extremely pleased to see Umlaut and Opensignal reaffirm our network performance and best reliability. That is the single biggest driver of churn reduction as well as new acquisitions. Secondarily, we continue to lean on our distribution network across the country. It had been extremely effective for us in all the channels in both large markets as well as in what we would call smaller markets as well. In terms of offerings on the Rogers brand, we introduced Disney Plus, and that's been helpful to it. But the other piece is convenient financing of phones. With the Rogers Mastercard (NYSE:MA), consumers can finance their acquisition of phones over 48 months and effectively cut their monthly bill in half when it comes to paying for the phone. And so that's been extremely helpful as well. So, those are some of the big factors. And then the last one is the power of bundling our wireless together with our home products, particularly in the west. The ability to now bring more competition to the west has been a good source of growth for us. Alberta and BC continue to be our fastest growing markets with healthy market share, and that's contributed to the overall Rogers loading. Glenn Brandt: And then, Drew, on your question on programming costs, we really are just at the start of addressing that category. It's a large category. It's going to take some time. Some of the contracts we have in place run over multiple quarters, and some of it is shifting customer presence but -- or customer channel choices. That takes time. However, we've initiated a program, you saw the Warner deal where we are now going directly to the studio and buying the programming. That's a start. We are looking to source, leading programming that the customers watch, making that available and making that available at lower margins by cutting out the middleman company and going direct. And so, you saw that. We will continue, efforts and opportunities in that vein. This is going to take multiple quarters to fully fill in but we're at a good start. Operator: Yes, the next question is from Vince Valentini with TD Cowen. Please go ahead. Vince Valentini: Great. I'm going to ask about prepaid, which is a topic we don't talk about much, but you had a pretty big uptick in prepaid this quarter. And two-part question, one, with the change in your deactivation policy last year, is there a new seasonality, perhaps, of people who would come in and out, in year, like maybe there's some seasonality of people coming in in Q2 and those people quickly deactivate in Q3 or Q4. Just wondering if there's anything we should think about for modeling, because this was a bit of a surprise to us how high prepaid was this quarter. And second part, maybe more important. Can you give us a little evidence and history on your track record of being able to migrate people from prepaid to postpaid? How successful are you in that? How long does it typically take? If there's any percentages you can give, that'd be wonderful, but I don't expect the moon but any color you can give will be helpful. Thanks. Anthony Staffieri: Thanks for the questions, Vince. A couple of items that I'll go through. So, this quarter, we decided to leverage our Chatr brand in the flanker space, and we're pleased with the results we saw there. The Chatr brand is a low cost and very simple to activate type of process, and it's particularly well suited for the new-to-Canada that don't necessarily have a credit history. And so as we leaned on that brand, we found it to be very successful. I should tell you that the average ARPU in of prepaid is just under $30, and most of the customers are on autopay. And so, they very much look and feel like, what I would describe as the flanker category. And so, it's been a very successful entry point into our ecosystem. We continue to focus and do well on the pre to post migration. We don't share numbers on that but we are extremely successful in migrating those customers to a postpaid brand. And surprisingly, many will go right from the Chatr prepaid brand right to Rogers brand. And so, that's been very successful for us. In terms of the seasonality, there is a little bit of seasonal uptick in the second quarter but that isn't what contributed to the large increase in prepaid subscribers in Q2. Vince Valentini: So, just to be clear, we shouldn't expect some sort of spike in churn and negative prepaid in in Q3 as an offset, this is mostly organic success. Anthony Staffieri: That's right, Vince. There always is seasonality, as you pointed out, in subsequent quarters, but don't expect a net negative in future quarters. This is organic that we see long term -- as being long-term customers for us. Operator: The next question is from Maher Yaghi with Scotiabank. Please go ahead. Maher Yaghi: Great. Thank you for taking my questions. Encouraging results for guys in a competitive market. You have, stayed onside in terms of ARPU growth in Wireless while others have not. How should we think about your ARPU trends in Wireless in the second half? It looks like pricing is finding a bottom here. What are the risks, in your view, when it comes to back to school and the dynamics over there to pressure ARPU beyond what we have seen already? And the second question I have is on leverage, telcos, it's the hardest thing for them to deliver. And Glenn, you mentioned that you had to pay for spectrum in Q2. I know you mentioned that you continue to look for divestitures to occur before the end of the year with, that $1 billion real estate, but any other opportunities beyond that $1 billion of real estate that you can look at that, you don't need necessarily to own but you can rent to run the business? Thank you. Anthony Staffieri: Thanks for the questions, Maher. I'll start with the first one. We continue to focus on not only leading market share but continuing to drive ARPU growth. And so, as we look to the back half of the year, our expectation is, we will continue to be on the growth side of ARPU while there are pressures, as you would expect. We have a number of initiatives that we're driving that we're confident will continue to have solid ARPU growth for us. As we head into back to school, our expectation is, of course, it's going to be competitive, just like it is every year. As we enter the back half, more than half the annual loadings occur, starting with back to school. And so, as that kicks off in the coming days and weeks, you can expect us to focus on the Rogers brand in the back to school category, together with bundling with our home Internet and, in particular, our 5G fixed wireless access product for Internet. Our focus has been and will continue to be on the value proposition beyond just price. Our expectation is to continue to be disciplined on handset financing and our approach there. We don't see ourselves moving into subsidizing handsets which one of our competitors is focused on. We have a different value proposition, and we're going to focus on 5G and the Rogers brand, as I said. Glenn Brandt: And then, Maher, on delevering. We've -- our prime two sources of delevering we have well in hand. It's earnings growth and it's free cash flow. Seasonally, most of our free cash flow comes in the second half, and, in fact, it comes in the last four months of the year. That's just seasonally how our free cash flow generally hits through the year. And so, when you look at, we've given guidance of free cash flow around $3 billion, range $2.9 billion to $3.1 billion. So, for ease of numbers, call it $3 billion. Our cash paid dividends now are somewhere in the range of $700 million and change. That leaves $2.25 billion, roughly, for us to use to invest. Well, $0.5 billion in spectrum this year. So, that comes out of available free cash flow. The rest, we will use to pay down debt. Those two, first and foremost, we have in hand and those are our key drivers in delevering quarter after quarter, year after year. And you see the impact of that through this quarter and prior quarters. On the asset sales, we will complete asset sales. You're right. Real estate, we've got some that's vacant that we can sell. We've got some that we own, that we occupy and could sell and lease back. The greatest productivity comes from selling assets that you don't need to lease back. But if there are transactions there that make sense, on looking at the other, we will. But we've got time, and we're not -- we're certainly not in a fire sale. You saw us pivot at the end of last year, realizing the market was softer than we had expected on the asset sales, and we sold the Cogeco shares. We took advantage of an uptick in the market and brought in some -- a significant debt reduction in the tail end of last year. That bought us some time and allowed us some leeway to not fire sale our real estate and non-core asset holdings. We are still focused on driving those sales, though. Matthew Griffiths: Hi. Good morning. Thanks for taking the question. It's Matt sitting in for Dave this morning. Two, if I could. Just, on Wireless, I wanted to just follow-up on the -- on Drew's question or the answer to it. I know the focus has been on the Rogers brand with its improved network quality. Obviously, bundling is something that's happening more and more in the market. So, given that, and, we still see churn sort of ticking up, I wonder how you viewed that. If you view the churn as a return to normal or we should see