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spk09: Ladies and gentlemen, thank you for standing by. Welcome to the Liberty Broadband 2020 Year-End Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press star 1 on your telephone. As a reminder, this conference is being recorded February 26th. I would now like to turn the conference over to Courtney Chun, Chief Portfolio Officer. Please go ahead.
spk10: Thank you and good morning. Before we begin, we'd like to remind everyone that this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events and results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent Form 10-K filed with the SEC. These forward-looking statements speak only as to the date of this call, and Liberty Broadband and Liberty TripAdvisor expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Liberty Broadband or Liberty Trip Advisors' expectations with regard thereto, or any change in events, conditions, or circumstances on which any such statement is based. On today's call, we will discuss certain non-GAAP financial measures for Liberty Broadband, including adjusted OIDDA and adjusted OIDDA margins, information regarding the comparable GAAP metrics along with required definitions and reconciliations, including preliminary note and Schedules 1 and 2, can be found in the earnings press release issued today, which is available on Liberty Broadband's website. Now I'd like to turn the call over to Greg Maffei, Liberty President and CEO.
spk05: Thank you, Courtney, and good morning to all of our listeners. Today speaking on the call, we will also have Liberty Broadband's Chief Accounting Officer and Principal Financial Officer, Brian Wendling. Also during Q&A, we will be available to answer questions related to Liberty Trip Advisor, Ron Duncan, CEO of GCI and Pete Pounds, CFO of GCI, will also be available to answer questions. Let me start by talking about Liberty Broadband itself. On December 18th, earlier than expected, we completed the acquisition of GCI Liberty. During the period of November 1st to January 31st, we repurchased 1.9 million shares of Liberty Broadband for $293 million. 1.8 million of the repurchases were completed after the December shareholder vote for the GCI Liberty merger. Since then, we've spent about $272 million on repurchases at an average price of about $155 a share. While you may note the average repurchase price on LBRD over this period is higher than yesterday's close, they represent an attractive look-through price to charter of $528 per share versus yesterday's close at $602. and we remain long-term bullish. In the first quarter, we exceeded our 26% ownership cap in Charter and expect to sell into their buyback beginning in March and do so going forward on a monthly basis. Based on Charter's historic buyback cadence, we expect our share sales to Charter to generate cash well north of $2 billion for Liberty Broadband this year with about a 5.5% tax leakage. Our plan is to use this capital plus the ample liquidity we have on hand already at Broadband to attack the discount at Liberty Broadband and take advantage of it. With this in mind, our board has increased the repurchase authorization at Liberty Broadband to approximately $2.5 billion. Looking at charter, in 2020, Broadband affirmed its place as one of the most important consumer and business services and Charter added more broadband subscribers in the first half of 2020 than in any calendar year since the Time Warner merger. With operational efficiencies through increased self-installation, self-service platforms, and online digital sales, the combination of these, combined with the continuing mix shift to broadband, resulted in full-year 2020 cable dividend margins exceeding 40% for the first time in the company's history. We had a small number of video subscribers in 20, a lone star in the current MVBP market. Mobile is also an exciting growth business for Charter with improving economics. Charter added 1.3 million lines during 2020 and is the fastest growing wireless provider in its footprint. In fact, in several quarters, we were the fastest growing wireless player in the nation. Free cash flow at Charter increased 50% for the year, and Charter repurchased over $12 billion of stock. All in all, pretty good. Finally, let's turn to Liberty TripAdvisor. TripAdvisor is well-positioned for what we believe is the pent-up travel demand that continues to grow. To keep some of our investors stuck in colder climates thinking about the right things, check out the best speeches of 2021 Trip announced this week. It's led by Whitehaven Beach in Australia and Santa Maria Beach in Cuba. Perhaps you'll soon be there. Cost controls taken at TRIP in 2020 have enabled operating leverage as revenue returns. We're also excited about TRIP Advisor Plus, the first of its kind direct-to-consumer subscription offering in the travel space. Currently in beta, we expect to roll it out in the U.S. in the first half of 2021. It provides travelers with compelling value through deals on hotels and experiences, as well as giving access to perks and benefits, and this is just the beginning. Over time, we envision adding more services and more benefits and VIP amenities, in-destination travel benefits, airline