Charter Communications (NASDAQ: CHTR) reported a second quarter in line on revenue but beat earnings per share. The gap came almost entirely from an accelerating share repurchase program. The headline numbers tell a story of a business under competitive pressure, with capital allocation doing the heavy lifting for equity holders.
Revenue hit $13.53 billion, a 1.7% decline year-over-year and essentially flat against the $13.51 billion consensus. Adjusted EBITDA fell 4.3% to $5.45 billion; the margin contracted 110 basis points to 40.3%. The beat came on the bottom line: diluted EPS of $10.66 versus estimates of $9.98, a 16.1% increase from the prior year's $9.18. The driver was a 14.4% reduction in diluted shares outstanding, as Charter repurchased 4.0 million shares for $838 million during the quarter.
The core connectivity business is bleeding. Internet customers declined by 172,000, worse than the 116,000 loss in the same quarter last year. Total customer relationships fell by 184,000, accelerating from a 100,000 decline in Q2 2025. Charter is losing the broadband wars to fiber and fixed wireless competitors, and the trend is deteriorating. Residential Internet revenue dropped 3.2% to $5.78 billion, driven by both customer losses and pricing and packaging mix.
Mobile, as it has been for several quarters, provided the offset. Spectrum Mobile added 406,000 lines, bringing total lines to 12.5 million, up 15.5% year-over-year. Mobile service revenue grew 18.9% to $1.1 billion. But the mobile business operates at much lower ARPU than broadband. Its revenue contribution ($1.1B) is still a fraction of what's being lost in video ($3.15B, down 9.7%) and Internet. The mix shift from high-margin connectivity to lower-margin mobile is a structural headwind to EBITDA margin that the buyback can't fix.
Video losses moderated significantly. Only 21,000 customers left versus 80,000 a year ago. The company credited simplified pricing and the inclusion of streaming apps in its basic packages. The video revenue decline of 9.7% tells a different story. $251 million in costs allocated to programmer streaming applications were netted within video revenue, up from $67 million a year ago. That's a $184 million accounting shift that depresses reported revenue without changing the underlying cash flow. Excluding that and advertising, total revenue declined 0.8%, a more modest but still negative number.
Capital allocation defined the quarter. Beyond the $838 million in buybacks, Charter repurchased $1.2 billion in aggregate principal amount of its own debt for $1.0 billion in cash, booking a gain on extinguishment that boosted net income. The company reiterated full-year 2026 capex guidance of approximately $11.4 billion, with $2.9 billion spent in Q2. Free cash flow fell 7.4% to $969 million, pressured by an unfavorable change in accrued expenses related to capital expenditures.
The buyback pace looks aggressive relative to the underlying business trajectory. Charter spent $838 million on repurchases in a quarter where free cash flow was $969 million, a payout ratio of 86%. With revenue declining, EBITDA contracting, and the core broadband franchise losing customers, the company is effectively borrowing from its balance sheet to manufacture EPS growth. The debt repurchases at a discount provide a one-time gain, but that's not repeatable.
What to watch next quarter is whether Internet customer losses stabilize. The company's network evolution initiative, which will deliver symmetrical multi-gigabit speeds across its footprint, is not expected to complete until 2027. Until then, Charter is fighting a defensive battle against fiber overbuilders and fixed wireless providers with a product increasingly perceived as inferior. Mobile provides growth, but at lower margins. The buyback provides EPS support, but at the cost of financial flexibility. This quarter's print suggests management is betting the company can buy its way through the competitive cycle. That bet is working for now, but the operating trends are moving in the wrong direction.