as this strategy continues to play out that we should see some churn benefits going forward that we should be modeling in? And then, just on Cable. Obviously, encouraging the view of growth or returning to top-line growth by year-end. Should we factor in some price increases in the back half of the year? I know that there's a whole host of items including, the enterprise segment, TPIA, fixed wireless access, MDUs in the west. But, in that mix, is -- are price increases going to play a role in getting that inflection point to positive? Thanks. Anthony Staffieri: Thanks for the questions, Matt. Let me start with on the Wireless side. As you said, just filling in from the response I gave to Drew and the impact on churn longer term. If you look at the quarter and the last several quarters, there's been heightened churn. It's probably worth dissecting for you that as we focus on the Rogers brand, what we're seeing is on that brand improving churn and as customers get on the 5G network, and we're very disciplined about 5G being only available on the Rogers brand. And, in particular, as they get to, excuse me, as they get to unlimited plans and the simplicity of the billing of it and certainty of the billing and the performance of the network. Those have been good drivers to improve churn and customer loyalty on the Rogers brand. As you look to the overall combined churn, most of that is happening in the flanker category, quite frankly. And so, what we are seeing is customers moving around in that space as they are more price-conscious. And we also see some customers going from postpaid to prepaid, given the similarity of the product and some of the advantages that prepaid have for them. As we look to medium term, we've said that we would expect churn levels to continue to be elevated for those reasons. Long term, as we look out beyond the next three to four quarters, our expectation is we will see churn levels likely decline but we think it'll be some time before we entered that space. Notwithstanding that, the churn is happening against the backdrop of a continuing growing market. And so, while churn is up for the industry overall, gross adds are up significantly and our market share in gross adds continues to be strong, leading and continues to improve. And so, on a net add basis, we see the market continuing to grow in the roughly 4.3% to 4.5% range for the year, overall for the industry would be our best estimate. And within that, we expect to continue to lead on market share on net adds. Glenn Brandt: And then Matt, on your question on Cable returning to growth, I won't get into specifics around any, marketing strategy or that, I don't want to preannounce anything but I would, say through this quarter we've been -- you've heard me several times in my prepared comments refer to disciplined, part of pricing is not so much the posted price or increases or that but being disciplined on some of the discounting that is offered. We've seen a very active market, a very competitive market. We are focused and careful on where we lean in and on where we pull back on some of that discounting. And so, you see some of that through the second quarter. You'll continue to see that through the second half of the year. It's block and tackle, as opposed to any magic bullet of let's simply charge more for services. Operator: Certainly. The next question is from Stephanie Price with CIBC. Please go ahead. Stephanie Price: Good morning. I had two questions on the Cable business as well. Maybe first, I was hoping you could talk about the uptick you're seeing in the fixed wireless offerings and how you kind of think about that mix of fixed wireless versus TPIA as you move into the 40% of the country where you don't have a wireline presence. And then second, just on Cable margins. Obviously, very strong in the quarter, and commentary was encouraging about, the potential to increase that. Just curious about what other initiatives you have underway and how you think about driving margins from here? Anthony Staffieri: Thanks for the questions, Stephanie. Since launching fixed wireless access, we launched it nationally with a focus and attempt to index it towards areas where we don't have cable footprint, namely Quebec and Southwestern Ontario, certain parts of it. And we're very pleased with the success of the product, the appeal of the product. Consumers and businesses find it very simple to buy and get up and running literally within seconds. And so, the product is doing well not only in those markets but nationally as well. We're finding that certain segments, including students entering Canada and new-to-Canada that are still finding themselves somewhat mobile in terms of where they're going to be living, have an affinity to the product because it's convenient and it is mobile for them. And so, fixed wireless access is doing well relative to TPIA. We just launched that. As I've talked about before, we purchased Comwave to give us the platform back in the fourth quarter and we wanted to relaunch the product that would include not only Rogers Internet on TPIA but the full suite of products that we offer and, in particular, the entertainment product Rogers Xfinity. And so, it's still early days and comparing the two is somewhat difficult just given the different timeline. We see a different use case for each of them, depending on the customers' needs in terms of bandwidth that they're looking for, generally within a home where there are multiple users, entertainment happening at the same time as video calls, et cetera. Our view right now is that TPIA would be the better solution. But as we deploy network slicing, the potential for fixed wireless access use cases continues to increase as well. So, we'll offer both and we'll let the market decide, excuse me -- and we'll let the market decide what fits the customer needs best. Glenn Brandt: And then, Stephanie, on your question on Cable margins and what other initiatives we're looking at. I'm encouraged by the question given that we're one year into the, post-acquisition of Shaw and you're asking whether or not we've filled in or still have more opportunity. We still have more opportunity but I'm very pleased with the progress we've made to date on integrating the people and working through the people cost side of things. But there are still some very large initiatives and large opportunities. We are still fully engaged on the systems integration and some of the improvements that come from that. Our ERP systems, that work remains underway. That will help drive some efficiencies in the boring operations side of things that really helps to provide customer service improvements as well as pulling some cost efficiencies out or cost inefficiencies out. We are still working on vendor negotiations. Some of those contracts we had in place were multi-year, and we've worked through a significant portion of them, but there are still more and we are now twice the scale on the wireline side of things. And so, that helps on providing future years opportunities as we lean in on those contracts. We have not yet fully -- we're at the start, we haven't yet fully filled the wireline or fiber backhaul, replacing microwave backhaul. That's really early days. The construction is underway but lightening up on our microwave backhaul for our wireless cell sites that we will fill in over the next few years, providing opportunity for lowering microwave costs. And then finally, we're really just getting started on the media content costs. And you saw and heard my earlier answer on some of those efforts with the Warner deal and going direct to studios. That is a balance between finding lower cost ways of sourcing the content as well as gearing the content delivery to customers that with what they actually watch rather than, here is a full slate of channels, many of which never get tuned in. So, we still have several initiatives that we will fill in, not just over the next few quarters but over the next few years. Still lots of opportunities. Thank you. Tim Casey: Thanks. Good morning, Tony, could you talk a little bit about what you've -- the progression of what you've seen in terms of competitive pricing in the wireless market and how you're thinking about how it's going to play out through back to school, particularly with respect to last year? I mean, obviously, there will be back to school promotional activity but, I think, the market would be very interested to hear, investors would be very interested to hear how -- what your take is on the projection or the trajectory of pricing offers out there as we go into the seasonal period this year. Anthony Staffieri: Thanks for the question, Tim. It's always hard to predict the market dynamics. We have a plan of what we intend to do as we kick off the season with back to school. As I said in my earlier comments, our focus will be -- continue to be on the Rogers brand and continue to be on bundling and a few other things that you would expect to be relevant to students and the addition of second, third or fourth line to the plan. So -- and we'll work our distribution channels to effectively compete during that season. In terms of -- and maybe your question is how do we think it'll compare to last year? We had four robust competitors in the marketplace last year, and we have the same competitors in the marketplace this year. And so, our expectation is, it's