perks, et cetera. The addressable market for TripAdvisor Plus is enormous. We continue to have over 400 million monthly unique visitors to TripAdvisor in 2019 and we're converting even a small percentage of that traffic implies a meaningful long-term growth opportunity and recurring revenue stream for TRIP. And with that, let me turn it over to Brian to talk about the financials. Thanks, Greg. At quarter end, Liberty Broadband had consolidated cash and cash equivalents of $1.4 billion, which includes $32 million of cash at GCI. After year end, GCI received $174 million in payments from the government. relating to RAC funding years 18 and 19. These payments allowed GCI to pay down their line of credit by $180 million subsequent to year end. The value of our charter investment at Liberty Broadband as of yesterday's close was $36 billion. At quarter end, Liberty Broadband had a total principal amount of debt of $4.8 billion. Including the impact of the $180 million pay down on GCI's line of credit subsequent to quarter end, Liberty Broadband had principal amount of debt of $4.6 billion. GCI's leverage is defined in its credit agreement as 3.5 times. A meaningful delevering from year-end 2019 when GCI's leverage was 5.1 times. GCI has substantial cushion under its maximum leverage covenant of 6.5 times. Liberty Broadband has $300 million of undrawn margin loan capacity, and GCI has approximately $420 million of undrawn borrowing capacity on its line of credit following the paydown. These amounts exclude the indemnification obligation and preferred stock. Now just a quick update on GCI. 2020 was a great year for the company. For the full year, revenue grew 9% and adjusted OIBIT grew 34% to $345 million. The company's highest ever adjusted OIBIT is driven by data demand and lower costs associated with reduced bad debt and health care expenses, combined with previous cost-saving initiatives. We also had $15 million of one-time items favorably impacting revenue for the year. The impact for the quarter was $6 million. There was additional discussion of GCI's results in our 10-K that will be filed later today. Fourth quarter experienced 12% revenue growth and 20% adjusted weather growth. Operationally, they added nearly 14,000 cable modem subscribers and built out Alaska's first 5G network in Anchorage. Strategically, they sold the broadcast TV business and reduced their time and materials business to focus on their core competitive advantage, the Alaska network, that had a favorable impact to overall margins. While there was definitely some favorable macro trends impacting the strength of the 2020 number, there was solid performance by the team from top to bottom that generated those results in the midst of truly trying times. On RHC matters, we are currently working with the SEC on rates and payments for the funding year ending June 21. In more positive news, we received a new order from the SEC in January that gives rate certainty to Alaska providers for funding years ending in June 22 and 23. We expect to have a shorter period between service delivery and cash collection going forward. With that, I'll turn the call back over to Greg. Thanks, Brian, and thank you to our listening audience for your continued interest in Liberty Broadband and Liberty Trip Advisor. Operator, with that, I'd like to open the floor for questions.
spk09: Thank you. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, Please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll go first to Michael Collins with Citi.
spk08: Hi. Good morning. I'm curious on Liberty Broadband. As you think about the assets in Liberty Broadband going forward, and you referenced the look-to price to charter earlier in the discussion, do you expect Liberty Broadband to just keep the assets it has and can stay fairly simple, or are you on the hunt for other assets or investments to place into Liberty Broadband?
spk05: Thank you for the question. Look, the easy money here in terms of what to do with the capital we receive from not only the capital on our balance sheet, but the capital we will receive from the repurchase that charter makes and the payments we get is to take advantage of the basically 10% to 15% differential between the after-tax proceeds we get and the discount to charter that we have. That's the obvious place to put our capital. Now, to the degree we become more uncertain about the charter buyback, effectively, we can decide at what pace we want to be a part of the charter buyback by holding the cash and doing something different. But that's where, given our belief in charter and given the discount, that's what's attractive. Today, prices in the market in general are pretty full for other kinds of assets. If the world changes, we might change our view, but that's where we stand today.
spk08: And earlier last year, you talked, I believe, about being in discussions with Charter around how to handle this cap as you were approaching it. Can you share any thoughts of what you learned from that discussion, why they decided to enforce the cap versus maybe just letting you hold on to the shares that you have? And is this a final decision, or is it possible that in the future that the structure and the agreement might be revisited?