going to be competitive and at least on par with last year in terms of pricing dynamics and promotional offers. We'll just have to see what the competition does and we'll respond accordingly. But at a very macro level, our expectation is, it's probably not going to be that different than the prior year. Tim Casey: Okay. Thanks, Tony. And that's -- just on the bundling environment. Any changes you're seeing there with respect to cable -- competitive intensity, and maybe if you could talk a little bit about what you're seeing in Ontario with what you're seeing out west on that dynamic? Anthony Staffieri: It's important to set out that, the bundled customer is still not the majority of customers across the entire nation, and that's true not only for us but the industry overall. And so, bundling has a lot of appeal beyond just the bundle discount, but it's still, frankly, early days in terms of bundling. As I said, it has some convenience. And part of the appeal of fixed wireless access is you can walk out of the store with a phone as well as home Internet that's just ready to go. And so, it's a simple, easy process. But in terms of the trend we're seeing in bundling between east and west, it's about the same. I would say there's probably a bit more inertia in the west, only because we haven't been able to offer the bundled product previously prior to closing Shaw and so having an alternative out west has given us a bit of an advantage and so we're seeing it slightly higher in the west, but longer term, we expect the use case to be the same across the nation. Batya Levi: Great. Thank you. Can you provide a little bit more color on the drivers of wireless ARPU growth going forward? Do you think that the lower mix of flanker brand in there is still a driver? And how should we think about accounting for Disney Plus add-on? Does that also drive better ARPU? Thank you. Anthony Staffieri: Thanks, Batya, for the question. As I said earlier, our expectation is to continue to focus on not only leading market share but leading ARPU growth as well. And so, there are, things we focus on there. One is focusing on the Rogers brand and base management. Glenn referred to it earlier. It's basic blocking and tackling of looking at a customer set. And is there a value proposition relative to the plan that they're on now, proactively outreaching the customer. So, it's things like that. And so, in base management, we like what we see in uptiering customers on the Rogers brand and customers on either the Fido and, as I referenced earlier, on the Chatr brand and uptiering them to the 5G network and the Rogers brand. So that's in and of itself the single biggest driver of continued expansion. The second area is roaming and coming up with roaming alternatives and packages that give the customer more certainty and at the same time gives us more consistency in that type of revenue. And so, as we introduce some of those plans in market, we expect that to have a favorable impact on ARPU as well. Beyond that, I really don't want to get into too many of our marketing plans for competitive reasons other than, those are probably two of the items that are going to be most significant but, frankly, most basic. Operator: The next question is from Jerome Dubreuil with Desjardins. Please go ahead. Jerome Dubreuil: Hi. Good morning. Thanks for taking my questions. First one is on TPIA in Quebec. You're putting emphasis on the strategic move there. Interesting, given your relatively large coverage of the country on the fixed side of the question, and we're just ahead of the CRTC decision. So, obviously, your Comwave acquisition kind of hinted towards that. But if you can remind us of your regulatory view on TPIA and how you see this evolve. And then, second question on EBITDA growth regarding guidance. If math -- if my math is good, we need to see a bit of an acceleration in terms of EBITDA growth versus what we've been seeing in the second quarter. If you can discuss what would be the drivers for accelerated EBITDA growth in the second half versus the second quarter? Thanks. Anthony Staffieri: I'll start with the first one, Jerome. In terms of, our views on TPIA, we've been consistent on point. We need a regulatory framework and environment that continues to encourage facilities-based investment. That's critical to having networks and growing networks across the nation. It's important to facilitate rural connectivity and it's an agenda that we all share. And so, first and foremost, having wholesale rates, if we are going to have a wholesale regime, which we do, and the government seems committed to it, then we need to ensure that the rates reflect full costs. And -- so that's point one. And the second point is, we are going to have a wholesale regulatory regime, then it needs to be fair and consistent across all networks. And so, those are our views on that. We've -- as I said in my earlier comments, as we look to some of the markets where we don't have homes passed, customers are looking for solutions to bundle with their wireless product. And so, this is an opportunity for us to expand into those markets and offer those bundled solutions. Glenn Brandt: And then on your second question, Jerome, on the EBITDA growth through the first half of the year. If you take 2023, and this is true, if you go back in prior years, a larger portion of our annual EBITDA is earned in the second half of the year. If you look at last year, 45% of our annual EBITDA was earned in the first half. If you factor in the fact that Q1 didn't include Shaw, you pull that in, it goes up by 1 or 2 points to 47% of the year's EBITDA earned in the first half, just over half than in the second half. I expect that pattern will bear out again this year. Media is very, very strongly seasonal in the second half, and so that's, part of the driver. Media is not a significant part of the consolidated EBITDA maybe in percentage terms, but almost the entire amount of EBITDA earned by Media comes in the last four to six months of the year. The baseball season and the NHL season, both are heavy second half related. And so, I'm confident that, we will bear out those patterns in the second half. I'm very confident with the guidance we've given. Operator: Thank you. The next question is from Aravinda Galappatthige with Canaccord Genuity. Please go ahead. Aravinda Galappatthige: Good morning. Thanks for taking my questions. Just a clarification on the wireless service revenue growth trajectory. The 3.5% that's possibly still going to be sector leading, given the competitive conditions in the market. But, previously pro forma, you were sort of well north of 5%. I suspect even north of 6%. I was perhaps maybe a little bit surprised by that trajectory sequentially. Even if you look at sort of the sequential numbers, Q2 seasonally normally gets an uptick in terms of wireless service revenues from Q1. Apart from what we already know in terms of sort of the pricing pressures, was there any sort of item that sort of needs to be called out, whether it's roaming or other fees that sort of played a role there? And secondly, just a bigger picture question, longer-term cost reduction, I mean, maybe for Tony, how do you see the prospect of larger sort of cost rationalization in the industry when you sort of think about GenAI, when you think about sort of the broad opportunities in the -- for the telecom sector to manage their margins as you sort of face tighter service revenue conditions, possibly like we see right now? Just wanted your thoughts on that as well. Thanks. Anthony Staffieri: Thank you, Aravinda. On your questions around wireless revenue growth, I'm pleased with the growth we've had. We always look for more. But in a very competitive market, where, I think, we heard significant concerns expressed from the outside, we've held to our plan, we've held to our discipline on pricing, on price discounting, ongoing after market share while still protecting our margins and our revenue growth. We are lapping strong performance in the prior year and still posting good growth this year. You're right. The 4% we posted in Q2 is down sequentially maybe from where we were in Q1 by a point, but we've driven 4% revenue growth and 6% EBITDA growth. I'm -- I wouldn't say satisfied or pleased but certainly those are strong results given the very competitive market that we're operating in. And where we can find opportunities to upgrade customer service plans to move customers up to the premium brand, we are leaning in on those data. Loading continues to grow by roughly 30% year-over-year, and we are, looking to those trends to move customers into higher service plans, moving them into 5G service and what have you. On roaming, those trends really have largely been fully ingested. We will look to try and find some opportunities. Tony mentioned on making roaming more convenient for customers going forward, but I don't expect those to have a material impact on future revenue. Anthony Staffieri: On the second part of your question, Aravinda, on cost reductions, do we continue to see opportunities? And the short answer is absolutely. We will continue to seek efficiency improvements, and the tools that are increasingly becoming available are going to greatly assist. You mentioned AI. We're being very thoughtful and selective about the tools that we will, in most cases, license from larger players that have solutions that are ready to go. And we see that being able to take out a bit of cost, not only in our customer interactions but also in many of our back office and network operations. And those tools are already being implemented with really good early success on it. And the second big part of it is just transacting digitally. As an industry overall, but particularly in Canada, it's probably fair to say that it's still a significant minority of transactions that happen digitally. And we know that consumers and businesses are looking for alternatives that are easier and quicker to transact. And so, as we improve our digital capabilities, our expectation is the customer is going to have a much better experience at a significantly lower cost. And so, we'll continue to invest in those areas. And you'll see that some of it in our CapEx but also in OpEx as we license many of these platforms. And -- but nonetheless, with that, it'll be within the CapEx envelope we have and within our goal to continue to expand margins. So, continued opportunities for sure, Aravinda. Aravinda Galappatthige: Thank you. David Naccarato: Thanks, Aravinda. Galen, we have time for one more question. Operator: Thank you. The final question is from David McFadgen with Cormark Securities. Please go ahead. David McFadgen: Oh, great. Thanks. Thanks for squeezing me in. So, just -- when I look at the Wireless business, your other operating costs in the quarter were down 3% year-over-year. I was just wondering, is there something unusual in the quarter or can we expect this result to continue in future quarters? And then, on the Cable side of the business. We saw an uptick in the video losses. I was just wondering is this a new run rate? And in your written commentary, you called out satellite losses as being a factor which drove the Cable revenue down a little bit. You don't disclose your satellite subs. So I was just wondering, can you -- would you be able to disclose the magnitude of the satellite losses in the quarter and the satellite sub base at the end of Q2? Thanks. Glenn Brandt: Thank you, David. On your question on Wireless and other operating costs being down, we -- again, it's just a general emphasis we have on finding efficiencies and driving out costs. And so, I wouldn't point to any one thing other than we are looking to drive scale efficiencies in Cable and just overall efficiencies across the board in Wireless, Media and head office costs. So, I won't put any more granularity than that to it. And then, within Cable, Satellite, we don't disclose specifics, but it's no secret that Satellite is a mature business. If I were to put any magnitude on it, the negative 2% overall revenue decline you see in Cable, a significant portion of that and over -- a vast overweight portion of that is driven by Satellite. And so, absent Satellite, that negative 2% would have been substantially lower. David McFadgen: And then just on the video losses out of Satellite, it ticked up in the quarter. Is that a new run rate? Just wondering about that. David Naccarato: Thanks, David. And thanks all for joining us on our Q2 call. The IR team will be around if you have any follow-ups. And, Galen, I'll pass it over to you to close out the call. Operator: Thank you. This concludes the question-and-answer session and brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day. David Naccarato: Thank you all.

Earnings call: Ameriprise Financial boasts record revenues of $4.2 billion By Investing.com

Ameriprise Financial (NYSE:AMP (OTC:AMLTF)) has reported robust financial performance in the second quarter of 2024, with record revenues of $4.2 billion and a significant increase in earnings per share (EPS) by 17% to $8.72. The company's assets under management and administration grew by 12% year-over-year to $1.4 trillion. Ameriprise has also demonstrated its commitment to shareholder returns by distributing $693 million in the quarter and planning to return 80% of its operating earnings to shareholders throughout 2024. In conclusion, Ameriprise Financial has delivered a strong performance in Q2 2024, with record revenues and growth in key areas. The company is well-positioned for future growth, with a focus on managing expenses, driving growth, and maintaining strong margins. Despite some challenges, the outlook remains positive as the company continues to innovate and expand, particularly in the APAC region. Ameriprise Financial's (AMP) second quarter of 2024 has been marked by impressive financial achievements, with a notable 17% increase in earnings per share and a significant growth in assets under management. In light of these results, InvestingPro provides valuable insights into the company's financial health and future prospects. InvestingPro Tips indicate that Ameriprise has a history of rewarding shareholders, having raised its dividend for 19 consecutive years and maintaining dividend payments for 20 consecutive years. This consistency reflects the company's stable financial position and commitment to returning value to its investors. Additionally, analysts have revised their earnings upwards for the upcoming period, suggesting that the company's performance may continue on an upward trajectory. From a valuation standpoint, Ameriprise is trading at a low P/E ratio relative to near-term earnings growth, with a P/E ratio of 14.85 and an adjusted P/E ratio for the last twelve months as of Q2 2024 at 14.06. This indicates that the stock may be undervalued considering its earnings potential, which could attract value investors. The company's strong financial foundation is further evidenced by a robust revenue growth of 12.45% for the last twelve months as of Q2 2024, with a gross profit margin of 58.34%, showcasing efficient operations and a solid competitive edge in the financial sector. For readers looking to delve deeper into Ameriprise's financial dynamics and gain additional insights, InvestingPro offers more tips to guide investment decisions. Use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, unlocking access to an additional 10 InvestingPro Tips on Ameriprise Financial at https://www.investing.com/pro/AMP. These tips can provide a more nuanced understanding of the company's long-term performance and market position. Operator: Welcome to the Q2 2024 Earnings Call. My name is Briana, and I will be your operator for today's call. [Operator Instructions] As a reminder, the conference is being recorded. I will now turn the call over to Alicia Charity. Alicia, you may begin. Alicia Charity: Thank you, operator, and good morning. Welcome to Ameriprise Financial's Second Quarter Earnings Call. On the call with me to Jim Cracchiolo, Chairman and CEO, and Walter Berman Chief Financial Officer. Following their remarks, we'd be happy to take questions. Turning to our earnings presentation materials that are available on our website. On Slide 2, you will see a discussion of forward-looking statements. Specifically, during the call, you will hear reference to various non-GAAP financial measures, which we believe provide insight into the company's operations. Reconciliation of non-GAAP numbers to their respective GAAP numbers can be found in today's materials and on our website. Some statements that we make on this call may be forward-looking, reflecting management's expectations about future events and overall operating plans and performance. These forward-looking statements speak only as of today's date and involve a number of risks and uncertainties. A sample list of factors and risks that could cause actual results to be materially different from forward-looking statements can be found in our second quarter 2024 earnings release, our 2023 annual report to shareholders, and our 2023 10-K report. We make no obligation to publicly update or revise these forward-looking statements. On Slide 3, you see our GAAP financial results at the top of the page for the second quarter. Below that, you see our adjusted operating results, which management believes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitates a more meaningful trend analysis. Any of the management makes on the call today will focus on adjusted operating results. And with that, I'll turn it over to Jim. Jim Cracchiolo: Good morning, everyone. As you saw in our release, Ameriprise delivered another strong quarter and first half of the year, continuing our record of delivering strong operating results over many years in operating environments. Looking at the external landscape in the quarter, markets continue to be good with the expectation that there will be a soft landing. While inflation remains sticky, people assume that it's going to come down. However, that could take longer than expected. And there is also the ongoing geopolitical instability and the upcoming U.S. election. So all of this is top of mind for our clients. With that as a backdrop, our second quarter results were excellent. In terms of our operating results, revenues were up 9% from positive business results in markets and in fact, reached a new record of $4.2 billion. Earnings were also excellent with EPS, excluding disclosed severance costs increasing 17% to $8.72. This is also a new high. We also generated free cash flow of 90% and returned another $693 million to shareholders, and our return on equity was nearly 50% and continues to be best-in-class. Our assets under management administration were $1.4 trillion, up 