spk05: We did have discussions with an independent committee of the board of charter about increasing the cap, and frankly, the proposals that were put forward by them to Liberty Broadband, we didn't find as attractive as the alternative just for purchasing our shares. Can't say that we won't revisit that. Don't know what will come in the future, but at the moment, we'll look at the alternatives of what was presented to us versus, as I said, the opportunity to get cash back, pay a 5.5% tax rate, and buy the stock back of Liberty Broadband, which has been running at about an 18.5% discount to charter, and thought that was a pretty attractive alternative.
spk08: Thanks very much.
spk09: So the next two, James Ratcliffe with Evercore ISI.
spk08: On GCI, the wireline zero decision you mentioned, should we be looking at 4Q as pretty much normalized when it comes to RHC funding slash pricing going forward? And secondly, on L-TRIP, talking about discounts, it's blown out recently. The high 30s are thereabouts. Are there any tools available to take advantage of that? Any possible ways for capital to buy back, et cetera? Thanks.
spk05: So I'll let, do you want to comment on the GC-RHC matters?
spk10: Either Brian or... Okay, so should we start it over?
spk05: Operator, we seem to have some feedback on the line there. Thank you. Brian, do you want to comment on RHC or Pete or Ron had anything? Yeah, just on the one-time items, there was one settlement for $6 million that came through in the fourth quarter. Otherwise, you know, the results for the fourth quarter are pretty much normalized. I don't know, Pete, if there's anything you'd want to add on that.
spk04: No, that's it, Brian. Particularly nothing unusual with RHC that impacted the income statement there.
spk05: On Liberty Trip and the discount, you know, it's a funny thing. It's highly volatile, and if you look at the B price and you combine the Bs and the A price, it's not clear it's as big a discount. Now, how much float and liquidity there is in the Bs, I'll acknowledge that's a hard number to look at. There is not a ton of excess liquidity to L-TRIP today, but we continue to think about ways to take advantage of any discounts we see when we see them. Great.
spk08: Thank you.
spk09: Next to Bentley Cross with TD Securities.
spk07: Two minor housekeeping questions. One, what's the right corporate overhead drag to think about now of the combined company? And then secondly, can you just flesh out what the advertising impact was for GCI in the quarter?
spk05: Can you repeat the first question? I didn't hear you.
spk07: What's the right corporate overhead drag to think about now of the combined company?
spk05: Give us one sec, Brian. You want to answer that? Sure, yeah. You know, I think it's slightly elevated in Q4 2020, as you see in the release, of $7.3 million. So I would back off that a little bit without giving specific guidance, but that could be an approximation to annualize to reduce that down a bit.
spk01: Thank you, Brian. Go ahead.
spk05: Maybe repeat the second question just to make sure we all heard it as well.
spk07: Can you discuss the advertising impact for GCI and political advertising in the quarter?
spk05: Ron or Pete, do you guys want to take a cut at that?
spk02: Yeah, I'll go ahead.
spk04: Yeah, after the sale of the broadcast business, we've got relatively de minimis cable advertising revenue that goes on our cable TV programming there. And due to the political advertising, we got about a $3 million bump over and above what I would consider to be relatively de minimis revenue streams there.
spk07: Thank you.
spk09: We'll go next to Matthew Harrigan with Benchmark.
spk01: Thank you. Firstly, probably gets lost among Liberty's myriad earnings releases this morning, but the FCC just approved $50 broadband subsidies for lower-income homes, and it's actually $75 in tribal areas. Is that enough to tweak the 21 results for GCI up in Alaska, given the material native population there? And then secondly, I guess much more prominently in the news, the C-band auction, you know, 107 results, Comcast and Charter were not winners. Not surprising, I guess, given those prices. Is that, I know you may have been somewhat coy in framing your answer, but could there be some indication there that you might be more amenable to Charter or Comcast? Maybe you can't say definitively on actions, but would it make more sense to work with Verizon in terms of deepening the relationship on the small self? side, given the advantages for 5G. I know I've pressured you on that before, but lots of moving pieces here with the auction results. Thank you.