12% year-over-year with good client net inflows and market appreciation. We have also been adept at maintaining a significant investment agenda that is complemented by our strong reengineering discipline for reinvestment. We freed up additional resources, which is why you're seeing some additional severance costs in the quarter that we will benefit from through the year. In fact, G&A was down 2%, excluding those onetime costs. In wealth management, we're building on what we know works, quality engagement centered on advise and delivered through the Ameriprise client experience. Client satisfaction remains excellent at 4.9 out of 5 stars, and we continue to receive important industry accolades. Total client assets in wealth management was strong at $972 billion, up 17%. We're also attracting new clients in the $500,000 to $5 million range. Our most recent research underscores that our premium client value proposition continues to appeal to people who want to work with a trusted advisor and a trusted firm like Ameriprise and advise relationship. For the quarter, total client wrap assets reached $535 billion, an increase of 18%. Wrap flows also grew nicely, up 34% year-over-year to $7.5 billion, and transactional activity was also up, increasing 19% from a year ago. Cash balances though still at a higher level, are beginning to ship back to wrap and other products, which represent a future growth opportunity for us. We continue to provide exceptional support and capabilities for our advisers, both satisfaction and growth remain excellent. Productivity increased another 11% to $968,000 in the quarter. We're focused on leveraging our integrated and effective CRM engagement tools and digital capabilities for client deepening and acquisition to complement in-person interactions. We're also using automation and analytics to drive efficiency, helping advisors enhance personalization based on client needs and identifying new growth opportunities. Our advisor force grew to nearly 10,400 in the quarter. We added another 52 experienced advisers, and we feel good about our pipeline as well as our differentiated value proposition. At Ameriprise, total assets were up year-over-year, and we closed the quarter at $23 billion. Strong contributions from bank earnings drove a nice increase in net investment income. We continue to have good advisor and client interest in lending with notable growth in pledge loan volumes as our advisors engage their clients in our banking solutions. During the quarter, I've spent time with the top 10% of our advisor force at our largest recognition conference. They appreciate what we built together and that Ameriprise is not just another firm or a group of practices, but that we have a supportive and caring culture that helps them have highly successful practices. And our retirement protection businesses are consistent contributor to our positive results. As our advisors provide more advice, they're appropriately incorporating annuity insurance solutions to serve clients' complex needs. We're driving good sales in our targeted areas. For example, structured annuity sales were up 60% from a year ago, and in insurance, VUL sales were up 24%. RPS continues to add nicely to our overall earnings and free cash flow, and we continue to feel very good about our product mix and position. In asset management, clearly, the active industry remains dynamic. Our team remains focused on client needs and generate an attractive investment performance. Total assets under management increased 4% to $642 billion as market appreciation more than offset net outflows. We continue to have good investment performance across asset classes and time periods. Globally, 68% of our funds are above the median for the 3-year period on an asset-weighted basis with nearly 80% for 5 years and 90% for 10 years. We also have 114 4- and 5-star Morningstar-rated funds globally. Turning to flows. Total outflows were $4 billion, improving $1.3 billion from a year ago. Excluding the legacy insurance partner asset transfer, which came through both in retail and institutional channels. In retail, overall, we had improvement in gross sales up $1 billion from last year with a slight improvement in redemptions. Though we're in net outflows, our equity results are outpacing the industry, and we see an opportunity to gain more flows in fixed income. Institutional flows were slightly positive in the quarter, driven primarily from wins in the APAC region. And we're putting additional emphasis on models, SMAs and ETFs are beginning to gain traction. We continue to focus on transforming our global asset management business to gain greater operational efficiencies, leveraging resources and technology globally. You saw that our G&A expenses decreased 6% in the quarter, and we have a number of additional actions underway to further derive benefits throughout the year. In Asset Management, we're maintaining good fee levels and good margins. At Ameriprise, our model and overall firm has enabled us to perform very well over market and environmental cycles. We continue to leverage our global capabilities as well as steadily invest in technology, digital, analytics, AI, products and solutions across our complementary businesses. And in June, we efficiently recognized our 130th anniversary and we're one of a select number of public companies with this legacy of success and performance. Our ROE of 50% is consistently among the best. Ameriprise has been the #1 performer for TSR, among the S&P 500 Financials since our spin-off in 2005 and we continue to deliver excellent returns and returns to shareholders in a significant way. Looking forward, we have the right strategic focus, growth investments, a talented team and a meaningful opportunity to drive greater growth. Now Walter will provide additional color on our financials. Walter? Walter Berman: Thank you, Jim. Adjusted operating EPS grew 17% to $8.72, adjusted for $0.19 of severance expense associated with the company's reengineering initiatives, reflecting earnings growth across all of our businesses. The diversified nature of our businesses drive our consistent financial performance across market cycles and sets us apart from most new financial services industry. Assets under management and administration increased 12% to $1.4 trillion, benefiting from strong client flows over the past year and equity market appreciation. This has resulted in strong 9% revenue growth across our businesses. As you know, we continue to manage expenses tightly to maintain strong margins. G&A expenses were down 2%, excluding severance expenses, demonstrating our continued focus on reengineering and operational transformation. We continue to selectively invest in areas that will drive future business growth, particularly in wealth management. We will maintain our expense discipline in 2024 to achieve growth and shareholder objectives. Our returns remained strong with a consolidated margin of 27.4%, excluding severance expenses and a best-in-class return of equity of 50%. Balance sheet fundamentals, including excess capital and liquidity remain very strong. Our diversified business model benefits from significant and stable 90% free cash flow contribution across all business segments. We returned $693 million of capital to shareholders in the quarter. In 2024, we continue to expect to return 80% of operating earnings to shareholders. On Slide 6, you'll see the strong results from Wealth Management. Client and wrap assets increased 17% and 18%, respectively, from strong net flows and market appreciation over the past year. Wrap flows were strong in the quarter, at $7.5 billion or a 6% annualized flow rate. In the quarter, adjusted operating net revenues increased 13% to $2.6 billion from growth in client assets increased transactional activity and 11% increase in net investment income in the bank. This drove revenue per advisor to a new high of $968,000, up 11% from a year ago. Total cash balances, including third-party money market funds and brokered CDs were $81.9 billion, which was over 8% of clients' assets. As clients remain heavily concentrated in yield-oriented products with highly liquid products like money market funds being more in favor than term products like certificates and brokered CDs. We are beginning to see clients put money back to work and wrap and other products on our platform, and we expect this to continue over time as markets and rates normalize, which creates a significant opportunity. Cash balances, excluding money market funds and brokered CDs, were $40.6 billion driven by normal seasonal tax patterns and the transition of cash related to Comerica (NYSE:CMA) partnership in other products. Underlying cash sweep was stable in the quarter as expected, and that trend continues in July. I want to provide some additional perspective on sweep cash. Our cash sweep is a transaction account for money in motion that is in between investments or for cash to pay fees, which is similar to a bank checking account. Cash sweep is not meant to be an investment option for significant cash balances over extended periods. We have a broad range of higher-yielding products available for clients seeking to hold cash over extended periods, which is where a large portion of the excess cash has gone. As a result, our clients generally have very low cash rebalances, which are now approximately $6,000 on average. At this point, we do not anticipate any changes in our approach to cash sweep. Adjusted operating expenses in the quarter increased 13%, with distribution expenses of 17%, reflecting business growth, including Comerica and increased transactional activity. G&A expenses were flat at $409 million, reflecting investments for business growth, offset by reengineering initiatives. This combination of revenue growth and well-managed expenses resulted in a business sustaining an operating margin of 31%. Turning to Asset Management on Slide 7. Financial results were very strong in the quarter, and we continue to manage the business well through a challenging environment for active Asset Management. Total AUM increased 4% to $642 billion, primarily from higher equity market appreciation, partially offset by net outflows. In the quarter, operating earnings increased 35% to $218 million as a result of equity market appreciation and disciplined expense management, which more than offset the cumulative impact of net outflows and margin was 38%, reflecting strong market appreciation and expense discipline. Adjusted operating expenses decreased 2% with general and administrative expenses down 6% from a year ago, reflecting the benefits from comprehensive expense management initiatives taken to date. We are looking globally, especially in EMEA, to enhance operating efficiency and manage expenses so we are well positioned going forward. Let's turn to Slide 8. Retirement & Protection Solutions continued to deliver good earnings and free cash flow generation, reflecting the high quality of the business that has been built over a long period of time. Pretax adjusted operating earnings in the quarter increased 4% to $196 million, reflecting the benefit from strong markets and higher interest rates, partially offset by higher distribution expenses associated with strong sales levels. Overall, Retirement & Protection Solutions sales improved in the quarter, with protection sales up 21% to $93 million, primarily in higher-margin VUL products Variable annuity sales grew 45% to $1.4 billion, with strong momentum in our structured products. Turning to the balance sheet on Slide 9. Balance sheet fundamentals and free cash flow generation remains strong with growth in excess capital to $1.7 billion. We have diverse sources of dividends from all our businesses enabled by strong underlying fundamentals. This supports our ability to consistently return capital to shareholders and invest for future business growth. In the last year, we returned $2.6 billion of capital to shareholders, including $693 million in the quarter. Ameriprise consistent capital return drives long-term shareholder value. Now let's finish with Slide 10. Ameriprise delivered excellent growth in the second quarter which is a continuation of our long track record across market cycles and our commitment to profitable growth. Over the last 12 months, revenues grew 10%, earnings per share increased 15% and ROE grew 90 basis points, excluding unlocking, and we returned $2.6 billion of capital to shareholders. We had similar growth trends over the past 5 years with $0.07 revenue growth, 16% EPS compounded annual growth, return on equity improvement nearly 13 percentage points, and we returned $11.9 billion of capital to shareholders. These trends are consistent over the longer term as well. Compared to most financial services companies, this differentiated performance across multiple cycles speaks to the complementary nature of our business mix as well as our focus on profitable growth. With that, we'll take your questions. Operator: [Operator Instructions]. Suneet Kamath from Jefferies is online with your first question. Suneet Kamath: I wanted to start with the cash sweep commentary, Walter. So it doesn't sound like you're planning on making any big changes, but I know in the past, you've said that's always subject to the competitive environment. Obviously, we've seen a handful of companies take some actions on their cash sweep rate. So I guess the question is I'm trying to reconcile those 2. Is it that the moves that those peers are making are sort of catching up to you? Or is your sort of client account size different that you're just not experiencing the same need to make those changes? Walter Berman: Okay. And I guess let me start -- as you know, we operate within regulatory and fiduciary standards. I -- and therefore, we feel certainly looking at sweep in its transactional aspect of cash and motion, it's totally appropriate and aligned. I can't really comment on what is -- what's taking place with the wirehouses. I don't understand it. I really -- I think we -- all I know is what we do from that standpoint and all the actions we have taken to ensure that the money is in sweep is really for transactional purposes, and it's at the levels you know that we -- the majority of it is in under 100,000 -- account balances are under $6,000. Our rates are competitive, and we keep the appropriate level of cash that we think is necessary to operate. So that is the focus of us, and we feel very comfortable with that. And obviously, we'll evaluate things as it goes, but we -- looking at what we have today, we think it's totally appropriate. Suneet Kamath: Got it. Okay. And then just another one on the bank. So I think maybe at the fourth quarter call, Walter, you said you expected bank NII would be higher in '24 than '23, which seems to be the case year-to-date. But then you also made a comment about '25. Just wondering if you think that you could continue to see bank NII growth as we move into '25 over '24, and maybe unpack some of the underlying drivers. Walter Berman: As I remember what I said, clearly, '24 over '23, but I still believe it was slow, but yes, but the net interest income should be higher. That statement I think it's still valid. Suneet Kamath: And the drivers there. Walter Berman: Well, the driver is, obviously, we're investing over 6%. And so we feel that as maturities and our short duration, that it will give us that momentum. And we are adding, but we'll obviously be measured, but we're adding. Operator: Ryan Krueger with KBW is on with your next question. Ryan Krueger: First one was just, can you disclose how much of your client cash is specifically held in your wrap advisory accounts? Walter Berman: It's about $12 billion. Ryan Krueger: Got it. Okay. Great. And then I guess another question was just on recruiting. Your experience recruits have slowed down a bit year-to-date. Can you comment on what you're seeing from a competitive environment for hiring experienced advisors? And just kind of any thoughts on why the slowdown, and your expectations for the rest of the year. Jim Cracchiolo: Yes. We sort of, again, a bit of a slowdown as into the second quarter. We can't tell you exactly why it looks like people would stay in put a little bit based on markets, et cetera, and moving into the -- I guess, into the seasonal. We see a good pickup in our pipeline again. And so we think that will improve as we go forward. But other than that, speaking to the team, that's really what they saw. . Operator: Alex Blostein from Goldman Sachs (NYSE:GS). Alexander Blostein: So I wanted to go back to your comments regarding clients starting to put capital to work and money to work. In wrap. we saw those net flows pick up a little bit. Can you talk a little bit about where the cash is coming from? Is it ultimately coming out of the kind of $40 billion, $41 billion balance that currently sits in sweep and your certificates business or is this coming out from other sources kind of like money market funds that sit off balance sheet or outside of the sweep program? And maybe just remind us how much cash ultimately still on the sidelines outside of that $40 billion, $41 billion number. Walter Berman: So the -- if I understand, Alex, your question about -- I think our total cash is about $80 billion to $81 billion. And so therefore, in money markets and in third-party CDs is about $40-some-odd billion. And we are seeing that certainly money is still coming into, I would say -- money markets, they're probably -- money markets and -- but it's and slowed a little on the CD side. And so from that standpoint, there is -- we are seeing less in CDs and there is a shift. People are staying shorter from that standpoint as they're trying to take advantage of the yield curve. That's the trend that we're seeing about now. Alexander Blostein: Got you. I guess what I'm trying to get to is clients rerisk and extend duration and put capital to work, which you capture those economics in your wrap program, which is great. But should we expect that to put any pressure on the $40 billion balance across sort of sweep in your certificates business? Or could that remain fairly stable as money comes out of other forms of kind of cash options? Walter Berman: Good question. We do anticipate because, obviously, from an economic standpoint, that would be beneficial to us. We've had new money go in there. And yes, as it gets redeployed, that would be beneficial, and we think that was -- certainly, will be a source of the repositioning. Alexander Blostein: Okay. Got you. And then a quick follow-up. So G&A really well managed. I think if you look at this quarter, excluding severance, I think you're at like $910 million or something like that for Q2. How should you sort of think about G&A evolving through the