spk05: So, Pete or Ron, do you guys want to talk about the potential impact in tribal areas of a $75 subsidy and the meaning of the GCI?
spk00: I'll take a quick cut at that. GCI is already a substantial lifeline provider on the voice side, and we have programs set up that we believe will be well positioned to morph fairly quickly into the broadband subsidy. As Greg implied there, all of Alaska is a tribal area, so the $75 subsidy applies statewide. So there's some upside to that, I believe, for GCI, but I think you also have to look at the fact that our broadband penetration is also exceedingly high, even more so after the pandemic effects from last year. So the upside is probably limited, although it will probably have a positive effect on further driving down the bad debt and supporting the income stream. Thank you.
spk05: And as far as the C-band auctions and charter, I think Liberty, like many observers, was stunned by the prices. Obviously, you're looking at sort of the mid-90s, the high $90 billion when you include the cost of clearing the spectrum. And some of the amounts that each of the larger carriers, particularly Verizon, but also T, paid were big numbers. I look and think our CBRS alternative that we did participate in, we spent about $500 million a charter at the CBRS auction, is very attractive with a cost per pop basis of something like a seventh of the price or something like that. The other... point I'd make is we are really beneficiaries because of our recently renewed MB&O relationship with Verizon, where we're going to get the benefits of whatever spending they have and they do there in terms of the MB&O we get. We get the latest and greatest that Verizon has. So I think it's a win all the way around for Charter, to be perfectly honest, which is we get owner economics where we choose in CBRS at a fraction of the price And we get rental economics on their upgraded network with a continuing downward stream based on what their retail prices are. And probably, frankly, stapling as much debt on some of those larger companies is probably going to cause them to look less bigger at certain alternatives they might do to participate in some of the markets we're in. So I consider it a pretty good result for Charter.
spk01: But specifically as far as advances you have on the small cell side of the towering and the access and all that, is that still something that's a moving target? I know Comcast is historically reluctant to let Verizon mess with their network to any extent, and I'm sure Charter's head is probably in the same place. But I take it that with the new agreement, that wasn't something that was specifically contemplated, or is that just something that could work out in the future, or is that just off the table for a while?
spk05: I think it's the point you make. You know, we haven't rolled that out yet, our CBRS. We haven't really rolled out our owner economics anywhere yet. But down the road, one could imagine, you know, providing access to our network as well. You know, we certainly do provide other places where we provide backhaul and the like for plenty of the larger mobile carriers. So I don't know why it's the last mile capacity as well.
spk01: Thanks, Greg.
spk09: We'll go next to Michael Beamer with TLC Capital.
spk06: Yes, good morning. I have a couple of questions. Looking at charter, it looks to me that with 53.3 million homes passed, their penetration roughly is about 58%, and the average monthly bill is around $111. What are you thinking in terms of the opportunity for the total penetration? And also, what do you think is the purchasing ability to fund the spending on cable relative to the average rent, which is approximately $900 to $1,000 a month across the U.S.? How are you thinking about that? And when you discuss that, please touch on the price increase that was announced at the end of last year by Charter. did it go through, and what are your thoughts about inflation? Sorry, I know it's a lot, but I really appreciate your thoughts on this.
spk05: Yeah, I'm also going to write the final chapter of the Bible when we're done here. But look, I think if you ask Tom Rutledge, he would believe that ultimately we're going to have two-thirds of the – we'll grow our share up to two-thirds of the market or perhaps even more over time because we have the best network and in large parts of our market where we can provide better customer service at a relatively low cost to upgrade and that we really are well positioned. In general, yes, charter has taken some price increases and it really is hard to say because it's by plan where it rolls out across the nation. It's not a uniform, we turn the switch and everything goes up 3%. It really is you know, when the customer's contract is and what kind of plan they're under and what new plans we offered. In general, if you look at most analyses that I've seen, Charter has not been a price taker. We have been a share taker. And I think the management team at Charter has done a great job of doing that where we've gained share largely faster than anyone else among the big cable players. And view price as something that perhaps is available down the road. but not something we need to work on today. We've got a better offering at a lower price and continue to take share and leave that volume, rather that price dial, rather than the volume dial, less turned than some of the others in the market. As far as where it can go, we'll see. As you increasingly look in a world where people are going to have remote alternatives, whether it be for businesses or personal use, You will see increased demand for broadband and the value of the service is likely to rise. I don't have a number in my head of how it – I've never really looked at or thought about it against average rents, particularly because in a lot of cases people own their homes. It's not a rental property. Or we have businesses, small businesses. So I don't necessarily think about it against rents. But I do think the product, as I started out, has shown increasing demand. Broadband has shown increasing value to consumers and businesses alike in 2020, and I don't expect that to dissipate much in the years ahead.