rest of the year? And I know you highlighted a number of some kind of savings programs that you continue to sort of find. So maybe any sort of early thoughts on your 2025 G&A outlook would be helpful. Walter Berman: On '25, I can say that we feel certainly we're -- the expenses are being well managed. And certainly, as we reposition and look at our process changes and other efficiencies that we're getting there. So I think I feel confident as we said for '24. '25, we certainly will continue. We're going to be investing in the business. So I would say you should see well-managed expenses, but we are going to be investing for growth. So I think it caught up the way you certainly have seen we've operated in prior years and certainly, especially in '24, it's -- we manage our expenses in a portion to our revenue and manage our margin. Operator: Brennan Hawken with UBS is online with your next question. Brennan Hawken: Curious to drill down a little bit on the $12 billion of sweep within advisory accounts. So do you know what portion of that $12 billion would include Ameriprise as a fiduciary or investment advisor. So a little more specifically, what portion of that $12 billion would be in the employee channel and in any portfolios where Ameriprise with centrally managed or central models where Ameriprise is the advisor. Jim Cracchiolo: A lot of our central models are really run by outside managers, institutional and oversight is there. So -- and again, even in those type of models, it's roughly around 2% or so. And even in our advisor discretion, it's actually less than on the institutional models. So I would probably say as you look at it. Now we haven't broken that out between employee, nonemployee, et cetera, because these models are all run in certain ways. But it is, as Walter said, a very low balance. It's what 2% or so, and there is constant trading activities, fees being pulled, the foreign taxes being paid, things like that. So it's not as though this -- and a lot of the actual cash, if there's any higher balance, whether institutional or otherwise, they are moved into money markets and other short-duration products as well. So that's how we look at it and manage it, and that has been appropriate. We disclosed that very clearly. And from a clients and a legal perspective, we feel very comfortable with what that is. Brennan Hawken: Great. And then you spoke to increased engagement in your banking offering. And we've heard some firms, some competitor firms of yours note that we may be seeing the beginning of improvement in pledge loan growth. So curious whether you're seeing that or perhaps even just early signs of that? Jim Cracchiolo: Yes. So we saw nice increases in our pledge loan as we, again, go through the year. We will be launching another rate one, which we know has been popular out in the industry. So that will be coming on board over the next quarter or so. We've also seen some increase as we started to put some direct CDs and savings programs and for cash to come in externally from that from our clients. Again, we're just starting that up. But no, we think that as we launch these other products in the bank, advisors are looking for them, and we feel like they will, over time, gone or built assets as well as we can then deal with some of the lending activities appropriate. Brennan Hawken: Okay. But no specific pickup in the pledge run yet? Jim Cracchiolo: Yes, we saw a nice pickup. I don't have it in front of me. Do you -- we can get it for you, but we saw a nice pickup in the quarter. Operator: Steven Chubak with Wolfe Research is online with your next question. Steven Chubak: Wanted to ask about the competitive landscape and just net new asset trends more broadly, Rep flows, as you noted, were quite strong in the quarter, certainly an encouraging sign, but consolidated flows were a bit weaker I know on the last quarter's call, you alluded to some irrational actors, just more aggressive pay packages, potentially impacting the pace of organic growth just hoping we can get some sort of mark-to-market any update in terms of what you're seeing on the outlook for moment. Walter Berman: So certainly, as you indicated, wrap was quite strong on the client, they were -- we saw both in certificates and annuities, some lapsing and that impacted it. And our -- we look at our growth rates, and we certainly feel that they're aligned with the industry. So from that standpoint, we are getting traction, we feel comfortable with it. And so we see that trajectory. Basically, we feel comfortable. Jim Cracchiolo: Yes. I mean we looked at -- there was a little bit of a slowing, to your point, in the second quarter overall. And we did look and say, okay, is there any in particular. Outside of the usual activities, people just didn't add as much advisors, I guess, with the market and everything. And very clearly, it looked the same way as we looked at some of the -- across the industry. So it wasn't like we're an outlier. Steven Chubak: That's helpful. And then just for my follow-up on the Asset Management margin, despite the pressure on fees, the operating margins continue to run above target. So certainly encouraging to see I was hoping you could speak to the margin outlook over the next few quarters, whether you believe you can sustainably run above the longer-term target of 31% to 35%, barring any negative or exogenous market shocks. Jim Cracchiolo: Well, as you saw, we're maintaining a consistent stable fee levels. Yes, we had some additional outflows with a very low fee basis. And we are adjusting our model and expense base, leveraging the technology, leveraging our global resources, et cetera, that we continue to do that helps to offset any pressure that we received from a flow basis. Again, barring changes in market conditions, we think that we can maintain sort of a good margin for the business based on what we're doing. We are investing. So we're not cutting from areas that we want to grow in. As I mentioned, we gained flows, even though it's not in the numbers we discussed to you with models, so more money has gone in there. We're starting to gain traction as well in SMAs, which we think will be good and as well in ETFs. And we will be looking as we even pursue some active ETFs as we go forward. So there are things that we are doing. At the same time, we are trying to free up expenses and resources based on the investments we've made and use our resources globally to get more efficiencies. Operator: Wilma Burdis from Raymond James is online with your next question. Wilma Burdis: I know you talked a little bit about the margin, but do you think there's a lot more we on expenses in the segment in Asset Management? Jim Cracchiolo: So yes, we feel like -- as we continue, as you saw, there was additional severance we took in the second quarter. Part of that was in the Asset Management business. And there are continued changes that we're looking to make and improving and tightening the way we operate with our processes and efficiencies and freeing up resources and things that aren't generating the value that we need. And so we are actually pursuing those things as well, and there will be some further adjustments as we move forward. Wilma Burdis: I know you guys don't get asked too much about the insurance business anymore, but the margins seem pretty good there. It seems like you grew a little bit in the quarter. Is that more interesting to grow at this time? Or how are you guys thinking about that? Jim Cracchiolo: Yes. So there's good growth in the insurance and annuities, the structured instrument and the VUL products, which are both very good products for us. And actually, the reason there wasn't more earnings for one is because when you first book that you got the distribution expense upfront that you're -- is the cost. So over time, that increase in volumes will also add to the earnings mix. We also got very good rates now as we reinvested on the investment side and the spreads there. So I think the business will be a good, strong, consistent contributor and a lot of that is free cash flow that we utilize for buyback. So we feel very good. And you also saw in the quarter, again, even in the LTC business that we had nice earnings there as we continue to make adjustments, take rate invest appropriately and invest out. So we're feeling very good about how that will add to the total of the company. Operator: Thomas Gallagher from Evercore ISI is online with your next question. Thomas Gallagher: Walter, just to come back, just a quick 1 on the cash sweep. Based on your answer to Suneet's question, it sounds like you aren't very focused on what the big peers are doing competitively on cash sweep crediting rates. Now to me, that just implies you probably don't really see it as a big issue for Ameriprise, either competitively, regulatory litigation-wise. Is that a fair conclusion? Or maybe you can expand a little more on that? Walter Berman: Okay. So the question is I don't understand what the drivers are. We certainly understand their rates, and it is part of an evaluation that we go through. So that was all you should read into what I was saying. Certainly, we evaluated a competitive element as we look at it. But it is -- I just can't comment on some of the drivers or the elements that are creating what [indiscernible] changes for. Jim Cracchiolo: Yes. And Tom, as we look at it, again, we have very low balance of very low percentage and particularly in the wrap that is there. We do see the money through transactions and fees. You don't want to go where you don't have it or selling a security. At the same time, you're pulling on some of these things or clearing. So we look at institutional accounts, it's the same thing. So we're not exactly sure what the change is from the wirehouse, et cetera. But again, until we know anything different, we feel very comfortable. And from a competitive frame, the same way. I mean, this is not money. We have a lot of different places where our advisors move money to and same thing with models. And the money, if it is positional is in those other type of earning assets rather than we keep it in sweep. Walter Berman: Yes. And 1 proof point, again, which really -- we're under $6,000. And if you look at the industry, there between $10,000 and $15,000. So it plays -- we have just less levels there because it strictly used the cash [indiscernible]. Thomas Gallagher: And you don't see any issues with the new VUL fiduciary standards related to this, nothing on that front that you're focused on? And then just for a follow-up on the RPS segment. I guess 1 thing that strikes me is your NII has been up a lot, particularly year-over-year in that segment. Even quarter-over-quarter, it's up a lot. The -- and Jim, I heard your point about distribution expenses, and that is true. I mean you could see the numbers, those are higher based on better sales. But if you would have told me a year ago that your NII would be up as much as it would, I would have thought the run rate would be a lot higher in that segment right now. So I guess my question is, what is going on with the other kind of components of your P&L in that business? Are you seeing higher mortality or disability claims? Is it the annuity earnings that have been a drag? Maybe just a little bit of perspective on kind of what's really driving the ship here because it -- for the strength in NII, it's a little surprising that we're not seeing more hitting the bottom line. Walter Berman: Well, there's nothing that really out. As you look at it, our disability claims are quite good and actually -- and our insurance claims are within expectations. So there is no end point. So I have to guess we are performing where we thought we would. Let me take that away and to see where you're driving up because I just don't see it at this stage. It's a fair point. So let me take a look at it and see what you're going, and we can get back Okay. How is that? Thomas Gallagher: That would be great. Operator: John Barnidge from Piper Sandler is online with your next question. John Barnidge: You called out the election in your comments. Can you talk about how you're expecting that to impact operations and planning for such can imagine it can impact some asset management product demand, but do you think it has an impact on advisor recruitment or how you think about marketing expense? Jim Cracchiolo: No. Well, I think it's more from a client perspective, right? So clients want to understand a bit better. What does it mean based on who gets in, what policies, how it would affect investments? I think you can hear that even from market funds and speaking in the airwaves. So again, that's always the top of mind triggered by those types of things that they hear. So we provide market strategies. We look at what the implications of changes in policy may be or what type of investment is appropriate, and so that's more of where it is. Now how does that work with advisers. It depends on how clients are. They feel like more comfortable, then they'll put more money to work. And the same thing with the advisor. If they feel a little bit that there will be a change or implications, the hold. I don't -- at this point, I don't see fundamentally anything driving it in a major way. But as you get closer to the election and there's more conversations, I think -- and that's what we usually see before an election. I don't think it fundamentally changes it. But you do see, based on who gets in and whether policy changes, whether there are impacts as far as what people invest what they rotate out of. John Barnidge: My follow-up question. Can you talk about some examples of leveraging the global operational efficiencies for the Asset Management business in the way maybe you were not previously doing so? Jim Cracchiolo: Yes. So when I talk, we've spent a lot of time in energy as an example of integrating the BMO acquisition with Threadneedle, but also putting them on global platforms. that we have. Our global trading platform are ensuring that we have the right attribution across, how we're leveraging research, all those various things. And with that, we feel like we can now move the people and the processes who operate more consistently, get more efficiencies, where we locate the resources, whether we have them in the U.S., we have some in Europe, we have in India, et cetera. So we look at that as well to drive efficiencies. And then with that, we really want to ensure that we are leveraging the technology more fully. And so those are the things that we're doing as we look across sometimes because of the overlaps, like we had a lot of overlaps because of the BMO acquisition with what we had in place. We couldn't really do that until the technology until the legal entities until all of the human resources were dealt with appropriately. And so now there's another opportunity for us to further streamline that and get some further efficiencies from that. Is that helpful to you? Operator: Michael Cyprys from Morgan Stanley (NYSE:MS) is online with your next question. Michael Cyprys: Just wanted to circle back to the cash fee commentary. Just hoping you could clarify for us how and to what extent are advisors compensated on cash sweep balances, and more broadly there, just given some of the industry movements and understand your commentary and views there, but just curious more broadly how you see the scope over time for the way customers pay for services to evolve and potentially over time move away from sweep and that draconian scenario over time plays out where economics and things shift. Just curious how you might be able to continue to capture economics? What are other ways that customers could pay for services? Jim Cracchiolo: Well, again, as I said, wherever you are, you have transactional activity that you want to settle and you want to -- you have to do that timely, right? But you don't want to put people on margin, you don't want to through [indiscernible] out of other securities at the wrong time. So there's always a certain low level of cash. Now what we really do is monitor and if cash is in any account at a larger level, that we really look for it to be moved. And so as you saw, as people move out of some fixed income instruments or where [indiscernible] putting further into the market, they did invest in a lot of cash instruments, money markets, CDs, various other short-term duration fixed. And so we saw that occurring in the reality of it. And actually, the sweep actually went lower rather than increase. And so that's the same thing in all of the wrap and institutional. Now within that, if there is more money sitting in that count, we don't want that cash to be a high balance even if it's invested out because that's not the purpose of the wrap account. But in so doing, if there is positional cash and they're in earning instruments, then the advisors do get paid, et cetera. But again, that's something that's monitored and we feel very comfortable with it. So as far as the future is concerned, there's always adjustments that will occur in pricing and what you would have to do to offset some of the cost of your services that we will constantly look at. But if you're asking in the near term, we feel very good about where that is right now. We're not exactly sure what some of the changes that some people are bringing in about for what reasons. So I'm not sure that was as clear as it maybe to you, but it wasn't to us. Michael Cyprys: Great. And then just a follow-up question on the Asset Management business. I was hoping you could elaborate a bit on some of the wins you referenced in the APAC region. And maybe you can elaborate on that and remind us of your footprint in APAC, and where you see some of the best opportunities there as you look out over the next couple of years just in terms of countries there and strategies. Jim Cracchiolo: Yes. So we mainly -- we have a small wholesaling, working with private banks, et cetera, in the region, but a lot of it is more institutional basis. And it's again, as you would imagine, some of the core products we have, both in Europe, in equities as an example, or in the U.S. and maybe even things like our fixed income, investment-grade various things like that. So we've been gaining some traction there. Same thing, a bit more that we're seeing as potential opportunities in our real estate. So those are the things that we have underway. We recently expanded a little bit in Japan. We're in Korea and places like that, Singapore, Australia. So there are different places where we are getting it mainly from larger institutions from some pension funds, some sovereign wealth, things like that. Operator: We have no further questions at this time. This concludes today's conference. Thank you for participating. You may now disconnect.