spk06: Can I just follow up with something else? Sure. The recent success of the Liberty Media Acquisition Corp., clearly you have access capital in Liberty Broadband and the free cash flow from the repurchase process. is going to obviously create a high-class problem for you. How are you thinking, not just at Liberty Broadband, but across your companies? How do you think about the conflict of interest and attempting to essentially treat every shareholder properly because Liberty Media is its own entity?
spk05: Yeah, so a couple things. I think I talked about the first and primary opportunity we're pursuing today at Liberty Broadband, you know, and given prices in the market and given the opportunity we see in front of us, that looks pretty attractive. And our belief in the underlying value of Charter, as Charter continues to shrink its equity, grow its cash flow, grow its revenue, grow its dividends. So we're pretty enthused about that. Now, each of the companies that has been spun from Liberty Media has specifically waived their conflict of interest. And in fact, we've been at this a long time and really haven't seen a lot of cases where that's been an issue. You know, If we see something in e-commerce, that's probably likely to go into Curate. If we see something around motorsports, that's probably likely to go into Formula One. And if we see something around music, that's probably likely to go into Liberty Siri. There just seem to be natural homes. Now, in the case of the SPAC, Liberty Media did not waive its conflicts, so any opportunities that the SPAC sees will first be offered to Liberty Media. We created a position where John Malone is effectively not in the Liberty Media acquisition management team, and he will be the one who gets to decide whether, excuse me, not in the LMAAC management team, and he'll be the one to decide whether it goes in Liberty Media. But I think it's unlikely we're really going to see that as a practical matter because, you know, again, if we see something in motorsports, unless it's too large a scale, it's likely to be Formula One. If we see something that doesn't fit particularly well, It may very well be in the SPAC. So, you know, we've had this conflict in effect for years. We've never really had an issue with shareholders about it because I think we try to be transparent and explain our motives. And in general, we try to create pure plays among the entities we have and not have them diversify unless there was a really good reason. And in fact, one of the reasons we created this SPAC was to look at those diverse alternatives that may not fit so well as the portfolio we have today.
spk06: Thank you, and thank you to the team at GCI. You've done an amazing job, and we've been long-term shareholders and plan to continue to be long-term shareholders. Thank you.
spk09: Our last question comes from Mike Caron with Pruitt.
spk03: Hey, thanks for taking my question. I have two quick ones. One, it looks like GCI moved some video subs from the business segment to the consumer segment. I was just wondering if that is correct, and that explains some of the change in revenue. My second question has to do with the transfer of the GCI subsidiary that holds the charter shares up to the parent. Can you give us more color on the reasoning and the implications for that change in the org structure?
spk05: I'll take the second one. As often is the case at Liberty, it was tax motivated, and that was our primary goal. And I'll let Pete, do you want to comment on any or Brian, you want to comment on any changes in the video sub allocation or positioning? Yeah, I'll go to that.
spk04: Yeah. So when we sold the broadcast TV business, we elected to change the unit that took the revenue. It used to go into the GCI business revenue stream because broadcast we viewed as a bit more of a business play. Without the broadcast, it's just the video advertising revenue, and that seemed to follow more with the consumer revenue stream. So that's why, Michael, it moved from the business to the residential, and it's just the advertising revenue. Thank you.
spk05: Thank you. I think that's our last question. Thanks to the management teams, thanks to our employees, and thanks to all our listeners for their interest. In Liberty Broadband and Liberty Trip Advisor, we hope to speak with you next quarter, if not sooner.
spk09: This does conclude today's conference. We thank you for your participation.
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